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HomeMy WebLinkAboutCC Minutes - 04/16/08 Work SessionM I N U T E S Eugene City Council Work Session McNutt Room – City Hall 777 Pearl Street—Eugene, Oregon April 16, 2008 Noon COUNCILORS PRESENT: Andrea Ortiz, Chris Pryor, Betty Taylor, Bonny Bettman, Mike Clark, Alan Zelenka, Jennifer Solomon. COUNCILORS ABSENT: George Poling. Her Honor Mayor Kitty Piercy called the work session of the Eugene City Council to order. A. WORK SESSION: Beam Development Proposal City Manager Jon Ruiz introduced Denny Braud, senior development analyst for the Planning and Development Department (PDD), and asked him to review the information. Mr. Braud provided an overview of the Beam Development Proposal with the aid of power points. He stated that currently the project was in its due diligence period, scheduled to be completed by May 8. He said Beam Development was in negotiations with a variety of potential tenants, including the Oregon Research Institute (ORI). He noted that ORI would be a significant tenant. He reported that Beam planned to build a five-story building on the vacant lot, with parking underneath. He said Beam had indicated that a commitment from a potential tenant would be necessary for the building to go forward. He added that Beam intended to refurbish the Centre Court building prior to construction of the new building. Mr. Braud reported that the Eugene Redevelopment Advisory Committee (ERAC) had reviewed the pro forma for the project, which included cost estimates. He said Beam continued to refine its construction cost estimates. He related that the ERAC had expressed concern that the construction costs in the pro forma seemed low. He noted that the projection that the building would rent for $2 per square foot for retail was considered to be an aggressive assumption. Mr. Braud reviewed the proposed Urban Renewal Agency (URA) terms. He commented that the profit margin projection appeared to be small even with aggressive assumptions in regard to revenue. He stated that Beam was not willing to make a financial commitment prior to May 8. Mr. Braud summarized three options for the council to consider: 1. The URA would purchase the property and sell it to Beam and assist with the financing of the project. 2. The City would attempt to renegotiate the purchase option timeline and would assign the purchase options to Beam. MINUTES—Eugene City Council April 16, 2008 Page 1 Work Session 3. The URA would decide during its due diligence period not to acquire the properties. Mayor Piercy asked if a meeting with Connor/Woolley had been set up regarding the properties. Mr. Braud replied that initial discussions had occurred. He said the City had extended a request for additional time. Ms. Bettman opined that all three options seemed to indicate the project was not workable. She felt it was “contingent on the contingencies.” She thought a modified Option 1 might work. She called Option 2 a “poison pill.” She said the City should buy the property by July 1. She averred that the City had the resources to go out for another Request for Proposals (RFP) if necessary. She believed it was an attractive project and another developer would undertake it if Beam could not. She also did not see a reason why the project money needed to include Department of Housing and Urban Development (HUD) money. She stated that there was $2 million in the Brownfield Economic Development Initiative (BEDI) assets and $4 million in URA assets. She believed the City could secure the loan with the other assets in order to pursue the HUD money. She recalled that originally the HUD money was only slated to be spent on acquisition and said it could still be used for that. Mr. Braud stated that the BEDI grant had to be used with the Section 108 guaranteed loan money. He said they were negotiating with the goal of having Beam make a $475,000 deposit by May 8. He related that with that deposit the City intended to move forward with the purchase of the property. He explained that the problem arose when it became apparent that Beam was unwilling to make the deposit at this time. Ms. Taylor asked who made the recommendation in Option 2. Assistant City Manager Angel Jones responded that the options before the council had been developed prior to Mr. Ruiz’ arrival as City Manager. Ms. Taylor felt the City should purchase the property if necessary. She opined that the project provided the most promise for the downtown area. She disagreed with people who were concerned that spending money on this project would preclude spending on another project, adding that the City should focus on doing the Beam project right. Ms. Taylor asked how much the City was helping ORI to decide on taking up tenancy in the Beam building. Mr. Braud replied that the City would extend as much assistance to Beam as it could to help garner ORI for a tenant. He noted that Beam had the ability to pass on benefits, such as low-cost financing. Susan Muir, Executive Director of PDD, stated that she was meeting with the director of ORI regarding their decision-making process as they looked at a number of sites in the downtown area. She reiterated staff’s willingness to do what was necessary. In response to a follow-up question from Ms. Taylor, Mr. Braud stated that the option agreement would be extended with the recommended motion. He noted that the City had paid additional option money when extending options in the past. Ms. Taylor reiterated her support for doing whatever it took to helping Beam succeed, even if that included purchasing the property. She was not in favor of the motion as stated. In response to a question from Mr. Clark, Mr. Braud explained that the $19 million listed in the Agenda Item Summary (AIS) included the Washburne Building. MINUTES—Eugene City Council April 16, 2008 Page 2 Work Session Mr. Clark asked if the preliminary work, such as an environmental assessment, had begun. Mr. Braud affirmed that there had been an environmental assessment of the Centre Court Building and Beam had undertaken some work on asbestos in the building. In response to a follow-up question from Mr. Clark, Mr. Braud confirmed that Beam would be taking a another look at the building prior to making a commitment to buy it. Mr. Clark asked what was known about asbestos levels in the building. Mr. Braud replied that it was assumed asbestos was in the building, but Beam would need to conduct its own asbestos investigation. He added that the City was working under the assumption that the purchase option had been assigned to the purchaser. Mr. Clark asked for information regarding asbestos levels. Mr. Braud responded that he did not have the information but would try to find it for Mr. Clark. Mr. Clark asked who else was “courting” ORI. Ms. Muir replied that she was not sure the City was aware of all of the offers on the table for them and she was also not sure they should speak to that. In response to a follow-up question from Mr. Clark, Ms. Muir said the City was not actively helping anyone else. Mr. Clark wondered how tying up all of the URA money in the Beam project would affect the RFP that was out for the property across from the public library. Mr. Braud replied that it was not yet known what the proposals would look like. He said given the City’s prior experience he would anticipate that the City would have to participate in the project to a certain extent. He added that the “numbers were challenging downtown.” Mr. Clark asked if it was possible that the City could find itself in a bind if it applied all of the funding to the Beam project. Mr. Braud responded that there were a lot of contingencies in the Beam project. He thought it possible that if the City purchased the property, and Beam backed out, the City would have a substantial investment there and would have to initiate another RFP process for another project. Mr. Clark was troubled by this. He was aware of several potential RFPs for the property across from the library. He was concerned that the City would find itself in a position of owning a “$3 million hole in the th ground” with no plan to fill it and hampering the ability to develop the 10 Avenue site. Mr. Clark noted that the AIS indicated that the City was counting on Beam bringing $4 million in equity and asked where this would come from. Mr. Braud responded that it was comprised of a combination of cash and deferred developer fees. Mr. Zelenka supported the project. He recalled that he had pushed for Beam to be involved in this based on the Beam projects he had toured in Portland. He observed that a majority of the obstacles to the develop- ment were on the Beam side of things. He did not want to own the properties without there being a good chance that Beam would move forward. He underscored that at present, the City did not have a project, and neither did Beam. He felt that given time Beam could resolve its uncertainties. He asked if they would be willing to pay for an extension. Mike Sullivan, division manager for the PDD Community Development Division, responded that at present it was not known how much the extension would cost. He said the history on such options was that changes in terms cost an investment in cash. He related that the City had started a discussion with Beam and asked them to indicate under which conditions they would bring money MINUTES—Eugene City Council April 16, 2008 Page 3 Work Session to the table. He stated that until there was a clear picture from the seller regarding what might be involved it would be difficult to return to Beam. Mr. Zelenka asked if Beam had another tenant in mind. He understood that ORI was currently a tenant in another Connor/Woolley building. Mr. Braud replied that Beam was talking to other tenants, but none that were on the scale of ORI. Mr. Pryor saw this as a conflict between the City’s willingness to take risks versus its desire to take control of this site. He questioned how much the City was willing to pay for certainty and if it was willing to take on the risk. He surmised that staff was informing the council about the risks involved with the money, because it was public money. He averred that as policy makers they could choose to decide how much risk to take with that money. He commented that he did not want to walk away but he also did not want to risk the public’s money without anything on the table. He felt that Option 2 was far less risky than Option 1. He was concerned about the project, but he could not bring himself to take too much risk with public money. He averred that the public expected the council to be prudent with their money. th Ms. Bettman declared that the RFP on the 10 Avenue and Charnelton Street site would be threatened if the Centre Court project failed. She felt Option 2 would put the fate of the project in the hands of Con- nor/Woolley. She alleged that Connor/Woolley was “courting” ORI by lowering its rent. She agreed that Option 1 needed help, but she believed they should try to move it forward. She asserted that the City could remedy some of the uncertainties. She suggested that the City propose that it was willing to purchase the project by July 8 if Beam Development was willing to put down $475,000 on the property by May 1. Mr. Sullivan said staff had not offered this type of option to Beam because they were working within the council-authorized options. He related that to-date Beam had indicated it was not willing to put the resources forward. Ms. Bettman believed the City would be well-positioned with a non-refundable deposit and the promise of a purchase. Mr. Clark echoed a desire to bring the project to fruition. He also felt the developer’s track record was good and staff had done a great job in working with Beam. His chief concerns lay in potential liabilities, such as a level 2 environmental study revealing more asbestos than had been previously supposed and/or Beam pulling out. He said in this case the City would have purchased a hole in the ground, with no way to fill it, and a building with asbestos. In response to a question from Mr. Clark, Mr. Braud stated that it was not likely that Beam would qualify for $17 million in financing from the bank without a firm commitment from tenants. Mr. Clark noted that he had office space one block from this building that cost approximately $1 per square foot. He was not certain the assumptions of $1.60 and $2 per square foot were realistic. He felt any banker would look at this and ask the same questions. He noted that the positive income margins on the Beam plan were small. He had extrapolated from the recent election that the citizens wanted the councilors to make sensible decisions. He asked if the AIS was accurate regarding a guarantee of a 13 percent profit. Mr. Braud responded that a portion of the BEDI grant would be put into the project as a loan but that portion of the financing would only be repaid if Beam achieved a targeted return of 13 percent. He noted that this was similar to what had been done with other projects. MINUTES—Eugene City Council April 16, 2008 Page 4 Work Session Mr. Clark surmised that the City was saying if market conditions did not work out the City was willing to “take a hit.” In response to a question from Mr. Clark, Mr. Braud affirmed that Beam had not met its milestones, such as attaining financing and commitments from potential tenants. Mr. Clark asked what would give the City confidence that more time would provide the opportunity to meet its milestones in the future. Mr. Braud replied that staff had worked with Beam on this particular recommendation. He said they had agreed with Beam that its best opportunity would be to allow the company more time to go through the approval process with the bank. He added that while there was no guarantee, this represented the best opportunity for Beam to succeed in staff’s opinion. th Mr. Zelenka remarked that he would be “shocked” if any development occurred at the 10 Avenue and Charnelton Street site without a subsidy. He ascertained from Ms. Jones that Beam Development had asked for an extension. He said if he thought this was a “hot property” he would be more inclined to purchase the property. He thought the risk of assuming the City could purchase it and find another entity to redevelop it was great. He related that he had spoken to Peter Eggspuehler at a meeting and had asked him what issues had arisen in relation to moving forward. Mr. Eggspuehler indicated to him that getting the bank financing was critical, as was “nailing down” the tax credits, which was not possible by May 1. He supported giving them an extension. Ms. Solomon averred that at this point Beam had been “all talk” and no money. She noted that a year had passed since the City had initiated work with the development company. She did not feel the City was any closer to having the site redeveloped and questioned why. She opposed the City’s purchase of the building. In response to a question from Ms. Solomon, Mr. Braud clarified that the options listed were for both buildings. Ms. Solomon asked if renegotiating the price on the Washburne Building meant the City would have to let its option expire. Mr. Braud responded that Beam’s interest in the Washburne Building had to do with having a long-term vision for that block. He averred that there was a lot more value that could be generated in the Washburne Building going forward than was in the Centre Court Building. He said the question at this point was whether Beam was willing to buy the property at the current price. Ms. Solomon asked if it was possible to negotiate with them to come down in price. Mr. Sullivan responded that discussions had begun between Connor/Woolley and Beam Development at the City’s suggestion. He related that Connor/Woolley had come back to the City and indicated they would be willing to discuss price. Ms. Solomon wanted to see more commitment from Beam in the form “of a check.” Ms. Ortiz expressed concern about the project. She had heard the voters “loud and clear” and believed that they had indicated they did not want the spending limit of the Urban Renewal District to be increased but they supported working within the existing financial parameters. She agreed with Mr. Zelenka that people were not “flocking” to buy the property. She wanted to do something while there was some momentum. She believed the property redevelopment across from the library hinged on the Centre Court Building redevelopment. She did not perceive owning the building as a negative result. Mr. Sullivan noted that staff believed the price on the Centre Court Building to be fair. MINUTES—Eugene City Council April 16, 2008 Page 5 Work Session Mr. Pryor stated that the reason he intended to place Option 2 on the table was because it would move them toward getting the commitment. He thought that rather than buying the building and hoping it would work out, Option 2 would move Beam Development toward making more of a financial commitment. He said Beam would not make its commitment prior to May 8 but it also would not commit the City’s money to it. Mr. Pryor, seconded by Ms. Bettman, moved to direct the Agency Director to 1) work with Beam Development and the property owner to extend the timeline for the purchase option agreements on the Centre Court Building and adjacent lot, and the Washburne Building, 2) work towards an assignment of the purchase options to Beam, and 3) continue to work with Beam on elements of acquisition and redevelopment financing consistent with the amounts and terms outlined in this agenda item. If an extension of the option agreement timeline is not approved prior to May 7, then the Agency Director shall inform the property owners and the escrow agent that the Urban Renewal Agency will not be acquiring the property and the deposit should be returned. If a satisfactory extension is approved, the Agency Director shall bring back the terms to be included in the assignment of the purchase options to Beam as soon as practicable. Ms. Bettman supported extending the timeline but she believed the City would be making a big mistake if it only pursued this. She wanted to combine encouraging Beam to renegotiate the timeline on the option and asking them for a non-refundable deposit of $475,000 by May 1 if the URA committed to purchasing the property by July 8. She asked City Attorney Glenn Klein to structure language for a substitute motion to place on the table. Ms. Solomon reiterated that it was incumbent on the council and the URA to help out the entity that won the RFP for the site across from the library. She called it foolish to place “all of the eggs in one basket” by purchasing the Centre Court site. She asked whether the City would pay whatever costs were associated with the extension according to the motion on the table. Mr. Pryor responded that his assumption was that Beam Development would assume this responsibility. Mr. Braud related that staff had suggested sharing the cost of an extension should it cost anything. Mr. Pryor preferred to hold Beam responsible for any costs. Mr. Zelenka hoped Connor/Woolley would view the extension as a way to make the project work to the benefit of both the community and themselves. He indicated he would oppose Ms. Bettman’s substitute motion as he did not want to commit to purchasing the property. Ms. Taylor averred that the City had to take some risk. She opined that splitting up ownership of the downtown property was a goal in itself. She believed that the City was already taking some risk with existing money. She asserted that the City should put everything it had into trying to help Beam Develop- ment. Mr. Clark commented that he hoped that the Opus Group would continue interest in redeveloping the th downtown. He knew of at least one local developer that had an RFP for the 10 Avenue site. He would hate to see the City in a position in which only an out-of-town developer such as Opus could do the work there because the City had invested all of its money in another project. He said he had intended to vote no until he heard that included in the motion was that Beam Development would pay for the extension. He indicated he would now support the motion. MINUTES—Eugene City Council April 16, 2008 Page 6 Work Session Mr. Clark asked how much the last extension had cost the City of Eugene. Mr. Braud replied that the first extension had cost $30,000 and the second one $25,000. Ms. Ortiz said she wanted to see the City keep the building rather than see it razed. She noted that if the City owned the property it could potentially become the new city hall if Beam Development pulled out. Ms. Taylor asked how much had already been spent on redevelopment of the Broadway Street area. She averred that they had already risked a lot of money for nothing. She felt they now had the opportunity to spend “a small amount” on something that could be accomplished. Ms. Bettman, seconded by Ms. Taylor, moved to substitute a motion to direct the Agency Director to offer a proposal to Beam Development that it would provide the agency a $470,000 non-refundable deposit by the May deadline in exchange for the Urban Renewal Agency’s commitment to purchase the property by the July deadline and that the Urban Re- newal Agency would restructure its loan so that the Urban Renewal Agency would commit to it. If Beam Development should not agree to this proposal the Agency Director shall then work with Beam Development and the property owner to extend the timeline for the pur- chase option agreements on the Centre Court Building and adjacent lot and Washburne Building and work toward an assignment of the purchase options to Beam Development and continue to work with Beam Development on elements of acquisition and redevelopment fi- nancing consistent with the amounts and items outlined in the agenda item. If an extension of the option agreement timeline is not approved prior to May 7 then the Agency Director shall inform the property owners. If a satisfactory extension is approved, the Agency Di- rector shall bring back terms to be included in the assignment of the purchase options to Beam Development as soon as practicable. Ms. Solomon indicated that she would not support the motion. She took exception to Ms. Taylor’s comments that money had been spent on “nothing.” She stressed that the people who served on the Broadway Development Advisory Committee had been very committed to the process and to the community and the process had provided a “great result” which would provide input to guide all of the future downtown development. She hoped Ms. Taylor would extend more respect to that process. Mr. Zelenka asked what would happen between May 1 and July 8. Mr. Braud responded that assuming the City extended the option agreements, they expected a decision from ORI by the end of April. He noted that Beam had received commitments from other tenants. He related that the bank had asked that they conduct a market analysis, which was forecast to be completed on May 26. He said at that point the development plan would be complete and they would submit it to potential financing partners. He stated that the other approvals necessary would occur by August 1 and Beam Development indicated willingness to sign a binding agreement by August 15, with the purchase of the property to occur 90 days subsequent to that. Mr. Zelenka asked what would happen between May 8 and July 8 in the original proposal. Mr. Braud replied that the City would work towards closing. He added that there was adequate time to close on the property, assuming that Beam had made the deposit. Mr. Zelenka surmised that Ms. Bettman’s motion would push Beam into a faster timeline than had been proposed. He said in order for Beam Development to agree to the $470,000 deposit they would have to be very sure the project would move forward and they would have to complete the items they requested more MINUTES—Eugene City Council April 16, 2008 Page 7 Work Session time to complete in a shorter timeframe. Mr. Braud responded that the motion provided a certainty that the City would purchase the property. Mr. Zelenka doubted that Beam Development would agree to this, but if they did and still could not complete the transaction he did not want the City to be the owner of the property. Mr. Clark concurred. He opposed the substitute motion, adding that he was “only barely” for the initial motion. He did not feel confidence in the current course of action. Ms. Bettman asserted that her substitute motion was the “only chance” for the development to move ahead. She repeated the points of her motion. She believed it provided the City a level of protection and that it would provide them time to put the transaction together. She opined that a vote against the substitute motion was a vote “to kill the deal” and keep the project in the hands of Connor/Woolley. Mr. Zelenka pointed out that this strategy would eliminate the incentive for Connor/Woolley to negotiate the extension because the City would buy the property anyway. He underscored that the uncertainties in this proposal did not have anything to do with the City, it had to do with the banks and credit agencies. He averred that the substitute motion asked the City to assume or overlook risks. Mr. Pryor concurred, commenting that forcing peoples’ hands killed deals. He did not want to own the property with no one to develop it. He wanted to retain flexibility. He felt the original motion moved the project forward with diligence and prudence, showed good faith, but did not tie anyone’s hands behind their back. He averred that the substitute motion was not supportable because it made things the City did not want to have happen too quickly, happen in a manner that was too fast for the developer. Mr. Clark commented that the only drawbacks in the original motion had to do with the reality of the markets. He was not interested in those costs. Mr. Zelenka offered a friendly amendment to include a review at the beginning of July to assess whether Beam Development had put the deal together so that the City would have an opportunity to opt out of the purchase of the property. Ms. Bettman declined the friendly amendment. The substitute motion failed, 4:3; Ms. Taylor, Ms. Ortiz, and Ms. Bettman voting in favor. The main motion passed, 5:2; Ms. Taylor and Ms. Bettman voting in opposition. The meeting adjourned at 1:28 p.m. Respectfully submitted, Jon Ruiz City Manager (Recorded by Ruth Atcherson) MINUTES—Eugene City Council April 16, 2008 Page 8 Work Session