HomeMy WebLinkAboutItem D: Downtown Development Update - ORI
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UGENE ITY OUNCIL
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GENDA TEM UMMARY
Work Session: Downtown Development Update - Oregon Research Institute
Meeting Date: February 13, 2006 Agenda Item Number: D
Department: Planning and Development Staff Contact: Denny Braud
www.eugene-or.gov Contact Telephone Number: 682-5536
ISSUE STATEMENT
The council has requested that staff provide an update on pending downtown development projects.
This work session will provide an update of the Oregon Research Institute’s (ORI) proposed purchase
and redevelopment of the former Sears building site.
BACKGROUND
In December 2002, a Request for Proposals (RFP) was issued for the sale and development of the Urban
Renewal Agency-owned Sears building site. In May 2003, the Urban Renewal Agency (URA) reviewed
the responses to the RFP and selected the ORI project. In June 2004, the URA reviewed the terms of the
sale and directed the City Manager to sell the property to ORI. A Purchase and Sale and Development
Agreement was signed in February 2005 which specified a $400,000 purchase price, a June 2005 closing
date, and July 2005 construction date. In July 2005, the agreement was amended to increase the
purchase price to $470,000, extend the closing date to October 2005, and extend the construction date to
January 2006. In December 2005, a second amendment to the agreement was signed, extending the
closing date to January 30, 2005. The second amendment also required ORI to secure project financing
by February 28, submit permits by March 15, sign a construction contract by April 7, close on project
financing by May 12, and begin construction by May 15. ORI did not meet the January 30 closing date
as specified in the agreement.
ORI is a nonprofit research institute dedicated to studying human behavior and developing programs to
improve the health and well being of individuals, families, and communities. ORI has operated in
Eugene for 45 years, currently employs over 200 people, and has been frequently recognized as one of
the “Best Companies to Work for in Oregon” by Oregon Business magazine. ORI has an operating
budget of over $16 million and is currently receiving 60 research grants. They are primarily funded by
the National Institutes of Health (NIH), but also receive funding from other Federal agencies,
foundations, and private sources. ORI has three other satellite research offices in Oregon and one in
New Mexico.
Project Update
ORI is proposing to construct an 80,000 square foot research building that will seek Platinum Level
LEED Certification (the highest level of LEED certification). There are only 12 LEED Platinum
buildings world-wide. ORI’s innovative solar-powered green building will provide office space for
researchers and scientists, administrative offices, conference rooms, and an auditorium. Design
development drawings for the building project are complete. To date, ORI has spent approximately
$700,000 on the project.
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The most recent cost estimate for the project is $24.6 million, which is an increase from previous cost
estimates in the $22-$23 million range. The most recent cost estimate includes some value-engineering
to cut project costs. However, ORI is hoping to value-engineer another $1 million from the project
budget.
The project is being developed by Portland-based Gerding/Edlen Development, and designed by
Portland-based Soderstrom Architects. The general contractor for the building construction is Portland-
based Skanska Construction.
Financing Update
ORI is continuing work with its financing consultant, Seattle Northwest Securities, to package the
project financing. The primary financing for the project would be provided through a New Market Tax
Credit (NMTC) financing structure. The NMTCs have been made available through Baltimore-based
CBO Financial. Seattle-based Home Street Bank (“investor”) is proposing to utilize the tax credits
through its financing investment in the ORI project. The investor is positioned to make two financing
contributions to the project, the first of which is a conventionally-structured real estate loan at 80% loan-
to-value. A second appraisal for the new ORI building is pending review, with the value expected to be
approximately $15.5 million. This would generate an investor loan of $12.4 million (80% loan-to-
value). The investor equity provided by the NMTCs will support a second investor loan in the amount
of approximately $5.5 million.
In addition to the investor financing, ORI has secured $1.4 million through its fundraising campaign.
Based on a current project cost of $24.6 million, ORI is looking to fill a financing gap of approximately
$5.2 million. ORI has ongoing discussions with the investor regarding a short-term loan that would
bridge ORI’s fundraising campaign efforts. However, the investor’s willingness to provide this bridge
loan is unclear at this time.
ORI has requested that the City consider providing financing to help it address the current gap.
Although no specific financing offers have been made, staff has discussed providing subordinate
financing in the range of $2 million. Although the ORI project lacks equity for collateral purposes, its
grant awards include indirect cost recovery for occupancy costs. This cash flow, along with grant
provisions that allow for reimbursement of depreciation expenses, provides strong cash flow that can be
used for debt retirement. A summary of potential financing options that could be considered is included
in Attachment A.
Based on the most recent Purchase and Sale Agreement terms, the URA subsidy to the ORI project is
approximately $800,000. This includes discounted land cost of approximately $682,000, credits towards
environmental investigation and basement removal cost of approximately $68,500, and waiver of the
alley vacation assessment valued at approximately $46,500.
RELATED CITY POLICIES
The proposed ORI project is consistent with the policies and implementation strategies included in the
Eugene Downtown Plan, including:
Downtown development shall support the urban qualities of density, vitality, livability and diversity
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to create a downtown, urban environment.
Help employers locate, remain and expand downtown by targeted use of economic tools and
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incentives.
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Actively pursue public/private development opportunities to achieve the vision for an active, vital,
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growing downtown.
Use downtown development tools and incentives to encourage development that provides character
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and density downtown.
Promote multi-story, mixed-use structures downtown through financial incentives or code
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amendments.
In addition, the proposed project is responsive to the following Growth Management objectives:
Policy 1: Support the existing Eugene Urban Growth Boundary by taking actions to increase density
and use existing vacant and under-used land within the boundary more efficiently.
Policy 2: Encourage in-fill, mixed-use, redevelopment, and higher density development.
Policy 3: Encourage a mix of business and residential uses downtown using incentives and zoning.
Policy 10: Encourage the creation of transportation-efficient land use patterns and implementation of
nodal development concepts.
Policy 16: Focus efforts to diversify the local economy and provide family-wage jobs principally by
supporting local and environmentally-sensitive businesses. Direct available financial and
regulatory incentives to support these efforts.
Policy 14: Development shall be required to pay the full cost of extending infrastructure and services,
except that the City will examine ways to subsidize the costs of providing infrastructure or
offer other incentives that support higher-density infill, mixed use, and redevelopment.
COUNCIL OPTIONS
1. Direct the City Manger to pursue URA or City-provided financing options that would help ORI
address its financing gap.
2. Amend the Purchase and Sale and Development Agreement to allow additional time for ORI to
address its project financing gap.
3. Consider other development opportunities for the Sears site, and help ORI identify other location
options.
CITY MANAGER’S RECOMMENDATION
The City Manager recommends that the City utilize a combination of Downtown Revitalization Loan
Program and Business Development Fund financing to provide financing in the range of $2 million for
the ORI project, and to encourage ORI to work with its developer and investors to close the remaining
financing gap in a timely manner.
SUGGESTED MOTION
Move to direct the City Manger to pursue a combination of Downtown Revitalization Loan Program and
Business Development Fund financing in the range $2 million for the ORI project, and to encourage
ORI to work with its developer and investors to close the remaining financing gap in a timely manner.
ATTACHMENTS
A. Financing Options
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FOR MORE INFORMATION
Staff Contact: Denny Braud
Telephone: 682-5536
Staff E-Mail: denny.braud@ci.eugene.or.us
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ATTACHMENT A
ORI Financing Options
1. Downtown Revitalization Loan Program (DRLP):
This existing financing tool is available for
projects within the Downtown Urban Renewal District. The program is designed to encourage
investments within the Downtown District that contribute to the economic vibrancy and density goals
for downtown. The DRLP was capitalized with non-tax increment URA revenue (ex. rental income,
property sale proceeds). There is approximately $2 million currently available in the DRLP. The ORI
project would be eligible for financing under this program.
2.Urban Renewal Tax Increment
: There are legal restrictions regarding the lending of funds
collected as tax increment revenue. However, the Downtown Urban Renewal Plan would allow a direct
contribution of tax increment funds to the project. Historically, direct contributions of tax increment
funds have not been used as a source for financing private development projects.
3. CDBG Business Development Fund (BDF):
The BDF is a Community Development Block Grant
(CDBG) revolving loan program that is available for projects that create new jobs. The provision of
financing for the ORI project appears to be eligible for BDF financing based on the project meeting the
CDBG national objective related to the creation of jobs that benefit low- and moderate-income persons.
The ORI project is located in a CDBG income-eligible area; therefore, all new jobs created would meet
the income eligibility requirement. There is approximately $500,000 forecasted to be available in the
BDF revolving loan fund
4. Section 108/BEDI Grant:
Brownfield Economic Development Initiative (BEDI) grant funds in the
amount of $2 million have been awarded, and this grant must be used in conjunction with a CDBG
Section 108 loan guarantee. An application for a Section 108 loan of approximately $7.9 million is
currently being drafted. It will likely take at least four months to receive Section 108 approval.
There have been preliminary discussions with HUD/CDBG representatives regarding the Section 108
project underwriting standards and the ORI project. Because Section 108 borrowings would require a
collateral pledge of the City’s future CDBG allocations, projects funded under Section 108 would be
expected to provide collateral sufficient to offset the risk to the local CDBG program. Because the ORI
project is in a severe negative equity position, it would be difficult for the project to meet Section 108
collateral requirements. In projects where project equity is not sufficient, it may be possible to consider
other sources of collateral, such as urban renewal tax increment. However, a sizable pledge of urban
renewal funds would breach the maximum indebtedness in the Downtown urban renewal district and
require a plan amendment. Such plan amendment would void a grandfathering of tax increment
collections, and result in the loss of tax increment revenue of approximately $2 million per year.
5. SDC Financing:
The City currently offers financing of System Development Charges (SDCs) for
up to 10 years. ORI has estimated SDCs of approximately $500,000. The City does not currently have
a policy for waiving all project SDCs.
6. General Fund:
The City’s General Fund has not traditionally been used as a source of direct lending
for a private development project, although it could be considered. Given the negative equity in the ORI
project, there would be no collateral value to support a General Fund loan to the project. In the event
that ORI experienced severe reductions in their federal grant income, the General Fund dollars would be
at risk.
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