HomeMy WebLinkAboutItem B - ORI/Sears Sales TermsEUGENE URBAN RENEWAL AGENCY
AGENDA ITEM SUMMARY
Work Session: Review and Approval of Sale Terms for the
Oregon Research Institute-Sears Building Project
Meeting Date: June 23, 2004 Agenda Item Number: B
Department: Planning and Development Staff Contact: Denny Braud
www. cl. eugene, or. us Contact Telephone Number: 682-5536
AGENDA ITEM SUMMARY
The Urban Renewal Agency (URA) is being asked to review and approve the terms for the sale of the
Sears building property to the Oregon Research Institute (ORI) for construction of a new office building.
The proposed motion would authorize the URA Director (City Manager) to move forward with the sale
of the property based on the terms presented in this agenda item.
BACKGROUND
Council Action History
On May 12, 2003, the URA reviewed responses to a Request for Proposals for the sale and development
of the Sears building property. A motion was approved that directed the City Manager to enter into
negotiations with ORI, final terms of which would be approved by the URA.
Policy Issues
The process to sell the Sears property was part of the financing plan for the new library. The original
goal for the disposition of the property was to maximize the value of the site for the benefit of the new
library, while at the same time ensuring a future use which furthers the City's growth management
goals, and advances the vision for greater Downtown Eugene. The vision includes a dense, vital, more
attractive downtown that encompasses a variety of different uses such as office, housing, retail, and
entertainment. The promotion of additional office development in downtown is a "key next step"
identified in the vision. Additionally, a high-density redevelopment concept for the Sears property is a
specific "key next step" in the vision. The recently adopted Eugene Downtown Plan includes
implementation strategies for using tools and incentives to help employers locate downtown, and to
attract high-density commercial development.
Growth Management Policies
The following adopted Growth Management polices relate to the ORI project:
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.
L:\CMO\2004 Council Agendas\M040623\S040623B.doc
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.
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.
Council Goals
The fo/lowing adopted Council Goals relate to the OR]project:
Sustainable Community Development: A community that retains a high quality of life and a healthy
economy, effectively links land use and transportation planning, and successfully manages growth and
change in the urban environment.
Healthy Natural and Built Environment: A community that conserves and enhances the natural
environment and provides an attractive and healthy place to live.
Financial and/or Resource Considerations
The Library financing plan included $550,000 in anticipated proceeds from the sale of the Sears building
as one of the sources of funding. The council agreed to guarantee a minimum sale price of $550,000 for
the Sears site, pending a future action regarding disposition of the property.
On Supplemental Budget #2 in FY00 (March 13, 2000), the council authorized the first transfer to
guarantee the minimum purchase price. The resource used to finance the guarantee was the marginal
property tax exception value for FY00. The full amount of the marginal property tax exception value
was transferred in FY00 ($416,536) and an additional $133,464 was transferred in the FY01 Adopted
Budget to bring the total to $550,000.
On Supplemental Budget #1 in FY04, the council authorized the URA to transfer $550,000 back to the
City to repay the Sears building guarantee. The funds were placed into the Facility Reserve. As a result,
when the URA sells the building, the sales proceeds will remain in the agency's funds.
Other Background Information
The site under consideration includes the 1/4-block Sears building property, along with the 1/8-block
surface parking lot on the northwest corner of 10th and Olive (the other half of the surface parking on
l0th and Olive is owned by an adjacent private property). The URA purchased the Sears property in
1993. Acquisition cost of approximately $900,000 included the Sears building property, and the half-
block on which the new library was constructed.
The primary terms for the URA's sale of the property to ORI include a purchase price of $400,000, with
the URA responsible for demolition of the Sears building. Demolition estimates range from $227,000 -
$250,000. The URA would also be obligated to reduce the purchase price (by a maximum of $35,000)
in order to participate in the cost of an environmental assessment. Other commitments include the City
offering no less than 200 parking spaces within the parking system (subject to availability), provided
with a bulk purchase discount. There is currently sufficient availability of parking within the system, and
a commitment from ORI to purchase spaces not currently utilized would be beneficial to the Parking
Fund. The discount provided for bulk purchase has generally been 20% with an additional 10% bonus
for implementation of an active alternative modes program. The council discussed the elimination of
L:\CMO\2004 Council Agendas\M040623\S040623B.doc
bulk parking permit discounts in 2000. As a result, there has been no bulk parking permit discounts
offered for the past few years. Staff suggests the use of bulk parking discounts as a tool to encourage
new development such as ORI, and assist with the re-tenanting of vacant office space downtown. The
City would also be responsible for vacating the north/south alley on the east side of the Sears building.
ORI would be committed to proceeding with the timely development of the site in a manner consistent
with its proposal. Detailed terms and conditions are included in the attached terms sheet.
The ORI project was selected by the URA for a variety of reasons, including project feasibility, scale
and density of the development, large number of employees and clients, size of the proposed investment,
and design. The ORI project is clearly a very positive addition to the landscape of development in the
downtown core. ORI has proposed a purchase price of $400,000. Together with demolition and
environmental costs, this transaction would provide a development subsidy of roughly $500,000 for the
ORI project. As a non-profit organization with limited funding and financing options, ORI has
consistently stated that project cost control is critical to project feasibility. The URA subsidy in effect
enhances ORI' s equity position and supports the bond financing structure for the entire development.
The URA should consider two aspects of this proposed transaction: 1) In cases that the URA owns
property, discounting the sale price is one of the most effective tools to leverage the desired downtown
development; and 2) considering the Sears property transaction as a whole (including the Library site),
the URA and the community have received a significant return on the original investment. With these
considerations in mind, the ORI purchase is considered to be, on balance, a very positive proposal.
An appraisal of the Sears property completed in January 2003 indicates a fair market value of $630,000.
The value conclusion includes land value of $20 per square foot, minus a deduction for building
demolition. Based on market value, the 3/4-blocks of land purchased in 1993 can be valued at
approximately $1.5 million. The 1/2-block of land contributed by the URA to the new library project
has an assumed value of approximately $1 million. Notwithstanding future net proceeds from the sale
of the Sears property to ORI, it can be concluded that the original $900,000 property acquisition
investment has already been recovered through the library project.
ORI has proposed the construction of a six-story, 96,000 square foot office building/research facility.
The total project cost is $24 million. Portland-based Gerding/Edlen Development Company, one of the
largest developers in the Northwest, is providing development services for the project. ORI will be
seeking LEED (Leadership in Energy and Environmental Design) certification for the new facility.
LEED is a program of the US Green Building Council designed to ensure that buildings are designed to
minimize their impact on the natural environment. Additional detail on the status of the project is
included in the attached Gerding/Edlen letter.
The primary source of project financing will include a tax-exempt bond issue in the amount of $20
million. ORI has secured the services of Seattle Northwest Securities, one of the top underwriters in the
region. Additional financing detail is included in the attached Seattle Northwest letter. Other project
financing will include a $4 million facility grant from the federal Department of Health and Human
Services. ORI has recently received notification that their grant request has been approved.
Founded in 1960, ORI is a non-profit organization specializing in diversified fields of behavioral
research associated with the prevention and treatment of health, educational, and social problems. ORI
employs approximately 250 people locally and receives research funding primarily from the National
Institutes of Health and the Department of Education. Research grant awards typically provide 3-5 years
of financial support for direct and indirect costs. Their annual operating budget is currently $17.2
L:\CMO\2004 Council Agendas\M040623\S040623B.doc
million, with revenue growth averaging 12% annually over the past six years. ORI was awarded 68
different grants in 2003. ORI was also recognized by Oregon Business Magazine as one of the "100
Best Companies to Work for in Oregon" (ranked third in the large business category).
State statutes, the downtown Urban Renewal Plan, and adopted URA procedures govern the disposition
of real property held by the URA. URA procedures provide for the City Manager, as the business agent
for the URA, to publicly or privately solicit proposals and negotiate with any party for the disposal of
real property consistent with the Urban Renewal Plan. Any proposal which is acceptable to the City
Manager must then be presented to the council (acting as the URA) for its approval.
Timing
The proposed terms anticipate that a formal purchase and sale agreement will be signed soon after the
approval of terms. The actual closing of the sale is expected to occur no later than November 1, 2004,
with ORI beginning construction soon after closing. The proposed terms require ORI to begin
construction no later than June 1, 2005.
OPTIONS
1. Move forward with the sale of the Sears property to ORI based on the terms and conditions
presented.
2. Decline the proposed terms and conditions, and provide alternative recommendations for the sale of
the property.
STAFF RECOMMENDATION
Staff recommends approval of the proposed terms and conditions.
SUGGESTED MOTION
Move to authorize the Agency Director to (1) sell the Sears building property to the Oregon Research
Institute at a purchase price of $400,000, less the cost of any environmental assessment, up to $35,000,
and (2) direct the Agency Director to bring back to the Agency for the June 28th meeting a
Supplemental Budget #3 item to include authorization for the demolition and other costs anticipated by
the Summary of Terms attached to the AlS.
ATTACHMENTS
A. Summary of Terms
B. ORI Letter
C. Gerding/Edlen Letter
D. Seattle Northwest Securities Letter
FOR MORE INFORMATION
Staff Contact: Denny Braud
Telephone: 682-5536
Staff E-Mail: denny.braud~ci, eugene, or.us
L:\CMO\2004 Council Agendas\M040623\S040623B.doc
ATTACHMENT A
Summary of Terms
Sale of Sears Building Property to Oregon Research Institute
Property: Approximately .886 acres of land, which generally includes the Sears building footprint and
the 1/8-block surface parking lot at the northwest corner of l0th Avenue and Olive Street (tax lots 6600
and 5300).
Purchase Price: $400,000 cash, balance due at closing.
Deposit: $40,000 earnest money in the form of a promissory note, converted to cash following the
Feasibility Period. Earnest Money will be credited to the Purchase Price.
Feasibility Period: Upon execution of the Purchase and Sale Agreement, Buyer will have a 60-day
Feasibility Period in which to review Property Information provided by the Seller, and conduct on site
testing to determine the condition of the property.
Building Demolition: Prior to Closing, but only upon removal of all of Buyer's contingencies to
Closing, Seller shall be responsible for the demolition and removal of the former Sears building
structure, including basement removal. Seller shall not be responsible for backfilling the basement area.
Seller must receive Buyer' s written approval before commencing demolition; such approval shall not be
unreasonably withheld. In the event that the building is demolished and Buyer does not purchase the
site, or move forward with the development proposal within the timeline provided herein, Seller shall be
entitled to reimbursement from Buyer of Seller's demolition expenses not to exceed an amount to be
defined in the Purchase and Sale agreement based on an updated demolition estimate, plus damages to
be defined in the Purchase and Sale agreement.
Parking: The City of Eugene will provide a bulk-purchase monthly parking permit cost reduction in the
amount of twenty-percent for advanced volume permit sales, subject to availability but in any event for
no less than 200 spaces within the parking system. An additional ten-percent cost reduction is available
if ORI maintains an employee alternative transportation mode program.
Environmental Condition: During the Feasibility Period, Purchaser will be able to perform additional
environmental investigation to satisfy itself of the environmental condition of the property, results of
which shall be provided to the Seller for review. Based on the information provided in the
environmental assessment, Buyer may either move forward with the purchase of the site or rescind the
offer to purchase the site. Buyer would also have the option to negotiate with the City regarding a
remedy for specific site clean-up costs if contamination is identified. In the event that Buyer does not
move forward with the purchase of the property based on specific contamination identified in the
environmental assessment, Seller shall pay one-half of Buyer's environmental assessment costs, or
$17,500, whichever is less. In the event that Buyer does move forward with the purchase of the site,
L:\CMO\2004 Council Agendas\M040623\S040623B.doc
Seller shall provide a reduction in the Purchase Price equal to Buyer's environmental assessment costs,
or $35,000, whichever is less.
Property Information: Seller shall deliver to Buyer all information in Seller's possession relating to
the condition of the Property.
Alley Vacation: Prior to the closing of the sale, the City shall vacate the mid-block, north-south alley in
a manner sufficient to meet ORI's development plans for the site.
Development Purpose and Timing: ORI shall proceed with development of the site, the scope of
which shall be consistent with ORI's development proposal. Construction of the project shall commence
no later than June 1, 2005. In the event that construction of the project does not commence by June 1,
2005, Seller shall retain the first rights to repurchase the property in the amount of the Purchase Price.
Purchase and Sale Agreement: Within a reasonable time period following the Urban Renewal
Agency's approval of terms, Buyer and Seller shall enter into a formal Purchase and Sale Agreement.
Financing: Prior to the closing of the sale, Buyer shall demonstrate that all financing necessary for the
project has been secured. Buyer's obligation to close on the property shall be contingent on Buyer's
closing of such financing.
Condition of Title: Seller shall deliver the Property to Buyer with clear title, and provide Buyer with
standard title insurance
Closing Date: The closing of the sale shall occur no later than November 1, 2004.
L:\CMO\2004 Council Agendas\M040623\S040623B.doc
ATTACHMENT B
Oregon
Res.earch
1715 Franklin Boulevard · Eugene, Oregon 97403-1983
Institute 541-484-2123 · Fax 541-484-1108 · TDD Relay 1-800-735-2900
Behavioral Science in the Public Interest
June 15, 2004
Dennis M. Taylor
City of Eugene
777 Pearl Street, Room 105
Eugene, OR 97401
Dear Mr. Taylor:
We accept the terms outlined in Mike Sullivan's June 4, 2004 letter for the sale of the Sears Site to
Oregon Research Institute (ORI). The negotiated terms represent a partnership and demonstrate a
willingness from both parties to help make this project a reality.
We have assembled an excellent team for this project by engaging Sodestrom Architects,
Gerding/Edlen Development Company, and Seattle Northwest Securities. ORI has invested
considerable resources into the design of this project which is at the 50% design development
phase at this time. We are funding this project through federal grants, Oregon state energy
programs, and tax exempt bond financing.
We appreciate the City of Eugene's interest in working with ORI to realize our goal of building a
100,000 sq. ft. building in Downtown Eugene. We believe the location of the Sears building site
meets our goal of adding value to the Eugene community, while meeting the goals of the City of
Eugene to vitalize the downtown area by bringing people with disposable incomes to the urban core.
Sincerely,
Cynthia R. Guinn
Executive Director
ATTACHMENT C
GERDING/EDLEN ~DEYELOPMENT CO~MPANY, LLC
I1 ZI) NW ('¢;oCh ~lt~.,L-I ~-,~.l~r,,... I~o(! · F'f:,ril,lnd, C)l',..g,]r~ ,17_'l'l~ ~, '~(1 L2~m.(,tlu~ · I'.:lx .~;~J :.J'-~'.l.(E (); .,, e,.wc,..g~.-d(.v.~ ol,I
June 15, 2004
VIA E&X. 541.682.557~.
M~ke Sulliv'~n
Denny' Bmud
City of ~e, Phnn~ng & D~opment
99 Wes~ 10~
E~e, OR 97~1
Re: Project Update - O~ Heaflq~e~
D~ ~e ~d D~y:
~ you fo~ yo~ ongo&g sssis~ce ~d suppo~ t~ ~z~g &e t~s for
p~ch~e ~d s~e of &e S~ Site to O~gon Rese~ ~sfimte (O~. ~ le~er ~ to
pro.de you ~ a bhef upd~ on ~e s~s of &e project. As you
O~g/Edl~ Dev~op~nt Comply, ~C (GED) was s~ec~ by O~ to ~ve
~e dcvdop~ for ~ proposed proje~ Und~ ORI's ~c~, G~D ~ responsible
for ~g ~d ove~e~g &e hnd p~t~,~, desk, ~an~, ~d cons~on of
&c p~oje~ We ~e wor~g s~eomly on ~ ~onts ~d have m~de s~cant
pro.ess tour& a ~ des~ md bu~cL
To &re. 50 p~cent of des~ &velopment ~ complete. In Ap~ &e des~ tern met
wi& &e Ci~ to re~ &e b~g des~ ~d m eh~ any poten~ code ~ea. To
pr~de m up're on pr~ect ~m~g, a b~ef ~m~ repo~ ~om C~ P~ker st
Sea~e No~est Se~6~ Co~orafion ~ a~ched ro t~s le~. ~e
~ m0mg fo~d ~& &e project ~ obtaining ~te consol ~ough Ci~ Co~
approv~ of ~e tern ~t ~e been nego~ted be~e~ ~e Ci~ and O~. We have
worked dos~y ~ O~ to assbt &~ ~ dealing a p~j~ &ut is responsive
. ~W's ~ion for &e site, md b~eve &at ~e project cm proceed ~fl~
~ been outed ~ &e te~.
The project te~m is committed to developing an environmentally sensi~ve and energy
efficient budding, with a goal of receiving a LEED Gold rating from the US Green
Building Council, To th~ end, the design inco:porntc~ a variety of green building
initiatives and techniques, We continue to pursue incentives to help support the
project's g~een initiatives and anticipate receiving tarx o:e~ts through the State of
Oregon's Business En~g~r Tax Credit Progr~n md funding through EWEB's Energy
Smart Program,
As always, feel f~ee to contact me ~irl~ any questions, oz if I can be of fu~daer assistance. We
look £o~ard to continuing to work ~ith the City on dais exciting project that promises
significant benefits to OR.[ and the City.
Regards,
GED,
cc: Cynthia Guinn, Ol~I
ATTACHMENT D
S E ATT L E- N O RT H W E ST ~ oo0 Southwest Broadway
SEcuRmEs CORPORATION ~ite 1
'l'h,' PeRle ,: ~ Prom t~ ~ ln.~;'~l rth-~J t Ponhnd~ Or~n 97205.
~tl.ki..~ Ffcm 5~.C~' J ~70 (~03} 27~300
June 14,
Cynthia Guinn
Oregon Rest, arch Facility
1715 Franklin Blvd.
Eugene. Oregon 97403
Dear Ms. C~uinn:
I und~:rstand that the Eugene City Council will be meeting this week to approve the proposed terms for
a purchase and sales agreement with ORI for its new headquarters building.
Given the timing of the Council meeting I thought 1 would update you on the status et' our financing
schedule.
To reiterate, we are structuring the financing for ORI a~ a S01 (c) 3 entity, and will act as an
tmdcrwriter to issue the debt as a tax-exeml~ offering, In order to obtain the best possible ral~s we are
soliciting bond insurance to provide a credit guaranty to the bondholders. The firm step in that process
is to obtain a rating indication f~om a rating agency as to the integrity of the organizational credit. As
such we have analyzed ORl's finances and provided summary information to them on your excellent
track record and ability to repay the debt.
As you know, we met with Standard and Poor's in Portland last week to provide a ratings p~eaentation
of ORI. S& P is in the process of reviewing the information that we provided to them, and has asked
f r clarification of a few Items before they complete cheir ratings assessment. Ba~ed on my
conwrsations with them I would expect a .ratings assessment by the first week in July, which will
provide thc bond insurers with an expectation of investment grade.
Our next step will be to negotiate the terms of tho bond insurance through thc mid- July, and ask for
bond counsel to draft an inducement resolution on behalf of the issuer for their next available meeth~g
in August.
Our financing schedule will thcn stay on course with the expectation thaz we would close and fund by
mid-October.
Thank your for the time you took to assist us with the ratings presentation, and for the follow up
r~sponsc. 1 believe our financing plan is right on schedule and that we will be able to close this
wansaction in The time necessary W start construction.
Sincerely,
Cynthia A. Parker
Vice President
oc: Jill Sherman GED
Tom Cody; GiSD
1 ODD Southwest Broadway · Portlalrsd, OR 9?205 · (.qO~,) ::LP~'.,q-83OQ ·
WashJnffton m Orc~on · Idaho · Utah