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HomeMy WebLinkAboutItem B: Beam Development Project Update EURA UGENE RBAN ENEWAL GENCY AIS GENDA TEM UMMARY Work Session: Beam Development Project Update Meeting Date: December 14, 2009 Agenda Item Number: B Department: Planning & Development Staff Contact: Nan Laurence www.eugene-or.gov Contact Telephone Number: 682-5340 ISSUE STATEMENT The Urban Renewal Agency (URA) and Beam Development signed a Purchase and Sale Agreement (PSA) in May 2008, for Beam’s purchase of the Centre Court Building and adjacent vacant parcel, and the Washburne Building. The PSA and subsequent amendments require that Beam begin construction on the Centre Court and adjacent site no later than December 1, 2009. The URA is asked to again revise the PSA consistent with Beam’s request to allow for the start of demolition by February 1, 2010, and the start of construction by May 1, 2010, to allow phasing of the project beginning with the rehabilitation on the Centre Court Building, and other related project modifications. An outline of terms for the proposed PSA Amendment is included with the AIS as Attachment A; Beam’s letter requesting the amendments is included as Attachment B. BACKGROUND Beam purchased the properties from the URA in July 2008, for a total purchase price of $3.6 million (Centre Court $1,946,000; vacant site $454,000; and Washburne Building $1,200,000). The URA provided financing to Beam totaling $3.55 million for their acquisition of the properties and $350,000 for predevelopment costs. The sources of funds for the URA’s financing included federal Housing and Urban Development Section 108 (HUD 108) loan funds ($2.7 million), Brownfield Economic Development Initiative (BEDI) grant funds ($440,000), and Downtown Revitalization Loan Program funds ($754,000, including the predevelopment loan). To date, Beam has made all required payments on these loans. At this time, three main changes are proposed for the project, as described in Attachment A: ? Timing and phasing ? The amount of private financial investment ? Distribution of net proceeds from the project Timing and Phasing The PSA currently includes a provision that rehabilitation of the Centre Court and new construction on the adjacent site begin no later than December 1, 2009. (This date was extended from May 1, nd 2009, through the 2 PSA amendment.) Due to the continued economic downturn and resulting market instability, Beam has requested an additional six months to submit building permits (May 1, 2010). Beam aims to start before this date, as soon as the HUD 108 funds are available. Beam is Z:\CMO\2009 Council Agendas\M091214\S091214B.doc currently working on hazardous materials abatement and interior clean-up. Beam expects to submit an application for a demolition permit in early February, 2010. In addition to the request for additional time, Beam requests that the project proceed in phases, beginning with the rehabilitation of the Centre Court as Phase I. Phase II would be new construction in the adjacent vacant parcel. Beam is working with a private party on the possibility of new construction for either office with ground floor retail, or a mix of office, retail and housing. The financial picture for either Phase II scenario is extremely challenging; the income generated by the project will not cover the cost of financing the construction. At this time, Beam is not able to move forward with the new construction, but continues to seek a viable development scenario for this site. In the original PSA, the City committed to lease a maximum of 50,000 square feet in the new building for City office use, if Beam were unable to secure adequate leases by private tenants. In the attached outline of terms, the City’s commitment to lease space for City offices in the proposed new construction is removed. The removal of the lease commitment does not preclude the City from leasing space in the new construction in the future. The City did not have a commitment to lease space in the Centre Court Building; the use of the HUD 108 financing precludes City offices in that building. Private Financial Investment Due to the changes in the financial and real estate markets, the amount of equity available to and required for the project has been reduced. Specifically, in the original project, Beam estimated that $3,000,000 would be available from New Market Tax Credits; these funds are no longer available for this project. In addition, Beam had assumed that $2,000,000 would be available in Historic Tax Credits. Due to multiple alterations of the structure and exterior façade of the building, the State Historic Preservation Office (SHPO) has determined that rehabilitation of the Center Court cannot meet the federal standards required for the 20% tax credit, and is instead eligible only for a lesser tax credit, providing an estimated $300,000 for the project. The project can proceed with the intent of capturing the historic design and character of the building, but the rehabilitation will not be at the higher standard of historic reconstruction that would have been required by SHPO. Attachment C illustrates the difference in the sources of funds for the original and revised projects; Attachment D provides an image of the exterior of the building after the proposed rehabilitation. Distribution of Net Proceeds In the original agreement, the loan to Beam made from the BEDI grant was to be repaid when Beam reached a 13% return on investment. In this proposed amendment, repayment of BEDI funds will be from the distribution of net proceeds (net project revenues after related expenses have been deducted). Net proceeds will be allocated between the URA and Beam based on the percentage of financial investment, which is approximately 60% City and 40% Beam. Based on the project’s current financial plan, net proceeds are anticipated to occur starting in year three. In the original agreement and in this proposed amendment, repayment of Beam’s deferred developer fee will only occur after the BEDI has been repaid in full. No change is proposed to the interest-only payments due during construction with principal and interest payments beginning after two years. The proposed amendment would adjust the term of the Z:\CMO\2009 Council Agendas\M091214\S091214B.doc $350,000 predevelopment loan to match that of the construction loan. (The current term calls for repayment on March 1, 2010, in conjunction with disbursement of the HUD 108 loan.) ADDITIONAL BACKGROUND INFORMATION Beam is relying on the HUD 108 funds as their major construction financing source. On February 26, 2007, the council approved an ordinance (No. 20376) authorizing the use of Section 108 as a financing tool. The ordinance established the City’s general ability to borrow for Section 108 projects with the stipulation that individual projects be approved by council resolution only after a public hearing conducted by the council. The public hearing on the use of the 108 funds for the Beam project is on December 14, 2009, with action scheduled for January 11, 2010. A separate AIS has been provided to the council for this item, which includes additional information on the HUD 108 funds. RELATED CITY POLICIES Beam’s rehabilitation of the Centre Court building is consistent with the policies and implementation strategies in the Downtown Plan, including: ? Downtown development shall support the urban qualities of density, vitality, livability and diversity to create a downtown, urban environment. ? Actively pursue public/private development opportunities to achieve the vision for an active, vital, growing downtown. ? Use downtown development tools and incentives to encourage development that provides character and density downtown. ? Promote multi-story, mixed-use structures downtown through financial incentives or code amendments. ? Stimulate multi-unit housing in the downtown core and on the edges of downtown for a variety of income levels and ownership opportunities. ? Provide and promote development and community events that reinforce downtown’s role as the cultural center for the city and region. ? Reinforce the creative, distinctive culture of downtown as the arts and entertainment center of the city. In addition, the proposed development project is responsive to the following Growth Management policies: 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. Z:\CMO\2009 Council Agendas\M091214\S091214B.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. URBAN RENEWAL AGENCY OPTIONS 1.Direct the Agency Director to amend the PSA consistent with Attachment A: Outline of Terms. 2.Direct the Agency Director to amend the PSA consistent with Attachment A: Outline of Terms as modified by the Urban Renewal Agency Board. 3.Direct the Agency Director to make no amendments and take no action regarding the PSA. AGENCY DIRECTOR’S RECOMMENDATION The Agency Director recommends that the PSA be amended consistent with Attachment A: Outline of Terms. SUGGESTED MOTION Move to direct the Agency Director to amend the PSA consistent with Attachment A: Outline of Terms. ATTACHMENTS A.Outline of Terms dated December 10, 2009 B.Letter from Beam Development dated November 3, 2009 C.Comparison of Sources of Funds for the Original and Revised Proposals D.Image of Rehabilitated Centre Court Building FOR MORE INFORMATION Staff Contact: Nan Laurence, Senior Planner Telephone: 682-5340 Staff E-Mail: nan.laurence@ci.eugene.or.us Z:\CMO\2009 Council Agendas\M091214\S091214B.doc ATTACHMENT A Outline of Terms Purchase and Sale Agreement Third Amendment (Draft: 12/2/09) 1.Project Phasing: The Project will proceed in two independent phases: Rehabilitation of the Centre Court Building will be Phase I. New construction on the adjacent development site will be Phase II. 2.City Lease Commitment: The City’s commitment to lease up to 50,000 square feet for City offices in a newly constructed building is removed. The removal of the lease commitment does not preclude the City from leasing space in the new construction in the future. 3.Centre Court Project Description: Beam commits to moving forward with the proposed rehabilitation of the Centre Court Building for retail and office use consistent with the project description in the signed PSA and the design elevations submitted to the City in October 2009. 4.Commencement of Construction: Construction will proceed in stages. The demolition permit for the Centre Court Building must be submitted by February 1, 2010; the construction permit must be submitted by May 1, 2010; the Urban Renewal Agency (URA) Director may extend these dates for good cause. 5.New Construction: Beam will propose a viable project for new construction on the adjacent site by May 2011 for Urban Renewal Agency Board approval. The URA Director may extend this date for good cause. If the URA Board does not approve of the proposed development, the URA has the right to repurchase the property. 6.Beam’s Financial Investment: Beam’s financial investment in the Centre Court Building will total approximately $750,000 and will include $250,000 cash and approximately $500,000 from the combination of Business Energy Tax Credits and Historic Tax Credits. 7.City’s Financial Investment: The City’s financial investment totals $1,775,000 in Brownfield Economic Development Initiative (BEDI) grant funds. This investment is in addition to construction financing. 8.Construction Financing: The URA will offer $5,189,000 in HUD108 funds in addition to a Downtown Revitalization Loan of $350,000. The financing terms will include a 20-year amortization schedule (interest-only during construction and lease-up) with an interest rate equal to the rate paid on the City’s HUD 108 loan. The URA is unable to commit to the use of the HUD 108 funds until City Council and HUD have approved the project-specific use. (The approval process takes approximately two and a half months; an approval decision is expected by council in mid-January 2010 and by HUD in late February 2010.) If HUD approval is not granted and other sources of funds are not identified, the URA has the right to repurchase the property. 9.Distribution of Net Proceeds: The formula for distribution of net proceeds between the URA and Beam will be based on the percentage of funds invested in the project (not including construction financing). Net proceeds are the net project revenues after eligible operating expenses have been deducted. This percentage is approximately 60% URA and 40% Beam. Repayment of Beam’s deferred developer fee will only occur after the City’s financial contribution (specifically $1,755,000 in BEDI funds) has been repaid. 10.Tenant Commitments: Beam will demonstrate tenant commitment sufficient to cover the interest payments to the satisfaction of the URA Director prior to dispersal of HUD 108 funds. 11.Reversionary Clauses: In the event that Beam does not meet the construction and completion timeline included in the PSA, the URA has the right to repurchase the Centre Court and adjacent site. Attachment C: Comparision of Funds for the Original and Revised Proposals ORIGINAL PROJECTCURRENT PROPOSAL Rehabilitation of Centre Court buildingPhase I: Rehabilitation of Centre Court Building New five story building on vacant site Phase II: New construction on vacant site (details unknown at this time) PROJECT SUMMARIES Phase I Original Project Current Proposal Private Investment $ 26,000,000$ 785,000 Public Investment$ 10,114,000same TOTAL SOURCES $ 36,114,000$ 10,899,000 PROJECT DETAILS Phase I Original Project Current Proposal Private Equity $ 4,000,000$ 250,000 Tax Credits $ 5,000,000$ 535,000 Bank Loan$ 17,000,000$ - Total Private Investment$ 26,000,000$ 785,000 Acquisition Financing HUD 108/BEDI (#1)$ 1,946,000same Transaction fees (BEDI #1)$ 245,000same URA loan$ 404,000same Construction Financing HUD 108/BEDI (#2)$ 6,504,000same Transaction fees (URA)$ 65,000same URA loan$ 350,000same Cash Reserve (URA)$ 600,000same Total Public Investment$ 10,114,000 same TOTAL SOURCES: $ 36,114,000$ 10,899,000 Notes * Washburne Building details are not included because they are the same for both the original project and the current proposal. * The rehabilitation cost of the Centre Court building in Phase I is reduced by $7.5 million because the building does not qualify for the 20% Historic Tax Credits and is unable to secure the New Market Tax Credits. As a result, rehabilitation does not include the extensive level of historic features as was part of the original project. * Anticipated job creation for the Centre Court Building remains the same * Where any numbers in this attachment differ from those in Attachment B, the letter from Beam, the amounts here are to be considered more accurate estimates. ATTACHMENT D