HomeMy WebLinkAboutItem A: Downtown Site Development
ECC
UGENE ITY OUNCIL
AIS
GENDA TEM UMMARY
Work Session: Downtown Site Development
Meeting Date: August 11, 2010 Agenda Item Number: A
Department: Planning & Development Staff Contact: Denny Braud
www.eugene-or.gov Contact Telephone Number: 541-682-5536
ISSUE STATEMENT
The council is being asked to provide direction on a redevelopment proposal for the vacant parcel
owned by Beam Development located at Broadway and Willamette Street and adjacent to the Centre
Court building. Given various time constraints, the council is being asked to indicate its general
support for the project concept and Recovery Zone bond financing proposal so that the necessary
approvals can be considered in September.
BACKGROUND
Bennett Management Company (BMC), a locally-owned property management and real estate
development firm, is working with Beam Development and the City to acquire and develop the vacant
parcel owned by Beam, directly south of the Centre Court building (“Vacant Parcel”). (See the map in
Attachment A.) The conceptual development proposal would provide approximately 50,000 square-
feet of new construction including ground floor retail and four floors of commercial office space. The
total project cost is estimated at $10 million.
BMC and Beam are in discussions regarding the transfer of ownership of the Vacant Parcel. The
consideration for the property transaction would likely be limited to BMC’s assumption of the existing
Downtown Revitalization Loan Program (DRLP) loan on the property and restructuring of the loan
terms. The primary sources of financing for the new construction would include a bank loan that
achieves a tax-exempt interest rate through conduit financing by the City (see additional detail below),
BMC equity, and gap financing provided through the DRLP.
BMC has received a preliminary verbal commitment from its bank (to be followed shortly by a written
commitment) to finance the proposed project. To meet the bank’s underwriting criteria; BMC will
need to achieve specific pre-leasing, loan-to-value, and cash flow coverage requirements. The City is
considering assistance as follows specifically directed at helping BMC meet the bank’s underwriting
criteria.
Subordination and restructuring of the existing $404,000 DRLP financing on the Vacant
Parcel.
Utilization of the City’s Recovery Zone bond authority to allow BMC to achieve a lower,
tax-exempt interest rate on its bank loan.
To help meet the bank’s 65%-70% pre-leasing requirement, a City commitment to occupy
up to 10,000 square-feet of office space in the new building, and guarantee an additional
10,000 square feet of office space. (Similar to the 50,000 square-foot lease commitment
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previously made to Beam for new construction on the Vacant Parcel, the City’s lease
commitment would be reduced if sufficient private lease commitments are achieved.)
A potential DRLP loan in an amount needed to assist BMC in closing gaps in meeting the
bank’s loan-to-value and cash flow coverage underwriting criteria.
For BMC to move forward with the proposed project, the City and Urban Renewal Agency (URA) will
need to consider the following actions:
1.Approval of the ownership transfer for the vacant parcel from Beam to BMC, along with the
assignment of development rights under Beam’s Purchase and Sale Agreement.
2.Designation of a “Recovery Zone,” which would provide BMC the opportunity to utilize
Recovery Zone Facility Bonds to access lower-cost tax-exempt interest rates for the project.
3.Authorization for the City to issue the Recovery Zone Facility Bond in support of the project.
Transfer of Ownership and Development Rights
The URA purchased and sold the Vacant Parcel to Beam in July 2008 for $454,000 (appraised value).
The URA provided DRLP financing to Beam in the amount of $404,000 for the purchase. The
Purchase and Sale Agreement associated with the Vacant Parcel specifies that on or before May 1,
2011, Beam shall submit conceptual plans, a construction budget, and firm commitments for debt and
equity financing and other information deemed reasonably necessary by the URA for its determination
as to whether Beam can viably redevelop the Vacant Property. The redevelopment proposal is subject
to review and approval by the URA.
Beam’s redevelopment of the adjacent Centre Court building is underway and they have been working
on strategies to move forward with the redevelopment of the Vacant Parcel. Beam has concluded that
the best way to move forward is to convey the property for a compatible development plan. Beam’s
compensation for the sale of the property to BMC would be the transfer of the $404,000 DRLP loan to
BMC.
Recovery Zone Bonds
BMC has asked that the City assist the project by providing access to tax-exempt interest rates. The
City can do this by using a limited-term opportunity provided through the American Recovery and
Reinvestment Act of 2009 (ARRA) federal stimulus program.
The ARRA revised the Internal Revenue Code to create Recovery Zone bonds in order to promote job
creation and economic recovery in areas impacted by employment decline. The City received two
Recovery Zone bond authorizations: Recovery Zone Facility Bonds (RZ Facility Bonds) of
$11,083,000 and Recovery Zone Economic Development Bonds (RZ Economic Development Bonds)
of $7,389,000. RZ Facility Bonds may be used by private companies to access tax-exempt financing.
RZ Economic Development Bonds may be used by public entities for infrastructure and facilities,
among other items.
Recovery Zone bonds must be issued inside a Recovery Zone, which is an area designated by the
government issuing the bonds. The proposed new commercial office building is an eligible use
(residential development is not eligible). Considerable latitude is given to governments in designating
the Recovery Zone boundaries. The City’s bond counsel recommends that for maximum flexibility in
the use of these tools, the City consider drawing the City limits as the boundary for the Recovery Zone
designation.
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Under the RZ Facility Bond approach, BMC would obtain a loan from a bank. That loan would be
secured by payments from BMC and other security that is required by BMC’s bank. Although the
specific mechanics of how this would occur need to be worked out, the City would layer a bond
structure over the bank loan in order to provide the tax-exempt interest rates. No City money would be
used for the transaction. The City would not be lending money to BMC; the City would not be taking
any financial risk by entering into this transaction on behalf of BMC. The City’s Recovery Zone bond
allocation has a limited duration, and the State of Oregon has indicated that it will pursue the City’s
allocation in September for another purpose if those allocations are not committed to local projects.
To utilize the program, the BMC project would need to close its bank loan and begin drawing funds by
the end of calendar year 2010. With these time constraints, the council is being asked to indicate its
general support for the project concept and Recovery Zone bond financing proposal so that the
necessary approvals can be considered in September.
RELATED CITY POLICIES
Development of the Vacant Parcel addresses many goals for Eugene and downtown, including activity
in the core, employment, and sustainability. This project is supported by the Downtown Plan; Down-
town Code Amendments; West Broadway Advisory Committee Recommendations; Central Area
Transportation Study; Downtown Vision; City Council’s Downtown Collective Statements from
August 2009; Downtown Policing Action Plan Team Short-Term Public Safety Strategy
Recommendations 2004; Cultural Policy Review; Mayor’s 2004 Committee on Economic
Development; Growth Management Policies; Sustainable Business Initiative; and JEO’s regional
economic development principles.
The City’s debt policies set out provisions for the use of conduit financing, which is what BMC has
requested for this project. Under those policies (which are included as Attachment B), a project has to
meet certain criteria, including that the City not incur any moral or financial obligation from the
borrowing, and that the private party requesting the financing pays all of the costs of the borrowing.
COUNCIL OPTIONS
1.Direct the City Manager to bring back additional project details for consideration including:
a) Request for URA Board approval of the transfer of ownership of the vacant parcel from Beam to
BMC, along with the assignment of Beam’s development rights under Beam’s Purchase and Sale
Agreement;
b) A resolution designating a Recovery Zone which would provide BMC the opportunity to utilize
Recovery Zone Facility Bonds as a tool to lower interest rates on the project; and
c) A resolution authorizing the City to issue Recovery Zone Facility Bonds in support of BMC’s
bank financing.
2.Take no action.
CITY MANAGER’S RECOMMENDATION
The City Manager recommends that the council declare support for the BMC project and that the
following items be brought back for consideration: a) transfer of ownership of the vacant parcel from
Beam to BMC, along with the assignment of development rights under Beam’s Purchase and Sale
Agreement; b) a resolution designating a Recovery Zone which would provide BMC the opportunity to
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utilize Recovery Zone Facility Bonds to finance the project; and c) a resolution authorizing the City to
issue Recovery Zone Facility Bonds in support of BMC’s project financing.
SUGGESTED MOTION
Move to support the Bennett Management Company proposal in concept, and direct the City Manager
to bring back additional project details for consideration including a) the transfer of ownership of the
Vacant Parcel from Beam to Bennett Management Company, along with the assignment of
development rights under Beam’s Purchase and Sale Agreement; b) a resolution designating a
Recovery Zone which would provide Bennett Management Company the opportunity to utilize
Recovery Zone Facility Bonds to finance the project; and c) a resolution authorizing the City to issue
Recovery Zone Facility Bonds in support of Bennett Management Company’s project financing.
ATTACHMENTS
A. Vacant Parcel Map
B. Excerpt from Debt Policies – Conduit Financing
FOR MORE INFORMATION
Staff Contact (Development Proposal): Denny Braud
Telephone: 541-682-5536
Staff e-mail: denny.braud@ci.eugene.or.us
Staff Contact (Bonds): Sue Cutsogeorge
Telephone: 541-682-5589
Staff e-mail: sue.l.cutsogeorge@ci.eugene.or.us
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ATTACHMENT B
Excerpt from City Debt Policies
CF
ONDUIT INANCINGS
1.Conduit financings are financings that the City provides for the benefit of non-governmental
entities to allow those non-governmental entities to obtain low cost, tax-exempt financing. Conduit
financings are not secured by any revenues or assets of the City except revenues and assets
provided by the non-governmental entities that benefit from the conduit financings.
2.The United States Internal Revenue Code substantially limits the ability of the City to provide
conduit financing; conduit financings are only available for small manufacturing facilities, facilities
used by qualified 501(c)(3) organizations, certain kinds of low income housing projects, and other
projects that can be financed with “qualified bonds” as defined in the Internal Revenue Code.
3.Recognizing that the City is able to issue debt for broad purposes, it may be appropriate to enter
into a conduit financing on behalf of another party when the City Council determines that the
proposed project will provide a general benefit to City residents and/or the City economy.
4.Conduit financing will be considered only when a project is consistent with the city’s overall
service and policy objectives.
5.The City should not incur any moral or financial obligation under a conduit borrowing.
6.The City will only consider conduit financings that will insulate the City from any credit risk.
7.Any financing issued through the City must qualify for an investment grade rating by one of the
nationally recognized statistical rating agencies or provide alternative credit enhancement from a
third party satisfactory to the City or a corporate guaranty if the corporation carries an investment
grade rating.
8.All expenses related to conduit financing will be borne by the third-party applicant for whom the
debt is being issued.
9.The City will establish review procedures of the requesting party for projects, including adherence
to public contracting requirements, development of a financial feasibility study of the project, and
submission of annual financial statements to ensure the ability to repay the debt.
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