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TO: Mayor Richard C. Irvin
FROM: David Dibo, Economic Development Director
DATE: February 28, 2023
SUBJECT:
A resolution authorizing approval of a Development Agreement with JH Real Estate Partners LLC for the rehabilitation of the building at 110 Cross (between River and Middle across from the Jimmy John’s) for conversion of the historic building into 15 market rate apartments and a brewery on the ground.
PURPOSE:
The RDA will facilitate the development with a 23 year TIF with 70% of the benefit going to the JH plus a forgivable loan of $300,000 to the developer and $75,000 to the first floor microbrewery tenant. The TIF inducement resolution was approved on July 27th, 2021 which permits certain expenses to become eligible for reimbursement after the TIF is approved by the City Council.
BACKGROUND:
110 Cross is a historic building purchased about 4 years ago by JH. Plans to renovate the building have been in the works since then including the recruitment of the well-regarded Foreign Exchange Brewing company. The City had asked JH to table this request until the completion, opening and residential leasing of the Hobbs Project including the renting of the retail spaces on the first floor and partial basement. In addition, Foreign Exchange wanted to affirm that they had properly capitalized this new venture as much of the high costs to create the brewery are being borne by Foreign Exchange as part of the overall lease with JH. Along with other parts of the downtown, there is a vibrant interest in the area from Benton south to at least North Avenue. (Council approved a corridor study/master plan in the 2023 budget for this area.)
DISCUSSION:
While the market downtown is moving to more self-sufficiency, reducing the magnitude of incentives needed to fill the “gaps’ between the costs to complete a project and the value of that project at completion, there is still a negative spread in most downtown deals because (escalating) costs are still higher than end product valuations. The Aurora market has been in a footrace between skyrocketing costs not only here in Aurora but nationally and internationally and increasing commercial and residential rents. (The City is working both in the affordable markets in an attempt to ameliorate rents for those who need assistance and the market rate market; here we are addressing only the later).
We have discussed and will continue to provide more detail to Council as how these gaps are calculated and even after these gaps are “filled ” with City support- economic returns to these developers are modest at best. 110 Cross is no different. Even with the benefit of State and Federal Historic Tax incentives and working to prelease to a proven tenant on the first floor the end product valuations are still less than total turnkey costs.
While gaps are analyzed and ultimately calculated on a project-by-project basis using details and nuances of each proposed development, the City compares what incentives on a “per unit basis” have been given. The gaps have induced incentive that have ranged from $27,000 to $50,000 per unit or an average of $38,000 This amount has been reduced to $20,000 per unit or $300,000 for 15 units, or about 50% lower.
The remaining $75,000 equates to about 10.5% of the $712,000 budget to put Foreign Exchange at 100 Cross. The company has not received any prior support from the City. Because JH is the master developer of the entire building these funds will be channeled through JH to Foreign Exchange through a title company.
The City is expected to receive about $32,000 per year in sales and food and beverage taxes from Foreign exchange retail sales (They also have a significant wholesale component).
The estimated Tax Increment from a TIF for the project is $69,000.00 and per the proposed RDA this will be split 70%/30% between the Developer/City as projected in the attached table. This results in $20,000.00 in property taxes to the City within the new TIF and $49,000.00 to the Developer. This results in an estimated payback period of under 13 years for the $375,000 grant.
IMPACT STATEMENT:
The approval of this RDA will bring another vacant building back to productive use, creating jobs, sales tax revenue and increased taxes over the long run. It will help raise values in the vicinity and will be a catalyst for increase development in this River Street south corridor. New residential units will be created and this local brewery who has an ardent following will attract local and our of area visitors as well who in turn will support neighboring retail establishment. The City will be reimbursed for this investment.
RECOMMENDATIONS:
This Staff recommends approval of the resolution authorizing the execution of development agreement with JH Real Estate Partners.
cc: Finance Committee
CITY OF AURORA, ILLINOIS
RESOLUTION NO. _________
DATE OF PASSAGE ________________
title
A Resolution authorizing approval of a Development Agreement with JH Real Estate Partners LLC for the rehabilitation of the building at 110 Cross (between River and Middle across from the Jimmy John’s) for conversion of the historic building into 15 market rate apartments and a brewery on the ground floor.
body
WHEREAS, the City of Aurora has a population of more than 25,000 persons and is, therefore, a home rule unit under subsection (a) of Section 6 of Article VII of the Illinois Constitution of 1970; and
WHEREAS, subject to said Section, a home rule unit may exercise any power and perform any function pertaining to its government and affairs for the protection of the public health, safety, morals, and welfare; and
WHEREAS, JH Real Estate Partners LLC (JH) has approached the City with a proposal for the development of 110 Cross (between River and Middle across from the Jimmy John’s) for conversion of the historic building into 15 market rate apartments and a brewery on the ground floor and
WHEREAS, these property at 110 Cross Street is currently vacant and
WHEREAS, the City finds that 110 Cross Street will not develop without some assistance and incentive from the City with respect to the costs of buildout; and
WHEREAS, Developer has agreed to acquire and develop the Property as a mixed-use development of residential and commercial space in accordance with the terms and provisions hereof (the "Project"); and
WHEREAS, the City finds that as a direct result of the Project, the City will benefit through the retention or creation of jobs; the strengthening of the commercial environment within the City and the enhancement of its tax base, and that the Project will serve as a catalyst for the commercial development of adjacent areas;
WHEREAS, the Project would not be economically viable but for the assistance and participation of the City,
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Aurora, Illinois, as follows: pursuant to its statutory and home rule powers, as follows: that the Agreement attached to this Resolution as Exhibit A shall be and hereby is approved; and further
BE IT RESOLVED, that the Mayor is authorized to execute an Agreement that substantially and materially conforms to the provisions of the Agreement set forth in Exhibit A on behalf of the City for sale of the Property, redevelopment of the Property as a restaurant and the provision of economic incentives to the Developer to make the Project economically viable, as set forth in the Agreement; and further
BE IT RESOLVED, that the several City Officers and employees designated in the Agreement are authorized to perform the function and duties set forth in the Agreement; and further
BE IT RESOLVED, that the Mayor is authorized to execute such documents or agreements between the City and the Developer which are related to and subordinate to the Agreement so long as (1) such additional documents or agreements are consistent with and do not conflict with the provisions of the Agreement authorized by this Resolution (2) are necessary to carry into effect the purposes of the Agreement, and (3) do not create any additional liabilities upon the City.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Aurora, Illinois, as follows: pursuant to its statutory and home rule powers, as follows: that the Agreement attached to this Resolution as Exhibit A shall be and hereby is approved; and further
BE IT RESOLVED, that the Mayor is authorized to execute an Agreement that substantially and materially conforms to the provisions of the Agreement set forth in Exhibit A on behalf of the City for redevelopment of the Property as a mixed use development of apartments and a brewery and the provision of economic incentives to the Developer to make the Project economically viable, as set forth in the Agreement; and further
BE IT RESOLVED, that the several City Officers and employees designated in the Agreement are authorized to perform the function and duties set forth in the Agreement; and further
BE IT RESOLVED, that the Mayor is authorized to execute such documents or agreements between the City and the Developer which are related to and subordinate to the Agreement so long as (1) such additional documents or agreements are consistent with and do not conflict with the provisions of the Agreement authorized by this Resolution (2) are necessary to carry into effect the purposes of the Agreement, and (3) do not create any additional liabilities upon the City.