cover
TO: Mayor Richard C. Irvin
FROM: David Dibo, MOED Director
DATE: September 10, 2024
SUBJECT:
A resolution that approves a redevelopment agreement for the renovation of the property known as the Galena Hotel located at 116 West Galena that includes a city contribution discussed below.
PURPOSE:
Adaptive reuse of the vacant and long dilapidated property for twenty-one “micro apartments” with an affordable pricing structure renamed Lincoln House.
BACKGROUND:
Known originally as Fox River House, the Galena Hotel was rebuilt in 1860, after a fire destroyed the original building. It was owned and operated by Edward Huntoon, cousin to one of the original settlers of Aurora in the early 19th century. It served as a popular location for parties, balls, weddings and community events with residents coming there after attending social events at the popular Dunning block by River Street. The Galena Hotel is notable for its original architecture, that it is one of the few buildings still standing built prior to the Civil War. It was continuously used up until its closure few years ago. The building is listed on the National Register for Historic Places.
After the building was shuttered for continued unaddressed and dangerous code violations, it was purchased by Fernando Barrera, an Aurora native with an accounting and finance degree from Benedictine University and over ten years’ experience in the real estate industry. After working in public accounting, he started his own real estate business and has amassed a portfolio of 150 residential units. He is known for his work with first time home buyers and investors and promoting community and economic growth in the historic neighborhood of his youth. For this project, he has assembled an experienced team of design, construction, and historic building compliance professionals. See Attachment I for detailed backgrounds on the development team.
There are challenges and opportunities inherent in the redevelopment of the Galena Hotel. The building is only about 9,300 square feet with 6,663 rentable based on the layout shown in Attachment II. Because historic regulations severely limit the altering of the original as built layout, about a third of the building will be non-income producing as common area. The result is that renovation costs including provisions for accessibility compliance are extremely high as measured on a per unit or on a per square foot basis. Like other downtown buildings that sat vacant for decades because there was no economic rationale for repositioning them, the Galena Hotel, without financial assistance from the city, has no means to become a vibrant revenue producing asset that will attract many new residents downtown.
DISCUSSION:
Fortunately, the Federal and Illinois state tax codes encourage preservation through the sale of tax credits providing as much as a 45% effective offset of project costs. This translates into a reduction in the impact of the total Galena Hotel renovation costs from about $6,650,000 (a hard to fathom $1000 per square foot, due to amortizing these high costs over such a small amount of space) to closer to $4,450,000, still about $500 per square foot. With Fernando having purchased and carrying the building for $200,000, obtaining a loan for about $2,000,000 and contributing another $500,000 in equity or a total of $3,159,450 in risk capital, the gap as shown on Attachment III (Sources and Uses) is $1,300,00. This equates to about $62,000 per unit, which is in line with both the trends of prior city incentives (inflation adjusted) and the current DAC request. Even after accounting for both the city contribution and the impact of the historic tax credits, Fernando’s anticipated returns on a cash -on-cash basis are modest. Also imputed in the projections (Attachment IV) is utilizing the preexisting TIF #13 that was created for the Hobbs development with the inclusion of the Galena Hotel.
Current taxes on the property are $4,800. If the property remains in its poor and vacant condition, these taxes will likely stay the same or decrease. The RDA calls for these taxes to remain flat for the five years it is anticipated to complete construction and get the project stabilized. After that, a minimum threshold is established where all taxing bodies will receive 20% of the increment above $4,800 and the developer will be eligible to receive an 80% incremental tax reimbursement. If after five years, revenues increase to a point where the developer can earn 8% on its invested capital (net income after debt service of $52,000) then the split would reduce to 70% (developer) and 30% (taxing bodies). At a 10% return, (at $65,000), the split will be 60% (developer) and 40% taxing bodies. Should the developer be able to earn a 12% return ($78,000), there will be a final adjustment where all incremental tax revenues are divided equally for the remainder of the TIF life. The total incentive to the developer as defined in the RDA will be these TIF benefits and the aforementioned $1,300,000 forgivable loan that will be forgiven when the project is completed.
The building design is based on a strong need, as demonstrated most recently by the Affordable Housing Study presented to Council on September 3rd that showed a very strong demand for housing in the city, notably at rents that are in line with standard norms as measured by housing expenses as a percentage of gross income. The units at Lincoln House, while not categorized as affordable as measured by direct government operating assistance, (in other words Lincoln House is market housing), will serve an untapped need by serving residents wanting a place to live downtown and are willing to consider smaller units (think a little larger than a standard hotel room) at rents that are affordable as compared to gross month rents in the downtown often at least $300 higher per month. The average rents in the first couple of years are projected at about $1,050 per unit. Ironically this is higher than even the DAC development on a per square foot basis- but is affordable based on the total monthly tenant outflow.
A micro unit, typically 350 square feet or less is a refined version of a studio apartment with an open floor plan, minimalist design such as neutral colors, sleek lines and compact furnishings such as a Murphy Wall bed that allows for a seamless transition from living room to bedroom. They typically rent for about 30% less than studio apartments within the same market. (Apartment Living) and attract predominantly young professional singles looking to supplement
their smaller living space with nearby services and activities, restaurants, with access to public transportation. Typical floor plans and preliminary layout are included as Attachment V
The RDA is conditioned on Fernando obtaining a Conditional Use Planned Development to allow for residential on the first floor to allow and the smaller than permissible square apartment footage. In addition, Fernando will need approval from the FoxWalk Design Review Committee. Fernado and his professionals have already had a DST meeting with staff. Today’s request from Council does not include the approval of these zoning changes as they will come back through the Economic Development Committee and back to Council.
IMPACT STATEMENT:
Having an additional 21 apartments rented in the downtown, in a market where there is little vacancy, will serve a need and help continue a cycle where more residents induce more retail sales and a wider offering of services that in turn will attract new residents to the downtown.
RECOMMENDATIONS:
Staff respectfully requests approval of this Resolution.
cc: Finance Committee
CITY OF AURORA, ILLINOIS
RESOLUTION NO. _________
DATE OF PASSAGE ________________
title
A Resolution Approving a Redevelopment Agreement between the City of Aurora and The Barrera Organization LLC for the Renovation of the Property located at 116 W. Galena Boulevard, Aurora, Illinois.
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, the property located at 116 W. Galena Boulevard, known as “The Galena Hotel” historically the Huntoon House, is a vacant and blighted property; and
WHEREAS, the Barrera Organization LLC proposed redevelopment will bring twenty-one (21) new market rate microunits; and
WHEREAS, the “Lincoln House” and the City acknowledge that The Barrera Organization LLC. requires economic assistance from the City in order to complete the Project, given the Total Investment Cost, and that the Project would not be economically feasible, but for the economic assistance promised by the City in this Agreement;
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Aurora, Illinois, as follows: that the redevelopment agreement attached to this Resolution as Exhibit A shall be and hereby is approved; and further
BE IT RESOLVED, that the Mayor is authorized or authorized City official to execute this redevelopment agreement or any document that substantially and materially conforms to the provisions set forth in this agreement on behalf of the City.