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TO: Mayor Richard C. Irvin
FROM: David Dibo, Director of Economic Development
DATE: August 24, 2021
SUBJECT:
A Resolution Authorizing the Execution of an Amendment for the Previously Approved RDA for the Keystone Building (30 S Stolp Avenue).
PURPOSE:
This amendment will enable Urban Equity to be compensated for the unforeseen cost increases that resulted from material and construction costs dramatically going up due to COVID 19, complete the project lien free, preserve the tax credits that facilitated the original transaction and strike a balance between the developer’s and the City’s risks and potential rewards.
BACKGROUND:
Legistar item #21-0678 discussed the overall goal of a number of things financial restructuring recommendations.
The following is a summary of what has occurred since the Keystone building project was approved on February 26, 2019 with resolution R2019-055 and the rationale for staff’s restructuring recommendation. The development was approved in mid-2019 and construction started on late 2019 and was in full gear by the first quarter of 2020 when the pandemic hit. At that point, the give and take between the Developer and the Federal Park service ( who is the ultimate arbiter of what constitutes what is historically acceptable) became extremely slow so issues that needed to be addressed became bogged down and once resolved the custom made materials were unavailable or delayed for many months. These in turn caused labor increases and increases of other carrying and administrative costs. Once the communication chain reopened issues were resolved and Keystone is scheduled to be completed by the end of September 2021.
Keystone was one of the first two historic projects approved in this administration. As they near completion both will be almost 40% higher than originally anticipated.
DISCUSSION:
Historic tax credit renovations (like many affordable housing developments) have financial structures that are complex and sometimes counterintuitive. Cost overruns can entitle sponsors to raise more equity from these tax credit investors and actually make them eligible to collect higher fees. These need to be stripped out to get down to what were the real economic impacts of higher costs.
On a gross basis total project costs rose by almost $4,000,000 to almost $14,700,000.
The net result for Keystone is that the Developer was unable to take out their overhead and fees that they earned as both Developer and General Contractor and needed to put them back into the deal while also putting in substantially more cash. The Developer equity is sitting at well over $2.5 million. With Keystone nearing completion time is of the essence.
It is also important to note in Keystone that the Developer needed to purchase the building for $1,300,000. (The other downturn rehabilitations we’re with buildings that were donated or acquired at marginal costs). The impact of this became increasingly apparent as costs increased. Of the original incentive grant of $1,500,00 all but $200,000 went to the acquisition leaving less than $5 per square foot to offset construction and related costs. This is substantially less than the other downtown projects.
For Keystone, staff is recommending that:
- $500,000.00 of the principal amount of the Bridge Loan shall be forgiven upon Developer’s satisfaction of Developer’s obligations.
- The Developer shall repay to the City $1,000,000.00 of the principal amount of the Bridge Loan within fourteen (14) days of Developer’ receipt of the Tax Credits Funds.
- The remaining $206,866.55 of the principal amount of the Bridge Loan shall accrue interest at that greater of (i) 2.5% or (ii) the City’s cost of borrowing on the funds used to provide the Bridge Loan. Principal and interest shall be fully amortized over a five (5) year period.
The Developer shall reimburse the City for all legal fees incurred by the City associated with this Amendment.
A summary of the sources and uses of funds from the original agreement and as proposed is attached. In summary, the City will increase the incentive by $500,000, and will forgive approximately $200,000 in current interest owed and will forego some interest income on the bridge loan due to the change in interest rate calculations. The developer will put in $1,215,000 in additional equity and will defer their General Contractor fee of $612,702. Given the economy and overall costs faced by the developer, this is a reasonable solution.
IMPACT STATEMENT:
The impacts of this decision will be long lasting as it will facilitate the successful completion of the project. It will affect job creation and retention, tax base, sales and food and beverage revenue.
RECOMMENDATIONS:
Staff recommends approval of the resolution authorizing the execution of a First Amendments for the previously approved RDA for the Keystone Building (30 S. Stolp Ave) a copy of which is attached herein together with the original Legistar report.
cc: Finance Committee
CITY OF AURORA, ILLINOIS
RESOLUTION NO. _________
DATE OF PASSAGE ________________
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A Resolution Authorizing the Execution of an Amendment for the Previously Approved RDA for the Keystone Building (30 S Stolp Avenue).
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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 COVID 19 Pandemic created substantial health and economic hardships on all businesses and residents in Aurora; and
WHEREAS, The City has provided multiple programs including the CERF and STABLE grant programs to support Aurora businesses; and
WHEREAS, The Keystone Building redevelopment project has been adversely impacted by the COVID 19 Pandemic;
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Aurora, Illinois, as follows: That the Amendment to the Redevelopment Agreement approved through Resolution R-19-055 is hereby amended through provisions provided in the attached Amendment.