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TO: Mayor Richard C. Irvin
FROM: Martin S. Lyons, Chief Financial Officer/City Treasurer
David Dibo, Director of Economic Development
DATE: December 7, 2020
SUBJECT:
A Resolution authorizing the 2nd Amendment to the Redevelopment Agreement (RDA) between the City of Aurora and Fox Valley Developers as amended.
PURPOSE:
This This Resolution provides for the amendment of the RDA initially approved under Resolution R19-382 (resolution and cover memo attached) and subsequently amended under Resolution R20-135 (resolution and cover memo attached). This 2nd amendment (final attachment) makes modifications relating to timing, and actions that precipitate other actions while maintaining the essence of the approved RDA including funding obligations from the City.
BACKGROUND:
Originally initiated through Phase I - the Remediation of Old Copley Hospital in 2018, the Renovation of the Old Copley Hospital by Fox Valley Developers (FVD) is a multi-phase project involving several components and complex financing. The post remediation phase of this project was initiated in November 2019 and has progressed forward with the construction of the School Administration and training facility for School District 131 and detailed lanning and financing of the remainder of the project.
Issues related to the financing of this project, that are detailed in the attached report for the First Amendment to this RDA, resulted in a change in scheduling and financing for the District 131 portion of the project. Based on information provided by the state and federal government regarding the approval of the school facility, it was subsequently learned that the sale of the school district building cannot occur by December 31, as outlined in the 1st Amendment. This closing/move in was also impacted by COVID in that elevator infrastructure could not be obtained to finish the project by this deadline.
FVD has communicated to the City the final timelines for completing the School District facility and for the financing of the remainder of the project, all of which will occur in 2021. This schedule requires an amendment to the RDA and School District 131 approval(that was received at their December 7, 2021 Board meeting.
DISCUSSION:
FVD has worked expeditiously to complete the District 131 facilities during 2020 and since the 1st Amendment to the RDA was approved by the City and the School District. This 1st Amendment required that:
1) The School District facility be completed by December 31, 2020.
2) The sale of the School District facility to the District by 12/31/20 that would cause #3 below
3) FVD to pay back the $1.5 million loan from District 131 and the City by 12/31/20.
Based on current financing and construction schedules, below is an updated calendar of events for the School District facility that includes completion, leasing and closing/sale of the facility that necessitate along with other issues a Second Amendment.
January 30, 2021 - Completion of Facility/start of move in by School District and issuance of a temporary certificate of occupancy.
January 31, 2021 - Payment of the First Lump Sum Payment of $4.5 million by the City to FVD through Chicago Title.
June 15, 2021 - Repayment of City and School District Advance of $1.5 million this will still earn interest for the entire time period).
Highlighting the details and ramifications of these modifications:
January 30, 2021: (Completion/Move in)- Covid-19 delays necessitated a change in this date by about one month
January 31, 2021: (First Lump Sum payment)-The 1st Amendment had the date of this payment coincide with the sale of the School District Building that in turn would cause a repayment of the City’s $1.5 million interest bearing loan. The 2nd Amendment allows this first $4.5 payment to be made by the end of January so construction on Phase Two can commence (after over $70 Million of third party Project financing is received) recognizing that a) the School District Facility is almost completed and move in will start by 1/15/21 b) circumstances that prohibited the sale of the School District Building commensurate with its completion was beyond the control of the developer and c) the City $1.5 interest bearing loan is secured by a personal guarantee and second mortgage if required and, while not being paid off in late December, will be paid off by mid-June.
June 15th, 2021: This date replaced the December 31st date in the 1st Amendment due to aforementioned Covid019 delays and unforeseen requirements relating to Federally controlled historical designation requirements. It is the latest date that the School District sale can close and the Developer is required by this amendment to have all historic issues finalized.
Other issues that require a second amendment refer to the timing and wording of the close out of the entire project and the financial treatment of the 1st Lump Sum Payment.
1) The current RDA as amended requires the entire facility to have a final certificate of occupancy and to have users occupying and operating the Senior Housing and IDD Uses and Commercial Uses. The State Historic Tax Credit (SHTC) Lender/Investor and the Federal Historic Tax Credit (FHTC) Lender/Investor will not wait until the facilities are completely in use to finalize this part of the transaction. In order to close on the second half of the financing (the tax credits) only a temporary certificate of occupancy is require. This change allows for the quicker closing out of the bridge loan that is taken out against these tax credits and the final sale of these tax credits to reimburse the bridge loan lender at the completion of the project and not when the project is fully occupied.
2) FVD has requested and the City is in agreement with the classification of the 1st Lump Sum Payment ($4.5 million) and the original $1.5 million grant for Phase 1 remediation as an interest free forgivable loan. The city has used forgivable loans in this manner for past developments and there is no liability for the city to make this change.
The total amount of borrowing being achieved by FVD is consistent with the financial structure outlined in the original RDA. FVD anticipates funding approval for the following at closing on December 17, 2020:
-$34.5 million Construction Loan to be provided by U.C. Funds.
-$32.0 million Construction Loan funding through a bridge loan provided by Enhanced Capital. (this is the short term loan used for construction until the tax credits are funded).
-$4.7 million Federal Historic Tax Credit Upfront Funding.
-$3.0 million PACE Loan - funded through Kane County.
Total Funding from Non-City Sources - $74.2 million
FVD has partnered with two major financial institutions to provide reliable funding to this project.
UC Funds is a national balance sheet provider of both debt and equity capital solutions that has provided over $3 billion dollars of capital solutions since 2010. UC Funds provides quick, reliable and customized financial solutions throughout the entire capital stack, including joint venture equity. One of the nation’s most entrepreneurial lending institutions, UC Funds focuses on Multifamily, Retail, Office, Hotel, Industrial/Warehouse, Adaptive Reuse and Construction nationwide. The UC Funds website at www.ucfunds.com <http://www.ucfunds.com> provides many examples of the projects, similar to this adaptive reuse project, they have funded over the past 10 years.
Enhanced Capital - For the last 20 years Enhanced Capital has been working to help finance qualifying projects with tangible community, social, and environmental benefits. Enhanced’s goal is to inspire community development by making transformative investments in businesses that are often overlooked by traditional sources of capital. Enhanced works with investors to repurpose their tax payments into return-yielding tax credit investments. In addition to this Enhanced sources, completes due diligence, and executes transactions across multiple programs to provide private capital to these government sponsored initiatives.
For this Project, Enhanced Capital is providing the following:
Purchase of the State Historic Tax Credits
Bridge Loan
PACE Loan
City Financing:
In order to make the 1st Lump Sum Payment, as has been communicated previously to the City Council, the City will be issuing taxable debt. Staff recommends that this debt be issued as a negotiated General Obligation Bond Issue as follows:
-$4.5 million for the 1st Lump Sum Payment
-$3.0 million for the pay down of the outstanding Line of Credit that was issued at the completion of Phase I (remediation) of the project.
-$500,000 in capitalized interest to support interest payments until the project is completed and assessed and paying property taxes into the TIF district estimated in 2023.
This $8.0 million debt issuance will be brought to the City Council in January to meet the end of January deadline. Interest rates are at all-time lows for municipal general obligation debt on both a tax exempt and taxable basis. This issuance was reviewed in 2019 during the City's refinancing of 2009 debt with Standard and Poors rating agency, along with the other potential issuance of debt for the 2nd Lump Sum Payment, the Public Works Facility debt, the Cedarwood/Commons Drive debt and other debt. At that time, in the opinion of S&P, the issuance of this debt would have no negative impact on the City's Bond rating. The City disclosed further debt possibilities to S&P regarding Bilter/Farnsworth Road developments as well.
IMPACT STATEMENT:
Approving this resolution will support the approval of project funding for the entire Copley hospital project with FVD in excess of $70 million and is necessary to proceed with the next phase of the project.
RECOMMENDATIONS:
That this resolution be approved by the City Council.
cc: Finance Committee
CITY OF AURORA, ILLINOIS
RESOLUTION NO. _________
DATE OF PASSAGE ________________
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A Resolution Approving the 2nd Amendment to the Redevelopment Agreement with Fox Valley Developers Resolution R19-382.
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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 City has the authority, pursuant to the laws of the State of Illinois, to promote the health, safety and welfare of the City and its inhabitants, to prevent the presence of blight, to encourage private development in order to enhance the local tax base and increase additional tax revenues realized by the City, to foster increased economic activity within the city, to increase employment opportunities within the City, and to enter into contractual agreements with third parties for the purpose of achieving the aforesaid purposes, and otherwise take action in the best interests of the City; and
WHEREAS, the Mayor and City Council ("Corporate Authorities") of the City have considered a redevelopment agreement for the Fox Valley Developers, LLC for reimbursement of eligible redevelopment project costs for the property commonly known as Old Copley Hospital in the City, a true and correct copy of the "Redevelopment Agreement For the Avalon Heights Development In The City of Aurora, Illinois" being attached hereto and made a part hereof as Exhibit A("Redevelopment Agreement"); and
WHEREAS, the Mayor and City Council ("Corporate Authorities") of the City have considered a 1st Amendment to the redevelopment agreement for the Fox Valley Developers, LLC for reimbursement of eligible redevelopment project costs for the property commonly known as Old Copley Hospital in the City, a true and correct copy of the 1st Amendment For the Avalon Heights Development In The City of Aurora, Illinois" being attached hereto and made a part hereof as Exhibit B ("1st Amendment"); AND
WHEREAS, THE Corporate Authorities of the City have determined that it is in the best interests of the residents of the City that the Redevelopment Agreement be amended by the City as provided herein, and further that but for the provisions of this amendment, the property would not otherwise be developed as provided herein; and
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Aurora, Illinois, as follows:
SECTION 1: The Preambles hereto are hereby made a part of, and operative provisions of, this Resolution as fully as if completely repeated at length herein.
SECTION 2: That the Mayor and City Council of the City hereby find that it is in the best interests of the City and its residents that the Second Amendment to the Redevelopment Agreement with Fox Valley Developers, LLC be entered into by the City, with said Second Amendment to the Redevelopment Agreement to be substantially in the form attached hereto and made a part hereof as EXHIBIT C.
SECTION 3: That the Mayor and City Clerk of the City are hereby authorized to execute the Second Amendment to the Redevelopment Agreement on behalf of said City
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SECTION 4: That this Resolution shall take effect from and after its adoption and approval as required by law.