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TO: Mayor Richard C. Irvin
FROM: David Dibo, Executive Director
DATE: April 25, 2023
SUBJECT:
A Resolution Approving a $1,500,000 Loan to Fox Valley Developers to facilitate the leasing of about 27,900 square feet of approximately 50,000 square feet total health care facility, on the Bloomhaven Campus, previously known as the shuttered Copley Hospital and Amending Certain Provisions of the Original Redevelopment Agreement (RDA) (R19-382, November 12, 2019) relating to the City’s share of TIF #14, (O20-071, October 13, 2020).
PURPOSE:
These two actions will secure a health care provider as the anchor tenant for the medical office portion of the Bloomhaven campus by providing needed affordable health care services to the near east side. It also assures the financing for the almost completed redevelopment. This in turn triggers additional funding of over $20 million ($62.2 million in total) that will pay off outstanding shorter-term loans, outstanding construction costs, deferred interest, and other scheduled liabilities.
BACKGROUND:
The $1,500,000 loan provides Fox Valley Developers with funding for their portion of the total tenant build out. Full build out is estimated to be approximately $5,500,000 with the developer contributing about 27% or $54/SF and the health care provider contributing the balance.
Financing of Bloomhaven was and remains grounded in maintaining the historic nature of the former Copley campus using Federal and State tax credits to provide substantial equity for the project. These credits are purchased by institutional investors who have considerable sway over financial decisions of the project including parameters related to refinancing. While leasing almost 60% of the commercial space is seen as a positive and another step toward achieving the financial results first estimated pre-pandemic about four years ago, this comes with strict requirements imposed by the tax credit investor including the clearing of all liabilities up front. This has required Fox Valley Developers to forgo all projected development fees, construction profit and overhead and significantly reduce reimbursements for services already performed by certain partners involved in the day-to-day construction and to increase their own cash contributions to about $5M in additional dollars.
While the City believes these are correct actions to be taken by developers who take risks and should reap reward when successful, having a tenant that provides health care to those who otherwise would go without it, provides additional impetus to recommend providing needed liquidity as the development reaches its last critical phase. The assistance will come in the form of debt and will provide the taxpayer with a return on investment as discussed below,
The long-term stability for Bloomhaven will result from leasing and creating net cash flow to service long term debt and provide eventual well-deserved return on investment for Fox Valley Developers. That Weston Bridges, the innovative community for individuals with intellectual or developmental disabilities is exceeding projections and the recently opened Bardwell Senior Living Community is well received as residents are now moving in, bodes well for a development that was deemed impossible when it was conceived about five years ago.
DISCUSSION:
As noted above there are two separate requests: The first is a straightforward loan to Fox Valley Developers for $1.5 Million which represents the landlord’s obligation as per the lease.
The loan will only be granted after an executed lease is signed and will be drawn in a manner to assure the tenant improvements are completed as per the lease.
This loan will be paid back starting on January 1, 2030. It will accrue interest at the City of Aurora’s cost of funds plus 50 basis points (1/2%) and will be personally guaranteed by each partner joint and severally. The loan and an all-accrued interest shall be amortized on a straight-line basis over a term of five years (60 months) with monthly principal and interest due on the first of each month beginning January 1, 2030.
The second request relates to the City’s share of the previously approved TIF which provides the City with a 20% share of all TIF Revenues from TIF inception until 1/1/2033 at which time the City share is scheduled to increase to 30%. As the project is still in its early stabilization phase, property taxes are still low. This is expected to change by 2025 when the total taxes generated by the property is expected to be about $725,000 (compared to $25,000 today) and the City share, at 20% would be about $145,000 (compared to $5,000 today).
To assure continued liquidity and the full returns required by the tax credit investor, they have insisted that the City share of the TIF be deferred until 2030. The City has agreed to these terms on the following conditions: 1) that all deferred payments are characterized as a loan (subordinate to the scheduled refinancing) 2) that the loan accrues compounding interest at the City's cost of funding plus fifty (50) basis points (1/2%) 3) that the loan matures on Jan 1, 2035 and is amortized on a straight line basis. 4) that the loan is personally guaranteed by all partners jointly and severally and 5) that the city share of the TIF payments increases to 30% on Jan 1, 2030. This increase to 30% from 20% is occurring 3 years prior to originally scheduled which is a positive benefit for the city of Aurora and would provide an estimated $350,000 additional increment to the City over those 3 years.
For the $1.5 Million dollar loan as well as the TIF loan (which are the payments the City would have received based on the timing indicated above) all payments are senior to any distributions of cash flow to the developer. In other words, all loans form the City must be paid in full prior to the partners receiving any distributable cash flow.
IMPACT STATEMENT:
There are several positive impacts to the Aurora community because of this request. The first is the benefit of having an experienced, well regarded health care provider located conveniently on the near east side to provide affordable health care. The second is to assure the long-term financial viability of Bloomhaven in an uncertain economic time; while there have been certain modifications to the original agreements since it was first approved in late 2019,they had to do more with timing than supplying additional financial capital even as costs and interest rates surged during and after the pandemic that continue to this day, The positive impact to the Bardwell neighborhood itself continues with property values increasing and quality of life notably enhanced. School District 131 has consolidated all it offices in one building and are pleased that the community can access school district administrative services all at one location.
Finally, we have estimated that the health care provider will generate about 100 well-paying jobs.
RECOMMENDATIONS:
Staff recommends approval of the resolution approving a $1,500,000 (One Million Five Hundred. dollars) loan to Fox Valley Developers and amending certain provisions of the original redevelopment agreement (RDA) (R19-382, November 12, 2019) relating to the City’s share of TIF #14, (O20-071, October 13, 2020) as stated above.
cc: Finance Committee
CITY OF AURORA, ILLINOIS
RESOLUTION NO. _________
DATE OF PASSAGE ________________
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A Resolution Approving a $1,500,000 (One Million Five Hundred.00 dollars) Loan to Fox Valley Developers and Amending Certain Provisions of the Original Redevelopment Agreement (RDA) (R19-382, November 12, 2019) relating to the City’s share of TIF #14, (O20-071, October 13, 2020).
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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 approved a redevelopment agreement for 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 Corporate Authorities of the City have determined that it is in the best interests of the residents of the City that the loan be approved, and the Redevelopment Agreement be amended, that but for the provision for incentives as provided therein, the project would not otherwise be completed as provided therein; 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 Redevelopment Agreement with Fox Valley Developers, LLC be amended, with said Redevelopment Agreement to be substantially in the form attached hereto and made a part hereof as EXHIBIT A.
SECTION 3: That the Mayor and City Clerk of the City are hereby authorized to execute the Redevelopment Agreement on behalf of said City.
SECTION 4: That the Chief Financial Officer of the City is authorized to disburse a $1,500,000 (One Million Five Hundred.00 dollars) loan for the completion of the project.
SECTION 4: That this Resolution shall take effect from and after its adoption and approval as required by law.