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TO: Mayor Richard C. Irvin
FROM: David Dibo, Director Mayor's Office of Economic Development
DATE: July 9, 2021
SUBJECT:
A Resolution Authorizing the Execution of a Redevelopment Agreement with DAC Developments, LLC.
PURPOSE:
To codify the terms of an agreement for the development of the vacant land at 100 North Broadway, currently a parking lot owned and operated by the Dolan family. The RDA includes an incentive plan from COA based on DAC fulfilling a series of obligations that culminates with the completion of a new riverfront market rate 263 unit rental living community.
BACKGROUND:
With the completion of the bicycle and pedestrian bridge and strong residential demand for apartments in the downtown core evidenced by low vacancies and increasing rents (as was indicated in the Zimmerman/Volk Associates Housing study, January 2019), COA has been evaluating various plans for residential development on the east side and west sides of the river. DAC initiated discussions with the Dolan family for the 1.93-acre site located across from the Two Brothers Roundhouse, Aurora Transportation Center, and Holiday Inn and Suites and began discussions with COA on various aspects of the development. DAC was then in construction of 321 units, $70 million apartment building in Wheeling, since completed and well received and has since started construction on a 212-unit, $70 million apartment construction project in Des Plaines.
DAC Developments is a Chicago-based real estate development and management company with a focus on multifamily residential and mixed-use ground up developments in the Chicago MSA. The company is led by Daniel Rezko, an experienced real estate professional with an MBA from the University of Chicago Booth School of Business and strong ties with partners in the capital markets. Mr. Rezko is currently developing about $300 million of real estate projects. See attached summary as Attachment A for a more detailed listing of these projects and more information on Mr. Rezko and his developments.
Properties on the east and west banks are prime examples of TOD (transit-oriented development) sites. The trend of creating vibrant, livable, sustainable communities that are pedestrian oriented, with mixed-use elements centered on high quality train service has showed continued strength. The 2008 recession, the overhang of buildings suitable for residential use that until recently had sat vacant, and rents that did not justify new construction have thwarted development on these otherwise desirable properties.
This area has long been envisioned as ripe for residential development. Several City of Aurora long-range planning documents have envisioned this location on the Fox River to be an extension of downtown with new high-quality housing. For example, the Seize the Future Master Plan branded this area the “Roundhouse Neighborhood”. The Master plan identified a vision for this area as being a neighborhood that residents enjoy easy access to a first-class commuter facility and the exciting live performances at the new festival park (aka RiverEdge Park) along the Fox River, Attachment B details the proposed development by DAC of 246 units with a mix of studios, one, two and three bedrooms with structured parking with 314 spaces in a 5-story building. The building is being designed by Papageorge Haymes the internationally recognized Chicago based architectural firm. Papageorge Haymes now in its 40th year, are known as innovative thought leaders, place-makers, and sensitive collaborators with the communities in which they work. The development is expected to cost about $70 million.
DISCUSSION:
Residential development of this site will require rezoning for a special planned development, preliminary plan, plat and final plan. For the last 12-18 months COA and DAC have been in discussions on design, parking, infrastructure, site layout, etc. COA and DAC are now able to bring this forward-thinking project for review and approval.
Despite indications of market strength including the now fully occupied 80 South River Street development (old West Aurora school district building at Benton and River) and the soon to be opened other redevelopments in other historic buildings, there have not been any new ground up apartment buildings built in downtown Aurora in the last 15 years. While downtown rents have increased approximately 25% over the last 3 years, and the gap/deficit between costs and value is narrowing, market rents still do not support new construction. Adding to the challenge is that new construction does not have the financial advantages of the Federal and State historic tax credits that helped propel the flurry of downtown renovations and the former Copley Hospital and new construction is not eligible for Tax Increment Financing funding with respect to construction costs
To address this gap, the RDA calls for COA to provide three levels of incentives: a forgivable development loan of $963 000, a grant of $5,787,500, and a TIF that is divided 90% to DAC and 10% to the City that adjusts downward to 80% and 20% respectively.
Presently the project site sits partially in TIF #1 which ends in the year 2022 and partially in TIF #6, which ends in the year 2030. This time frame does not provide sufficient financing to cover the gap in the project as noted above. As such, the City will need to amend TIF #1 and #6. Originally, staff reviewed the splitting of TIF #6 at Illinois street to create a new TIF that could involve other future developments. However, due to the presence of approximately $3.1 million in bonds within TIF #6 from previous development projects, the City will need to continue our process of creating a micro-TIF from the current, much larger TIF #6. The new TIF boundaries as proposed are expected to still be a minor amendment to TIF #1 and #6 and therefore can be handled by Ordinance in the same way our previous amendment processes have worked for the Galena River TIF, the Broadway Galena TIF, and the River Benton TIF.
The redevelopment agreement as attached has similar provisions as recent RDAs that render these agreements null and void in the event the new TIF is not approved. A new TIF Map is provided in Attachment 1. The forgivable development loan will be for pre-construction costs that will be disbursed monthly for approximately 9 months starting upon the approval of the RDA. It will be collateralized by a corporate guarantee by DAC who will warrantee sufficient net worth, coverage and liquidity to cover COA loan risk as verified by CFO or its authorized designee. The loan will bear interest at 5.0% but will be forgiven (both principal and interest) when the final certificate of occupancies for the entire building have been granted. All work product from this loan will be the property of the COA until the development is completed.
The $5,787,500 grant will be disbursed after DAC has contributed the equity in the project sufficient to satisfy the construction lender (about $51 Million), with this equity estimated at $10.4 million in the attached projections. COA will fund side by side with the construction lender (pari passu). The City will employee the same process of using independent title services for the holding of developer equity and City grant funds, and title service costs are the responsibility of the developer
The TIF will take advantage of the projected increase in taxes from a very low $7,000 to levels that reflect almost $70 Million improvement and currently estimated at just under $900,000 on an annual basis once the facility is fully leased up. Specifically, DAC will be able to obtain reimbursement for incremental real estate taxes for eligible expenses. This reimbursement, while all incremental, (meaning if it is not created by DAC themselves, it will not be received)- is still significant.
The total of the forgivable loan and grant ($6.750 million) is not currently eligible for funding through the American Rescue Plan Act funding (ARPA), however staff will continue to monitor guidance from the U.S. Treasury on this potential. As such it is recommended that this incentive will be funded as follows:
1) $963,000 up front forgivable loan costs in 2021-22 from General Fund Reserves. General Fund Reserves as have been reported to the City Council in the monthly Treasurer's report are sufficient to support up to $8-10 million in one-time capital and one-time development expenses.
2) $2,024,500 million in 2022-2024 for construction costs from either General Fund reserves as noted above or if eligible from ARPA, which has already distributed $17.6 million to the City of Aurora.
3) $4.0 million from the issuance of a taxable bond that will be funded through
a) An annual payment of an estimated $90,000 from the new TIF (the City's 10% share of increment), which will cover approximately $1.3 million in bonds and
b) through general tax and revenue dollars used to abate said bond each year, similar to our current abatement process done each December for outstanding City debt, not funded through property taxes. This will require the designation of approximately $200,000 to $260,000 depending on final interest rates in the summer of 2022.
To add perspective to the above deal points, the City currently abates from $5.7 million to $6.7 million in debt payments each year, depending on the total debt payments due, and has levied a general property tax of $4.0 million for the remaining debt. As such, this development will add approximately 3-4% to our debt service/abatement process/obligations. Given the critical nature of this new development to the revitalization of the City's downtown, this increase is seen as a critical investment.
The amounts and timing of the two financial incentives were derived by taking project costs against projected income and a market return (15%) that would motivate this developer to move ahead with the project. This is the equivalent return on investment used in the Terminal, Keystone, 80 S. River, and Hobbs development proforma. It is essentially solving for “X” where these other variables are assumed, and we need to calculate what is the deficit or gap that needs to be filled. A summary of these projections is included as Attachment C.
It is worth noting that DAC has agreed not to take any fees except their overhead expenses for the project until it is permitted, and sufficient reserves have been established as noted in the attached Proforma.
To provide further perspective, COA has given/committed grants for four downtown residential projects over the last 3 years. They ranged from $675,000 to $1,800,000 or $27,270 to $40,645 for each new residential unit that was created (including the value of any donated property). The average grant was about $33,000 per unit.
The combined grant/forgivable loan being requested here, while larger in scope than the other downtown redevelopment projects that are only 10%-15% of the size of DAC’s, is $6,750,000 for 246 units or $27,439 per unit which is about 17% lower than the average provided for those previously approved and currently under construction properties.
Looking at it from a square foot perspective, the aforementioned projects received an average of $35 PSF; The DAC forgivable loan/grant incentive is about $28 PSF. Another basis of comparison is the current Copley Hospital rehabilitation. The DAC negotiated request is 15% lower.
IMPACT STATEMENT:
The impact of a newly constructed development on the river bringing 246 apartments into the downtown cannot be understated. It has been an unrealized vision of a number of administrations that recognized the gateway location that will bring residents who will live, spend, and bring more vibrancy to the downtown. The estimated one-year impacts of building 100 rental apartments in a typical local area include $11.7 million in local income, $2.2 million in taxes and other revenue for local governments, and 161 local jobs.
The additional, annually recurring impacts of building 100 rental apartments in a typical local area include $2.6 million in local income, $503,000 in taxes and other revenue for local governments, and 44 local jobs. These impacts were calculated assuming that new multifamily units built in the typical local area have an average market value of $145,000; which includes $14,000 in raw land value and $13,672 in permit, hook-up, impact and other fees paid to local governments; and incur an average annual property tax of $1,626 per unit. (retrieved from: <https://www.nahb.org/-/media/NAHB/news-and-economics/docs/housing-economics/economic-impact/economic-impact-state-2015.pdf> )
Revenue generated by residential developments may come from property tax, utility tax, state per capita revenue sharing, and local fines and fees, such as building permit fees. (5 Per-capita revenue sharing includes the state motor fuel tax revenue, use tax revenue, and individual and corporate income tax revenue, which are based on municipal share of the state population)
The amount of local revenue derived from residential property is dependent on what taxes, fines, or fees the municipality imposes, as well as their rates, and county-level assessment practices. The density of the residential developments also impacts revenue.
High-density developments can produce high levels of revenue per acre, occasionally exceeding the revenues found in a retail environment.
As the downtown renovations have done for this project, DAC’s development will spur more interest on both sides of the river, enhancing the prospects for the 9 acres the City owns on the west side of the new bridge. Building permit fees coming into the City are estimated at $1.2 million and once the TIF is closed in 23 years, taxing bodies could see an annual tax revenue from this development of about $1.5 million per year.
RECOMMENDATIONS:
Staff recommend approval of the attached resolution and RDA.
ATTACHMENTS:
Redevelopment Agreement
cc:
Alderman Carl Franco, Chairperson
Alderman Sherman Jenkins, Vice Chairperson
Alderman Edward Bugg
Alderwoman Scheketa Hart-Burns
Alderwoman Shweta Baid
CITY OF AURORA, ILLINOIS
RESOLUTION NO. _________
DATE OF PASSAGE ________________
title
A Resolution Authorizing the Execution of a Redevelopment Agreement with DAC Developments, LLC.
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 City of Aurora, Illinois (the “City”) 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, pursuant to the Tax Increment Allocation Redevelopment Act of the State of Illinois, 65 ILCS 5/11-74.4-1, et seq., as from time to time amended (the “TIF Act”), the Mayor and Aldermen of the City (collectively, the “Corporate Authorities”) are empowered to undertake the redevelopment of a designated area within its municipal limits in which existing conditions permit such area to be classified as a “conservation area or blighted area,” as such terms are defined in the TIF Act; and
WHEREAS, the City is pursuing various economic development strategies to encourage development within and around the City’s riverfront area (the “Riverfront Area”); and
WHEREAS, DAC Developments, LLC (the “Developer”) is the contract purchaser of certain real estate located at the address commonly known as 100 North Broadway, Aurora, Illinois (the “Property”); and
WHEREAS, the Property is currently an unimproved lot utilized as a parking lot; and
WHEREAS, Developer proposes to redevelop the Property, by constructing a five-story building consisting of 246 market rate apartment units with a mix of studios and one (1), two (2) and three (3) bedroom apartments with a parking structure (generally, the “Project”); and
WHEREAS, the proposal of the Developer is to undertake the following in connection with the Project: (i) undertake and pay for the costs of all plans and specifications, professional fees and apply for all required plan review approvals and permits; and (ii) commence, undertake and complete the Project in compliance with the approved plans and permits and city codes and other applicable legal requirements; and
WHEREAS, the Developer submitted a preliminary project plan, including preliminary construction drawings, a proforma contractor estimate of the construction costs (completed by a union or prevailing wage contractor), a proforma project budget and general description of the scope of the Project (collectively, the “Preliminary Project Plan”) to the City to provide the City with details of the Project; and
WHEREAS, the Preliminary Project Plan is consistent with the mutual goals of the Developer and the City; and
WHEREAS, upon substantial completion, the Project shall represent a total capital investment on the part of the Developer of approximately $70,000,000.00 as set forth in the Preliminary Project Plan; and
WHEREAS, the Project is located within TIF District No. 1 and TIF District No. 6; and
WHEREAS, the City intends to provide incentives to the Developer which necessitates a substantial amendment to TIF District No. 1 and/or TIF District No. 6, creating a new TIF district that will include the Property; and
WHEREAS, the City is authorized under the TIF Act to create redevelopment plans and redevelopment project areas and to enter into redevelopment agreements and to reimburse developers who incur redevelopment project costs authorized by a redevelopment agreement and which are further designated by law as eligible costs as defined by the TIF Act; and
WHEREAS, in order to induce the Developer to complete the Project, the City Council has determined that it is in the best interests of the City and the health, safety, morals and welfare of the residents of the City, pursuant to the terms of that certain redevelopment agreement attached hereto and incorporated herein as Exhibit A (the “Agreement”), to establish a new redevelopment plan and a new redevelopment project area that will include the Property, and to reimburse the Developer for certain eligible Redevelopment Project Costs (as defined in the Agreement); and
WHEREAS, the City Council has also determined that it is in the best of the City to provide the Developer with a forgivable loan in the amount of $963,000.00 and in a grant in the amount of $5,877,500.00 in accordance with the terms set forth in the Agreement; and
WHEREAS, in light of the foregoing, the City Council desires to execute an agreement that substantially and materially conforms to the provisions of the Agreement set forth in Exhibit A;
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Aurora, Illinois, 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; and further
BE IT RESOLVED, that the Mayor, Chief Financial Officer, Director of Economic Development, and each of their respective designees shall be and hereby are authorized to perform the City’s duties set forth therein described.