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TO: Mayor Richard C. Irvin
FROM: David Dibo, Executive Director
DATE: February 22, 2019
SUBJECT:
Request authorization to execute the Sales Tax Sharing Agreement with Pacific Square LLC. The agreement calls for the sharing of sales tax revenues between the City of Aurora and Pacific above the 2017 base year of approximately $750,000 for a ten year period not to exceed $4.0 million.
PURPOSE:
Sales Tax sharing was part of an incentive package given to Pacific as an inducement to move forward with their purchase, renovation, reposition and expansion of the former Yorkshire Plaza shopping center located on New York Street and State Route 59. The three tiered incentive package as approved by City Council on February 27th 2018 (R18-048 Resolution was passed on February 27, 2018). This document memorializes the parameters spelled out in that approval.
BACKGROUND:
With the retail market nationally in rapid decline and vacancies at Yorkshire in particular chronically in the 50% range, the City entered into negotiations with Eddie Ni of the Windfall Group. Windfall is an international business with a variety of interests with a demonstrated expertise and significant portfolio in real estate. Mr. Ni has repositioned retail shopping centers in the United States by concentrating on securing Asian themed vendors that mix seamlessly with other more traditional stores. He and his team determined that Yorkshire was well positioned to offer a bustling urban ‘Chinatown” experience with an active releasing program, substantially redesigning and upgrading the existing 362,000 square foot shopping center, and planning for other mix uses including office and residential. Currently the center is 90% leased with a new Park and Shop Market grocery store. With a $100 million dollar investment for a three phased site optimization, Ni was granted a $15 million incentive package that allows Ni to share in incremental taxes that Pacifica Square itself is generating. The Sales Tax sharing is one of three buckets that comprise this package. Please see the attached February 2018 council approval for details on the total development.
There has been much discussion over the last year between Pacific and the City as to the impact of Best Buy, the current lead anchor tenant. Best Buy represents a high percentage of the total sales in the center and should they ever exit, (likely more to do with a corporate reorganization than issues at the store itself which is performing extremely well), this sales tax sharing agreement would not provide Ni with any material incremental dollars because even with a strong releasing program, the existing sales tax base of about $750,000 is too high for Pacific to generate sales taxes above this threshold. Pacific is currently negotiating an extension with Best Buy to ameliorate this risk. The City has been urging Pacific to enter into this agreement assuring them that if Best Buy does exit, that the City would, in good faith, seek an alternative formula that would have as it goal, providing Pacific with as many sale tax dollars as possible without negatively impacting the City’s own annual expenditure obligations.
DISCUSSION:
The sharing agreement is structured to preserve the City’s existing sales tax collections and allow Pacific to collect the increment above this amount for a period of ten years to a maximum of $4 million dollars. The agreement has been a long time in the making because for a significant period of time, Pacific had wanted to simply have Best Buy excluded from the agreement. Their logic was that if Best Buy left these sales dollars would be gone anyway. While that is true, the City would have significant lost sales tax revenue to make up and could not afford to automatically give Pacific these dollars.
IMPACT STATEMENT:
Executing the sale tax sharing agreement will continue to move things forward and fulfill an obligation of the City. It enables Pacific to do its planning and provides the opportunity to revisits the primary Best Buy issue if in fact they decide to exit.
RECOMMENDATIONS:
Staff recommends approval of the resolution authorizing the execution of the sales tax sharing agreement with Pacific Square.
cc: Alderman Robert J. O'Connor, Chairman
Alderman Edward J. Bugg, Member
Alderman Theodoros "Ted" Mesiacos, Member
Alderman Richard "Rick" B. Mervine, Alternate
CITY OF AURORA, ILLINOIS
RESOLUTION NO. _________
DATE OF PASSAGE ________________
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A Resolution authorizing the execution of a sales tax reimbursement agreement with Pacific Square LLC.
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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, Pacific Square, LLC, is the owner of real property ("Subject Property") located at the northwest corner of Illinois Route 59 and New York St; and
WHEREAS, the Subject Property is currently improved as a retail shopping center commonly known as "Pacifica Square" and formerly known as "Yorkshire Plaza;" and
WHEREAS, Pacific Square, LLC has proposed to redevelop and rehabilitate the Subject Property and has agreed to invest no less than $1,000,0000 toward such proposal (the "Project"); and
WHEREAS, the City has determined that the development of retail operations such as those contemplated herein is a highly competitive endeavor, and that the successful completion of the Project at the Property at this time necessitates the use of a variety of incentives and approvals, including, but not limited to, the payment of retailers’ occupation tax incentives permitted by Section 6-11-20 of the Illinois Municipal Code, 65 ILCS 5/8-11-20; and
WHEREAS, Pacific Square, LLC cannot successfully undertake the Project or any substantially and functionally equivalent development of the Property without the ability to obtain retailers’ occupation tax incentives pursuant to the City’s municipal home rule powers; and
WHEREAS, after due and careful consideration, the City has determined that it is in the best interests of the City to negotiate an agreement provide economic incentives to Pacifica Square LLC, for the Project pursuant to its authority as a home rule unit of local government and the authority conferred by law)
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Aurora, Illinois, as follows: that the sales tax reimbursement 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 a sales tax reimbursement agreement that substantially and materially conforms to the provisions of the sales tax reimbursement agreement set forth in Exhibit A on behalf of the City; and further
BE IT RESOLVED, that the several City Officers and employees designated in the sales tax reimbursement agreement shall be and hereby are authorized to perform the functions and duties set forth therein described.