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TO: Mayor Richard C. Irvin
FROM: David Dibo, Executive Director
DATE: September 10, 2019
SUBJECT:
A Resolution Authorizing a Redevelopment Agreement (RDA) between the City of Aurora and JH Real Estate Partners, LLC (JH) for the redevelopment of the 2-4 North River Street, commonly known as the Hobbs building and the 6-12 North River Street.
PURPOSE:
To facilitate the redevelopment and leasing of the long vacant 2-4 N. River Street (Hobbs) and 6-12 N. River Street, (6-12) that will include incentives provided by the City of Aurora (COA).
BACKGROUND:
On May 2018, JH Real Estate Partners LLC, (JH) whose managing members are Jay Punukollu and Harish Ananthapadmanabhan purchased two vacant buildings at 6-12. JH approached COA about combining 6-12 with Hobbs to create one unified development with market rate residential and retail on the ground floor. COA had long advocated the simultaneous development of both properties that would provide construction, design and marketing efficiencies and had indicated that it would use best efforts to negotiate an agreement with the owner of 6-12 for the combined development. The vacancy of the architecturally significant Hobbs building on the prominent corner of Galena and River has long been a blight on the City and symbolic of the unrealized potential of the downtown. Redevelopment has been targeted as a key building in the “first wave “of downtown redevelopment that includes Terminal. Keystone, and 80 South River, all now in various phases of redevelopment.
The importance of the Hobbs building and its precarious physical condition necessitated more time and due diligence than the other first wave participants. COA wanted to be sure that the developer had the wherewithal, not only financial, but also the experience and track record to complete this challenging project. This past winter’s frigid temperatures took a further toll on the building’s masonry and structure. How this time sensitive and costly issue would be addressed, in the context of entire development, required considerable time, discussion and negotiation.
DISCUSSION:
The combined development is comprised of approximately 18,180 square feet at Hobbs and 24,243 for 6-12 or 42,423 in total. The redevelopment plan calls for 15 residential units at Hobbs and 16 at 6-12 N. River Street with a combined above grade retail of about 12,626 square feet. The developer will utilize nine parking spaces “onsite.” The remaining residential parking will be made available at the nearby “H” lot with the developer or developer’s tenants paying the prevailing charges (now $25/month) for this City owned lot.
COA owns the Hobbs building. The building is currently valued at $180,000 although this does not include the extraordinary (and partially unknown) costs of shoring and stabilizing the 127 year old building. The City plans on donating the building to the developer as part of the bundle of rights and obligations laid out in the RDA. This donation is slated to occur no later than Oct 1st, 2019 or the signing of the attached RDA, so the developer can begin work immediately on shoring up the foundation and preventing a collapse of the building. The timing of the City’s incentives has been calibrated to dovetail with this work.
Similar to the other first wave redevelopments, the incentive package contains three layers: 1) A grant from the COA (called the forgivable loan) to be disbursed in three installments based of the achievement of certain thresholds $1,500,000. 2) An interest bearing loan from COA to the developer collaterized by both the monetizing of the historic tax credits and the personal guarantee of the developer also $1,500,000. (The developer’s financial resources have been thoroughly vetted). Hobbs is eligible but as of yet is not on the National Register of Historic Places. In other first wave developments, this loan was not funded until this designation had occurred and other thresholds met, but given the need to begin masonry/structural work before winter, 2/3 of this loan will be made available in the short run and monitored closely by the Development Services. 3) A (Micro) TIF. In a series of quarterly meetings with School District 129, COA has made the school district aware of this forthcoming development and, while an official approval process will take approximately 6 months, the district has generally been supportive. A Micro TIF will allow other properties in TIF 1, to reach their market taxes while only carving out this specific development. The developer will share tax increments 80% (developer) and 20% (all taxing bodies, of which SD 129 is the largest), which will increase to 30% upon the developer hitting a 15% return on their equity investment.
COA carefully reviewed the development team and would not green light the development until it had satisfied itself that the team had the wherewithal to complete this complex project. Aside from JH, the development team includes Bush Construction (a full service construction company with historic restoration experience), and Gary Anderson Architects, (a full service architectural firm specializing in adaptive reuse and preservation). Together with JH’s financial and entrepreneurial resources, this team possess the construction, architectural and historic expertise warranted by this prominent development.
IMPACT STATEMENT:
Approval of the RDA and subsequent redevelopment of Hobbs and 6-12 will complete the first wave of the major vacant or greatly underutilized properties in the downtown core. The Hobbs eyesore and the “why is this beautiful building still vacant” refrain will come to an end and be substituted with a well-appointed, active building with urban residents and retail/restaurant patrons. Sales taxes will increase as will property values in the downtown. The taxing bodies, most notably West Aurora School District 129 will be forgoing 80/70% of future tax increments, but this only affects this one development. These properties are only producing $16,274.54 in present-day taxes. The net gain for these participants and the City at large will be measurably positive.
RECOMMENDATIONS:
That the resolution that certifies the RDA, be adopted.
cc: Finance Committee
Alderman Robert J. O'Connor, Chairperson
Alderman Edward J. Bugg, Vice Chairperson
Alderman Carl Franco,
Alderman Scheketa Hart-Burns
Alderman Emmanuel Llamas
CITY OF AURORA, ILLINOIS
RESOLUTION NO. _________
DATE OF PASSAGE ________________
title
A Resolution Authorizing a Redevelopment Agreement (RDA) between the City of Aurora and JH Real Estate Partners, LLC (JH) for the redevelopment of the 2-4 North River Street, commonly known as the Hobbs Building and 6-12 North River Street.
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, 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,” as such term is defined in the TIF Act; and
WHEREAS, the City intends to extract portions of Tax Increment Financing District No. 1 Downtown TIF (“TIF District No. 1”) to induce redevelopment of the City’s downtown area (the “Downtown Area”); and
WHEREAS, the City is pursuing various economic development strategies to encourage development within the Downtown Area; and
WHEREAS, the Corporate Authorities have determined that blighting factors in the Downtown Area are detrimental to the public and impair development and growth in the Downtown Area, with the result that it is necessary to incur extraordinary costs in order to redevelop the Downtown Area; and
WHEREAS, the blighting factors in the Downtown Area will continue to impair growth and development but for the use of tax increment allocation financing to pay certain costs of the redevelopment; and
WHEREAS, the real property located at 2-4 and 6-10 N River St (collectively "Subject Property") is located within the Downtown Area and is in need of redevelopment; and
WHEREAS, the City has negotiated a redevelopment agreement with JH Real Estate Partners, LLC, an Illinois limited liability company, to be guaranteed by Harish Ananthapadmanabhan and Jay Punukollu, consistent with Illinois law for the redevelopment of said property (Redevelopment Agreement), and that said Redevelopment Agreement is attached to and made a part of this resolution as if fully set forth herein; and
WHEREAS, approval of the Redevelopment Agreement and the redevelopment of the Subject Property is in the best interest of the City;
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Aurora, Illinois, as follows: that the attached Redevelopment Agreement shall be and hereby is approved, and further
BE IT RESOLVED, that the respective City Officers and employees named in the attached Redevelopment Agreement shall be and hereby are empowered and directed to take all actions necessary, appropriate, and proper to carry into effect the intent and purpose of the Redevelopment Agreement.