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TO: Mayor Richard C. Irvin
FROM: Trevor Dick, Director of Development Strategy and Facilitation
DATE: September 18, 2020
SUBJECT:
A Resolution authorizing the amendment of a sales tax reimbursement agreement with Pacific Square DE, LLC.
PURPOSE:
Staff is requesting authorization to amend the existing Sales Tax Sharing Agreement with Pacific Square DE, LLC. The amendment adds additional time for sharing sales tax revenues from 10 years to 17 years, and raises the revenue cap from $4 Million to $6 Million. The impetus for this change is to recalibrate the $15 million incentive package Council approved in early 2018 because of a subsequent agreement with School District 204 that limits the use of TIF in this location.
. Sales Tax sharing was part of a potential three tiered incentive package (approved by City Council on February 27, 2018, R18-048 to include Sales Tax Sharing, a Business District and a TIF)) for the new owners of Pacific Square and their financing partners as an inducement to move forward with their purchase, renovation, repositioning and expansion of the former Yorkshire Plaza shopping center located near the northwest corner of New York Street and State Route 59. Specifics of the sales tax sharing agreement now being amended was initially approved by City Council on March 12, 2019 (R19-0145).
The City will continue to receive 100% of sales taxes that were received in 2018; it is only sales taxes above this threshold that will be shared with Pacific Square ownership who have indicated that these thresholds have not yet been attained.
Because of the long-term nature of this incentive, the unforeseen financial and time limitations that resulted from the aforementioned SD 204 agreement, the highly competitive retail environment that is limiting the amount Business District tax, the impacts of Covid, and the time value of money, staff is making this recommendation.
BACKGROUND:
With the retail market nationally in rapid decline and vacancies at (the former) Yorkshire Shopping Plaza chronically in the 50% range, the City entered into agreements with the Windfall Group, the new owners of the center that has since been rebranded as Pacific Square. Ownership has spent well over $30 million on the purchase and renovation of the existing center and plans substantially more upgrades in this first phase of redevelopment. The success of these efforts has resulted in a current occupancy of over 90%, bucking the national downward retails trends.
Based on a potential $100 million dollar investment, the City Council authorized the review and creation of redevelopment agreements to include incentives up to 15% of eligible developer costs incurred by Pacific Square. (City Council Resolution R18-048). The City’s commitment of up to 15% was based on the final costs of three potential phases of development and could involve hotel tax, food and beverage tax, sales tax, TIF, etc…
Since this initial approval the City has approved a Business District with a tax rate set at 0.25% of sales, and has renegotiated the Sales Tax Sharing Agreement involving Best Buy and other tenants of the Mall. (R19-0145)
Windfall is an international business with a variety of interests with a demonstrated expertise and significant portfolio in real estate. Windfall Group’s vision was to reposition the shopping center by concentrating on securing Asian themed vendors that mix seamlessly with other more traditional stores in a mixed-use project to include rehabilitation, releasing and rebranding the existing mostly vacant retail, and adding offices, residential and new retail components all consistent with the previously approved Route 59 Corridor Plan approved by City Council.
Over the last year, Windfall Group has made tremendous progress in renovating the center. For example, many new businesses have moved in, new facades, new signage, new landscaping, and a realigned parking lot have also been completed. Recently, the center’s new anchor, Park to Shop grocery had a very successful grand opening. According to Windfall Group, there is a lot of excitement building at the center and they are hopeful that all stores will be filled in the near term
Although the developer originally proposed a future stand-alone office tower, and a mixed-use (ground floor retail with residential above) future phases are still being explored by Windfall Group. Based upon changing market demands for different land uses, the developer is not in a position to identify what uses, or what timeline, the next phase will be. The economic landscape has changed since the project began over two years ago, and as a result, the City and the Windfall Group continue to work together to support the center’s renovation.
DISCUSSION:
While the exact nature of the future phases are being studied in depth by Windfall, certain realities have presented themselves that have enabled us to make this recommendation. Of the three tiers of incentives originally outlined:
The Business District is in place that enables Pacific Square to charge additional sales taxes of up to 1% that can be used to defray the cost of development. However, competitive forces have limited this tax to only 0.25% which will limit the incentive dollars available to Pacific Square.
The City originally committed to a Micro TIF that excluded the “L” shaped retail center. After review by Kane McKenna and Associates and based on the restrictions of being no more than 15 years with no unrestricted residential components, a TIF is not seen as viable at this time. Staff may continue discussions with District 204 regarding a property tax rebate at a later date.
This leaves the Sales Tax sharing option as the best and more certain way to get these incentives to the developer. All dollars that are shared will be created from revenues at Pacific and will not come from other sources. The amended sharing agreement is structured to preserve the City’s existing sales tax collections and allow Pacific Square to collect the increment above this amount for a period (with 2018 unchanged as being the base year) of seventeen years (up from ten years) to a maximum of $6 million (up from $4 million) whichever comes first..
IMPACT STATEMENT:
Staff anticipates that this project will increase the City’s overall tax base, and executing the amendment to the sale tax sharing agreement will continue to move things forward and is consistent with the City’s original target incentive of 15% for the total project. The estimate for the total project development has now been reduced to between $39.0 and $86.0 million depending on the final configuration of development, and allow the owners of Pacific Square to plan for, and implement a future phase(s). Examples of potential future phases after improving the “L” shaped building include a variety of uses including standalone or mixed-use buildings consisting of hotel, retail, office, and residential.
This change also supports the City’s agreement with School District #204 by not using TIF incentives as a primary means of financing development.
RECOMMENDATIONS:
Staff recommends the approval of the amendment of Resolution R19-0145 to extend the period of sales tax sharing from 10 to 17 years and the maximum shared amount from $4.0 million to $6.0 million as attached..
cc: Finance Committee
Alderman Robert J. O'Connor, Chairman
Alderman Edward J. Bugg, Vice Chairperson
Alderman Carl Franco
Alderwoman Scheketa Hart-Burns
Alderman Emmanuel Llamas
CITY OF AURORA, ILLINOIS
ORDINANCE NO. _________
DATE OF PASSAGE ________________
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An Ordinance authorizing the amendment of a sales tax reimbursement agreement with Pacific Square DE, 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 DE, 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 "Pacific Square" and formerly known as "Yorkshire Plaza;" and
WHEREAS, Pacific Square DE, LLC has proposed to redevelop and rehabilitate the Subject Property and has agreed to invest a potential maximum of $100,000,000 toward such proposal (the "Project"); and
“WHEREAS, Pacific, as a party to the Agreement was incorrectly named as “Pacifica Square, LLC” and the correct name underlying the defined term “Pacific” is, was and should be “Pacific Square DE, LLC”;
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 DE, 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 Pacific Square DE, LLC, for the Project pursuant to its authority as a home rule unit of local government and the authority conferred by law)
WHEREAS, on March 12, 2019, City Council approved a resolution authorizing the execution of the sales tax sharing agreement with Pacific Square.
NOW, THEREFORE, BE IT ORDAINED by the City Council of the City of Aurora, Illinois, as follows: that the amended sales tax reimbursement agreement which extends the period of reimbursement from ten years to 17 years and increases the maximum reimbursement amount from $4.0 million to $6.0 million as 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 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.