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TO: Mayor Richard C. Irvin
FROM: John Curley, Chief Development Officer
David Dibo, Executive Director Mayor’s Office of Economic Development
DATE: February 16, 2018
SUBJECT:
A Resolution With Respect to the Potential Reimbursement of Eligible Costs in a Possible Business District and to Induce Development Interest within Such Area (Yorkshire Business District No. 1) (Pacific Square LLC - 18-0112 / NA21/2-17.254-AG/D - DD - Ward 10)
PURPOSE:
As a follow-up to the February 13, 2018 Finance Committee, staff is providing additional information regarding the two inducement resolutions for the Yorkshire Plaza Development Project. Committee members requested additional information regarding Business Improvement Districts, further details on the project itself and financial projections on the incentive being offered.
BACKGROUND:
Yorkshire Plaza is located on 34.73 acres at the northwest corner of East New York Street and Route 59 and consists of approximately 365,000 square feet of commercial shopping space (Attachment 1). The center was built more than 25 years ago and has not been a successful shopping center for more than a decade. The City of Aurora has previously attempted to assist in stabilizing the plaza with a sales tax sharing agreement with Best Buy (R10-396). That agreement expires on January 31, 2021.
Yorkshire Plaza is presently more than 40% vacant and extensive deferred maintenance is required. The property is also in need of a rebranding, redesign, rehabilitation, new facades, updated signage and improved access. Mr. Eddie Ni, Chairman of the Windfall Group has an option to acquire the property. Windfall has redeveloped properties in Chicagoland: Carol Stream, Plainfield and New Lenox (Attachment 2). Most recently. Mr. Ni was part of the redevelopment of The Peachtree Pavilion Shopping Plaza which was 50% vacant. This center was rebranded into an Asian themed center in Doraville, Georgia and is now more that 90% leased (Attachment 3).
DISCUSSION:
Pacific Square Plaza Proposal: The Windfall Group is proposing to acquire Yorkshire Plaza and spend an approximately $14.25M on improvements to the existing 365,000 square feet in what the developer has called “Phase I.” Yorkshire Plaza would be rebranded as Pacific Plaza and would become an Asian hypermarket much like Peachtree Pavilion near Atlanta. The Plaza will create a unique sense of place with strong design and aesthetic components catering to the Asian Community and the overall market. The Plaza will become a destination and an experience in and of itself much like Chinatown in the City of Chicago, Yaohan Plaza Shopping Center in Arlington Heights and Peachtree Pavilion Shopping Plaza near Atlanta. The developer is requesting that the City of Aurora provide $7.3M ($5.5M @ 6% x 10 years) in financial assistance to facilitate this Phase of the project. Mr. Ni has secured 19 letters of intent from new tenants who desire to occupy the renovated plaza.
Phase II: Phase II of the project calls for demolishing the existing 7,000 square feet out lot structure which is presently leased to a mattress store and also a liquor store. The detention basin to the west of the property would need to be relocated and other engineering issues would need to be addressed as well. The developer would then construct a 30,000 square foot commercial building. The developer has not committed to building this yet as feasibility studies and market research still need to be completed. The developer is requesting that if and when Phase II is developed that the City of Aurora provide $2.7M over approximately 10 years in financial assistance to facilitate this Phase of the project. The anticipated cost of this project is estimated at $6.5M.
Phase III: Phase III of the project calls for building an apartment building, commercial space and a parking deck in a portion of the building. The developer believes that housing could augment and support the overall concept of the project. The housing would be designed to attract empty nesters and young people looking to embrace an Asian sense of place. This Phase of the project is also speculative at this time. The developer has not committed to building this yet as feasibility studies and market research still need to be completed. The developer is seeking $5 million in incentives from the City of Aurora. The anticipated cost of this project is $63M.
Phases I, II and III combined represent a projected investment of $100M with $15M in incentives. Attachment 4 shows a perspective of Phase I, Phases II and III.
City Approval Process: Typically the City staff would not entertain moving forward on a project of this nature until the full scope of the project has been made clear on what is and what is not going to be built and at what expense and this is still the case for this development. However, the Windfall Group has a substantial non-refundable provision in their purchase and sale agreement if they elect to request an extension. The Windfall Group is willing to proceed at their own risk and close on the property on February 28, 2018, and asked that in anticipation of that date, that City Council approve both an inducement to create a Tax increment Financing District (TIF) and a Business Improvement District (BID).
Approving these inducement resolutions, provides the ability for expenditures made after the inducement to be eligible expenses under both of the districts. Other than this, the City is not making any commitments, prior to further evaluation.
While the City has utilized TIF Districts in the past it has not used a BID.
A quick primer on BID is as follows:
• Much like a TIF, the BID needs to meet certain criteria to qualify as a BID such as vacancy, obsolescence, environmental issues, etc.
• Like a TIF, the BID must have a study completed demonstrating the aforementioned feasibility.
• Like a TIF, the BID must have a project description and a project budget.
• Unlike a TIF, the BID is allowed to generate up to a 1% additional sales tax in ¼% increments within the boundary of the BID.
• Unlike a TIF, the BID does not affect property taxes.
• Like a TIF, the BID life can last for up to 23 years, or when the eligible expenses have been paid off whichever occurs first.
• A BID does not negatively impact any governmental unit.
• A BID simply provides another economic development tool for the City to use to help facilitate development.
• There is no obligation for a business to locate in a BID and no obligation of a shopper to shop in a BID. The Village of Lombard successfully used the BID as a key tool in redeveloping Yorktown Mall in what was the former Montgomery Ward space.
Should the City Council approve the two inducements requested (BID and TIF) and the developer closes on the property, the following actions will occur: (1) Consultant will be hired to study the two proposed districts to ensure that they qualify under state law. This step requires City Council approval. If they do qualify, plans would then be developed with a budget for each. (2) Staff will begin to work out the mechanics of a redevelopment agreement and a sales tax sharing agreement.
State law dictates several action steps that will be needed again requiring City Council action.
Proposed Deal Terms: Staff and the developer have worked out tentative deal terms provided all necessary representations from the developer can be achieved:
a) For Phase I - the City would provide up to $4M in sales tax sharing above the 2017 base sales tax amount. This incentive would expire upon reaching $4M or ten years whichever occurs first.
b) For Phase I - the City would provide up to $3.3M of Business Improvement District Taxes for the same ten year period as “a.” above.
c) For Phase II/III - The City would create a TIF covering property for the outside the “L” shaped development in Phase I, (because the site is not subdivided, the legal description includes the entire site, but the intent is to utilize the TIF only for Phase II and Phase III), and sharing the property tax increment on that property (Attachment 4). The total amount has yet to be determined as no plans, designs or eligible expenses have been identified in a pro-forma.
d) For Phase II/III - If the TIF increment is not sufficient to create the additional revenue, up to a $15M limit on all three phases, then the City may consider the extension of the BID beyond ten years to provide further revenue subject to a future amendment to the development agreement.
A table showing a sample financial analysis of the development agreement is provided (Attachment Table 1). This analysis shows 23 years of revenue for the TIF District Revenue Sharing Agreement, 10 years for the Sales Tax Sharing Agreement and 11 years for the BID Revenue Sharing Agreement although no commitment has been made to authorize the BID beyond 10 years at this point. By demonstrating this table in this manner we can observe how the revenue flows throughout the analysis period and that these revenues are sufficient to meet the $15 million total incentive.
IMPACT STATEMENT:
The approval of the BID inducement resolution should enable the developer to close on its purchase, scheduled for the end of February, assure the redevelopment of a distressed shopping center and energize the immediate area around the shopping center (which includes Fox Valley Mall).
RECOMMENDATIONS:
It is recommended the City Council approve the Inducement Resolution for the Business Improvement District for Yorkshire Plaza. Said recommendation acknowledges that staff, with its consultant, will analyze the ability to create a BID and TIF District, develop a plan, and provide a budget for such plan. Upon completion of these steps, staff will be coming back to City Council with a redevelopment agreement including a BID and TIF district and a sales tax sharing agreement as part of the redevelopment for City Council to consider.
List of Memo Attachments:
Attachment 1: Existing Yorkshire Plaza Images
Attachment 2: Windfall Group Example Images
Attachment 3: Doraville, Georgia Asian Center Example Images
Attachment 4: Pacific Square Phasing Plan
Table 1: DRAFT Projected Cash Flow Summary
cc: Aurora City Council
CITY OF AURORA, ILLINOIS
RESOLUTION NO. _________
DATE OF PASSAGE ________________
title
A Resolution With Respect to the Potential Reimbursement of Eligible Costs in a Possible Business District and to Induce Development Interest within Such Area (Yorkshire Business District No. 1)
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 is authorized under the provisions of the Business District Development and Redevelopment Act, 65 ILCS 5/11-74.3-1, et seq. (the “Act”), to create business districts within the City as a means of encouraging and assisting with economic development within the City; and
WHEREAS, the City has identified an area of the City that it believes would qualify as a business district under the Act; and
WHEREAS, the proposed Business District (the “Business District”) is legally described in Exhibit A and is depicted in Exhibit B, attached hereto and incorporated herein respectively; and)
WHEREAS, the contract purchaser Pacific Square, LLC (the “Developer”) of certain real property (the “Property”), which is generally described as set forth in Exhibit C, attached hereto and incorporated herein, and which is located within the proposed Business District, desires to proceed with a redevelopment project therein (the “Project”); and
WHEREAS, the City desires to have the Property redeveloped, and believes that it is not economically feasible to do so without public intervention, given the impediments to development which characterize the Property; and
WHEREAS, the City hereby finds and determines that the financing intended herein will serve the public purposes of the City; and
WHEREAS, the City is in the process of proceeding with the necessary study and will be holding the required public hearings to establish and designate the Business District as “Yorkshire District No. 1” pursuant to the Act, and thereafter, approve a development plan and redevelopment agreement(s) as deemed necessary in relation thereto; and
WHEREAS, in light of the foregoing, the Developer has indicated that it will initiate, or cause to be initiated, some preliminary site preparation work within the proposed Business District; and
WHEREAS, the City desires to see the Project move forward with said preliminary site preparation work in anticipation of the establishment of the Business District; and
WHEREAS, the City and the Developer are currently in negotiations with respect to the creation of the Business District and the City and the Developer intend to engage in the negotiation of an agreement (the “Agreement”), whereby the City may provide financial incentives to the Developer relating to the Project; and
WHEREAS, the Mayor of the City (the “Mayor”) and the Aldermen of the City Council (the “City Council,” and with the Mayor, the “Corporate Authorities”) acknowledge that the Developer will not be able to complete the Project without economic assistance from the City; and
WHEREAS, in reliance upon the City’s commitment to explore the issue of creating a Business District, the Developer is expending money with respect to the following expenses, including, but not limited to, engineering, legal, design, remediation, site preparation and other expenses which could be reimbursed if a Business District is created and as permitted by the Act (the “Developer’s Potential Eligible Costs”); and
WHEREAS, the Developer’s Potential Eligible Costs shall not exceed Fifteen Million U.S. Dollars ($15,000,000.00) (the “Maximum Reimbursement Amount”) and the City shall not reimburse the Developer for any expenditures in excess of the Maximum Reimbursement Amount; and
WHEREAS, the City will also expend funds in the investigation of a potential Business District, including, but not limited to, legal, engineering, planning and other consultants which would be eligible to be paid as eligible business district project costs in the event the Business District is created and as permitted by the Act (the “City’s Potential Eligible Costs”); and
WHEREAS, this Resolution does not obligate the City to create a Business District on the Property, or any portion thereof, nor shall it obligate the City to enter into an Agreement with the Developer, but rather, it is intended to induce the Developer to pursue plans for redevelopment and to provide for the potential reimbursement of the City’s Potential Eligible Costs and the Developer’s Potential Eligible Costs in the event such a Business District is created, the costs are legally permitted to be reimbursed, and the City agrees to reimburse such costs in an amount not to exceed the Maximum Reimbursement Amount; and
WHEREAS, after the adoption of this Resolution, the City agrees to consider providing municipal and/or other governmental economic assistance through the establishment and/or expansion of a Business District to the extent that such assistance may lawfully and practically be available and in the best interests of the City;
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Aurora, Illinois, as follows: in the exercise of its home-rule, statutory and other powers as follows:
Section One: Incorporation of Recitals
The recitals set forth above are incorporated into this Section as if fully set forth herein.
Section Two: Property Review
That City staff have examined the Property and its condition and circumstances and, at this time, the Corporate Authorities conclude that it is reasonable to believe that a Business District can be adopted for said Property and that certain expenditures of development costs in furtherance of the Project should be allowable “business district project costs”, provided, however, that this resolution is not a guarantee that any such plan will be adopted, but rather, is an expression of the intent of the City at this time.
Section Three: Inducement
That this Resolution is adopted for purposes of inducing the City and the Developer of the Property to proceed with the potential redevelopment of the Property and to incur costs pending the possible approval of the Business District and an RDA.
Section Four: Reimbursement
In the event a Business District is created over some or all of the Property, the City may make reimbursement for the Developer’s Potential Eligible Costs, not to exceed the Maximum Reimbursement Amount, and the City’s Potential Eligible Costs to the extent approved by the City and authorized by law. In the event that no Business District is created over some or all of the Property, the City shall in no way be obligated to reimburse the Developer for any of its costs or expenses.
Section Five: Authorization
That the Corporate Authorities hereby approve of and authorize the reimbursement to the Developer for the Developer’s Potential Eligible Costs in an amount not to exceed the Maximum Reimbursement Amount in relation to the Project at the Property, subject to the limitations provided in this Resolution. That the Corporate Authorities hereby authorize and direct the Mayor or his designee to draft and execute all necessary documents and perform all necessary tasks to effectuate the intent of this Resolution. That the Mayor or his designee, and the Corporation Counsel or his designee as may be required, are hereby authorized and directed to draft, execute, and complete any and all documents deemed necessary, to effectuate the intent of this Resolution, whether or not such other documents are attached hereto. That the City Clerk is hereby authorized and directed to attest to, countersign, and affix the seal of the City to all such documents as are deemed necessary.
Section Six: Other Actions Authorized
The officers and employees of the City shall take all actions reasonably required or necessary to carry out and give effect to the intent of this Resolution and otherwise take all actions necessary in conformity therewith including, without limitation, the execution and delivery of all documents required to be delivered in connection with the actions contemplated herein.
Section Seven: Acts of City Officials
That all past, present, and future acts and doings of the officials of the City that are in conformity with the purpose and intent of this Resolution are hereby, in all respects, ratified, approved, authorized, and confirmed.
Section Eight: Severability
This Resolution and every provision thereof shall be considered severable, and the invalidity of any section, clause, paragraph, sentence or provision of this Resolution shall not affect the validity of any other portion of this Resolution.
Section Nine: Repealer
All resolutions, ordinances or parts of resolutions conflicting with any provision of this resolution, are hereby repealed.
Section Ten: Effective Date
This Resolution shall be in full force and effect after its passage, approval and publication in accordance with applicable law.