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TO: Mayor Mayor Richard C. Irvin
FROM: David Dibo, Director of Economic Development
DATE: August 23, 2021
SUBJECT:
A Resolution authorizing the execution of an Amendment for the previously approved RDA for the Terminal Building (2 N Broadway Avenue) a copy of which is attached herein together with the original Legistar cover memo.
PURPOSE:
This amendment will enable Urban Equity to compensate for the unforeseen cost increases that resulted from material and construction costs dramatically going up due to COVID 19 and to complete the project lien free, preserve the tax credits that facilitated the original transaction and strike a balance between the developer’s and the City’s risks and potential rewards.
BACKGROUND:
Legistar item #21-0678 discussed the overall goal of a number of things financial restructuring recommendations.
The following is a summary of what has occurred since the Terminal building was approved on February 26, 2019 with resolution R2019-054 (Terminal building was subsequently amended on June 4, 2019 with resolution R2019-171); and the rationale for staff’s restructuring recommendation. The development was approved in mid-2019 and construction started on late 2019 and was in full gear by the first quarter of 2020 when the pandemic hit. At that point, the give and take between the Developer and the Federal Park service ( who is the ultimate arbiter of what constitutes what is historically acceptable) became extremely slow so issues that needed to be addressed became bogged down and once resolved the custom made materials were unavailable or delayed for many months. These in turn caused labor increases and increases of other carrying and administrative costs. Once the communication chain reopened issues were resolved and Terminal is scheduled to be completed by the end of the year.
Terminal was one of the first two historic projects approved in this administration. As they near completion both will be almost 40% higher than originally anticipated
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DISCUSSION:
Historic tax credit renovations (like many affordable housing developments) have financial structures that are complex and sometimes counterintuitive. Cost overruns can entitle sponsors to raise more equity from these tax credit investors and actually make them eligible to collect higher fees. These need to be stripped out to get down to what were the real economic impacts of higher costs.
Specifically, Terminal’s estimated costs rose more than $4,200,000 on a much lower initial basis leading to a much higher percentage increase. Here not only is the Developer not able to pay themselves currently for their fees and overhead but these amounts will essentially be written off and not recovered. The Developer’s equity investment originally estimated at less than $500,000 is now estimated at well over $2,000,000.
For Terminal, staff is recommending that:
- $200,000.00 of the principal amount of the Bridge Loan shall be forgiven upon Developer’s satisfaction of Developer’s obligations under the entire RDA as amended.
- The Developer shall repay to the City $500,000.00 of the principal amount of the Bridge Loan within fourteen (14) days of Developer’ receipt of the Tax Credits Funds.
- The remaining $495,408.24 of the principal amount of the Bridge Loan shall accrue interest at that greater of (i) 2.5% or (ii) the City’s cost of borrowing on the funds used to provide the Bridge Loan.
- $100,000.00 of the interest accrued on the Bridge Loan as the Effective Date of this Second Amendment shall be forgiven (the “Forgiven Interest”) upon Developer’s payment to the City of the remaining interest accrued on the Bridge Loan as the Effective Date of this Second Amendment.
- A-3. The Developer shall reimburse the City for all legal fees incurred by the City associated with this Second Amendment.
A summary of the sources and uses of funds from the original agreement and as proposed is attached. In summary, the City will increase the incentive by $300,000 and will forego some interest income on the bridge loan due to the change in interest rate calculations. The developer will put in $2.3 million in additional equity. Given the economy and overall costs faced by the developer, this is a reasonable solution.
IMPACT STATEMENT:
The impacts of this decision will be long lasting as it will facilitate the successful completion of the project. It will affect job creation and retention, tax base, sales and food and beverage revenue.
RECOMMENDATIONS:
Staff recommends approval of the resolution authorizing the execution of a First Amendments for the previously approved RDA for the Terminal Building (2 N Broadway Avenue) a copy of which is attached herein together with the original Legistar report.
cc: Finance Committee
CITY OF AURORA, ILLINOIS
RESOLUTION NO. _________
DATE OF PASSAGE ________________
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A Resolution Authorizing the Execution of an Amendment for the Previously Approved RDA for the Terminal Building (2 N Broadway Avenue)
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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, The COVID 19 Pandemic created substantial health and economic hardships on all businesses and residents in Aurora; and
WHEREAS, The City has provided multiple programs including the CERF and STABLE grant programs to support Aurora businesses; and
WHEREAS, The Terminal Building redevelopment project has been adversely impacted by the COVID 19 Pandemic;
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Aurora, Illinois, as follows: That the Amendment to the Redevelopment Agreement approved and amended through Resolutions R-19-054 and R19-171 is hereby amended through provisions provided in the attached Amendment #2.