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TO: Mayor Richard C. Irvin
FROM: David Dibo, Executive Director
DATE: February 27, 2023
SUBJECT:
A resolution authorizing approval of Development Agreement with Leilani Asian Fusion: Leilani Aurora Inc; Buona Italia: River Street Italian Inc; La Ville Lumiere: River Street Bistro Inc a majority owned affiliate of JH Real Estate Partners LLC (JH) for the purpose of facilitating the development of the vacant first floor (and basement for the Leilani RDA) for a full service (Asian Fusion/Italian/French) restaurants in the recently rehabilitated Hobbs and adjacent building together at 2-12 south River Street in downtown Aurora.
PURPOSE:
The RDA will facilitate JH plans to open three new restaurants in the first and partial basement spaces at the Hobbs. Rather than continuing to solicit several “one off” operators, all with their own needs, timing and financial wherewithal, JH decided to use its own hospitality expertise and resources to create three partnerships with experienced chefs and front of the house management. The RDA codifies the commitments from JH that trigger City incentives that will be repaid to the City as described below.
BACKGROUND:
Proliferation of new and long-standing downtown restaurants, especially those unique to Aurora is a long-sought goal of the City. Restaurants support a population living, working, or visiting a city that in turn add to an environment that encourages more of the same. Based on informal surveys from the Paramount Theater, attendees often comment that they would like to have more dining opportunities in walking proximity to the theater for a “one stop” entertainment and dining experience. With a rising tide of a robust dining alternatives, all restaurants prosper.
JH successfully took on the long vacant Hobbs challenge to much acclaim and immediate residential leasing success. Less known is that the company experienced the same type of cost overruns during the high inflationary supply chain disruptive period as other similar developments, requiring a cash investment more than double what was anticipated ($3.5 million). Funds budgeted to “white box” the commercial areas went instead to complete the apartments. Rather than address this challenge in the short run and knowing the City’s propensity to prioritize incentives when bona fide tenants are place, JH and the City timed this discussion when the users surfaced,
From the City’s standpoint, we have a rare opportunity to fill these long vacant spaces “ in one fell swoop” all in 2023, filling a demand while utilizing incremental sales and food and beverage taxes to repay ourselves for cash advances to JH. Having JH as landlord and JH as the managing member of each restaurant LLC, provides an unusual degree of flexibility both in terms of assurances for the City’s payback and that the restaurants have their needed runway to succeed.
DISCUSSION:
Financial Overview
Fundamental to all restaurants that require incentives is that the City will be paid back, with interest for the funds advanced.
The distribution of incentives for each restaurant is allocated as follows:
- In the case of Leilani Aurora Inc, the first incentive involves a basic loan of $500,000 and $400,000 in forgivable loan
- In the case of River Street Italian Inc, the first incentive involves a basic loan of $ 400,000 and $300,000 in forgivable loan
- In the case of River Street Bistro Inc, the first incentive involves a basic loan of $400,000 and $300,000 in forgivable loan
The loan will be amortized over 13 years bearing a 5% interest rate. The loan is 100% guaranteed by the owners of JH, the City has reviewed the financial statements of each of the partners and have determined that this is a meaningful guarantee. The financial condition of the guarantors will be monitored on an ongoing basis until the loan is repaid.
The second incentive is a forgivable loan that is projected to be paid back by the sales and food and beverage taxes levied by the City. While stabilized revenues for the restaurant is estimated to be $2,000,000 (Leilani Asian Fusion), $1,500,000 (Buona Italia), $1,500,000 (La Ville Lumiere), it would take only 60% of this amount to produce sufficient taxes to repay this forgivable loan amount. If for some reason if the total amount with interest is not repaid from sales tax revenues, the principals of JH have guaranteed the difference.
In summary both incentives will come directly back to the City. The City’s funding will be pari passu (dollar for dollar) with cash from JH. In addition to guaranteeing the City’s loan, JH is putting in 2,638,469.86. The City’s is funding about 21% of the risk capital.
- Leilani Asian Fusion: 20%
- Buona Italia: 20%
- La Ville Lumiere: 21%
This incentive is meant not only to acknowledge the substantial benefit to the City of having three additional restaurants in terms of jobs, generation of foot traffic, filling demand, etc. but to address the substantial cost overruns that have previously been funded by JH. Despite a projection that allowed for development fees coming to JH, these will be deferred in each year when the City has not received its current interest and scheduled amortization.
The incentives being offered as a part of this Agreement are:
- A Forgivable loan of $1,000,000 (Paid through sales taxes and personally guaranteed)
- A Non- forgivable of $1,300,000(Second Mortgage, personally guaranteed, considered risk capital)
- JH Cash $1,000,000 (risk capital)
- Total $3,300,000
Other material issues in the RDA are:
The obligations in this RDA will be cross collateralized with the previously approved RDA including the right of offset upon default
City will review financial performance each quarter for first two years and if no default, annually thereafter; annual budgets will be reviewed in advance
- The attached timeline must be adhered to subject to uncontrollable circumstances
- JH as landlord will defer all or partial lease payments if, as per budget, revenues cannot cover operating expenses
- JH will defer any development fees and profits needed to either sustain the restaurants or, if deemed not salvageable, to pay costs to attract and fit out replacement restaurant of similar caliber
- Cross default for any other deal that incentive has been granted both on this and future deal, offset TIF etc.
- All funding through title company
- Restaurant hours (see package; 6 days a week and more)
Operational Overview: General Management
Keystone Management Group | Jay Punukollu
Keystone Management Group will be the Front-office management company that will be responsible for front of house day-to-day operations. This company is currently managing 91 restaurants across both Illinois, Iowa and Indiana and has extensive experience in the restaurant management arena. Jay Punukollu of Keystone Management boasts of over 21 years in the food industry Managing and operating multiple restaurant concepts which include Dunkin Donuts, Subway, Jersey Mike’s Subs, McAlister’s Deli, Currito and City Bird Tenders. Jay manages all the above businesses through direct reports, making key financial, marketing, and operational decisions to constantly improve top line sales and profitability.
Front of House | Seamus Walsh
Seamus Walsh is a highly experienced restaurant manager, who has spent over 2 decades in the hospitality industry. His extensive experience in managing restaurants has made him one of the most respected and skilled professionals in the industry.
Seamus began his career in restaurant management at Chilli's Bar and Grill, opening 35 new restaurants across the country and managing a record-breaking opening. Over the years, he has managed some of the most popular and successful restaurants in the Midwest, developing a reputation for his exceptional leadership skills and ability to build strong teams.
Continuing as a director of operations for Jersey Mike's Subs, Seamus has overseen all aspects of restaurant operations, from staffing and training to menu development and financial management. He is known for his expertise in creating memorable guest experiences and his focus on building a culture of excellence within his teams.
As the current Vice-President of Operations at McAlister's Deli, Seamus' impact on the restaurant industry is immeasurable. He has mentored and trained countless managers, helping to shape the industry as a whole. His dedication to creating exceptional guest experiences has earned him numerous awards and accolades, and his innovative management style has inspired many other managers to follow in his footsteps.
Overall, Seamus Walsh's extensive restaurant management experience and leadership skills make him a true asset to the hospitality industry. His dedication to excellence and passion for guest satisfaction continue to inspire and shape the industry today and will shape the dining experience in the Aurora community.
Design Team
Architecture | Studio GWA
Studio GWA has been improving quality of life through design since 1982 when their founder and principal architect, Gary W. Anderson, decided he wanted to change the trajectory of a community. His dedication to the revitalization of Rockford Illinois’ downtown - honoring its unique architectural history while building spaces that met the community’s needs for the future - was visionary. Where others saw abandoned properties, Gary saw possibility. That unique blend of determination, optimism, and realism has become the firm’s calling card.
Over the years, Studio GWA has become the home to other like-minded urban planning, architecture, interior design, and development professionals. Their flexibility, adaptability and creativity make them easy to work with and acknowledged stars in their respective fields.
The firm has a well-deserved reputation for being undisputed experts in historical renovation and adaptive re-use and we apply our place-making expertise to a variety of these and new construction projects. Their experience in The Hobbs Apartments Redevelopment sets them up for success in executing efficient and well-designed commercial spaces in the building.
Interior Design | VARA Design
VARA Design is an award-winning, progressive full-service design firm based in the Chicagoland area. Their portfolio includes boutique hospitality, restaurants, multi-unit residential, education and office. At the core of VARA Design, they are a group that values creativity, collaboration, community, and people. Their longtime presence and work in Aurora will lend themselves well to create beautiful, memorable spaces at the historical Hobbs building.
Branding & Marketing | Scott Hodge Creative
Scott Hodge is known for his marketing and brand design work at Society 57 in Aurora. Scott’s model is all about telling the story of the brand. He is people-first in his modern design approach and is extremely excited to contribute his passion to the team in bringing something special to Aurora.
IMPACT STATEMENT:
The three restaurants will expand dining choices in the downtown and help service existing and new residents and visitors. It will help anchor the northern sector of the downtown and set the stage for new development as the casino prepares to relocate. Sales and Food and beverage taxes will increase. There will be a positive spillover for the emerging development on Lake Street. The Paramount, the Venue and other locales will be able to cross market with new choices and the locally owned restaurants will add to the City’s growing reputation for “boutique” non chain restaurants.
RECOMMENDATIONS:
Staff recommends approval of the resolution authorizing the execution of development agreement with JH Real Estate Partners to facilitate three new restaurants within the downtown.
cc: Finance Committee
CITY OF AURORA, ILLINOIS
RESOLUTION NO. _________
DATE OF PASSAGE ________________
title
A Resolution authorizing approval of Development Agreement with Leilani Asian Fusion: Leilani Aurora Inc; Buona Italia: River Street Italian Inc; La Ville Lumiere: River Street Bistro Inc a majority owned affiliate of JH Real Estate Partners LLC (JH) for the purpose of facilitating the development of the vacant first floor (and basement for the Leilani RDA) for a full service (Asian Fusion/Italian/French) restaurants in the recently rehabilitated Hobbs and adjacent building together at 2-12 south River Street in downtown Aurora.
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, Leilani Asian Fusion: Leilani Aurora Inc; Buona Italia: River Street Italian Inc; La Ville Lumiere: River Street Bistro Inc a majority owned affiliate of JH Real Estate Partners LLC (JH) has approached the City with a proposal for the development of the vacant first floor (and basement for the Leilani RDA) for a full service (Asian Fusion/Italian/French) restaurants in the recently rehabilitated Hobbs and adjacent building together at 2-12 south River Street in downtown Aurora and
WHEREAS, these areas at 2-12 S River Street are currently vacant and have not generated any Sales and Food and Beverage tax income for the City or housed a tax-generating business for a significant period of time; and
WHEREAS, the City finds that these areas at 2-12 S River Street will not develop without some assistance and incentive from the City with respect to the costs of buildout; and
WHEREAS, Developer has agreed to acquire and develop the Property as a restaurant in accordance with the terms and provisions hereof (the "Project"); and
WHEREAS, the City finds that as a direct result of the Project, the City will benefit
through the retention or creation of jobs; the strengthening of the commercial environment within the City and the enhancement of its tax base, and that the Project will serve as a catalyst for the commercial development of adjacent areas;
WHEREAS, the Project would not be economically viable but for the assistance and participation of the City,
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Aurora, Illinois, as follows: pursuant to its statutory and home rule powers, as follows: that the 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 an Agreement that substantially and materially conforms to the provisions of the Agreement set forth in Exhibit A on behalf of the City for sale of the Property, redevelopment of the Property as a restaurant and the provision of economic incentives to the Developer to make the Project economically viable, as set forth in the Agreement; and further
BE IT RESOLVED, that the several City Officers and employees designated in the Agreement are authorized to perform the function and duties set forth in the Agreement; and further
BE IT RESOLVED, that the Mayor is authorized to execute such documents or agreements between the City and the Developer which are related to and subordinate to the Agreement so long as (1) such additional documents or agreements are consistent with and do not conflict with the provisions of the Agreement authorized by this Resolution (2) are necessary to carry into effect the purposes of the Agreement, and (3) do not create any additional liabilities upon the City.