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TO: Mayor Richard C. Irvin
FROM: David Dibo, Executive Director
DATE: July 3, 2019
SUBJECT:
A Resolution Authorizing the extension of the Sales Tax Revenue Sharing Agreement with Pacifica Square LLC. and the City of Aurora to facilitate the major anchor tenant, Best Buy, to renew their lease and remain in the 57,960 square foot store they currently occupy for an additional term of ten years
PURPOSE:
The action requested will assure that the tenant, with the highest sales volume in the shopping center will remain in place. Sales taxes generated by the Best Buy, even after a portion is shared, has a material impact of the finances of the City and it is in the City’s best interest to continue the existing assistance mechanism and extend terms to assure that these tax dollars, as well as the foot traffic generated by Best Buy customers, continue for the foreseeable future.
BACKGROUND:
In 2010, as an inducement for, and as a condition of, Best Buy renewing it’s then expiring lease, the then owner of Yorkshire Plaza Shopping Center (now Pacifica) and the City entered into a sales tax revenue sharing agreement that provided for the City to rebate 50% of the State portion of the sales taxes the City receives from Best Buy to offset multiple tiers of costs that were necessary to keep Best Buy in place. The rebate was capped at a maximum of 10 years or $2.0 million, whichever came first.
The current Best Buy lease is scheduled to expire in about 18 months. Pacifica believes, and the City concurs, that having Best Buy commit now to extend until 2029 will complement their substantial efforts to upgrade, reposition and stabilize the remaining 85% of the shopping center by not only removing uncertainty, but by assuring that a revenue stream that has been a reliable source of income will continue not only for ownership but for the City as well. The existing agreement will remain in place until the new, similarly structured agreement, becomes effective in February 2021.
DISCUSSION:
The competitive nature of the retail business today is well documented and has caused a major upheaval in the industry leaving communities with millions of square feet of vacant stores. The “big boxes” have fared even worse given their size, depth and the dearth of replacement tenants. An exception to this trend, despite the company’s own challenges, has been the Best Buy store located at Pacifica, which continues to be an excellent performer. The multiple options that successful tenants now have requires a pro-active, competitive and pre-emptive solution. Giving Pacifica this rebate that will be utilized to provide Best Buy with the most favorable lease terms possible providing a win/win/win outcome. Best Buy receives a highly competitive lease, Pacifica is able to use these tax incentive to “buy down” the rent and the City continues to receive the same level of sales taxes that it has been receiving over the last 8 years.
Best Buy has negotiated a one-time termination right, in 2026 as an understandable hedge in this uncertain retail environment. The extension of the Sales Tax Revenue Sharing Agreement coincides with Best Buy’s actual tenancy and will terminate if Best Buy no longer occupies the space, it is specific to Best Buy. A condition of the extension is the execution of the new ten year lease, which replaces the current lease. Actual sales information and sales tax information thereof is confidential per state statute and is therefore not included in this report.
This agreement works in tandem with the overall sales tax sharing agreement that was previously negotiated with Pacifica and approved by Council. Any sales tax sharing between the City and Pacifica is calculated on the net basis, meaning calculations are reduced by any incentives received as a result of the Best Buy Sales Tax Sharing Agreement.
IMPACT STATEMENT:
Extending the Sales Tax Revenue Sharing Agreement will have a positive impact on City revenues while supporting the City’s efforts to facilitate the turnaround of what was a troubled shopping center.
RECOMMENDATIONS:
Staff recommends approval of this resolution that will enable the execution of the attached Sales Tax Sharing Agreement.
cc: 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 ________________
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A Resolution Authorizing the extension of the Sales Tax Revenue Sharing Agreement (R10-396) with Pacifica Square LLC. (formally Yorkshire Plaza) and the City of Aurora for the facilitation of a lease renewal for major anchor Best Buy.
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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, Pacifica Square LLC is owner of Pacifica Square located at the northwest corner of Route 59 and New York Street, which has three hundred sixty-one thousand, nine hundred ninety-one (361,991) square feet of leasable space, making the property one of the larger shopping centers in the city; and
WHEREAS, Pacifica Square LLC is in negotiations for a lease extension agreement with Best Buy Stores, LP (Best Buy), effective February 2021 and continuing for a period of ten years ending January 31, 2031; and
WHEREAS, in order to retain Best Buy in the City of Aurora and at Pacifica Square in particular, both the City and Pacific Square LLC acknowledge that Pacifica Square LLC will require economic assistance from the City, the particulars of which are contained in the "Sales Tax Revenue Sharing Agreement" attached hereto and made a part thereof; and
WHEREAS, the City's entry into the Sales Tax Revenue Sharing Agreement will benefit the City of Aurora with job retention, increased property values, and retention of retail sales taxes; and therefore is in the City's best interest
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Aurora, Illinois, as follows: that the Mayor is hereby authorized to sign the attached Sales Tax Revenue Sharing Agreement