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TO: Mayor Richard C. Irvin
FROM: David Dibo, Executive Director
DATE: February 22, 2019
SUBJECT:
Resolution authorizing a Redevelopment Agreement (RDA) between the City of Aurora and 80 S. River LLC, for the redevelopment of the former West Aurora School District Administration Building located at 80 S. River Street.
PURPOSE:
To promote the continued revitalization of the downtown, the Economic Development Division recommends the approval of the Redevelopment Agreement 80 S. River LLC plans to redevelop the property with market rate apartments and with offices and some auxiliary retail on the ground floor.
Housing, specifically market rate housing coupled with a strong office component is a dynamic combination that addresses the City’s goals of having more economic activity and vitality in the downtown during the day to support existing services and inducing new ones, and to bolster this demand/new supply cycle in the evening and weekends, together, creating an urban sensibility that in turn will attract new residential and commercial users to repeat and strengthen this cycles. Property values rise that further incents developers to take risks on projects that previously were deemed unfeasible. This project will further substantiate the desirability of the immediate River Street and adjacent emerging Loft District as it joins other forward thinking projects including the Santori Library and River Street Plaza.
Impacts to School District 129 should be minimal given the millennial dominated market for the residential units; a portion of the incremental real estate taxes will be made available to the school district. The redevelopment of the former West Aurora School District administration building is consistent with the goals of the City’s downtown Master Plan approved November 2017 and the recently completed downtown housing study.
BACKGROUND:
The former West Aurora School District Administration building is a two-story building with approximately 34,000 square feet. Current plans are for the development of 22 market rate apartments on the second floor and readapting the first floor to accommodate a mix of office and retail users. Fundamental to this transaction and part of the City’s calculus when evaluating this proposal, is the commitment from Kluber Architects and Engineers, a 25 year old award winning architectural and design firm, will be relocating its corporate headquarters in approximately 8,000 square feet in a renovated 80 S. River St.
Residential market rents and current absorption for commercial tenants do not support redevelopment of the vacant building given the substantial rehabilitation necessary to convert a form manufacturing/office building to residential use and configure and adapt the ground floor for commercial use.
The redevelopment, unlike other projects recently brought forward, was previously deemed not to have enough historical significance to qualify for Federal Historic Tax Credits. The developer will partially offset this loss of substantial financial benefits by somewhat lower construction costs. The net result will still be a “gap” between the redevelopment value of the building and the cost of development, even where the basis for the building in its current condition is zero, unless there is an active willingness of the municipality to first understand the nature and magnitude of this gap and then to work with the development team and city staff (Economic Development, Finance, Planning, Legal, Engineering) to fashion a program that incents the developer to put their equity at risk and sign for substantial loans, then nothing will change and the building will remain vacant and blighted.
80 S. River LLC is an Illinois based single purpose development company whose principals Russell Woerman, Michael Poulakidas and Michael Russ as guarantors.
Russell Woerman is an experienced general contractor who is noted for an ability to simplify and streamline complex construction projects. He is currently overseeing a large crew a large in almost 33 active commercial rehabilitation projects including the $12 million dollar remediation and partial interior reconfiguration of the Old Copley Hospital.
Michael Poulakidas is a practicing attorney entrepreneur and restaurant owner who has partnered with Mr. Woerman and others in the clean-up, renovation, repositioning, releasing and management of the Old Copley Hospital.
Michael Russ is a long time Aurora resident. He owns Aurora Wire and Fixture, a Union electrical contracting firm and oversees several large scale projects, including the electrical contract at the Old Copley Hospital site. He also holds the distinction of Master Chief Petty Officer in the Navy - the highest noncommissioned officer ranking that can be held.
DISCUSSION:
There is approximately 34,000 square feet on the two floors divided equally. The developers have planned for 21 units on the second floor Kluber has committed to purchase approximately 8,000 square feet on the ground floor. The two remaining commercial spaces will be for other office users who are in active negotiations with the developer and some retail clients. The building will have to be subdivided and converted into a condominium so that Kluber can purchase their space which is their requirement. Kluber currently has over 30 professionals who will be relocated to downtown Aurora.
The Economic Incentives proposed in the RDA are:
1. The sale of the building to 80 S. River LLC for $1.00
2. A grant of $850,000 to be paid to the developer in three installments (Certificate of Occupancy, rough in construction, final permits) and completion of Kluber commercial space. 3. A “pay as you go” TIF divided 80% (developer) and 20% (City) will these percentages modified to 70%/30% upon the reaching of a threshold return for the developer.
Other material provisions of the RDA are:
Prerequisite conditions include receipt of: architectural drawings, building permit, written loan commitment from bank or other lending source, proof of funds or equity, acceptable balance sheet, environmental, completion of Kluber commercial space.
All obligations personally guaranteed by the developers.
Exhibits to include project budget, projections.
The incentive package is critical for the success of this agreement/project. The project projects a relatively low return on investment even after the incentives. The developers will be receiving a reduced developer fee, much of it a differed until the project is stabilized for a number of years.
IMPACT STATEMENT:
The project aligns with the recommendations set forth in the Downtown Master Plan (O17-080), which calls for the redevelopment of existing properties. In the Downtown Experience Chapter, the plan specifies that the City of Aurora: “Identify and activate vacant spaces.” In the Downtown Economy Chapter, the plan specifies that the City of Aurora “Support the downtown core by enhancing livability,” and “Maximize the rehabilitation of the existing downtown residential spaces through engagement, resources, and support.”
RECOMMENDATIONS:
Staff recommends the approval of the redevelopment agreement attached as Exhibit 1
cc: Robert J. O'Connor, Chairman
Alderman Edward J. Bugg, Member
Alderman Theodoros "Ted" Mesiacos, Member
Alderman, Richard "Rick" B. Mervine, Alternate
CITY OF AURORA, ILLINOIS
RESOLUTION NO. _________
DATE OF PASSAGE ________________
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A Resolution authorizing a redevelopment agreement with 80 S River, LLC, et. al. to facilitate the redevelopment of certain real property located at 80 S. River St.
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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 City is the fee simple title holder to certain real estate located at the address commonly known as 80 S. River Street (the "Property"); and
WHEREAS, the City desires to donate the Property to the 80 S River, LLC (the "Developer") in order for the Developer to redevelop the Property by renovating the existing structures of the Property to include twenty-two (22) market rate residential units and approximately 20,000 square feet of office and retail space (generally, the “Project”); and
WHEREAS, the City is authorized under the Tax Increment Allocation Financing Redevelopment Act ("TIF Act") to create redevelopment plans and redevelopment project areas and enter into redevelopment agreements and to reimburse developers who incur redevelopment project costs authorized by a redevelopment agreement and which are further designated by law as eligible costs as defined by the TIF Act; and
WHEREAS, in order to induce the Developer to complete the Project, the it is in the best interests of the City and the health, safety, morals and welfare of its residents to establish a new redevelopment plan, on terms and subject to the conditions fully set forth in Exhibit A, which is attached to and incorporated into this resolution as if fully set forth herein;
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Aurora, Illinois, as follows: that the redevelopment 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 a redevelopment agreement that substantially and materially conforms to the provisions of the redevelopment agreement set forth in Exhibit A on behalf of the City; and further
BE IT RESOLVED, that the several City officers and employees designated in the redevelopment agreement shall be and hereby are authorized to perform the function and duties set forth in the redevelopment agreement; and further
BE IT RESOLVED, that the Mayor is authorized to execute such additional documents or agreements between the City and the Developer which are related to and subordinate to the redevelopment agreement so long as (1) such additional documents or agreements are consistent with and do not conflict with the provisions of the redevelopment agreement authorized by this Resolution (2) are necessary to carry into effect the purposes of the Redevelopment Agreement, and (3) do not impose any additional liabilities upon the City.