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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: August 10, 2018
SUBJECT:
To obtain approval of a Redevelopment Agreement to facilitate the environmental cleanup and related remediation of the former Copley Hospital site at 502 S. Lincoln Avenue (“Old Copley”) on the near southeast side of Aurora.
PURPOSE:
The approval of this request will facilitate the long sought cleanup of the blighted old Copley campus and pave the way for its adaptive reuse, redevelopment and economic rebirth. This in turn will enhance the quality of life of the residents in the surrounding neighborhood and for all Aurorans who have watched the property deteriorate and become an increasing hazard to our community.
BACKGROUND:
In the 23 years that have passed since Rush-Copley closed its hospital, the facility’s successor owners and City officials have struggled to achieve consensus on a plan to redevelop the site. During this time, the shuttered building has become a blight on the neighborhood and a documented environmental hazard.
Following years of litigation in State court, the City served Old Copley’s current owners, Raghuveer and Anita Nayak and their associated business entities (the Owners) in the summer of 2017 with notice that it intended to file suit under the federal Comprehensive Environmental Response, Compensation, and Liability Act to compel them to remediate the asbestos hazard within the buildings - a problem that had worsened during years of neglect and vandalism at the site. Service of the notice led to renewed discussions between the Owners and City officials with both sides open to the potential of finding an amicable resolution to the dispute that would lead to the site’s redevelopment.
In the fall of 2017, the City was approached by a local investment group, now organized as Fox Valley Developers LLC, (Developer) who asked whether the City would consider forgoing its litigation if a plan could be agreed upon to get the 8 buildings (about 350,000 square feet on almost 9 acres), completely remediated, secured, or demolished and the site prepared for development.
The Developer is comprised of an Aurora-centric investment group that has come together for the specific purpose of redeveloping the Old Copley site. Members of Fox Valley Developers include Jason Konrad, Russell Woerman, Michael Poulakidas, Dr. Stahis Poulakidas, Paul Konrad and Ronald Woerman, among others. Members of the concept and development team include Kluber Architects, who for more than 25 years has been serving a broad range of clients with an emphasis in the public, education, health services and private sectors. Smart Policy Works brings experience helping clients respond to the rapidly changing health care landscape and providing organizations with strategies, policies, training and community-based partnerships that lead to success. Coveted Financial Services is an experienced financial firm and is working on the financing of the development. Konrad Construction is a general contractor with 20 years of experience, having built regional shopping centers larger than 500,000 square feet down to neighborhood grocery stores and pharmacy-anchored projects. Considerable planning and concept development has already occurred beyond initial phase of remediating and preserving the property
Without waiving any rights or making affirmative commitments, the City held the litigation in abeyance as the Developer’s plans came into focus in exchange for the Owners taking immediate action to secure and seal the facility.
Over a period of about 8 months, the City and the Developer reviewed various alternatives. Numerous discussions occurred exploring different approaches and outcomes, during which time the Developer expended substantial time and resources studying how to best utilize the buildings and deploy the expertise and capital of the experienced team of professionals that had been assembled.
From the outset, the Developer had envisioned a facility that catered to both a senior population and those with special needs (specifically IDD or intellectual development disorders and/or ASD (Autism Spectrum Disorder). Detailed studies undertaken by the Developer, including primary research and surveys conducted by leading professionals in healthcare analytics, suggested a need for housing for these aging adults who often languish between waiting lists for precious spots in an underfunded public system or are forced to depend on the goodwill of relatives often ill equipped to handle them. Demand was indicated, not only for those being cared for, but also for the caregivers themselves who seek to be near their sons, daughters, sisters, brothers and spouses as they themselves advance in age.
The Developer is in the process of finalizing its plans. (selection of operator/lessee, detailed cost estimates for the income producing/ re-purposing of the space, projections as to revenues and expenses, phasing plan, real estate tax generation estimates, etc.,).
The City and the Developer recognize that time is of the essence and work needs to start as soon as possible and preferably before winter.
As a result, both the developer and City Staff recommend the project be divided into two distinct phases: Phase I that focuses on the remediation and basic renovation of the buildings and Phase II that will take the remediated building and complete its rehabilitation to prepare it for its reuses and ultimately into a finished “product.” History has demonstrated that market forces alone will not provide 100% of the risk capital needed to tackle the long-standing environmental and physical hurdles that have complicated redevelopment of the Old Copley site. Without City involvement through the provision of some level of financing, the project is not economically viable.
DISCUSSION:
As noted above, the building is in serious disrepair internally and in need of environmental remediation. The immediate focus is to remediate the site’s environmental issues, and waterproof and secure the buildings. The Developer has been negotiating an agreement with the Owners that will enable them to undertake the remediation while the Owners remain in title. The Developer would ultimately come into title once the building has been certified “clean” after rigorous vetting that all hazardous substances have been removed and the building is dry, safe and secure. This timeline/transition process is necessary to protect the use of a variety of tax credits that will provide a substantial portion of future funding for the facilities as will be described further below.
There have been a number of studies performed, both by professionals on behalf of the City and those on behalf of the Owners to assess the environmental condition of the building including the presence of asbestos. The condition of the interior, due to extreme water damage, fire and vandalism makes evaluating the clean-up costs very challenging. The professionals involved reported that certain areas were considered too dangerous to sample and others were not assessable. The most notable takeaway is that the damage within the buildings has commingled material so that in many areas it is now imposable to de-couple what is or maybe hazardous and separate it from that which “originally” was not. The net effect is that large portions of the building must be treated as hazardous with all the care, process and disposal that is required when treating such contaminated substances.
In addition to removing asbestos and any hazardous material, the Developer intends to bring all the buildings to a clean structural shell with preserved historical details which the state determined needed to be protected in order to leverage Historical Tax Credit financing. Using Historic Tax Credits will help lessen the reliance on a Tax Increment Financing on this project and thus lessen the local public burden. When this phase is complete, the building will be dry and secure which further entails boarding up open spaces and repairing roofs.
WBK Engineering, LLC, working on behalf of the City estimated in 2016 that asbestos removal will cost about $6.5 million.
The additional cost to bring the buildings to the aforementioned condition is estimated at $5.5 million, making the entire Phase I project cost about $12 million. These numbers are based on bids that have been received by the developer that range from a low of $12 million to a high of $16 million.
The City, conditioned on Council approval, and in keeping with its best practices has agreed to contribute not more than 25% of these costs or to a maximum of $3 million for Phase I. At this time it is anticipated that this amount would be paid through the subsequent issue of general obligation bonds which will require subsequent approval by City Council.
It is important to note that the Developer has committed both to the Owners and to the City, to upfront the total costs to remediate or about $12 million and only receive reimbursement from the City after the entire site has been certified completely clean by the appropriate agencies and a change of ownership is completed.
This commitment by the Developer is a highly unusual one and was one of the key reasons the City decided to delay filing litigation and focus on working through an agreement that will finally make something happen at Copley. The motivating force within the Development team are two local Aurorans who are seeking to combine financial feasibility with social responsibility. In complex deals, there is usually a long period of due diligence wherein as many facts as possible are ascertained before real dollars are expended; this is especially true as the real estate business becomes increasingly more sophisticated and institutional. Conversely this arrangement for Old Copley presupposes a substantial investment by the Developer, even as final reuse plans are being worked on.
The specific amount of the Phase II request has not been determined and is not subject of this request. Nothing in the proposed Redevelopment Agreement commits the City to a Phase II if the City Council subsequently decides to pursue a different strategy. The City will evaluate further requests after specifics of the redevelopment are completed, analyzed and verified, The City will evaluate such requests with the same best practices that it has adopted for all projects that are evaluated within the City which includes a) determining the financial gap that may exist that “but for” the City providing assistance would render the project impossible to move forward b) having the developer fund the majority of the costs with the City supplying a proportion that is in keeping with the ratio that is being offered for Phase I c) having the Developer upfront these costs and be reimbursed only after said work is certified complete and d) having a means to pay back the City for its investment, usually in the form of increase real estate (or sales) taxes.
A discussion about Old Copley always accompanies the tradeoff between demolishing the entire complex or renovating and repurposing the buildings.
Because all asbestos would have to be removed prior to demolition, the $6.5 Million estimate would have to be expended in any event. The cost of demolition itself, not including this asbestos removal, is estimated at $3 Million. Finally WBK estimates about $1 million in additional dollars to restore the site after demolition, bringing the total cost of taking down the building and leaving a vacant 9 acre site at about $10.4 Million.
While not an “apples to apples” comparison because there will be future dollars requested from the City, we evaluated the costs of demolition with the City’s down stroke investment of $3 Million. Because the final economics of a repurposed Copley are not yet available and, more importantly, because the City believes there is an inherent value in finally addressing the “Copley problem” and making the safety and well-being of our citizens the priority, the direct financial “payback” of this $3 million investment was not a material aspect of our analysis. The City believes that it is worth $3 Million to clean up Copley even though it realizes that there is no way to evaluate whether or how much of these monies directly will come back to the City in increased real estate taxes because cleaning up the buildings in and of itself does not by definition create measureable economic value. But when compared to the demolition alternative, it is clearly cost effective. City staff has evaluated the area surrounding the Copley site and notes the following:
Within an approximate ½ mile radius of the site, the total EAV of property is $65.4 million and the tax bill for these properties for last year was $5.6 million.
A 1% change up or down creates a $56,000 change in taxes generated, excluding the Copley Development.
Over time, this variance will grow based on action or inaction and in five years would equal closer to a $300,000 plus or minus to the tax revenue of all taxing bodies.
In short, it will still cost the City in lost revenues to do nothing over time.
As stated above, any request in Phase II, will be evaluated by weighing public economic benefits vs. public costs that are outlined in the parameters above. This was not part of this request or presentation because we do not yet have all the information to evaluate the amount and payback of future dollars that will be needed to fill a likely economic gap for a reuse of the buildings.
IMPACT STATEMENT:
Few deals will have such a direct and measureable impact as Copley:
Remove a longstanding eyesore
Alleviate an environmental hazard
Reverse a local safety hazard and vandalism haven
Preserve the historical nature of property; utilize federal tax credits to ameliorate costs
Reuse an asset during of time of rapidly increasing new construction costs.
Increase property taxes at property and surrounding areas
Demonstrate “can do” approach to redevelopment.
RECOMMENDATIONS:
Recommend approval of resolution for the Redevelopment Agreement.
cc: Alderman Robert J. O'Connor, Chairman
Alderman Edward J. Bugg, Member
Alderman Theodoros "Ted" Mesiacos, Member
Alderman Richard "Rick" Mervine, Alternate
CITY OF AURORA, ILLINOIS
RESOLUTION NO. _________
DATE OF PASSAGE ________________
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A Resolution approving a Redevelopment Agreement between the City of Aurora and Fox Valley Developers, LLC to facilitate the environmental cleanup of the former Copley Hospital site located at 502 S Lincoln Av).
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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 Fox Valley Developers, LLC (the "Developer") proposes to undertake a partial interior demolition of the structures located at 502 S Lincoln Ave commonly known as the Old Copley Hospital site and to remove, remediate, and dispose of all asbestos containing material and lead paint contained in each of the buildings (the Project); and
WHEREAS, the Project could not occur without the assistance of the City; and
WHEREAS, the City and the Developer have negotiated a redevelopment agreement to facilitate the Project;
WHEREAS, approval the proposed redevelopment agreement between the City and the Developer as Exhibit A is in the best interest of the City;
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 here by is approved; and further
BE IT RESOLVED, that the Mayor is authorized to execute a redevelopment agreement that substantially confirms to the provisions of redevelopment agreement attached to this resolution as Exhibit A and incorporated as if fully set forth herein on behalf of the City, and further
BE IT RESOLVED that the various City Officers and employees designated in the Agreement shall be and hereby are authorized to perform the functions and duties set forth in the Redevelopment Agreement