HomeMy WebLinkAbout03-13-2012 Council Economic Development CommitteeAGENDA
City Council Economic Development Committee
Tuesday, March 13, 2012
8:00 a.m.
Helling Conference Room
City Hall
1. Call to Order
2. Welcome and Introductions
3. Consider approval of the February 23, 2012 Economic Development
Committee meeting minutes
4. Consider request for Financial Assistance for redevelopment of 114 S.
Dubuque Street
5. Report on Disbursement of Economic Development Funds for Busy
Coworking, LLC.
6. Staff time
7. Committee time
8. Other business
a. Next meeting 3/20/2012, 8:00 a.m.
MINUTES PRELIMINARY
CITY COUNCIL ECONOMIC DEVELOPMENT COMMITTEE
FEBRUARY 23, 2012
HELLING CONFERENCE ROOM, 8:00 A.M.
Members Present: Matt Hayek, Susan Mims, Michelle Payne
Staff Present: Wendy Ford, Jeff Davidson, Geoff Fruin, Tracy Hightshoe
Others Present: Katy Meyer, Gigi Wood
RECOMMENDATIONS TO COUNCIL:
Payne moved to recommend to the City Council the request from the Trumpet
Blossom Cafe as discussed.
Hayek seconded the motion.
Motion carried 3-0.
CALL MEETING TO ORDER:
The meeting was called to order by Chairperson Mims at 8:04 A.M.
WELCOME AND INTRODUCTIONS:
Chairperson Mims welcomed everyone and asked those present introduce themselves.
CONSIDER APPROVAL OF THE MINUTES OF THE JANUARY 17, 2012, ECONOMIC
DEVELOPMENT COMMITTEE MEETING:
Chairperson Mims asked if there were any changes to the January 17, 2012, Economic
Development meeting minutes. Davidson suggested one amendment, under Staff Time.
In regards to the Moss Green project discussion, Davidson suggested it be added that
there was concurrence by the Committee to assist with up to 25% of the funding for the
traffic study (up to 25%, or an amount not to exceed $8,250).
Hayek moved to accept the January 17, 2012, meeting minutes as amended.
Payne seconded the motion.
Motion carried 3-0.
CONSIDER REQUEST FOR CDBG ECONOMIC DEVELOPMENT LOAN FROM
TRUMPET BLOSSOM CAFE:
Hightshoe addressed the Members, introducing Katy Meyer from the Trumpet Blossom
Cafe. She briefly explained the plans, and asked Meyer to explain further. Meyer spoke
to Members, giving them an idea of what the Trumpet Blossom Cafe would offer. It
would be similar to the Red Avocado with a vegan menu; however will have a larger
space. The proposed location is on Prentiss Street (the former Hideaway). She plans to
offer entertainment and a small amount of retail, as well.
Hightshoe talked about the financials, noting that there will be some costs associated
with refurbishing this location. The owner estimates total project cost, including starting
up capital, to be approximately $170,000. Meyer has been able to secure an $117,000
loan at MidwestOne Bank and will invest $18,000 of her own funds acquiring assets,
according to Hightshoe. As with other businesses, Hightshoe recommended an
assessment by the Small Business Development Center. If weaknesses are identified,
the appropriate technical assistance will be provided. She also recommended full
funding with a lien on the owner's personal vehicle and a lien on all business assets.
Members then discussed this request, and also asked about what the other owners from
the Red Avocado will be doing. Meyer responded that each were doing their own
endeavors and one, David Burt had talked about doing a complementary business
(consulting, catering, etc.) and will possibly supply vegan burgers to her business. If
funding moves forward, Meyer hopes to open her restaurant by the first of April. The
discussion continued, with Members talking about how this area will be impacted by the
upcoming Riverfront Crossings development. Members discussed that the restaurant
will close at 10:00 PM, so it would not be considered a bar even if they serve alcohol.
Hayek noted that he is supportive of this request, as did Mims and Payne. All agreed
that the project sounds good and should be recommended to City Council at the March
61h meeting for their approval.
Payne moved to recommend to the City Council the request from the Trumpet
Blossom Cafe as discussed.
Hayek seconded the motion.
Motion carried 3-0.
STAFF TIME:
Ford addressed the Committee regarding their next meeting. She stated that they would
like to schedule a meeting for Tuesday, March 20, where they will have an application
from a local company hoping to expand its operations. She added that they may need to
have a meeting sooner for another project, and that staff will be contacting Members as
soon as it is known if another meeting is merited before March 20. Davidson asked for
some dates from Members for this possible last-minute meeting. Members were asked
to pencil in possible meetings on the 61h and 13th of March, with March 201h being a
definite meeting. Hightshoe added that they may also have a couple of CDBG
applications to review then too. Hayek asked how much is left in the CDBG fund, and
staff responded that there is approximately $180,000.
Ford then discussed a request that they have received regarding a co -working space in
the downtown area. This co -working facility would operate independently of the one
ICAD is planning. Discussions have taken place with ICAD, according to Davidson, and
things are moving forward to further review the request and the proposed location. The
request will first be considered by the City Manager who may choose to act on it or
forward it to the full committee for review. The Members concurred.
Davidson stated that two proposals have been received for the private developer
partnership on the multi -use parking facility. He shared staff's concerns with all of these
upcoming projects and how they are trying to make sure timeframes don't interfere with
University projects in the area.
Davidson stated that he and Ford recently met with the new Sycamore Mall
management, and they feel encouraged by the new management's plans. Ford added
that she was encouraged as well, especially since the new management has some solid
background in this type of work.
Davidson shared that there is going to be a re -platting of the Moss Green project. The
traffic study will be proceeding and staff is glad to see these new changes.
Also moving ahead is the hotel project off Riverside Drive. Staff will keep Members
updated on these items. Hayek asked for some clarification on the Moss Green
changes, to which Davidson replied. Davidson then closed with the news that New
Pioneer Co -Op may be moving their store to a new location. This would open up their
current block for redevelopment.
Hightshoe added that there has been a slight recovery seen in new construction single-
family building, more specifically the townhome and duplex styles.
COMMITTEE TIME:
Hayek commented on the balance in the CDBG funds, stating that they should try to
spend this before the July portion is received.
ADJOURNMENT:
Payne moved to adjourn the meeting at 8:40 A.M.
Hayek seconded the motion.
Motion carried 3-0.
Council Economic Development Committee
ATTENDANCE RECORD
2012
TERM
NAME
EXP.
j
N
w
Michelle
01/02/14
X
X
Payne
Matt
01/02/13
X
X
Hayek
Susan
01/02/13
X
X
Mims
Key:
X = Present
O = Absent
O/E = Absent/Excused
��n
CITY OF IOWA CITY
MEMORANDUM
Date: March 9, 2012
To: City Council Economic Development Committee
From: Jeff Davidson, Director, Planning and Community Development
Steve Long, Community Development Coordinator
Re: Request for financial assistance for 114 S. Dubuque Street property redevelopment
We have received a request for financial assistance from Marc B. Moen for a redevelopment
project located at 114 S. Dubuque Street in Downtown Iowa City. This is the current location of
the Wells Fargo building adjacent to the pedestrian mall. The proposal is for a mixed -use project
consisting of the following uses and square footages:
Level 1
Retail
1,600 sq. ft.
Level 2
Retail/office
2,318 sq. ft.
Levels 3-4
Office
4,636 sq. ft.
Levels 5-12
Residential
18,904 sq. ft.
Levels 13-14
Two story luxury residential
3,914 sq. ft.
The proposed building, shown in the attached rendering, consists of four floors of retail/office
space, 16 one -bedroom residential units of 662 sq. ft. each, 8 one -bedroom residential units of
1,039 sq. ft. each, and two luxury residential units of approximately 2,000 sq. ft. each.
The estimated project construction cost is $10,737,598. It would increase the assessed
valuation of the property from its current $569,520 to an estimated $9,805,330. The current
property taxes paid annually on the property are $23,302. The total anticipated property tax with
the completed project is $234,792 annually, and is conservatively estimated to increase
approximately 2% every other year thereafter.
The 24 residential units on levels 5-12 will require 12 parking spaces which will need to be
provided off -site in a City parking facility. This has been approved by the Director of
Transportation Services, and will require approval of a special exception by the Board of
Adjustment. There is not enough room on the site for subterranean parking. The two luxury units
on the top floors would each have a single parking space provided at the rear of level 1 off of
the alley.
The owner is required to put a retail or office use on the first floor. The owner is also proposing
that levels 2, 3, and 4 be office levels which would be constructed to Class A office space
standards. Level 2 might be used for retail space. The residential units are proposed for a mix of
for sale and for lease units similar to the owner's Plaza Towers project. The initial proposed sale
or leasing price points for the smaller 662 sq. ft. residential units meet our financial guidelines
for workforce housing.
The developer is formally requesting $2.5 million in TIF financing for the project. The funding is
being requested in the form of a forgivable loan which would be provided by the City at the
beginning of the project. The City's commitment of funding for the project will be used by the
developer to leverage private financing for the project. The annual TIF increment generated by
the project would be used to repay the City's bonded indebtedness. The developer has agreed
March 9, 2012
Page 2
to a minimum assessment agreement, which will guarantee the property taxes required to retire
the City's indebtedness within the prescribed timeframe.
The following analysis will review this request against the City Council's economic development
process and policies which were adopted on December 6, 2011.
Financial analysis
The City of Iowa City economic development process and policies are intended to establish
standard procedures and a framework for granting financial incentives. This is intended to
ensure that the City's financial resources are used as efficiently and effectively as possible. The
focus of the financial incentives policy is achieving community objectives. Following is a
summary of the consistency of the proposed 114 S. Dubuque Street redevelopment project with
the stated community objectives of the economic development process and policies:
Increase taxable valuation of property, especially commercial and industrial. The
114 S. Dubuque Street project will be a mixed -used development that includes four
floors of commercial space. The total estimated assessed value of the property will
increase from $569,520 to $9,805,330.
2. Increase the number of jobs which have wages and fringe benefits exceeding the
county median. The 114 S. Dubuque Street project will include four floors devoted to
retail use and Class A office space. Although no location decisions have been
announced, wages and fringe benefits associated with downtown office uses frequently
exceed the county median. Management level positions in retail may also exceed county
median wage and fringe benefit levels.
3. Redevelopment of blighted property. The current office use on the 114 S. Dubuque
Street site is a viable economic property in well maintained condition. However, it is a
significant underutilization of the parcel compared to the density of development allowed
in the downtown area. The small size of the site inhibits the ability of onsite parking to be
provided. This provides a tie to the State Code definition of "blighted area" which states
"faulty lot layout in relation to size, adequacy, accessibility, or usefulness." (State Code
403.17) The more conventional slum and blight conditions are not present on the site.
4. Desirable projects which might not otherwise occur without financial incentives.
The retail and office floors of the proposed new building may include uses which meet
the desirable projects definition. The proposed price points for the 662 sq. ft. residential
units meet the City's workforce housing definition, which is also listed in the desirable
projects category.
Standard operating procedure for requests for economic development financial
assistance
The request for financial assistance for 114 S. Dubuque Street has been through the standard
operating procedure Council established for economic development financial assistance. In
terms of intake and evaluation, we have been involved for over a year in negotiating and
finalizing the various project elements with the developer. We have successfully worked with the
developer in establishing project elements which include additional commercial/office floors
beyond what is required by the zoning ordinance, and workforce housing. We have completed
an in-depth financial gap analysis of the project using the services of the National Development
Council, which is summarized in a following attachment. Informal discussions with community
leaders have produced a favorable reaction to the proposed project.
2
March 9, 2012
Page 3
The due diligence phase of our evaluation is aided by the fact that the applicant is a known
quantity with whom the City has worked successfully on other downtown projects. The Plaza
Towers project is perhaps one of the best examples in the state of fulfilling the identified
purpose of the State's TIF legislative statute. Assessed valuations in the TIF district were higher
than projected, so TIF obligations were paid off 12 years early. The project was closed out, and
now nearly $1 million per year in property taxes accrue to the City, the County and the School
District from the Plaza Towers project. We are currently engaged with the developer in the
rehabilitation of the Vito's building. That project is proceeding according to schedule.
The development agreement, when drafted and presented to the City Council, will include
performance measures that require the developer to complete the building in accordance with
the concept plan proposed. The developer will agree to a minimum assessment agreement and
provide additional securities as stipulated in the development agreement.
Gap analysis and additional evaluation criteria
The developer has been required to produce a gap analysis of why the $2.5 million in requested
financial assistance is necessary. The City Council's stated goal is for the City's financial
assistance to be the last dollars in, and that "but for" the City's assistance the project would not
happen. The gap analysis is summarized in the attached report from the National Development
Council.
The City Council established several goals, objectives, and strategies for TIF projects. The
developer's equity is required to at least equal or exceed the amount of TIF funds made
available for the project, and this has been achieved on a roughly 25% TIF funds
requested/75% developer equity basis.
It is a goal but not a requirement for TIF funding to not exceed more than 50% of the TIF
increment created. The suggested TIF funding arrangement is for the City to sell bonds in the
amount necessary for the requested $2.5 million plus any necessary financing expense. The
project is proposed to be funded by the estimated TIF increment over an approximately 18 year
period. This financing mechanism funds the project from the rp oiect value created. If TIF
increment funds were made available from the larger TIF district, the 18 year repayment period
could be shortened, but this is not being suggested.
The eligibility goals, objectives, and strategies of the City's economic development process and
policies call out office uses, retail uses, and housing which support stated economic
development goals as eligible TIF projects. All of these are included in the 114 S. Dubuque
Street project.
Impact on City Plaza
The property directly to the north of 114 S. Dubuque St. is Lot 4 of Block 6 of the Original Town
plat of Iowa City. This property originally contained a private building which was acquired by the
City and demolished in the 1970s as part of Urban Renewal. The original intention was to
eventually market this property for redevelopment. Subsequently the City installed City Plaza
(the "Ped Mall") and created a mini park on Lot 4 that was intended to be of temporary use.
In the 1990's the City Council formally took action by ordinance to add the mini park property to
City Plaza and establish it permanently as public property. This action enabled windows and a
door to be added to the west side of the Paul Helen Building. It also enables the windows and
doorway that are proposed for the 114 S. Dubuque St. building. The City Attorney's Office is
March 9, 2012
Page 4
currently researching any additional issues regarding City Plaza being impacted by the
proposed new building.
Summary
The request for financial assistance for the 114 S. Dubuque Street redevelopment project has
been submitted for review according to the City's approved economic development process and
policies. Staff recommends approval of the request. If approved at the March 13 City Council
Economic Development Committee, it will be forwarded to the City Council for consideration at
the April 3 City Council meeting.
Staff and the applicant will be available at your March 13 EDC meeting to answer any
questions.
Attachments:
1. Developer's Request for Financial Assistance
2. Financial Gap Analysis
cc: Tom Markus
Geoff Fruin
Kevin O'Malley
Wendy Ford
Steve Long
Marc Moen
ppddir/memos/114sdubuque.doc
4
MARC B. MOEN
221 E. COLLEGE STREET
IOWA CITY, IOWA 52240
cell/text: ww.v. moe ni:)rouiD . (,-,am facsimile:
319358,6778
February 27, 2012
City Council Economic Development Committee
c/o Jeff Davidson, Director of Planning & Community Development
410 E. Washington Street
Iowa City, A 52240
RE: Proposed Development - 114 S. Dubuque Street
Dear Jeff,
I've enclosed materials on the project I am proposing for 114 S. Dubuque Street for submission to
the City Council Economic Development Committee.
The request for TIF financing is based an the break-even analysis set out below:
Total Project Cost: $10,737,598 (see attached materials for breakdown)
ANNUAL INCOME:
Rent & Commercial Tenant Contributions:
ANNUAL EXPENSE:
Property taxes:
Annual maintenance & repair:
Replacement Reserves:
Building Management:
Debt Service & 2.51y,, return on other
developer funding:
1111611FAIIIIII
Annual Net Profit/ Loss
-assumes $2,500, 000 covered from TIF
226,360
68,454
3,423
48,462
Eel
I would be pleased to answer any questions from you or the committee.
Thank you for your consideration.
ARC B. MOEN
4*4
PROPOSED DEVELOPMENT - 114 S. DUBUQUE STREET - IOWA CITY IOWA
FROM: Marc B. Moen
TO: City Council Economic Development Committee
c/o Jeff Davidson, Director of Planning 6 Community Development
Date: February 27, 2012
SITE: 114 S. Dubuque Street abutting the east side of the Dubuque Street Pedestrian
Plaza and the south side of Blackhawk Park. Site drawing (site 4114 outlined in red]
and photo of site with existing building are set out below.
129
i
118
E WASHINGTON S T
221
PROPOSED PROJECT:
14 Story Mixed Use Development
�R -
Uses & Square Footage
>Level 1 Retail: 1,600 sq ft
>Level 2 Retail/Office: 2,318 sq ft
>Level 3 Office: 2,318 sq ft
>Level 4 Office: 2,318 sq ft
>Levels 5-12 Residential
16 Units: 662 sq ft
8 Units: 1,039 sq ft
>Levels 13-14 Residential (two story units)
1 Unit: 1,973 sq ft
1 Unit: 1,941 sq ft
First level preliminary floor plan:
Street Level Ran
i. _1'r 9
PROJECT COST:
CONSTRUCTION + SITE COSTS
$600,000
Site cost
$8,664,606
Construction
$601.030
Architectural & engineering fees
$7,500
Survey
$496,160
Furnishings & contribution to
commercials ace fit out
$30,000
Soil testing
$50,000
Construction testing
$23,302
Property tax
265 000
Construction interest
$10,737,598
PROJECT COST
PROJECT ANALYSIS:
Flexibility to respond to market demands
The goal of the project is to attract new retail, office users, and permanent residential
population to downtown Iowa City. All commercial and residential units in the building
will be condominiums for lease or sale.
At Plaza Towers, the flexibility to either lease or sell commercial and residential units
proved very successful. Several thousand square feet of office space have been sold
and several thousand square feet are leased. In the initial offering, 28 residential units
were offered for sale. Five buyers purchased 2 units each and combined them
resulting initially in 23 separately owned residences. A number of those units have re-
sold, some as many as four times. The developer initially held 27 units as rentals.
Fourteen of those 27 units have been sold. Including the re -sales, there have been 51
separate sales of residential units at Plaza Towers [i.e., 37 units have sold 51 times).
Holding a stock of residential rental units provides a needed supply of apartments for
residents moving to Iowa City who wish to familiarize themselves with the Iowa City
area before purchasing a permanent home within the City. A number of Plaza
Towers condo owners leased units before purchasing.
Proiect benefit to Iowa City
Increased Property Valuation
The development site is currently assessed at $550,350. It is anticipated that at
completion of the project the assessed value will increase to $9,179,600 (nearly 17
times the current assessed value). It is further anticipated that the assessed value will
continue to increase over time.
Added Retail & Class A Office Space
The project will add quality retail space and Class A office space as well as 26
residential units intended for permanent residents.
Maretek, Inc., a consulting firm retained by Iowa City in 2007, concluded that there is
"cause for caution" in developing office space downtown; that it is a "chicken -egg"
situation. Maretek ultimately concluded that "a passive approach to downtown office
development, however, would likely result in the achievement of only a fraction of its
estimated potential." To reach full potential of office growth a proactive approach is
vital.
The Developer agrees with Maretek that Iowa City will not realize the full potential for
downtown office users unless risk is first taken in developing the space to attract
users. The same is true of quality retail space. If we wait for prospective retail
and office tenants to come along without having quality space available or, at the very
least, a project under construction, we will fail to capture (or even know) what the full
potential is. Businesses seeking to attract bright, talented, creative and diverse
employees will find downtown Iowa City extremely attractive. It is critically important
that Iowa City be proactive in attracting these businesses. The development will
attract quality jobs to downtown Iowa City and further enhance the vitality of the
central business district.
The development will also bring to the site what was long ago proposed but never
realized. During urban renewal, a multi story tower was proposed for this site. The
site is well suited for infill development. The project will enhance other property in the
area and is likely to encourage other development and redevelopment.
Financial Assistance Requested
A financial analysis of the project shows that the project is not financially feasible
without assistance. Developer requests TIF financing in the amount of $2,500,000.
This assistance is based on a "gap analysis" which shows this assistance is necessary.
MEMORANDUM
Date: February 28, 2012
To: Jeff Davidson, Director, Planning & Community Development, City of Iowa City
From: Tom Jackson, Director, National Development Council
Raquel Favela, Director, National Development Council
CC: Steve Long, Community Development Coordinator, City of Iowa City
RE: Review of Request for Financial Assistance for 114 S. Dubuque Street
At your request, NDC has reviewed the materials submitted by Marc Moen in support of his request for
gap financing in the amount of $2.5 million for the mixed -use tower proposed for the current site of the
Wells Fargo branch bank at 114 S. Dubuque Street. NDC has also met with Mr. Moen on three occasions
and has requested and discussed additional detail on project costs, operating assumptions and financing
sources by phone and email.
Over the course of our discussions with Mr. Moen, he has supported his assumptions regarding the
project's development costs and operating revenues and expenses with increasing detail. Preliminary
construction cost estimates have been provided in reasonable detail by an experienced general
contractor and Mr. Moen's experience in operating several existing developments in Iowa City has
advised his operating expense and revenue estimates for this project.
Given the current status of the project's design (pre -schematic), development cost estimates are still
preliminary. Likewise, final decisions on the design and specification for both the residential and
retail/commercial components of the project can impact the project's development costs, revenues,
expenses and occupancy levels.
All of the factors influenced by the final design will impact the amount of senior debt the project can
attract. Mr. Moen has identified several potential lenders that he is in discussions with, but he does not
have preliminary commitments or written terms from them at this time. His latest sources and uses
estimates project bank financing of $4.75 million at 5.5% interest with a 25-year amortization. Taken
together with the gap financing request of $2.5 million, the project's sources and uses are projected as
follows:
Total Project Costs $10,737,598
Bank Loan $ 4,753,864
Requested Gap Financing 2,500,000
Required from Developer 3,483,734
Total Sources $10,737,598
NATIONAL DEVELOPMENT COUNCIL U
Mixed -Use Tower Development/Well Fargo Site
February 28, 2012
Page 2
Given the estimates and projections Mr. Moen has pulled together for the project to date, the request
for gap financing in the amount of $2.5 million is reasonable for the following reasons:
1) The amount of bank debt attracted to the deal has been maximized given the projected
operating proforma and assumed underwriting criteria (1.25 debt coverage ratio, 75% loan to
value) that are favorable to the project. The loan amount is also influenced by an assumed
capitalization rate for the downtown Iowa City market of 7.0% which will be verified by an
appraisal.
2) At $3,483,734, the amount of developer financing (equity, donated property, tenant
improvement financing, etc.) required to meet the project's needs:
a. Does not include a developer fee which would normally range between 8-15% of hard
development costs.
b. Does not include capitalized leasing commissions as Mr. Moen expects to provide these
services through his management of the residential and commercial space.
c. Has set the contingency at 5% of construction costs and does not currently include a soft
cost contingency or capitalized lease -up, operating or replacement reserves. Both the
contingency and reserve budgets will need to meet senior lender requirements, which
may in turn require additional developer financing.
d. Provides a cash -on -cash return (annual cash flow before taxes: developer financing) of
2.5% in Year 1, rising to 8.5% in year 10. These numbers provide slim margins in the
early years of the project given risks of higher operating costs, lower occupancy rates
and rents that may not hit initial estimates or escalate 4%/year as projected.
e. Provides an internal rate of return (IRR) of 5.91% over 15 years, calculated by combining
and compounding the projected cash flow, tax and appreciation benefits of the project.
An IRR of 5.91% is below the desired returns of most investors looking to proceed with a
project given predevelopment, construction and operating risks.
While the project as presented supports a gap financing request of $2.5 million, the City of Iowa City
must decide if it will dedicate resources in this amount. The developer returns outlined above assume
that the City will finance the $2.5 million gap at an interest rate of 0%. With a negotiated minimum
assessment sufficient to generate an annual property tax increment of $165,000, the principal on the
loan would be serviced in just over 15 years (15.15). To recapture financing costs and fees associated
with making this loan available, the minimum assessment would need to be higher or the term longer
than 15 years. Mr. Moen has stated that he expects the City's loan to be partially forgiven on an annual
basis in an amount determined by the term of the loan and/or the collected tax increment.
The City's risks in lending these funds against the commitment of future tax increments can be
characterized as:
1) If the project does not perform to projections, it may fall short of generating sufficient revenue
to maintain a positive cash flow. This risk is moderated by the current strength of Iowa City's
market (low vacancy rates, strong rents, etc.) and the debt coverage ratio (DCR) assumed for the
lender that leaves an operating cushion between their debt service and the project's Net
Operating Income (NO[).
NATIONAL DEVELOPMENT COUNCIL II
Mixed -Use Tower Development/Well Fargo Site
February 28, 2012
Page 3
2) On completion, the FMV is projected to be $6,255,619 based on a 7% cap rate and a stabilized
NOI of $437,893. The as -complete appraisal may find a higher value for the project given
further refinements to its operating assumptions and further improvements to the real estate
market, and this would provide the City with additional collateral. The collateral risk can also be
managed by securing personal and corporate guarantees from Mr. Moen, which he indicates
was the practice in a prior development agreement he reached with the City.
The City's risks and the projected low developer returns can both be potentially ameliorated by
opportunities for the developer to sell — rather than rent — some, and eventually, all of the
residential and retail/office units in the project. These sales can substantially reduce the senior
debt and associated interest and principal payments and would also shift a portion of the burden of
the minimum property tax assessment to new condo owners. By waiting for the project to stabilize
and for the general real estate market to improve, Mr. Moen may also be able to capture additional
appreciation which could benefit the City through tax collections based on those sales rather than
just the negotiated minimum assessment.
Conclusion: the project as presented demonstrates a need for gap financing in the amount of $2.5
million. If the secured bank commitment, project costs and/or appraised value are substantially
different from what the developer has projected, NDC will review this evaluation as requested by
the City.
NATIONAL DEVELOPMENT COUNCIL U
CITY OF IOWA CITY
MEMORANDUM
To: Economic Development Committee
From: Wendy Ford, Economic Development Coordinator
Date: March 9, 2012
Re: Report on Disbursement of funds: Busy Coworking, LLC start-up capital
Sheila Samuelson and Jordan Running have proposed to open the city's first coworking
facility downtown with their enterprise Busy Coworking, LLC, and they requested startup
capital to cover a gap of $11,018 for equipment and $3,624 for operating expenses totaling
$14,624. City Manager, Tom Markus approved the request and directed the City Attorney's
office to write a contract for a Conditional Occupancy Loan that will include the following
terms, among others:
1) Busy Coworking will remain in operation for a minimum of 3 years as outlined in their
proposal.
2) After each year of operation, Busy Coworking, LLC will provide an annual report
detailing financials and other metrics such as number and type of memberships, number
of unique users, success stories of entrepreneurial endeavors occurring because of
Busy Coworking, special events and marketing outreach.
3) After each year of operation, Busy Coworking, LLC will be forgiven 1/3 of the original
loan amount such that after 12 months of operation, $4,881 is forgiven, after 9 months,
9762.00 is forgiven and after 24 months, the full $14,624 is forgiven.
4) Assets the City might claim in the event Busy Coworking fails are the material items
purchased at start-up.
5) Proof of expenditure for proposed expenses will be required.
Funding this request is within the authority granted the City Manager by Resolution Number
11-66 on March 1, 2011. As required by the authority granted, such disbursements shall be
provided at the next scheduled meeting of the City Council Economic Development
Committee; in this case, the March 13, 2012 meeting.
Background on City support of Coworking
In May of 2010, a feasibility study for a Creative Technologies Incubator serving downtown
Iowa City was completed. The study charged that over the next three years, there should be
an effort to implement a cowork incubator downtown.
Coworking is a relatively new business incubator model and has been adopted in many
cities including, most recently, the Vault coworking facility in Cedar Rapids. Coworking
fosters a collaborative atmosphere, where entrepreneurs can work individually, yet together.
Ideas and networks tend to grow faster in a coworking culture, fostering an environment that
supports entrepreneurism.
March 8, 2012
Page 2
The city's economic development policies, adopted in December, 2011, state specifically
that the city supports organizations which help to incubate, grow, foster, and create new
business operations by providing non-traditional collaborative environments.
Busy Coworking, LLC
Busy Coworking, LLC will operate such a facility. Proposed to be located on the third floor of
a downtown art gallery, the business model is similar to a gym membership, where
depending on the type and frequency of use, people chose the appropriate membership tier
to purchase. At Busy Coworking, membership tiers include desk space on a drop -in or
monthly basis, or reserved desk space, or closed office space. In their model, Busy
Coworking will serve more than 90 professionals per year with 25-30 desk memberships
plus those who use the facility on a drop -in basis.
While coworking facilities are slightly more than break-even endeavors at best, the benefit
comes back to the community in the form of having established a coworking space. Having
coworking space available to entrepreneurs increases the potential for those businesses to
grow and succeed and, adds to the creative culture that attracts like-minded,
entrepreneurial individuals. Creating a culture of creativity, networking, idea sharing and
collaboration is the short term goal, while growing entrepreneurial efforts into solid
businesses that are tax paying, employers is the long term goal.
The Iowa City Area Development Group (ICAD) is also developing plans for a coworking
facility. Concerns about duplication of services should be minimal because the two
organizations will be serving different markets with different price points. ICAD has
endorsed Busy Coworking with a letter of support.
Justification
This request for funding ties in directly to the established FY 2012-13 Strategic Plan goals
of a) expanding the economic base of the community, and b) promoting growth of the
downtown in a manner that builds upon existing vibrancy. The project will be a catalyst for
the accelerated development and growth of entrepreneurial businesses. It is also an
element of the creative culture and as such, will help build the "cool place" factor of
downtown attracting like-minded entrepreneurs and business that requires or desires to
locate in places with that cache.
Among the community objectives noted in the Economic Development Process and
Policies, adopted in December of 2011, Busy Coworking could certainly be considered a
desirable project that might not otherwise occur without financial incentives. While its
founders will not be taking a salary, they are creating a place of business for more than 90
professionals to conduct work. A related byproduct of this activity is the adaptive reuse of a
former storage space to a more productive function as office space.
Busy Coworking Business Plan Proposal
Prepared by Jordan Running and Sheila Samuelson of Busy Coworking
1. Overview
Coworking is a growing, worldwide trend, fulfilling the needs of an increasing population of
independent workers such as startups, consultants, and independent contractors, for a "third
space" to work, balancing the cultural and collaborative benefits of a company office with the
freedom of working independently.
Busy Coworking ("Busy" for short) is a shared office environment serving the needs of
entrepreneurs, small startups and other independent professionals in the Iowa City area. The
space will have a creative, coffee -shop —like atmosphere that promotes productive work and
collaboration.
Busy Coworking provides deskspace to each of its members. Other amenities include:
• A small conference area, available to members for meetings or private phone calls
• High-speed internet access
Printer/copier
• Kitchenette with refrigerator, microwave, coffee maker and hot water kettle
• Private restrooms
• Extended hours access (beyond 8 a.m.-5 p.m.)
• Electronic keypad entrance security
• Monthly cleaning service
• Access to a community of other professionals and independent workers
Busy Coworking expects to have 20-25 desk spaces available, with different options for
professionals seeking different levels of collaboration, openness or privacy. These options
include:
Membership Type
Membership
Length
Units
Available
Membership
Cost
Open, Shared Daily Drop -In
Varies
15
Open, Shared* Monthly
18
150
Open, Reserved Monthly or Quarterly
8
175
Closed Office Monthly or Quarterly
1
500
*Double the number of Open, Shared
29
Total $
memberships are sold than available desk
spaces, since it is improbable that all members
will use the space during the same hours.
Assuming a full capacity of 29 memberships and assuming a turnover rate of 20 percent of
members monthly, Busy will serve over 90 professionals per year. This does not include drop -
ins who visit Busy on a "day pass," without a monthly membership.
2. Current Need / Market for Coworking in Iowa City
Independent workers and startups often begin working in their home offices and cafes but soon
discover disadvantages, including isolation, distractions, and the formation of bad habits, in the
non -workplace environment. Renting a traditional office space is cost -prohibitive to these small
ventures and does not address the problem of isolation. Coffee shops provide a more social
setting, but do not promote collaboration or a sense of ownership in the culture of the space,
and time restraints (explicit or implied) often arise.
Coworking is a global trend of "working independently, together." In these spaces, professionals
find a productive working environment that facilitates both independent work and collaboration.
Coworking spaces exist in practically every major city and even smaller, local places such as
Cedar Rapids and Pella, Iowa.
Earlier this year, MBO Partners released the inaugural Independent Workforce Index, which
estimated 16 million independent workers in the workforce today, with an estimated rapid rise to
20 million by 2013. The Index reports that independent workers tend to be 30-49 years old, and
nearly half have a college degree. The average income of an independent worker is $52,600.
75% of these workers are committed to remaining independent.
Iowa City is part of this trend, with a growing population of start-up companies and independent
workers. Many are young, creative entrepreneurs or recent University of Iowa graduates.
Despite their invaluable contribution to the community of entrepreneurship that Iowa City is
trying to build, very few options for affordable, professional work and collaboration space exist.
3. Operational Structure
Owners
Busy Coworking LLC is jointly owned by Jordan Running and Sheila Samuelson, who seek to
lease space from Benjamin Chait of the Chait Galleries Downtown at 218 E. Washington St.
Members and Membership
Busy Coworking will offer monthly memberships and daily passes to professionals through a
membership agreement and prepayment. Members will have access to the space (including
amenities listed above) and its community of fellow professionals and independent workers.
Members will be accepted on a rolling basis through a simple application process. The open
and collaborative office structure means it will be important that members contribute in a
positive way to the space's atmosphere and culture. Busy's leadership will strive for openness
and diversity while using its discretion to accept those applicants who will be the best fit for this
culture.
Staffing and Administrative Duties
Owners Jordan Running and Sheila Samuelson will fulfill nearly all administrative duties, such
as recruiting members, providing orientation, processing applications, collecting payments, and
ensuring a comfortable work space. Busy will implement efficient, automated processes, based
on the collective experience of coworking spaces around the world. Some services may be
contracted to professionals, such as bookkeeping, processing of payments, and cleaning.
While Busy will not have a full time "welcome staff' for walk-ins (which we expect to be high for
the first several months and then taper off gradually) we propose a model in which select
members may fulfill this "host' role in exchange for discounted or free membership.
4. Finances
Busy Coworking will provide a valuable service to the startup business community and
contribute to the vibrancy of downtown Iowa City. Despite these benefits, spaces such as this
are rarely profit centers. Busy Coworking has estimated the expenses and income below.
Upfront expenses
Cost
Cost
Cost
Total
Total
Total
Item
Qty.
(low)
(med)
(high)
(low)
(med)
(high)
Truck rental
50
75
100
50
75
100
Desks/tables
22
50
100
150
1,100
2,200
3,300
Chairs
22
15
107.5
200
330
2,365
4,400
File cabinets
22
5
42.5
80
110
935
1,760
Refrigerator - 4.4 ft^3 mini fridge
1
200
200
200
200
200
200
Coffee maker
1
50
150
250
50
150
250
Electric kettle
1
20
35
50
20
35
50
Microwave
1
75
100
125
75
100
125
Printer/copier
1
150
275
400
150
275
400
Floor lamps for one room x4 +
bulbs
4
65
65
65
260
260
260
Extension cords/power
strips/wiring
100
150
200
100
150
200
Wifi router x1-2
2
100
175
250
200
350
500
Modem
1
50
100
150
50
100
150
Internet setup
0
100
200
100
200
Network cabling
20
47.5
75
20
48
75
Common area seating/coffee
table
150
275
400
150
275
400
Consumables
(kitchen/bathroom/cleaning)
100
100
100
100
100
100
Legal
350
1675
3000
350
1,675
3,000
Whiteboards
1
75
137.5
200
75
138
200
Signage (vinyl cling)
50
75
100
50
75
100
Carpeting (approx. sq. ft.)
240
2.45
3.725
5.00
588
894
1,200
Interior paint (gallons)
6
20
24
28
120
144
168
Open house launch event (food,
drink, flyers)
1
150
225
300
150
225
300
Business Cards
100
150
200
100
150
200
Total
$
4,398
11,018
17,638
Monthly Revenue (based on
membershinl
Low
Med
High
Drop -in
150
300
450
Open, Shared
750
1,650
2,700
Open, Reserved
350
875
1,400
Private
0
0
500
Total $
1,250
2,825
5,050
Not reflected in the figures above are the hundreds of hours Busy Coworking's principals have
each invested in the venture over the past nine months, and will invest in the months to come. If
a dollar amount were to be placed on this large investment of time, it would far exceed the
startup expenses estimated for assets.
Busy's coworking model is minimal, providing modest furnishings and shared amenities such as
a printer, refrigerator and wireless Internet. Busy Coworking is seeking access to startup capital
to cover a gap of $11,018 for upfront launch expenses, and $3,624 to help cover the first three
months of estimated operating expenses, for a total of $14,642.
Coworking spaces do not typically generate significant profit. In any month in which profits
remain that are not put into improving the space or business those profits will be divided equally
between Jordan Running and Sheila Samuelson. They will also receive in -kind payment from
Busy Coworking in the form of free membership.
5. Marketing and Outreach Efforts
lbu..s
CO WORKING
Busy Coworking will reach its core audience in a variety of ways, including online engagement,
networking, and more traditional marketing avenues:
• Open house events: Busy will showcase the space to interested community members
at several promotional open house events
• Social media: Existing Twitter and Facebook accounts will be regularly updated.
• Strategic networking: Busy Coworking leaders will attend local entrepreneurial events
to seek professionals in need of space, and promote coworking. This includes events
such as Technology Association of Iowa's monthly TechBrews, Barcamp events, ICAD
events, Chamber events, etc.
• Members as advocates: Busy Coworking members will be encouraged to share their
experience and help promote the space by contributing to the Facebook and Twitter
accounts, and carrying and sharing business cards.
Biz/entrepreneur mailing lists
• Partnerships: Busy Coworking will seek partnerships with with area organizations and
businesses, in order to leverage resources and exposure
• Press: Busy Coworking will promote newsworthy events and programs with press
releases to local media outlets, including newspapers, radio, TV and web
• Events: Leasing/lending space for entrepreneurship events will create promotion
opportunities that give exposure to Busy
• Word of mouth: We expect Busy Coworking to become a well known fixture of the
entrepreneurial and independent working community of Iowa City
• Coworking community: Activity in regional and global coworking community: Social
media and blogging, attending events, cross -promotion, networking
6. Conclusion
Coworking is a globally -tested idea that supports the success of entrepreneurs and independent
workers by providing them with both a workspace and a community. Busy Coworking hopes to
offer this essential service in Iowa City's downtown, above the Chait Galleries on Washington
Street. Busy will have 20-25 desk spaces, and estimates serving 100 or more professionals per
year in the space.
Busy Coworking seeks $14,642 in funding assistance in order to cover a financing gap for
upfront expenses and assistance for the first 3 months of operating expenses.
Appendix
Jordan Running has lived in Iowa City since 2008. He graduated from Cornell College in 2004
with a B.S. in Computer Science and Art and built web applications at Iowa City companies
Digital Artefacts, Cramer Dev and Componica before becoming an independent contractor at
the beginning of 2011. As a freelance web developer he has worked with companies across the
country from his kitchen, every Iowa City coffee shop, and Cedar Rapids' Vault Coworking. In
addition to web development Jordan worked as a lead blogger and editor for Weblogs, Inc.
(New York, NY) and AOL (Dulles, VA) for several years, remotely managing a team of more
than 15 writers.
Sheila Samuelson returned to Iowa City in March of 2010 to launch Bright Green Strategy, a
consulting practice that helps companies reduce their environmental and social impacts. Sheila
earned an MBA from Presidio Graduate School in San Francisco in 2008. She has worked on
sustainability projects with local governments, non -profits, small businesses and global
corporations. Locally, Sheila is a board member for Backyard Abundance, active with
BarcamplCR, the Regional Sustainable Business Alliance, Iowa City Climate Advocates and
many other organizations. Sheila experienced the benefits of coworking firsthand while living in
San Francisco, and is eager to have a similar opportunity for independent professionals in the
Iowa City area.
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Iowa City Area
V Development Group
Extraordinary opportunities
in unexpected places.
March 1, 2011
Wendy Ford
Economic Development Director
City of Iowa City
The ICAD Group has been researching and advocating the need to develop a strong culture of
innovation and entrepreneurship. Our findings have been very much in line with the study
completed by the City in 2010 which indicated that in order to support this emerging culture of
innovators, there is a need to create physical spaces downtown which offer a home for
collaboration to occur.
While ICAD is working on developing a non-traditional incubation / meeting space / coworking
facility of our own, we strongly support the coworking space being developed by Busy
Coworking. Sheila and Jordan have been instrumental in building awareness for coworking in
our area and we think their space will be vitally important to advancing this greater cause. Busy
coworking and other similar spaces developed in the region will be great compliments to the
space ICAD is planning to create.
We hope the City of Iowa City is able to offer them financial support to help launch this concept
as we know endeavors of this type are done more for community development than they are as
potential profit centers.
We look forward to working with Busy Coworking on ideas to continue spurring
entrepreneurship and innovation and support their request for assistance.
Sincerely
Joe Raso
President, ICAD Group
325 E. Washington Street, Suite 101 Iowa City, IA 52240 319.354.3939
IowaCityAreaDevelopment.com