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HomeMy WebLinkAbout12-08-2014 Council Economic Development CommitteeAGENDA City Council Economic Development Committee Monday, December 8, 2014 8:00 a.m. Emma Harvat Hall City Hall 1. Call to Order 2. Consider approval of minutes from the October 13, 2014 Economic Development Committee meeting 3. Consider a recommendation to City Council for a request for financial assistance for Sabin Townhouses 4. Set next City Council Economic Development Committee date 5. Staff updates 6. Committee time 7. Other business 8. Adjournment MINUTES Preliminary CITY COUNCIL ECONOMIC DEVELOPMENT COMMITTEE OCTOBER 13, 2014 EMMA HARVAT HALL, CITY HALL, 8:00 A.M. Members Present: Susan Mims, Michelle Payne, Matt Hayek Staff Present: Wendy Ford, Jeff Davidson, Tracy Hightshoe, Tom Markus, Sara Greenwood Hektoen Others Present: Kevin Hanick, Mark Seabold, John Arlotti, Tom Jackson (via phone), Andre Perry, Joe Tiefenthaler RECOMMENDATIONS TO COUNCIL: Payne moved to recommend approval of the request for financial assistance for EMRICO, LLC, project as discussed. Hayek seconded the motion. The motion carried 3-0. Hayek moved to recommend the request for TIF financial assistance as discussed. Payne seconded the motion. The motion carried 3-0. Payne moved to recommend the request for continued financial support of the Englert Theater. Hayek seconded the motion. The motion carried 3-0. Hayek moved to recommend the request for continued financial support of Mission Creek Festival. Payne seconded the motion. The motion carried 3-0. Hayek moved to recommend the Towncrest incentives for 2500 Muscatine Avenue. Payne seconded the motion. The motion carried 3-0. CALL MEETING TO ORDER: The meeting was called to order by Chairperson Mims at 8:05 A.M. CONSIDER APPROVAL OF MINUTES: Minutes of the July 14, 2014 meeting were reviewed. Mims asked if there was any discussion. Payne moved to approve the minutes as presented. Hayek seconded the motion. Motion carried 3-0. City Council Economic Development Commission October 13, 2014 Page 2 of 8 CONSIDER A RECOMMENDATION TO CITY COUNCIL FOR A REQUEST FOR FINANCIAL ASSISTANCE FOR EMRICO, LLC, A RIVERSIDE DRIVE URBAN RENEWAL AREA PROJECT: Ford introduced Kevin Hanick, who is representing the development team for the EMRICO project, a multi -family housing project on Riverside Drive, just south of the railroad overpass. For this $16.1 million project, the applicant is requesting $1.8 million in TIF rebates from the City. Ford said they are proposing 96 rental units, with a mix of studio, one -bedroom, two -bedroom, and six three -bedroom apartments. Of these, 12 will be priced to serve the workforce housing rental market. The developer will be arranging for these units to be under the management and compliance review of the Housing Fellowship. She noted that this project is also adjacent to two public infrastructure projects scheduled for the near future. One is a pedestrian tunnel that will punch through the west side embankment of the railroad overpass on Riverside, and the other project is for streetscape improvements along this same section of Riverside Drive, from approximately Myrtle Drive down to the Highway 1/Highway 6 intersection. Davidson added that the infrastructure project is one for the entire area, which they would hope to coordinate with this project. Davidson stated that the streetscape project will be similar to what Coralville has done with Highway 6. Payne asked if the tunnel will be part of the first phase, and Davidson said yes. Ford stated that Tom Jackson, present via phone, has been working with the developer and the City to ensure that the development costs are reasonable. She stated that Jackson has substantiated the $1.8 million gap, by among other things, the higher -end architectural features and the 71 underground parking units. Ford noted that there is a report on this financial analysis in the Committee's packet and she invited questions from Members. Ford noted details in the master plan document for the Riverfront Crossings area call for enhancing the pedestrian experience, transitioning to more of an urban area and improving the streetscape for safety and beautification. She added that the plan also calls for a variety of housing types in this area. She noted how the project matches up with the Council's strategic planning priorities including creating and building healthy neighborhoods, creating a strong urban core, and engaging in strategic economic development activities. Ford stated staff believes this could be a catalyst project for the area, and as it progresses, would show the vitality of the neighborhood and encourage additional investment in the area. She said the project goes above and beyond the City's benchmarks for projects in which they provide financial assistance, noting how the project meets economic development criteria. It redevelops an underutilized property. seeks only TIF rebates. Noting the benefits of rebates as opposed to up front funding, Ford said, the entire risk falls on the developer with rebates. She concluded by saying staff is recommending that the City support this project with $1.8 million in TIF rebates. Davidson added that there has been conversation about this area and why the City should help promote development here. He stated that he believes the five points in Tom Jackson's memo justify the financial gap and why the City should support the project. Kevin Hanick reiterated some of Ford's information pointing out that of the 96 rental units, 90 are studios, one -bedroom, and two -bedroom units. He stated that this project City Council Economic Development Commission October 13, 2014 Page 3 of 8 is designed for a different clientele than many residential projects in town. He said they are trying to appeal to young professionals and graduate students -- who he believes have been underserved with housing options. The location is ideal as it is close to downtown. Hanick spoke highly of the Riverfront Crossings plan and the recent positive changes in the area. Hanick shared renderings of the proposed building, pointing out specific details of the architecture, parking and the site. He noted the plan to do a lot of landscaping, including an interior courtyard. Solar panels will be installed on the building rooftop to help produce electricity. He stated that they are ready to move forward as soon as possible. Markus spoke to the form -based code now being used in the Riverfront Crossings district, and how this building is all residential and not a combination of commercial and residential. He asked for further explanation of it, in light of the request for TIF. Davidson responded, stating that staff had several discussions with Hanick regarding a mixed -use building in this project. He stated that the use for this land is consistent with the plan. Hanick added that in his opinion the commercial on the lower floors with residential above has not always yielded good results because the commercial areas are often difficult to keep leased. Markus asked Davidson to elaborate. Davidson responded that this would be the last piece of property able to be zoned for all - residential in the immediate area. Hanick talked about the partnership with the Housing Fellowship and that they would manage 12 units for affordable housing. Payne asked if the affordable housing will be capped at 120% of median income. She also asked what the average rents are slated to be on these units. Hanick noted that studio units are as small as 500 square feet, and three -bedroom units are as large as 1,300 square feet, with the average unit somewhere around 800 square feet. Tom Jackson, responding by phone, stated that rents will be anywhere from 92-cents a square foot up to $1.40 a square foot depending on the unit. He added that there is a lot of variety between floorplans. Markus asked Jackson to comment on vacancy rates and whether a 2 or 3% rate is about right. Jackson responded, noting that he thinks 2% is low, but that he has heard it is at times less than 1 %. Hayek noted that he needs help in understanding how rents for this targeted demographic are not well established when the housing market in Iowa City is so tight. He stated that the rental market overall in the downtown area is exceptionally tight, which is why there are such high rental rates. Davidson asked Jackson if he could speak to this further — item 1 in his report — about what he took into account as far as the rent structure for these types of units at this location. Jackson stated that he was referring back to the market study, but that they still need to see where the appraiser comes in; and that, with this being a new development of this type in this area, a blended rate was used. Hanick added that one of the things that pushed him towards this type of development was the lack of anything like it in years on the west side. Payne noted that the rents appear to be comparable to others downtown. Mims stated that she has a concern with using TIF since it is all residential, and she also has a concern that they are opening the floodgate to further requests in the Riverfront Crossings area. She questioned the precedent they would be setting if they were to approve this request. City Council Economic Development Commission October 13, 2014 Page 4 of 8 Jackson and Davidson each responded. Hanick noted the increase in property tax that the City will realize on this property once it is developed. Markus asked Hanick about what the City could expect to see on this site if they were not able to offer TIF assistance. Hanick responded that he has been inundated with out-of-state college housing developers who would love to develop the site. Continuing, Hanick stated that to do something less with this site, in his opinion, would be a disservice to the Riverfront Crossings district. He believes this site deserves a quality project, one that will inspire like-minded projects. Markus asked staff if the underground parking for this project is absolutely necessary, if ground parking wouldn't be sufficient. Davidson noted that it would be possible, that they did look at some examples of this. However, when looking at the quality of the unit types and the target audience for this, they believe that underground parking should be offered here. If only surface parking were offered, according to Davidson, the courtyard and green space would most likely be cut from the plan due to space. Markus spoke to the catalyst effect he hopes this project will have, noting that this area has struggled over the years. The hope is to inject some quality residential into the area, which will then create the demand for higher quality commercial. Markus reminded Members that this is a site -specific TIF that would be a rebate only, meaning that this project has to successful on its own in order to generate the taxes to be rebated. He believes this reduces the risk to the City. Davidson spoke to the many upgrades in the Miller -Orchard neighborhood over the past years, and that this area is one that they have been pushing to change. He added that he believes this project would truly be an investment in that neighborhood. Mims stated one way to look at a catalyst project, is as a test for what works and what does not work so that when future projects present themselves, they will have had some experience. Mims stated that she is uncomfortable with this for several reasons, including not understanding exactly how the TIF rebate will work. She questioned how the increment will be divided between the rebate and what is left to flow to the City, the County, and the School District. Ford stated that about three- quarters of the taxes generated are eligible to rebate the developer, and the other one - quarter continue to flow to the City, County and School District. Jackson added that about $175,000 a year will be available for the rebate. Markus stated that he noted very different styles between Ford's report and Davidson's report. He noted that Ford's report can serve as a model of how they do this, but that they really need that estimated information in the report. As they move through projects such as this, he expect the reporting format to be refined. The goal is to get these reports consistent so there aren't so many questions. Regarding the affordable housing issue, Mims stated that she is also concerned about going up to 120% of median income. She questioned if the City wants to be supporting people with high enough incomes to be able to afford the rents on their own. Markus stated that it would seem to him if you reduce the amount from 120% to something else, it does increase that gap, pushing more burden on the developer. Davidson stated that the reason staff used that level is because Council identified this as their workforce housing parameters. Jackson added that he met with Steve Long and Hanick last month on the 120% issue and he further explained the analysis. Hayek shared his views on this issue, noting that what causes him to flip from 'mildly against' to 'mildly supportive' of this request is the catalyst argument. The location and catalyst potential of this project are extremely important in Hayek's opinion. He did note City Council Economic Development Commission October 13, 2014 Page 5 of 8 his concerns with the precedent this may set, noting the importance of the big picture of how this plays into the Riverfront Crossings district. Payne asked if the underground parking is included in the rent or separate. Hanick stated that will provide each lease with one surface parking spot. Underground parking would be an additional expense. Payne moved to recommend approval of the request for financial assistance for EMRICO, LLC, project as discussed. Hayek seconded the motion. The motion carried 3-0. CONSIDER A RECOMMENDATION TO CITY COUNCIL FOR FINANCIAL ASSISTANCE FOR IOWA CITY MARKETPLACE, A SYCAMORE AND FIRST AVENUE URBAN RENEWAL AREA PROJECT: Davidson spoke to this request, noting that staff has been working with the owner of the mall property as they try to get the mall space spruced up and filled with tenants. The proposal is in regards to the former Von Maur space and a plan to lease it to Lucky's Market, a fresh -food, organic grocery store. Planet Fitness is another business that would lease the back, or south part of this space. The first phase of the Iowa City Marketplace project, according to Davidson, is around $4.4 million, which includes the renovation of the anchor store space and improvements to the parking lot and pedestrian walkability. The request is for $1.75 million in TIF financial assistance. He introduced Mark Seabold, the project architect, and John Arlotti, the mall owner's representative. Davidson continued, noting that the Sycamore Mall is being rebranded as the Iowa City Marketplace, and the proposed occupant for the anchor space is consistent. There is also a plan for the remainder of the mall, also consistent with this rebranding. Davidson noted that this $1.75 million tax increment financing assistance would be structured as a rebate. He further explained how they are using the entire urban renewal district in order to fund $1.75 million. Davidson stated that they have worked closely with the County Assessor on this particular project as it is predicated on the taxable value of the mall being increased from the current $10.2 million to $16 million. Davidson shared some renderings of the mall with the Members, noting that the owner has shared some of the other changes with current tenants upgrading their spaces and new tenants wanting to lease space. The mall is currently 40% vacant. With the addition of Lucky's and Planet Fitness, this would go to 25% vacant. Davidson stated that with the many upgrades, pedestrian access to the mall will be a major one. Davidson then pointed out changes to the roadway, parking and sidewalk links, noting that these will greatly enhance the pedestrian access. Mims asked if the outlot buildings are something that will be done in the near future. Davidson and others responded, noting that with the amount of parking area, these are definitely something that could be done in the future. Davidson also pointed out some of the sustainability features of the new renovations. To summarize, Davidson stated that the request is to assist in getting Lucky's Market and Planet Fitness established in the former Von Maur space. This project is part of a larger project that will rebrand the mall as Iowa City Marketplace; and raise the taxable value from $10.2 million to $16 million, which translates to annual City Council Economic Development Commission October 13, 2014 Page 6 of 8 property taxes paid from $347,000 to $566,000 per year. The project is an approximate six -year TIF, and staff recommends this proposal, according to Davidson. Payne voiced concerns about traffic one First Avenue near Panera. Davidson responded that staff had the same concern, and the MPOJC analysis showed that a right -in entrance is benign and may well aid in traffic movement. Markus noted how the overall project will enhance traffic issues and access, etc., making the whole area run smoother. Arlotti spoke briefly about the project, noting that the goal is to change the whole character of the area. He shared how he has looked at this project from a national level, and over the past few years has worked to keep the mall vibrant, even with its high vacancy rate. He noted that they have a stake with the local businesses located in the mall, and they very much want this project to succeed. The social aspect of this mall is important to the local citizens, according to Arlotti, and the mall is working to keep all of these things going and remain vibrant. Hayek moved to recommend the request for TIF financial assistance as discussed. Payne seconded the motion. The motion carried 3-0. CONSIDER A REQUEST FOR CONTINUING FINANCIAL SUPPORT OF THE ENGLERT: Payne moved to recommend the request for continued financial support of the Englert Theater. Hayek seconded the motion. The motion carried 3-0. Mims noted that this is an annual budget item for the City, and that she is happy to see the continued improvements in the Englert's financial status. She asked Andre Perry about the collaboration between the Englert and the Mission Creek Festival. He noted it began in 2014, with a three-year agreement. The Englert believes they can help make the Festival an institution as it has proved itself over the years. Payne noted that on the Profit and Loss Statement it looks like the Englert was in the red as of the end of August. Perry affirmed, noting that a portion of the flood and University -related uses are gradually moving back to the campus or to other sites. As these uses find new homes, the Englert is seeing a drop in rental revenue. He added that the Board has discussed the fact that 2014 through 2016 will be a real challenge for them. Perry thanked the City for their continued support, noting that they plan to continue making the Englert even more viable. CONSIDER A REQUEST FOR CONTINUING FINANCIAL SUPPORT OF MISSION CREEK FESTIVAL: Hayek moved to recommend the request for continued financial support of Mission Creek Festival. Payne seconded the motion. The motion carried 3-0. City Council Economic Development Commission October 13, 2014 Page 7 of 8 Andre Perry introduced the Programming Director for Mission Creek, who is also the new Executive Director for Film Scene, Joe Tiefenthaler. Mims stated that she is really excited about this Festival, that it brings in people from every walk of life to the City with an array of artistic interests. She agreed with what Markus stated earlier, that this is the type of event helps to raise Iowa City's position as a real arts and culture center for not only Iowa, but also the Midwest. Members briefly discussed the increased success of the Festival. CONSIDER A RECOMMENDATION FOR TOWNCREST INCENTIVES AT 2500 MUSCATINE AVENUE: Hayek moved to recommend the Towncrest incentives for 2500 Muscatine Avenue. Payne seconded the motion. The motion carried 3-0. Hightshoe noted that staff has been working with the owner on this building since 2009 when they filed a demolition permit. She further explained how the Towncrest design standards have increased costs associated with them, and that this request is in relation to what the owner could build and what now are the Towncrest design standards. A design was submitted and staff is recommending up to $25,000 to cover a portion of the increased costs of design in this project. Markus stated that this would be similar to the fagade improvement program done in the downtown area. Staff recommends this request, noting how positive it will be for the Towncrest area. STAFF UPDATES Davidson quickly noted that the Art Museum announcement is expected at the Board of Regents' meeting on October 23. Markus added that Davidson and Ford have transitioned into the new economic development roles beautifully, and that Members will be seeing some new projects soon. Davidson stated that they will most likely need a November meeting. Hightshoe spoke briefly to the micro -loan program. The Council had set aside $75,000 to target more lower -income and minorities for micro -loans. She stated that staff is working with a local lender and she briefly explained how the program would work. X61ivi1JiIh09=1*IIJiI None. [QII:1=1:A-illy1.1 � None. ADJOURNMENT: Payne moved to adjourn the meeting at 9:46 A.M. Hayek seconded the motion. Motion carried 3-0. City Council Economic Development Commission October 13, 2014 Page 8 of 8 Council Economic Development Committee ATTENDANCE RECORD 2013 - 2014 TERM o 0 0 0 0 0 o NAME EXP. w o o O W O A W W W W A A A A Michelle 01/02/14 X X X X X X X Payne Matt 01/02/14 X X X X X X X Hayek Susan 01/02/14 X X X X X X X Mims Key: X = Present O = Absent O/E = Absent/Excused r CITY OF IOWA CITY --"'� MEMORANDUM To: City Council Economic Development Committee From: Jeff Davidson, Economic Development Administrator Date: December 1, 2014 Re: Consider a request for financial assistance from A&M Development II, LLC for the Sabin Townhome project Mike Hahn, representing A&M Development II, LLC, is proposing a project consisting of 28 townhouses on Dubuque Street and Harrison Street in Riverfront Crossings. The townhouses are part of a larger master planned project consisting of the 6 story MidwestOne Bank office building currently under construction at the corner of Clinton and Dubuque (One Place at Riverfront Crossings), and a 610 space City of Iowa City parking facility. The townhouses will provide the east and south fagade of the parking facility. The 28 townhouses will be constructed as part of a condominium regime that includes the City parking facility. To enable the parking facility component to be built by the Developer as part of a single project the Iowa Code allows the City to enter into a lease/purchase agreement with the Developer. Staff anticipates this Agreement will be on the Council agenda in December/January along with the Development Agreement for TIF assistance if approved by EDC. The parking facility will be tax exempt. The residential townhouse units will be individually leased or owned. One Place at RFC will have a physical skywalk connection to the parking facility but is a separate property not included in the townhouse/parking facility condo regime. The townhouse/parking project will be constructed on the site of the former Sabin Elementary School, which is currently owned by the University of Iowa. There is an existing contractual arrangement between MidwestOne Bank and the University of Iowa which requires the University to demolish the Sabin Building when One Place at RFC is completed. A mitigation plan approved by the State Historic Preservation Office stipulates building artifacts which will be salvaged from the structure prior to demo. Following demolition, the property will be transferred to A&M Development II and the townhouse/parking facility project will commence. A&M plans to begin construction on August 15, 2015, complete the parking facility by August 1, 2016 and complete the townhouse units by Fall of 2016. The estimated cost of constructing the 28 townhouses is $6,986,549. The developer is requesting Tax Increment Financing rebates of $976,277 to fill a financial gap on the project. The City's financial analyst at the National Development Council has substantiated the financial gap on the project, summarized in the attached report. The developer's formal request for financial assistance is also attached. Background The townhouse project consists of 28 two bedroom townhomes of 1,135 SF (14 upper units) or 1,428 SF (14 lower units). Three units will be sold to the Iowa City Housing Fellowship for their affordable rental housing portfolio, and marketed to households meeting county median income guidelines. The 3 units are likely to be rented to households not exceeding 80% of county median income, which in Johnson County is $57,250 for a family of 3. The stacked two story townhouse model will introduce a new housing product to Riverfront Crossings. All of the units will have direct access via a backdoor to the City parking facility, and the City will make covered parking available to each unit at the market rate monthly fee. Each townhouse will have a street level entrance; there are no common hallways. Each unit will have outdoor space on every level in the form of a balcony or garden terrace. The National Development Council has reviewed the revenue and expense parameters of the proposed project and substantiated a $976,277 financial gap. The project financial parameters scrutinized in gap analysis are summarized in the attached NDC report. Bank financing of $3.3 million and developer equity of $2.1 million will provide nearly 80% of the project's financing, with TIF projected at 12% of the total. TIF rebates preferred The 2014 City of Iowa City Economic Development Policy states that for development projects seeking financial assistance, rebates, as opposed to cash up front, shall be highly preferable. The Sabin property has been in public ownership and has not generated any property tax revenue for at least 97 years. An annual TIF increment of $85,926 has been calculated for the townhomes project, which assumes the maximum allowable rollback for all of the units. The developer has agreed to an 11.4 year TIF rebate structure that will fund the $976,277 gap identified on the project. After this point the full property taxes will accrue to the taxing entities. The City Council Adopted Strategic Plan The Sabin Townhomes project aligns with three of the City Council's stated goals of being more inclusive and sustainable by building healthy neighborhoods, creating a strong urban core and fostering economic development. Healthy Neighborhoods The proposed townhouses are part of the Riverfront Crossings Central Crossings Subdistrict. This subdistrict is intended to introduce higher density housing options that will link the downtown and south downtown areas with the lower density portions of Riverfront Crossings including the Park District. Retail uses that support the residences in the area will be incorporated into mixed use buildings. Ralston Creek will be opened up and provide open space and a linkage to the riverfront park. Walkability will be promoted to a high degree. Creating a Strong Urban Core The project site is adjacent to downtown and walkable to east side employment and entertainment destinations. It is within a mile of the west side employment center with many transit options available. The 3 affordable housing units will help ensure residential options within the urban core for moderate income households. Economic Development Activities The project will create annual property tax generation estimated at $122,000 in year one. This compares favorably to the existing property tax generation of zero. Economic Development Policy The 2014 Economic Development Policies state: It shall be the policy of the City of Iowa City to use the City Council Strategic Plan as the basis for its economic development activities. Inherent in the plan is to attract new development including residential, commercial and industrial uses to grow the tax base. The 2014 Economic Development Policies establish minimum standards required of developers to be eligible for public financing. Developers must achieve at least some of the standards. The elements of this project meeting those standards include: • The project must have high quality architectural and site design. The proposed project is designed by Neumann Monson Architects of Iowa City. It is an innovative design which fully integrates the adjacent parking facility with no common hallway elements. Projects must be energy efficient and offer sustainability features above and beyond the required building code. The townhomes will include high efficiency heating and cooling units for each condo unit, as well as low flow plumbing fixtures. The exterior cladding is a recycled by product of the rice milling industry. The adjacent parking structure will include photovoltaic units that will defray a portion of the electrical load of the facility. • If residential, projects must either provide a certain number of units for low/mod income persons or contribute to a fund for that purpose. The project will sell 3 of the units to the Iowa City Housing Fellowship to be made available to families at 80% of median income or below. • Redevelop an underutilized or blighted property. The property currently contains an old elementary school building, the majority of which is vacant. A contractual obligation not related to this project will result in the site being made vacant. • Developer equity must meet or exceed the financial request from the City. Developer equity is $2.2 million, over twice the financial request of the City. Developer equity and bank financing represents nearly 80% of total project costs. • Achieve public purposes as detailed in the Comprehensive Plan, Urban Renewal Area Plan, and City Council Strategic Plan. The project is consistent with the Riverfront Crossings Master Plan and Form Based Code, the City -University Urban Renewal Area Plan, and the City Council Strategic Plan. Summary A&M Development II LLC has requested City financial assistance in the amount of $976,277 to build a 28 unit townhouse structure which will be integrated into a 610 space City parking facility. It is part of a larger master planned development which includes the One Place at Riverfront Crossings office building. The total estimated construction expense of the entire development exceeds $30 million. The proposed project is consistent with the Riverfront Crossings Master Plan. The financial gap of $976,277 has been substantiated by the National Development Council and would be structured into a TIF rebate scheduled for 11.4 years. This represents 12% of the estimated project cost. At the end of the rebate period the full annual property tax amount estimated at $137,000 will accrue to the taxing entities. The property currently generates zero in property tax revenue. The proposed TIF expense is approximately the same as the estimated $1 million expense to construct a fagade on the parking facility if the townhouse project was not providing the parking ramp fagade. Recommendation Staff recommends approval of the City's financial participation in the form of TIF rebates, not to exceed $976,277. A&M Development II, LLC 1310 Highland Court, Iowa City, IA 52240 Phone: (319) 338-1125 City Council Economic Development Committee c/o Jeff Davidson, Economic Development Administrator 410 E. Washington Street, Iowa City, IA 52240 Phone: (319) 356-5232 Dear Jeff, I have enclosed information regarding the Sabin Townhome project for submission to the City Council Economic Development Committee. The cost of this project, at a minimum, is $6,986,549, which we are committed to spending. I would be pleased to answer any questions from you or the committee. We appreciate your consideration of financial assistance for this project. Sincerely, A&M Development II, LLC Mike Hahn 11/21/2014 y� Nv ■ r 1 _ __ SITE: The project site is located on the block northwest of the Prentiss Street and Dubuque Street intersection, and is located on the property to the west of the city alley on that block. The site houses the old Sabin Elementary School and MidWestOne's Home Mortgage Center. The property is current owned by the University of Iowa. SL262 - _,._ HARRISON STREET 1 I 1 nqq�%is CI Harrison Street m Parking Facility r Townhomes 5 STR 0 c m D O c m M m m 1 N PROJECT: The Sabin Townhomes are an integral component of the first significant project in the newly rezoned Central Crossings subdistrict. The three part development will include a six -story office building, City owned parking structure, and townhomes. MidWestOne Bank is currently constructing the office building, known as One Place at Riverfront Crossings, as the first piece of this development. This building will be the first office building in downtown Iowa City since Plaza Center One was built during Urban Renewal in the 1970's. The office building will house MidWestOne's Home Mortgage Center, a drive-thru bank, and their banking operations functions. The top two office floors will be left available as leasable tenant space to bring future business to the district. The office building and combined parking structure/townhome development will be linked by a skybridge which will span the alley between the two properties. The parking structure will be owned and maintained by the City of Iowa City and provide 610 parking spaces for public parking, townhome tenants, and office building employees. The townhome project consists of (28) 2-bedroom townhomes, which were determined to be a desirable size for Iowa City's market demands. Three of these units will be sold to the city of Iowa City and set aside as affordable housing properties. The residential units will serve as liner buildings on the east and south edges of the parking structure. All townhomes will have direct access to the parking garage. Uses and Net Square Foot approximations: Lower Level Condo Units (14 total): 1,135 SF Upper Level Condo Units (14 total): 1,428 SF Parking Garage Parking Spaces (610 total): 191,848 SF Maintenance Area: 1,884 SF This application is for the townhome portion of the development only. DEVELOPER A&M Development II is jointly owned between Allen Morelock and Mike Hahn. Their team has developed multiple projects in the Iowa City/Coralville/North Liberty market. A&M has recent experience with projects of this type where all components of the building are privately -owned under a shared condominium agreement and portions of the building are owned and operated by a public entity. One example of this model is Plaza on Fifth in Coralville, Iowa. The project consists of a 6-story building with underground parking, first level commercial space, a performing arts center, two levels of Class A office space, and three levels of upscale condominiums. The city of Coralville owns and maintains the performing arts center component as well as the parking component. Mike Hahn and Allen Morelock also own McComas-Lacina Construction who has served as the General Contractor for multiple City projects, as well as similar private developments in the area. McComas-Lacina will also serve as the General Contractor for the Sabin Townhomes and the adjacent parking structure. McComas-Lacina has built several concrete parking structures similar to this one for both the City of Iowa City, and the University of Iowa. The Sabin Townhomes are targeting a market of young professionals in the area looking to be closer to downtown and their places of employment. Three condo units will be set aside for the City as affordable housing property. All units will be up for rent or sale, letting the market determine what the current needs are. i kti TOWNHOME FLOOR PLANS ` PNIIO ' P. y xy First Level - Lower Home Y T Y clL S. r Ca 1 1 Third Level - Upper Home MECN 125E L UNa 105E Second Level Lower Home Y NEON. t T n sF ( mix caaaode < uUND .16F 1m sF i�P 1nsF o a eewman� ren 508F 168F 2168E 6 L \ 6 HOLCfIIY IE� �6F Fourth Level - Upper Home PROJECT SUMMARY: Located in the Central Crossings subdistrict of Riverfront Crossings, this project consists of 28-unit of townhomes and a 610 space parking structure. The addition of this project will serve as a model for future development in the district, and provide a facelift to reactivate the street level activity in the aging neighborhood. The townhomes wrap the parking structure on the east and south sides, and are defined as Liner Buildings within the district's form -based zoning code. Each residential townhome unit will have direct access to the parking structure. All units also have their own front door to street level, eliminating the need for shared/maintained spaces. Of the 28 residential units, two will be designated as workforce housing to meet the need and desire of the growing downtown working population to live near the city center. Every unit will have outdoor space on each floor, with the street level units opening onto a garden terrace at the sidewalk. The parking ramp enters and exits along Harrison Street to the north, and has two stair/elevator towers for pedestrians, one at the northeast comer and the other at the southeast comer. The street level parking deck will feature car charging stations to meet a growing demand from electric vehicles. A skybridge link will connect the parking structure to a six -story office building to the west. SUMMARY OF BENEFITS TO IOWA CITY: Increased Property Tax Base: The vast majority of the development site is currently owned by the University of Iowa and generates very little properly taxes. The net taxable value of the properly is estimated at $2,894,090 for the first year of full assessment, which will increase overtime. The project will require little added infrastructure costs to the city, providing a significant gain to the net tax base. Beautification to Neighborhood: The surrounding neighborhood to the east and south of the property has, over the years, become populated by multi -bedroom apartments to house a transient student population. The quality of design and construction of these additions to the neighborhood has created an atmosphere for college residents and minimized the family friendly atmosphere the neighborhood once had. The addition of the two -bedroom townhome units will bring vibrant residential design to the neighborhood, and also re -introduce a diverse and permanent resident population who have the desire to live close to the downtown and campus where they work and play. Permanent Downtown Residents: As is the trend across the country, there is a growing desire to live near the Urban core of American cities. This project will provide a new quality housing option for those in the workforce income bracket and above. Equipped with convenient parking, and located within a five minute walk of downtown, this project will help to pull activity of the Downtown District into the Riverfront Crossings area. Parking for a growing Riverfront Crossings District: Over the past few years, the City of Iowa City has been assessing various locations for a new parking structure to accommodate the continuous need for parking near the city center. The project's associated ramp will serve residents, the area workforce, and future visitors to growing commercial and cultural amenities in the area. Introduction of a new housing type: The stacked two-story townhome model is new to Iowa City's housing market. Eliminating the need for shared spaces such as long apartment -like corridors requiring maintenance from a properly manager, each unit will have their own front door to the street, as well as outdoor space on every level in the form of a balcony or garden terrace at street level. The project cost of the Sabin Townhome project is, at a minimum, $6,986,549. The National Development Council, as consultant to the City of Iowa City, has had full access to all costs associated with this project. Gap financing in the amount of $976,277 is required. The independent gap analysis of this project concludes that these funds are necessary and warranted for this project. Construction Cost: Land $924,704 Construction $5,245,828 Design Fee $371,510 Construction Insurance and Fees $444,507 Total Project Cost $6,986,549 Revenue Stream: Sale of (3) Affordable Housing Units $570,000 Bank Loan $3,320,185 Developers Equity $2,120,087 Financial Gap $976,277 Total $6,986,549 1�1 MEMORANDUM Date: December 2, 2014 To: Jeff Davidson, Economic Development Administrator, City of Iowa City From: Tom Jackson, Director, National Development Council CC: Wendy Ford, Economic Development Coordinator, City of Iowa City RE: Harrison Street Townhouse Development, 509 South Dubuque Street At your request, NDC has reviewed the materials submitted by A&M Development (hereinafter, "the Developer") in support of a request for City gap financing for the development of twenty-eight (28) residential townhouse units at the site of a former elementary school at 509 South Dubuque Street. While analyzed here as a separate project, the townhouses are part of the larger development of the site, including a commercial office building to be owned and occupied by MidWestOne Bank and a City parking garage. NDC has met with the Developer on multiple occasions over the past year and has engaged with its team by phone and email as necessary. The Developer has supported its assumptions and projections on the project's development costs and operating revenues and expenses with increasing detail as they have become available and in response to requests by the City and NDC. The developer has provided the following documentation to support their request for gap financing and NDC's analysis of the request: • Development Budget based on conceptual designs (Neumann Monson, architect) • Operating proforma (revised pursuant to the completion of an appraisal report) • A Term Sheet for commercial financing from MidWestOne Bank identifying a maximum loan amount, rate and term. • An appraisal report prepared by Commercial Appraisers of Iowa, Inc. of West Des Moines, dated November 6, 2013 • Construction cost estimates, provided by McComas-Lacina, an experienced general contractor based in Iowa City (A&M Development's principals also lead McComas-Lacina) • A description of the development entity's ownership structure and experience in tackling projects of this scope Harrison Street Townhouses December 2, 2014 Page 2 NDC's analysis of the projected financials for the project suggests that gap financing from the City in the amount of $976,277 is required to bring the project's sources in line with projected uses, as follows: Total Project Costs $6,986,549 Projected Bank Loan $3,320,185 48.37% Sale of Affordable Units $ 570,000 8.30% TIF-Supported Financing $ 976,277 12.44% Required from Developer $2,120,087 30.89% Total Sources $6,986,549 100.00% A biannual rebate of $42,963, $85,926 annually, of a portion of the project's property tax payments will be necessary for approximately 11.4 years to finance the $976,277 gap. The estimates and projections the developer has provided, as modified and confirmed by the independent appraisal, support a recommendation for gap financing for the project through a rebate of the portion of the incremental property taxes generated by the project for the following reasons: 1) Acquisition costs for the site (the majority of which was purchased from the school board by the University of Iowa and is under purchase option to MidwestOne, which has assigned its option to the developer at their cost) is appraised at $88 per square foot for a total of $1,047,288 (11,901sf x $88/sf). This cost is at the high end of the local market, especially given that the project is the first of its scale to be constructed in the Riverfront Crossings District. 2) Rents for units designed to appeal to residents who are not undergraduate students are not well established near the project site. As confirmed by the appraiser, this suggests rents that are below the Downtown market, in this case $1.32 per square foot, or $1,500 per month, for the smaller units and $1.19 per square foot, or $1,700 per month, for the larger units. 3) The appraisal identified an average market sale price of $190,000 per unit, which would translate to $148.26/square foot, or approximately $168,000 for the smaller (1,135sf) and $212,000 for the larger (1,428sf) units. The square foot sales price of $148.26 exceeds the square foot value of the project as rental units, $137.96. However, the long-term after-tax cash flow and potential for appreciation on the rental project recommends less City gap financing than the project as for -sale units. As discussed below, both the rental and for -sale markets can and will change overtime and the developer does have the option of selling some or all of the units as the market allows. 4) The sale of three units to the City or a nonprofit housing organization for use as affordable housing at the project's completion provides $570,000 in sales proceeds ($190,000/unit x 3) but also increases the gap by approximately $77,000. $60,000 of this increase was offset by reducing the developer's fee by $60,000, or $20,000 per unit. Harrison Street Townhouses December 2, 2014 Page 3 5) A stabilized vacancy rate of 3% is identified by the appraiser and accepted for NDC's analysis. While 3% is several points above the current market vacancy rate for all units in and near downtown, the project is seeking to attract a market segment that will diversify the Riverfront Crossings district. 6) The amount of bank debt attracted to the deal has been maximized given the projected operating proforma and underwriting criteria (1.2 debt coverage ratio, 80% loan to value) that are very favorable to the project. The projected loan amount is also influenced by the capitalization rate, which was identified by the appraiser at ranging from 7.0%to 8.5%. The rate was projected at 7.5% for this analysis, just over the minimum 7.0%, given the project's location outside the stronger Downtown market. 7) The recommended equity contribution of $2,120,087 was determined based on an 8% internal rate of return given the projected after-tax cash flow and net sales proceeds of the project if held as a rental property for 25-years. The rate of return drops to approximately 7.36% if the developer finances the $976,277 gap at 5% over twelve years and begins receiving TIF rebates in Year 3 of operations. The Developer intends to offer units in the project for sale as demand is evidenced in the market, but NDC's underwriting has focused on the value of the project as a rental property, with the exception of the early affordable sales, given the uncertainty of the condo sales schedule and the close match between the rental and sales value of the project identified by the appraiser. As noted above, the project has only progressed through the conceptual design phase, with final designs and construction scheduled to follow development of the new City garage. Discussions with the Developer indicate that the split of land acquisition and site development costs between the townhouse and parking garage projects is intended to fairly apportion these costs. As the design and construction of garage progresses, and as final designs and bidding are completed on the townhouses, the budget for this project should be reviewed to reaffirm the recommended level of gap financing. Similarly, with construction on the townhouses not projected to begin until well into 2015, market changes that may strengthen, or weaken, projected rental and for -sale condominium revenues should be reviewed. An especially strong condominium market with sales per square foot well above those projected for the project as a rental property could argue for reduced support from the City. Conclusion: the project as presented demonstrates a need for gap financing in the amount of $976,277 serviced by TIF rebates totaling $85,926 annually for a period of approximately 11.4 years. If the terms of the selected senior debt and updated project costs are substantially different from what the Developer has projected, NDC will review this evaluation as requested by the City.