HomeMy WebLinkAbout01-12-2015 Council Economic Development CommitteeAGENDA
City Council Economic Development Committee
Monday, January 12, 2015
12:00 p.m.
City Manager's Conference Room
City Hall
1. Call to Order
2. Consider approval of minutes from the December 8, 2014 Economic
Development Committee meeting
3. Consider a recommendation to the City Council for a request for
financial assistance from Kinseth Hospitality Company
4. Consider a recommendation to the City Council for a request for
financial assistance from 316 Madison, LLC
5. Staff updates
6. Committee time
7. Other business
8. Adjournment
MINUTES PRELIMINARY
CITY COUNCIL ECONOMIC DEVELOPMENT COMMITTEE
DECEMBER 8, 2014
EMMA HARVAT HALL, CITY HALL, 8:00 A.M.
Members Present: Susan Mims, Michelle Payne, Matt Hayek
Staff Present: Wendy Ford, Jeff Davidson, Geoff Fruin, Tom Markus, Tracy Hightshoe
Others Present: Kevin Munson, Kent Jehle, Mike Hahn
RECOMMENDATIONS TO COUNCIL:
Hayek moved to recommend to the City Council the requested financial assistance for
Sabin Townhomes, per staff recommendation.
Payne seconded the motion. The motion carried 3-0.
CALL MEETING TO ORDER:
The meeting was called to order by Chairperson Mims at 8:03 A.M. She asked that those
present please identify themselves.
CONSIDER APPROVAL OF MINUTES:
Payne stated that she had a couple of corrections. The first is under Recommendations to
Council. She noted that the second recommendation does not include the developer's name.
The words "for Iowa City Marketplace" will be added to the recommendation where it appears in
both places in the minutes. Next was a typo on page 6, first paragraph. The word "one" should
be "on."
Hayek moved to approve the minutes as amended.
Mims seconded the motion. Motion carried 3-0.
Davidson stated that this project may look familiar to Members as they heard about it previously
when it was discussed in conjunction with a parking facility in the Linn Street area. Continuing,
Davidson noted that A & M Development LLC is proposing a protect that consists of 28
townhomes located at Dubuque and Harrison Streets in the Riverfront Crossings' district and
that it is par of a larger master plan that has already begun and includes the new MidWestOne
office building and a 610-parking space facility lined with 28 townhomes on the east and south
fagades. Davidson emphasized that the project under consideration at this meeting today is
only the townhomes part of the master plan. He talked about the necessity to build the parking
structure and the condominiums at the same time, because they are essentially a single building
that will be demised into a condominium regime. The City will first lease and later own the
parking facility, which will be built together with the townhomes. Davidson noted that the office
building and the skywalk, which will connect the office building to the parking ramp, are not be
part of the condominium regime, aathough they, too, are par of the same master plan. The
residential townhomes will be individually leased or owned.
City Council Economic Development Committee
December 8, 2014
Page 2 of 4
Davidson noted that the site will be a cleared before the City becomes involved. He explained
the contractual arrangement that relates to the School of Music project, between MidWestOne
Bank and the University of Iowa. Davidson stated that the cost of the townhomes' project is
$6,986,549, with a TIF financing request of $976,277.
This project has been through the NDC gap analysis, and Tom ,Jackson has agreed to be on
hand for a phone call during the meeting, should the Committee request it. Davidson added
that they are in the process arranging to have three of the townhome units become Part of the
Iowa City Housing Fellowship's affordable rental housing portfolio. He stated that Hightshoe
wanted him to emphasize that they are still working on the idea, which has not been presented
to the ICHF board yet. Davidson stated that the proposed townhomes will introduce a new
housing type for Riverfront Crossings. The townhomes are expected to appeal to all, from
young professionals and graduate students to retirees. They are designed to be townhomes
and not apartments, as there are no common areas within the building. Each unit will have a
front door onto the street.
Davidson stated that the site has been in public ownership and therefore has been tax exempt
for decades. This will be a big plus with the full property tax revenue expected to be around
$122,000 a year, of which the TIF increment would be approximately $85,000. This would
factor to an 11.4-year TIF rebate, according to Davidson. After the rebate period, the full
property taxes will accrue to the taxing entities. Mims asked for confirmation that the difference
between•, the $122,000 and the $85,000 is the protected debt levy which will flow to the City, the
County, and the School District beginning in year one.
Payne stated that while reviewing the documents, she noticed that the financial gap is actually
being shown as a revenue stream. She questioned this, stating that it looks like they are giving
the developer $976,000. Davidson stated that is the request, in the form of a TIF rebate. This is
how the financial gap is represented but is typically referred to as one of the Sources of Funds
in a project and corresponds to the Uses of Funds in the financing description. He added that
the gap is presented as a financial component of the Project. Davidson continued, noting that
staff finds the project to be consistent with the Council's adopted strategic plan, and more
specifically healthy neighborhoods, creating a strong urban core, and economic development
activities. The project is also consistent with the Riverfront Crossings Master Plan, and is
believed to be one that will help to continue the efforts that have already begun in this district.
With respect to the Economic Development policies, Davidson noted that the project will have
high -quality architecture and site design and energy efficiency and sustainability features.
Davidson noted that the heating and cooling units will be energy efficient, and there will be low -
flow plumbing fixtures. He also noted that the exterior cladding is a recycled product of the rice
milling industry. Davidson continued through the goals and objectives of the plan, summarizing
that A & M,, Development has requested the financial assistance to fill t .e gap in the project in
the amount of $976,277 in the form of a 11.4-year rebate. The estimated construction expense
of the entire development, including the office building and parking facility, is slightly more than
$30 miliion, according to Davidson. Staff recommendation is therefore that the Economic
Development Committee recommend to the City Council approval of the TIF rebate, not to
exceed $976,277, Davidson stated that the developer is present to answer questions.
Hayek asked Davidson to repeat the tax revenue during the 11.4-year period and then what is
anticipated after this timeframe. Davidson responded that the tax revenue is approximately
$122,000 a year, from the townhomes only. Additional property taxes would be generated from
the adjacent office building. Of the $122,000 from the townhomes, the TIF increment would be
$85,000. Davidson noted that the three units that will be owned by the Housing Fellowship and
City Council Economic Development Committee
December 8, 2014
Page 3 of 4
will be tax exempt and that is figured into the tax analysis. Payne noted that it appears to her
that with the affcrdable housing units priced at $190,000 each, we would be subsidizing $77,000
of that. Davidson agreed the point needed further explanation and later provided clarification
that "for sale" units, such as the affordable units in the project, DO create a wider gap for the
project development because they do not provide the ongoing revenue stream potential that
"for rent" units do on the proforma.
Hayek asked about the ov.,ner-occupied versus rental unit housing market. Davidson noted that
the rental market is becoming stronger. Typically owner -occupied was thought to mean
'permanent.' However, the market is changing and there is a strong demand for rental units.
Davidson stated that rental units for the non -student population are becoming larger segment of
the market. Hayek noted that he will be supportive of this. He did note his concern that
someone would buy one of these units and then turn around and rent it to students. Discussion
ensued.
Hayek moved to recommend to the City Council the requested financial assistance for
Sabin Townhomes, per staff recommendation.
Payne seconded the motion.
The motion carried 3-0.
SET NEXT CITY COUNCIL ECONOMIC DEVELOPMENT COMMITTEE DATE:
Davidson stated that they have another issue they had hoped to get on this meeting's agenda
but were unable. Ford noted that they are looking at another date in December, if possible, as
the developer is wanting to move forward. Payne stated that she will be in Denver the last two
weeks of December. Davidson asked that Members look at the first few weeks in January and
let him know of any possible dates. Markus suggested they try for noon on Monday, January
12, 2015 and Members agreed.
STAFF UPDATES:
Davidson spoke briefly to the height bonus issue they recently reviewed. He also noted the
possible new site for New Pioneer Co -Op and The Chauncey project, and how these will be
moving forward. The Court -Linn site is another project in the wings.
COMMITTEE TIME:
None.
OTHER BUSINESS:
None.
ADJOURNMENT:
Payne moved to adjourn the meeting at 8:34 A.M.
Hayek seconded the motion.
Motion carried 3-0.
City Council Economic Development Committee
December 8, 2014
Page 4 of 4
Council Economic Development Committee
ATTENDANCE RECORD
2013 - 2014
NAME
TERM
EXP.
0
M
0
0
m
0
N
0
A
0
0
W
W
W
A
A
A
A
A
Michelle Payne
01/02/16
X
X
X
X
X
X
X
X
Matt Hayek
01/02/16
X
X
X
X
X
X
X
X
Susan Mims
01/02/16
X
X
X
X
X
X
X
X
Key:
X = Present
O = Absent
O/E = Absent/Excused
;?
; N4 CITY OF IOWA CITY
CITY of `%w Ctrr
MEMORANDUM
UNESCO CITY OF CfCRAfURE
Date: January 6, 2015
To: City Council Economic Development Committee
From: Jeff Davidson, Economic Development Administrator
Wendy Ford, Economic Development Coordinator
Re: Agenda Item #3: Consider a request for financial assistance from Kinseth Hospitality
Company
Introduction
Kinseth Hospitality Company is proposing a Hilton Garden Inn Hotel to be constructed at 328 S.
Clinton Street in the City -University Urban Renewal Area, across from the new University of
Iowa School of Music currently under construction. The proposed 12 story hotel would be 144
rooms, and feature a meeting/event center, a roof top food and beverage venue, a restaurant,
and a pool/spa/fiitness area. The total project cost is estimated at $33,205,936. Kinseth has
identified an $8.8 million gap in its available financing, and thus has requested $8.8 million in
assistance from the City. Staff proposes to fund this gap through $$4.8 million in tax increment
rebates from this site, $2.5 million in tax increment grants from an adjacent property located
within the Urban Renewal Area, and a maximum of $1.5 million in a refund of the hotel -motel
tax revenues collected from guests at this planned hotel.
The proposed hotel site is currently vacant. It is next door to the recently -selected preferred
location for the new University of Iowa Museum of Art. The Art Museum building will include not
only an art museum, but also other taxable uses that could generate an anticipated $5 million in
increased tax revenue by 2028. The University of Iowa has reacted favorably to a H Vton
Garden Inn at this location, believing it could create positive synergies with the School of Music
and Art Museum projects.
Similar to a!I hotels in downtown Iowa City, parking for the proposed hotel would be provided
under contract in a City parking facility, in this case the Court Street Transportation Center
which is located directly east. There would be a s kywalk pedestrian connection between the
parking facility and the second level of the hotel. The Court Street Transportation Center was
constructed to accommodate parking demand from redevelopment on the adjacent block.
The current total annual property tax bill on the property is approximately $11,000. The
projected annual property taxes with the new hotel are estimated at $582,500 starting in 2017,
thus making approximately $400,000 annually available from this site alone for the City to utilize
for T IF financing pursuant to Iowa Code Chapter 403 and the City -University Urban Renewal
Plan
Background
The Hilton Garden Inn brand is part of the Hilton Hotels Corporation which consists of 3900
hotels with 350,000 rooms in all 50 states and 90 foreign countries. The Hilton Garden Inn
brand specifically is considered to be in the upper tier of the mid -priced market. Hilton Garden
Inns have restaurant, bar, and room service features, with typically fewer square feet devoted to
these functions than a full service hotel. More details or, the Hilton Garden Inn brand are
included in the developer's application materials which are attached.
January 6, 2015
Page 2
Kinseth Hospitality Companies is a hotel development and management company located in
North Liberty, Iowa. Their portfolio of 75 hotels includes properties throughout the Midwest
including Cora!ville, Dubuque and the Des Moines area. They have developed Hilton Garden
Inns in Bettendorf, Council Bluffs, Omaha, and Manhattan, Kansas.
The economic impacts of the proposed hotel are estimated by the developer to include 36,000
rooms rented annually; 54,000 guests annually; and $6 million in downtown spending annually.
The hotel will employ 150 persons including 12 salaried managers. Hotel -Motel Tax is
estimated at $286,000 in year one, increasing to $494,000 by year 20.
This project is included as a "proposed project" in the City -University Urban Renewal Plan by
virtue of the 12th amendment to the Plan, approved July 31, 2014 (Resolution 14-253). The
stated rationale for including this project as an urban renewal project is "economic development
and 'alight remediation; in -fill development of land vacant as a result of tornado damage;
provision of additional downtown guest rooms to serve demand demonstrated in multiple market
studies." The Plan, however, estimated the cost of the developer's agreement to not exceed
$7,100,000. Because this request exceeds that authority, the Plan must be amended to
increase this amount.
Financial Analysis
The National Development Council has conducted financial analysis of the project and
confirmed an $8.8 million financing gap. This analysis included review of a Market Feasibility
Study for the project prepared by an independent hospitality consultant. The NDC report
attached hereto takes into consideration the higher financial risk factors associated with hotel
projects. Hotels have to deal with the probability that on any given night, an unknown square
footage of their property will not be producing revenue. Investors, therefore, require a higher
Internal Rate of Return for hotels than for projects that are primarily residential.
The NDC report summarizes the project financing that is proposed: 47% bank debt, and 26.5%
each from developer equity and TIF. The City's financial assistance would be structured, in
part, as a rebate of 100% of the estimated $400,000 TIF increment annually from the hotel. The
TIF increment does not include the protect debt levy which wit! continue to flow to the taxing
entities.
Using only the hotel TIF increment results in a 23 year TIF rebate beginning in 2017 to achieve
the full $8.8 million. In order to reduce the amount of time that this increment is captured and
used to finance this project, Staff proposes to capture $250,000 of the annual tax increment
from the adjacent UI Art Museum site once that project is complete, and allocate it toward this
project. The developer of the Art Museum site has estimated the $250,000 annua!ly to
represent approximately 50% of the potential taxable vague to be generated from the site. This
TIF generation would begin in Year 5 of the hotel project based on projected timing of the two
projects and reduce the payment period by approximately 4 years.
Staff also proposes return to the Developer up to 50% of the hotel and motel tax revenues
collected from its guests, for a maximum of $120,000 annually. This will be conditioned upon
the continued imposition of the hotel and motel tax and the Iowa City/Cora!ville CVB agreeing to
forfeit its share of these tax collections. With use of these funding sources, Staff anticipates that
the $8.8M financial assistance will be paid out over the course of 13 years, from 2017 to 2029.
January 6, 2015
Page 3
The City Council Adopted Strategic Plan
The proposed Hilton Garden Inn meets three of the City Council's Strategic Planning Priorities:
a) creating a strong urban core, b) strategic economic development activity, and c) establishing
a solid financial foundation for the City.
Create a Strong Urban Core
As indicated by the current keen interest by many hotel flags, downtown Iowa City is perceived
to be an underserved hotel market. The full service Sheraton Hotel was built in 1984 with 240
rooms, and the Hotel Vetro was added in 2004 with 50 rooms. This modest room inventory has
constrained activities that can be held in downtown Iowa City which require hotel stays. The
addition of 144 rooms with the Hilton Garden Inn flag will strengthen this market significantly.
Strategic Economic Development Activities
In addition to increasing the number of downtown hotel rooms from 290 to 434, the proposed
Hilton Garden Inn will create a strategic alliance between the hotel and UI School of Music and
proposed UI Art Museum. The hotel is perceived by the University as offering the opportunity
for conference facilities, meeting rooms, and food services that will complement the Music
School and Art Museum.
Establish a Solid Financial Foundation
The hotel developer has estimated annual downtown spending that can be associated with this
new hotel at $6 million. The taxable value of the property will increase from the existing
$315,000 to $13.6 million after the 10% commercial property tax rollback. Annual hotel and
motel tax revenues are projected at $286,000 in year one, increasing to $494,000 by year 20.
Economic Development Policy
The 2014 Economic Development Policies begin with "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.
Mimmum standards
The 2014 Economic Development policies establish minimum standards required of developers
to be eligible for public financing. Developers must achieve M 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 hotel is shown in the attached materials provided by Kinseth
Hospitality. It is designed by Cities Edge Architects, a firm specializing in hotel
architecture. The building design has undergone many revisions and the
concept in your materials meets the general provisions of the Form Based Code
for Rivenront Crossings.
• Projects must be energy efficient and offer sustainability features above and beyond the
required building code.
January 6, 2015
Page 4
LightStay is a proprietary sustainability performance system used at Hilton hotel
properties. It requires a third parry to verify performance benchmarks related to:
• Energy consumption
• CO2 emissions
• Waste output
• Water consumption
The Hilton Garden Inn proposed on Clinton Street will include specific strategies
for managing rainwater, light pollution, energy metering, refrigerant management,
and lighting efficiency
• Redevelop an underutilized or blighted property.
This property is currently being used as surface parking, and is thus
underutilized, particu!arly given its proximity to the heart of downtown Iowa City.
This property has been rezoned to a Riverfront Crossings zoning designation. It
is appropriate for higher density development under the provisions of the
Riverfront Crossings Form Based Code.
• Create high quality jobs.
The hotel intends to have 12 full-time managers. Kinseth Hospitality represents
that it has a strong culture of employee benefits and opportunities. They promote
from within whenever possible, and provide advancement opportunities. Kinseth
Hospitality benefits program opportunities include:
• Health Insurance Plan
• Dental Insurance Plan
IN 401 K Plan
• Voluntary Life insurance
• Disability Insurance
• PTO (Paid Time Off) benefit — increases with years of employment
• Bonus plans and employee engagement achievement bonus and awards
• Career Development — Options for transfer or promotion within Kinseth's
70+ Midwest properties and Corporate operations team
• Travel discounts
• Educational opportunities and Training Programs
• Management Training Program
Achieve public purposes as detailed in the Comprehensive Plan, Urban Renewal Area
Plan, and City Council Strategic Plan.
The proposed hotel is consistent with all of these planning documents.
• Developer equity must meet or exceed the financial request from the City.
This is accomplished, and detailed in the attached financial report from the
National Development Council.
January 6, 2015
Page 5
TIF Rebates Preferred
The 2014 Economic Development Policy states that for developers seeking financial assistance,
rebates, as opposed to cash up -front, shall be highly preferable. This developer has secured
the additional financing required to do the project without up -front cash.
TIF rebates ensure the City bears no risk because the project will be completed and have paid
100% of its full property tax bill before a portion of that amount is rebated the following year.
The portion of new property taxes not rebated to the developer continues to flow as new tax
revenue to the City, County, and School District.
This'proposed financial incentive package, however, includes not only a rebate of 100% of the
tax increment generated from this site, but also 50% of the estimated tax increment captured
from the University of Art Museum mixed -use development, and a payment of a portion of the
hotel and motel tax revenues collected by the City from guests at this hotel.
Summary
Kinseth Hospitality Company has requested City financial assistance to build a Hilton Garden
Inn Hotel at 328 S. Clinton Street in Riverfront Crossings. This is a strategic location adjacent to
the new UI School of Music, and the selected site for the new UI Museum of Art. It is a $33
million project with a demonstrated $8.8 million financial gap. Property taxes paid on the site
will increase from approximately $41,000 to $582,500 per year.
In exchange for the recommended $8.8 assistance, the owner has indicated they will
1. Construct the improvements with a cost of at least $33.2M and a taxable value of $15.1
million as of January 1, 2017, which will result in a final developer investment of 73.5%
of the total project cost after the City's assistance has been. paid.
2. Bring the Hilton Garden Inn franchise to the site
3. Construct a 144-room hotel building which meets the design standards of the Riverfront
Crossings Form Based Code, that includes a meeting/event center, a roof top food and
beverage venue, a restaurant, and a pool fspa!`tness area, and that is constructed to
comply with the LightStay energy efficiency and sustainability program.
4. Create an estimated 150 jobs, of which 81 will be full-time and 69 will be part-time.
Recommendation
This project will provide a significant addition to the hotel room inventory in downtown, Iowa City,
with a prominent, high quality hotel franchise. It will create an important synergy with the
University of Iowa projects, and continue the momentum created by the Riverfront Crossings
Master Plan and Form Based Code.
Staff recommend approval of the City's financial participation as outlined in this memo not to
exceed $8.8 million.
ili
,I KI NSETH
HOSPITALITY COMPANIES
Project Overview:
The following information centers on the development of a twelve -story, steel -framed building featuring
a Hilton Garden Inn hotel, conference/event center and roof top food and beverage venue.
The hotel will have 144 hotel rooms targeting leisure and business travelers.
The hotel complex will be located at 328 S. Clinton Street in downtown Iowa City, Iowa adjacent to the
site of the to be developed U of I art museum and directly across from the University of Iowa's new
School of Music. The project is under development by Kinseth Hospitality Companies (KHC), an Iowa
based hotel development and hospitality management company.
KHC believes this hotel project will be highly successful due to a number of key factors. The project has
one of the best locations in the market with the hotel site located in the heart of downtown Iowa City
adjacent to University buildings and amenities. Additionally with the strength of the local hospitality
market, Iowa City's limited current supply of hotel rooms downtown and a strong brand affiliation will
make the project the market leading hospitality facility.
KI NSETH
HOSPITALITY COMPANIES
Building Program:
Floor
Sq ft
# Rooms
Rooftop venue
Indoor/outdoor
5,000
12
7,800
8
Hotel Rooms
11
7,800
8
Hotel Rooms
10
7,800
16
Hotel Rooms
9
7,800
16
Hotel Rooms
8
7,800
16
Hotel Rooms
7
7,800
16
Hotel Rooms
6
7,800
16
Hotel Rooms
5
8,400
16
Hotel Rooms
4
8,400
16
Hotel Rooms
3
8,400
16
Hotel Rooms
2
8,400
Amenities & Entrance from
arkin deck
1
8,400
Lobb & Amenities
Totals:
Hotel S . Ft.
96,600
144
Roof S . Ft.
5,000
Total Sq. Ft.
101,600
I F KINSETH
HOSPITALITY COMPANIES
First Floor:
NJ
m
0
'm oil!
I,FIFKINSET.H
HOSPITALITY COMPANIES
Second Floor:
I
1E
I
11
KINSETH
'. HOSPITALITY COMPANIES
Typical Floors:
I ICI NSETH
HOSPITALITY COMPANIES
Rooftop Plaza
fJcj;3,^, Ln10 F rt
KINSETH
HOSPITALITY COMPANIES
Site/Location:
The site for the project is an exceptional location in the heart of downtown Iowa City directly adjacent to
the University of Iowa campus. Dining, entertainment and culture are only steps away with the
downtown district next door featuring a diverse group of restaurants, bars and retail shops. The hotel
facility tower will be a highly visible fixture in the Iowa City skyline. The site is immediate to the
recently announced U of I art Museum site and cross the street is the location for the University of
Iowa's new $152 million School of Music that is currently under construction.
Just recently in October 2014 the U of I announced its selection and intention to have the new Museum
of art built immediately adjacent to the hotel site. As both buildings go through design the clear goal will
be to have the hotel compliment the museum as much as possible.
The new School of Music building, at the southwest comer of Burlington and Clinton streets in
downtown Iowa City, will house a 700-seat concert hall, a 200-seat recital hall, an organ performance
hall, a music library, rehearsal and practice rooms, classrooms, a faculty studio and administrative
offices. Construction is scheduled to complete in August 2016. —
htto:Jlmusic.uiowa.edu/buildinp_lbuilding-construction#overlay-context=Buildingl.
Both of these high profile cultural hubs will have significant synergies with the hotel. They will help
uniquely define the hotel facility as a destination and provide an awesome blend of culture and
experience.
F KI NSETH
HOSPITALITY COMPANIES
Hilton Garden Inn Brand Information and Facilities:
The Hilton Garden Inn brand is one of the ten hospitality brands of Hilton Hotels Corporation. Other
Hilton brands include Waldorf Astoria, Hilton Hotels, Doubletree, Hampton Inn, Embassy Suites,
Homewood Suites, Home2Suites, Conrad International Hotels, and Hilton Grand Vacations. Hilton
Hotels Corporation headquartered in suburban Washington DC, accounts for more than 3,900 franchised
and owned hotels with approximately 350,000 guestrooms in all 50 of the United States, and 90 foreign
countries, per the Hilton Corporation website.
The Hilton Garden Inn brand is supported by the Hilton infrastructure and distribution systems, which
includes the Hilton Worldwide Reservation System and the Hilton `Hhonors' Rewards Program designed
for frequent business travelers who stay at any of the Hilton brand hotels. Members receive free
privileges including both Hilton `Hhonors' points and airline miles, and Hilton has more travel partners
than any other hotel frequency program. Hilton Hotels Corporation also has a marketing and distribution
alliance with Hilton International that allows both companies to work together coordinating and
developing marketing programs to further strengthen the Hilton family of brands on a worldwide basis.
Hilton Garden Inn is designed to appeal to the individual business traveler, small group meetings, and
the weekend family segment of demand in the upper tier of the mid -priced market. It is the fastest
growing brand in the Hilton family and has grown to 540 properties with over 74,000 rooms (per the
Hilton website) open as of December 31, 2013, since the brand launch in 1997. Hilton Garden Inn
hotels range in size from 90 to 250 guest rooms and are generally new construction, although
conversions are considered on a case -by -case basis. Hilton Garden Inn hotels offer a limited menu and
service options for the restaurant, bar and room service. There are fewer square feet of food and
beverage facilities than in a typical full -service hotel such as a Hilton or Doubletree Hotel, although a
full cooked -to -order breakfast is available at all Hilton Garden Inn properties.
As indicated earlier the first Hilton Garden Inn opened in 1977; the most recent hotel operating
information indicates that as a brand, Hilton Garden Inns were operating at a 70.2% occupancy level
achieving an average daily rate of $115.18. Hilton Garden Inn outperforms it competitive set with a
RevPAR index of 119.0%.
The above impressive brand operating statistics continue to support a strong following from hotel
developers and operators, fueling additional construction in suburban and urban destinations across the
United States. Very few markets are currently available to develop a Hilton Garden Inn, as most areas
have been taken for franchise development.
The Hilton Garden Inn brand benefits from a strong affiliation from the Hilton Worldwide Reservation
System. According to the Uniform Franchise Offering Circular for Hilton Garden Inn, the average
percentage of contribution of the Hilton `Hhonors' Guest Rewards Program to occupancy is 53.3
percent. The reservation system and the `Hhonors' programs are key attributes of the brand. Other key
components of the brand include the following:
1 %I KI NSETH
HOSPITALITY COMPANIES
*The Pavilion —Acts as the principal reception/lobby area that includes the restaurant, lounge, guest
check -in, fireplace, soft seating area and cocktail table and chairs. The Pavilion is Hilton Garden Inn's
architectural signature item. With its landmark roofline and expansive walls of glass, the Pavilion
reflects the overall appearance of Hilton Garden Inn in the marketplace. Thirty-foot vaulted ceilings,
signature cupola, chandelier and central fireplace, invite guests to relax and unwind.
*The Pavilion Pantry — A quick stop market is located in the lobby where an assortment of snacks,
beverages, sundries and an assortment of meals and beverages may be taken to the refrigerator,
microwave and coffee maker, located in each guest room.
*24 Hour Business Center — Office equipment including fax, copier, desktop computer with Internet
connection as well as office supplies are available to guests without a charge.
*Fitness Center and Indoor Pool — Each Hilton Garden Inn is equipped with state-of-the-art aerobic
exercise equipment available to guests 24-hours a day. The indoor pool and whirlpool, located adjacent to
the exercise facility, are considered an important amenity, which is projected to support superior
penetration of the weekend and leisure markets, such as sports teams, wedding parties, and reunions.
The Hilton Garden Inn guest rooms are furnished as either king or double -double bedded rooms. The
night -stand, armoire, and hospitality center provide a more distinct residential feel while the matching
work desk adds an element of business functionality. The desk features a built-in computer tray, an
adjustable desk lamp and an upholstered chair ergonomically designed for office work. Each room
contains two telephones with two lines, data ports and voice mail. The hotel will also feature wireless
high-speed Internet access.
The Garden Grille and Bar, a signature item of Hilton Garden Inn, will serve breakfast every day, but
lunch and dinner service may be optional during slower periods of occupancy at the hotel to meet the
needs of the marketplace. A plentiful array of entrees and side dishes are presented in either an attractive
buffet line or served tableside from the menu. A staffed bar/lounge will be available, and a full selection
of soft drinks and beer and wine will be available from the Pavilion Pantry.
The Hilton Garden Inn will feature two meeting rooms of approximately 1,250 square feet each (the
rooms have a common moveable partition in order to join the rooms into a 2,500 square foot meeting
room). This small amount of meeting space will allow the hotel to attract guestroom sales from small
groups, both weekday commercial business, and weekend SMERF (Social, Military, Educational,
Religious, Fraternal) business.
In conclusion, given the wide acceptance of the brand nationally, the proposed Hilton Garden Inn is
projected to be a market leader among many different hotel demand segments in the Iowa City/
Coralville marketplace. We anticipate the hotel to be a clear first choice for quality sensitive customers
who prefer the look, ambiance, amenities, size and quality of current prototype Hilton Garden Inn
construction and furnishings standards. The well -established `Hilton' name, its worldwide reservation
system, the full scope of including food and beverage and small meeting facilities are key features and
amenities that support a premium penetration in commercial and leisure demand segments.
KINSETH
HOSPITALITY COMPANIES
Kinseth Hospitality Background
Kinseth Hospitality Companies is a leading Midwest hospitality development & management company
headquartered locally in North Liberty, Iowa. With a large and diverse portfolio of over 75 hotels,
Kinseth offers an approachable, hands-on style of management. As preferred hospitality company by
guests, franchises, hotel owners and lenders, Kinseth is committed to providing clients with many
proven operational systems in all facets of the hospitality business, from hotel development to daily
hotel management systems and services.
Staffed in all areas of hotel management and development, Kinseth has an assembled an experienced
team of hospitality professionals who continually support property level managers in order to
benchmark performance against major competitors, maximize quality, market share and profitability.
Kinsethls extensive background, coupled with a seasoned executive team fosters a culture that is
oriented toward success!
Kinseth Hospitality Companies Hotel Development Services
Kinseth Hospitality Companies is a leader in hotel development with a detailed understanding and
successful track record for developing award -winning, premium branded and independent hospitality
assets. From the construction of new hotels and restaurants, to the re -conception and renovation of
existing properties, Kinseth is determined to maximize return and enhance the value of your hospitality
asset. We offer a thorough blend of hotel development services including customize programs based on
your specific needs. Our services include:
• Turnkey Hotel Development Project Management
• Hotel Brand Selection, Plan Review & Concept Development
• Purchasing Furniture, Fixtures & Equipment
• Installing FF&E
• Hotel Property Acquisition
• Coordination of Licenses, Permits & Code Compliance
• In-house Development
• Hotel Construction Services
• Hotel Renovation Services
Similar projects completed:
• Hilton Garden Inn Bettendorf, IA (opening Jan 2015)
• Hilton Garden Inn Council Bluffs, IA
• Hilton Garden Inn Manhattan, KS
• Hilton Garden Inn West Omaha, NE
• Courtyard by Marriott Ankeny, IA
• Courtyard by Marriott Columbia, MO
KINSETH
HOSPITALITY COMPANIES
Full List of Hotel's Kinseth Has Developed:
Hotel
City, State
Rooms
Year
1
Marriott Courtyard
Ankeny, IA
118
2007
2
Marriott Residence Inn
Lincoln, NE
93
2008
3
Hampton Inn & Suites
Lincoln, NE
83
2008
4
Hilton Garden Inn
Council Bluffs, IA
153
2009
5
Home2 Suites
Omaha, NE
105
2013
6
Holiday Inn
Council Bluffs
187
1996
7
Holiday Inn Express
Coralville, IA
84
1998
8
Hampton Inn
Council, IA
98
2001
9
Country Inn & Suites
Middleton, WI
84
2004
10
Marriott Courtyard
Columbia, MO
134
2005
11
Hilton Garden Inn
Omaha, NE
118
2006
12
Candlewood Suites
Kenosha, WI
91
2006
13
Hampton Inn & Suites
West Bend, WI
83
2007
14
Marriott Spring Hill Suites
Cheyenne, WY
92
2007
15
Hampton Inn & Suites
Grafton, WI
83
2008
16
Country Inn & Suites
St Charles, MO
86
2008
17
Hampton Inn
Dubuque, IA
97
2008
18
Sleep Inn
Milwaukee, WI
80
2009
19
Candlewood Suites
Lacrosse, WI
92
2009
20
Hilton Garden Inn
Manhattan, KS
135
2010
21
Hampton Inn & Suites
Kenosha, WI
93
2015
Under Construction
or Development
22
Homewood Suites
Ankeny, IA
92
23
Hilton Garden Inn
Bettendorf, IA
116
West Des Moines,
24
Homewood Suites
IA
105
West Des Moines,
25
Hampton Inn & Suites
IA
100
26
Hampton Inn & Suites
Minooka, IL
93
27
Courtyard by Marriott & Conference Center
Bellevue, NE
120
1,FIKINSETH
HOSPITALITY COMPANIES
Benefits of This Project to Iowa City:
Increase tax base to Iowa City
The project will allow a portion of the vacant ground at the corner of Burlington and Clinton to be
developed with a significant high-rise use that will produce significant taxable value. We expect the
facility to generate taxable value in excess of $13,500,000.
Significant hotel/motel tax generated
The proposed project is a rare sizeable full service hotel project for the area. With 144 rooms and
planned amenities the project will generate significant hotel/motel taxes. The hotel is expected to
generate hotel/motel tax in excess of $7,800,000 over the course of 20 years.
Creation of jobs in downtown area
In addition to significant construction jobs the project will generate in excess of 150 new long-term jobs
in downtown area. Many of these employees will also choose to live in or around downtown.
Hotel
Conference
Rooftop & Restaurant
Total
Positive Economic Impact
Non Exempt Employees Salaried Managers
50
4
18
2
70
5
138
12
The hotel will generate significant traffic and spending in downtown Iowa City. The facility will attract
approximately 36,000 rooms rented, 54,000 guests annually who in turn will have a significant positive
economic impact on downtown spending over $6,000,000 incrementally annually.
Taken from Pinnacle Advisors Categorizing Hotel Impact on Communities:
*Direct Impact - Direct impact includes all projected revenues that will be generated from consumers at
the new hotel. This will include all room's revenues, food and beverage revenues from restaurants and
banqueting, as well as other potential revenue sources such as spa or parking. Direct impact also
includes total payroll paid out to employees hired at the hotel as well as all payroll paid out to temporary
construction workers who construct the hotel.
*Fiscal Impact - Fiscal impact refers to all federal, state, and local taxes that will be collected from the
development and operations of the new hotel. Taxes include all sales taxes collected in association with
the hotel -generated revenues, as well as all payroll related taxes collected from full-time hotel
employees and temporary construction workers. Local governments will also collect new property taxes
from the operation of the hotel. Many local governments will also collect revenues through lodging
taxes.
*Indirect Impact - In addition to local governments and hotel owners/employees, contractors and
suppliers to a newly developed hotel will also benefit. Indirect impact includes all jobs and income
►� KI NSETH
HOSPITALITY COMPANIES
generated by businesses that supply goods and services to the hotel. Examples of businesses that will
indirectly benefit from the development of a hotel include suppliers of rooms related goods
(housekeeping supplies, room amenities, etc), telecommunication vendors (internet, cable, etc.), utility
companies, food and beverage suppliers, and other hotel related vendors.
*Induced Impact - Induced impact refers to economic effects generated when employees (full-time and
temporary) and suppliers re -spend their wages on local consumer purchases. For example, an employee
may purchase gas for their car on their way home from work.
,I KINSETH
HOSPITALITY COMPANIES
Synergies with adjacent buildings new and planned
The hotel facility will have many synergies with the surrounding area including the new University of
Iowa School of Music for the many activities, events and shows that will regularly be held. From
symposiums and conferences to and pre and post show events to sleeping rooms for performers and
attendees make this structure a great co -development project to what is already under way at Burlington
and Clinton Streets.
Fair share - Lodging market and Upscale Premium lodging brands
There are various high quality branded hotels in the Iowa City/Coralville region but there are not many
in downtown Iowa City. This project will provide a great added option while also providing Iowa City
a big step in gaining its fair share of premium lodging product. The Sheraton opened building in 1984
and there hasn't been a significant large branded hotel built downtown since.
% of Rooms in Downtown Iowa City Vs.
Rest of Area
■ All other Rooms in the area Downtown Iowa City Rooms
11%
®' KINSETH
HOSPITALITY COMPANIES
New Experience - High Rise Roof top Venue
*Pictures of a similar rooftop project in downtown Chicago— The Whit a Doubletree by Hilton
The roof of the high-rise structure is slated to have a unique roof top food and beverage venue that will
feature both indoor and outdoor seating. The pictures above depict the outdoor area of a similar project
in downtown Chicago at The Whit hotel. This highly dynamic roof outlet will offer sweeping indoor and
outdoor views of Iowa City as well the outdoor section will feature lounge seating, fire features
providing a new and unique experience in Iowa City. We expect this space will not only host hotel
guests but also many small to medium sized events as well as the general public.
KINSETH
HOSPITALITY COMPANIES
Necessary Financial Assistance:
All costs, projected revenues and expenses have been provided to the National Development Council for
review and analysis on this $33,206,000 project. It has been concluded that the financing gap for the
project is $8,800,000. It is requested that TIF financing of $8,800,000 be provided by the City.
The following table lists the sources and uses of funds for this project based on the independent gap
analysis:
Sources and Uses of Funds
Sources
Bank Loan $15,601,000
Equity $8,805,000
City Gap Financing $8,800,000
Total $33,206,000
Uses
Building Construction, Design
$23,440,000
Land
$1,600,000
Furniture, Fixture, and Equip
$3,100,000
Contingency
$500,000
Opening Costs; working capital, training,
$895,000
marketing
Construction interest, Loan Fees, Reserve
$1,256,000
Developer Overhead
2,000,000
Professional Services & Closing Costs
$415,000
Total $33,206,000
MEMORANDUM
Date: December 22, 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: New Hotel Development at East Burlington and South Clinton Streets
At your request, the National Development Council (NDC) has met with and reviewed materials
submitted by the development team led by Kinseth Hospitality (hereinafter, "the Developer") in
support of a request for City gap financing for the development of a project site at the
southeast corner of East Burlington and South Clinton streets. The Developer proposes to
construct a twelve story tower on the site that would include a 144-room hotel branded as a
Hilton Garden Inn and Suites. In addition to rooms and suites, the hotel would offer a full -
service restaurant and meeting/banquet rooms.
NDC has requested updated project cost estimates and projected operating revenue and
expenses during meetings, phone conversations and through email correspondence with the
Developer and City staff since the project was first proposed in June 2013. The project has
evolved over the past year from a larger, 182-room, dual -branded hotel, to a proposal for a
single hotel and residential units, and, in late summer 2014, to the current mix. its projected
financials have also been adjusted as the project has evolved and in response to City
requirements and recommendations for building setbacks and exterior design improvements.
Consistent with the City's gap financing policies, documentation provided by the Developer to
support their request for gap financing includes:
• A Market Feasibility Study, prepared by Patek Hospitality Consultants, Inc. of Sussex,
Wisconsin and dated June 10, 2013.
• A Development Budget based on:
o Preliminary designs by Cities Edge Architects/Ramaker of Willmar, Minnesota; and,
o Construction cost estimates provided by McComas-Lacina Construction, Iowa
City;
Hotel Project - E. Burlington & S. Clinton
December 22, 2014
Page 2
• Operating Revenue and Expense Proformas (revised pursuant to the completion of the
market analysis);
• A Term Sheet for permanent financing from Great Western Bank, including maximum
permanent financing and the lender's underwriting criteria; and,
• The Development Team's project narrative and statement of experience;
An appraisal providing an opinion as to the project's as -complete fair market value (FMV) has
not been completed. As such, the capitalization rate and estimated debt capacity based in part
on the FMV have been projected given the Developer's financials and the experience of City
staff and NDC with other projects under development in the Downtown Iowa City market. An
appraisal will be completed prior to the project's closing into any private debt or City gap
financing.
NDC's analysis of the projected financials for the project suggest that City gap financing with a
present value of $8,800,000 is reasonable to balance financing sources with projected uses, as
follows:
Total Project Costs $33,205,936
Permanent Financin¢ Sources
Projected Bank Loan $15,600,968 46.98%
City Gap Funding —TiF $ 8,800,000 26.50%
Required from Developer $ 8,804,936 26.52%
Total Permanent Sources $33,205,936 100.00%
The projected project costs, operating revenues and expenses supplied by the Developer, as
modified over the past year and verified by the independent market feasibility study, support a
recommendation for gap financing for the following reasons:
1) The amount of bank debt attracted to the deal has been maximized given the projected
operating proforma and anticipated underwriting criteria (1.30 debt coverage ratio, 75%
loan to value). These underwriting criteria are more favorable than are typically seen
for hotel financing and exceed the terms provided in the preliminary term sheet
submitted by the Developer. The Developer believes the prime location of the proposed
hotel, the strength of Downtown Iowa City s real estate market and the experience and
financial strength of the development team will secure terms that match these used in
this analysis. The loan amount is also influenced by an assumed capitalization rate of
7.50%which is reasonable for rental and condominium units in the Downtown market,
but very strong for the hotel component and will need to be verified by an as -completed
appraisal prior to the closing of the project's financing.
Hotel Project — E. Burlington & S. Clinton
December 22, 2014
Page 3
2) At $8,804,968 in developer equity:
a. The Developer will earn a projected Internal Rate of Return of 6.84% which,
given risks associated with hotel development and operations (e.g., greater
volatility in demand given economic conditions, weather, competition, etc.), is
reasonable. Cash -on -cash returns are not projected to exceed 10% until after
Year 10 following an initial three year stabilization period for the hotel to
become established in the market.
b. The project costs include a Developer Fee of $2,000,000, which is 7.1%of hard
costs. The fee will be at risk if cost overruns during predeve!opment and
construction exceed current projections.
Conclusion: the project as presented demonstrates that TIF-supported gap financing with a
present value of $8,800,000 is reasonable. 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.
$ III at
AEI"., CITY OF IOWA CITY
.
CITY of lows CITY MEMORANDUM
UNESCO CITY OF LITERATURE
Date: December 31, 2014
To: City Council Economic Development Committee
From: Wendy Ford, Economic Development Coordinator
Jeff Davidson, Economic Development Administrator
Re: Consider a request for financial assistance from 316 Madison LLC for the 316
Madison project
Charlie Graves and Joe Clark, representing 316 Madison, LLC, are proposing a $40 million
multi-family/student housing project at 316 Madison Street. They propose a 15 story apartment
building on a lot that was a former car repair business. The building is intended primarily for the
student market, but will be designed with amenities suitable for the young professional market
as well. Earth work is scheduled to start in February 2015 with construction complete in July
2016 for fall occupancy.
The Riverfront Crossings form based code offers incentives that leverage the public benefits of
increased density and reduced carbon footprint. The developers seek to add these public
benefits to their project, and because they add significant cost to the project, they are also
requesting financial assistance in the form of a partial TIF rebate totaling $4.45 million.
The Riverfront Crossings Master Plan envisions the optimal land use on this site as residential
because of its close proximity to the University and to downtown. The developers desire to
maximize the potential of the site using incentives available in the Riverfront Crossings form
based code. They have been granted a height bonus that is available specifically for creating
quality student housing (5 additional stories) and for leadership in energy and environmental
design (2 additional stories). The public benefits associated with these incentives will a) relieve
pressure on close -in neighborhoods for student rental housing and b) build in greater
sustainability measures than would otherwise be required.
The developers state that even though they have been granted the height bonus, they will be
forced to proceed with a 5 story student apartment building if a partial TIF is not approved. In
exchange for approving the partial TIF rebate, they propose a scenario where property taxes
equal to those generated by a new 5 story apartment building would flow to the City, County and
School district as though a 5 story building had been constructed on the site without financial
assistance from the City. The protected debt levy would also flow to the taxing entities.
The additional TIF increment beyond a 5 story building would be rebated over a 20 year period
for the proposed 15 story project. The result is that by participating in a higher value project with
TIF rebates, the property tax generated by the property in the future will be more than 3 times
higher than for a typical 5 story student housing project. Further, during the TIF rebate period,
property taxes will continue to flow to the taxing entities at the rate of $200,000+ per year.
Property taxes generated by the former car repair use generated approximately $7,000 per
year.
City of Iowa City
Page 2
Background
The building is designed to offer 154 fumished apartment units for rent consisting of 53 studios,
16 one -bedrooms, 77 two -bedrooms, and 8 three -bedroom apartments, for a total of 247
bedrooms. While the height bonus was granted in part because the building would offer high
quality private sector student housing, it will be constructed and managed in a way that will also
be attractive to graduate students and young professionals.
The building has high quality architectural features that will complement the architecture of the
UI Recreation and Wellness Center across the street to the west. The lobby will be a welcoming
gathering place and serve as the nerve center for the building, including the offices of the 24/7
management staff and the mail room. The first floor will also include a small retail area that will
be targeted for a coffee shop.
The 5 story height bonus granted for student housing requires the developer to provide both
interior and exterior shared open space amenities that are generally not included in other Iowa
City student apartments. This project has several such features including an outdoor rooftop
patio, a sun deck at the 6'" floor level, a large lobby, study lounges, computer labs, and a
movie/gaming room. Additionally, because of the total number of bedrooms, the developers are
required to hire professional managers to be on duty 24/7. This is not required of developments
not seeking height bonuses.
City of Iowa City
Page 3
The 2 story height bonus granted for leadership in energy and environmental design, also
known as LEED, was based on the developer achieving an equivalent of LEED Gold
certification. The site on Madison Street is well -suited to earn LEED points, including that its
location promotes bicycle and pedestrian travel and it is on a bus route. Additionally, the project
will use fixtures that ensure greater efficiency in water use, heating, ventilation and air
conditioning. Building to LEED Gold standards will increase the expense of the project. While it
can be said to pay for itself over the long haul, the up -front costs to build to LEED Gold can add
upwards of 20% to project costs.
The National Development Council (NDC) has reviewed the project development costs and the
revenue and expense pro forma and substantiates a financial gap of $4.45 million The financial
elements scrutinized in the analysis are summarized in the attached NDC report. Bank financing
of $25.02 million plus developer equity of $10.65 million will provide 89% of the project
financing, with TIF rebates covering the remaining 11%.
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 developers of this project have requested only a portion of the available TIF
increment to acknowledge that a mid -rise building could happen without financial assistance.
The TIF assistance would occur as a rebate over a 20 year period.
The City Council Adopted Strategic Plan
The 316 Madison 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 project is a part of the Riverfront Crossings South Downtown Subdistrict. This
subdistrict is intended to introduce high 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. Proximity to trails, fitness facilities, University facilities, mass transit and downtown
add to the appeal of the project as the highest and best use for the parcel.
Creating a Strong Urban Core
The project site is adjacent to downtown and walkable to east side employment and
entertainment destinations. It is less than a mile from the west side campus employment center
with many transit options available.
Solid Financial Foundation and Strategic Economic Development Activities
The project would add significant value to the Iowa City property tax base, generating property
taxes in excess of $400,000 in year one. This compares favorably to the existing property tax
City of Iowa City
Page 4
generation of less than $7,000 per year and that of a mid -rise student housing development of
$112,000 per year. Leveraging the benefits of a long term property tax base increase for the
short term financial assistance is a strategic economic development activity that enhances the
City's financial foundation.
Economic Development Policies
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 Entasis Design - Architects of Concord, North
Carolina. It is a unique design for private sector student housing in Iowa City and will
provide a high quality living environment for students, grad students and young
professionals.
• Projects must be energy efficient and offer sustainability features above and beyond the
required building code.
In order to be granted their height bonus, the developers have agreed to construct the
project to LEED Gold standards.
• Redevelop an underutilized or blighted property.
The property was due for redevelopment as it had been the location of a car repair shop
for decades. While the property was in good condition, it was under-utilized given the
proximity to the expanding University campus, and meets the State Code definition of
blight.
• Developer equity must meet or exceed the financial request from the City.
For the $40 million project, developer equity is projected at $10.6 million; TIF rebates
requested total $4.45 million; and bank loans comprise $25 million.
• 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.
Because the project sought and was granted height bonuses, it has exceeded certain
expectations of public benefit, such as providing relief to the pressure on existing older
City of Iowa City
Page 5
neighborhoods for student housing. It will provide high quality living accommodations for
students and other members of the community and provide sustainability measures to
reduce the carbon footprint of a high density residential building.
Summary
316 Madison LLC has requested City financial assistance in the amount of $4.45 million to build
a 154 unit mixed use multifamily high rise residential building for students, graduate students
and young professionals. The total estimated construction expense of the development is $40
million.
The proposed project is consistent with the Riverfront Crossings Master Plan. The financial gap
of $4.45 million has been substantiated by the National Development Council and would be
structured into a partial TIF rebate scheduled for 20 years. This represents 11% of the
estimated project cost. As proposed, during the rebate period an amount of property taxes
equal to a 5 story mid -rise apartment building plus the protected debt levy on the new valuation
would flow to the City, County and School District for a total estimated at $213,000 annually
during the TIF rebate period. At the end of the rebate period, the full annual property tax amount
estimated at $518,000 will accrue to the taxing entities. The property currently generates less
than $7,000 annually in property tax revenue.
The conditions under which the Developer was granted height bonuses will be included in the
Development Agreement as requirements for the receipt of TIF rebates. This will provide an
additional mechanism for enforcement of those conditions.
Recommendation
Staff recommends approval of the City's financial participation in the form of partial TIF rebates,
not to exceed $4.45 million.
The View at 316 - 316 Madison Street, Iowa City, IA
Please accept this letter as a formal request for Tax Increment Financing for the
redevelopment of a .29 acre parcel at 316 Madison Street, Iowa City, into a quality
Student Housing high-rise with over 162,000 sq. ft. of professionally managed
residential and commercial space. This parcel has been recently rezoned to Riverfront
Crossings South Downtown District. The project is estimated to cost in the upwards of
$40 million, and is requesting $4.45 million in TIF Rebates to be distributed over 20
years. There will be no request for upfront TIF Financing from the City on this
project.
Our project at 316 Madison is a fifteen story urban infill building that will provide a
public benefit by alleviating the rental housing pressure on the outside neighborhoods
closest to downtown by offering 154 units with 247 bedrooms in an appropriate
setting immediately adjacent to campus. With the University of Iowa predicting a
raise in the enrollment over the next couple of years by thousands of students, the
completion date for this project in July 2016 could not be at a better time!
The unit mix consists of mostly studios (53) and two bedrooms (77), with a fewer
number of one bedrooms (16) and three bedrooms (8). A retail space on the first floor
will be approximately 1300 square feet and will be an integral part of the building
dynamics (coffee shop, restaurant, high -end retail). The unit types will target not only
undergraduate students, but also graduate students, faculty/staff, and young working
professionals (workers from the UI Hospitals and Clinics, Dental School, Law school,
Pharmacy School, Nursing School, etc.).
Some of the key points of our Sustainability in Energy and Environmental Design
include:
1. Density and connectivity to community
2. High energy performance for mechanical, electrical & plumbing
3. Collection of recyclables
4. Water use reduction
5. Construction waste management
6. No Smoking environment
7. Enhanced indoor air quality (IAQ)
8. Low emitting materials
9. Design interior lighting and controls
10.Design daylight and view opportunities within the space
11.ZIP cars as transportation alternative — fills transportation gap (optional)
12.Maintain acoustic performance between hallway and residential spaces
Some of the key points of our Professional Property Management plan include:
1. On -site Professional Office Manager in lobby of building will be available
during regular business hours and on -call 24 hours a day, 7 days a week for
emergency situations.
2. Resident Assistants (RAs) — 2 to 5 individuals will be hand chosen by upper
management to assist residents with on -site issues after business hours within
the building. RAs will wear many hats including an educator, counselor,
resource person, administrator, disciplinarian & role model.
3. On -site Professional Maintenance staff available daily and on -call 24 hours a
day, 7 days a week for emergency situations.
4. Desk Attendants (RAs would be hired) could be asked to work at the front desk
after regular business hours to assist with minor tasks.
5. Security Cameras will be professionally installed throughout the complex (both
inside and outside). Digital recording will be kept for up to 45 days.
Restrictive entries will be installed to limit visitors from entering the premises
without permission from residents.
6. Security Personnel could be asked to patrol the property on weekend nights if
necessary
7. Strictly enforced balcony rules will be in place at all times to prevent large
gatherings from taking place. Exterior cameras will be strategically placed to
monitor the use of the balconies.
8. Quiet hours will be in place throughout the building to keep the noise levels to
a minimum for the peaceful enjoyment of all residents.
There are very few, if any, projects that would be comparable in Iowa City. We
believe there is an untapped segment of the rental population that would like amenity
based Professionally Managed leased housing located close to downtown Iowa City,
the Wellness Center, and the University of Iowa campus. Creating such an appeal
accounts for some of the reason gap financing is required.
The addition of the following amenities will allow for this project to bring a new era
of High -end student housing to the Iowa City area:
1. Underground parking
2. Higher end interiors
3. Higher end architectural finishes
4. Two (2) oversized & high-speed elevators available 24 hours a day
5. Fully furnished
6. Development of community areas
A. Study Lounge/Computer Lab
B. Movie Room/Gaming Center
C. Fitness Room/Yoga Area/Exercise Flex Space
D. Community Lounge with Vending
E. Roof Top Kitchen/Community Lounge and Fire Pit (optional)
04Mvt
F. Mezzanine Lounge
G. Entry Retail/Restaurant with connecting front desk lounge
H. 6`h floor Sun Deck Lounge & Flex Space room
7. Full size Washers and Dryers (stackable in studios)
8. Package delivery at front desk
9. High speed Internet infrastructure in each unit
10. Wireless Internet in designated common areas/lobby
11. Cable or Dish infrastructure in each unit
12. First Floor Mail Room conveniently located
13.Deluxe Balconies & Exterior Materials
14. Walk-in closets in most bedrooms
15. Video Cameras strategically located both inside & outside the building
16. Each resident will have private bedroom and bathroom
17. Views of Downtown Iowa City, the Iowa River, and the UI Campus
18.Zip Car Access (optional)
19. Covered bike storage
20.Individual Leases option
21.On-site Resident Assistance (RA's)
22.On-site Professionally Property Management
23.On-site Professional Maintenance staff
24.On-site weekend patrol (as needed)
All of these amenities add to the overall development costs, but distinguish this
project from other student housing projects in Iowa City. The project will be actively_
marketed as both a student housing and market housing development with strictly
enforceable rules for noise (quiet hours), balconies, and limitations of number of
tenants per unit.
The target tenants for this project are especially interested in a location that allows
them pedestrian and bicycle access to the both the East and West side campus
workplaces, recreation facilities, downtown cultural events and the University of Iowa
campus.
There are approximately 25 restaurants (Central Business District), the new School of
Music, the University of Iowa library, University of Iowa Pentecrest, University of
Iowa Wellness Center, Kinnick Stadium, and much more are located within 5 blocks
of this location.
We will offer only eight 3 bedroom/3 bath units (only 5% of the total # of units —
actually allowed up to 30% according to current code). All units will be designed to
meet high standards with regard to energy efficiency and environmental stewardship.
To this end we have requested bonus height for our project of five (5) additional
floors for providing Professionally Managed student housing, and two (2) additional
floors (out of a possible 4) for Leadership in Energy and Environmental Design. A
total of fifteen (15) floors have been requested from the City Council in efforts to
maximize the use of this area and make it more financially feasible.
Tax base increase incentives:
We are proposing a unique TIF request whereby instead of asking for 100% TIF
Rebates in property taxes over a short period of time, our request is lower at 65% of
property taxes over a longer period of time. The effect of this lower request is that the
taxing entities would collect an amount of property tax equal to that which a typical 5
story building would generate, plus, the protected debt levy required with any use of
TIF financing.
It should be noted that the applicant has already substantially invested in the proposed
site by completing Phase II environmental studies and designing professional
architectural plans with Entasis Design Architects.
The clearing of an underused car mechanical shop and replaced with a quality High -
end housing complex will serve as a significant CATALYST for future Riverfront
Crossings development and an architectural statement for all of downtown Iowa City.
The "bar" for future developments will be set even higher due to this project.
We look forward to further conversation with you regarding this project.
Thank you for your attention and consideration.
316 Madison, LLC by:
Joe Clark — CEO
Charlie Graves - President
MEMORANDUM
Date: January 6, 2015
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: Madison Street Mixed -use Tower— Financial Gap Analysis
At your request, the National Development Council (NDC) has met with and reviewed materials
submitted by the development team led by Charlie Graves and Joe Clark (hereinafter, "the
Developer") in support of a request for City gap financing for the development of a
predominantly residential, mixed -use tower at 316 South Madison Street, just south of East
Burlington. The Developer proposes to construct a 15-story tower on the site that would
include 1,350 square feet of retail space and 154 residential units targeted to a mix of students
and young professionals.
NDC has requested updated project cost estimates and projected operating revenues and
expenses during meetings, phone conversations and through email correspondence with the
Developer and City staff since initial plans and financial projections were submitted to the City
in August 2014. The Development team has worked with City planning and development staff
over the past five months to refine the project' s exterior design elements, the maxirnum-s
number of stories and the mix of residential unit types and associated common areas and
amenities. These changes have prompted successive updates to the project's development
budget, operating revenues and expenses and anticipated debt and equity sources. The final
proposal includes the small commercial/retail space identified above and the 154 residential
apartments broken out as:
• 53 Efficiencies — 34.42%
• 16 One Bedrooms— 10.39%
• 77 Two Bedrooms— 50.00%
• 8 Three Bedrooms — 5.19%
Consistent with the City's gap financing policies, documentation provided by the Developer to
support their request for gap financing includes:
• A Development Budget based on:
o Preliminary designs by Entasis Design of Corcord, North Carolina;
0 Construction cost estimates provided by Calacci Construction of Iowa City; and,
Madison Street Tower
January 6, 2015
Page 2
o Geotechnical and environmental assessments provided by Terracon Consultants,
Inc. of Iowa City.
• Operating Revenue and Expense Proformas;
• An appraisal report prepared for the University of Iowa Community Credit Union
(UICCU) by Jonathan K.. Westercamp of Appraisal Associates Company of Cedar Rapids,
dated October 20, 2014; and,
• A term sheet for commercial financing identifying a maximum loan amount, rate and
term from UICCU, dated November 5, 2014.
NDC's analysis of the projected financials for the project suggest that City Tax Increment
Financing (TIF) with a present value of $4,450,00 is reasonable to fill a financing gap and
balance financing sources with projected uses, as follows:
Total Project Costs $40,018,00 100.00%
Financing Sources
Projected Senior Loan
$25,023,465
62.53%
City Gap Funding - TIF
$ 4,450,000
11.12%
Required from Developer
$10,544,536
26.35%
Total Financing Sources
$31,868,588
100.00%
The projected project costs, operating revenues and expenses supplied by the Developer, as
modified since August 2014, support a recommendation for gap financing for the following
reasons:
1) The estimated senior loan that the deal can attract, $25,023,465, has been maximized
given the appraisal report, the Developer's most updated operating proforma and
underwriting criteria (1.25 debt coverage ratio, 75% loan to value) offered by the
prospective lender. The maximum projected loan amount is also influenced by the
capitalization rate, which is identified in the appraisal report as 5.75%, recognizing the
strength of the rental market for students and young professionals targeted by the
project.
2) From the initial submission of projected project costs in August 2014, total costs have
risen just under $6 million to meet City design requirements, LEED or LEED-equivalent
standards for energy efficiency and environmental design and refinements to the unit
mix and shared amenity designs.
3) At $10,544,536 in developer equity:
a. The Developer will earn a projected 7.35% Internal Rate of Return, in line with
the 7.0-8.0% returns modeled for other primarily residential developments in
the downtown market.
b. Cash -on -cash returns are not projected to exceed 5% until Year 11 of operations,
due in large part to high operating costs that are projected by the Developer, but
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January 6, 2015
Page 3
not entirely addressed in the appraisal report. According to the Develper, these
expense items are associated with maximizing safety and providing a high level
of service to tenants and include:
i. On -site Professional Office Manager in lobby of building —to be available
during regular business hours and on -call 24 hours a day, 7 days a week
for emergency situations.
ii. Resident Assistants (RAs) — 5 individuals to assist residents with on -site
issues after business hours within the building. Five efficiency units have
been designated for the RAs at reduced monthly rental rates
($650/month versus an average of $950/month) —qualifying them as
affordable given the City's workforce housing rent guidelines and
reducing the project's maximum gross rental income.
iii. On -site Professional Maintenance staff available daily and on -call 24
hours a day, 7 days a week for emergency situations.
Other differences between the Developers projection of operating expenses and
those projected by the appraisal report owe primarily to a higher estimate of the
Project's minimum property tax assessment.
c. Project costs include a Developer Fee of $2,600,000, which is 7.1% of
depreciable expenses. The fee will be at risk if cost overruns during
predevelopment and construction exceed current projections or if operating
income is insufficient to provide repayment from cash flow through stabilization
of the project.
Conclusion: the project as presented demonstrates that TIF-supported gap financing in the
amount of $ $4,450,000 is reasonable. If the terms of the selected senior debt, updated project
costs and expected rents and expenses are substantially different from what the Developer has
projected, NDC will review this evaluation as requested by the City.