«Present: Committee Chairman Ron Troyer Committee Members David Henke and Brent Curry Also Present: Councilmen Brian Dickerson and Dave Osborne ...»
MINUTES OF THE FINANCE COMMITTEE MEETING OF APRIL 29, 2014
Present: Committee Chairman Ron Troyer
Committee Members David Henke and Brent Curry
Present: Councilmen Brian Dickerson and Dave Osborne
Councilwoman Mary Olson
Councilman Troyer, Finance Committee Chairman, called the meeting to order.
The clerk called the roll.
Councilman Troyer said the purpose of the committee meeting is to discuss:
Proposed Ordinance 14-O-24
AN ORDINANCE AUTHORIZING THE ISSUANCE AND SALE OF ANAGGREGATE PRINCIPAL AMOUNT OF NOT TO EXCEED $1,500,000 OF
CITY OF ELKHART, INDIANA, TAXABLE ECONOMIC DEVELOPMENTREVENUE BONDS, SERIES 2014 (SHOPPES ON SIX PROJECT);
DESIGNATING THE BONDS AS LIMITED OBLIGATIONS OF THE CITY;
AUTHORIZING AN ECONOMIC DEVELOPMENT LOAN TO CASSOPOLIS
STREET ELKHART, LLC IN AN AGGREGATE PRINCIPAL AMOUNT OFNOT TO EXCEED $1,500,000; APPROVING THE FORM OF, AND
AUTHORIZING THE EXECUTION AND DELIVERY OF, TRUST
INDENTURES, LOAN AGREEMENTS, A FINANCING AND LOAN
AGREEMENT AND OTHER DOCUMENTS RELATED TO THE ISSUANCE
AND SALE OF THE BONDS AND THE FUNDING OF THE ECONOMIC
DEVELOPMENT LOAN; AND AUTHORIZING PROPER OFFICERS TO DO
ALL OTHER THINGS DEEMED NECESSARY OR ADVISABLE IN
CONNECTION THEREWITH AND APPROVING AND AUTHORIZING
OTHER ACTIONS IN RESPECT THERETOThe clerk read the proposed ordinance by title only, and Councilman Troyer opened the floor for council discussion.
Councilman Troyer thanked everybody for being present. He said there will be a presentation of the different phases of this project, followed by council questions; and he invited Barkley Garrett, Economic Development Manager for the City, to make a brief statement and introduce the speakers.
Mr. Garrett said he is excited to be at Phase II of the Thompson Thrift Shoppes on Six Project at the corner of C.R. 6 and Cassopolis Street. He said development of Phase 1 is going well, and it has taken a huge team effort to be at this point. He said Phase II is a $13.5 million project for 110,000 square foot of new retail development that will include shops such as anchor tenants Ross Dress for Less, Pet Smart and Shoe Carnival. He said present tonight to answer questions are Chris Hake, Greg Buckheld and Don Potter with Thompson Thrift; Herschel Frierson, with Crowe Horwath; and Phil Faccenda, Jr., with Barnes & Thornburg.
Mr. Hake said he and the other Thompson Thrift staff are happy to be here tonight regarding Phase II of their Shoppes on Six Project, and they have had good momentumin the last 120 days, which they are excited about. He said Thompson Thrift is a 26-year-old developer and construction company based in Terre Haute, Indiana, with offices in Indianapolis and Carmel as well as in Texas. He said Thompson Thrift does retail and multi-family development projects, and they are currently working on projects in 11 states; and over the last 4 years they have completed 40 ground-up retail projects all over the Midwest, Southeast and Southwest parts of the U.S. Mr. Hake said Thompson Thrift purchased the vacant land about 2½ years ago, and in Phase I of this project they took down approximately 6 acres of property and continued to increase the demand of anchor tenants. He said Phase II, which is a $15 million investment, consists of approximately another 12 acres of land for a total combined development of approximately 75,000 square feet of new retail development, with about 32,000 to 35,000 square feet of in-line small shops. He said they have seen good momentum in leasing with a lot of national tenants taking a fresh look at this project; and Thompson Thrift is very encouraged with the direction of the leasing. He said the multi-tenant building will be just over 8,000 square feet and will be anchored by Dunkin Donuts, Pet Smart, Ross Dress for Less and Shoe Carnival. Mr.
Hake said they are talking mainly to restaurants for the corner space, although admittedly they have been slower by design to market that space because they want to get the in-line shops in place, which will significantly increase the class of tenant they can put on the corner. He said the original plan was to redevelop the movie theater on its existing parcel, but Thompson Thrift was not able to get the theater owners to redevelop the theater.
Councilman Henke said infrastructure costs of $1.5 million, and he asked where that is at in this project. He said this $1.5 million will be repaid with TIF money, and he asked if there was a change in occupancy standards since the project started.
Mr. Hake said the number that Thompson Thrift originally shot for was 75% pre-lease commitments, but they did meet with the Redevelopment Commission and were able to amend that to the anchor tenant leases, which they consider to be Ross, Pet Smart and Shoe Carnival, being the threshold to start construction, which is 60% of the overall development; and Thompson Thrift and its lender are comfortable with that, and ultimately so is the City.
Councilman Henke said this ordinance is for the $1.5 million bond, and he asked if Thompson Thrift is getting State assistance as well that is predicated upon tonight’s action or if they are independent of each other.
Mr. Garrett said for the record that there is no State assistance.
Councilwoman Olson said when the council heard the initial presentation for this project, Thompson Thrift said that among the tenants would be Panera Bread and other well-known retail businesses. She said council members get a lot of questions about big name stores and restaurants, and she asked if there are on-going discussions with prospective businesses that the community is very familiar with and want to see located at Shoppes on Six.
Mr. Hake said Thompson Thrift absolutely continues to look for tenants to entice them to locate on the out lots between Walmart and the theater.
Councilman Osborne asked when Thompson Thrift will break ground.
Mr. Potter said if they can get all the approvals in place, they plan to start mid-to-late June clearing the site, they will work to get the foundations started in August and paving by the end of this year; and during the winter, they will be working on the insides, with plans to open those stores in June or July 2015.
Councilman Curry said Shoppes on Six is close to the Michigan state line, and he would like for the tenants to hire Elkhart people first. Mr. Hake said Shoppes on Six will generate a significant amount of jobs for the community, and Thompson Thrift is going to strive to use local sub-contractors on the project; but they cannot tell tenants who to hire.
Councilman Henke said Thompson Thrift has a 26-year history, and he asked what other development this project will best mimic.
Mr. Potter said Shoppes on Six will be very much like Warsaw Commons, which is about 2 years old, as well as Lima Marketplace in Fort Wayne.
Councilman Henke asked what the occupancy rates might be 10 years out, and Mr. Hake said each of the anchor tenants are signing for a minimum of 10-year terms. He said some of the smaller tenants, and mom-and-pop shops usually sign 5-year commitments; and historically their anchors do a whole lot of research before picking their locations, and they plan to be there a lot longer than the 10-year initial terms.
Councilman Henke asked what the City’s initial investment was to clear the hotel off the property and for EPA issues. Councilman Henke asked about the flow of money so it is clear for the record how the Major Moves money is being transferred, the payback for the bonds and interest going back to Major Moves.
Councilman Dickerson said it is important for the council to be able to tell people what the City’s $1.5 million investment will pay for, and he asked what this $1.5 million investment is for and what it will build and what part of the design work the City will be paying for.
Mr. Potter said the $1.5 million investment is for off-site improvements and some onsight improvements; improvements to C.R. 6 and the new intersection that will extend all the up to C.R. 6 the road to the east of Walmart and stops halfway and signalization at that intersection;
clearing of the property; relocation of the pond to the back of the property; and improvements on the new north/south road. He said the improvements on C.R. 6 will cost around $4,500,000 for the intersection and new signal, and the north-south road will cost around $300,000. He said the City’s $1.5 million investment will not include design of the building itself but it will pay for landscaping and irrigation on the north-south road and along C.R. 6. He said there will be landscaped islands throughout the parking lot, but this $1.5 million will not be used for that.
Councilman Henke asked if the City’s $1.5 million for road and street improvements and signals is the same $1.5 million initial investment or if this is a second $1.5 million that is more of an internal flow of money for the total project.
Mr. Garrett explained that there are two $1.5 million pieces. He said there are two bonds, one for $700,000 and one for $800,000, totaling $1.5 million, which will be paid back by TIF dollars, which is the topic of discussion tonight; and then in March 2013 the council approved a $1.5 million loan from the City’s Major Moves Fund so the total investment from the City is $3 million, and it will go into the project costs to assist with this project. He said the City will not have a specific breakdown, but it will have a list of things in the development agreement of what these dollars can be used for; and on the advice of counsel, it was important to include more things than less in the development agreement so the dollars could be used for them.
Councilman Henke said, for clarification, that both times the City is using TIF dollars from that same TIF area to pay back money, and he asked again how much money the City has invested in clearing this property of the hotel structure and to bring it to flat land.
Mr. Garrett said the City did not participate in any way with the clearing of the property but that a developer before Thompson Thrift had purchased the property from whoever owned the Westin Plaza, but that developer did not fulfill the development agreement with the Redevelopment Commission so no City monies were exchanged or put into that project.
Councilman Henke said he recalls that situation differently, and the City was involved in part of that takedown; but he can’t remember how much, and it would be nice to have clarification on that. He said the City will have $3 million in association with Thompson Thrift invested in this project, yet the Redevelopment Commission has dropped the occupancy commitment before investing taxpayer dollars to 60%; and he asked what the square-footage tax base is of that 60%.
Councilwoman Olson said that Mr. Garrett alluded to a list in the bond agreement of uses for the dollars, and that is the list that the council would like to see; and she requested that the information be provided to the council as well as what the City’s investment was in the previous developer’s takedown of the Westin Plaza.
Councilman Dickerson said it was alluded to on the back side that the list is available on line, but he had to request that specifically; and he thinks it should have been provided up front.
Herschel Frieson, with Crowe Horwath, financial advisors to the City, said Crowe Horwath is working with the City to estimate the TIF dollars, but he does not have his numbers with him based on 60% occupancy but just the numbers based on 100% of the project.
Councilman Henke asked if Mr. Frierson could somewhat approximate the 60% numbers, plus or minus, since he does have the total numbers for 100% completion, and Mr. Friesen said he cannot do that because they are looking at the whole assessment and not only 60%.
Councilman Henke said the issue is that the $1.5 million the City is obligated to is now based on 60% occupancy instead of the original commitment of 75% occupancy, and he wants to know the basis of the City’s payback—at which point the City is obligated to release the money;
and he asked about the expectation of an assessed value tax rate the City should expect back to the TIF. He said he is looking for some point of return on investment from a tax perspective.
Mr. Garrett said that is a conversation had throughout the discussions over the last year and a half with all of the professionals, and the assessed value on the completed structure (the large building) is irrelevant to the occupancy because the building is going to be what is assessed, whether it is occupied by a tenant or not; and the 3 anchor tenants will equate to about 60% occupancy so there will be personal property associated with that tenant; but as far as the real property assessed value, it is based on the box.
Councilman Henke said he would rephrase is question to asked what percentage of the total does Phases 1 and 2 by size represent, and at what point does it get to the point of 60% of the total project to get release of the dollars from the City.
Mr. Garrett said the money will be released as soon as the City gets through the bonding process, and the administration and the Redevelopment Commission agreed that it was in the best interests of the project and the City and everyone moving forward that once Thompson Thrift got the 3 anchors under lease that holding up the project for another 15% would be detrimental to the entire project. He said it is more important to have the 3 anchors signing 10year leases and Thompson Thrift’s financial institutions’ backing the project that everyone was willing to do 60%.
Councilman Henke said if Phase 2 is nearly $15 million, then the accountants/CPA would have an assessed value of that structure and could say the assessed value of that structure is “X,” and we could multiply that by its tax rate, which is what would be released back to the TIF.