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HomeMy WebLinkAboutEconomic Advisory Commission - Minutes - 04/17/2014Minutes City of Fort Collins Economic Advisory Commission April 17, 2014 CIC, City Hall 11:00am–1:30pm For Reference Blue Hovatter, Chair 493-3673 Karen Weitkunat, Mayor & Council Liaison 416-2154 SeonAh Kendall, Staff Liaison 416-2164 Dianne Tjalkens, Minutes 221-6734 Commission Members Present Commission Members Absent Blue Hovatter, Chair Michael Kulisheck (Mike) Ann Hutchison Michael Rechnitz Denny Otsuga Jim Clark Sam Solt Glen Colton Linda Stanley Guests Jonathan Carnahan Mike Prusnick Staff Present Staff Absent SeonAh Kendall, Business Retention Strategist None Dianne Tjalkens, minutes Ted Shepard, Chief Planner Josh Weinberg, City Planner Mike Beckstead, Chief Financial Officer Tom Leeson, Redevelopment Program Manager Meeting called to order at 11:05am. Logistics Approval of minutes Linda moved to approve the March 19, 2014 minutes. Jim seconded. Motion passed unanimously, 5-0-0. Ann not present for motion. Public Comment—Jonathan Carnahan discussed Council’s vote on changing the finance agreement for the Foothills Mall. It has been tabled until May 6 to allow boards to weigh in on the changes. He thinks the boards will have closed meetings. Blue informed the board that Mike Beckstead will be coming to the meeting today to discuss this very topic. Jonathan said Lisa said she is done with changes. Ninety days ago Council had to meet again because the mall was behind schedule. The agreement changes are around leasing space and bond issuance. The bond market could go up. The City doesn’t have risk because the metro district eats the cost of the bonds, but if the mall isn’t finished it is on the City. Everyone has confidence in the project but we keep having to change this. The City’s risk is $2 million. They say they have to get big anchor stores to move forward. Trader Joe’s chose another location in the city, so it is the project, not the city. The changes are enough. • Sam asked what his point is. Jonathan said stick to the original agreement. His suggestion to Council is to have a June meeting and if there is significantly more space leased, then consider changes. He is afraid that developments think if they can get a shovel in the ground they can then get whatever they want because the City will not leave a hole in the ground. Commission Member Updates • Jim said Fort Collins is getting ready to launch a certified tourism ambassador program that will train hospitality, CSU admissions personnel and police. When you get people singing off the same page, it becomes word of mouth marketing. He will send an invitation to the Visit Fort Collins. There will be focus groups on May 22 from a cross section of people in hospitality and government. • Ann said the Chamber is bringing Mark Lautman to town. As baby boomers retire, how do we make up for that talent loss? He suggests that talent will determine which communities are successful. April 28 at Marriott. • Glen attended that 6-board group on GHG goals. Energy, Air Quality, Natural Resources, Transportation and Economic Advisory have all been giving input. He did see that the City Manager has requested the group halt meetings. SeonAh added that Council did not know the meetings were happening, so they are putting them on hold. Staff Updates—MOR— • SeonAh gave the following updates: o Staff has been working on the BFO process for 2015/16 budget and they are due tomorrow. She was going to go over a few from the Economic Health office today, but that topic is being bumped today for mall discussion. There will be a road show about all budget offers and she will present to the commission in May. o Blue said he sent a memo last night to the commission. He has made changes. Reply to his email for approval and a vote will be taken electronically. • Six-Month Calendar o Not discussed. Agenda Item 1: Old Town Historic District & Downtown River District Standards and Guidelines – Ted Shepard and Josh Weinberg Josh Weinberg gave an overview of updates. He showed a map of the historic district in Fort Collins, with boundaries on College, Mountain, and Jefferson. There is also a nationally designated historic district which spills into the Downtown River District. Josh said the district was established in 1979 and the original design guidelines were adopted in 1981. Staff received a grant in 2013 to update the document. Project goals include high level of predictability in the evaluation process; retain special qualities of the district; highlight successful rehabilitation and infill projects that have occurred; and to add elements of sustainability. They have included a number of case studies with before and after photos of historic buildings. Most of the buildings have been rehabilitated and show the success of the district. He discussed technical guidance in the document that makes it functional. He showed how older building restoration can include sustainable features, such as using historic awnings and canopies, and how to install modern energy efficiency aspects such as solar. There are also standards for compatible infill and new construction within the district. There are a lot of financial incentives for rehabilitation of historic buildings. These standards ensure that the work proposed will help the projects receive financial assistance. There is a lot of scrutiny of proposed work. If you are using the standards you are in line to gain incentives. Comments/Discussion: • Jim said 40% of the spending in downtown comes from tourists, so this area is our main attraction. Josh added that rents and property values in downtown reflect that value. • Jim asked about insulation in these buildings. Josh said the idea is to preserve the exterior as much as you can, but that sometimes comes at a cost to the interior. There is a happy medium. Sometimes coatings on the brick can help, but it is a balancing act. • Blue asked about what happened in the 1980s and the refurbishing now necessary that a developer may not always be able to cover in redevelopment. Josh said a number of the major restorations were public/private partnerships that provided a substantial amount of money to the projects. Once the district was established it opened up financial incentives. Private dollars would not have been able to do that. • Blue said this group talks about TIF and other incentives. There is good to be had from these types of incentives to restore Downtown. It is good to have the context and see that these incentive packages do well for our community when balanced. • Josh added that they wanted to show these case studies because when he moved to town he presumed these buildings always looked that way. The photos show the major restoration from previous remodels. • Denny said that if you can show what kind of economic activities are happening in this district and compare to the 1980s and after the renovation, and pull other comparable communities, you can show economic impact of these. Then we can talk about what the City’s investment has done for the economy. Jim added that looking at business license numbers would be interesting. • Linda asked if these are guidelines or standards. Josh said for Downtown it will be standards. Linda said there has been some redevelopment that is unattractive. She wonders if these standards will prevent some of the less attractive development. Josh said the side of College she discussed is not within the district. Linda asked if there weren’t enough historic properties there to begin with. Josh said it takes property owner interest to join the effort. Ann asked if the national district included that. Josh added that the national district border goes down the center of College Avenue and anything to the west is not included. Ann asked about Nordy’s. Josh said every building that is over 50 years old has to go through a historic review before being redeveloped. • Ann suggested different colors for historic review signs. They are all yellow, so it is hard to determine as you drive by what kind of review is in process. • Glen asked if most of the property owners are on board. Josh said there have been standards in place for some time. Staff wants to make them easier to use and understand. The property owners have been subject to the standards since it started. They have done extensive outreach so everyone in the district knows about the project. • Ann asked if there are any major changes in the plan. Josh said it is being expanded to include images and other details. The framework is from the national standards. What the design guidelines do is illustrate those standards for the Fort Collins context. Josh passed around the booklet so members could see the guidelines and standards. • Sam added that he knows owners in Downtown and the buildings become worth more than the businesses. Josh said tax credits are substantial for big projects. Knowing in advance that you can take that tax credit is very important. • Sam said the City seems to have more than their fair share of grants. Josh said his department applies for as much as they can. • Jim added that this is one of the reasons Fort Collins is ranked in the top 10. • Linda added that the area should be expanded so more developments have to adhere to the standards. • Blue mentioned that there was push back on designs for Beau Jo’s and the result was the community got a much better design. He wondered if the DDA works with City staff. Josh said DDA has been integral in the process. He added that the hope is that the standards can become guidelines for buildings that are not included in the district. Staff is trying to do a lot of education. Downtown River District—Ted Shepard Ted showed a map of the River District. From a zoning/code perspective it is called the RDR zone, and part of it is included in the federal zone. There have been many studies of this area since the 1980s. An implementation program including capital projects of varying sizes was eventually developed. They have added streetscaping at Linden and Willow. Willow Street improvements are in the pipeline. Some projects include the rebuild of Aztlán, Legacy on Linden, CSU Powerhouse, and the feeder supply project that is in progress. There is interest in 316 Willow for upgrading. The plan is not a land use plan. The RDR has permitted uses and they are not changing. Height limits will stay the same as adopted in 1997. Buffer standards along the river are not changing. This document has three components: neighborhood scale, site, and building. At the neighborhood scale they are focusing on connectivity. They are looking for sites that are larger. For example Feeder Supply is completing an alley that will connect to Schrader. At site scale, they are looking at site development: street treatments, public improvements, and deliberate attempts to exempt industrial users, with agricultural/industrial character being promoted. At building level they are looking at simple forms with accent features. In this area it is okay to have big buildings, loading docks, metal roofs, etc. The new code is going to Council first week of June. He showed sample buildings that will set the tone for the character of the area. He showed the public engagement schedule. • Jim asked about permitted uses. Will retail and restaurants uses be permitted in this area? Ted said yes. Jim said he could see a brewery here and some fun restaurant opportunities. Ted added that a brewery would be considered light industrial. • Linda said she understands these are design standards. She sees a lack of working in the natural values, and the river is an important part of the heritage. She would like to see more language about working in design that is consistent and good for the river, using natural materials, more soft surfaces, etc. The natural river is a strength of the area. She would like to see enhancement of natural values. Ted said the RDR adopted in 1997 had standards related to the river. Staff is not changing any of that. Linda said the reinforced banks look very man-made and do not blend naturally. • Glen echoed Linda’s comments. The area has been studied. Development is going to happen from Ranchway to block one, but block one may be too close to the river. We need to have more clarity around what will happen from there to Ranchway. They are on a steep bank. He asked the set back on the river. Ted said it is a qualitative standard, not a quantitative metric. Glen read the standards and bank stabilization criteria and thought the language sounded good, but that it would be better for the public to be able to see what this could look like. • Jim asked if the set back from block one was 300 feet. Ted said between North College and Lincoln, there is no required minimum; it is a qualitative standard. • Linda asked if this allowed cinder block to be used. Ted said no. They are prohibiting smooth concrete, synthetic stucco, and cinder block. Jim asked about EIFS. Ted said it would never be allowed. • Blue asked if Ranchway was historic. Ted said yes. The exterior cannot be changed. Ann added it will not be taken down unless it becomes dangerous. Agenda Item 2: Determine Next Meeting Agenda • Members decided that Economic Health Office BFO offers can be provided electronically so that no item gets bumped from the next meeting’s agenda. • Denny asked to have presenters declare whether they are requesting action in advance of the meeting. • Glen would like to schedule a meeting to discuss the book he distributed to members, Enough is Enough. Blue asked him to submit the item for discussion. Agenda Item 3: Budgeting for Outcomes – EHO Offers Not Discussed. Agenda Item 4: Foothills Mall Agreement – Mike Beckstead Mike Beckstead is available to hold a special meeting on this topic if requested. He provided copies of the AIS, resolution modification and PowerPoint presentation. Staff will be inviting board representatives to a special “super-board” as well. Mike Beckstead presented the benefits of the changes to the agreement, including retaining the timeline of the development. From a financial perspective in a rising interest rate market, he would like the bonds issued sooner than later. The mall itself is a catalyst project to revitalize Midtown, it creates a sense of place, and lastly it will increase sales tax revenue. There are three requests: 1. Change the lease space required before bonds can be issued, 2. Clarify language around penalty payments if residential units are not completed, and 3. Modification of use of reserve and supplemental reserve funds. The current agreement is for 240,000 square feet of executed leases with provisions, to issue the bonds. He showed a chart of the January agreement numbers and the new proposed numbers. The equity position (invested dollars) and recourse commitment are higher than the original intent. Walton is the equity partner and there is an outside financer for the construction loan. If something goes wrong Walton is obligated on the $130 million construction. The risks and implications of the changes are: there is no additional financial risk to the City, and the district risk is related to a low probability event in the next six months. The City elected not to use its balance sheet for this; it is on the metro district’s balance sheet. There is no benefit to the developer’s financial position with these changes. Startup risk is on the metro district if the bonds are issued but the mall is not built. The City is not obligated to pay back those bonds. That is why it is a 7% marketed to high risk hedge funds. There is start-up risk to the metro district if appropriate leasing does not occur within a certain time frame, but the risk is low. Regarding Request #1, there is a clause about 50% payment of lost property tax increment in the event the residential units are delayed. The change is to pay either a fee or property tax, but not both. He added that there are two reserves planned. One is funded by bond proceeds. The other is supplemental reserve funded by revenue. In the event there is a need to tap into a reserve, it is neutral to the City because that reserve needs to be replenished. The agreement will be modified to allow the use of the supplemental reserve first. The Centerra development agreement is discussed as a “living document,” it has gone through seven drafts. He wishes he had anticipated the flexibility that would be necessary in a project of this magnitude. Deals like this need adaptability. Comments/Discussion: • Denny asked what this represents in terms of percentage of total sales tax. Mike Beckstead said it is 2.5-3% of total. • Denny asked the method of escrow and whether there are fees associated with that. Mike Beckstead said it is escrowed by the bond trustee. • Blue asked what the current state of leasing is now. Mike Beckstead said he thinks there are only 22 storefronts. He is unsure their square footage. Sam added that visually, there is less than ½ occupied. Mike Beckstead said it is less than that. The existing mall is smaller than the planned new footprint. • Glen asked how much is already leased and when they planned to have it done. Mike Beckstead said 90,000 square feet with 190,000 by early June and 240,000 by mid-summer. The timing had not been drilled down on achieving 240,000 for the agreement. Glen asked if they are on track but just want the money or if they are behind schedule. Mike Beckstead said it is a question for Don Provost. He thinks a series of things got us here. The original opening was for 2014. After the May agreement, there was discussion on modifications to the agreement. Dave and Busters opened a similar store in Boise which did not perform well, so they pulled out here. There have been other modifications. There is a cycle around construction, leasing, financing, etc., that all needs to come together to make it work. They did not have a signed agreement until January 2014. They could not have specificity to talk to vendors about opening. If they miss the dates for the leases, there are penalties. If we lose the October 2015 date, then we are into 2016 and the whole leasing strategy starts all over again. Having everything come together at the same time is the challenge and complexity of a project this size. • Denny said the longer you wait to get this going, you lose potential revenue. There is replacement cost associated with changing the timeline of opening. Mike Beckstead added that the changes avoid the risk of interest rate increases. • Sam said he doesn’t believe they will get the space leased. He asked if the City has a history of helping out a metro district when it gets in trouble. He thinks there is a lot of risk. • Blue asked if the leasing is incomplete because of the delay of the agreement. Mike Beckstead said it gets to the critical mass of financing, leasing and construction having to work together. • Blue said there is talk about whether Fort Collins is the right size to attract the tenants needed. Mike Beckstead said Walton was asked about his confidence in the viability of the project: growth, regional nature, economic health, etc. This is Walton’s fourth mall deal with Alberta and they strongly believe it will be successful. Conversations with potential tenants reinforce that idea. Tenants would prefer to be here than Centerra. If this gets delayed, one concern is those tenants might end up in Centerra and will be gone for 10 years. There are many moving parts. • Blue said one of the early presentations the board got was about amount of leasable space in Colorado and the potential of how much could be used for the region. He would be interested in seeing that study again and how those numbers compare to what we are trying to put in now. Since then there is more square-footage in Front Range Village and other retail growth, are those numbers attainable? Can we sustain this retail? Mike Beckstead said if you believe in Walton’s confidence it is not an issue of leasing strategy. Leasing works in stair steps. They are focusing on powerful junior anchors. Once they get over that step, others will follow. They are being strategic to attract the right kinds of tenants. • Denny said the total is actual bigger than what is being proposed. It’s more of a timing issue. • Glen said this is difficult because we don’t know all of the assumptions of Don Provost. Is he shocked that he only has 190,000 square feet leased now? If Walton has so much confidence, why not ask Walton for the funding now? They are coming back to the City, and it doesn’t smell right. Mike Beckstead said we wanted to take the agreement to Council in December and it was pushed to January 14. That influences how the leasing strategy goes. Walton has invested more than they had anticipated. They are not prepared to have $110 million invested. Walton will not get $65 million back until they have stabilization at 92% leasing. That would remain true at $110, and would be 2 to 3 years down the road. They are not prepared to do this. • Sam said he thinks this is a normal evolution. You test the market, but they may be finding weakness in the market. He is not convinced net new is there, this is very vulnerable. Retail models are changing and there is enough capacity in northern Colorado. Mike Beckstead said this is startup risk. The question is evaluating where you let the bonds go. He has not seen evidence that they are having trouble leasing. • Jim said this goes back to Dave and Busters. The bottom line is do we blame the developer for what happened in Boise? The difference is Boise doesn’t have a large shell population. The Sears and ARC things were monkey wrenches. We had tenants dragging the whole thing down. If it’s only been 100 days, we need to look at booking pace. If you throw out Dave and Busters, their booking pace doesn’t look that bad. He is finding it hard to find basic goods in Fort Collins. If you take out Macy’s, we don’t have a department store. His office used to see a large proportion of sales tax being generated by people outside Fort Collins. That has changed because of regional issues and because we have lost our retail. The lifestyles and what is happening in industry here, the glass is half full. Most retailers are going to both “Bricks and Clicks.” His question is what happens if we say no? Mike Beckstead said that has been asked. If we decline to change the agreement, construction is delayed and we lose the holiday of 2015. What the new dates look like after that would be anyone’s guess. Unless Walton put the financing in to keep the opening at October 2015, no one can predict the new timeline. • Mike Beckstead said for example if Walton has $60 million in cash invested, $50 million in proceeds off bonds, and a $140 million construction loan coming from outside financier. Walton would be providing 100% guarantee on that loan. They are in to the tune of $200 million. If they want to lower their equity it doesn’t happen until 2 to 3 years after completion. The construction, equity and bond financing all have to close simultaneously. • Ann added that none of this considers that construction costs go up with every month delay. • Sam said for the Southglenn renovation the residential was necessary to support the retail. Ann said there was limited residential in the area, so they had to bring it in to make the retail work. • Sam asked if there was demographic work done around who would support the retail at the mall. Mike Beckstead said he believes this has been done and the retailers are most likely looking at this as well. • Linda asked if there is adaptability in the other direction. If sales tax revenues aren’t coming back as projected, can the City go back to the agreement for revisions? Mike Beckstead said the developer has reacted with more equity. The City always gets its base. He thinks these changes tighten up the deal. • Jim said once you go to the market things change. • Mike Beckstead said the role of the City is to protect the revenue. Linda added that the City gave away far too much in tax revenue and TIF. Mike Beckstead said we are looking at $126 million in new tax revenue by 2038. To him, given we are a city that 60% of general fund comes from sales tax, we need to grow the market. • Linda said the $53 million was excessive. We assume the opportunity cost was worse than it is. Sam said if it went away, then what? Linda said the City backed themselves into a corner with the $53 million. • Jim added that the historical mall net taxable sales concern him. Glen said that despite the revenue decreasing from the mall, City sales tax revenue has increased, so something else is going on in the market. Mike Beckstead said the mall is on erosion to zero. Linda said it is not a very creative project and she could see something far more “Fort Collins” going in here. • Sam said we are trying to recreate 1970. Linda added we are on the tail end. Other communities are moving away from this type of retail. • Members agreed to hold a special meeting on the mall agreement April 28. Mike Beckstead said he would like a recommendation from the EAC. SeonAh will email the commission. Meeting Adjourned: 1:37pm Next Meeting: May 21, 2014 11:00am–1:30pm, City Hall, CIC Room Approved by the Board on May 21, 2014 Signed ______________________________________ June 3, 2014 Dianne Tjalkens, Administrative Clerk II Date