Loading...
HomeMy WebLinkAboutEconomic Advisory Commission - Minutes - 04/28/2014Minutes City of Fort Collins Economic Advisory Commission Special Meeting April 28, 2014 CIC, City Hall 11:00am–12:00pm 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 Jim Clark Denny Otsuga Sam Solt Glen Colton Linda Stanley Michael Rechnitz Michael Kulisheck (Mike) Ann Hutchison Guests Jonathan Carnahan, citizen Mike Prusnick, citizen Dale Adamy, citizen Staff Present Staff Absent SeonAh Kendall, Economic Policy & Project Manager none Dianne Tjalkens, minutes Mike Beckstead, Chief Financial Officer Josh Birks, Economic Health Director Tom Leeson, Redevelopment Program Manager Meeting called to order at 11:02am. Public Comment—Mike Prusnick sent questions to SeonAh this morning via email. He is concerned that the mayor has a conflict of interest. The Ethics Board suggested she recuse herself. Mr. Prusnick stated that the Mayor’s property is within 350 feet of the mall and that her property tax records show her property value goes up and down with the mall. Penalties for conflict of interest can include jail time, the contract could be voided and the City could be sued. He thinks the issue should be taken up with the City Attorney in executive session. He is concerned with discrepancies in information as well. The developer said in September that they had 60% of the retail space in the pipeline, or about 400,000 square feet. Now the developer says they have 90,000 square feet. At the Council meeting the SHARP guy led Overbeck into believing that they went into the bond market with 195, but the paper said only at 90. Maybe they are hiding negative data from us. We are also bringing in new to Fort Collins south of the mall. Do we have the capacity for this mall, given new information? Beckstead said these are similar to junk bonds issued to hedge fund dealers, not the general public. Mr. Prusnick stated that if he cannot buy the bond as a citizen, so should we use them as a public financing tool? Jonathan Carnahan has been critical of the mall, but his views have softened. He would like to hear how many square feet are leased right now. If the deal goes through, he would like to see a way for citizens to see bimonthly leasing reporting. He wants to see the same agreement as it is, but with 195,000 square feet instead of 155,000 square feet. The paper said they expect to be at 195,000 by the end of May, so let’s go with that number. He wants to see the mall happen. Agenda Item 1: Foothills Mall—Mike Beckstead Blue let the commission know that the goal is to create a recommendation to Council at this meeting. Mike opened for questions Comments/Discussion: • Linda asked about developer requests #2 and #3. On slide 15, she would like to know what is behind this. She is unsure why the change has to be made. Mike answered that there is $10 million in tax increment coming off residential units with 200 by 2016, with 246 more by end of 2018. Staff looked at this and wondered what would happen if the residential was never built. To address the concern they came up with clause 4:3, to make sure property tax would not all be lost if the units were not built. Linda asked if a 50% penalty was enough incentive to the developer. Mike Beckstead said the Bond Council looked at the agreement and saw that the 50% penalty payment would not go away until 2038. The intention was to only collect the penalty until the units are built and the property tax comes to the City. The clarification is that if they miss the date they are only obligated to pay the penalty until the units are complete. • Linda asked about the next slide and why the supplemental reserve would have to be used first. It seems to put the City at more risk. What are the regulatory filings? Mike Beckstead said it is typical in a bond offering to have a reserve. They will issue $72 million bonds. Some of this is to fund the reserve. As a credit enhancement they came up with the supplemental reserve, which will be $7.2 million. It will come from the revenue stream from the project. He showed a chart of the bond payments, pledge payments, sales tax revenue, etc. Bond payments start in 2016 and they fill the supplemental reserve. The funding is a combination from revenue in the metro district and sales tax. They anticipate 4 to 4.5 to come from sales tax. When they wrote the agreement, staff wanted to use the reserve before supplemental. But reality is there are requirements in the bond issue to have a reserve. If it gets used, they will be out of compliance and will need to be replenished from metro district revenue or sales tax increment, but will likely come from sales tax. He believes they have been conservative in the revenue projections. This would have to really fall off of national averages for the revenue to not support the bonds. • Glen asked if Mike Beckstead could explain the startup risk, how the bonds are issued, what is paid to investment bankers, etc. If the worst case happened, what are the repercussions? Mike Beckstead said they have an assumption in the model that in 2016, 95% of the stores will be open and selling. If the leasing strategy falters, 60% leasing gets them the financing. There is some lost sales tax revenue to the City, but the impact is low. The financial implications to the City are minimal. The startup risks are the same as they were before if we issue the bonds and something happens and the mall never gets built. We prevent this risk by working with those who have built malls before, and looking at a macro level to see if conditions are right for a new mall. There is no way to mitigate startup risk from the time the bonds are issued. The City could have put the bonds on their balance sheets, but the startup risk would have fallen entirely on the City. The City does not have a financial obligation to pay back the bonds if the mall is not built. The returns are lower but the risk is lower with the method the City has taken. • Glen asked who pays the bonds back. Mike Beckstead said the metro district is responsible to the bond holders. The bond holders are aware of the risk they are taking. Glen said if it fails early on the City is not at financial risk. If they only build half, then what? Mike Beckstead said there are too many moving pieces to project an economic estimate of what that would look like. • Sam said he’d like to look at this like a glass half full. The mall footprint is as big as all of Old Town. If you follow the economic plan it addresses what we want for the City. The mall is structured equitably and fairly, and we have to own part of it to make it successful. What happens if Council does not support the amendments? Mike Beckstead said if council says no, Walton and Alberta will not be able to close on construction financing, so all of that would get pushed out. Beckstead gave several examples of what would happen if the amendment did not pass. Best case scenario, Walton would fund the capital needs to keep the project on its timeline. However, Walton is adamant that they do not want to be into it over 65. A middle of the road alternative is that the project will be held up and all leases will become null and void. However, losing momentum will have an adverse impact on the leasing strategy. The last scenario is that Alberta stops until they determine how to finance. Do they start over with a new design? He has had conversations with Walton about whether they cut losses if something like this happens. With current delays he thinks it is unlikely to have the mall open October 2014. The only way for that to happen is for Walton to finance it themselves the next three to four months. • Sam said if the deal fails the City would be in a bad position. He has looked at other renovated malls and has seen success. Mike Beckstead said Streets of Southglenn is a good example. It took longer to lease than anticipated. Alberta has experience dealing with challenging startups. Presuming the mall gets built and the demographics are accurate, he believes the lease up risk over time is manageable for Alberta. Sam said this is a high priority space for the City to salvage and do something positive with. Alberta has a good track record. • Mike Kulisheck said he was supportive of the mall and the plan last year. Now we are back and there are amendments to the original deal. He said it’s similar to going into a store and wanting to purchase an item for $X, but it is out of stock. When you come back they have another that is more expensive. Would we have gone with this second deal the first round because it’s the right thing to do? Mike Beckstead said now that he understands more about leasing strategy he thinks some of the new amendments are better for the City. Requests 2 and 3 are strictly administrative. Request 2 is a clarification and 3 is a modification to use of reserve and supplemental reserve funds. Ann said it is the same amount of money, just spread out over time. Mike Beckstead said the developer is not making any more money due to these changes. Mike Kulisheck said the City isn’t taking on more risk other than $400,000. Mike Beckstead said because the bonds are metro district, there is not financial risk to the City. If anything, there is a benefit. Issuing bonds sooner is preferred because it avoids a potential increase in interest rates. There is risk to the metro district between 155,000 of leased space and 240,000 leased space. Mike Kulisheck said we should not engage in foot dragging to make a point. • Blue said Mike Beckstead previously told the commission that these types of deals often have renegotiations. Six months from now would we take this deal? If the conditions are not met in six months do they renegotiate again? Council is tired of this conversation happening over and over. Mike Beckstead said the developer gets that these financials are what they get. Centerra went to their Council with seven amendments, which speaks to the complexity of the issues. If large tenants who sign leases want changes to their stores, the way this deal is structured, it would require a major modification that would have to go back to Council. Those are the kinds of things he expects. Staff has discussed alternatives, such as Darin Atteberry having authority to deal with those kinds of things with Council support/input. • Denny asked if there is an alternative we can consider beyond these two choices? Mike Beckstead said not that he is aware of. In order to have the opening in 2015, we need to be in construction mode in 2014, so we need the financing in place, and we need to issue the bonds right away. • Michael Rechnitz said he is more satisfied with the amended agreement. He has two comments, though: In terms of difficulty in funding initial construction, the gross billing will be around $3 million per month. Mike Beckstead said the developer told him $7 to $10 million. Josh Birks added that they are ready to start rapid growth. Walton is going to have to start spending serious money or not finish. Michael Rechnitz continued with his second point: He has seen bad leasing strategies. Why didn’t the original leasing strategy work for 240,000 square feet? What have they changed to bring the leases in? No matter how we decide to move the mall forward, not leasing the space is a problem. They made a commitment and are 100,000 square feet short. How are they making up for that? Mike Beckstead said he is unsure, but they have agreed to provide the City with monthly status reports on leasing. There are four “asks” on the table; the first is that the City Manager and attorney can look at the leases. Michael Rechnitz said proprietary information that they don’t have to share leaves him with questions. Mike Beckstead said if we are reporting how well they are doing with leasing in the newspaper every two weeks, that is not good for strategy either. The second “ask” is early redemption for the bond repayment from three years to two years, which gives a greater incentive to get leasing done. The third is for specificity on how the 23 gets spent. He proposed taking reimbursements on what has already been spent out of the last tranche, with the first three going to new activities. The fourth “ask” is tying the 3rd tranche to the Sears building. Those four items are in discussion now. • Ann said there needs to be flexibility to have a quality project. She is a little nervous about the last 3 “asks” because they are boxing in the project. • Sam said this is a complex project and he wonders how fair it is to hold them to the milestone with Sears. Michael Rechnitz said lacking flexibility will make you lose, but lacking milestones does the same. You need both, which means greater time obligation to resolving issues. Sam said he is trying to keep the project in perspective that this redeployment of a huge area in the middle of the City. If it were to fail, where would we be? Mike Beckstead said what is happening in the Square is a direct result of the mall redevelopment. Toys R’ Us sat vacant for years and now is moving forward, is a result of the mall bringing more traffic. These might not be happening if we weren’t doing TIF on the mall. Ann moved and Mike Kulisheck seconded the following motion: The Economic Advisory Commission supports the amendment to the redevelopment agreement for the Foothills Mall. Motion passed, 7-1-0. Glen stated that he did not support of the original mall agreement, and therefore does not support the amendments. • Linda asked that a memo include some of the discussion. Blue said he would like to provide the minutes in lieu of a memo, in order to include public comment and all member comments. • Glen said he did not approve of the agreement before due to sales tax increment and money going out. It is disconcerting that three months after making an agreement, they are having trouble closing leases. They are saying one thing in the paper, and we don’t know where they are at and no one knows what the truth is. Staff is saying there is no risk to the City, but Glen is unsure of that. If the metro district goes belly up, how will the City get involved? We are so ready to go after incremental sales tax, but he is very uncomfortable. He does not support the change. • Linda said City Council needs answers to these questions before they vote. Meeting Adjourned: 12:07pm Next Meeting: May 21, 2014 11:00am–1:30pm, City Hall, CIC Room Approved by the Board on May 21, 2013 Signed ______________________________________ June 3, 2014 Dianne Tjalkens, Administrative Clerk II Date