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HomeMy WebLinkAboutCRC-09-27-00CARMEL REDEVELOPMENT COMMISSION Wednesday, September 27, 2000 Carmel City Hall Caucus Room 7:00 p.m. AGENDA Call to Order 2. Resolution submitted by Beth Young, for closing to distribute TIF money (Tentative) 3. AMLI Presentation 4. Question and Answer Period Adjournment Z:\redevcomm\2000 Sept 27 Agenda CARMEL REDEVELOPMENT COMMISSION Meeting, Wednesday, September 27, 2000 The meeting was called to order at 7:06 p.m. by President Rick Roesch. Members present were Ron Carter, Luci Snyder, and John Koven. Commission Member Amy Boldt absent. Also present were Councilor Wayne Wilson, City Engineer Kate Weese, Jim Thomas from AMLI, Paul Reis, Mayor Jim Brainard, Les Olds, CSO, Don Currise from Paul I. Cripe. Karl Haas arrived at 7:20 p.m. Phyllis Morrissey present as support staff. The resolution listed as the first item on the agenda was not received from Attorney Beth Young, so it was deleted from the agenda. AMLI Presentation Mr. Thomas made a presentation for AiMLI's bid on Parcel 48, using exhibits to illustrate the proposal. AMLI at Downtown Carmel is a mixed retail and residential development, with total square footage of about 125,000, representing an investment in excess of 510,000,000. There will be approximately 104 loft style design apartments, open floor plans with 10-11 foot'ceilings. There will be approximately 207 parking spaces. The project would include 15,000 square feet of retail along Main Street with apartments above. The other two sides (west and south) would be two and three story apartments. It was undecided at this time whether the existing building along the Monon would be replaced or restored. Parking would be in the interior and would include a two story parking deck in part of the area. Ouestion and Answer Period Mr: Thomas was questioned about the following: the entrances to the apartments from the parking lot, loading areas, service areas, examples of comparable projects, flexibility in size of retail areas and apartments, type of retail planned, delivery "access to retail, configuration of parking deck and entrance, possibility of garage spaces, gated area in. lower parking level, sharing of amenities with AMLI in City Center, bicycle racks/ storage. Mr. Thomas distributed an information sheet showing the pro forma operation with the projected income, expenses, reserves, present value of the property. Mr. Thomas explained the present value (if it was December 2000) would be between 51,400,000 and S1,800,000 at 9%, varying depending on the year of sale. That amount is a post preference analysis so all the qualifications that are contained in the package are incorporated in that financial model. Mr. Thomas stated typically they will build something with this complexity in the 15-21 month range. It would be phased turnover. Leasing would begin prior to completion. Vacancy rate is calculated at 93% assumed occupancy. It is estimated that retail would lease for less than $14 per square foot triple net, contrasted to Merchants Square which is around $16-17 (triple net). Mayor Brainard asked what the projected property taxes would be. Mr. Thomas responded: On the commercial taxes, probably a dollar per square foot. On the residential probably about the same or a little lower. There will be 15,000 square feet of retail and about 110,000 square feet of residential. Mr. Haas asked Mr. Thomas how his debt worked. "Do you go from a construction loan directly into a perm at the amount of the construction loan?" iVtr. Thomas responded affirmative. Mr. Haas: Do you ever have capital events other than sales to take equity out through permanent financing? Mr. Thomas: We are a GAP company so that prevents us from doing that to ourselves. You don't get any profit recognition for increasing your leverage. In fact, we usually get "spanked". Mr. Haas: Did you run any analysis if you hold this property beyond the six years, what the present value is of the annual cash payments to the Commission? Mr. Thomas: No, I'm sure there is a trend there. We generally speaking are long term owners. We are unusual as a REIT in that we do engage in co-investment with major [inaudible]. It's one of the quirks that we've managed to successfully navigate in the public world. In those instances where we would have some large pension fund with us as an investment partner, we often, in fact I think we always, include Texas [inaudible] if either party wants out of the transaction they can name a-price at which they are either willing to sell or buy the asset. That is applied to either party so that would be the common means of resolving differential holding period requirements among partners. Mr. Roesch:. Were there any assumptions on the retail for occupancy? Mr. Thomas: The 93% works out to about a bay being vacant, so we used a similar occupancy rate on that retail as well. Mr. Roesch asked Mr. Haas: If we were to be a percentage owner in this thing, would we be able to achieve the taxes, get all the taxes? Mr. Haas: But the entity that owned it wouldn't be tax exempt. You wouldn't actually be in partnership because the payments would come out to you as a lease payment. Mr. Thomas: It's actually the worst of both worlds for us as a public real estate entity because all the debt hits our books even though all the ownership doesn't. 2. Mr. Roesch asked Mr. Thomas: Have you guys thought about any other possibilities we might want to discuss in our Executive Session? Mr. Thomas: We called one of our law firms who has a lot of experience in bonds, public finance, that kind of stuff. There is really not good news to report. I had forgotten, but they quickly reminded me, that in 1995 residential property was excluded out of TIF. You can't TIF residential, so that takes 110,000 square footage.out. Ivir. Roesch: We just got an opinion to the contrary from Neil Steinbart from Barnes and Thomberg. Mr. Thomas:, We talked to bond counsel at Ice Miller. There are various. COIT things you could do but any of the other means by which we could transfer currently available bonding capacity and backstop it with a future revenue stream flowing from the lease involved some other larger pool into which this could be placed. But obviously you can't support a single entity TIF off 15,000 square foot of retail.space. Even if you could on a single project TiF, the credit is going to be crummy and the debt rate is certainly a lot worse that.the discount rate you're talking about on the.money. Similar with COIT, you can do that but basically it comes down to how is Carmel's share of COIT already pledged in the future. Mr. Haas: I would think project specific would be very difficult anyway because by the time you did a bond only for this project, based on the TIF from that.project, it would be a small bond and by the time you added on all the issuance costs and reserves you'd likely end up with a real cost of funds that's not that much better than what Mr. Thomas can achieve on his own. Mr. Thomas: The cost of funds on a debt basis.is very attractive. We can `get spreads ustially on the owner leverage down in the 65% range. We can do 135 over comparable term treasuries, maybe 150 which is in fact lower than many people's corporate debt costs. We have our AA good solid investment grade. It's not a federal AAA credit, but it's a really strong credit corporate bond. Because of the softness in the collateralized mortgage backed securities market which depressed the whole corporate bond market, those guys are having to pay significantly higher costs versus we can just go out to an insurance company and take on project specific debt. The difference is as.a REIT we have made this our primary strategy. We can essentially take private borrower routes because those kind of maneuvers are already priced into our stock. People understand that's what we do. These other guys that have corporate debt can't do project specific financing without really screwing up their ratings. The fact that corporate debt is getting punished right now is just an unfortunate byproduct. Mr. Koven: What are our [CRC's] additional costs in this project? What are the demolition costs? What are the costs of bringing utilities to the site? We've not had a pro forma with these costs listed. I don't think it's prudent for us to be making any kind of decisions here without those numbers. 3 Mr. Thomas: We don't use three phase electrical so that's not a problem. Obviously power's right there. Gas is at the southwest corner. Phone's there someplace. I don't know water or sewer capacity at the site. In terms of demolition, I don-'t have a reference point, but we recently tore down a 15,000 square foot wood frame building for under $20,000430,000. Discussion followed about whether the Printsley building would be torn down. It was noted it is not a particularly architecturally significant building, just rundown. Discussion about additional costs the Redevelopment Commission would incur. Mr. Duffy, Carmel Utilities. Director, will be asked to provide a letter detailing availability and cost of sewer and water connection. Mr. Thomas noted the overhead power lines would have to be relocated. This cost should not be very great since it is just for a short distance. Mr. Koven asked Mr. Thomas if there were any possibility of some sort of discounted purchase. Mr. Thomas said AMLI would consider a hybrid of the two options, paying $600,000, leasing $600,000 which would be equally workable. Mr. Thomas continued, "As I advised in the meeting, there's no subtlety about what's going on. We get to keep more of the upside that way, because there is risk in investment and there's profit in investment."The way I ran it, there was $600,000 being roughly equal to 20% of the equity. You never have to apologize for straightforward structures. Our normal structure is dollars in, dollars out, in terms of proportions, so 'l assumed a $3,000,000 equity investment with $600,000 being 20% of that and 20% falling to a 9% preference and then we get a financial preference basically similar to the lease structure as described in our proposal. If the million two turns into a million four to million eight range the $600,000 is not as good. $688,000 to $735,000 is the comparative range of the present value of that 20% income stream flowing from the 5600,000 investment. Still in excess of the $600,000 invested but as you would expect, it just doesn't go like that because the ownership is less. I guess that's not a formal counter. offer, but I would tell you that, as requested, I looked at other things we could think of and that's still within a range where I would feel comfortable. There is risk in this since we are pioneering a new concept, new site, bringing new stuff to downtown, but there would still be a significant enough City involvement in our minds that everybody would be properly motivated. Again, not a formal counter offer but a piece of information that I submit to the Commission for comparison purposes." Mayor Brainard: To make sure I understand, the City's share of profits or cash flow would be 20%o in your lease arrangement and you pay us 5600,000 up front. Mr. Thomas: That's right. Arriving at the 20% as a proportion of the overall equity so $600,000 being,20% of the overall $3,000,000 of equity as $1,200,000 was presumed to be 50% of the overall invested. It's what we call para pursue in the business. Other than, of course, the $400,000 preference which remains consistent across both proposals. 4 Mr. Thomas was thanked for his presentation and asked to be available following the Executive Session. Old.Business Sherwin Williams discussion about offers and counter offers. Mr. Haas distributed a chronology of negotiations with Sherwin Williams. The CRC wanted to condemn Sherwin Williams so the Kroger Center can be torn down. Brad Hurt did an evaluation and arrived at $170,000. The statutory form notice was sent to Sherwin Williams notifying them that if.they did:not accept the $170,000, the CRC will commence condemnation. Sherwin Williams came back at $750,000. The Commission approved filing the condemnation action. Two appraisers were hired and the value of their leasehold was determined to be $63,000-$75,000. Court appointed appraisers determined the value of the leasehold to be $385,000. Discussion followed about the lack of qualifications for the court appointed appraisers, one of whom is not a certified appraiser according to Mr. Koven, and the other is only a. residential appraiser. Mr. Koven asked for an opinion from Mr. Haas whether he [Mr. Koven] could vote on the issue since he is involved with another real estate transaction with Mr. Snelling, one of the court appointed appraisers. Mr. Haas said he did not feel that was a conflict and that Mr. Koven could still vote. Discussion followed. Mr. Haas: I wouldn't recommend paying $385,000 into court. I think there are three ways to go: one is to settle for the $225,000; the other is to drop the condemnation altogether; and the third is to continue the condemnation but not take possession now and go to trial on the damages. Mr. Haas: What I'm most concerned about is when you market this property; you need to have Sherwin Williams out or a deal for them to be out. When you think about starting it up again, if you decide that you want to market the retail property next year, you really can't do that until you get Sherwin Williams out one way or another. We've been working on this for five months to reach this point so you'd have another five to six months delay to reach this point again. Further discussion followed. It was decided Mr. Haas will negotiate with Sherwin Williams and offer $170,000 to be paid in June and they can stay rent free till that time. Mr. Carter suggested Mr. Haas also remind Sherwin Williams that three members of the CRC are also on the City Council and all rezones must be approved by the City Council. 5 There being no other business before the Commission, Ms. Snyder moved the meeting be adjourned. Following a second by Mr. Koven, the motion was unanimously approved. The meeting was adjourned at 8:55 p.m.