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HomeMy WebLinkAboutCRC-05-13-02CRC Meeting, May 13, 2002 1 CARMEL REDEVELOPMENT COMMISSION Meeting Monday, May 13, 2002 President Rick Roesch called the meeting to order at 5:00 p.m. Commission members present were Ed Burke and Luci Snyder, constituting a quorum. Also present were Lisa A. Lee, from Ice Miller, Les Olds, Stan Hays from Eden Enterprises, David Alexander, from Gilliatte, Sherry Mielke, Sean Smith, from ELS, Brian Shapiro, Loren Mathes, from H. J. Umbaugh, Jim Windmiller, Kurt Dehner, and Leslie Sinnott, from Duke Realty Corporation, Bruce Donaldson, from Barnes & Thornburg, Karl Haas. Phyllis Morrissey as support staff. Bid Opening, Parcel #5 Site Work Mr. Roesch asked Mr. Olds to open the bids, look them over while we address the Duke Financing Proposal and then return to the meeting. Mr. Olds: Two bids were received. The first bid is from Eden Enterprises. Base bid is $245,000. Alternate #1 is $15,500. Alternate #2 is $24,500. Second bid is from Gilliatte General Contractors. Base bid is $235,000. Alternate #1 add $7,800. Alternate #2 add $18,000. Mr. Olds: “That completes the bid opening. With the president’s permission, I’ll step out to review the documents and report back upon completion of Duke’s presentation.” Mr. Roesch thanked Eden and Gilliatte for their bids. Duke Financing Proposal Mr. Roesch: This is something we had already approved for Parkwood East and Parkwood West. There have been some modifications and some of us have been in a number of discussions with the representatives of Duke. In the interest of time, I’d like to ask Lisa Lee to summarize what was in our packets and what these changes are from what was originally approved and what modifications are necessary. Then we’ll ask our questions. We do have a team from Duke, headed by Kurt Dehner, and Loren Matthes from H. J. Umbaugh, our financial consultant. Ms. Lee: On January 10, 2001, the CRC adopted a declaratory resolution declaring the Parkwood Economic Development Area. Notice of a public hearing was published and held on March 14, 2001, and after other processes confirmed the creation of the Parkwood Economic Development Area. In that confirmatory resolution, there were two limitations that this Commission placed on that project. At that time, Duke was looking to do Parkwood West first and the Commission, in Exhibit H-2, section 3a and b, the commission first limited the amount of the construction cost of the project to $3.76 million, and in subsection b, limited the nature of the projects to be funded with the bond proceeds to only those projects which are wholly located within the public right-of-way. And also in the very long and arduous minutes from that public hearing, one other comment that came up a couple times was allowing $3.76 million does not use up all the CRC Meeting, May 13, 2002 2 TIF and we would have an opportunity to do road improvements with some other TIF available from those projects. Those were the three things that were desired by this Commission at that time. Then on May 9, Duke presented a description of infrastructure and environmental remediation projects that they desired to have funded for Parkwood East. The Commission did not take action at that time, but on November 14, 2001, adopted an Amendatory Resolution enlarging the Parkwood Economic Development Area to include what we knew of at that time as College Hills and we now refer to as Parkwood East. However, that infrastructure enlargement and the amendment to the plan did not discuss at that time the environmental remediation. The differences between what was approved at that time and in the proposal that’s being brought back to you besides the fact there is a lot more detail, which will be looked at by both sides, the main differences are: 1. Duke desires to start with Parkwood East instead of Parkwood West; 2. They would like to include for Parkwood East some of what this Commission may consider onsite improvements in the way of environmental remediation; 3. They would like to have a pledge of all the TIF until the year 2006, which would include TIF to cover the debt service, as well as all excess TIF would go into a surplus fund through the bond documents held by the Trustee, and could be used in later years to either make up a difference, a shortfall in a loan repayment, or pay off bonds early if other things would allow us to do that; 4. It looks like at this time from their estimates that the construction costs on Parkwood West (which remember that’s the second project) it looks like that would exceed $3.76 million at this time. I believe it’s only by about $300,000 but we can address that later. Those are the legal steps that have been taken place by this Commission. Those are the main differences between this proposal and what you approved earlier. There are a couple of unresolved issues that are not resolved even in this document. Loren will bring those up briefly. Ms. Mathes: One of the outstanding issues is that we need some more financial information from McDonald, the underwriter who is going to place the bonds. So one of the things that was in the term sheet that McDonald had requested, was a make whole premium. A make whole premium basically the premium pays the present value dollar amount equal to the bondholder’s loss in yield between their bond rate and they’re suggesting around treasuries plus one percent. Which presumably is what they would experience as an alternative earning rate if the bonds were called. Basically they’re trying to have the premium guarantee the bond yield to the end. McDonald feels this might be necessary for a taxable bond. We’ve seen bond issues that are taxable not done with a make whole premium but part of that will come down to if they have a potential investor for the bonds, if we can see a tradeoff in numbers. If we can see that it would be worthwhile to do this premium in order to get lower interest rates, perhaps that might be a way to go. So what we would probably ask is that that be a term that can still be resolved when we get additional information from McDonald based on our advice and discussion with Duke with probably your approval. CRC Meeting, May 13, 2002 3 The other issue has to do with the additional bonds. We had some discussions about what would be the conditions which additional tax increment bonds or other bonds could be issued for that area. As Lisa mentioned one thing that is important, is that the pledged TIF, all the TIF from the Duke projects, will be pledged to essentially Duke through 2006 to help pay the debt service on the bonds. If additional bonds would be issued, one of the tests says that if there were another project, say another developer was doing another project, that additional bond could be issued if there was enough tax increment to show 125% coverage from that proposed project. But what it does say, is that no additional bond, except under that condition, could be issued until December 31 of a year to be negotiated. The year that had been in there was 2006 which kind of matched up with the pledged tax increment and Duke is proposing that time be lengthened as far as additional bonds to ten years out which would be 2012. What that might prevent would be if the Commission wanted to do just another bond issue to do infrastructure in the area, that you wouldn’t be able to do that at that point. I don’t know if anybody from Duke wanted to comment on that.or if that is just a matter we can leave to be resolved again with advice to you and with your consent at some point. Mr. Roesch: I’ll make a statement and then ask other Commissioners for opinions. From my position, I think 2012 is too long. My feeling is that the trigger should be that once there is coverage of 125% then we can issue bonds at that point. I would hate to be restricted for twelve years. I think that actually would cover Duke. Somebody may want to argue that point and I’m certainly open to that. Leslie Sinnott (House Counsel for Duke): On your comment on the length of that term, my recollection of our discussions and I think this document bears me out, it’s in terms of parity bonds being issued, it would be the earlier of the date on which there was 125% coverage or the ten years. So you would not be blocked for ten full years if there were the 125% coverage. Ms. Lee: It’s based on the earlier of either December 31st of whatever that year is or the issuance of bonds for Parkwood West. Because I think the point was Duke did not want the TIF taken away to the point that they couldn’t issue Parkwood West and your timing was such that you thought it was going to be after 2006. The way it’s written now if you had a particular project come in, because you have a ten acre parcel in there that is not Duke property, it’s my understanding so before whatever year we put in there, or before the issuance of Parkwood West, if a project comes in that could show through projections of a financial advisor, CPA, that they could generate TIF solely from their project that would equal 125% coverage of their debt service then you could issue bonds for that regardless of the year limitation or the issuance of Parkwood West limitation. But your example, if the Commission wanted to do bonds for a road project, your road project is not going to generate additional TIF in and of itself so your bonds would have to wait until whatever limitation year is put in here or the issuance of Parkwood West. So if you put 2012 and they issue bonds for Parkwood West in 2008, then 2008 is the limitation date. If they don’t issue Parkwood West until 2013, then 2012 or whatever date you set CRC Meeting, May 13, 2002 4 would be the limitation date. So you have flexibility with other projects, but you don’t have flexibility if there’s a deadline in here with Redevelopment Commission bonds. Mr. Roesch: Could this be worded such that rather than putting a date on it, we could say that it’s after Parkwood West is developed? Ms. Lee: Yes, you certainly could do that. We can write it anyway that the parties agree. I think that is one way that Duke had suggested in the beginning and our concern was what if they never issue Parkwood West. What if the economy just goes in the direction that they don’t do that? Then you could never issue parity bonds until the Duke bonds were no longer outstanding. Mr. Roesch: So we do need to put some time frame on that. Ms. Lee: That’s why we recommended some kind of limitation. Mr. Dehner (Senior VP Duke Realty Corporation): I’ll be happy to answer any questions you might have. Maybe I can give a little bit of clarification. This is not meant to be something that’s poured in concrete. Let me explain the philosophy behind this. Everyone, from our discussions, felt there was a time period at which the Commission wanted to be able to go forward and possibly do other projects and rely on the income that had been generated within this economic development area that were solely, if you will, Duke only kinds of buildings. Our concern was that we not be put in a position where we haven’t done Parkwood West, which was kind of how this economic development area got initiated in the first place, and then find that we don’t have income sufficient to be able to issue those bonds. I don’t know what the right year is. 2012 our thought was; it’s halfway through the bond indebtedness period. That’s why we used 2012. But if it’s 2011 or 2010, I think those are going to work. I think you’ll want to have a “drop dead” date in there. It’s a question of what date is right in terms of allowing us enough time within the market constraints to be able to build those buildings. And yet also what is right in terms of a date so that the Redevelopment Commission can go forward and do other things if for some reason the market prevented any additional buildings being built in Parkwood West at all. I think it is a reasonable request to have the date and I think you’ll want it. Mr. Roesch: I agree. I see the logic. I’m not sure what that date should be. Mr. Burke: Is 2008 too short? Mr. Dehner: Frankly, if we went forward from 2012, I’m comfortable with 2010 and 2008 is a little shy. These buildings are fairly large buildings and if you look at the overall net absorption of new space in the suburbs, it’s not huge even when things were really good. There were still people coming out of existing buildings that the overall net absorption wasn’t great. We think we can beat the market and the competition and get more than our fair share. We figure that a building is going to get built every couple of CRC Meeting, May 13, 2002 5 years, because it takes a year to build them, and a year to lease them up in general. And hopefully by that time we’re ready to put up another one. And 2008, we bump up against that a little bit. In response to a question from Mr. Burke, Mr. Dehner said there are five buildings altogether, three in Parkwood West and two in Parkwood East and all of them are approximately 200,000 feet in size. Mr. Roesch asked Ms. Lee, “Can this agreement be modified at a later date or can we put language in that parties can agree to?” Ms. Lee: You have a few options. You can approve it the way it is. Obviously, you would have to either resolve the two unresolved issues that Loren talked about and vote on it or you could for both those unresolved issues and for some of these other matters that we’re talking about, the Commission could authorize the President to, on the Commission’s behalf, make those final decisions with the advice of your financial advisor and your bond counsel. Or you can decide to think about it and take it up at the next meeting. Those are your options. Mr. Roesch: My inclination is 2010 and then any modifications would be mutually agreed upon. Mr. Dehner: In reading the document it does state “that it’s to occur the earlier of December 31st of a year to be negotiated.” So I think if you approve the document in its present form and charge the members of your Commission to then work that detail out that may be the simplest thing to do, rather than trying to pick 2010 subject to modification. Mr. Roesch: So we really don’t have a date? Mr. Dehner: There’s no date. Ms. Lee: There still would be the two unresolved issues that you either need to give someone the authority to resolve or we need to try to resolve them in the document if your plan is to approve this document and tell us to move forward. Brief discussion among CRC members. Mr. Roesch asked if everybody understood the transaction. Mr. Roesch: With the environmental remediation, I want to make this real clear, something that is included in here is the decommissioning of the well, septic, hazardous material abatement and remediation that’s in exhibit A. I guess there’s a substantial amount of work that was actually done on that, Kurt [Dehner], as you’ve explained and as we see in this exhibit. I think those are things that are kind of a “but for” our health that would be quite an expense for somebody to bear when they are dealing with this CRC Meeting, May 13, 2002 6 many parcels of property. Any other comments or discussions? [None.] I would then entertain a motion to approve the financing proposal as previously approved and amended that was distributed with two unresolved items that would be decided by the President ultimately after consulting with Commission members. Those two unresolved matters are the make whole yield issue and the date when we could issue additional bonds as a result of the pledge of the TIF. Is that okay, Lisa? Is there a motion to that effect? So moved by Mr. Burke. Following a second by Ms. Snyder, the motion was approved unanimously with three votes. Mr. Roesch told Mr. Dehner that the CRC would talk with their financial advisors. “I think we’ve shown that we’re certainly interested in working with you. We want you to be a big taxpayer in Carmel.” Bid Results Mr. Olds: Good news and bad news. The bids are very close and from two competent contractors. It’s very clear that Gilliate Construction Company is the low bidder on the base bid as well as Alternate #1 and #2. Alternate #1 was the pylon ground sign up on Range Line Road. Alternate #2 was the rear area work for the Fire Department. The unfortunate part is that the estimate we had for the base bid was approximately $200,000. The low bid is $235,000. The estimate we had for Alternate #1 was $16,000. The low bid was $7,800. The estimate we had for Alternate #2 ranged between $30,000 and $40,000 based on the changes and the low bid is $18,000. The only explanation I can give for the overage of approximately $35,000, partial of it is due to some of the street lighting and the additional underground work that we carried on at the request of the City for underground conduits up and down the street and all the way back over to the Fire Station for future signal controls. But that would not have justified $35,000 by any means. The only other explanation is the concern that probably the contractors had for working in an area that we have designated as being contaminated. In fact, as of today, it was discussed with SESCO, that whoever is selected as the low bidder, a meeting needs to be held tomorrow morning at 11 o’clock with SESCO, the environmental contractors, so everybody understands the scope of work, where the environmental contractor starts and stops and where the low bid contractor’s work picks up. The low bidder has indicated they can be there tomorrow morning. Mr. Burke moved the CRC accept the Gilliate bid. Mr. Roesch seconded the motion and it was approved with two in favor, Ms. Snyder abstaining. Adjournment There being no other business, Mr. Burke moved the meeting be adjourned. Following a second by Ms. Snyder, the motion was approved and the meeting adjourned at 5:40 p.m.