ECONOMIC DEVELOPMENT MEMORANDUM

Transcription

1 ECONOMIC DEVELOPMENT MEMORANDUM October 9, 2017 TO: FROM: SUBJECT: City Council Dayna Sarver, Economic Development Coordinator Consideration and action on a TIF Development Agreement with Janesville Hotel Group, LLC, for the redevelopment of property located within TIF No. 36 (File Resolution No ) Relates to Strategic Plan Strategic Goal - Economy Tax Increment Financing is one of the City s most important tools to help diversify the economic base of the City of Janesville through the promotion of industry, the rehabilitation of existing properties, construction of new buildings in redevelopment districts, and implementation of economic development programs. File Resolution No authorizes a TIF Development Agreement to construct a 33,064 sq. ft. hotel facility at W. Milwaukee Street. Executive Summary The City of Janesville has been in discussions with Janesville Hotel Group, LLC to construct a hotel facility operated by Cobblestone Hotels within the City s downtown since April. This redevelopment would be the first new commercial development in Tax Increment District (TID) 36 and the downtown in more than ten years, and the first hotel built since Janesville Hotel Group, LLC and the City have reached an agreement to construct a 33,064 square foot facility by the end of The project will include 53 rooms, an indoor pool, restaurant, and exercise facility. The total project costs are estimated to be $6,718, The City will provide the land as the development site and a development incentive of $800,000 at occupancy and payable after the issuance of the occupancy permit. The value of the project is established as a guarantee on the projected increment because the City will have provided a development incentive up-front. That increase in increment will be returned to the City through the property tax assessment. The agreement includes both a minimum tax guarantee and a look-back provision which is appropriate given the improving strength of the market. Janesville Hotel Group, LLC will be the developer/promisor and Thomas M. Kennedy, principal managing member, providing the personal guarantee for the repayment of the TIF forgivable loan in the event of default. Brian Wogernese, President of Cobblestone Hotels, is the registered agent of and a managing member of Janesville Hotel Group, LLC. Cobblestone Hotels will operate the facility under Mr. Wogernese. Cobblestone Hotels has been in operation 1

2 for nearly ten years with 134 hotels open, under construction, or in development in 17 states. They offer upper-midscale hotel amenities and accommodations for visiting guests. They continue to develop downtown facilities as a significant portion of their portfolio. The City retains the right to look back at three years of financial performance of the property not less than seven years after completion of the project to compare the pro forma projections with the actual performance of the property. In the event the property performs greater than anticipated (most likely through increased rents), the developer would pay the City back the pro rata share of the original incentive. This approach ensures the minimum performance of the property while also insuring that the City will receive monies back early in the event the property performs better than anticipated. In the event the developer does not complete the construction of said facility, the TIF Development Agreement will become null and void and the cash incentive will not be issued to the developer. City Recommendation The City recommends that the City Council adopt File Resolution No authorizing the City Manager to enter into a TIF Development Agreement with Janesville Hotel Group, LLC for property located in TID No. 36. Suggested Motion I move to adopt File Resolution No authorizing the City Manager to enter into a TIF Development Agreement with Janesville Hotel Group, LLC for property located in TID No. 36. Background Janesville Hotel Group, LLC has proposed the construction of a new 33,064 sq. ft. building on approximately 0.98 acres of land at W. Milwaukee Street, which is currently a parking lot owned by the City along the Rock River. The facility is projected to generate approximately $3,220,000 in taxable value based on the current commercial property data. When the City conducts a city-wide commercial revaluation, based on the income projections of the developer, the facility is projected to generate approximately $4,700,000 in taxable value. It will likely be the highest assessed property in the downtown. The proposed TIF Development Agreement offers a total incentive package (including land appraised at $255,000) of $1,055,000 disbursed upon final occupancy payable over fourteen years. This agreement is consistent with Council Policy Statement No. 61B which requires the City to recover its investment in a project within fifteen years. TIF Development Agreement specifics: 33,064 sq. ft. new facility with 53 rooms, restaurant, indoor pool, and fitness facility 0.98 acres redevelopment and reuse Deed of the City parking lot to the developer $86, guaranteed tax increment $1,055,000 total incentive package 14 year agreement and guarantee by the developer Options Adopt File Resolution No , authorizing the City Manager to enter into a TIF Development Agreement with Janesville Hotel Group, LLC. Amend the conditions of the TIF Development Agreement with Janesville Hotel Group, LLC before adopting File Resolution No

3 Defeat File Resolution No , thus not authorizing the TIF Development Agreement with Janesville Hotel Group, LLC. Analysis In 2015, the Common Council adopted the Rock Renaissance Area Revitalization and Implementation Strategy (ARISE) to position downtown Janesville as a destination where commerce, culture, entertainment, and history intersect. The proposed development site is a high-profile downtown location identified in the Common Core catalytic site of ARISE. The recommendation for the future redevelopment of the site is as a mixed-use or commercial development overlooking the Rock River and incorporating the continued extension of the Ice Age Trail. At the time ARISE was adopted, it was not recommended for the downtown to pursue a hotel development. The Smith Travel and Research market analysis indicated that the hotel occupancy rate was 41%. A recent Smith Travel and Research market analysis indicates that the occupancy rate is approximately 70%. Economic activity such as increased employment, recreation and tourism event attendance, and the relocation or consolidation of large employers bringing in investors, clients, and employees may all contribute to this shift in the Janesville market. The Janesville Area Convention and Visitor s Bureau indicates that hotel occupancy during the summer months is also approaching full capacity. Visitors for youth sports including the national events hosted by the water ski show team, the Rock Aqua Jays, must find lodging elsewhere. Additional hotel rooms would recapture the overflow, increase the amount collected in room tax, and allow for increased tourism marketing. It is also expected that the existing vacancy rate of downtown buildings (approximately 20%) would decrease by capturing some of the existing leakage of tourism visitors within the downtown as pedestrian traffic increases, leading to an increase in desirability of properties for potential tenants. A hotel development in downtown Janesville would enhance commerce, culture, and entertainment within the district. Based upon these factors, the City believes the time is appropriate to construct a hotel in downtown Janesville. In addition, many of the office tenants within downtown desire to have a hotel nearby for visiting clients and visitors. Given the location along the river and past demolition of buildings on the property, there are additional construction costs that will need to be absorbed by the project. The site requires a Geopier foundation design rather than a standard foundation design due to the backfill used after demolition of the former Sears building which has driven up costs for the developer. Infill development of this site must also be visually and architecturally compatible with the surrounding downtown and historical context. The building design is subject to administrative review of the building and site plans. The financial feasibility of the project demonstrates the need for up-front financial assistance from the City as the developer will not be able to get investors interested in the project without up-front assistance. The proposed TIF Development Agreement provides a total incentive package (including land and potential grant funds) of $1,055,000 at final occupancy and payable a year after the issuance of the occupancy permit. This insures that the project gets built prior to the disbursement of funds, yet also providing the entire incentive package to the developer on the front end. In the event the developer does not complete the construction of the facility, the TIF Development Agreement will become null and void and the cash incentive will not be issued to the developer. 3

4 The site is located in TID 36 which was created in 2016 with major public improvements planned early-on. It was initially thought that later in the life of the TID, development incentives would be offered with a pay-as-you-go approach. The feasibility analysis for this project, however, demonstrates that the developer will not be able to attract investors to the project without our up-front participation. Some ARISE projects have come in under budget and the City has been successful in acquiring grant funds which has allowed us to avoid debt financing some of the project costs, therefore providing some room to provide this incentive up-front. An additional benefit is that this project is moving forward early in the life of the TID. The City believes that the proposed agreement creates a win-win for the developer and the City as proposed and will significantly improve a highly visible property in downtown while addressing a significant need for the business community. Conclusions The City believes that this is the right project to move the ARISE strategy forward and continue growing the momentum of downtown revitalization. In addition, it will provide more hospitality options for the community. These are positives for the City and for the project. Restated City Recommendation The City recommends that the City Council adopt File Resolution No authorizing the City Manager to enter into a TIF Development Agreement with Janesville Hotel Group, LLC for property located in TID No. 36. cc: Mark Freitag, City Manager Maggie Darr, Acting Assistant to the City Manager 4

5 Resolution No A Resolution Approving a TIF Development Agreement with Janesville Hotel Group, LLC, for the redevelopment of W. Milwaukee St. and construction of a 33,064 square foot hotel facility located within City of Janesville Tax Incremental District No. 36 WHEREAS, Sections and of Wisconsin Statutes authorize cities to utilize tax increment financing to promote industry, rehabilitate existing properties and implement economic development projects; and WHEREAS, the Janesville Common Council have authorized the use of Tax Incremental Financing Districts (TIDS) for commercial site development and TIF development agreements to facilitate the redevelopment of existing commercial structures, and overall economic benefit of the City of Janesville (CoJ) when they adopted Council Policy Statement No. 61 (Economic Development Policy) in 1994 and further modified as Council Policy Statement No. 61B (Commercial Economic Development Policy); and, WHEREAS, the Common Council of the CoJ created Tax Incremental Financing District No. 36 to promote the rehabilitation and conservation within the district; and WHEREAS, Janesville Hotel Group, LLC and the CoJ have negotiated a certain TIF Development Agreement which, in major part, calls for the CoJ to provide a forgivable loan up to Eight Hundred Thousand and 00/100 ($800,000.00) to be used for the redevelopment of the property and land appraised at Two Hundred Fifty-Five and 00/100 ($255,000.00); and WHEREAS, the Common Council of the CoJ hereby find that the approval of this particular negotiated TIF Development Agreement with Janesville Hotel Group, LLC to be in the best interest and of benefit to the CoJ, its citizens, residents, taxpayers, and the overall community; and WHEREAS, Thomas M. Kennedy, principal member of Janesville Hotel Group, LLC has signed a Personal Guarantee agreement; NOW, THEREFORE, BE IT RESOLVED, by the Common Council of the City of Janesville that the Administration s negotiated TIF Development Agreement with Janesville Hotel Group, LLC and the TIF development incentive described above are hereby approved and authorized, according to the terms and conditions set forth in the specific TIF Development Agreement, and BE IT FURTHER RESOLVED, that the City Manager, on behalf of the City of Janesville, and those he authorizes on his behalf is/are hereby authorized to negotiate, draft, modify, amend, review, enter into, and file all such other documents, papers, and agreements, take whatever other actions, and to make and enter into whatever other

6 Resolution No Page 2 changes and amendments to the TIF Development Agreement, and such other documents and agreements, which the City Manager may, from time to time, deem necessary and/or desirable to effectuate the intent of this Resolution. ADOPTED: APPROVED: Mark A. Freitag, City Manager ATTEST: David T. Godek, City Clerk-Treasurer Motion by: Second by: Councilmember Aye Nay Pass Absent Conley Farrell Gruber Jorgensen Marklein Williams Wolfe APPROVED AS TO FORM: Wald Klimczyk, City Attorney Proposed by: Economic Development Office Prepared by: Economic Development Office/City Attorney