Filling in the Missing Pieces Downtown: 1401 Elm Street Redevelopment Project Downtown Connection TIF District

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2 Filling in the Missing Pieces Downtown: 1401 Elm Street Redevelopment Project Downtown Connection TIF District Economic Development Committee September 6, 2011

3 Purpose 1. Update status of downtown redevelopment and illustrate how TIF redevelopment projects begin to fill in missing pieces and knit together the downtown area 2. Review redevelopment proposal and TIF funding request for 1401 Elm Street 3. Obtain Economic Development Committee s approval for consideration of development agreement for the project by City Council on September 28,

4 Downtown Connection TIF District: Background Created June 2005 Project Plan and Reinvestment Zone Financing Plan approved August 2005 Expires December 31, 2035, or when approximately $413 million in TIF increment has been collected (NPV of $189.8 million) Established to fund projects creating a greater density/critical mass of development within Downtown core area 3

5 Downtown Connection TIF District: Background (continued) Initial focus was the redevelopment of Mercantile Block Limited new development between Stoneleigh Hotel renovation Aloft Hotel Beginning in 2009, a more focused approach on downtown core initiatives supporting redevelopment of: Joule Hotel 1600 Pacific Continental Building and Atmos Complex Statler Hilton/Old Library Atmos (See Appendix A) 4

6 New TIF Funding Request 1401 Elm Street (First National Bank Building) 5

7 1401 Elm Street Background Construction began in 1961; building opened in 1965 Designed by George L. Dahl originally for First National Bank of Dallas Closed in January 2010 after Bank of America s lease ended December 2009 Largest vacant contiguous block downtown Ownership of building was split between the building s base and tower The small lot ( 80K s.f.) has multiple ground leases An environmental study conducted in 1991 showed that asbestos containing materials are present in the building Building size and costs of environmental remediation coupled with the fractured ownership of the building and ground leases have hindered redevelopment of the building Elm Under Construction 1401 Elm Under Construction

8 1401 Elm Street Redevelopment Project Project Location Entire block bounded by Field Street, Elm Street to south, Akard Street and Pacific Street The Akard DART Light Rail Station is directly north of the property 7

9 1401 Elm Street Redevelopment Project Project Description Redevelopment of a 1.5 million square foot (gross) vacant building with 52 floors (2 floors underground) Conversion to a mixed use building Residential 520 units Office 464,400 square feet Retail 41,437 square feet Parking 512 Pedestrian friendly streets with enhanced sidewalks and landscape; improved connectivity to the Akard Street light rail station Akard Street Elevation - Existing Corner of Elm and Field Street - Existing 8

10 1401 Elm Street Redevelopment Project Proposed Uses Planned Building Uses by Floors: 2 Lower Level Floors (Underground) Parking 1 st Floor (sub-level at Elm) Parking and Retail/Restaurant 2 nd Floor (Lobby) Retail/Restaurant 3 rd to 15 th Floors Office 9 th Floor Amenity Deck 16 th thru 49 th Floors Residential 50 th Floor Observation Promenade 9

11 1401 Elm Street Redevelopment Project Public Spaces within the Building 9 th Floor Public Plaza, Gardens and small Retail 1980 s roof plan geometry will be maintained Original 1965 roof plan will be superimposed Landscape will be replanted or transplanted into new roof plan Fountain will be reinstalled according to original design configuration 10

12 1401 Elm Street Redevelopment Project Public Spaces within the Building 50th Floor Public Observation Promenade The public will be able to take in great views of downtown from the observation promenade 11

13 1401 Elm Street Redevelopment Project Development Team DEVELOPER: 1401 Elm Street Holdings, LLC OWNERS REP: Mukemmel Sarimsakci, managing director. Mr. Sarimsakci is also the managing director for Polidev International, a real estate firm that has purchased and manages over 364,000 square feet of office and retail space in the San Francisco Bay area. ARCHITECT: Jerry Merriman, Merriman Associates Architects 12

14 1401 Elm Street Redevelopment Project Development Team Polimeks Polimeks Construction Company is the parent company of Polidev International and 1401 Elm Street Holdings, LLC Polimeks is a full service construction company specializing in residential, commercial and industrial and infrastructure construction established in 1995 Among the top general contractors in Turkey Ranked 102 nd of Top 225 International Contractors of 2009, by the Engineering News-Record Magazine Employs a workforce of nearly 23,000 in 5 countries Completed projects include: Ritz Carlton Hotel, Russia Etnograhy Museum, Turkmenistan United Nations Office Building, Turkmenistan Fountain Shopping Center and Recreational Area, Turkmenistan Kemer Country Residential Building, Turkey Kempinski Residences Astoria, Turkey 13

15 1401 Elm Street Redevelopment Projects Funding Sources and Uses Funding Source Amount Use Private Equity $27,500,000 Acquisition and Construction Construction Loan $56,892,128 Construction CDRC Loan (EB-5) $30,000,000 Construction NCTCOG Grant $900,000 Construction Historic Tax Credits $21,464,917 Construction Total $136,757,045 14

16 1401 Elm Street Redevelopment Project Proposed TIF Funding 1401 Elm Street has not be redeveloped as a result of the cost prohibitive remediation needed Majority of the TIF funds requested will reimburse the costs of environmental remediation for the building The 1401 Elm Street redevelopment project would not occur, but for TIF funding TIF funds for the project would be used to offset the costs of the following improvements: Environmental Remediation Façade Restoration Public Infrastructure Improvements Public Spaces within the building Street Level Retail TIF Budget 1401 Elm Street Redevelopment Project Environmental Remediation/Demolition 14,000,000 Façade Restoration $4,700,000 Public Infrastructure Improvements Sidewalks, Streetscape, Lighting $1,650,000 Public Utilities/Vault Construction $4,100,000 Total $5,750,000 Economic Development Grant $5,550,000 Street Level Retail Public 50th Floor Observation, Access, Retail 9th Floor Public Plaza, Gardens, Retail Total TIF Funding $30,000,000 15

17 1401 Elm Street Redevelopment Project TIF Board Funding Recommendations On August 11, 2011, the Downtown Connection TIF District Board of Directors reviewed and approved TIF funding for the redevelopment of 1401 Elm Street in an amount not to exceed $30,000,000. On August 11, 2011, the Downtown Connection TIF District Design Review Committee reviewed and approved design plans for the project, subject to the approval of a final streetscape plan for the public ROW adjacent to the building. 16

18 1401 Elm Street Redevelopment Project Conditions for Funding As a condition of funding, 1401 Elm Street Holdings, LLC will be required to: Investment a minimum of $125,000,000 for the Project; Acquisition - Minimum $10,500,000. Construction and construction related soft costs Minimum $114,500,000 Redevelop the Project to include: Minimum 35,000 square feet of retail/restaurant space. Minimum 530,000 square feet (approximately 400 residential units) of residential space. Minimum 415,000 square feet of office space. Construct and/or renovate and maintain a public observation deck on the 50th floor of the building and a public plaza on the 9th floor; Obtain a building and/or demolition permits and start construction and/or demolition for the Project by January 1, 2012; Obtain a Certificate of Occupancy (CO) for the Project by December 31, 2014; Obtain final acceptance of public infrastructure improvements associated with the Project from the Public Works and Transportation Department by December 31, 2014 and submit documentation to the (OED); 17

19 1954 Commerce Street Redevelopment Project Conditions for Funding (continued) As a condition of funding, 1401 Elm Street Holdings, LLC will be required to: Execute an Operating and Maintenance agreement for public infrastructure improvements associated with the project by December 31, 2014, for a period of 20 years; A minimum of 25% of the total net leasable square footage of commercial (non-residential) space with a minimum of at least 50% of ground floor space occupied prior to TIF payment; Affordable Housing Requirement: 1401 Elm Street Holdings, LLC shall provide a minimum of 10% of the Project s residential units that comply with the City s affordable housing program; Affordable units must be available for a 15 year period (from the date of CO). Further, if the total number of affordable units drops below 10%, a 90-day compliance period will be granted, after that the contract may be terminated. Submit semi-annual reports to the OED Staff (from the date of CO). Obtain Downtown Connection TIF District Design Review Committee review and approval of project design and site plans prior to City Council consideration of the project. The project design plans shall include: A pedestrian lighting plan A sidewalk plan for the project. The plan shall show the location and type of all landscaping materials. Valet plan indicating where the vehicular drop off will be located. Signage plan for the building. 18

20 1401 Elm Street Redevelopment Project Conditions for Funding (continued) As a condition of funding, 1401 Elm Street Holdings, LLC will be required to: Construct project improvements and building renovations in general conformance with site plans approved by the Downtown Connection TIF Board of Directors, Design Review Committee and Dallas City Council; The Project shall be managed by a management company acceptable to the Director of the, such approval not being unreasonably withheld; Submit to the Director of the a quarterly status report for ongoing work on the project, as well as public improvements. Such status reports will be due once every three months after the Council approval date, if any; Comply with the Business Inclusion and Development ( BID ) goal of twenty-five percent (25%) Minority/Women-owned Business Enterprise (M/WBE) participation for TIF reimbursable improvements, the Owner shall make a good faith effort to achieve a goal of certified M/WBE participation for the private improvement construction of 25% of total private expenditures for the Project, and meet all reporting requirements for each; Market the apartments pursuant to an affirmative fair housing marketing plan approved by the City; If necessary, the project deadline can be extended up to 6 months, subject to the Office of Economic Development Director s and Downtown Connection TIF District Board of Director s approval. 19

21 Strategic Importance of Proposed Project Redevelopment of one of the largest remaining vacant building Provides street front retail on Field, Elm, Akard and Pacific Streets, enhancing pedestrian activity Creates jobs downtown Adds a significant amount of residential units, increasing residential population downtown Removes over 1.5 million square feet of vacant office space from the downtown vacant building inventory (Reduces CDB office vacancy by 16% from 24.8% to 21.5%) Maintains Downtown redevelopment momentum 20

22 Recommendations Staff requests Committee approval and recommendation for approval by City Council for the following to be considered at the September 28, 2011, Council meeting: Approval of a Development Agreement with 1401 Elm Street Holdings, LLC for TIF Reimbursement in an amount not to exceed $30,000,000 for the 1401 Elm Street redevelopment project. 21

23 Appendix 22

24 Appendix A Downtown Connection TIF District Ongoing Redevelopment Projects Joule Hotel and Expansions Completed in December, 2007 and opened in May, The five star hotel includes: 114 luxury rooms, Charlie Palmer Restaurant, PM Nightlife Lounge and Next Vintage Wine Shop (a retail wine store). 1 st Expansion Under Construction ($20.7M TIF Assistance): 32 new hotel rooms including 8 suites and 2 penthouses 11,000 square feet of Banquet, Catering and Meeting space 20,700 square feet of retail space. Private investment is approximately $85 million Expansion Amendment Under Construction ($3.2M TIF Assistance): Acquired 1608 Main Street and Main Street Alley to be transformed in to a retail promenade New building construction at 1503 Commerce to house a new sales office, event planner and event mock up space Streetscape enhancement with extension of the Joule sidewalk (black granite) on Commerce Street to Neiman Marcus Café Public Utility improvements Private investment is approximately $21.4 million 23

25 Appendix A Downtown Connection TIF District Ongoing Redevelopment Projects (continued) Joule Hotel and Expansions The expansions include vacant buildings on Main and Commerce Streets creating contiguous redevelopment from Pegasus Plaza to the Mercantile Building and compliments surrounding investment in Stone Street, Kirby Building, Wilson Building, Pegasus Plaza, Magnolia Hotel, DP&L Building 24

26 Appendix A Downtown Connection TIF District Ongoing Redevelopment Projects (Continued) 1600 Pacific Avenue Renovation of a 32-story, 498,000 square foot vacant building in stages Stages I, II, and III Under Construction Return building to a leasable condition and activate ground floor with retail and pedestrian connectivity to nearby downtown destinations Covered pedestrian esplanade connects to Stone Street and Thanksgiving square Private Investment of $26 million Stage IV Finish out of remaining floors Hotel use Office condo space Future investment estimated at $85 million 25

27 Appendix A Downtown Connection TIF District Ongoing Redevelopment Projects (Continued) Continental Building Renovation includes residential units and retail space 203 units (40 units affordable housing set aside) 5,300 square feet retail space Enhanced streetscaping down Prather Street and west on Commerce Street to Ervay Street Private investment $55 million Atmos complex Project consists of 4 vacant buildings (two of which are historic) Phase I Under Construction 107 affordable residential units Phase II 123 mixed rate residential units (51% affordable housing) 9,500 square feet of retail/commercial space 26

28 Appendix A Downtown Connection TIF District Ongoing Redevelopment Projects (Continued) 1914 Commerce Street (Statler Hilton) Renovation of an 18-story, 589,457 square foot building in stages Stages I and II Under Construction Return building to a leasable condition, activate ground floor retail and provide pedestrian connectivity to nearby downtown destinations Private investment of $39 million Stage III Finish out of remaining floors Retail, restaurant, ballroom space Hotel use Condo space Future investment estimated at $50,000, Commerce Street (Old Public Library) Renovation of a 3-story, 131,800 square foot building in stages Stages I and II Under Construction Return building to a leasable condition and provide pedestrian connectivity to nearby downtown destinations Private investment of $11 million Stage III Finish out of the building Future investment estimated at $16,000,000 27

29 Appendix B Proforma Information - Project Requirements/Other Information 1401 Elm Street Redevelopment Project Project Square Footage 1,500,000 Required Minimum Private Investment (acquisition, hard and soft costs) $125,000,000 Total Project Costs (actual investment, acquisition, soft costs, debt expenses, etc) $136,757,045 TIF Funding $30,000,000 % TIF Funds to Total Project Costs 21.94% Developer Fee 0$ 2011 DCAD Value $4,249,940 Parking Spaces (on-site) 512/638(using lifts) Total Net Leasable Square Feet 1,216,832 Anticipated Project Start Date January 1, 2012 Anticipated Project Completion Date December 1,

30 Appendix C Elm Street Project Pro Forma PROJECT DESCRIPTION: PROJECT TYPE: CONSTRUCTION START DATE: PROJECT SCHEDULE: 1401 Elm Street Project Pro Forma Downtown Connection TIF District 1401 Elm Street Mixed Use January 1, 2012 December 1, 2014 Residential Units SF # of Units Total SF (Gross) Total/Avg 1, ,646 Use Breakdown SF Rents per SF Total SF (Gross) Residential 603,646 $2.45* 1,502,358 Retail 41,437 $52.59 Office Space 464,400 $18.21 Total Leasable SF Back of House/Common Area 180,918 1,216,832 Garage 211,957 Project Costs Income Hard Cost $116,396,104 Retail Revenue $1,634,387 Soft Cost (includes Soft Cost Contingency) $7,840,941 Office Revenue $6,766,265 Acquisition $12,500,000 Multi-Family Revenue $15,941,997 Total Project Cost (without City $) $136,737,045 Parking Revenue $1,477,486 Total Revenue $25,820,135 Total Project Cost $136,737,045 TIF Assistance $30,000,000 Expenses Net Cost to Developer (after TIF reimbursement $106,737,045 Operating Expenses ($9,104,767) Debt Expenses ($5,678,000) Return on Cost Analysis Total Expenses ($14,782,767) NOI/Total Project Costs Return on Cost (without City $) 8.1% NOI $11,037,368 Return on Cost (with City $) 10.3% Notes: Stablized rates in year 5; Revenue reflects vacancy rates for Retail, Office and Residential are 25%, 20% and 10% repsectively 29

31 Appendix D - Downtown Connection TIF TIF Budget Downtown Connection TIF District Projected Increment Revenues to Retire TIF Fund Obligations Category TIF Budget¹ Allocated³ Balance Catalyst Projects: - Environmental remediation, demolition, historic façade, restoration, street/utility improvements & streetscape improvements, land acquisition, and non project costs, including, but not limited to machinery, equipment, materials and supplies $68,000,000 $68,000,000 $0 Redevelopment of Vacant/Underutilized Downtown Buildings - Environmental remediation, interior/exterior demolition, historic façade restoration, street/utility improvements, land acquisition, TIF grants, affordable housing $177,378,020 $138,089,725 $39,288,295 Uptown/Downtown connection improvements $0 $0 $0 Park and plaza design and acquisition $3,264,472 $0 $3,264,472 Affordable Housing² $3,000,000 $2,000,000 $1,000,000 Retail Initiative/Streetscape Improvements $1,985,000 $459,845 $1,525,155 Downtown Area Plan $515,000 $512,464 $2,536 Administration and Implementation $8,575,519 $617,914 $7,957,605 Debt Service (Interest Only) $150,363,000 $150,363,000 $0 Total Project Costs $413,081,011 $360,042,948 $53,038,063 ¹TIF Budget shown above in total dollars; TIF Project Plan shows the budget in net present value. ²The Affordable Housing line item has been reduced by the amount of money allocated to the Continental project ³The Allocated total shown for the Redevelopment of Vacant/Underutilized Downtown Building line item reflects the total TIF District's committent to projects currently in the Reimbursement Queue (including the amount proposed for 1401 Elm Street redevelopment project) 30

32 Appendix E Downtown Connection TIF Reimbursement Queue On September 16, 2009, the Downtown Connection TIF District Board of Directors approved a modified Queue Reimbursement method that established a project payment priority based upon the date evidence is provided to the City of the receipt of a building permit and executed construction loan or receipt of final certificate of occupancy for projects approved for TIF Reimbursement. Downtown Connection TIF District Reimbursement Queue As of August 2011 Reimbursement Priority Primary TIF Maximum Total Eligible TIF Increment Reimbursement Priority 1 Project Name Date Construction Status Reimbursement Interest Reimbursement Only 4 Status 1 Stoneleigh Hotel 5/30/2010 Completed $2,500,000 $0 $2,500,000 Yes To Be Paid 2 Hall Lone Star 2 5/30/2010 Completed $852,764 $2,000,000 $2,852,764 No To Be Paid 3 Santa Fe IV - Aloft Hotel 5/30/2010 Completed $4,296,264 $0 $4,296,264 No To Be Paid 4 Grand Ricchi Dallas Pacific 10/26/2010 Under Construction $8,830,000 $4,040,200 $12,870,200 No N/A 5 Joule Hotel Expansion 1/19/2011 Under Construction $20,658,500 $0 $20,658,500 No N/A 6 Atmos Complex Phase I 6/20/2011 Under Construction $3,250,000 $3,000,000 $6,250,000 No N/A 7 Joule Hotel Expansion Amendment 8/10/2011 Under Consideration $3,194,409 $0 $3,194,409 No N/A TBD Continental Building³ TBD Under Construction $13,305,700 $4,222,588 $17,528,288 No N/A TBD Atmos Complex Phase II TBD Approved $11,750,000 $5,000,000 $16,750,000 No N/A TBD 1914 Commerce Street TBD Approved $13,168,950 $0 $13,168,950 No N/A TBD 1954 Commerce Street TBD Approved $3,020,350 $0 $3,020,350 No N/A TBD Hall Lone Star Project - Phase II² TBD Approved $5,000,000 $0 $5,000,000 No N/A TBD 1401 Elm Street TBD Under Considertion $30,000,000 $0 $30,000,000 No N/A Notes: 1 The priority ranking of an approved project is established by the submittal of evidence to the City of an executed construction loan and building permit for the project. 2 Hall Lone Star Project, Phases I and II, is eligible to receive up to $2M in interest. The full $2M in interest is shown in Phase I of the project. 3 The Total TIF Reimbursement for the Continental Building project is $22,528,288 (includes an additional $5M in bond proceeds). 4 Based on the development agreement for the project, reimbursement may take the form of project generated increment only or project generated increment plus shared increment. 31

33 Appendix F Downtown Connection TIF Increment Chart Downtown Connection TIF District Projected TIF Increment Schedule (as of May 2011) Total Property Property Comp. Anticipated Anticipated Anticipated Tax Increment Tax Increment Tax Year Value Value Value Captured Increment Accumulated Revenue into TIF Revenue into TIF Estimate Growth Growth Value Revenue Revenue (NPV) * 90% ** 55% Base 2005 $561,696,137 (1) Base 2009 $564,917,317 (2) $759,033, % 35.13% $197,337,311 $1,438,614 $1,370,108 $1,208, $989,078, % 76.09% $427,382,570 $3,396,536 $4,450,867 $2,844, $1,515,616, % % $953,920,649 $7,224,872 $10,691,983 $6,065, $1,512,292, % % $947,375,272 $7,886,151 $17,179,939 $6,768, $1,539,047, % % $974,130,583 $8,349,877 $23,722,286 $6,987,439 $1,362, $1,556,764, % % $991,846,730 $8,440,665 $30,020,840 $7,114,517 $1,326, $1,574,340, % % $1,009,423,095 $8,590,241 $36,125,764 $7,240,592 $1,349, $1,699,433, % % $1,134,516,500 $9,654,792 $42,660,508 $8,137,887 $1,516, $1,717,355, % % $1,152,437,919 $9,807,304 $48,982,383 $8,266,437 $1,540, $2,136,757, % % $1,571,839,827 $13,376,436 $57,194,354 $11,274,807 $2,101, $2,277,308, % % $1,712,391,068 $14,572,534 $65,714,613 $12,282,981 $2,289, $2,369,777, % % $1,804,859,831 $15,359,447 $74,267,328 $12,946,260 $2,413, $2,478,433, % % $1,913,516,093 $16,284,118 $82,903,143 $13,725,651 $2,558, $2,765,296, % % $2,200,379,676 $18,725,341 $92,360,713 $15,783,323 $2,942, $2,936,543, % % $2,371,626,336 $20,182,659 $102,068,917 $17,011,676 $3,170, $3,000,808, % % $2,435,890,859 $20,729,553 $111,565,364 $17,472,645 $3,256, $3,060,824, % % $2,495,907,023 $20,172,810 $120,366,694 $17,903,141 $2,269, $3,125,229, % % $2,560,312,430 $18,365,121 $127,997,781 $18,365,121 $ $3,187,734, % % $2,622,817,024 $18,813,467 $135,442,909 $18,813,467 $ $3,256,822, % % $2,691,905,091 $19,309,035 $142,720,281 $19,309,035 $ $3,321,958, % % $2,757,041,539 $19,776,259 $149,818,818 $19,776,259 $ $3,388,398, % % $2,823,480,717 $20,252,827 $156,742,245 $20,252,827 $ $3,463,253, % % $2,898,336,177 $20,789,765 $163,510,796 $20,789,765 $ $3,532,518, % % $2,967,601,247 $21,286,604 $170,111,089 $21,286,604 $ $3,626,681, % % $3,061,764,118 $21,962,034 $176,596,538 $21,962,034 $ $3,699,215, % % $3,134,297,747 $22,482,318 $182,919,482 $22,482,318 $ $3,773,199, % % $3,208,282,048 $23,013,007 $189,083,477 $23,013,007 $ $3,848,663, % % $3,283,746,036 $2,838,624 $189,807,592 $2,838,624 $ $3,925,636, % % $3,360,719,303 $0 $189,807,592 $0 $ $4,004,149, % % $3,439,232,035 $0 $189,807,592 $0 $0 Total $413,081,011 $381,923,473 $31,157, % $189,807,592 $171,307,592 $18,500,000 Assumptions: City of Dallas is expected to participate in the Downtown Connection TIF District for a period of 30 years at a rate of 90%. Dallas County particiaption rate is 55% and is capped at $18.5M. 32