IT TAKES A VILLAGE AND MULTIPLE SOURCES OF REVENUE: A CASE STUDY OF THE DENVER UNION STATION REDEVELOPMENT PROJECT

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1 IT TAKES A VILLAGE AND MULTIPLE SOURCES OF REVENUE: A CASE STUDY OF THE DENVER UNION STATION REDEVELOPMENT PROJECT CATHERINE C. GALE, ESQ. EMMA R. KEYSER, ESQ. BROWNSTEIN HYATT FARBER SCHRECK, LLP I. Introduction The Denver Union Station Redevelopment Project (the Project ) has been locally referred to as the Mother of all Transit Oriented Developments. 1 This Project is one of the largest transportation redevelopment projects in North America and combines the creation of a mixed use urban transit-oriented development with critical improvements to the Denver regional transportation system. The Project involves the redevelopment of 42 acres of land in downtown Denver, including approximately 19.5 acres of land ( RTD Site ) owned by the Regional Transportation District ( RTD ), 2 located around the historic Denver Union Station (the Historic Union Station ). At the center of the Project is the preservation and renovation of the Historic Union Station for its continued use as a public transportation and mixed use activity center. The developed RTD Site will serve as a regional transportation hub which connects commuter rail, light rail, commuter transit, and inter-city regional and circulator bus facilities, and includes the development of major public spaces. The Project includes approximately $500 million in public improvements and the sale of a portion of the RTD Site to a private master developer for the development of approximately 1.3 million square feet of leasable/saleable space for commercial, office, retail and residential development. The Project is often described in two components, the horizontal development and the vertical development. Generally speaking, the horizontal development is comprised of the rail and bus facilities and the public spaces (referred generally as the transit facilities ), the financing of which is the responsibility of the public entities involved in the Project. The vertical development is comprised of the commercial, office, retail and residential development constructed by the private developers utilizing private funding sources. In order to integrate the public-private development, a private master developer is responsible for providing development services to the overall Project. The transportation elements of the Project are anticipated to be completed by 2014, while private build-out of the properties within the Project is projected to occur in phases over a 15-year period after completion of the public portions. 1 Statement of Peter Park, Director of Planning for the City and County of Denver at press conference on Nov. 15, RTD is the regional transportation authority operating public transit services in eight of the twelve counties in the Denver metropolitan area. RTD is governed by a 15-member, publically elected Board of Directors.

2 The Project is a true public-private partnership involving a village of participants, including multiple private developers and landowners, the general public, and public entities from the federal, state, regional and local levels. The funding for the Project involves multiple sources and includes federal loans, federal and state grants, regional sales tax revenues, tax increment revenues, special district tax revenues and private sources of funding. The private developer, which is comprised of two private regional developers, played an important role in bringing private dollars and private development expertise to the Project. This paper summarizes the history of and parties involved with the Project, the major public infrastructure to be constructed as part of the Project, the unique financing structure utilized to facilitate the redevelopment, and the key development agreements which establish the terms of the public-private development of the RTD Site. II. History and Description of the Parties Involved in the Project In 2001, RTD acquired the RTD Site, with financial participation pursuant to an intergovernmental agreement with the City and County of Denver ( CCD ), 3 the Colorado Department of Transportation ( CDOT ) 4 and the Denver Regional Council of Governments ( DRCOG ) 5 (collectively referred to as the Partner Agencies ). The Partner Agencies initially worked together in a loose governance structure through an Executive Oversight Committee comprised of one appointee from each of the Partner Agencies. Through the Executive Oversight Committee, the Partner Agencies developed a master plan for the RTD Site that, along with the zoning and historic landmark designation for the Historic Union Station, was approved by CCD in September In November 2004, voters from the eight-county RTD district in the Denver metropolitan area approved a regional sales tax increase to fund FasTracks, which is a 12-year program to build and operate rail lines and expand and improve bus service throughout the RTD district. This sales tax increase included partial funding for improvements of the transportation components to the RTD Site. RTD will be the primary user of the developed transportation infrastructure within the Project and will own and operate the transit-related facilities. CCD will continue to own the rights of way that connect these transit improvements. 6 All of RTD s commuter rail lines, four of six light rail lines and over half of RTD s regional bus lines will use the new transit facilities on the RTD Site. In November 2006, after a competitive bidding process, the Partner Agencies selected regional developers Continuum Partners, LLC ( Continuum ) and East West Partners ( East West Partners ) to jointly serve as the private master developer of the Project. 7 In 2007, 3 CCD is a combined home rule municipality and a county. 4 CDOT is a department of the State of Colorado charged with addressing the state s transportation systems. 5 DRCOG is a nonprofit association of local governments funded by membership dues and federal and state grants which promotes cooperation for regional issues in nine counties in the Denver metropolitan area. 6 In fact, the new underground regional bus facility constructed as part of the Project is situated within the right of way pursuant to a right of way encumbrance permit granted by CCD. 7 Continuum Partners is a Denver-based real estate development company that specializes in mixed-used development projects. Continuum Partners focuses its projects in the Denver metro area which currently include the Belmar shopping development in Lakewood, the Art House Townhomes in downtown Denver and a 120-acre neighborhood development in Westminster, Colorado. East West Partners is also a Denver-based real estate 2

3 Continuum Partners and East West Partners formed, as a joint venture, the Union Station Neighborhood Company (the Master Developer ), to oversee the planning for the development of the RTD Site and to undertake the funding, design, construction and development of the private components of the Project. 8 In July 2008, the Denver City Council created the Denver Union Station Project Authority ( DUSPA ), to oversee the financing, construction and renovation of the transportation and public infrastructure for the Project. DUSPA is a non-profit Colorado corporation authorized to act as an on behalf of issuer of tax exempt bonds or other obligations for the benefit of CCD as a political subdivision under Internal Revenue Ruling While DUSPA is a separate and distinct entity from CCD, it is not a district (or part of a district); rather it is a government-owned corporation. DUSPA is authorized to issue debt for the sole purpose of financing the Project and the debt is payable solely from the financing, refinancing, sale, leasing or operation of the Project or other property of DUSPA. DUSPA has no independent power to levy taxes or make assessments of any kind. However, monies paid to DUSPA by the Partner Agencies, or the applicable special districts (as discussed below), constitute revenues derived from the operation of the Project and any contractual rights under such project related agreements are considered property of DUSPA. The Partner Agencies, through membership on the DUSPA board 10 and the various intergovernmental agreements, provide financial support and assistance to DUSPA for the Project. For its role, DUSPA was tasked with implementing all the agreements for the Project among the various public entities, but DUSPA will not take title to any public improvements. RTD will continue to remain in title to the public portion of the RTD Site and is responsible for operating and managing the transit facilities. CCD will be responsible for maintaining the streets within the rights of way and the applicable special districts (discussed below) are responsible for maintaining the pedestrian portions of the rights of way. DUSPA s services have been provided through an experienced construction and development manager, Trammell Crow Company ( Trammell Crow ). Trammell Crow was selected after a public proposal process and is often referred to as the owner s representative for the Project. As the owner s representative, Trammell Crow works with representatives from RTD in overseeing the build-out of the transit improvements and the public infrastructure for the Project. In addition to working with RTD and the contractor for the transit infrastructure, the development company that started in 1986, and has developed and sold over $3 billion of residential and commercial real estate. East West s most recognizable local project is Denver s Riverfront Park, a 25-acre development within the Central Platte Valley, which is located on the north side of the Project. East West is also involved in the Concord Park redevelopment in Charleston, South Carolina, and several developments in the ski areas of Deer Valley, Utah, Lake Tahoe and the Vail Valley region in Colorado. 8 For information about Union Station Neighborhood Company, see 9 Internal Revenue Service Revenue Ruling allows the use of constituted authorities of a government to provide tax exempt financing for public purposes in accordance with certain requirements. DUSPA was created by ordinance of CCD on June 30, 2008 pursuant its home rule powers under Article XX of the Colorado Constitution and the City s Charter. 10 The Board of DUSPA has eleven voting members and two non-voting members. CCD appoints six voting members (none may be employees of CCD) and two non-voting members. RTD appoints two of the voting members and the governing bodies of CDOT and DRCOG each appoint a voting member. The final voting member is appointed by the DUS Metropolitan District 2. In order for DUSPA to maintain its status as a government-owned corporation, there must be indicia of DDC s control over the corporation. Here, CCD exercises its control by maintaining a majority membership on DUSPA s board of directors. 3

4 owner s representative is tasked with coordinating with the Master Developer for the planning and development of the public plazas and spaces consistent with the public transit infrastructure requirements, the needs of the public and the requirements for the vertical private development on the RTD Site. In August 2008, Denver City Council approved the creation of a Downtown Development Authority ( DDA ) which established a tax increment area with boundaries on the RTD Site and within an approximately 40-acre area around the Project. The DDA was created pursuant to the Colorado Downtown Development Authority Act 11 to halt or prevent deterioration of property values or structures within the central business district and to prevent the growth of blighted areas. 12 The tax increment includes property and sales taxes generated in the DDA area and is authorized for use in the redevelopment of the area, including the Project. The collection of tax increment under the DDA is limited by statute to 30 years. 13 Special taxing districts ( Metropolitan Districts ), which included property on the RTD Site, were created in These Metropolitan Districts were established to levy property taxes to fund certain public improvements and provide services, operation, maintenance and support to the vertical development within the applicable Metropolitan Districts boundaries. 14 The Metropolitan Districts were authorized to pledge certain of the Metropolitan Districts property taxes generated within the Metropolitan Districts boundaries to the debt service for the Project. The Final Environmental Impact Statement was completed and signed on July 22, 2008 and a Record of Decision was awarded on October 17, In May 2009, a design build contract between DUSPA and Kiewit Western Company (the Contractor ) was signed that 11 CRS et. seq. 12 CRS (1). The City of Denver created the DDA pursuant to Ordinance No. 400, Series Pursuant to the statute a DDA is a separate body corporate and politic from the municipality and is governed by a board appointed by the creating municipality in accordance with statutory requirements. The DDA does not have taxing or assessment powers, but rather its funding comes through tax increment revenues. 13 CRS (3)(a). 14 Under Colorado law a Metropolitan District is created pursuant to CRS et. seq. and is authorized to finance, construct, operate and maintain certain types of improvements. Five Metropolitan Districts were created on the RTD Site and the Market Street Station Parcel. District No. 1 is comprised of a small portion of one of the parcels on the RTD Site and serves as the master district, with all operations and funds ultimately flowing through District No. 1. District No. 2 was created to encompass all of the commercial property within the RTD Site. District No. 4 includes the commercial development on the Market Street Station Parcel. District Nos. 3 and 5 were created to encompass any future residential development that may be developed on the RTD Site and Market Street Station Parcel respectively. Currently, District Nos. 4 and 5 have elected per statute to be on inactive status as they currently collect no revenue and perform no obligations. 15 In May 2009, the Colorado Rail Passenger Association ( CRPA ) filed suit against the Federal Transit Administration (the FTA ) claiming the FTA failed to comply with the NEPA process. In March 2010, CRPA also filed suit against DUSPA and RTD, and the cases were consolidated (together with the FTA, the Parties ). Colo. Rail Passenger Ass n v. Fed. Transit Admin., 2010 U.S. Dist. LEXIS The CRPA claimed the Parties failed to comply with the NEPA process and requested injunctive relief and a temporary restraining order. The District Court for the District of Colorado denied CRPA s request for the temporary restraining order. In December 2010, both RTD and DUSPA filed a motion to dismiss the plaintiff s request for injunctive relief. The court held that any claim against RTD or DUSPA for violation of NEPA was barred by the statute of limitations and as such, the case was dismissed with prejudice. Colo. Rail Passenger Ass n v. Fed. Transit Admin., 2010 U.S. Dist. LEXIS Both RTD and DUSPA were dropped as named parties in this case. The plaintiff s case against the FTA is still pending; however, the case has not halted the construction of the Project. 4

5 provided a guaranteed maximum price for most of the public components of the Project based on 30% design. III. Public Development A. Description of Public Improvements The Project will significantly upgrade the Denver region s rail and bus systems and is comprised of the following multimodal transportation improvements: 1. Light Rail and Mall Shuttle. The first major component of the Project is a new light rail station and the addition of a new light rail corridor. Currently, the RTD Site is served by a light rail line that connects commuters to the southwest and southeast areas of the Denver metropolitan area. The new light rail station is a double track station that includes two platforms to serve both the existing southeast and southwest light rail corridors, as well as a new west corridor, which is being developed by RTD in a separate initiative as part of FasTracks. 16 In connection with the new light rail station, the 16th Street Mall bus route (the Shuttle ), which travels along the 16th Street pedestrian mall in downtown Denver and connects two regional bus terminals, has been extended from the western regional bus terminal to the new light rail station on the RTD Site. This Shuttle extension currently provides light rail and regional bus passengers, and will in the future provide other rail passengers, a convenient method of access to reach destination points throughout the downtown Denver area. 2. Commuter Rail. The second transit element involves a commuter rail terminal. The new facility will include eight at-grade tracks for commuter rail lines to service the Denver metropolitan areas, RTD s commuter rail lines, as well as existing Amtrak service and, in the future, a potential return of the seasonal Ski Train. 3. Regional Bus Facility. The third major component of the Project is an expanded regional bus facility, which will replace the current terminal known as Market Street Station, located four blocks east of the RTD Site. The new facility will be located underground and will include 22 bus bays and improvements constructed to facilitate transfers within the bus facility itself, as well as between light rail and the commuter rail elements of the Project. Regional and express bus lines, commercial bus carriers and other public and private carriers will service this facility. 4. Streets and Public Spaces. The redevelopment provides for five major public spaces and amenities for pedestrian and passenger access. The public spaces include (i) the Wynkoop Plaza, which extends from 16th Street to 18th Street along Wynkoop Street, (ii) the Commuter Rail Train Hall, located next to the Historic Union Station, including the area around the commuter rail tracks and platforms, (iii) the Pedestrian Bridge over the Commuter Rail Terminal, located on the upper-level connection across the commuter rail tracks and continuing down to the commuter rail platforms, (iv) the 18th and Wewatta Plaza, which is located at the northeast corner of 18th and Wewatta Streets and provides another access point to the RTD Site from the Central Platte Valley, and (v) the 17th Street Promenade, which is located 16 Freight rail lines for north and south shipments through Colorado will also use the new light rail facility on the RTD Site. 5