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New Market Tax Credit_B&G DevelopmentTHE CITY OF DUBUQUE Masterpiece on the Mississippi Dubuque All-American City 2007 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: An Agreement with B&G Development, LLC for New Market Tax Credit Consulting Services DATE: August 27, 2008 Economic Development Director Dave Heiar is recommending approval of an agreement with B&G Development, LLC for a New Market Tax Credit Consulting Service. Part of the Community Renewal Tax Relief Act of 2000, the New Markets Tax Credit Program encourages investments into privately managed investment institutions. In turn, these privately managed investment institutions, or Community Development Entities (CDEs), will make loans and capital investments in businesses in underserved areas. By making an investment in a CDE, an individual or corporate investor can receive a tax credit worth 39 percent (30 percent net present value) of the initial investment, distributed over 7 years, along with any anticipated return on their investment in the CDE. One project in Dubuque has received an investment from a CDE. Iowa Business Growth from Johnston, Iowa, contributed to the Julien Hotel revitalization project. The NMTC investment moved forward the otherwise stalled project. Other projects in Dubuque would be eligible for NMTC investment. Receiving a NMTC investment is a very competitive process. Dubuque is considered a small-urban area according to the federal legislation. The NMTC funding dedicated to this community size classification is highly competitive. Accessing this effective funding source requires a proactive approach. Paul Butler and John Gronen have begun a new consulting firm, B&G Development, LLC which provides services in the areas of real estate development, historic rehabilitation, and various financing options related to the development and rehabilitation of real estate, including NMTCs. Their successful navigation of the NMTC process with the Julien Hotel Project has given them valuable experience and contacts with national CDEs which will benefit Dubuque in accessing additional NMTC funds. Attached is the proposed consulting agreement between the City and B&G Development, LLC. to identify and market select City parcels or facilities to NMTC CDEs. Below are the services being provided in the agreement; • B&G Development shall identify and market select City of Dubuque facilities to NMTC CDEs with the goal of obtaining $6,000,000+ of NMTCs for specific City facilities. • Assist in developing marketing materials that outline the comprehensive plan and impact of the City facilities. • Contact potential CDEs to identify potential partners, interest level, receive feedback, refine marketing and overall program. • Focus on potential CDE partners that received funding from Round #6 of the NMTC program. • Assist in bringing a funding team together. • Closing and funding of a NMTC transaction. The consulting fee for services provided by B&G Development, LLC will be $65 per hour not to exceed $2,500 per month unless approved by City in writing in advance of exceeding such cap. Should the City receive NMTC funding from a CDE, B&G Development will receive an incentive fee based upon the net NMTC funds received for a City project, which will be as follows; • 1.5% of the first $3,000,000 of net NMTCs. • 1.0% of the next $3,000,000 of net NMTCs. • 0.5% any funds received in excess of $6,000,000. • Hourly fees paid for services will be deducted from any earned incentive. I concur with the recommendation and respectfully request Mayor and City Council approval. Michae C. Van Milligen MCVM/ems Attachment cc: Barry Lindahl, City Attorney Cindy Steinhauser, Assistant City Manager David J. Heiar, Economic Development Director THE CITY OF DUBUQUE Masterpiece on the Mississippi Dubuque All-American City 2007 TO: Michael Van Milligen, City Manager FROM: David J. Heiar, Economic Development Directo SUBJECT: An agreement with B&G Development, LLC for New arket Tax Credit consulting services DATE: August 22, 2008 INTRODUCTION This memorandum presents for City Council approval of a consulting agreement with B&G Development LLC for identifying and marketing City parcels or facilities to New Market Tax Credit (NMTC) Community Development Entities (CDEs). BACKGROUND Part of the Community Renewal Tax Relief Act of 2000, the New Markets Tax Credit Program encourages investments into privately managed investment institutions. In turn, these privately managed investment institutions, or Community Development Entities (CDEs), will make loans and capital investments in businesses in underserved areas. By making an investment in a CDE, an individual or corporate investor can receive a tax credit worth 39 percent (30 percent net present value) of the initial investment, distributed over 7 years, along with any anticipated return on their investment in the CDE. One project in Dubuque has received an investment from a CDE. Iowa Business Growth from Johnston, Iowa contributed to the Julien Hotel revitalization project. The NMTC investment moved forward the otherwise stalled project. Other projects in Dubuque would be eligible for NMTC investment. DISCUSSION Receiving a NMTC investment is a very competitive process. Dubuque is considered a small-urban area according to the federal legislation. The NMTC funding dedicated to this community size classification is highly competitive. Accessing this effective funding source requires a proactive approach. Paul Butler and John Gronen have begun a new consulting firm, B&G Development, LLC which provides services in the areas of real estate development, historic rehabilitation, and various financing options related to the development and rehabilitation of real estate, including NMTCs. Their successful navigation of the NMTC process with the Julien Hotel Project has given them valuable experience and contacts with national CDEs which will benefit Dubuque in accessing additional NMTC funds. Attached is the proposed consulting agreement between the City and B&G Development, LLC. to identify and market select City parcels or facilities to NMTC CDEs. Below are the services being provided in the agreement; • B&G Development shall identify and marked select City of Dubuque facilities to NMTC CDEs with the goal of obtaining $6,000,000+ of NMTCs for specific City facilities. • Assist in developing marketing materials that outline the comprehensive plan and impact of the City facilities. • Contact potential CDEs to identify potential partners, interest level, receive feedback, refine marketing and overall program. • Focus on potential CDE partners that received funding from Round #6 of the NMTC program. • Assist in bringing a funding team together. • Closing and funding of a NMTC transaction. The consulting fee for services provided by B&G Development, LLC will be $65 per hour not to exceed $2,500 per month unless approved by City in writing in advance of exceeding such cap. Should the City receive NMTC funding from a CDE, B&G Development will receive an incentive fee based upon the net NMTC funds received for a City project, which will be as follows; • 1.5% of the first $3,000,000 of net NMTCs. • 1.0% of the next $3,000,000 of net NMTCs. • 0.5% any funds received in excess of $6,000,000. • Hourly fees paid for services will be deducted from any earned incentive. Funding from this contracted service will come from FY 2008 Economic Development Operating Budget savings. The City will also reimburse B&G Development for all direct expenses incurred in providing the services outlined in the agreement. Any individual expense greater than $1,000 and, in aggregate, over $10,000 must be approved by the City Manager in writing before incurring such expense. RECOMMENDATION/ACTION STEP I recommend that the City Council approve the attached agreement with B&G Development, LLC. for consulting services to market City parcels and facilities for NMTC funding. Attachments F:\USERS1DHeiar\NMTC\20080822 B&G Development Memo to Council.doc CONSULTING AGREEMENT This Consulting Agreement ("Agreement") is entered into this 2nd day of September, 2008, by and between B&G DEVELOPMENT, LLC, an Iowa limited liability company ("Consultant") and the CITY OF DUBUQUE, IOWA ("City"). RECITALS A. City owns or otherwise controls certain real. estate (the "Real Estate") and desires to obtain assistance in identifying and marketing select parcels or facilities of such Real Estate to New Market Tax Credit ("NMTC") Community Development Entities ("CDEs"); B. Consultant is in the business of, among other things, providing services in the area of real estate development, historic rehabilitation and various fmancing options available related to development and rehabilitation of real estate, including NMTCs; and, C. City desires to retain Consultant to provide Consultant's services to City and Consultant agrees to such retention, subject to the terms and conditions contained herein. THEREFORE, in consideration of the mutual terms and covenants contained herein, the parties agree as follows: AGREEMENT 1. Services to be Provided by Consultant. Consultant shall provide its services to City in connection with the identification and marketing of City Real Estate to NMTC CDEs and shall provide such services based in five (5) parts as identified on Exhibit "A" attached hereto and by this reference made a part hereof. 2. Engagement. City hereby engages Consultant to provide the services set forth in paragraph one (1) above in consideration of the fees to be paid by City to Consultant as set forth in Paragraph 3 below and any other services upon which the parties may mutually agree. 3. Consultant Fees and Expenses. In consideration of the services to be provided to City by Consultant, City agrees to pay Consultant the following A. General Services Fee. City shall pay to Consultant a fee of $65 per hour for each hour of service provided by John Gronen or Paul Butler in connection with the services to be provided hereunder. Such fees shall not exceed $2,500.00 per month unless approved by City in writing in advance of exceeding such cap; Page 1 of 4 B. New Market Tax Credits Incentive Fee. City shall pay to Consultant a success or incentive fee based upon the net NMTC funds received for City Real Estate ,which fee shall be as follows: a. 1.5% of the first $3,000,000.00 of net NMTCs received by City during the term hereof or as a result of the services provided by Consultant hereunder, even if such funds are received after termination hereof; b. 1% of the next $3,000,000.00 under the same terms as provided in subparagraph (a) above; c. .5% of any funds received in excess of $6,000,000.00 under the same terms as provided in subparagraph (a) above. For purposes of this agreement, "net NMTCs received" shall equal the funds actually received by the city for NMTCs related to the Real Estate before deductions related to legal, accounting and similar such expenses. Any General Service Fee paid shall be credited against any incentive fee due under the terms of this Agreement. C. Expenses. City shall reimburse Consultant for all direct expenses incurred by Consultant in providing services hereunder. Provided, however, that any individual expense item in excess of $1,000.00 and any expenses in excess, in aggregate, of $10,000.00 must be approved by the City Manager of City , in writing, prior to incurring such expense or City shall not be obligated to reimburse such expense. 4. Method and Time of Payment. General Services Fees shall be billed by Consultant on a monthly basis and shall be paid within thirty (30) days of the date of the invoice provided by Consultant to City. Any incentive fee shall be paid to Consultant within thirty (30) days of receipt by City of the value for the NMTCs obtained hereunder. 5. Limitation of Services Provided. Consultant shall provide only the services identified above. Consultant cannot and will not provide legal, accounting or other advice under this agreement and each party shall be responsible for obtaining its own counsel in connection with such matters. Page 2 of 4 6. Relationship of Parties. Consultant shall. act as an independent contractor of City hereunder. This agreement is not intended to create any relationship between the parties except as independent parties contracting. 7. Indemnification. City hereby agrees to indemnify and hold harmless Consultant and its principals, employees or agents from and against any and all claims, causes of action or other demands of any nature related to the Real Estate or this Agreement, including the cost of reasonable attorney's fees and Court costs arising out of the negligence of City, its officers and employees. Consultant hereby agrees to defend, indemnify and hold harmless City, its officers and employees from and against any claim against City arising out of this or related to this agreement resulting from the negligence of Consultant, its principals, employees and agents. 8. Representations and Warranties. City acknowledges that Consultant has made no representation or warranty that Consultant will be able to obtain NMTCs related to the Real Estate above and Consultant simply agrees to use its best efforts to obtain such funding sources. City warrants and represents to Consultant that City will provide all available information requested by Consultant with respect to the Real Estate; all such information provided to Consultant shall be accurate and that City shall update all such information to ensure Consultant has accurate and complete information at all times while acting pursuant to this Agreement. 9. Default. In the event City defaults on City's obligation to make payments to Consultant as provided herein, and Consultant is required to take any action to collect such sums due, City agrees that City will pay to Consultant all collection costs incurred by Consultant, including reasonable attorney's fees and Court costs. Any funds not paid when due Consultant shall accrue interest at the rate of 12% per annum from the due date. 10. Term. This agreement shall extend for a term of one (1) year from and after the date hereof provided that termination shall not affect City's obligation to pay fees on any funds received by City after termination of the agreement if receipt of such funds triggers a fee due to Consultant hereunder. Notwithstanding the foregoing, either City or Consultant may terminate this Agreement upon thirty (30) days written notice to the other party for any reason, with or without cause. 11. Confidentiality. City agrees that City shall not, without the prior written consent of Consultant, disclose to any individual or entity (except as required by law and except for professionals such as attorneys and accountants who are also bound by confidentiality, or otherwise, to retain such information as confidential) the method or means of Consultant providing services hereunder or any terms of this Agreement. This Confidentiality provision shall survive termination of this Agreement. Page 3 of 4 12. Miscellaneous. This Agreement shall be governed by and construed under the laws of the State of Iowa and may not be assigned by either party without the prior written consent of the other party. In the event any action is brought to enforce any term of this agreement or in any way related to this agreement, the parties agree that such action shall be brought in the District Court for Dubuque County, Iowa B&G DEVELOPMENT, LLC By CITY OF DUBUQUE, IOWA By Its: Insert A Consultant hereby agrees to defend, indemnify and hold harmless City, its officers and employees from and against any claim against City arising out of this or related to this Agreement resulting from the negligence of Consultant, its principals, employees and agents. Insert B Nothwithstanding the foregoing, City may terminate this Agreement upon 30 day's written notice to Consultant for any reason, with or without cause. Insert C Consultant shall provide and maintain during the Term of this agreement insurance as set forth in the attached Insurance Schedule for Professional Services.