Brewery, Alexander Devel AgreeMEMORANDUM
TO:The Honorable Mayor and City Council Members
FROM:Michael C. Van Milligen, City Manager
SUBJECT:The Alexander Company Negotiations/Dubuque Star Brewery Building
April 15, 2003
Economic Development Director Bill Baum has provided an update on negotiations with
The Alexander Company regarding the redevelopment of the former Dubuque Star
Brewery building and Alexander's request to move forward with a Development
Agreement with or without the Dubuque Star Brewing Company as primary tenant of the
building.
The City began a developer solicitation process in June, 2002 by issuing a Request for
Qualifications to redevelop the Dubuque Star Brewery Building. Four developers
answered the request, and three - The Alexander Company, Platinum Hospitality Group
and Dubuque Star Brewing Company -- were invited to submit final proposals in
September, 2002.
In November, 2002, The Alexander Company was the only developer to submit a final
proposal to redevelop the former brewery building. Alexander's proposal was submitted
in partnership with another developer group, the Dubuque Star Brewing Company.
Since November, staff has been working with Alexander to finalize the development
proposal that provided for Alexander to serve as the building developer/manager and
the Brewing Company as the pdmary business/occupant of the building.
Alexander issued an April 10, 2003 deadline to Dubuque Star Brewing Company to
show evidence of bank financial commitment, progress in raising necessary equity and
identification of person(s) who would be financially obligated to the lease so that
Alexander, and the City, could move ahead with the project. David Vos of The
Alexander Company has notified the City that the brewing group management team has
changed and the terms and lease conditions that he had presented them were
unacceptable to the new team. He has indicated the need "to focus energies on parties
most likely to execute and ultimately perform on their leases."
Given that the brewery operator may not be the first floor tenant of the building as
proposed by Alexander, staff will work with Alexander to identify potential tenants that
will be acceptable to the City. The Development Agreement between the City and
Alexander will list acceptable uses compatible with the new Port of Dubuque PUD
zoning district.
The project would use the following development financing strategy:
Source Rate Amortization Term Amount
CDBG (loan - committed) 0% balloon 20 year $ 500,000
UDAG (loan) 3% 30 20 $ 300,000
DRA Distribution Funds (loan) 3% 30 20 $ 600,000
G.O.-backed TIF Bond 6% 21 21 $1,150,000
City grant for demolition $ 100,000
(Conference Center Savings)
Conventional Bank Debt 6.75% 30 20 $1,375,000
Developer Equity NA NA NA $1,647,480
TOTAL $5,672,480
The general budget was presented in the FY04 CIP, excluding the $100,000 in
Conference Center savings. Public funding is all repayable, long-term loans along with
the TIF financing, except for a $100,000 allowance to complete necessary interior and
exterior demolition to prepare the site for rehabilitation. The developer will be
responsible for providing the equity and conventional debt financing. The project also
assumes histodc tax credits, and possibly Enterprise Zone credits.
The TIF financing assumes a G.O.-backed TIF bond that would net a lower interest rate
and allow a more flexible payback schedule. It would require a minimum assessment
agreement with the developer and be subject to a reverse referendum.
Economic Development Director Bill Baum is recommending City Council approval to
draft a formal Development Agreement with The Alexander Company so that they can
move forward with their own marketing of the entire building.
I concur with the recommendation and respectfully request Mayor and City Council
approval.
MCVM/jh
Attachment
cc: Barry Lindahl, Corporation Counsel
Cindy Steinhauser, Assistant City Manager
William Baum, Economic Development Director
CITY OF DUBUQUE, IOWA
MEMORANDUM
TO:Michael Van Milligen, City Manager
FROM:William Baum, Economic Development Director
SUBJECT:The Alexander Company Negotiations/Dubuque Star Brewery
Building
April 14, 2003
INTRODUCTION
This memorandum provides an update to the City Council on negotiations with The
Alexander Company regarding the redevelopment of the former Dubuque Star Brewery
building and Alexander's request to move forward with a Development Agreement with
or without the Dubuque Star Brewing Company as primary tenant of the building.
BACKGROUND
The City began a developer solicitation process in June, 2002 by issuing a Request for
Qualifications to redevelop the Dubuque Star Brewery Building. Four developers
answered the request, and three - The Alexander Company, Platinum Hospitality
Group and Dubuque Star Brewing Company -- were invited to submit final proposals in
September, 2002.
In November, 2002, The Alexander Company was the only developer to submit a final
proposal to redevelop the former brewery building. Alexander's proposal was submitted
in partnership with another developer group, the Dubuque Star Brewing Company.
Since November, staff has been working with Alexander to finalize the development
proposal that provided for Alexander to serve as the building developedmanager and
the Brewing Company as the primary business/occupant of the building.
DISCUSSION
Staff, along with Rick Dickinson of the Greater Dubuque Development Corporation, has
met numerous times with the developer to review the financial requirements of the
project. Staff and developer have worked on various scenarios to fill an identified
'financial gap' in the proposed project. Leland Consulting, the marketing and financial
consultant for the Port of Dubuque Master Plan process, has also reviewed the project
numbers.
Revenue assumptions have been based on certain tenants, including the Dubuque Star
Brewing Company, occupying the building at specific lease rates. During review of the
financial requirements of the project, both staff and developer have questioned the
ability of the Brewing Company to raise sufficient capital to finance their business start-
up and to occupy the renovated first floor of the brewery building at lease rates
necessary to cashflow the project. The brewing group has, since their presentation to
the City Council last October, been in a fundraising mode; however, no clear evidence
has been provided to either the City or Alexander of the progress toward their funding
goals.
Alexander issued an April 10, 2003 deadline to the brewing group, represented by Fran
Henkels, to show evidence of bank financial commitment, progress in raising necessary
equity and identification of person(s) who would be financially obligated to the lease so
that Alexander, and the City, could move ahead with the project. David Vos of The
Alexander Company has notified the City that the brewing group management team has
changed and the terms and lease conditions that he had presented them were
unacceptable to the new team. He has indicated the need "to focus energies on parties
most likely to execute and ultimately perform on their leases."
Given that the brewery operator may not be the first floor tenant of the building as
proposed by Alexander, staff will work with Alexander to identify potential tenants that
will be acceptable to the City. The Development Agreement between the City and
Alexander will list acceptable uses compatible with the new Port of Dubuque PUD
zoning district, and City Council may want to exercise final approval of the initial tenants
in the building.
Staff has proposed the following draft development financing strategy for the estimated
$5,672,480 rehabilitation project:
Source Rate Amortization Term
CDBG (loan - committed)
UDAG (loan)
DRA Distribution Funds (loan)
G.O,-backed TIF Bond
0% balloon 20 year
3% 30 20
3% 30 20
6% 21 21
City grant for demolition (Conference Center Savings)
Conventional Bank Debt 6.75% 30
Developer Equity NA NA
2O
NA
TOTAL
Amount
$ 500,000
$ 300,000
$ 600,000
$1,150,000
$ 100,000
$1,375,000
$1,647,480
$5,672,480
The general budget was presented in the FY04 CIP, excluding the $100,000 in
Conference Center Savings (attached). Public funding is all repayable, long-term loans
along with the TIF financing, except for the $100,000 allowance to complete necessary
interior and exterior demolition to prepare the site for rehabilitation. The developer will
be responsible for providing the equity and conventional debt financing. The project
also assumes historic tax credits, and possibly Enterprise Zone credits.
The TIF financing assumes a G.O.-backed TIF bond that would net a lower interest rate
and allow a more flexible payback schedule, It would require a minimum assessment
agreement with the developer and be subject to a reverse referendum. The proposal
will structure the TIF as a loan (not the typical grant) to the company to be repaid by the
company in a balloon payment at the end of 20 years - the reason for this has to do
with requirements of the tax credit programs being pursued by the developer. The City
proposes, however, to use the new tax increment from the building to retire the TIF
bond over a 21 year period. In essence, the TIF would be paid back twice.
Other terms, conditions and obligations being negotiated involve fees to be paid
Alexander to serve as developer and the developer's proposed 20-year exit strategy.
The City, as owner of the property, has proposed a 50-year lease. The developer may
want to sell his lease interest prior to financial obligations to the City being completely
repaid. Staff is working with the developer to understand the potential financial status
of the project, and all outstanding debt obligations, at a 20-year point.
RECOMMENDATION
I would recommend moving into a formal Development Agreement with The Alexander
Company. They will, given the assurances of a formalized Development Agreement,
move forward with their own marketing of the entire building. An Agreement identifying
the public financial incentive package and the redevelopment terms, conditions and
obligations of both City and Alexander should be ready for City Council approval in 60
days. If this schedule can be accomplished, Alexander anticipates full building
occupancy by Summer 2004.
ACTION STEP
The action step for the City Council is to direct staff to draft a formal Development
Agreement with The Alexander Company.
Prepared by: Pamela Myhre
Economic Development Planner
F:\USERS\Pm~hre\WPDOCS\LOANDOC~Alexander\deal.mem.doc
EXP PRIOR ESTIMATED BEYOND
PROJECT BUDGET 2003-04 2004-05 2005-06 2006-07 2007-08
TO FY 03 FY 03 2008
300,000
500,00O
800,000
500,000
300,000
800,000
A. EXPENDITURE ITEMS
Design & Engineering
Land and Site Cleanup
Construction
Equipment Removal
Other
TOTAL
B. PROJECT FINANCING
Community Dev Block Grant
UDAG Loan
DRA Distribution-Loan
TIF Backed GO Bonds
TOTAL
C: IMPACT- OPERATIONS
Operating Cost
Operating Revenue
$ 1,650,000
$ 100,000
$ 1,750,000
$ 600,000
$ 1,150,000
$ 1,750,000
35,414 $
- $
35,414 $
35,414 $
35,414
PROJECT DESCRIPTION
This project provides a funding package to leverage developer funds for renovation of the old Brewery building in the Port of Dubuque.
JUSTIFICATION
The old Star Brewery building was purchased by the City to save it from further deterioration and to encourage redevelopment of the facility. Alexander Company is
Ieaming with Kraemer Brethere, Durrant and the Dubuque Star Brewery Company to re-establish a brewing operation with office space, brew pub and beer garden.
RELATIONSHIP TO OTHER PROJECTS
This project supports other components of the America's River project. This project implements the Comprehensive Plan's Land Use and Urban Design Element: Goals
2.1, 2.2, 2.4, 4.6, 5.1, 5.2, 5.3, 6.1 and 7.1; the Economic Development Element: Goals 7.1,7.2, 7.3, 7.4, 8.1,8.3, 10.1, 11.1, 11.4 and 11.5; and the Recreation Element:
Goal 8.1.
4OO