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DAIDC 2nd Amend Devel Agree ï5~~~E ~ck~ MEMORANDUM August 31, 2004 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Second Amendment to Development Agreement with Dubuque Area Industrial Development Corporation Economic Development Director Bill Baum recommends City Council approval of a Second Amendment to the Development Agreement with Dubuque Area Industrial Development Corporation (DAIDC), which allows the current Tax Increment Financing benefits accruing to DAIDC to be assigned to its successors or assigns (in this case, Walter Development, LLC), subject to the new owner maintaining a base employment of 15 full time equivalent jobs at the facility. I concur with the recommendation and respectfully request Mayor and City Council approval. /111 tit........ /~!'./ / ~ 'v r¡ /1 ",It Miéhael c. Van Milligen MCVM/jh Attachment cc: Barry Lindahl, Corporation Counsel Cindy Steinhauser, Assistant City Manager William Baum, Economic Development Director J CITY OF DUBUQUE, IOWA MEMORANDUM August 27, 2004 FROM: Michael Van Milligen, City Manager William Baum, Economic Development Director ~/¿.!~ TO: SUBJECT: Second Amendment to Development Agreement with Dubuque Area Industrial Development Corporation INTRODUCTION This memorandum presents for City Council review and approval a Resolution authorizing the execution of a Second Amendment to the Development Agreement with Dubuque Area Industrial Development Corporation (DAIDC). A letter from Rick Dickinson, on behalf of DAIDC, is attached. BACKGROUND On October 25, 1999, the City Council approved a Development Agreement with DAIDC for the sale and development of Lot 1 in the Dubuque Industrial Center West for a 40,000 square foot speculative industrial building costing not less than $900,000. The DAIDC agreement did not require the corporation to create jobs except to make best efforts in that regard to sell or lease the property to an employer who would create new jobs or retain existing jobs in the community. The Development Agreement provided for an acquisition grant to DAIDC that was equal to the full price of the land with the stipulation that should DAIDC sell the developed property at a profit, the City would recoup a portion of the acquisition grant (land price). No other public financial assistance was provided to the project at that time. By 2001, DAIDC had still not sold the property and requested a property tax exemption on the building. State law allows the exemption for non-profit corporations owning vacant, speculative industrial properties. Currently, taxes are paid on the land value only, about $7,000 per year. In 1999, DAIDC took a risk in developing and financing the industrial spec building project that was the inaugural development in the new west-side industrial park. The development of a spec building was part of an overall economic development marketing and recruitment strategy to spur new opportunities for the community. The project was also essential in helping the City win RISE funding for Chavenelle Drive. A local import/export company, DDI, is currently leasing a portion of the building. In May, 2003, the City Council approved a First Amendment to the Development Agreement approving the use of tax increment proceeds to make reimbursement to DAIDC of the actual new increment of property taxes that they will pay over the next ten (10) years. The total reimbursement from tax increment revenues over the ten (10) year period is expected to be $315,000, more or less. Section 5. of the First Amendment provides that the annual TI F reimbursement would apply only to DAIDC as owner of the property, DISCUSSION Attached is a letter from Rick Dickinson, Director of the Dubuque Area Industrial Development Corporation. DAIDC has an Offer to Purchase the spec building from Walter Development, LLC, The Offer is contingent upon the DAIDC providing the buyer with adequate assurances that the tax increment benefits will be retained for the remainder of the term of the TIF (9 years). A letter from Tim Hodge, President of Walter Development, LLC to Mr. Dickinson is also enclosed. Mr. Hodge states that the decision to purchase the spec building was made because of "our ability to market the TIF savings to potential lessees." He also states "the only way the purchase and further development of this property made financial sense was with the TIF savings," The inability to transfer the Tax Increment Financing benefits to Walter Development could stop the sale of the Spec Building. Therefore, I have prepared a Second Amendment to the Development Agreement with DAIDC for City Council consideration, This amendment allows the transfer of the TIF benefits to a new owner, but requires any new owner to maintain base employment of 15 full time equivalent jobs at the facility in order to receive the annual tax increment rebate, The TIF benefits are limited to the incremental taxes on the current property improvements, Any new development on the property by Walter Development that increases the assessable value would not, under the current Development Agreement or amendments, receive TIF reimbursement. RECOMMENDATION I recommend that the City Council adopt the attached Resolution authorizing execution of the Second Amendment that allows the current TIF benefits accruing to DAIDC to be assigned to its successors or assigns (in this case, Walter Development, LLC) subject to meeting certain employment obligations. ACTION STEP The action step for the City Council is to adopt the attached Resolution, attachments F: IV S ERS'Pmyh re IWPDOCSILOAN DOCIDAIDClamend2 .mem. doc DUBUQUE AREA INDUSTRIAL DEVELOPMENT CORPORATION 300 Main Street, Suite 120 Dubuque, Iowa 52001 Phone: 563-557-9049 Fax: 563-557-1059 August 4, 2004 Mr. Bill Baum Economic Development Director City of Dubuque 50 W. 13th Street Dubuque, Iowa 52001 Dear Bill: I am writing to request that the Development Agreement between the City of Dubuque and Dubuque Area Industrial Development Corporation (DAIDC) be amended to facilitate the sale ofDAIDC's Spec Building located at 7425 Chavenelle Road, Specifically, we ask that the "First Amendment to Development Agreement" be amended by striking paragraph 5 and providing that the balance ofthe annual TIF rebate be provided to a successorlbuyer, In 1999, with the encouragement and support of the City of Dubuque and at significant risk and great expense, DAIDC boldly financed the first spec building to be constructed in Dubuque in nearly two decades. Our dual purpose was to provide a showplace for the City's new Dubuque Industrial Center West and provide a marketable spec building for the Greater Dubuque area. Thanks in part to that investment, there are now five occupants in the Dubuque Industrial Center and on April 1,2003, DOl, International, Inc. leased 18,200 sq. ft of the original 43,200 sq. ft spec building. DOl, Inc. is a hometown start up, import and distribution firm that has grown to 26 employees. They have expanded their operation since 2003 and are currently leasing 28,200 sq, ft, leaving 15,000 sq, ft. of warehousing space vacant. On July 27, 2004, the Dubuque Area Industrial Development Corporation Board of Directors voted to accept an offer to purchase the spec building from Walter Development, LLC. for a purchase price of $1,388,000.00 conditional upon an assurance that they would retain the current TIF benefits for the remainder of the terms (to-wit: nine (9) years,), A close on the spec building is scheduled for November I, 2004 if all conditions are met. No one can question the need for an available spec building as a necessary component of any successful economic development strategy. But it comes at a cost and that is why we request that the Economic Development grant be provided to the successorlbuyer of the property located at 7425 Chavenelle Road. Failure to do so will result in continued depletion ofDAIDC assets and the compromising of our agencies ability to develop the next spec manufacturing facility. We appreciate your favorable consideration of our request and are available to answer any questions regarding this request. ?~ Rick Dickinson Director Enclosures 'W alte" JJevel.opmen.t, fft 10$0 cft.1cIuaw eN .j)"'-¡- 9.cfI S200J SðJ.SBJ.9781 ¡wIT;@IT;ITWIT;1iìJ illl AUG 0 2 2004 1W BY: u.u....u......u. July 30, 2004 Rick Dickinson Greater Dubuque Development Corporation 770 Town Clock Plaza Dubuque IA 52001 Dear Rick, In reference to our conversation on July 29. Our decision to purchase the DAIDC spec building was made, in large part, because of our ability to market the TIF savings to potential lessees. In fact, we have given proposals to companies with the TIF savings included. Our offer and acceptance document specifically stated inclusion of the remaining 9 years ofTIF as a contingency of purchase, which DAIDC represented as being satisfied. Additionally, we are engaged in a 1031 exchange with a recently sold property for which we identified the DAIDC spec building as the replacement property. Our deadline to add properties to this list passed on July 26, therefore we must apply proceeds to the spec building in order to complete the 1031 exchange. Our due diligence and market study led us to conclude that the only way the purchase and further development of this property made fiscal sense was with the TIF savings for the initial building for the next 9 years. We appreciate your attention to this matter and please let us know if there is anything else we can provide. Respectfully, Walter Development, LLC ~ President RESOLUTION NO. 338-04 AUTHORIZING THE EXECUTION OF A SECOND AMENDMENT TO DEVELOPMENT AGREEMENT WITH DUBUQUE AREA INDUSTRIAL DEVELOPMENT CORPORATION. Whereas, the City Council of the City of Dubuque, Iowa, after public hearing, duly adopted an Urban Renewal Plan (the Plan) for the Dubuque Industrial Center Economic Development District (the District); and Whereas, the Plan provides that the City may undertake special financing activities, including loans or grants to private developers, to meet the objectives of the Plan and to encourage the development of the District; and Whereas, the City Council has determined, in accordance with Section 15A.1 of the Iowa Code, that DUBUQUE AREA INDUSTRIAL DEVELOPMENT CORPORATION and subsequent owners of the property are qualified to receive such loan or grant assistance subject to certain employment obligations; and Whereas, a Second Amendment to Development Agreement, hereto attached and by this reference made a part hereof, sets forth the terms and conditions of the disbursement of Economic Development Grants to the DUBUQUE AREA INDUSTRIAL DEVELOPMENT CORPORATION or to its successors or assigns. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF DUBUQUE, IOWA: Section 1. That the Second Amendment to Development Agreement by and between the City of Dubuque and DUBUQUE AREA INDUSTRIAL DEVELOPMENT CORPORATION, attached hereto, is hereby approved. Section 2. That the Mayor and City Clerk are hereby authorized and directed to execute, on behalf of the City of Dubuque, Iowa, said Second Amendment to Development Agreement. Passed, approved and adopted this 7th day of September 2004. Terrance M. Duggan, Mayor Attest: Jeanne F. Schneider, City Clerk F: IUSE RSIPmyhre IWPDOCSILOANDOCIDAI DCI.me nd2. res. doc SECOND AMENDMENT TO DEVELOPMENT AGREEMENT THIS SECOND AMENDMENT TO DEVELOPMENT AGREEMENT (the "Amendment"), made and executed as of this - day of , 2004, by and between the CITY OF DUBUQUE, IOWA, a municipality (the "City"), acting under authorization of Chapter 403 of the Code of Iowa, as amended (the "Urban Renewal Act") and DUBUQUE AREA INDUSTRIAL DEVELOPMENT CORPORATION, an Iowa nonprofit corporation with its principal place of business in Dubuque, Iowa (Developer), WITNESSETH: WHEREAS, the above-identified parties have executed a certain Development Agreement dated October 25, 1999 pertaining to, inter alia, the purchase, sale, development and use of certain real property located in the City of Dubuque, County of Dubuque, State of Iowa (the "Property") which is more fully described as: Lot 1 Dubuque Industrial Center West in the City of Dubuque; and WHEREAS, the "Property", which is located in the Dubuque Industrial Center Economic Development District (the "District"), has been so designated by City Council Resolution 478- 97 as an Economic Development Area (the "Project Area") as defined by the Urban Renewal Law; and WHEREAS, the Developer has constructed a 40,000 square foot speculative industrial building at a cost of not less than Nine Hundred Thousand Dollars ($900,000) (the "Minimum Improvements") on the Property for purposes of promoting and marketing economic development opportunities in the City of Dubuque; and WHEREAS, pursuant to Section 403.6(1) of the Iowa Code, and in conformance with the Amended and Restated Urban Renewal Plan for the Project Area adopted on November 17,1997, the City has the authority to enter into contracts and agreements to implement the Urban Renewal Plan; and WHEREAS, the above referenced parties have executed a First Amendment to the Development Agreement, providing the benefits of Tax Increment Financing to assist in creating jobs in the Project Area; NOW, THEREFORE, in consideration of the Development Agreement and First Amendment thereto, the foregoing recitals, the mutual covenants, terms and conditions hereinafter set forth and other valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the City and the Developer do hereby agree to modify, amend and supplement the Development Agreement together with the First Amendment, as follows: 1, Section 5. of the First Amendment to the Development Agreement is hereby amended to read: 5. The Economic Development Grants described herein shall be paid to the Developer or to its successors or assigns, but payments shall not be made to successors or assigns without the prior written consent of City. 2, Employment. It is agreed by the parties that the Developer through its Lessees maintains a base employment in Dubuque, Iowa, of at least fifteen (15) existing full time equivalent jobs as of August 1, 2004. In the event that any certificate provided to City under Section 3, hereof discloses that the Developer, through its own employment of the employment of its Lessees, its successors or assigns have not maintained at least fifteen (15) FTE employees as provided hereinabove, Developer or any of its successors or assigns will not receive payments described in Section 1. of the First Amendment to the Development Agreement. 3. Certification. To assist City in monitoring the performance of Developer, its successors or assigns hereunder, Developer, successors or assigns shall certify to City the number offull time equivalent jobs employed at Property on December 31 of each year. Such certificate shall be provided not later than February 1 of the year following the December 31 Certification date, This Certification will be initially provided no later than February 1,2005 for the December 31,2004 employment at the Property, 4. The parties hereby ratify and reaffirm all terms and conditions of the Development Agreement and First Amendment thereto which are not expressly modified, amended or supplemented herein and acknowledge and agree that the Development Agreement, and First Amendment as modified, amended and supplemented hereby, shall be and hereby is reinstated and shall continue in full force and effect for the duration and the extent therein provided. IN WITNESS WHEREOF, the parties have caused this Second Amendment to Development Agreement to be executed by their respective duly authorized officers or representatives as of the date and year first above written. CITY OF DUBUQUE, IOWA by: Terrance M. Duggan, Mayor by: Jeanne F. Schneider, City Clerk DUBUQUE AREA INDUSTRIAL DEVELOPMENT CORPORATION by: Jeffrey Bullock, President F: IUS ERS'Pmyh relW P DOCSIL OAN DOCIDAI DCIDAame nd 2. doc