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Dubuque Initiatives_Roshek Building_Second Amendment to Development AgreementMasterpiece on the Mississippi Economic Development Director Dave Heiar is recommending approval of an amendment to the Development Agreement between the City of Dubuque and the Dubuque Initiatives for redevelopment of the Roshek Building. MCVM:jk Attachment cc: Barry Lindahl, City Attorney Cindy Steinhauser, Assistant City Manager Dave Heiar, Economic Development Director Michael C. Van Milligen Dubuque kitrid 1111-America City t 2007 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Second Amendment to the Development Agreement between the City of Dubuque and Dubuque Initiatives DATE: May 4, 2011 Currently, Dubuque Initiatives is obligated by the Development Agreement with the City to use all historic tax credit funding to pay down debt covered by the City's Guaranty. An amendment is needed to allow Dubuque Initiatives to use tax credit funds to fund the reserve account as required by US bank to receive additional funding to the project. I concur with the recommendation and respectfully request Mayor and City Council approval. Masterpiece on the Mississippi Dubuque hitd AI- NneiicaCity 2007 TO: Michael Van Milligen, City Manager FROM: David J. Heiar, Economic Development Director SUBJECT: Second Amendment to the Development Agreement etween the City of Dubuque and Dubuque Initiatives DATE: May 4, 2011 INTRODUCTION This memo is to seek City Council approval of a resolution approving an amendment to the Development Agreement between the City of Dubuque and Dubuque Initiatives for the redevelopment of the Roshek Building. A change to the allocation of tax credit funding is needed to facilitate additional funding to the project. BACKGROUND A Development Agreement between the City and Dubuque Initiatives was approved on February 17, 2009 and amended on April 29, 2009 to provide incentives and a guarantee for the redevelopment of the Roshek Building. The rehabilitation was done to encourage IBM to create 1,300 IT jobs in Dubuque. The $25 million Guaranty signed by the City required that receipts from the sale of tax credits or a Developer Fee be required to pay down debt, thus limiting the exposure to a default by Dubuque Initiatives. Currently, the debt remaining covered by the Guaranty is $21,197,776.32. Dubuque Initiatives will be receiving the State Historic Tax Credit funds in May which will bring the debt remaining covered by the Guaranty down to $11,197,776.32. DISCUSSION Dubuque Initiatives has an opportunity to receive additional funding from Federal Historic Tax Credits from the tax credit investor, US Bank. The credits earned from the project were higher than anticipated when the original financing was put in place. US Bank has offered to pay an additional $215,500 to Dubuque Initiatives if the funds are placed in a reserve account amounting $991,291.07 to fund future priority return and put payments associated with the Federal Historic Tax Credits. Priority return payments are payments made to the Federal Historic Tax Credit purchasing partner throughout the compliance period of the project. The put payment is the final payment made to the Federal Historic Tax Credit partner to buy its interest in the project. The net present value of these payments was factored into the original purchase price of the Federal Historic Tax Credits. Currently, Dubuque Initiatives is obligated by the Development Agreement with the City to use all historic tax credit funding to pay down debt covered by the City's Guaranty. An amendment is needed to allow Dubuque Initiatives to use tax credit funds to fund the reserve account as required by US Bank to receive additional funding to the project. Attached is the proposed Second Amendment to the Development Agreement with Dubuque Initiatives allowing funding received from the Federal Historic Tax Credits to be placed in a reserve account for priority return and put payments. RECOMMENDATION I am recommending approval of the attached resolution approving the Second Amendment to the Development Agreement to allow funding a reserve account for priority return and put payments with tax credit funding received from the project. ACTION STEP The action step is to approve the attached resolution. F: \USERS \Econ Dev \IBM \CIty DI Agreements\20110504 DI DA 2nd Amendment memo_1.docx Prepared /Return to: David Heiar, Economic Development, 50 W. l3'" Street, Dubuque, IA 52001 (563) 589 -4393 RESOLUTION NO 171-11 RESOLUTION APPROVING THE SECOND AMENDMENT TO THE ROSHEK BUILDING DEVELOPMENT AGREEMENT Whereas, a Development Agreement (the Agreement), dated February 17, 2009, was entered into by and between the City of Dubuque, a municipal corporation of the State of Iowa (City), and Dubuque Initiatives (Developer); and Whereas, this Development Agreement was amended (First Amendment) on April 27, 2009; and Whereas, City and Dubuque Initiatives now desire to amend the Development Agreement as set forth attached Second Amendment, and Whereas, Dubuque Initiatives desires to fund a reserve account for priority return and put payments with tax credit funding. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF DUBUQUE, IOWA: Section 1. That the Second Amendment of the Dubuque Initiatives Development Agreement is hereby approved. Section 2. That the Mayor is hereby authorized and directed to execute said Second Amendment on behalf of the City of Dubuque and the City Clerk is authorized and directed to attest to his signature. Section 3. That the City Manager is authorized to take such actions as are necessary to implement the terms of the Second Amendment as heyein approved. Passed, approved and adopted this 16 day of May 201 Attest: Kevi Firns ahl, A ting City lerk F: \USERS \Econ Dev \IBM \CIty DI Agreements\20110516 DI DA 2rd amendment reso.doc Roy D. Buol, Mayor SECOND AMENDMENT TO DEVELOPMENT AGREEMENT BETWEEN THE CITY OF DUBUQUE AND DUBUQUE INITIATIVES This Second Amendment to Development Agreement, dated for reference purposes the 16th day of May, 2011, is made and entered into by and between the City of Dubuque, Iowa (City) and Dubuque Initiatives (Developer). Whereas City and Developer previously entered into a Development Agreement dated the 17th of February, 2009 (the Development Agreement); and Whereas the Development Agreement was amended by the First Amendment dated the 27th of April, 2009; and Whereas City and Developer have agreed to further amend the Development Agreement as set forth herein to allow for a portion of tax credit equity received in the project be allowed to be placed in reserve for payment of priority return and put payments due to the tax credit investor. NOW, THEREFORE IT IS AGREED BY AND BETWEEN THE PARTIES AS FOLLOWS: 1. Section 3.3(1) of the Development Agreement, as amended, is amended to be read as follows: (1) City shall provide guarantees, in the forms attached hereto as Exhibit D (collectively, the Guaranty), on behalf of certain entities, including but not limited to Developer, for the purpose of securing equity investments and loans in order to finance the rehabilitation, construction and improvement of the Property (collectively, the Minimum Improvements Loan), in the aggregate maximum principal amount not to exceed $25,000,000. In consideration for the Guaranty, Developer agrees that any grants and tax credits received by Developer or which accrue to the benefit of Developer or the Property shall be applied by Developer in the following order, to (a) funding a reserve account in the amount of $991,291.07 for future payments of priority return or put payments due to US Bank , (b) pre- Minimum Improvements Loan development costs, or (c) the balance of the principal of the Minimum Improvements Loan, the tax credit investor. CITY OF DUBUQUE, IOWA By: Ro� y D. uol, Mayor By: Ke in S. Firnstahl, Acting ity C erk DUBUQUE INITIATIVES By: William H. Callahan, President F: \USERS \Econ Dev \IBM \CIty DI Agreements\20110504 2nd Amendment to DI DA_1.doc