Dubuque Initiatives_Roshek Building_Third Amendment to Development AgreementMasterpiece on the Mississippi
Dubuque
AN- America City
2007
TO: The Honorable Mayor and City Council Members
FROM: Michael C. Van Milligen, City Manager
SUBJECT: Third Amendment to the Development Agreement with Dubuque Initiatives
DATE: August 31, 2011
Economic Development Director Dave Heiar is recommending approval of a resolution
amending the Development Agreement between the City of Dubuque and Dubuque
Initiatives for the redevelopment of the Historic Roshek Building. The amendment
would allow future State and Federal Tax Credit proceeds be used for payments on
indebtedness incurred for the redevelopment of the Roshek Building covered under the
City's guarantee.
A Development Agreement between the City and Dubuque Initiatives was approved on
February 17, 2009 and amended on April 29, 2009 and May 16, 2011 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 with a $60
million annual payroll and to allow an almost $50 million renovation of a building on the
National Historic Register.
The $25 million Guaranty signed by the City required that proceeds from State and
Federal Historic Tax Credits, New Markets 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 $11,007,932.48.
Approximately 60,000 square feet remain available for lease in the building for office
uses on floors 2, 3, and 4, two tenant spaces are available in the Lobby, and 3 booth
spaces are also available in the Lobby. The original proforma for the Roshek Building
anticipated the entire building would be fully leased by the end of 2011. At current
anticipated lease rates only approximately 82% of the vacant remaining space needs to
be leased to cover the current shortfall.
The current shortfall between the debt payments made to the Banks and the funds
received from rents is $58,415 per month. To date these shortfalls have been covered
by DI from their current cash assets.
In the next twelve months, DI will be unable to handle this shortfall, and then would
need to call for assistance from the City's Guarantee.
DI will be receiving the final 10% of the Federal HTCs from the project in late
August/early September amounting to $2,111,331 and is requesting to reserve these
monies to cover future cash flow shortages. Based on the terms of the Development
Agreement, DI is obligated to use those funds to make principal payments on notes
covered under the City's $25 million 20 -year guarantee. These funds, should they be
allowed to be held for handling future debt service payments, represent approximately
36 months of shortfall given the assumption that no additional space is leased. This
timeframe would be extended should the building lease additional space to future
tenants.
Using these funds for debt service rather than principal repayment moves the estimated
debt payoff timeframe to 19 years, assuming the monthly rent shortfall can be corrected
within the 3.5 years. The terms of the Development Agreement state that any debt still
remaining after the 20 year guarantee will need to be paid by the City.
The attached amendment to the Development Agreement would approve allowing the
remaining Federal and State HTC proceeds be held for payments on indebtedness
incurred for the redevelopment of the Roshek Building covered under the City's
guarantee.
In the event the project continues to have a shortfall after fully utilizing DI's funds and
the $2,111,331 for debt payments, DI will be forced to call for the assistance through the
City's guarantee. This assistance would most likely come in the form of a cash infusion
to DI or leasing a portion of the building where the rents would facilitate the debt
remaining on the project.
I concur with the recommendation and respectfully request Mayor and City Council
approval.
Michel C. Van Milligen
MCVM:jh
Attachment
cc: Bill Callahan, President, Dubuque Initiatives
Rick Dickinson, Executive Director and Chief Operating Officer,
Greater Dubuque Development Corp.
Barry Lindahl, City Attorney
Cindy Steinhauser, Assistant City Manager
Teri Goodmann, Assistant City Manager
David J. Heiar, Economic Development Director
Dave Heiar, Economic Development Director
2
Masterpiece on the Mississippi
Dubuque
All- AmedcaCity
111 ri
2007
TO: Michael C. Van Milligen, City Manager
FROM: David J. Heiar, Economic Development Director
SUBJECT: Third Amendment to the Development Agreement with Dubuque Initiatives
DATE: August 22, 2011
INTRODUCTION
This memo is to seek City Council approval of a resolution amending the Development
Agreement between the City of Dubuque and Dubuque Initiatives for the redevelopment
of the Historic Roshek Building. The amendment would allow future State and Federal
Tax Credit proceeds be used for payments on indebtedness incurred for the
redevelopment of the Roshek Building covered under the City's guarantee.
BACKGROUND
A Development Agreement between the City and Dubuque Initiatives was approved on
February 17, 2009 and amended on April 29, 2009 and May 16, 2011 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 proceeds from State and
Federal Historic Tax Credits, New Markets 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 $11,007,932.48.
An additional Line of Credit was approved by the City Council on January 18, 2011 to
be included in the guarantee, which will be used for new tenant buildout expenditures,
should the tenant need such assistance. An additional rent will be paid by the new
tenant to pay for funds drawn on the Line of Credit.
DISCUSSION
Approximately 60,000 square feet remain available for lease in the building for office
uses on floors 2, 3, and 4, two tenant spaces are available in the Lobby, and 3 booth
spaces are also available in the Lobby. The original proforma for the Roshek Building
anticipated the entire building would be fully leased by the end of 2011. At current
anticipated lease rates only approximately 82% of the vacant remaining space needs to
be leased to cover the current shortfall.
1
The current shortfall between the debt payments made to the Banks and the funds
received from rents is $58,415 per month. To date these shortfalls have been covered
by DI from their current cash assets.
In the next twelve months, DI will be unable to handle this shortfall, and then would
need to call for assistance from the City's Guarantee.
DI will be receiving the final 10% of the Federal HTCs from the project in late
August/early September amounting to $2,111,331 and is requesting to reserve these
monies to cover future cash flow shortages. Based on the terms of the Development
Agreement, DI is obligated to use those funds to make principal payments on notes
covered under the City's $25 million 20 -year guarantee. These funds, should they be
allowed to be held for handling future debt service payments, represent approximately
36 months of shortfall given the assumption that no additional space is leased. This
timeframe would be extended should the building lease additional space to future
tenants.
Using these funds for debt service rather than principal repayment moves the estimated
debt payoff timeframe to 19 years, assuming the monthly rent shortfall can be corrected
within the 3.5 years. The terms of the Development Agreement state that any debt still
remaining after the 20 year guarantee will need to be paid by the City.
The attached amendment to the Development Agreement would approve allowing the
remaining Federal and State HTC proceeds be held for payments on indebtedness
incurred for the redevelopment of the Roshek Building covered under the City's
guarantee.
In the event the project continues to have a shortfall after fully utilizing DI's funds and
the $2,111,331 for debt payments, DI will be forced to call for the assistance through the
City's guarantee. This assistance would most likely come in the form of a cash infusion
to DI or leasing a portion of the building where the rents would facilitate the debt
remaining on the project.
RECOMMENDATION
I am recommending approval of the attached resolution approving the Third
Amendment to the Development Agreement allowing Dubuque Initiatives to use future
State and Federal Historic Tax proceeds to be used for payments on indebtedness
incurred for the redevelopment of the Roshek Building covered under the City's
guarantee.
ACTION STEP
The action step is to approve the attached resolution.
F: \USERS \Econ Dev \IBM \CIty DI Agreements\20110822 Memo DI DA 3rd amendment.docx
2
Prepared /Return to: David Heiar, Economic Development, 50 W. 13th Street, Dubuque, IA 52001 (563) 589 -4393
RESOLUTION NO. 311 -11
RESOLUTION APPROVING THE THIRD 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, this Development Agreement was amended (Second Amendment) on May
16, 2011; and
Whereas, City and Dubuque Initiatives now desire to amend the Development
Agreement as set forth attached Third Amendment, and
Whereas, Dubuque Initiatives desires to use the remaining Federal and State Historic Tax
Credit proceeds to be used for payments on indebtedness incurred for the redevelopment of
the Roshek Building and covered under City's Guaranty.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
DUBUQUE, IOWA:
Section 1. That the Third Amendment of the Dubuque Initiatives Development
Agreement is hereby approved.
Section 2. That the Mayor is hereby authorized and directed to execute said
Third 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 Third Amendment as herein approved.
Passed, approved and adopted this 6f" day of Sept 'rO'pe�, 2011
Kev Firnstahl, acting City CI-rk
F: \USERS \Econ Dev \IBM \CIty DI Agreements\20110906 DI DA 3rd amendment reso.doc
Roy D. Buol, Mayor
THIRD AMENDMENT
TO
DEVELOPMENT AGREEMENT
BETWEEN
THE CITY OF DUBUQUE
AND DUBUQUE INITIATIVES
This Third Amendment to Development Agreement, dated for reference purposes the
6thday of Sept , 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), pursuant to which City provided a
guaranty for certain indebtedness to be incurred for the redevelopment of the Roshek Building
(the Guatanty); and
Whereas the Development Agreement was amended by the First Amendment dated the
27th of April, 2009; and
Whereas the Development Agreement was amended by the Second Amendment dated
the 16th of May, 2011; and
Whereas City and Developer have agreed to further amend the Development Agreement
as set forth herein to allow for Federal and State Historic Tax Credit proceeds to be used for
payments on indebtedness incurred for the redevelopment of the Roshek Building and covered
under the Guaranty.
NOW, THEREFORE IT IS AGREED BY AND BETWEEN THE PARTIES AS FOLLOWS:
1. Section 3.3(2) of the Development Agreement is amended by adding the following new
subsection (e):
(e) Proceeds from Federal and State Historic Tax Credits received by Developer after August
1, 2011 shall be held and may be used by Developer for payments on indebtedness incurred for
the redevelopment of the Roshek Building and covered under the Guaranty.
CITY OF DUBUQUE, IOWA
By:
Roy D. ol, Mayor
By:
Ke ' S. Firnst: I, Acting City Clerk
DUBUQUE INITIATIVES
William H. Callahan, President
F: \USERS \Econ Dev \IBM \City DI Agreements\20110906 3rd Amendment to DI DA.docx