40 Main LLC Fifth Amendment to Development AgreementMasterpiece on the Mississippi
TO: The Honorable Mayor and City Council Members
FROM: Michael C. Van Milligen, City Manager
SUBJECT: Loan Agreement with 40 Main, LLC
DATE: December 4, 2012
Dubuque
kital
All- America City
II 111!
2012
The Property located at 40 -44 Main Street was formerly the Higley Chemical Building
and is located in a very visible intersection in downtown Dubuque. In 2009, the building
had sat vacant for some time and water damage impacted portions of the structure.
The project to rehabilitate the 40 Main property (south half of the building) involved
significant restoration work. The 30,000 square foot building includes 18 market -rate
apartments and 7,800 square feet of commercial space. The work was completed in
accordance with the U.S. Secretary of the Interior's standard as federal and state
Historic Rehabilitation Tax Credits were used for the project.
There were several reasons why this project was considered important to the City.
First, the building is in a very visible location at the entry to the downtown and improving
it would strengthen the area. Second, this project would save a historic building. Third,
there is currently a shortage of quality housing in the downtown area. Finally, this
project was the first of its kind in the downtown because it was market -rate apartments
and no project this scale had been achieved in the downtown. In early 2009, the
success of this project would give validity to the need for downtown housing and solidify
demand for more housing, specifically in the Historic Millwork District and the rest of the
downtown.
On January 15, 2009, the City Council approved a Development Agreement with 40
Main, LLC. That Agreement set the terms for the redevelopment of property located at
40 Main Street. Which included sale of a tax increment bond for $600,000 with a
minimum assessment agreement, and a Facade and a Design Grant totaling $20,000.
Another element of the Agreement stipulated the City would provide a loan to 40 Main,
LLC in an amount at $300,000.
In October of 2010, the Council approved another Development Agreement for 44 Main
(North half of building). The second agreement provided for a 15 year TIF rebate, a
$10,000 Downtown housing grant per new residential units (18 units), Facade, Design
and Financial assistance grants ($35,000) and a $300,000 loan.
This developer helped the City pioneer efforts to expedite residential opportunities in the
downtown area. As is usually the case of the first project of any nature, it is a learning
experience. There have already been four amendments to the original Development
Agreement for 40 Main Street. Since that time, the City developed much better
incentives to help developers fill rehabilitation gaps such as the $10,000 per unit grant
program.
In the original Development Agreements, the City required the Developer to repay the
$300,000 loan when the project received its state Historic Tax Credits. When those
credits were received, the Developer did repay a $300,000 loan on the 44 Main Street
(north half of the building) project, but City staff did not realize until later that there was
still a $300,000 outstanding loan for 40 Main Street. By the time this oversight was
realized, the tax credit funds had already been utilized to repay other debt.
This combined project (40 and 44 Main Street) is not in a financial position at this time
to repay the remaining $300,000 loan and the Developer has requested that the City
forgive this loan. After further discussion, Economic Development Director Dave Heiar
is recommending that the City not release the City's current mortgage on the property,
but revise the terms of the loan for repayment of the loan. It should also be noted that
the Developer has a land contract with the City for the purchase of excess street right of
way adjacent to this project site, which was needed for parking. The Developer must
pay the City $156,583 not later than November 1, 2015 for the purchase of this right of
way.
Economic Development Director Dave Heiar is recommending that the loan be modified
to a 20 year amortization with the first payment due in July of 2016. The loan would
also be revised from an interest - bearing loan to a no- interest loan. Therefore, the
project would repay $15,000 per year for 20 years. If the building is sold prior to the end
of this term, the balance of the loan is due immediately upon the sale.
I concur with the recommendation and respectfully request Mayor and City Council
approval.
Michael C. Van Milligen
MCVM:jh
Attachment
cc: Barry Lindahl, City Attorney
Cindy Steinhauser, Assistant City Manager
Teri Goodmann, Assistant City Manager
David J. Heiar, Economic Development Director
2
Masterpiece on the Mississippi
TO: Michael Van Milligen, City Manager
FROM: David J. Heiar, Economic Development Department
SUBJECT: Loan Agreement with 40 Main, LLC
DATE: December 11, 2012
Dubuque
bitil
All-America City
hill!
2007
INTRODUCTION
The attached resolution provides for the revision of a Loan Agreement between the City
and 40 Main, LLC for the revitalization of property located at 40 Main Street in
downtown Dubuque.
BACKGROUND
The Property located at 40 -44 Main Street was formerly the Higley Chemical Building
and is located in a very visible intersection in downtown Dubuque. In 2009, the building
had sat vacant for some time and water damage impacted portions of the structure.
The project to rehabilitate the 40 Main property (south half of the building) involved
significant restoration work. The 30,000 square foot building includes 18 market -rate
apartments and 7,800 square feet of commercial space. The work was completed in
accordance with the U.S. Secretary of the Interior's standard as federal and state
Historic Rehabilitation Tax Credits were used for the project.
There were several reasons why this project was considered important to the City.
First, the building is in a very visible location at the entry to the downtown and improving
it would strengthen the area. Second, this project would save a historic building. Third,
there is currently a shortage of quality housing in the downtown area. Finally, this
project was the first of its kind in the downtown because it was market -rate apartments
and no project this scale had been achieved in the downtown. In early 2009, the
success of this project would give validity to the need for downtown housing and solidify
demand for more housing, specifically in the Historic Millwork District and the rest of the
downtown.
On January 15, 2009, the City Council approved a Development Agreement with 40
Main, LLC. That Agreement set the terms for the redevelopment of property located at
40 Main Street. Which included sale of a tax increment bond for $600,000 with a
minimum assessment agreement, and a Facade and a Design Grant totaling $20,000.
Another element of the Agreement stipulated the City would provide a loan to 40 Main,
LLC in an amount at $300,000.
In October of 2010, the Council approved another Development Agreement for 44 Main
(North half of building). The second agreement provided for a 15 year TIF rebate, a
$10,000 Downtown housing grant per new residential units (18 units), Facade, Design
and Financial assistance grants ($35,000) and a $300,000 loan.
DISCUSSION
This developer helped the City pioneer our efforts to expedite residential opportunities in
the downtown area. As is usually the case of the first project of any nature, it is a
learning experience. There have already been four amendments to the original
Development Agreement for 40 Main Street. Since that time, the City developed much
better incentives to help developers fill rehabilitation gaps such as the $10,000.
In the original Development Agreements, the City required the Developer to repay the
$300,000 loan when the project received its state Historic Tax Credits. When those
credits were received, the Developer did repay a $300,000 loan on the 44 Main Street
(north half of the building) project, but City staff did not realize until later that there was
still a $300,000 outstanding loan for 40 Main Street. By the time this oversight was
realized, the tax credit funds had already been utilized to repay other debt.
This combined project (40 and 44 Main Street) is not in a financial position at this time
to repay the remaining $300,000 loan and the Developer has requested that the City
forgive this loan. After further discussion, I am recommending that the City not release
our current mortgage on the property, but that we would revise the terms of the loan for
repayment of the loan. It should also be noted that the Developer has a land contract
with the City for the purchase of excess street right of way adjacent to this project site,
which was needed for parking. The Developer must pay the City $156,583 not later
than November 1, 2015 for the purchase of this right of way.
RECOMMENDATION /ACTION STEP
I recommend that the loan be modified to a 20 year amortization with the first payment
due in July of 2016. The loan would also be revised from an interest - bearing loan to a
no- interest loan. Therefore, the project would repay $15,000 per year for 20 years. If
the building is sold prior to the end of this term, the balance of the loan is due
immediately upon the sale.
Action Step for the City Council is to approve the attached resolution authorizing the
Fifth Amendment to the Development Agreement with 40 Main, LLC modifying the
repayment terms as described above.
F: \USERS \Econ Dev \40 Main \Development Agreement \5th Amendment to DA \12.11.12 - MEMO 40 Main Loan Agreement.doc
Prepared /Return to: David Heiar, Economic Development, 50 W. 131" Street, Dubuque, IA 52001 (563) 589 -4393
RESOLUTION NO. 351 -12
APPROVING THE FIFTH AMENDMENT TO THE DEVELOPMENT AGREEMENT
BETWEEN THE CITY OF DUBUQUE, IOWA AND 40 MAIN LLC.
Whereas, a Development Agreement (the Agreement), dated January 15, 2009,
was entered into by and between the City of Dubuque, a municipal corporation of the
State of Iowa (City), and 40 Main LLC (Developer); and
Whereas, the Agreement was amended (First Amendment) on May 18, 2009;
and
Whereas, the Agreement was further amended (Second Amendment) on August
3, 2009; and
Whereas, the Agreement was further amended (Third Amendment) on October
13, 2010; and
Whereas, the Agreement was further amended (Fourth Amendment) on
November 7, 2011; and
Whereas, the Agreement provides for an Economic Development Loan with a
balloon payment when the developer received state Historic Tax Credits associated with
this project; and
Whereas, Developer desires to revise the Economic Development Loan
repayment as set forth in the proposed Fifth Amendment attached hereto; and
Whereas, the City Council finds that it is in the best interests of the City of
Dubuque to approve the Fifth Amendment.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF DUBUQUE, IOWA:
Section 1. The Fifth Amendment to the 40 Main LLC Development Agreement
is hereby approved.
Section 2. The Mayor is hereby authorized and directed to execute said Fifth
Amendment on behalf of the City of Dubuque and the City Clerk is authorized and
directed to attest to his signature.
Section 3. The City Manager is authorized to take such actions as are
necessary to implement the terms of the Fifth Amendment as herein approved.
Attest:
Passed, approved and adopted this 17th day of December 2012.
Key' ► S. irnstahl, City -rk
Roy D. Buol, Mayor
F: \USERS \Econ Dev \40 Main \Development Agreement \5th Amendment to DA \12.3.12 40 Main 5th amendment
Resolution 2.doc
FIFTH AMENDMENT
TO
DEVELOPMENT AGREEMENT
BETWEEN
THE CITY OF DUBUQUE
AND 40 MAIN, LLC
This Fifth Amendment to the Development Agreement, dated for reference
purposes the 17th day of December, 2012, is made and entered into by and between the
City of Dubuque, Iowa (City) and 40 Main, LLC (Developer).
Whereas, City and Developer previously entered into a Development Agreement
dated the 15th of January, 2009 (the Development Agreement) for the property at 40
Main Street (the Property), as amended May 18, 2009, August 3, 2009, October 13,
2010 and November 7, 2011; and
Whereas, the Development Agreement provides in Section 3.1 for Minimum
Improvements of not less than Four Million Dollars ($4,000,000) to improve the Property
by creating eighteen (18) apartments for market -rate rental and seven thousand eight
hundred (7,800) square feet of retail space; and
Whereas, the Development Agreement provides for a $300,000 low interest loan
by City to Developer with a balloon payment when the developer received State Historic
Tax Credits; and
Whereas, City and Developer have agreed to amend the Development
Agreement to revise the loan repayment schedule as set forth herein.
THEREFORE, in consideration of the mutual terms and covenants contained
herein, the parties agree as follows:
1. Section 3.1. Section 3.1 of the Development Agreement is hereby amended
to read as follows:
3.1 Downtown Rehab Loan /Grant.
(1) Subject to the conditions set forth in this section, City hereby commits
to a $300,000 low interest loan funded from interest earnings in the
City's General Construction Fund. The Project is to be completed in
accordance with the regulations set forth by the City of Dubuque.
The loan is intended for historic renovation of the exterior facade and
historically significant elements of the interior with remodeling of the
remainder of the interior for use as commercial /residential space.
The loan will have a 20 year amortization, with the first monthly
payment due on July 1, 2016. The loan will be interest free. The
loan shall be secured by a mortgage and personal guarantees in a
form acceptable to City.
2. Except as modified herein, the Development Agreement shall remain in full
force and effect.
CITY OF DU QUE, IOWA 40 MAIN, LLC
By: By: 40 main MM, LLC
Roy D. B , Mayor Its managing member
By:
Key'
. Firnstahl, Cit
By:
Patrick Duff/
Managing Member
F:\USERSIEcon Dev \40 Main\Development Agreement \5th Amendment to DA \12.3.12 -40 Main 5th Amendment to
DA 1.doc