Roshek Building Status UpdateDUB t°°°iQUE
INITIATIVES
MEMORANDUM
TO: The Honorable Mayor and Dubuque City Council Members
FROM: Bill Callahan, President of Dubuque Initiatives
SUBJECT: Roshek Building Status Update
DATE: August 5, 2013
This memorandum is to provide the City Council with an update for the Historic Roshek
Building redevelopment. Since the project began in 2009, nearly all core and shell work
has been completed as the project has transitioned from construction to the operational
stage, with a few key areas remaining for tenant build out.
The Historic Roshek Building redevelopment facilitated International Business
Machines, Inc. (IBM) to locate a 1,300 employee Information Technology Service
Delivery Center by the start of 2011. The new jobs represented an additional $60
million in payroll to the community. The project also saved the building from being a
blighted influence on the downtown as the main tenant and owner, McKesson
Corporation, was moving most of their operations into the former Advanced Data Com
building in the Dubuque Technology Park.
CONSTRUCTION
The total redevelopment expenditures for DI and its subsidiaries amounted to
approximately $48,000,000. The project involved full replacement of electrical and
HVAC infrastructure, preservation of the exterior, restoration of the historic lobby, and
construction or improvements to space on all nine floors of the former department store
building. During the last update to the City Council in March 2011, the Roshek Building
had the following tenants:
• IBM
• McKesson
• O'Connor & Thomas P.C.
• Community Foundation of Greater Dubuque
• Chalmers & Eaton
• Verizon Wireless
• Verizon Business
• Paetec /McLeod
• Gronen Properties
• Cafe Manna Java
• Body & Soul SalonSpa
• Beijing Grill
• Rocky Mountain Candy
Since that time, Rocky Mountain Candy has left the building. Additionally, McKesson
recently announced that they will be vacating their lower level print shop and mezzanine
office space in October 2013.
However Heartland Financial has occupied the entire third floor to accommodate office
space for approximately 100 employees while Iowa State University and the University
of Wisconsin have partnered to create the Dubuque Institute for Sustainable
Communities and Economic Development on the second floor. Additionally, the
Community Foundation of Greater Dubuque is in the process of constructing a 2,200
square foot conference room on the second floor.
Approximately 27,000 square feet of office space remain available for lease on the
entire fourth floor, as well roughly 5,800 square feet on the second floor. There is also
space for expanded retail options in the Lobby currently, and due to McKesson's
impending departure, approximately 34,000 square feet in the lower level of the building
and 1,500 square feet in the mezzanine will become available beginning in November 2013.
Construction projects that remain to be completed are any future tenant build out as well
as the patching and painting of the second floor ceiling. However the work by Gronen
Property Management is now mostly focused on maintenance across the nine floors.
The project has received numerous awards from local, state, and national
organizations. The building attained LEED Platinum certification, the highest available
from the U.S. Green Building Council, in part because of its diversion of over 70% of
discarded materials from the landfill and preservation of a major historic structure within
the downtown. Additionally, the project was awarded the 2010 Timothy J. Anderson
award for Best Historic Rehabilitation Utilizing New Markets Tax Credits from the
National Housing & Rehabilitation Association and the 2010 Excellence in Economic
Development Award in Public- Private Partnerships from the International Economic
Development Council.
FINANCING
To fund the $48 million development, the project utilized funding from Federal and State
Historic Tax Credits, New Markets Tax Credits, local Tax Increment Financing, the Iowa
Department of Economic Development, and Dubuque Initiatives' equity.
A total of $32,200,000 was borrowed from a consortium of all the local financial
institutions to provide the up -front funding to complete the construction. The following is
a status update of the individual loans making up the $32,200,000.
Federal Historic Tax Credit (FHTC) Loan — $9,800,000
This is a bridge loan for the value of FHTCs being provided to the project. The HTC
investor has provided payment on this loan and it was paid in full during 2010.
The amount of credits at the start of the project was calculated using the standard 20%
of qualified expenditures. Federal legislation was passed to increase the percentage of
qualified expenditures to 26% for projects that had damage relating to the 2008 flooding
event which hit much of Iowa. The building had significant water damage from
excessive rains which resulted in an additional $2,000,000 of Qualified Rehabilitation
Expenses. Dubuque Initiatives negotiated a net payment of $991,608 for the additional
credits available. Not all of the funds have been received by Dubuque Initiatives as
$594,000 is being withheld to re -pay the PUT payment at the conclusion of the seven
year compliance period. The excess funds have been released to Dubuque Initiatives
for pay down of debt annually as available.
State Historic Tax Credit (SHTC) Loan - $10,651,000
This loan was paid in full during 2011 when the tax credit funds were received.
Leverage Loan from New Markets Tax Credits (NMTC) — $5,300,000
The value of the NMTCs is provided to the project through an interest -only loan to the
project for the first seven years. Interest will be paid on this loan for seven years. After
that time, this debt will be paid through monthly installments. The balance of this loan is
covered by a Guarantee from the City of Dubuque.
IBM Buildout Loan - $6,500,000
This funding was used to build out the tenant spaces on the fifth through the ninth floors
for IBM. This loan is amortized over 10 years and is paid through additional lease
payments made by the tenants who utilized the funds. With the increased FHTCs
coming into the project and the continuing lease -up of the Roshek Building, this note is
expected to be paid in full sometime in 2015. The early pay down of this debt will save
Dubuque Initiatives on interest payments and allow for increased funds to be used to
pay down the Leverage Loan once the PUT payment is satisfied.
An additional Line of Credit was approved by the City Council in January 2011 to be
included in the guarantee, which could be used for new tenant buildouts, should the
tenant need assistance for expenditures. An additional rent will be paid by the new
tenant over a negotiated term to pay for funds drawn on the Line of Credit. To date, the
line of credit has not been needed, but may be utilized for the build out of the fourth
floor.
The following is a chart of the current Sources and Uses for the rehabilitation:
Roshek Building Source and Uses
Sources
DI Equity
Federal Historic Tax Credits
State Historic Tax Credits
Developer Fee
New Market Tax Credit Equity
Buildout Loan
Local Loan
Uses
Total
Construction Costs
New Market Tax Credit Fees
Historic Tax Credit Fees
$ 2,000,000
$ 11,323,932
$ 10,666,022
$ 3,508,844
$ 8,965,125
$ 6,500,000
$ 5,294,384
$ 48,258,307
$ 45,180,429
$ 1,094,483
$ 1,983,395
Total $ 48,258,307
Since the last update, all Historic Tax Credit proceeds have been received, (except
those noted above being held by the Investor for future payments). The following chart
demonstrates the approximate balance of debt remaining on the project:
Debt Remaining on the Building as of August 2013
Buildout Loan (no City liability) $ 3,400,000
NMTC Leverage Loan $ 5,300,000
Total $ 8,700,000
FINANCIAL PROJECTIONS
The project is into the fourth year of operations and a much clearer picture is available
regarding the payment of the debt on the building. The City guarantee is a $25,000,000
guarantee for 20 years. Currently the City is only liable for $5,300,000 of the balance
on the NMTC Leverage Loan. It could be liable for the additional $3,000,000 line of
credit, should it be utilized. In accordance with the development agreement between
the City and Dubuque Initiatives, DI is required to pay at least $2,000,000 to cover
operating shortfalls and loan payments prior to the City acting on its commitment. DI
has met that obligation. However before the City shall take responsibility of the project
debt, DI will continue to use lease proceeds, reserves and its monthly developer fee to
address the loan payments.
As reported in 2011, the repayment status has improved since the original financial
projections were made; this is due to the $990,000 of additional funds made available
due to a temporarily expanded version of the federal historic tax credit program. With
the lease of the third floor by Heartland, all debt is projected to be satisfied by 2019
assuming existing lease rates are paid and no additional tenants vacate the building
(McKesson's departure has been factored into the calculation). The original estimate
was for the debt to be paid off by 2027. This accelerated debt payoff further solidifies
that the City will not need to provide assistance to the project through the committed
guarantee. The following is a chart summarizing the timing of payoff of the original
estimate, and the current pace.
Year Debt Payoff
# Years to Payoff
Original Estimate Current Schedule
2027
2019
18
10
A side benefit of this project has been the creation of 193 new rental units in
rehabilitated buildings further preserving and strengthening the downtown area. This
project is also a catalyst to the recent redevelopment efforts in the Historic Millwork
District, which has leveraged state and federal funding to address transportation,
infrastructure, and housing needs, that contribute to the creation of a vibrant, mixed -use
district in Dubuque's urban core. Much of this development stems from the
approximately 1,400 -1,500 jobs located in the Roshek Building.
This project highlights the value of public - private partnerships in Dubuque. Dubuque
Initiatives is proud to be one of those partners and is thankful for all those that have
contributed to make this possible.