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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.