HomeMy WebLinkAbout44. 12-289
MAY 22, 2012 12-289 RESOLUTION
(CARRIED__7-0_____LOST________LAID OVER________WITHDRAWN________)
PURPOSE: APPROVE TAX INCREMENT DISTRICT NO. 25 PROJECT
PLAN; DESIGNATE TAX INCREMENT DISTRICT NO. 25
BOUNDARIES; CREATE TAX INCREMENT DISTRICT NO. 25
CITY CENTER HOTEL REHABILITATION
INITIATED BY: CITY ADMINISTRATION
PLAN COMMISSION RECOMMENDATION: Approved
WHEREAS, pursuant to Section 66.1105, Wisconsin Statutes, the City of Oshkosh
proposes to create Tax Increment District No. 25 City Center Hotel Rehabilitation; and
WHEREAS, the City of Oshkosh Plan Commission has prepared and adopted a
project plan for Tax Increment District No. 25 City Center Hotel Rehabilitation, which:
1) Includes a statement listing the kind, number and location of all proposed public
works or improvements within such District.
2) Contains an economic feasibility study.
3) Contains a detailed list of estimated project costs.
4) Contains a description of the methods of financing all estimated project costs and
the time when such costs or monetary obligations related thereto are to be incurred.
5) Includes a map showing existing uses and conditions of real property in such
District.
6) Includes a map showing proposed improvements and uses therein.
7) Contains a list of estimated non-project costs.
8) Contains a statement of a proposed method for the relocation of any person to be
displaced.
9) Indicates how the creation of TID No. 25 promotes the orderly development of the
City.
10) Contains an opinion of the City Attorney that the Plan complies with Section
66.1105(4)(f), Wis. Stats.
and
WHEREAS, the Plan Commission has held a public hearing on the creation of TID
No. 25 and the proposed boundaries thereof and has notified the Chief Executive Officers
of all local government entities having the power to levy taxes on property within the
District, including the School Board of any school district which includes property within the
MAY 22, 2012 12-289 RESOLUTION
CONTD
WHEREAS, the City of Oshkosh Plan Commission affirms the following per the TID
No. 25 Project Plan:
• The district is a blighted area TID.
• The district is a rehabilitation area TID.
• Not less than 50% of the real property within the district is blighted under the meaning
of Section 66.1105(2)(ae)1.a. or 1.b., Wisconsin Statutes;
• Not less than 50% of the structures within the TID are in need of rehabilitation within
the meaning of Section 66.1137(2m)(a), Wisconsin Statutes;
• Development of the area will have a significant positive impact on the value of all real
property in the district;
• Were it not for the financing mechanisms provided through Tax Increment Law,
planned redevelopment of this district would in all likelihood not occur;
• The Project Plan is feasible and is in conformity with the City's Comprehensive Plan;
• The project costs identified in the Project Plan relate directly to eliminating blight and
rehabilitating the area;
• The equalized value of taxable property in TID 25 plus all existing Districts does not
exceed 12% of the total equalized value of taxable property within the city.
NOW, THEREFORE, BE IT RESOLVED that the Common Council of the City of
Oshkosh approves said Project Plan for Tax Incremental District No. 25 City Center Hotel
Rehabilitation, pursuant to the provisions of Section 66.1105, Wisconsin Statutes.
BE IT FURTHER RESOLVED that the Common Council of the City of Oshkosh
hereby designates the boundaries of TID No. 25 as described in "Exhibit A".
BE IT FURTHER RESOLVED that the Common Council of the City of Oshkosh
hereby approves creation of Tax Incremental Financing District No. 25 City Center Hotel
Rehabilitation.
BE IT FURTHER RESOLVED that the improvements contemplated in TID No. 25
City Center Hotel Rehabilitation are likely to significantly enhance the value of all real
property in TID No. 25.
BE IT FURTHER RESOLVED that the value of equalized, taxable property in TID
No. 25, together with all other established Tax Incremental Districts, does not exceed 12%
of the total equalized value of taxable property within the City of Oshkosh.
BE IT FURTHER RESOLVED that the project costs are consistent with the
purposes for which the Tax Incremental District is created with the primary objectives being
the rehabilitation and redevelopment of a blighted area.
"EXHIBIT A"
TIF #25 CITY CENTER HOTEL REHABILITATION
LEGAL DESCRIPTION
That part of lots 1 through 11 in Moore's Subdivision and vacated Marion Street, all part of
the Northwest 1/4 of the Southwest%of Section 24, Town 18 North, Range 16 East, City of
Oshkosh, Winnebago County, Wisconsin which is bounded and described as follows:
commencing at a point North 00-50-59 East of the N.E. corner of Lot 1 of Moore's
Subdivision 28.00 ft., thence North 89-25-39 West 153.00 ft to a point, thence South 49-
02-31 West 42.23 ft. to a point, thence North 89-25-39 West 10.00 ft. to a point, thence
South 00-26-46 West 69.17 ft. to a point, thence South 06-56-46 West 73.85 ft. to a point
on a meander line on the northerly shoreline of the Fox River, thence South 68-14-29 East
along said meander line 216.06 ft to a point on the east right-of-way line of Main Street,
thence North 00-50-59 East along said right-of-way line 303.66 ft to the point of beginning.
Said parcel contains approximately acres 1.03 more or less.
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Map 1 - Project Boundary ._.._.
TID # 25
CITY HALL
215 Church Avenue
P.O.Box 1130
Oshkosh,Wisconsin
5 903-1130 City of Oshkosh
MEMORANDUM
OIHKOIH
Date: May 17, 2012
To: Mayor & City Council
From: Mark A. Rohloff, City Manager
Subject: TAX INCREMENT DISTRICT & DEVELOPER GRANT AGREEMENT FOR
REHABILITATION OF FORMER CITY CENTER HOTEL
Background
The former City Center Hotel has been closed since March 20, 2012, following the purchase of the
property by Oshkosh Investors LLC. Prior to that purchase, the hotel was owned by a series of owners
who were not in a position to rehabilitate the hotel to bring conventions to the city's Convention Center.
In fact, the hotel had been in decline for a number of years due to the lack of reinvestment in the property,
as is necessary for a full service convention center/hotel to remain competitive.
The representatives of Oshkosh Investors LLC include Richard Batley of RB Hospitality, John Pfeferle,
an Appleton-based developer, and the University of Wisconsin-Oshkosh Foundation. The first two
investors have extensive experience in the lodging and hospitality industry, including the Bridgewood
Resort in Neenah, and the Copperleaf Hotel in Appleton. Mr. Batley has specific experience working
with the former Bergstrom Hospitality Group that previously owned the Pioneer Inn. Additionally, the
University Foundation recognizes the value of a partnership in a hotel that will expand the University's
mission to provide training to students in business and hospitality management. With this combination of
skills, staff is well aware of this group's ability to address the unique needs to rehabilitate this blighted
hotel.
Staff has analyzed potential business models for this hotel over a number of years. It has been long
recognized that investment in a downtown hotel will not take place unless there are local incentives to
enable this project to acquire a loan with significant owners' equity. Furthermore, given the city's
investment in the Convention Center, it is in the city's best interest to find a partner at the hotel that will
enable the Convention Center to host multi-day conferences, which will increase the economic viability of
the Convention Center and bring visitors and economic activity to the city's downtown and riverfront
area.
The staff has analyzed the information provided by Oshkosh Investors LLC regarding their financial
projections for the operation of a hotel, which includes the management of the Convention Center, as
previously approved by the City Council. Furthermore, staff has analyzed the necessity for a
Development Assistance Grant (DAG) to assist the hotel owners in capital investment in this hotel to
make it financially viable. The development agreement associated with the DAG is attached for
Council's review and consideration.
ILO
Analysis
The TIF plan itself includes the funding of a $2 million upfront Developer Assistance Grant and a $1
million "PAYGO". In addition to the $3 million in DAG's, staff anticipates that up to $.1.5 million be
planned for a portion of the River Walk improvements, renovations to the walkway between the
Convention Center and the hotel, additional improvements to the parking structure for which the city has
management and upkeep responsibilities, as well as administrative costs associated with the TID.
The features of the $2 million Developer Assistance Grant are as follows:
• The city would borrow funds to fund this up front grant
• The city's borrowing would be repaid from the tax increment generated through the
increased value of the improved hotel facility.
• Any tax increment generated from the project goes toward repaying this debt first
• Disbursement of the $2 million grant would be done according to an agreement similar to
the standard form for disbursement of construction loans
• The city's $2 million grant would be the last money in to the project. The owner's equity
contribution and bank loan would be expended prior to the city contribution being made
available under the disbursing agreement
• Secured by
o a second mortgage—behind the lender financing
o right of special assessment if the increment is not sufficient to cover city's debt
service and developer fails to pay the shortfall
Additionally, a $1 million "PAYGO" DAG is also proposed for this project. Council Members may
recall that the previous hotel project had assumed a total investment of approximately $9 million. The
revised estimate, based upon a thorough analysis of the condition of the hotel, indicates that the total
project cost will be at least $14 million. Given the additional costs being assumed by the investors, staff
believes that the $1 million "PAYGO" development grant is appropriate. We also recognize that the
project needs to be successful before additional funds beyond the $2 million upfront DAG grant can be
available. As such, the city agrees to pay 75% of the annual tax increment surplus (i.e., that amount left
after the city pays its debt service on the $2 million grant) as a "PAYGO" grant in the amount of $1
million. This amount will be paid annually to the hotel group after debt repayments on the $2 million
grant have been satisfied.
As for city costs, direct costs assumed by the city will be passed onto the developer. The city will also be
eligible for administrative costs up to an amount of$50,000 for 2012, and $5,000 per year thereafter, with
an escalator of 1.5% annually for inflation. The agreement also provides that the developer will pay
100% of the city's cost should the city have to enforce any provision of the agreement.
Other provisions of the developer agreement include the following:
• Requirement to enter into agreement for operation of the Convention Center
• Requirement to enter into long term agreement for use of the parking structure
• Developer guaranties commencing in 2016 that tax increments will be at least enough to
service the city's debt or developer will pay to the city any shortfall in that amount
• If developer conveys the property, the developer agreement goes with the property
• Developer agrees that it will not challenge the assessed value of the property
Fiscal Impact
The city's risk with a development grant begins with taking out loan/debt financing for the $2 million
DAG. As referenced above, the city has secured various guarantees to make sure that we will be able to
cover debt service on the DAG with tax increment dollars. The "PAYGO" will have no risk for the city,
as the only amounts dedicated toward "PAYGO" are actual tax increment dollars that will be received.
The city will not be in any debt situation with the "PAYGO" grant. In addition to the developer covering
direct costs associated with administering and enforcing the agreements contained herein, the city will
also be reimbursed for costs associated with upfront staff work in preparing this TIF plan and agreement,
as well as ongoing administrative costs over the life of the TIF. As such, there will be no external
taxpayer dollars associated with this development project, only the tax increments generated from this
hotel development that will be regenerated back into the project. Furthermore, the city can anticipate
additional room tax dollars, which will go toward the debt payments on the Convention Center. Finally,
the fiscal impact of attracting more visitors from outside the city into the downtown area will provide an
economic boost to all of the businesses in the downtown area. This will likely have the most significant
long term impact from our investment in this TID.
MAR/j do
Attachment
0--
City of Oshkosh - Department of Community Development OfHKOJH
ON THE WATER
215 Church Avenue Oshkosh, WI 54901 (920) 236-5055 (920) 236-5053 fax
MEMORANDUM
TO: Allen Davis
����-
FROM: Darryn Burichl��
DATE: May 17, 2012
RE: City Center TID and Draft TIF Guidelines
I have reviewed the City Center TID for consistency with the draft TID guidelines that were
presented last year and will summarize on a section by section basis hereunder in bold and highlight
those relevant areas of the proposed guidelines to the proposed hotel TID project.
Section I. Purpose.
The purpose of this Policy is to articulate to existing or potential businesses the City of
Oshkosh's desire to promote economic development that is consistent with the City's
Comprehensive Plan and provides a community benefit that will ultimately be shared by all
taxing entities (City, School, Technical College, County, and State)impacted through the
establishment of Tax Increment District (TID).
Notwithstanding compliance with any or all of the guidelines herein, the provision of TIF
assistance is a policy choice to be evaluated on a case-by-case basis by the Common Council.
The burden of establishing the public value of TIF shall be placed upon the applicant and the
application must substantially meet the criteria contained herein. City Administration reserves
the right to bring any TIF proposal forward for Council consideration.
Meeting statutory requirements, policy guidelines or other criteria listed herein does not
guarantee the provision of TIF financial assistance nor does the approval or denial of one project
set precedent for approval or denial of another project.
The project is consistent with the proposed TIF guidelines as it is a significant economic
development project that not only will enhance the broader local economy by reinvigorating
and supporting the convention and tourism industry but also will eliminate a blighting
influence in the downtown area where the city and property owners have invested millions of
dollars to revitalize. The project is consistent with the Comprehensive Plan.
TID#25 Memo 1
Section II. Authority
The authority and regulations for Tax Incremental Financing and the establishment of Tax
Increment Districts are found in Wis. Stats. 66.1105. The City of Oshkosh reserves the right to be
more restrictive than provided under the statutes.
The proposed TID project is consistent with the TIF statutes that provide for the use of TIF to
rehabilitate blighted areas or structures through the use of development assistance grants.
Section III. Basis Provisions
As a matter of policy the City of Oshkosh will consider using Tax Increment Financing to assist
private development in those circumstances where the proposed private project shows a
demonstrated financial gap and that the financial assistance request is the minimum necessary to
make the project feasible. The developer is expected to have exhausted every other financial
alternative(s) prior to requesting the use of TIF, including equity participation, other federal and
state funds, bonds, tax credits, loans, etc.
It is the intent of the City to provide the minimum amount of Tax Increment Financing assistance
to make the project viable and not solely to broaden a developer's profit margin on the project.
Prior to consideration of a tax increment financing request, the City will undertake (at the
requestor's cost) an independent analysis of the project to ensure the request for assistance is
valid.
In requesting TIF assistance, the developer must demonstrate that there will be a substantial and
significant public benefit to the community by eliminating blight, strengthening the economic
and employment base of the City, positively impacting surrounding neighborhoods, increasing
property values and the tax base, creating new and retaining existing jobs, and implementing the
Comprehensive Plan.
Each project and location is unique and therefore every proposal shall be evaluated on its
individual merit, including its potential impact on city service levels, its overall contribution to
the economy and its consistency with the Comprehensive Plan or other planning documents.
Each project must demonstrate probability of financial success.
The fundamental principle and that which the City must determine through information provided
by the developer is that the project would not occur"but for"the assistance provided through tax
increment financing. The burden is on the developer to make this case to the City. Should this
"but for" determination not be made, tax increment financing for the project may not proceed.
TIF is necessary because the project cannot attract a high enough level of traditional bank
financing (due in large part to the current economic climate and change in lending
practices for hospitality projects) to make the project viable. It appears very doubtful that
the development group can attract additional investors who would put more cash equity
into the project as it would not produce a high enough level of return to represent efficient
use of private dollars when there are other high producing investment opportunities
available that offer higher returns. TIF will help fill that equity gap to make the project
profitable and helps to attract private equity and bank financing.
TID#25 Memo 2
The developer has demonstrated that there will be a substantial and significant public benefit to
the community by eliminating blight currently associated with this structure, strengthening the
economic and employment base of the City through the creation of new jobs as well as offering
educational opportunities through training and positively impacting the surrounding business
district by increasing the appeal and use of the hotel and the City's adjoining convention center.
Section IV. TIF Funding Objectives
The City will consider utilizing Tax Increment Financing to meet the following basic objectives:
1. Stimulate and continued revitalization of the central city and downtown area by:
a. Improving infrastructure;
b. Creating a variety of housing opportunities to increase the number of downtown
residents;
c. Preventing or eliminating slums and blighting conditions;
d. Constructing mixed-use developments;
e. Attracting desirable businesses and retaining existing businesses.
f. Encouraging development projects that enhance the streetscape and pedestrian
experience and improve the vitality of the downtown area by adding interest and
activity on the first floor of mixed-use buildings.
2. Promote efficient usage of land through redevelopment of blighted areas.
3. Strengthen the economic base of the City and support Economic Development.
4. Stabilize and upgrade targeted neighborhoods.
5. Create and retain family supporting jobs in the City.
6. Increase property values and tax revenues.
7. Leveraging the maximum amount of non-city funds into a development and back into the
community.
The proposed hotel TID is consistent with the objectives highlighted above. At a minimum
it will revitalize a significant structure in the downtown area by eliminating a blighting
influence that will attract more conventions and tourists into the community. A revitalized
hotel will reinvigorate the convention center and tourist industry (which is a desirable
industry) that will benefit area businesses through increased consumer spending from
outside the area. The property will significantly increase in value that will benefit all
taxing entities when the TID is terminated in the future.
Section V. Eligible Development
The type of development that the City will consider TIF funding includes the following:
1. Business development(attraction, retention, expansion). TIF assistance will be evaluated
on its impact on existing local markets.
2. Mixed-use developments that creatively integrate commercial and retail projects into a
residential development.
3. Revitalization of historically significant or deteriorated buildings.
4. Projects that promote central city office and retail development.
5. Projects that promote neighborhood stabilization or revitalization.
6. Projects that promote industrial development.
7. Projects consistent with approved TIF Project Plans.
8. Projects that involve environmental clean-up, removal of slum and blighting conditions.
TID#25 Memo 3
9. Projects that contribute to the implementation of other public policies, as adopted by the
city in its strategic plans such as promotion of high quality architectural design, energy
conservation(i.e. LEED, Energy Star, etc) , green infrastructure, etc.
Redevelopment of the downtown hotel will revitalize business for the hotel itself,which has
shown a decline in business and a corresponding decline in value over the last number of
years, as well as revitalizing business in the surrounding area, especially the convention
center and downtown tourist industry.
The TID guideline for projects that "promote central city office and retail development"
should be adjusted in the final draft to also specifically include large-scale projects such as
a hotel and hospitality and tourist-related developments which were overlooked when the
guidelines were drafted.
Section VI. Ineligible Development
The City will not favor use of TIF funding to help support the following types of development.
1. Speculative office development (projects that have no secured tenants).
2. Relocation of offices, retail and/or commercial uses for purposes other than retaining or
substantially expanding the business.
3. Office and retail development outside of the central city unless part of a city owned
business or industrial park.
4. Stand alone residential development projects unless limited by site and environmental
conditions beyond which make the project financially infeasible.
5. Projects not consistent with the Comprehensive Plan.
The proposed hotel TID would not be considered "ineligible development" under any of
the above listed criteria.
Section VIII. Criteria for TIF Assistance
Financial
All of the following financial criteria must be met in order to be considered for TIF assistance.
1. Equity Requirement. Developers must provide a minimum 15% equity of total project
costs. Projects that exceed the 15% equity requirement will be looked upon favorably by
the City. Equity is defined as cash or un-leveraged value in land or prepaid costs
attributable to the project. TIF shall not be used to supplant cash equity. Developer
equity level is at 25%.
2. 75% Rule. No more than 75% of the net present value of the tax increment generated by
a private development shall be made available to the project. The TID is expected to
generate $6,279,471 in increment over the life of the district which its Net Present
Value (NPV) is at $3,684,040 or 4%. 75% of this figure is about $2.77 million,
which for the DAG alone is under this ratio but when the paygo is added exceeds the
75% cap by about 8%. In this case, the excess is attributable to the $1 million
paygo,which will only be paid if the hotel performs and its value increases
accordingly. In addition, the City's financial advisors used relatively conservative
TID#25 Memo 4
inflation rates and a flat tax rate Given the nature of the paygo financing and the
relatively conservative estimates of the City's financial advisors, there is less
concern relative to exceeding the cap with this project.
3. Payback Period. 20 year maximum payback period. Preference will be given to projects
with payback periods of 10 years or under. The payback for the private financing and
paygo is 20 years. Public borrowing for riverwalk and public improvements may go
the full 27 years.
4. TIF Cap. The total amount of TIF assistance should not exceed 25% of total project
costs. This limitation may be waived if the project involves redevelopment of existing
structures or the assembly and clearance of land upon which existing structures are
located. TIF private assistance for the hotel rehabilitation is at 19%.
5. Self-Supporting Projects. Each project requesting TIF assistance should generate
sufficient tax increment to cover to the requested TIF assistance and a portion of any
public infrastructure costs within the district.
a. No increment from other private development projects within the district may be
used to supplement another project's inability to generate sufficient tax increment
to cover project costs. Project's anticipated increment covers proposed debt.
6. Land Assembly Cap. TIF assistance for land/property assembly costs will not be provided
in an amount exceeding 10% of the fair market value of the land. The fair market value
will be determined by an independent appraiser contracted by the City with cost of
appraisal paid for by developer. The fair market value of the hotel is estimated at
about$1 million and the acquisition costs are $2.1 million which exceeds the 10%
figure. This criterion was put in so parties would know that the city would not
allow persons to over inflate the prices of land in anticipation of a TID. In this case
the acquisition value of the land was based on the previous owners' acquisition from
the bank in 2009 for$2,006,250 so the recent sale is in line with that sale.
7. Internal Rate of Return. The amount of assistance provided to a developer will be limited
to the amount necessary to provide the developer a reasonable rate of return on
investment in the project and the subject site. A developer's return on equity, return on
cost or internal rate of return will be based on current market conditions as determined by
the City or City's financial advisor. In no case shall the internal rate of return exceed
30%. The 5 year average rate of return for the project with TIF assistance is 8.41%,
without TIF the 5 year average rate of return is 1.62%. As noted above, without this
TIF Assistance, it is unlikely that investors will invest in this project for an average rate
of return which is less than 2%.
8. Taxable Increase. The project should result in an increase in taxable valuation of at least
20% upon project completion. The project should increase in value by almost 950%
once it stabilizes.
TID#25 Memo 5
Policy Criteria
In addition to meeting all of the above financial criteria, projects must accumulate at least 50
points based on the following policy criteria: The project was scored 75 points in the right
hand column on an all or nothing basis. For the future we may want to provide the ability
of scorers to have flexibility in the points and use the scale as the "maximum".
Criteria Points
1. Attracting, retaining or expanding businesses for the purpose
of improving the City's economic base.
a. Documentation of employment or financial 20 20
projections must be provided by the party making the
request and will serve as the basis for the agreement.
2. Projects that directly implement specific recommendations
of the City's strategic planning documents such as the
Comprehensive Plan, Downtown Action Plan, Riverwalk 10 10
Plan, Vision Report, Consolidated Plan, Stormwater Plans,
etc. (Strategic Plan)
3. Projects involving retail development that is targeted to
encourage an inflow of customers from outside the city that
result in exported goods, or that provide services or fill retail 5 5
markets that are currently unavailable or underserved in the
City.
4. Presence of extraordinary development/redevelopment costs
such as:
a. Remodeling/Rehabilitation/Demolition
b. Environmental Remediation 20 20
c. Capital purchases
d. Facility expansion
e. Public infrastructure
5. Proposed employment potential.
a. Number of new employees.
b. Skill and education levels required for the jobs.
c. Range of salary and compensation rates for the jobs 10
as compared with the median income level for the
community.
d. Cost of public assistance per job.
e. Potential for executive relocation.
6. Enhance the streetscape and pedestrian experience. 5 5
(Riverwalk)
7. Historic Preservation. Preservation/rehabilitation a locally 5
significant historic structure.
8. Provides direct benefit to distressed areas through blight 15 15
elimination.
9. Quality of development and overall aesthetics (architectural,
site design, landscaping, etc.) beyond that which minimally 5
required by the Zoning Ordinance.
10. Higher standards of Building Design, Materials, and Energy 5
Efficiency such as meeting LEED certification, Energy Star,
etc.
6
TID#25 Memo