HomeMy WebLinkAbout21A. 12-509
OCTOBER 9, 2012 12-509 RESOLUTION
(CARRIED __7-0____LOST ________LAID OVER ________WITHDRAWN ________)
PURPOSE: MODIFY DEVELOPER AGREEMENT FOR REHABILITATION OF
CITY CENTER HOTEL
INITIATED BY: CITY ADMINISTRATION
WHEREAS, the Common Council of the City of Oshkosh approved the creation
of Tax Increment District No. 25 (City Center Hotel Rehabilitation); and
WHEREAS, the Common Council approved (via Resolution 12-290, May 22,
2012), a form of Development Agreement to be entered into between the City and the
developer proposing to remodel, repair, rehabilitate and reconstruct the City Center
Hotel (the “Project”); and
WHEREAS, at the time the form Development Agreement was approved, the
equity structure and ownership of the developer entity or entities had not been finalized;
and
WHEREAS, the developer has now established its intended equity structure,
which will require certain modifications to the form Development Agreement; and
WHEREAS, such modifications will facilitate the ability of the developer to obtain
bond and equity financing for the Project; and
WHEREAS, the City is willing to modify the terms of the Development Agreement
to accommodate the developer’s proposed changes, so long as no such changes
modify the amount and conditions for disbursement of the City’s contribution to the
Project, the increment guaranty to be provided by the developer, or the collateral
securing the developer’s increment guaranty,
NOW, THEREFORE, BE IT RESOLVED by the Common Council of the City of
Oshkosh that the proper City officials are hereby authorized to execute and deliver such
development agreement(s) and other documents as are necessary to make the
modifications requested by the developer as set forth in that certain letter to the City
from the developer’s counsel dated October 8, 2012, a copy of which is attached hereto;
provided that all such agreements maintain:
OCTOBER 9, 2012 12-509 RESOLUTION
CONT’D
The amount of the City’s contribution to the Project and the conditions for
its disbursement as set forth in the form of Development Agreement
approved by the City in May, 2012;
The increment guaranty set forth in the form of Development Agreement
approved by the City in May, 2012, with all developer entities being jointly
and severally liable for performance of the increment guaranty; and
The mortgage securing the increment guaranty, which mortgage shall be
subordinate only to a $7.5 million mortgage in favor of the Project lender.
REFF BAIVIER BERMINGHAM IM, S.C.
ATTORNEYS AT LAW SINCE 1858
Russel1J.Reff
Jeanne E.Baivier
John E.Bermingham
Michael Lim
Daniel M.Muza
R.Samuel Sundet
Emily Z.Dunham October 8, 2012
VIA E-MAIL
Attorney Lynn A. Lorenson Attorney Michael Lokensgaard
City Attorney GODFREY&KAHN
CITY OF OSHKOSH 100 W. Lawrence Street
215 Church Avenue P.O. Box 2728
P.O. Box 1130 Appleton, WI 54911-2728
Oshkosh, WI 54903-1130
Re: Distribution of Hotel TIF Proceeds
Dear Lynn and Mike:
I am writing as a follow up to our conversation this morning. As I indicated at that time,
we were informed by our accountants late Friday that the distribution of the $2,000,000.00 up
front TIF proceeds to a limited liability company would make the entire$2,000,000.00
immediately taxable and could result in a very substantial unanticipated tax liability.
We spent the weekend and part of this morning trying to develop a structure that would
avoid these adverse tax consequences and would not adversely affect the City in any way. We
are proposing that the Development Agreement be amended to authorize the distribution of the
$2,000,00.00 of up front TIF funds to a Subchapter S Corporation we are in the process of
forming. The name of the Subchapter S Corporation will be OI Management Corp. The
Shareholders of OI Management Corp. would be UW-Oshkosh Foundation Hotel Project, LLC
and the individuals who own Oshkosh Hotel Venture,LLC. Oshkosh Hotel Venture, LLC can
not be a Shareholder because a limited liability company can not be a Shareholder of a
Subchapter S Corp. The specifics of the new structure are as follows:
1. The$2,000,000.00 of up front TIF proceeds would be disbursed to OI
Management Corp.,rather than Oshkosh Investors, LLC.
2. OI Management Corp. would immediately contribute the$2,000,000.00 to
Oshkosh Investors,LLC in exchange for membership units of Oshkosh Investors,
LLC.
3. Under the new structure,the Members of Oshkosh Investors,LLC prior to the
equity raise would be the original Members,UW-Oshkosh Foundation Hotel
Project, LLC, Oshkosh Hotel Venture, LLC and OI Management Corp.
217 Ceape Avenue,P.O. Box 1190,Oshkosh,WI 54903-1190
Oshkosh:920-231-8380 Fox Cities:920-725-3103 FAX:920-231-0035
Attorney Lynn Lorenson
October 8, 2012
Page 2
4. 01 Management Corp. would be the Manager of Oshkosh Investors,LLC and
would be responsible for the performance of all of the obligations of Oshkosh
Investors,LLC under the Development Agreement.
5. Oshkosh Investors, LLC would guaranty the obligation of OI Management Corp.
under the Development Agreement and would secure its guaranty by the mortgage
on the real estate so that the City would have the same protections it would have
had if Oshkosh Investors,LLC was the party to the Development Agreement for
the up front TIF proceeds.
6. The pay go proceeds would still be distributed to Oshkosh Investors, LLC under a
separate Development Agreement with Oshkosh Investors,LLC.
7. The Development Agreements would be structured with cross default and cross
collateral provisions so the City would have recourse against both entities in the
event of a default.
We believe that the proposed structure would be extremely beneficial from a tax
standpoint and would provide the City with all of the same protections afforded to the City under
the original structure. Under the proposed structure,the City funds would still be held in escrow
until all of the equity funds and bonds funds were invested in the project and would be disbursed
last.
We recognize that the change in structure will result in additional attorneys' fees and
expenses and are willing to remove the cap on the Developer's obligation to reimburse the City
during the first year of the TIF for costs incurred by the City to create the TIF and negotiate the
Development Agreements(including,but not limited to,reasonable attorneys' fees)so that the
City will not be required to absorb any additional cost.
I hope this letter adequately explains the changes we are suggesting. Please feel free to
call me, if you have any questions. In the event I am on the telephone or in conference,please
have the receptionist interrupt me.
Sincer- ,
/ e'Russell J. Reff
E-mail: rjr @reff-law.com
RJR:pac
cc: Mr. Art Rathjen
Mr. John Pfefferle
Mr. Richard Batley
Mr. Richard Wells
Attorney Lynn Lorenson
October 8, 2012
Page 3
Mr. Rick Knight
Mr. Tom Sonnleitnet
Mr. Tim McCoy
Mr. Jeff Gross