HomeMy WebLinkAbout38. 17-442 AUGUST 22, 2017 17-442 RESOLUTION
(CARRIED 7-0 LOST LAID OVER WITHDRAWN )
PURPOSE: APPROVE AMENDED PAYMENT IN LIEU OF TAXES (PILOT)
AGREEMENT WITH OSHKOSH HOUSING AUTHORITY AND
WAITE RUG HOUSING, LLC FOR PROPERTY LOCATED IN THE
300 BLOCK OF EAST CUSTER AVENUE
INITIATED BY: LEGAL DEPARTMENT
WHEREAS, the Oshkosh Housing Authority owns property located in the 300 block
of East Custer Avenue; and
WHEREAS,Wisconsin Statutes§66.1211 allow municipalities to enter into payment
in lieu of taxes (PILOT) agreements with Housing Authorities to pay for services,
improvements, or facilities furnished to properties owned by Housing Authorities; and
WHEREAS, the City Council previously approved a PILOT agreement (Resolution
17-276 on June 13, 2017) to allow the Housing Authority to make a payment to the City for
the services, improvements, and facilities that the City provides to the property; and
WHEREAS, since the approval of the PILOT agreement the costs associated with the
Project have increased and the Housing Authority has reconfigured the Project from low
income housing to Section 42 Housing and Section 8 Voucher Based Housing; this
reconfigured Project would be expected to generate additional tenant income increasing the
payment to the City under the existing PILOT agreement; and
WHEREAS, the Housing Authority budget for this Project does not currently
support the increased payments to the City under the PILOT agreement and the Housing
Authority has requested the City to enter into an amended PILOT agreement maintaining
the anticipated payments under the current PILOT agreement increasing those payments
over time to reach the full payment to the City.
AUGUST 22, 2017 17-442 RESOLUTION
CONT'D
NOW, THEREFORE, BE IT RESOLVED by the Common Council of the City of
Oshkosh that the proper City officials are hereby authorized and directed to enter into an
amended payment in lieu of taxes (PILOT) agreement with Waite Rug Housing, LLC and
the Oshkosh Housing Authority for property located 300 East Custer Avenue in the City of
Oshkosh in substantially the same form as the original approved agreement but providing
for an initial payment to the City under the Agreement of$14,400 per year escalating at a
rate of 3% per year to reach 100% of the amount originally anticipated by the PILOT
Agreement (total tenant rent minus utilities times 10%).
TO: Mayor and Members of the Common Council
FROM: Lynn A. Lorenson, City Attorney
DATE: August 17, 2017
RE: Approve Amended Payment in Lieu of Taxes (PILOT) Agreement with Oshkosh
Housing Authority and Waite Rug Housing, LLC for Property Located in the 300
Block of East Custer Avenue
BACKGROUND
At its June 13, 2017 meeting the Council approved a payment in lieu of taxes agreement (PILOT)
with Waite Rug Housing LLC for property located in the 300 block of East Custer Avenue in the
City of Oshkosh. The Housing Authority planned renovation of the property into low income
housing and pursuant to Section 66.1211 of the Wisconsin Statutes proposed to enter into a
PILOT agreement with the City providing for payment of an amount equal to tenant rent
revenue minus utilities times 10%. This formula was anticipated to generate approximately
$14,000 per year as payment to the City.
Since approval of the PILOT agreement the costs associated with the Project have
increased and the Housing Authority has reconfigured the Project from low income housing to
Section 42 Housing and Section 8 Voucher Based Housing. This reconfigured Project would be
expected to generate additional tenant income increasing the payment to the City under the
existing PILOT agreement to approximately $38,000 under the current formula.
The Housing Authority budget for this Project does not currently support the increased
payments to the City under the PILOT agreement and the Housing Authority is requesting the
City enter into an amended PILOT agreement maintaining the anticipated payments under the
current PILOT agreement and increasing those payments over time to reach the full payment to
the City.
ANALYSIS
A copy of the letter from the Executive Director of the Housing Authority explaining the request
is attached to this memorandum.
City Hall, 215 Church Avenue P.O. Box 1130 Oshkosh, WI 54903-1130 920.236.5000 http://www.ci.oshkosh.wi.us
While the request is for the City to take a reduced payment under the current PILOT agreement,
currently this property is tax exempt. Without renovation, the City will receive no taxes nor
payment in lieu of taxes for this property. The proposed amended agreement would provide
the City with $14,400 as the first annual payment with this amount escalating at the Housing
Authority's proposed rate of 2-3% per year until full payment under the original anticipated
calculation is achieved and allow the Housing Authority to continue with plans to renovate this
currently blighted property into affordable housing. The resolution is drafted anticipating a 3%
increase which provides a slightly quicker escalation to full payment.
FISCAL IMPACT
Currently this property is tax exempt. Approval of an amended agreement would allow the
Housing Authority to continue with plans to renovate the property and begin payment under
the PILOT agreement. Payment would initially be $14,400 per year escalating at a rate of no less
than 2% per year to reach payments equivalent to tenant rent minus utilities times 10%
consistent with other Housing Authority projects within the City. At the rate of 2% per year
escalation it would take approximately 50 years to reach full payment under the amended
agreement. At 3% per year it would take approximately 34 years to reach full payment under
the amended agreement.
Approved:
0,44
G Ar, '4•
Xe4s��
rk A. Rohloff
City Manager
City Hall, 215 Church Avenue P.O. Box 1130 Oshkosh, WI 54903-1130 920.236.5000 http://www.ci.oshkosh.wi.us
,® w
-ilb�
Oshkosh/Winnebago County
Housing Authority
August 11, 2017
Lynn Lorenson
City Attorney
City of Oshkosh
215 Church Avenue
Oshkosh, WI 54901
Oshkosh Housing Authority
Winnebago County Housing Authority
600 Merritt Avenue
RO. Box 397, Oshkosh, WI 54903-0397
(920) 424-1450 » Fax (920) 424-1474
www.ohawcha.org • www.winn,--bagohomebuyer.org
RE: Waite Rug Housing, LLC
Dear Lynn:
NOMEBUYER � PROGRAM
As we discussed on the. phone, the Waite Rug Housing development has taken some unexpected turns
financially.
Originally when the application was submitted to WHEDA for tax credits we were using the
Waite building to redeploy some of the Public Housing units that had been "lost" as a result of
the remodeling of Raulf Place and Court Tower. We entered into an LOI with Stratford Capital
Group to purchase both the 9% and the federal historic credits. We partnered with Commerce
Bank to purchase the -State historic credits.
In February, Stratford informed us that they needed to reduce the 9% price for credits from
$1.02 to 0.91, resulting in about a $400,000 gap. The reason given was Investor concern
associatec?with the new Administration and how Public Housing would be affected. Reduced
Capital Funds, changes/unknowns with RAD—it all led to a general unease in the Investor
community that continues today. After much restructuring of Waite, it was decided that adding
15 Housing Choice Vouchers to the project would allow us to pay debt service on debt for those
units, covering the gap.
On Friday, July 14, 2017 we had a meeting with Oshkosh HA and McGann Construction staff to
discuss the bids and where we were coming in on hard costs. The news was not good. Because
of HUD required Davis Bacon wage rates, subcontractors were either not submitting bids OR
increasing their estimates substantially (in some cases ridiculously). It's been relayed that most
subcontractors feel they have plenty of other opportunities for business that don't come with
the strings (tracking, wages, etc.) of Davis Bacon and they (the subcontractors) would just focus
their energies on those projects instead. McGann has close relationships with many subs and
despite diligent follow up and attempts to get subs to bid, there were still major work
categories that received no bids. With conservative "placeholders" in the gaps where bids have
not yet been obtained, the hard cost bids came in about $3 million over budget. OHA, McGann
and Dimension Development have been working with the architect, WHEDA, Wisconsin Bank &
Trust, SVA and Stratford on how to address this possible deal -killer.
The conclusion that was reached, unfortunately, was that there could no longer be Public
Housing units used in this development and it will be straight Section 42, with 8 Project Based
Vouchers. WHEDA will supply the debt, geothermal has been lost, value engineering of design
and finishes has been closely scrutinized. By downsizing the PBVs to 8, we'll avoid Davis Bacon
and McGann is hopeful to be able to get subs to bid, and get the ones that already bid to
"sharpen their pencils" and give us better, more realistic, numbers.
Now that this project will no longer be Public Housing units, we are able to secure permanent
financing to further support the construction shortfalls. Permanent debt is not allowed under
Public Housing rules.
As we continue down this path, we now come to the City of Oshkosh for assistance to allow the
project to move forward with securing a viable operating budget. The City Council originally
approved a Payment in Lieu of Taxes (PILOT) based on the project serving 100% low income
tenants and the standard public housing PILOT arrangement (tenant rent revenue minus
utilities times 10%). This budgeted PILOT amounted is $14,400 annually.
If a PILOT has to be paid with the new tenant rents, the PILOT would be approximately $38,000
which the current operating budget cannot support and the investor in the project will not
move forward with the closing.
Our request is for the City of Oshkosh to approve a flat annual PILOT of $14,400 for 600 East
Custer Street, which will house 56 units of affordable housing and 8 units of subsidized housing.
When we discussed our proposal on Thursday, you mentioned an escalation clause. An annual
escalation to the flat fee PILOT would be acceptable to OHA. I would like to recommend a two
to three percent annual escalation.
In my review of the historical tax payments of this entire property from 2006 through 2012
which is prior to OHA's purchase of the property: taxes owed were $120,333 and $38,633 paid.
If the City approves this fiat PILOT it is a guaranteed minimum of $14,400 per year for the south
building. The North building with an address on Nevada Street will be additional City revenue
as soon as that building is purchased by North Waite Plaza, LLC.
I am available at 920-424-1470 x112 or cell 920-642-3480 for any further questions.
Thank you for your assistance with this matter.
Sincerely,
Susan van Houwelingen
Executive Director