#6 TIF agreement & loan to 101 Milwaukee Street LLC (File Res. #2009-607)Economic Development Memorandum
Date: May 15, 2009
TO: City Council
FROM: Doug Venable, Director of Economic Development
SUBJECT: Action on a Resolution Approving a TIF Agreement with and Authorizing a
TIF Development Loan to 101 Milwaukee Street, LLC for the Renovation
of 101 E. Milwaukee St. – TIF No. 23 (File Resolution 2009 – 607).
I. Summary
101 Milwaukee Street LLC (“101 LLC”) is a newly formed development company
formed by SARA Investments to purchase and renovate the 6-story office building at
101 E. Milwaukee St. in TIF No. 23. To make the $4.5 million project feasible, 101 LLC
has asked the City for $860,000 in TIF incentives. Staff has negotiated a TIF
Development Agreement with the following key provisions:
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101 LLC to complete the $4.5 million purchase and renovation of 101 E.
Milwaukee St. by December 31, 2009
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101 LLC to guarantee total property tax payments ranging from approximately
$72,000 in 2010 to $80,000 in 2022.
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City to reimburse 101 LLC for $500,000 of development costs at the end of the
renovation project.
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City to loan 101 LLC $360,000 at 4.25% over 10 years to help finance
renovation.
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If annual property taxes exceed amount guaranteed by 101 LLC, then excess
property tax revenues will be used to pay debt service on $360,000 TIF loan.
II. Recommended Action
The revitalization of the downtown has been one of the Council’s top priorities.
The property at 101 E. Milwaukee St. anchors the Main and Milwaukee intersection and
is a key activity generator in the heart of the downtown. Given the downturn in both the
local and national economy, it is exciting to have a private developer willing to purchase
an underperforming downtown property and to invest several million dollars to create
class ‘A’ office space.
Staff recommends that the Council adopt file Resolution 2009 – 607 approving the
TIF Development Agreement with and authorizing a $360,000 TIF Development Loan to
101 Milwaukee Street, LLC for the renovation of 101 E. Milwaukee St. in TIF No. 23.
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Economic Development Department Box 5005 Janesville, WI 53547-5005 755-3180
III. City Manager recommendation:
The City Manager concurs with the recommendation to approve the TIF
development agreement.
IV. Background
101 LLC purchased the 6-story, 52,400 SF office building at 101 E. Milwaukee St.
for $940,000 million and is undertaking a $3,620,000 renovation of the property. The
office building has not had a major renovation since it was constructed in the early
1970’s and the building is currently 70% vacant. 101 LLC plans to replace the HVAC
system, replace the single pane windows with new energy efficient 2-pane glazing;
replace the roof; install accessible bathrooms on each floor; install sprinklers for fire
safety; and replace all interior walls and finishes.
The market rents for class “A” office space in downtown Janesville will not support
this $4.5 million project. Staff feels that without TIF incentives, the renovation project
would not occur and the building would likely continue to lose tenants and property
value.
V. TIF Analysis
Section V. C. of the City Council’s Economic Development Policy (Council Policy
No. 61) states:
“C. Standards for Incentives
The City may use up to fifteen years of projected property taxes from a
downtown redevelopment project to provide appropriate development incentives.
The development incentives may take the form of selling property for less than its
fair market valuation; the implementation of off-site streetscape improvements;
the provision of off-street parking spaces; the relocation of existing water, sewer,
storm sewer, electric, gas, and telecommunication utilities; reimbursements to
the developer for specified redevelopment costs; low/no interest project
financing; and site environmental remediation.”
Each redevelopment project must be evaluated to determine funding need and the
TIF agreement must be structured to meet that need. The 101 LLC project includes the
complete renovation of the building at 101 E. Milwaukee St. Owner’s equity and bank
financing will cover $3,640,000 of the $4,500,000 project costs, leaving an $860,000
funding gap.
When TIF No. 23 was created, 101 E. Milwaukee St. had an equalized property
value of $892,100 and paid $20,300 in property taxes. Staff estimates that the after-
renovation equalized property value will be approximately $65 per SF or $3.4 million.
Since the base value of the property was $892,100, the net increase in property value is
estimated at $2.5 million. Upon completion, property taxes will increase to
approximately $72,000 in 2011, and continue increasing gradually to $80,000 by 2023
as property value and mill rates increases. The increased property taxes will be
captured by TIF No. 23 and used to finance the needed $860,000 developer incentive.
Staff has negotiated a TIF incentive package including the reimbursement of
$500,000 in renovation costs at the completion of construction. The increased property
tax payment will be guaranteed by 101 LLC, and will allow the City to fully recover its
investment within 13 years. The remainder of the incentive will be provided as a
$360,000 TIF Development loan at the City’s cost of borrowing 4.25% and amortized
over 10 years with an annual debt service of $44,939.
Under the terms of the TIF Development Loan, if the actual property tax
increments from the project exceed projections, the extra property tax incremental
revenue will be applied to the annual $44,939 debt service payment. The full TIF loan
would be repaid – either through the annual debt service payment made by 101 LLC or
through the increased property tax increments generated by the 101 LLC development
project.
Doug Venable
Attachment: Location Map
Resolution 2009 - 607
Summary of TIF Development Agreement
Cc Eric Levitt, City Manager
Jay Winzenz, Director of Administrative Services
RESOLUTION 2009 - 607
A Resolution Approving a TIF Development Agreement with and Authorizing a
$360,000 TIF Development Loan with 101 Milwaukee Street, LLC for the
Renovation of Property at 101 E. Milwaukee St. in TIF No. 23
WHEREAS, the Common Council of the City of Janesville created Tax Incremental
Finance District No. 23 on September 9, 2002 in order to stimulate the redevelopment
of properties along E. Milwaukee St. and North Parker Drive in downtown Janesville;
and
WHEREAS, 101 Milwaukee Street, LLC has proposed the $4.5 million purchase and
renovation of the property at 101 E. Milwaukee Street (hereinafter the “Project”), and
WHEREAS, 101 Milwaukee Street LLC has requested redevelopment assistance to
complete this Project consistent with the objectives and proposed expenditures set forth
in the Project Plan for TIF District No. 23; and,
WHEREAS, the City and 101 Milwaukee Street LLC have negotiated a TIF
Development Agreement which is attached hereto and incorporated herein as if fully set
forth, and which Agreement sets forth the terms and conditions of City redevelopment
assistance including:
1. City reimbursement of $500,000 in renovation costs upon the completion of
construction; and
2. City making a $36,000 TIF Development Loan to 101 Milwaukee Street LLC
to be repaid by annual debt services payments or increased property tax
revenues.
WHEREAS, the Common Council of the City of Janesville does hereby find that the
proposed TIF Development Agreement and the proposed $360,000 TIF Development
Loan are each in the best interest and to the benefit of the citizens of the community
and the City;
NOW, THEREFORE, BE IT RESOLVED, by the Common Council of the City of
Janesville approves the TIF Development Agreement with 101 Milwaukee Street LLC
and authorizes the City Administration to make a $360,000 TIF Development Loan to
101 Milwaukee Street, LLC according to the terms and conditions as set forth in the TIF
Development Agreement; and
Resolution 2009 – 607
Page 2
BE IT FURTHER RESOLVED, that the City Manager and his designee(s), on behalf of
the City of Janesville, is/are hereby authorized to close upon these transactions, to
negotiate, draft, modify, review, execute, enter into, record and/or file any and all
documents, papers, forms, and agreements, to take whatever other actions, and to
make whatever minor modifications and/or amendments to the TIF Development
Agreement, TIF Development Loan, and such other writings and/or this transactions as
the City Manager may, from time to time and at any time, determine necessary and/or
desirable to effectuate the intent of this Resolution and these transactions.
ADOPTED:
Motion by:
Second by:
APPROVED:
Councilmember Aye Nay Pass Absent
Brunner
McDonald
Eric J. Levitt, City Manager
Perrotto
Rashkin
ATTEST:
Steeber
Truman
Voskuil
Jean Ann Wulf, City Clerk-Treasurer
APPROVED AS TO FORM:
City Attorney
Proposed by: City Manager
Prepared by: Economic Development Director
Summary of TIF Development Agreement
Between City of Janesville and 101 Milwaukee Street, LLC
I. Parties
A. City of Janesville . the Lender
B. 101 Milwaukee Street, LLC, the Developer/Promissor
II. Description of Property –
101 E. Milwaukee Street, Tax Parcel 01361-00277)
III. Purpose of Agreement
A. Stimulate redevelopment in the downtown
B. Close Developer/Promissor’s financing gap to allow renovation project to
proceed.
C. Implement TIF No. 23 Project Plan
IV. The Agreement
A. The City shall:
1. Reimburse $500,000 in renovation costs upon completion of
construction.
2. Loan Developer/Promissor $360,000 in accordance with terms of TIF
Development Loan Agreement.
B. The Developer/Promissor shall:
1. Provide financial documentation to the City that project financing is in
place and ready to go.
2. Complete renovations according to codes and at Developer/Promissor’s
expense.
3. By December 31, 2009, complete the $4.5 purchase and renovation
project at 101 E. Milwaukee St.
4. Make all required annual debt service payments to retire $360,000 TIF
Development Loan.
5. Guarantee to annually pay minimum property tax bill starting at $72,065
for tax year 2010 payable in 2011, and increasing to $79,930 for tax year
2022 payable in 2023.
C. While TIF incentives are being repaid, 101 E. Milwaukee St. cannot be sold or
leased to an entity that does not pay property taxes without City approval.
D. Developer Contingencies to be satisfied or waived by September 1, 2009:
1. Receipt of building plan approvals and issuance of building permits.
2. Receipt of satisfactory construction and permanent financing.
3. Approval of binding leases acceptable to Developer/Promissor.
4. Council approval of contract to construct parking structure.
E. City not bound to TIF Agreement until Developer/Promissor waives its
contingencies.
F. Developer/Promissor can repay City’s breakeven investment at any time and
if so paid, then Developer/Promissor can sell the property without the
restriction in Section IV.C.
TIF Development Loan Agreement
1. Loan Amount: $360,000
2. Loan Term: 10 years
3. Interest Rate: 4.25%
4. Annual Debt Service: $44,939.00
5. Debt Service Forgiveness: If actual property tax bill for 101 E. Milwaukee St.
exceeds the minimum property tax payment set forth in Section IV.B.5. of the
TIF Development Agreement, then the excess in property taxes paid will be
used to lower the annual debt service payment on the TIF Development
Loan.
6. Loan Closing: Loan shall close upon completion of construction and issuance of
an Occupancy Permit.
7. Timing of Annual Debt Service Payments: On the anniversary date of the Loan
closing. City to prepare an invoice for debt service due 30 days prior to
anniversary date.
8. Mortgage as Security: 101 Milwaukee Street LLC shall give City Mortgage against
its property at 101 E. Milwaukee St. as security for repayment of TIF
Development Loan.
9. Sale of 101 E. Milwaukee St.: If property is sold, then balance of TIF Development
Loan becomes due and payable.
10. Personal Guarantee: Eric Schwartz shall provide personal guarantee that TIF
Development Loan will be repaid.