Phase I - Dallas...4 dallas-ecodev.org Lancaster Urban Village Phase I •14,000 SF Retail •395...

Office of Economic Development | dallas-ecodev.org

Lancaster Urban Village

Economic Development Committee December 5, 2011

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Briefing Purpose Provide overview of the Lancaster Urban Village project Review the New Markets Tax Credit (NMTC) program Present Dallas Development Fund (DDF)

recommendation for an up to $12.0 million NMTC allocation ($3.37 million cash equity) for the Lancaster Urban Village project – $11.6 million NMTC allocation ($3.17 million cash equity)

expected Outline funding sources for Lancaster Urban Village and

recommend reprogramming of Public/Private Partnership funding to support vertical construction

Seek committee approval for Council action on January 11th, 2012

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Catalytic new mixed-used development in the Lancaster corridor across from the VA Hospital and adjacent to the VA DART station Provides new affordable housing and retail opportunities to Lancaster Corridor and VA employees Owner: City Wide Community Development Corporation Fee Developer: Catalyst Urban Development Location: S. of Lancaster Road and Ann Arbor Avenue intersection

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Location

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Phase I •14,000 SF Retail •395 Parking Spaces (mostly structured) •193 mixed-income residential units •Total Phase I costs are $27.8 million (see Appendix, Project Budget) Phase II will include an expansion of the Urban League to include a new job training facility

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Background $3.9 M Public Private Partnership (PPP) funding

for land assemblage and preconstruction $8.4 M HUD 108 funding for commercial and

residential approved October 13, 2011 $12.5 M HUD 221d-4 funding for residential

development approved October 10, 2011 $3.2 M in NMTC Equity

– Dallas Development Fund (DDF) board approved up to $12.0 M in allocation on November 29, 2011

Subject to Council approval of NMTC allocation and reprogramming of PPP funding, project financing anticipated to close in 1Q calendar year 2012

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Highly distressed community (DDF Priority)

25% M/WBE participation (DDF priority) Southern Dallas location (DDF Priority) 51% deed-restricted affordable units • 93 units, 15 years Additional parking for Urban League

facility Mutual leveraging with HUD 108 program

(DDF Priority) Sustainable development

– LEED certification (DDF Priority) – Transit-oriented development (DDF

Priority) – Pedestrian-friendly mixed-use

development – Walk-to-work housing for VA Medical

Center 72 permanent full time jobs projected

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Community Benefits

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Review of the NMTC program Permits taxpayers to receive credit against federal income taxes

for making qualified equity investments in eligible projects In 2009, Dallas created the Dallas Development Fund (DDF) as a

qualified non-profit to apply for a U.S. Treasury NMTC allocation

DDF was awarded a $55 million allocation in late 2009 – Worth approximately $14 million in up front subsidy to eligible

projects Investments must be used in low-income communities Credit provided to investor equals $.39 on dollar of qualified equity

investment to project and is claimed over a 7-year credit allowance period

NMTCs encourage investment by providing up to 25% of total project costs

DDF applied for a second allocation in the 2011 round – Award allocations will be announced in late January 2012

(More details on the NMTC program are available in the Appendix)

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Lancaster Urban Village Project Location Southern Dallas Distressed Community

Yes Yes; Highly distressed tract with 13% Unemployed, 28.9% Poverty rate and 51.7% of Median Area Median Family Income

Proposed Uses Job Training TOD Mixed-use, community oriented

No; but helps adjacent Urban League parking needs

Within .25 miles of VA Hospital DART station

Yes

Demonstrated need for NMTC

Yes

Likely community impact

Job creation for LIC

Increased wages LIC

LIC owned business? M/WBE owned business?

Yes, 72 FTE Yes 25% of construction

Community services business?

Facilitates wealth creation for LICs?

Provides goods or services to LICs?

Environmentally sustainable?

No No Yes Yes (LEED, TOD)

DDF Criteria

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Total Project Costs: $27.8 M $11.9 M commercial; $15.9 M residential DDF NMTC Allocation:$11.6 million ($3.2M in cash and up to $12.0MM allocation authorized) Other Public Assistance

– HUD 108 Loan – PPP Funds

NMTC transaction financing Land acquisition, site prep, parking, and commercial Residential component: separately financed via HUD 221(d)4 program and 108 Funds

Source of Funds Amount

COMMERCIAL DEVELOPMENT

HUD 108 $4,816,659

Interest Reserve (HUD 108) $340,752

PPP $3,310,301

PPP (QALICB Equity) $628,520

NMTC Equity $3,173,040

(- DDF fees) (339,000)

Total commercial $11,930,272

RESIDENTIAL DEVELOPMENT

HUD 108 $3,334,589

221 (d)4 $12,541,821

Total Residential $15,876,410

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Transaction Details

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Transaction Details: TIF Commitment

$8.492 M committed Approved by City Council on May 12,

2010 Pledged to repay HUD Section 108

funding


Transaction Details: Reprogram Public Private Partnership Funding

• $3.9 M in PPP funding previously

utilized to assemble land and fund predevelopment costs

• HUD 108 Funds repay PPP funding • Recommend reprogramming $3.9M to

cover funding gaps not filled by HUD 108 and NMTC financing


Recommendations Economic Development Committee

recommendation for Council action on January 11, 2012

• Approve up to $12.0 M in NMTC allocation

• Approve $3.9 M reprogramming of PPP funding


Appendix

NMTC overview


Types of Eligible Projects Allocation award depends on applicant’s strategy to use the tax credits to

support eligible development projects DDF’s application highlighted multiple types of projects for priority funding

under the NMTC program: – Transit-oriented development – Job training facilities – Mixed use (retail and housing)

Several types of projects are not eligible: – Those that derive more than 80% of gross rental income from rental

dwelling units – Golf courses, race tracks, gambling facilities, country clubs, massage parlors,

hot tub facilities, suntan facilities, liquor stores All projects must be in NMTC-eligible areas

– Eligible areas determined by poverty rate, unemployment and median family income

– Distress criteria: 1) a poverty rate of at least 30 percent; 2) a median family income at or below 60 percent of the applicable area median family income; or 3) an unemployment rate at least 1.5 times the national average.


Benefits of the NMTC program An additional financial tool to achieve Dallas’ development

goals, particularly those in southern Dallas neighborhoods – Focuses on (federally defined) Low-Income Communities and Low-

Income Populations

Funds can be used for debt, equity or “hybrid” financing – Projects include commercial, industrial, institutional, not-for-profit – For-sale housing (challenging due to 7-year time frame) – Mixed-use projects, with rental housing less than 80% of income – Operating businesses

An important supplemental layer that complements conventional debt and equity financing as well as existing city subsidy programs.


Illustrative NMTC Use Senior Lender

“Leverage Lender” NMTC Investor (NMTC

equity)

Investment Fund (100% NMTC Equity

Investor Owned)

Dallas Development

Fund

Dallas Development Fund Subsidiary (Special Purpose LLC)

99.99% Member- Investment Fund

.01% Member/Manager DDF

QALICB

Real Estate SPE- Controlled by Project Sponsor

Constructs and Owns Property

($1M equity contribution from Sponsor)

Project Sponsor

7 year Interest Only Loan

$7.1 M at market rates

$3.9 M Total NMTC benefits over 7 years

$2.9 M Equity Contribution

$10 M Equity Investment

QEI

QLICI

Management Control; Suballocation of $10 M in NMTC Authority

$300,000 in CDE Fees @ Closing

“A Note”: $7.1 M Interest Only Subordinate Loan @ Senior Lender Rates, 7 yr term

Blended Rate “B Note”: $2.6 M Interest Only Subordinate Loan; 30 year term*

* DDF has flexibility to assign, forgive, restructure B Note at end of 7 year, NMTC compliance term $1 M Equity

Hypothetical $11 M project using $10 M in NMTC Allocation


Appendix

Project Budget


Project Budget Uses Residential Commercial Total

Land 2,589,210 2,589,210

Sitework 1,619,048 1,619,048

Hard Costs 11,213,968 4,279,748 15,493,716

Soft Costs 3,539,775 2,066,912 5,606,687

Contingency 1,122,667 621,104 1,743,771

Base Project Costs

15,876,410 11,176,022 27,052,432

NMTC Costs 754,250 754,250

Total Project Costs

15,876,410 11,930,272 27,806,682

Memorandum

CITY OF DALLAS

DATE December 2, 2011

TO Members of the Economic Development Committee: Tennell Atkins (Chair), AnnMargolin (Vice Chair), Jerry R. Allen, Sheffie Kadane, Monica Alonzo

SUBJECT Community Development Block Grant Section 108 Guaranteed Loan Applicationfor Lake Highlands Town Center

On Monday, December 5, 2011, you will be briefed on the CommunityDevelopment Block Grant Section 108 Guaranteed Loan Application for LakeHighlands Town Center. A copy of the briefing is attached.

Please let me know if you have any questions.

Ryan S. EvansAssistant City Manager

C: The Honorable Mayor and Members of the City CouncilMary K. Suhm, City ManagerRosa A. Rios, Acting City SecretaryTom P. Perkins, Jr., City AttorneyCraig Kinton, City AuditorC. Victor Lander, Administrative Judge, Municipal CourtA.C. Gonzalez, First Assistant City ManagerForest Turner, Assistant City ManagerJill A. Jordan, P.E., Assistant City ManagerJoey Zapata, Assistant City ManagerJeanne Chipperfield, Chief Financial OfficerJerry Killingsworth, Housing/Community Services DirectorHelena Stevens-Thompson, Assistant to the City Manager

“Dallas, The City That Works: Diverse, Vibrant and Progressive.”

Community Development Block Grant Section 108 Guaranteed Loan Application for

Lake Highlands Town Center

Economic Development Committee December 5, 2010

Housing/Community Services Department

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Purpose

Consideration of Community Development Block Grant Section 108 Guaranteed Loan application for Lake Highlands Town Center (LHTC) - Phase I Retail Construction Financing

Obtain Economic Development Committee approval for consideration of December 14, 2011 item calling for a January 25, 2012 Council public hearing and final approval

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Summary of Issues After exhausting sources of available construction financing,

Phase I retail project of LHTC has a funding gap to start vertical construction

TIF funding commitment approved by City Council: Several contingencies including timing, private investment and design Funding phased based on completed development TIF reimbursements subject to availability of funds (generated by new development

in district). Estimated TIF funding availability – 2014

Project requires funds to bridge the time between start of construction and 2014

Section 108 loan from HUD can provide needed gap financing TIF funds can be used to pay off Section 108 loan

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Description of Development Lake Highlands Town Center, 7000 to 7200 blocks of Skillman, is a strategically located, 70-acre, urban infill, mixed-use transit oriented development Anchored by DART light rail - Lake Highlands (LH) Station Proximity to established single family LH neighborhoods –

historically underserved (quality retail/restaurant uses) Catalyst Project for Skillman Corridor TIF Public/Private Partnership - City, County, NCTCOG, DART Proximity to major employment areas (US Highway 75

office corridor; Downtown Dallas) Infrastructure 100% complete and vertical development

parcels are shovel ready

Project Location

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Lake Highlands Town Center

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Description of Development (cont.) Lake Highlands Town Center project encompasses 70 acres of urban infill land Land area assembled in 2007; critical mass necessary for

significant economic redevelopment impact 20 acre dedication of public space

Watercrest Park - Public park conveyed to City Hike and bike trails (will link to White Rock Trail system) Public amphitheater Water features

10 acres of infrastructure Public streets Rights of way, etc.

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Description of Development (cont.) The remaining 40 acres contain approximately 9 development parcels. At completion, LHTC will contain a minimum of 1.7 million square feet of mixed-use space: As a condition of TIF funding, Street Works, LLC (a

nationally recognized firm experienced in transit and mixed use developments) has been engaged as an independent consultant and is currently working with Prescott Realty Group to refine the design for the Phase I retail component as well as overall future phasing.

Phase I (located on the portion of the site along Skillman Street, south of Walnut Hill Lane) includes: A grocery store anchored retail development with structured parking (utilizing

Section 108 funding); and A residential development containing 200 market rate multi-family units (utilizing

HUD 221(d)(4) financing).

Site Plan

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Rendering at Completion

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Project Status Completed demolition and abatement of 1,334 deteriorated apartment

units Completed infrastructure - grading, utilities, streets, streetscapes Completed 20-acre park including amphitheater, hike & bike trail, lake,

fountains and water features Park now called “Watercrest Park” conveyed to City in March 2011 O&M agreements in place with PID/Developer for Watercrest Park and non-standard

public improvements in public R.O.W. such as special pavers and landscaping Over $86 million invested to date including public financing DART completed the Lake Highlands Station anchoring LHTC, a multi-

modal light rail, bus, kiss ‘n ride facility (approximately $10M invested) Funding for the Phase 1 residential development, a 200-unit market rate

multi-family project in Neighborhood 2 is in final approval stages with a HUD 221(d)(4) loan

Grocery anchor negotiations in final stages for Phase 1 commercial (retail) development

Aerial View

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Challenges and Solutions Project is under financed to start construction of Phase I Retail Phase

Economic downturn has constrained credit markets and delayed financing of vertical development

Credit is only extended during the downturn for projects with significant pre-leasing and increased equity investment

Retailers have closed stores, limited new store openings and limited expansion

TIF funds will not be available to start construction The project is ready to commence construction and it would be financially

prudent to do so prior to construction costs rising or losing potential interest from grocery anchor

TIF funds are allocated on a reimbursement basis after project completion. TIF funds will be available upon completion of both the initial grocery anchored development and residential development, estimated to be 2014. Actual TIF funds available are contingent on incremental revenue generated.

TIF funds can be pledged as the repayment source for Section 108 loan funding

Challenges and Solutions (cont.) Section 108 funds can help finance

Construction of Neighborhood 2 grocery anchored retail which will support Lake Highlands local demand and the new 200-unit residential development in LHTC

Lower than market construction financing interest rates Interest payments during interest-only time period of Section 108 loan can

be financed with Section 108 loan funds

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Section 108 Funds Background Program established January 2009, when City Council

adopted CDBG Section 108 Guarantee Loan Program Statement

Since May 2009, each project has been individually briefed and Council has passed individual project resolutions to grant City Manager authority to apply to HUD for Section 108 loan funds and to execute loans with HUD and loans with developer/owner to fund individual projects

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Section 108 Loan Parameters CDBG affordability requirements

Income 80% or less of Area Median Family Income 51% of residential units must be affordable Job creation required for commercial projects

Loan must be secured and is backed by a pledge of current and future CDBG funds

The maximum repayment period for a Section 108 loan is 20 years

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Section 108 Loan Parameters (cont.)

The loan can be structured to match the needs of the project(s) and the City Each loan has a separate interest rate

Interim borrowing currently at .5 to .7% linked to 3 month LIBOR plus 20 basis points (0.2%)

Loans must be permanently financed through HUD public offerings pegged to yields on U.S. Treasury obligations of similar maturity to the principal amount with a small additional basis point spread added to the Treasury yield

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Section 108 Active Applications and Projects

Project Address Location Loan Amt Council Approval

HUD Application Status

Project Status

Continental Building 1810 Commerce St. Downtown 7,600,000 Jan. 2010 Approved Aug. 2011 Loan closed Sept. 2011, project under construction

Atmos Lofts Harwood & Wood Streets

Downtown 11,750,000 June 2009 Under review at HUD HQ, Wash DC

Champion Homes at Copperridge

5522 Maple Ave. North 4,800,000 Pending Pending City Council Approval

Lake Highlands at Town Center

7100 Blocks of Skillman St.

North 13,350,000 Pending Pending City Council Approval


4300 S. Lancaster Rd.

So. Oak Cliff

8,492,000 June 2010 Approved Oct. 2011 Loan closing pending NMTC loan finalization

Sphinx @ Fiji Fiji & Compton Oak Cliff 8,000,000 N/A N/A Project proposal under review

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Section 108 Guaranteed Loan Application Process

Post proposed draft HUD application for $13,350,000 On city hall internet site At library branches city-wide

Neighborhood Public Hearing Hold hearing in the area in which funds will be used Obtain views of citizens

Community development objectives Housing and economic development needs

Prepare Final HUD Application Consider public comments and views Finalize description of activities

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Section 108 Guaranteed Loan Application Process (cont.)

City Council Public Hearing to review Description of contents of final HUD application Summary of public comments

Obtain City Council Approval for Final application for project Schedule of repayment to HUD of the Section 108

guaranteed loan

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Underwriting Standards Section 108 funding used as subordinate gap financing as a

mezzanine refunding piece Total loan balance of the project, including first liens,

cannot exceed 85% of the lower of total cost or appraised value of the completed stabilized project

Debt service coverage ratio of 1.15 for all debt Additional credit enhancement to provide collateral support

to insure that payments can be repaid, if refinancing does not repay both first and second liens

Additional credit support required, if the first lien mortgage financing does not include an interest reserve during the construction period, redevelopment and lease up

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Developer Prescott Realty Group is a Dallas based full service commercial real

estate development, investment and operating company actively involved in the revitalization of urban Dallas. In addition to Lake Highlands Town Center, other urban and/or transit focused projects include: The Shelby, a mixed use development with 55 multifamily units (4 stories) above

4,000 SF of restaurant space on SMU Blvd between U.S. Highway 75 and Greenville Avenue; completed in 2009; 100% leased

BLVD, a mixed-use project currently under construction with 417 units of multi-family residences above 9,100 square feet of retail at southwest corner of SMU Blvd and Greenville Avenue

Newton Townhomes, a 58-unit townhome development project located in Oak Lawn and completed in 2007; 100% sold-out

Renovation of the historic Stoneleigh Hotel in 2009 located in Uptown Over 650,000 square feet of commercial office buildings in strategic locations

adjacent to DART light rail

Since its founding in 1997, Prescott has completed acquisitions totaling over 5M square feet, leasing transactions of 6M square feet and development projects totaling over $450M.

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Sources and Uses SOURCES First Lien Note $27,565,055 Section 108 Loan 13,350,000 Equity Contribution 7,220,304 TOTAL SOURCES $48,135,359 USES Land Cost $ 7,884,266 Site Prep and Construction 14,089,065 Tenant Improvements 5,582,897 Parking Garage 11,206,011 Architect, Structural & Consultants 200,000 Other Soft Costs 335,000 Loan Origination Fee 275,651 Interest Reserves 3,596,527 Real Estate Taxes 865,027 Leasing Commissions 1,428,736 Development Fees 1,629,039 Other Development/Financing Costs 1,043,140 TOTAL USES $48,135,359

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Pro Forma Analysis for Section 108 Loan Loan to Value ratio of 66% for both 1st lien debt and Section 108 second lien

loan will meet underwriting standards based upon a capitalization rate of 7% of the net operating income

Construction to begin in 2012 and to be completed in 2013 Project to reach lease-up and stabilization in 2015 City’s HUD loan of $13,350,000 will be 5 years interest only and equal annual

principal payments of $890,000 per year for years 6 through 20. The 5 year interest only period includes 2 additional years past projected

stabilization to protect against slower lease up or construction delays. Five years of Section 108 interest reserve @ $2,446,871 (4.25%) will be set up at

closing of construction loan with Section 108 loan funds Developer’s interest rate on the project loan with the City will be .50% higher

than the City’s Section 108 loan from HUD and both loans will have matching amortization

Debt Coverage Ratio for all debt is 1.15 A portion of the projected TIF payments to the entire LHTC project, estimated

to be available starting 2014, will be sufficient to cover Section 108 loan repayments until paid in full.

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Credit Enhancement for Section 108 Loan Five years of interest reserve for the Section 108 loan represents all

amounts needed to pay interest-only period of City’s loan with HUD Project @ stabilization cash flows sufficient debt coverage to pay 1st

lien debt with NOI of 1.15 for the entire term of the City’s HUD loan

A portion of the estimated $40 million TIF payments to the LHTC project, beginning in 2014, will be pledged directly to repay the development loan with the City and are projected to be sufficient to repay the City’s loan with HUD

No partnership distributions will be made until the project receives the first TIF payment, unless debt service is paid current via NOI, additional equity or other sources of funding.

Owner will supply necessary credit enhancement, if required by HUD, for interest payments and loan repayment

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RECOMMENDATION City apply for $13,350,000 Community Development Block Grant Section 108 Guaranteed Loan in support of a commercial project located in 7100 blocks of Skillman Street. Loan proceeds may be used for: Commercial construction Site work and public improvements Section 108 loan interest reserve Costs of HUD loan sale in public offering

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Next Steps December 14, 2011 City Council call for public

hearing Hold neighborhood public hearing between

December 14, 2011 and January 25, 2012 January 25, 2012 City Council Public Hearing and

final approval for filing of Section 108 Guaranteed Loan application to HUD

TicketCity Bowl

Economic Development Committee Briefing December 5, 2011

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Background

On April 7, 2010, Council authorized the creation of a grant program to support the Bowl game (Council Resolution 10-0848)

FOOTBALL STARR, INC. d/b/a TicketCity Bowl, the game promoter and license holder, signed an agreement to keep the bowl game at the Cotton Bowl for the next seven years (Council Resolution 11-0891)

The bowl game is played between a Big Ten team and alternating between a Big 12 or a Conference USA team each year

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Background (Continued) The inaugural TicketCity Bowl was played on

January 1, 2011 and featured Texas Tech University v. Northwestern University

2011 game was the second highest rated broadcast in history of ESPNU with an estimated national audience of 1,000,000 households

As a start up venture, the Bowl will likely struggle to establish itself in the early years

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Background (Continued)

Conference USA, a non-profit, has a strong interest in this market for recruiting purposes and has offered to take the lead to help ensure the future viability of the Bowl

The 2012 TicketCity Bowl will be held on Monday, January 2, 2012, the New Year’s Day observed holiday

2012 game will again be televised on ESPNU showcasing Dallas and the Cotton Bowl at Fair Park

Proposal Conference USA and FOOTBALL STARR, INC.

have agreed that Conference USA will be the contracted lessee for the 2012 game, therefore, it is proposed to: Suspend the contract with FOOTBALL STARR, INC.

d/b/a TicketCity Bowl for 2012 Contract directly with Conference USA as a stadium

lessee for the January 2, 2012 bowl game Fair Park service contractors to pay Conference USA

directly for parking, novelties and food & beverage commissions from the Bowl game

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Benefits to the City Major economic impact for the City at a

traditionally slow time for hotels, restaurants, rental car agencies and other local businesses

The gross economic impact for the at&t Cotton Bowl Classic was estimated at $29,800,000 in 2006 (Sportsimpact.com, Dr Patrick Rishe)

The Texas v. Oklahoma game economic impact for 2006 was estimated at $17,300,000 (Dr Patrick Rishe)

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Benefits to the City (Continued)

The Dallas Convention and Visitors Bureau estimated the economic impact of the 2011 TicketCity Bowl at $11,001,359

Advertising, broadcasting, news media and promotional activities related to the bowl game will attract tourists to the City and Fair Park

Major cities throughout the nation provide economic support to their bowl games ranging from $250,000 to $2,500,000

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