To: Honorable Mayor and Members of Town Council
From: Trish Muller, Finance Director
Kevin Tilson, Executive Director, Downtown Development Authority
Title
Resolution: Approving the Downtown Redevelopment Reimbursement Agreement between the Town of Castle Rock, the Castle Rock Downtown Development Authority and Merchantile Commons, LLC
Body
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Executive Summary
Approval is requested of a Redevelopment Reimbursement Agreement (Reimbursement Agreement) (Exhibit 1 to the Resolution) with Merchantile Commons, LLC for the DDA/Town Special Fund to pledge 50% of the Property and Sales Tax Increment generated by the project with a timeline not to surpass 2032 and a total public investment not to exceed $1,300,000. A portion of the $1,300,000 is to be provided once the project receives a Certificate of Occupancy equal to the total of fees, use tax and additional land which was required to be purchased in order to meet fire code. The remaining public investment will be equal to 50% of the Property and Sales Tax Increment generated by the project up to the not to exceed amount or until 2032 whichever comes first.
This reinvestment of dollars generated by the private sector project allows the private sector to pay for the private sector and assists with the construction of a 28,800 square foot mixed use building to be located at Downtown Castle Rock in the Downtown Core on Wilcox Square consistent with the DDA Plan of Development and current Town Council and DDA priorities as discussed in August of 2014
There are two sources of funds that will be used for this project:
• The first source of funds is the Property Tax Increment that will be generated by this project. These Property Tax dollars will first be paid by the owner of the project/property and then later rebated to the Merchantile Commons, LLC.
• The second source of funds is the Sales Tax Increment that will be generated by this project. These sales tax dollars will first be paid by any sales tax generating occupants of the project and then rebated to the Merchantile Commons, LLC.
• The proposed rebate of fees, use tax and cost of additional land will come from the accumulated Sales Tax Increment that has been generated in Downtown and the payment for these items will go to the respective entities that these fees and tax are designated to go as well as the payment to the seller of the land.
The proposed use is to assist with a gap on this project which has be analyzed by an independent third party real estate consultant and verified to be greater than the public investment that would be proposed with a Reimbursement Agreement with the Town/DDA. This public investment will support the “bricks and mortar” of this project going towards the tangible construction elements of this project which will allow and house the specific uses described in the DDA Plan of Development including residential, retail/restaurant, and office uses each with their positive benefits to the Downtown economy.
The proposed project, called the Mercantile Commons would be a 28,800 square foot mixed use building, expected to be opened at the end of 2016. The Reimbursement Agreement would require that the project receive its Certificate of Occupancy by June 30, 2017. The building will be 4 stories, with the first floor being a mix of retail/restaurant space and office space, the second floor being office space, and the third and fourth floors both being residential space with a mix of studios, 1 bedroom and 2 bedroom units.
The lead developer is Merchantile Commons, LLC, made up of local real estate developers Nick Hier of Hier and Company, Gene Gregory and Milan Hejduk with a track record of other successful projects in Castle Rock. The three developers also built the ACME Water Tower Project located at 6th and Perry St. in Downtown Castle Rock.
The Town and the DDA utilized the service of Development Research Partners to review the pro forma (Attachment C) for this project and perform a check on developer assumptions and projections as well as analyze the gap on this project. This analysis found that proposed construction costs were within 3% of the construction costs estimated by Development Research Partners, and Development Research Partners identified a gap on this project which is greater than the public investment that is being proposed. This service is proposed to be paid for utilizing accumulated Sales Tax Increment.
The proposed project is supported by the Castle Rock Economic Partnership including the Castle Rock Chamber of Commerce, Castle Rock EDC, and Castle Rock DMA.
Budget Impact
The proposed Reimbursement Agreement will be an agreement where the private sector pays for the private sector. The proposal would be only utilizing dollars that otherwise, without the project, would not be available to reinvest into the project. The added benefit to the Town and DDA is that more than 50% of what otherwise would not be generated, will go to the DDA/Town Special Fund and can be used accomplish other great things in Downtown, including the enhancement and expansion of Festival Park or other project that are agreed on by the DDA and Town Council, such as improving parking.
A portion of the legal fees and fees associated with the evaluation of the project will be paid utilizing increment from the Special Fund.
There are two sources of funds that will be used for this project: Property Tax Increment and Sales Tax Increment. The Property Tax Increment is collected by the County Treasurer and paid directly to the Town for deposit into the DDA/Town Special Fund per the DDA/Town IGA. The Sales Tax Increment is collected by the Town of Castle Rock and with approval for this specific project all increment generated by the project will be deposited into the DDA/Town Special Fund.
The amount “Provided at Certificate of Occupancy” will be funded using accumulated Sales Tax Increment generated by the district initially and as increment is generate by the project that otherwise would not be generated but for the project, will be replenished in the DDA/Town Special Fund.
This pledge to the developer is in a 2nd position behind the DDA/Town Special Fund’s existing debt obligations to FirstBank for the DDA Line of Credit, Term Loan to the Move LLC and subordinate to any future bonded debt.
Currently Firstbank has not yet approved the agreement but it is expected they will approve prior to the August 4th council meeting.
On July 27, 2015 the Downtown Development Authority Board unanimously approved the Mercantile Commons Agreement.
Staff Recommendation
Town staff members including Town Manager Dave Corliss, Town Attorney Bob Slentz, Finance Director Trish Muller, and Development Services Director Bill Detweiler have been part of the public/private team working on this proposed project, as well as Frank Gray, CEO of the Castle Rock EDC and Marcus Notheisen, Vice President of the Castle Rock EDC.
Organizations supporting the proposed project include:
Castle Rock EDC (per action taken by Exec. Committee on 7/16/15)
Castle Rock Economic Partnership (per action taken on 7/20/15)
Development Research Partners
Staff recommends Town Council approve the proposed Reimbursement Agreement as presented, as it would increase the vitality and redevelopment of Downtown Castle Rock and positively impact the Town’s major economic development objectives growing the Sales and Property Tax base.
Proposed Motion
“I move to approve the Resolution approving the downtown redevelopment reimbursement agreement between the Town of Castle Rock, the Castle Rock Downtown Development Authority and Merchantile Commons, LLC as presented.”
Attachments
Staff Report
Attachment A: Resolution
Exhibit 1: Reimbursement Agreement
Attachment B: Renderings
Attachment C: Pro Forma Analysis
Attachment D: Addendum
DDA Letter of Support