To: Honorable Mayor and Members of Town Council
From: Dave Corliss, Town Manager
Kevin Tilson, Director, Downtown Development Authority
Title
Discussion/Direction: Riverwalk Project - TIF Agreement
Body
________________________________________________________________________________
Executive Summary
Confluence Companies (Confluence) proposed a project in Downtown Castle Rock on March 31, 2016 to the Downtown Development Authority (DDA) Board. The DDA Board discussed the project and agreed that the proposed project would have catalytic positive impact on Downtown and was worthy of further analysis. The board directed staff to work with the project, the Town, the County and a third party entity to review the project site plan, floor plan, design features and pro forma. Staff has worked closely with these entities and after a review of the pro forma on this project by an independent, third party has identified a gap on the project. Using the Downtown Tax Increment Financing (TIF) tool as well as working closely with the Town and County, terms have been agreed to for the use of TIF to facilitate a project on a location that is identified as a “top priority” location for redevelopment in the DDA Plan of Development. Staff is requesting that Town Council review the proposed terms for a Redevelopment Agreement and, if approved, direct staff to come back to Council with the Redevelopment Agreement for final approval.
These highlighted deal points are discussed in more detail later in this memo:
• Share back 75% of the property and sales tax increment generated by the project.
• Use the Downtown Special Fund to repay the respective Town funds for the fees and taxes not collected directly from the project.
• County and Town to quit claim deed land adjacent to 215 Wilcox to the project.
• Town IREA credits up to $350,000 to be used for mutually beneficial improvements/relocation expenses where appropriate and available.
• Confluence intends to impose a 1% Add-on Public Improvement Fee (PIF) which will be collected on sales in addition to the State, County and Town sales tax.
Discussion
Background
The function of the Downtown Development Authority is to revitalize, redevelop and energize Downtown Castle Rock through strategic public investment that facilitates and provides the infrastructure and environment that allows the goals of the Plan of Development to be realized.
The Town’s Community Survey identified “Downtown” as one of the most used keywords among community comments, the Alliance’s Downtown survey in 2015 overwhelmingly expresses the desire of Castle Rock residents to see investment and vibrancy in Downtown, as does the feedback gathered at community meetings. In addition, the DDA Plan of Development and the mutually agreed upon priorities from Town Council and the DDA for Downtown, identify projects such as this one as an important goal for Downtown; and to be located near the anticipated investment in Festival Park is a win-win for both the park and the project. Several other items identified by the Plan of Development that are accomplished with this project, include:
• The location of this project is identified as a top priority for redevelopment in the DDA Plan of Development.
• The project proposes to accomplish multiple goals of the Plan of Development by providing the infrastructure/buildings in Downtown which allow the private sector to bring specific uses to Downtown. Many desired uses are outlined in the Plan of Development, and were discussed with Town Council and the DDA Board in the work session held in August of 2014. The top priority uses are listed below, and all are included in this project:
o Restaurant and retail: Retail studies have shown that one of the best ways to redevelop a targeted area is to attract restaurants. People spend their disposable income where there are dining options.
o Office: A strong weekday and daytime population is required to support small businesses during the work week.
o Residential: A vibrant downtown environment must stay active and full of people in the evenings and on the weekends when the downtown workforce is off of work. Downtown Castle Rock has very little residential space. Residential density is a key and needed component to create a vibrant environment in Downtown Castle Rock.
• The Riverwalk Project proposes to positively impact each of these desired uses, but perhaps the most catalytic impact from this project comes from the amount of residential space that would be added to Downtown. When combined with the office space and restaurant/retail space its impact is great. Increasing density is discussed in the Plan of Development and is a common strategy of historic Downtowns.
• In addition, the Plan of Development calls for the removal of “strip malls”. The creation of a walkable environment, where “window shopping” can occur, is facilitated by development with little to no setback from the street so that pedestrians can find interesting shops, goods and services as they walk. This project would eliminate two locations with asphalt parking lots off street, bring the building store front up to the street and put parking in the rear of the building. This create a more walkable environment and leads to the customer often being willing to walk greater distances from their parking space, because the walk is interesting and engaging.
• The building at 113 Wilcox was beginning to deteriorate, and the Plan of Development calls for the preventing or halting of the deterioration of property values or structures.
At a seminar put on by Downtown Colorado Inc., “downtown experts” Brad Segal and Deana Swetlik opined that facilitating projects that bring residents to a community’s downtown is one of the best things that you can do to strengthen the Downtown economy and vibrancy, and indicated the growing desire to live in downtowns is not just a fad, but a long term trend that is expected to remain for many years and multiple generations into the future, not just the millennial generation.
In the last 10 years or more, the Castle Rock community has taken a number of steps to put in place tools, code, regulation, public boards, etc., that are aimed at facilitating a more active and vibrant Downtown. This includes many public meetings with residents, business owners, property owners, Chamber members, EDC members, Alliance members, and Town Council members, to:
• Create the Downtown Advisory Commission
• Pass ballot measures where business owners voted to tax themselves to create the DDA
• Create the Plan of Development (DDA Document)
• Create the Downtown Master Plan (Town Document)
• Update the Downtown Overlay District to encourage a more vibrant downtown
• Update the signage code in Downtown to allow signage that fits in a historic downtown
Some of things envisioned by the community with the accomplishments listed above are just starting to happen in Downtown Castle Rock, including the Mercantile Commons, Festival Park, the Corner at 221 Wilcox St. and this proposed project.
Proposed Project
The proposed deal structure provides a reinvestment of tax dollars generated by this private sector project and allows the private sector to pay for the private sector and assists with the construction of 179,269 square feet of residential space or 228 residential apartments, 19,795 square feet of office and 9,886 square feet of retail space. This project is to be housed in 2 buildings to be constructed in Downtown Castle Rock in the Downtown Core consistent with the DDA Plan of Development and current Town Council and DDA priorities as discussed in August of 2014.
The project proposes a 5 story building at the north location at 215 Wilcox St., and proposes a 6 story building at the south location at 113 Wilcox St. The project proposes to step back the façade of both buildings so that the pedestrian experience is that of a 2 story or 3 story building with the remaining floors stepped back.
The north building will include a roof top pool and a ground floor restaurant over-looking Sellars Gulch. The south building will include a work out center, club house, office space and a dog/bike washing station.
The project will have multiple floors of parking at both the north and south location for a total of 328 parking spaces with a potential use of 267 spaces for the apartments and 61 for the office/retail.
The renderings and floor plans of the proposed project are included with this memo (Attachment A). These renderings will also be included as an exhibit in the proposed Redevelopment Agreement.
Pro Forma and Gap Analysis
Town and DDA staff utilized the service of Jesse Silverstein with Development Research Partners to conduct an independent, unbiased, third party review of the pro forma and identified gap on this project. This analysis also included a check on developer assumptions and projections. Development Research Partners came recommended to Castle Rock from the staff of several DDAs, URAs and Economic Development Organizations. This analysis found an identified a gap on this project which Downtown increment is being proposed to be used to mitigate.
Jesse Silverstein provided his written opinion of this project based on his review of the project pro forma and his check on developer assumptions. He identified an upfront gap on this project of $14,000,000. His analysis is attached to this memo as Attachment B.
Staff also worked closely with the Douglas County Assessor who provided a rough estimate of the value of this project at $46,844,600. Working closely with the Castle Rock Finance Department, staff has also put together an estimate of the sales tax per square foot for a project like this which we have estimated at $220 in sales per square foot. Based on these estimates, a rough projection for the increment that would be generated by this project is $10,700,000 over the life of the DDA ending 12/1/2038 (100% of TIF).
Agreement Structure
The terms of the proposed agreement are outlined below. If approved, a redevelopment agreement would be drafted consistent with the same intent.
Terms:
• Share back 75% of the Property and Sales Tax Increment generated by the project (75% of TIF estimate = $8,000,000).
o TIF remitted each year until the not to exceed amount ($11,500,000) is reached or until 12/1/2038.
o If approved, this would be drafted in a redevelopment agreement.
• Fees and use tax collected by the Town up to $4,000,000 to be paid to the Town by the Downtown Special Fund.
o Current Estimate: $3,200,000. This estimate will likely increase over time starting in 2017.
o If approved, the following payment of fees would occur:
§ Town Use Tax: $540,000 includes Construction Permit Use Tax
• If approved would have Council authorization by resolution since over $100,000.
§ County Use Tax: $150,000 includes Construction Permits Use Tax
• If approved, would be paid by Downtown Special Fund at issuance.
§ System Development Fees for Renewable Water: $510,000
• If approved, this would be paid by the ED Fund at issuance and repaid by the Downtown Special Fund.
§ The remaining fees would be paid by the Downtown Special Fund over time per agreement.
• Property Transfer (State Parcel #2505-112-14-006 - R0404200)
o Town to transfer ownership (quit claim deed) to Confluence Companies at no cost, dependent upon County transfer of ownership to the Town at no cost.
§ This transfer of land would require two agreements:
• An agreement with the County and Town for the Transfer.
• An agreement with Confluence and the Town for the Transfer to Confluence.
• Town IREA Credits up to $350,000 for mutually beneficially improvements/relocation expenses where appropriate and available.
o Utility work provides mutual benefit to multiple exciting projects in Downtown including, Riverwalk (this project), Festival Park, Town Hall Expansion, Mercantile Commons, The Corner at 221 Wilcox as well future unidentified power needs.
• Project to impose a 1% Public Improvement Fee.
o Imposed by Confluence, collected by Town.
Requirements:
• Project must provide the County with sufficient vehicle access to the SE entrance of the County Parking Garage and receive approval from County and Town and any other necessary approvals for this access, and Site Development Plan.
• Project to be completed as described above and shown in the renderings and floor plans, and contingent on approval of these details by the Design Review Board and Downtown Development Authority.
• Project must receive approval from the Design Review Board before January 31, 2017.
• Project must receive a building permit by August 1, 2017.
• Project scope includes the completion of both buildings as shown in Attachment A, in order to be eligible for the full TIF amount as stated in the redevelopment agreement.
• Project must receive a Certificate of Occupancy by December 31, 2019.
• Town, County and Confluence to have agreement on maintenance of alleyways.
• Vacation of Town alleyway running south into middle of Confluence owned property.
• If needed, Confluence to move County transformer to SE corner of County land with ROW.
• Façade materials to be presented to DDA Board for approval before installation.
• Project must include infrastructure necessary for at least 1 restaurant tenant (grease trap and hood).
An increment payment will only be made to the developer if increment is generated by the project and the district as a whole, and after existing debt obligations are fulfilled.
Source of Funds
The proposed Redevelopment Agreement will be an agreement where the private sector pays for the private sector. The proposal would be structured to be performance based, where the project would share back a portion of sales and property taxes only after they are first collected by the County or the Town, for the Property and Sales Tax Increment share back portion. The fees and use tax due by the project would be paid by the Downtown Special Fund using increment from Downtown for a Downtown project. In addition, this deal structure proposes to use credits that the Town of Castle Rock has with IREA, to improve and relocate utilities which will benefit many projects in the downtown core including relocation and upgrading of utilities required by this project. A portion of the legal fees and fees associated with the evaluation of the project will be paid utilizing increment from the Downtown Special Fund.
The added benefit to the Town and DDA is that increment generated by this project but not included in the amount shared back with Confluence (i.e. the remaining 25% of the property and sales tax TIF) will go to the Downtown Special Fund and can be used accomplish other great things in Downtown, including the enhancement and expansion of Festival Park or other projects that are agreed on by the DDA and Town Council, such as improving parking or investing in residential space in Downtown.
There are three sources of funds that will be used for this project: Property Tax Increment, Sales Tax Increment and Town of Castle Rock IREA Credits. The Property Tax Increment is collected by the County Treasurer and paid directly to the Town for deposit into the Downtown 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 Downtown Special Fund. The Town of Castle Rock and IREA have an agreement for the use of certain credits for use by the Town.
This pledge to the developer is in a 2nd position behind the Downtown Special Fund’s existing debt obligations.
Property Entitlements/Development Fees
The developer would be responsible for preparing various applications and proposals for Town consideration. The Town will be responsible for reviewing and processing these applications/requests on a timely basis for Town Council consideration following required public processes.
The Town will receive various permit fees, development impact fees and utility system development fees, which will cover the costs of development review services and capital infrastructure demand created by the project. These fees will be paid by the Downtown Special Fund over time as available.
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 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.
The Castle Rock Economic Partnership is supportive of this project (includes The Castle Rock EDC, The Castle Rock Chamber of Commerce, The Downtown Merchants Association and Downtown Development Authority).
Staff recommends that the Town Council approve this proposed deal structure and direct staff to draft a Redevelopment Agreement, consistent with the details provided above, with Confluence Companies 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.
Motion
“I move to direct staff to prepare a Redevelopment Agreement between the Town of Castle Rock and Confluence Companies incorporating the terms as presented herein, and present to Council for final approval.”
Attachments
Attachment A: Renderings of the project
Attachment B: Pro Forma Analysis Memo from Development Research Partners
Attachment C: Fees and Use Tax Estimate