CITY COMMISSION AGENDA ITEM

Department:	City Manager’s Office			Commission Meeting Date:  December 12, 2017
Staff Contact:	Diane Stoddard, Assistant City Manager
Recommendations/Options/Action Requested:
The developer group proposing a mixed-use development and grocery store at 700 New Hampshire will provide a presentation to the City Commission.  There will be no action on this item as this is a work session.  The City Commission may provide general comment and feedback.
Executive Summary:		A development group led by TreanorHL is proposing the development of a mixed- use project at 700 New Hampshire to include a Price Chopper grocery store, housing units, underground parking, and the conversion of some of the existing public parking spaces on the Hobbs Taylor lots to private spaces.  An application for public incentives for the project was submitted in July 2017. At its meeting on August 15, 2017, the City Commission accepted the application and referred it to the Public Incentives Review Committee (see attached agenda materials). In the application, the developer requested a pay-as-you-go Tax Increment Financing (TIF) District to capture both TIF property and local (city and county) sales tax increment, a $2.25 million interest-free or low interest loan to accommodate tenant finish of the grocery store, and Industrial Revenue Bond (IRB) financing to obtain a sales tax exemption on project construction materials. It was noted that a grocery store in the downtown area would be advantageous for the viability of downtown residential growth and also to address a need for the general area of the community that is federally designated by the USDA as low income and low access, where a significant number of residents are more than one mile from a grocery store (often referred to as a food desert).  Actions to Date: Since receiving the application, various components of the proposed project have been changing in response to neighbor input, staff comments, and as the proposal works through City development processes (Historic Resources Commission and site planning).  There are several, interrelated facets to this development with changes in one affecting others. Consequently, the project currently is in flux as the development team and City staff work to identify issues, gather data, and examine options.  On November 13, City staff met with the development team, the grocer and several representatives of the grocery store committee to discuss the project.  At that time, staff relayed to the team that the project was not yet ripe for consideration of creating a redevelopment district given its significant revenue and other unresolved issues.  Revenue issues Tom Jackson with the National Development Council (NDC) has been working with the applicant to identify the project’s financing gap and funding sources.  One of the biggest issues currently under examination is project funding. New Markets Tax Credits:  The developer has indicated the project won’t occur without significant New Markets Tax Credits (NMTC) allocations.  The project as submitted assumes receiving a $13.1 million NMTC allocation. On December 7, the developer provided the City a letter from Central Bank of Kansas City indicating that the “proposed project appears to fulfill one of more of the programmatic goals of the NMTC program and is being underwritten for potentially $6-10 million of NMTC allocation.”  It should be noted that the required NMTC allocation may be even larger than the $13.1 million allocation assumed in the revenue projections for the project, if the project does not receive the requested $2.25 million in City-backed loan proceeds to assist with grocery store equipment expenses. Sales Tax Increment:  To help pay for public improvements, the developer proposes reimbursement of all project-generated local (city and county) sales taxes increment revenues over the 20-year incentive period. However, as indicated by the developer’s market analyst, Dakota Group, nearly all the sales tax revenue generated from the new grocery store will be redistributed from local existing grocery store sales.  Thus, reimbursement of the TIF sales tax increment to the developer would result in the City and County giving up existing sales tax revenues. $2.25 Million Loan for Grocery Store Equipment:  The developers have also requested a $2.25 million loan to assist with purchasing grocery store equipment.  The developer has alluded to some payback terms that had been discussed with the grocer that wouldn’t require payback of the loan until certain revenue thresholds were met; however, the City was not part of those discussion. There appears to be significant risk to the City with little position to secure collateral for the equipment and staff has not identified potential City sources for these funds. It should also be noted that the City has not made a loan to a private entity of this magnitude that staff can recall.  Also, the City’s economic development policy (Section 1.8.8, page 13) makes some statements about not creating an unfair advantage for one business over another.  While the increased land costs and parking costs associated with a downtown grocery site may be justified in order to achieve a policy goal of a grocery store located within a food desert, it may be harder to justify a direct loan for grocery equipment.  Gap: At this stage, the project is still showing a substantial funding gap, even assuming the project receives all the TIF sales and property tax increment, the $2.25 million loan, and the NMTC allocation.  Parking issues There have been a number of meetings and discussions regarding project provided parking.  While zoning for the downtown district does not require developers to provide on-site parking, staff believes project parking is a concern, especially when related to projects receiving City incentives. Also, there are particular pressures in the New Hampshire Street corridor related to numerous apartments and other successful developments in the corridor over the past several years.  For example, the City has heard concerns expressed from Callahan Creek, a professional marketing firm, regarding parking issues in the corridor. The original submittal provided by the developers to the City was short approximately 100 spaces from the estimated project demand plus the Hobbs Taylor spaces.  There are substantial parking-related costs to properly accommodate the project’s uses, which has a direct impact on the funding gap. (NDC notes that most of the funding gap is driven by the project’s parking expenses.) Given potential future development along the New Hampshire corridor and adjacent to the site (e.g. potential new conference center), it would be advantageous for stakeholders to take a system-wide parking approach when considering project parking strategies and solutions.  The Developer is relying on negotiations with Hobbs Taylor Lofts owners to enable the “non-gourmet” grocery store to proceed on the site due to a Hobbs Taylor covenant which only allows gourmet grocery stores on the site.  Key to these negotiations, which the City has not been a party to, is the agreement we understand exists between the developer and Hobbs Taylor Lofts to transfer ownership of 67 City-owned, long-term public parking spaces located on the Hobbs Taylor Lofts property to Hobbs Taylor Lofts. Staff has not seen this agreement. Staff believes the City should require complete replacement of these publicly-owned parking spaces in its existing form (e.g. long-term parking spaces), plus enough parking to cover the needs of the project’s new grocery store and housing units. In addition, since the City previously purchased the 67 spaces located on the Hobbs Taylor site and the project is also asking for City incentives to cover parking expenses, staff is concerned about the City paying for these public parking spaces twice. A 2015 staff memo outlines additional details regarding these parking spaces.  The latest parking plans received from the developer last week contemplate a larger underground parking structure that appears to meet the demand created by the project, plus replace the current Hobbs Taylor site public parking spaces. (over 300 spaces).  The developer discussed a potential lease-purchase arrangement with the City for the parking garage, with the City eventually owning the entire garage. The lease-purchase payments would be funded through TIF proceeds and the City financially contributing the remainder of the gap.  This proposal would need to be evaluated in terms of the financial gap and in context with the other elements of the proposal.  Currently the gap is not known.  Staff and NDC is awaiting parking revenue assumptions and refined estimates for parking garage expenses from the developer.  Additional issues There are a few other notes worth mentioning.  Details regarding how the project’s affordable housing units would be managed have not yet been worked out, though we understand the developers plan to utilize the Lawrence/Douglas County Housing Authority to manage the units.  Also, there is an outstanding lawsuit pending on appeal regarding the Hobbs Taylor matter.  This issue was the subject of a letter from Brian Russell to the City Commission this summer.  Suggested Next Steps At this time, staff has suggested that the developer needs to work on resolving the project’s funding and other outstanding issues, prior to the City formally considering the creation of a Redevelopment District.  It would be helpful if the City Commission has any general feedback on these outstanding issues.
Strategic Plan Critical Success Factor			Safe, Healthy, and Welcoming Neighborhoods Collaborative Solutions Economic Growth and Security
Fiscal Impact (Amount/Source):			Staff and NDC is still working on details with the applicant to get a full financial picture of the project and the gap.
Attachments:			· Central Bank of Kansas City Letter · 2015 Staff memo on Hobbs Taylor Lofts parking spaces · Brian Russell Letter

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