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6 Lancaster Urban Village Economic Development Committee December 5, 2011 Office of Economic Development dallas-ecodev.org

7 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 11 th, 2012 dallas-ecodev.org 2

8 Lancaster Urban Village 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 Lancaster Urban Village Location dallas-ecodev.org 3 3

9 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 Lancaster Urban Village dallas-ecodev.org 4

10 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 dallas-ecodev.org 5

11 Community Benefits 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 dallas-ecodev.org 6 6

12 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) dallas-ecodev.org 7

13 dallas-ecodev.org 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 Demonstrated need for NMTC Likely community impact No; but helps adjacent Urban League parking needs Yes Job creation for LIC Within.25 miles of VA Hospital DART station Increased wages LIC 8 Yes LIC owned business? M/WBE owned business? Yes, 72 FTE Yes 25% of construction Community services business? DDF Criteria Facilitates wealth creation for LICs? Provides goods or services to LICs? Environmentally sustainable? No No Yes Yes (LEED, TOD)

14 Transaction Details 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, (d)4 $12,541,821 Total Residential $15,876,410 dallas-ecodev.org 9 9

15 Transaction Details: TIF Commitment $8.492 M committed Approved by City Council on May 12, 2010 Pledged to repay HUD Section 108 funding dallas-ecodev.org 10

16 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 dallas-ecodev.org 11

17 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 dallas-ecodev.org 12

18 Appendix NMTC overview Office of Economic Development dallas-ecodev.org

19 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. dallas-ecodev.org 14

20 dallas-ecodev.org 15

21 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. dallas-ecodev.org 16

22 Illustrative NMTC Use Senior Lender Leverage Lender 7 year Interest Only Loan $7.1 M at market rates QLICI Hypothetical $11 M project using $10 M in NMTC Allocation QEI A Note : $7.1 M Interest Only Subordinate Senior Lender Rates, 7 yr term * DDF has flexibility to assign, forgive, restructure B Note at end of 7 year, NMTC compliance term Investment Fund (100% NMTC Equity Investor Owned) $10 M Equity Investment $3.9 M Total NMTC benefits over 7 years Dallas Development Fund Subsidiary (Special Purpose LLC) 99.99% Member- Investment Fund.01% Member/Manager DDF Blended Rate QALICB Real Estate SPE- Controlled by Project Sponsor Constructs and Owns Property ($1M equity contribution from Sponsor) NMTC Investor (NMTC equity) $2.9 M Equity Contribution Management Control; Suballocation of $10 M in NMTC Authority $300,000 in CDE Closing B Note : $2.6 M Interest Only Subordinate Loan; 30 year term* $1 M Equity Dallas Development Fund Project Sponsor dallas-ecodev.org 17

23 Appendix Project Budget Office of Economic Development dallas-ecodev.org

24 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, ,104 1,743,771 Base Project Costs 15,876,410 11,176,022 27,052,432 NMTC Costs 754, ,250 Total Project Costs 15,876,410 11,930,272 27,806,682 dallas-ecodev.org 19

25 Memorandum CITY OF DALLAS DATE December 2, 2011 TO SUBJECT Members of the Economic Development Committee: Tennell Atkins (Chair), Ann Margolin (Vice Chair), Jerry R. Allen, Sheffie Kadane, Monica Alonzo Community Development Block Grant Section 108 Guaranteed Loan Application for Lake Highlands Town Center On Monday, December 5, 2011, you will be briefed on the Community Development Block Grant Section 108 Guaranteed Loan Application for Lake Highlands Town Center. A copy of the briefing is attached. Please let me know if you have any questions. Ryan S. Evans Assistant City Manager C: The Honorable Mayor and Members of the City Council Mary K. Suhm, City Manager Rosa A. Rios, Acting City Secretary Tom P. Perkins, Jr., City Attorney Craig Kinton, City Auditor C. Victor Lander, Administrative Judge, Municipal Court A.C. Gonzalez, First Assistant City Manager Forest Turner, Assistant City Manager Jill A. Jordan, P.E., Assistant City Manager Joey Zapata, Assistant City Manager Jeanne Chipperfield, Chief Financial Officer Jerry Killingsworth, Housing/Community Services Director Helena Stevens-Thompson, Assistant to the City Manager Dallas, The City That Works: Diverse, Vibrant and Progressive.

26 Community Development Block Grant Section 108 Guaranteed Loan Application for Lake Highlands Town Center Economic Development Committee December 5, 2010 Housing/Community Services Department

27 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 2

28 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 3

29 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 4

30 Project Location Lake Highlands Town Center 5

31 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. 6

32 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). 7

33 Site Plan 8

34 Rendering at Completion 9

35 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 multimodal 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 10

36 Aerial View 11

37 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 Actual TIF funds available are contingent on incremental revenue generated. TIF funds can be pledged as the repayment source for Section 108 loan funding 12

38 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 13

39 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 14

40 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 15

41 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 16

42 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 Approved Aug 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 5522 Maple Ave. North 4,800,000 Pending Pending City Council Copperridge Approval Lake Highlands at Town Center 7100 Blocks of Skillman St. North 13,350,000 Pending Pending City Council Approval Lancaster Urban Village 4300 S. Lancaster Rd. So. Oak Cliff 8,492,000 June 2010 Approved Oct Loan closing pending NMTC loan finalization Fiji Fiji & Compton Oak Cliff 8,000,000 N/A N/A Project proposal under review 17

43 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 18

44 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 19

45 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 20

46 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 multifamily 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. 21

47 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 22

48 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 $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. 23

49 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 stabilization cash flows sufficient debt coverage to pay 1 st 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 24

50 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 25

51 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 26

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53 TicketCity Bowl Economic Development Committee Briefing December 5, 2011

54 Background On April 7, 2010, Council authorized the creation of a grant program to support the Bowl game (Council Resolution ) 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 ) The bowl game is played between a Big Ten team and alternating between a Big 12 or a Conference USA team each year 2

55 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 3

56 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 4

57 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 5

58 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) 6

59 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 7

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