Memorandum CITY OF SHAKER HEIGHTS I ECONOMIC DEVELOPMENT DEPARTMENT

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1 Memorandum To: From: cc: City Council Tania Menesse, Director Economic Development Mayor Earl Leiken Chief Administrative Officer Jeri E. Chaikin Date: April 6, 2017 Re: Approval of a forgivable loan of $350K to build out 18,495 square feet in the Van Aken district over a ten year term for McGlinchey Stafford McGlinchey Stafford, PLLC (MS) has signed a ten year lease with a subsidiary of RMS Investment Corporation to occupy 18,495 square feet of the C1 office building (see attached site plan) in the Van Aken district. The office will anchor the Warrensville/Farnsleigh retail corner with windows facing Warrensville Center Road as well as Farnsleigh. The lease is contingent upon approval of a $350,000 forgivable loan from the City: $200K will be invested in the build out of MS offices and the additional $150K will be paid out over 10 years based on MS continued tenancy in the City of Shaker Heights. The Economic Development plan, adopted by City Council in November of 2010, called for the implementation of tenant incentives to make it financially feasible for businesses to expand their operations and locate new offices in Shaker Heights. The income tax revenue from the office workers will help to diversify the City s income tax base and the addition of significant daytime employment will increase demand for new restaurants and retail nearby. Forgivable loans provide the up-front cash infusion to correct market imbalances for businesses in Shaker Heights. At the same time a forgivable loan versus a grant requires that businesses meet agreed upon payroll and income tax targets within a set time frame to ensure that the City realizes a return on its investment. The City has made nine Vision Fund forgivable loans to date, totaling $262,000. Six have been paid back and have begun to contribute to the general fund (approximately $340K); two are on track to be paid back within the loan period and one is on a payment plan because the business moved out of the State. The ABA Insurance forgivable loan will not be disbursed until the Van Aken offices are built out in early If City Council approves the MS forgivable loan, $2.2M dollars will remain in the City s Economic Development and Housing Reserve Fund. The Economic Development plan calls for financial incentive parameters that not only include return on investment targets, but also take into consideration the location and the business CITY OF SHAKER HEIGHTS I ECONOMIC DEVELOPMENT DEPARTMENT 3400 LEE ROAD I SHAKER HEIGHTS, OH I TEL I FAX I OHIO RELAY SERVICE 711 I WEB shakeronline.com

2 segment of the tenant or project. Incentives should be targeted to generate economic activity in the places well-suited for commercial development by their zoning, transportation access, and surrounding land use. In addition, incentives will be most effective if they are focused on business segments identified in the ED report as these industries are the most likely to expand in the future and generate positive returns for the City. McGlinchey Stafford is a national law firm of 190 attorneys, with thirteen offices in ten states, including the firm s administrative headquarters in New Orleans, LA. The Cleveland office opened in 2001 with three attorneys. The Cleveland office is now the firm s third largest and has grown to nineteen attorneys and eighteen management employees and administrative staff. Although the firm is a full service law firm, attorneys in the Cleveland office focus on regulatory compliance, transactional and litigation matters for a wide range of financial institution clients that provide financial products and services to consumers throughout the United States. The firm s lease at Chagrin Richmond Plaza expires in May 2018 and the attorneys are interested in moving to new, class A office space on par with the firm s offices in other states. Principals, Mark Edelman and David Thompson, met with RMS in summer 2016 and subsequently included Van Aken in a formal RFP process with Pinecrest in Orange and Signature Square in Beachwood. The City s Vision fund incentive allowed RMS to provide a lease rate that was competitive with the other two new Class A offerings. The MS team is attracted to the mixed use nature of the Van Aken District but was initially not sold on the location their current office is right off of 271 and there was a perception that the other two sites were more accessible. The City incentive is critical to overcoming the location objections and making the RMS proposal economical. The Cleveland office s annual income subject to RITA is approximately $5.7M, which translates to $128,250 of income taxes per year; just under a million dollars over the ten year lease; a return on investment of less than three years. Mayor Leiken and Finance Director Baker met with MS on March 2 to review the firms past three years of financials and RITA filings. The City s Economic Development plan hinges on its ability to create a place that will attract businesses of the caliber of MS. Their offices will occupy the entire second floor of the C1 building corner (below ABA Insurance and anchoring the Warrensville/Chagrin corner). There is 14,000 square feet, facing the park, left of office space in the first phase of the development. Then, RMS will begin actively marketing the office pad at the corner of Chagrin and Warrensville for a 100,000 square foot building. The Finance committee was enthusiastic about McGlinchey Stafford moving to the Van Aken District and is in full support of the Vision Fund Incentive. The committee had a broader discussion of how the City s incentives compared to surrounding communities and the economic conditions that necessitate incentives in Shaker Heights. The consensus of the committee was that the City should educate the community on the significant return the Vision Fund has generated from City tax dollars. We also discussed ensuring that the community understood that the Van Aken District is primarily comprised of local and independently owned small businesses and that there other support systems and programs to support small businesses in other parts of the City (e.g. The Storefront program on Lee Road). 2

3 The employees of McGlinchey Stafford reflect the industry mix of the City s economic development plans and the Vision Fund investment will be returned in less than three years. The firm s employees and clients will frequent the restaurants and retail establishments in the District, providing essential daytime business and foot traffic for the retailers. Therefore, the Economic Development Department requests that City Council approve a $350K forgivable loan for MS on first reading and as an emergency so that the lease with RMS can be finalized. 3

4 FUTURE DEVELOPMENT H G I E AD O R C1 OFFICE OVER RETAIL L S RN FA W A1 AL KE RE OV SID OV ER EN ER R TI GA ETA AL RA IL GE R RO AD RETAIL B2 TUTTLE ROAD B1 IL TA RE C2 OFFICE OVER RETAIL CPG PARKING GARAGE C4 ORMAN BUILDING MEADE ROAD WARREN SVILLE CENTER ROAD FUTURE DEVELOPMENT

5 ORDINANCE NO. BY: Authorizing a forgivable loan in the maximum amount of $350,000 to, and a loan agreement with, McGlinchey Stafford, PLLC for its relocation to the Van Aken District Development Project. WHEREAS, this Council adopted the City s Economic Development Plan in Ordinance , enacted November 8, 2010, to serve as an update to the City s Strategic Investment Plan and to nurture the development of new businesses and attract professionals to the City; and WHEREAS, the Economic Development Plan calls for the City to provide economic incentives to make it financially feasible for businesses to expand or locate in the City, and forgivable loans, within specific parameters related to targeting certain areas of the City and focusing on certain types of businesses, have been determined to be one such incentive that can be used to achieve the Plan s goals; and WHEREAS, McGlinchey Stafford, PLLC, which is a law firm within the City s Economic Development parameters for incentives, has agreed to relocate its offices to a new building in the Van Aken District Development Project (C-1 Building) at 3401 Tuttle Road, at the intersection of Farnsleigh Road and Warrensville Center Road; and WHEREAS, a subsidiary of RMS Investment Corporation has entered into a ten year lease with McGlinchey Stafford to occupy 18,495 square feet of office space in the Development Project, contingent on the approval of a $350,000 forgivable loan from the City; and WHEREAS, the City proposes to provide a forgivable loan in the amount of $350,000 to McGlinchey Stafford in order to facilitate its relocation to the Van Aken District Development Project and its build out of the office space in the C-1 Building; and WHEREAS, it is anticipated that the income taxes generated by McGlinchey Stafford over the ten (10) year life of the Loan term will be matched or exceeded by the income taxes generated over that period; and WHEREAS, the Director of Economic Development has recommended that the City authorize a forgivable loan in the maximum amount of $350,000 to McGlinchey Stafford to facilitate its relocation in the Van Aken District Development Project. NOW, THEREFORE, BE IT ORDAINED by the Council of the City of Shaker Heights, State of Ohio:

6 Section 1. The Mayor is hereby authorized and directed to enter into a Loan Agreement with McGlinchey Stafford, PLLC to provide a forgivable loan in the maximum amount of THREE HUNDRED FIFTY THOUSAND DOLLARS ($350,000) from the City to McGlinchey Stafford, PLLC for costs associated with McGlinchey Stafford s relocation to the Van Aken District Development Project. Said agreement(s) shall be in a form as approved by the Director of Law. Section 2. This ordinance shall take effect from and after the earliest time allowed by law. Enacted, Approved this day of, Attest: JERI E. CHAIKIN Clerk of Council coun17/0320mcglincheystaffordloan EARL M. LEIKEN, Mayor 2