In August, 2022 Urban Street, LLC presented their proposed development for TIF IV. The concept plan includes seven residential buildings consisting of 266 market rate apartments and one 37-unit affordable senior apartment building and commercial out lots along Golf Road.
Since the early review, Village staff, Village attorneys, and financial consultants have been negotiating with Urban Street, a non-binding Memorandum of Understanding (MOU) that will set the stage for negotiating the final Redevelopment Agreement (RDA). After approval of the MOU Urban Street will engage with their consultants to proceed forward with the necessary plans and documents to commence the zoning and entitlement process. During the same time the RDA will be negotiated and the final terms, conditions and timelines will be refined. The MOU consists of the following key components:
1. Designates Urban Street as the exclusive developer for a period of 180 days, which may be extended by written consent of the Village Manager and Urban Street.
2. Provides for a financial gap TIF assistance incentive for Urban Street’s development, which has a total project cost of approximately $100M, setting forth a maximum internal rate of return.
3. Provides up to $3.3M cash payment to Urban Street from the existing TIF fund balance.
4. Sets forth provisions for a revenue bond, currently estimated to generate $5.3M, to be paid off by TIF increment from portions of the existing TIF and new TIF revenue generated from the development.
5. Outlines requirements of a one-time pay-as-you-go junior note or development note, currently estimated at approximately $2.79M, to be paid off by TIF increment from portions of the existing TIF and new TIF revenue generated from the development.
6. Generally, outlines the flow of funds with the TIF incentive to be placed in escrow with the developer’s first draw down on its private equity of approximately $31.5M, second draw down on the TIF incentive, so long as the construction lender has confirmed the construction loan is in balance and ready for distribution, and third drawing down on the construction loan of approximately $60.1M.
7. To incentivize Urban Street and develop the TIF district the Village owned property will be transferred to Urban Street under certain conditions. If Urban Street fails to commence construction on the project when required, the purchase and sale agreement will grant the Village right to reconveyance (take back) the Village parcels. The Village cost of acquisition and assemblage of the properties was $3,570,000 and the current estimate of value is around approximately $2,350,000.
8. With respect to the senior affordable housing component, Urban Street is currently negotiating with an affordable developer for the development of the affordable senior component. If that developer does not proceed, Urban Street will use good faith efforts to secure another affordable developer for the development. If Urban Street commences construction of the broader project, but has not conveyed the property to the affordable senior developer and they are unable to proceed with that component then the purchase and sale agreement will grant the Village the right to reconveyance (take back) of the affordable housing site. However, under such a scenario Urban Street would still have to expend funds to put the parcel in a pad ready condition for the Village to find its own affordable housing developer. Pad ready means that the site would be graded and general site infrastructure installed so that the affordable site is ready for construction. TIF increment from the affordable senior component would be retained by the Village to facilitate an affordable housing developer. Urban Street has agreed that residents of the affordable senior component will have access to exterior amenities of the market rate component with some limitations and restrictions and subject to lender approvals.
9. The revenue bond and junior lean developer note will be paid only from pledges of incremental property taxes generated by the existing TIF district during the remaining term, along with 33% of the 1% Village local sales tax generated by the project, also during the term of the existing TIF district. With respect to pledging the 33% of the 1% local sales tax, the Village has intergovernmental agreements with the taxing districts, agreeing to pledging such sales taxes in any future RDA’s.
In summary, the total net proceeds of the TIF incentives that could be received by the developer are currently estimated to be $13.75 million (including land estimate) towards the proposed $100.2 million development. This is subject to change and adjustment as the development is finalized, driven by such factors as project schedule, changing interest rates, assessment values, final project costs and other variables all subject to and capped not to exceed the target IRR.
Recommendation
It is recommended that the Village Board approve the Resolution authorizing execution of the Memorandum of Understanding between the Village of Arlington Heights and Urban Street, LLC.