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HomeMy WebLinkAboutMinutes 1993DRAFT - HOT APPROVED Economic Development Committee Meeting of January 27. 1993 Minutes Members Present: Aldermen Engelman, Feldman, Nelson, Newman, Vaughan Jones, Howard Melton. Dennis Raffensperger Members Absent: Alderman Davis, Scott Peters Presiding Official: Alderman Jon Nelson, Chair Staff Present: Judith Aiello. Eric Anderson, Dennis Marino Guests: John Iberle, John Buck Company; Don Kane and Leslie Murphy, Kane -McKenna Associates Summary of Action The meeting was called to order at 7:55 by Ald. Nelson. Vaughan Jones moved to approve the minutes of the meetings of December 2 and December 9, 1992 as drafted. Howard Melton provided a second and the minutes were approved unanimously. Ald. Nelson acknowledged Judith Herbert of the Commission on Aging who was present to comment on the proposed Hashington National Redevelopment. Ms. Herbert stated that she would make a statement when the proposed project was discussed by the Committee. Howard Hartrey Development Judith Aiello reported that New Center Company of Farmington Hills, Michigan had replaced Trident Development Company as the co -developer of the project. Dayton Hudson decided to bring New Center Company into the project after negotiations between Dayton Hudson and Trident reached an impasse. The Evanston City Council approved a revised redevelopment agreement at the request of Dayton Hudson which recognized the change in co -developers. Other changes in the redevelopment agreement included a change in the site plan which eliminated most small retail spaces (2500--5000) and added two potential retail stores of 20000-41000 s.f. Ms. Aiello stated that there is also a revised schedule for completion of the ' project and a restated MBE/MBE provision with penalities for non-performance. She added that the proposed solution to Hartrey Avenue continues to be part of the redevelopment agreement. Ald. Feldman asked why the reconfiguration of the site plan had occurred. Ms. Aiello responded that the new co -developer believes that the project would be finacially strengthed by including space for larger tenants instead of 60,000 s.f. for several very small retailers. Howard Melton asked what had occurred regarding the proposed median wall on Howard Street. Ms. Aiello stated that all four parties involved had agreed to a substantial litigation fund to be used if necessary. Main Street Commons Update Judith Aiello stated that it is anticipated that land assembly concerning this property will conclude in February, 1993. Projected dates for the development include starting construction no later than May 1, 1993 and completion no later than May 1, 1994. Proposed Zoning Revision for the Southwest Industrial Area Jonathan Perman, the Executive Director of the Evanston Chamber of Commerce, began his presentation by stating that the Chamber was troubled by the current draft of the Proposed Zoning Ordinance which would negatively affect several companies to the west of the Rust-Oleum Property which will no longer be permitted uses and will be reclassified as special uses. Mr. Perman added that these companies would be required to go through an expensive and time consuming process to obtain a special use if they desire to expand their businesses. Mr. Perman distributed a letter addressed to the EDC which recommends the establishment of an I-3 Manufacturing District which would make the existing businesses, about which the Chamber is concerned, permitted uses. The District 1s described as intending to provide sites for medium manufacturing and medium industrial uses under contols that minimize any adverse effects on property in nearby residential, business and commercial districts. Mr. Perran also requested that a new definition be approved for medium manufacturing to be stated as follows: 'The assembly, fabrication or processing of goods and materials using processes that ordinarily have average impacts on the environment, or that ordinarily have average impacts on the use and enjoyment of adjacent property in terms of noise, smoke, fumes, odors, glare or health and safety hazards. Medium manufacturing shall not include any.use that is otherwise listed specifically in a zoning district as a special use.' Aid. Newman stated that he was supportive of at least part of the proposal, possibly the complete proposal, but he needed tine to analyze the proposal. He proposed that the Committee convene a Special Meeting to discuss this and other issues concerning the Proposed Zoning Ordinance in detail. He concluded by stating that the comapnies identified by the Chamber be permitted uses unless the Aldermen of the area have a problem with this direction. 2 Aid. Engelman stated that the Planning and Development Committee had been cautious about classifying uses as permitted uses without first determining that such uses are consistent with the concepts underlying the designation of a zoning district. He added that the Planning and Development Committee had previously considered the issue raised by the Chamber, but was unable to develop consensus for a change in the proposed zoning. Aid. Engelman concluded by staating that P and D will be considering a list of technlcal amendments given that the Committee had not reviewed the Public Hearing draft after it was revised by the consultants. Ald. Feldman stated that he supported designation of the businesses identified as permitted uses. He added that he hoped P & D would take this recommendation from the EDC into consideration when it amends the draft ordinance. Aid. Newman stated that he did not envision P & D reconsidering this issue and that the Chamber's proposal may have to be addressed by the full Council. Aid. Engelman clarified that the use of the land by the businesses in question will be grandfathered in, however, if the businesses decide to expand their buildings, they will be required to go through the special use process. He added that this discussion raises a policy issue concerning where the Economic Development Committee wants the City to go in balancing retail versus industrial uses. Ald. Feldman observed that the City should encourage the manufacturers in question to stay and expand their businesses especially given that we have no other use for the land and that there is no evidence of demand from large manufacturers. Howard Helton stated that he agreed with Aid. Feldman, adding that he cannot imagine an industrial plant coming to Evanston given its high cost relative to other manufacturing areas. Aid. Nelson proposed that the EDC request that the Planning and Development Committee reconsider its determination that the business in question be special uses within the proposed zoning district and that the Committee consider the Chamber's proposal that the area be designated as a medium manufacturing district. Ald. Feldman provided a second for the proposed recommendation. By a voice vote, members voted unanimously in support of the proposal. Washington National Redevelopment Judith Aiello began the discussion by updating the Committee on the Zoning review process concerning this project. The proposal was approved by the Plan Commission during its December. 1992 Meeting. She added that the Zoning Board of Appeals had met once to hear the developers proposal and mould meet again in February to continue the discussion of the project. Alderman Nelson stated that the role of the EDC was to address the financial issues involved in this project and asked John Iberle of the Buck Company to summarize the memorandum that the Committee had received from the Buck Company in the packet for this Meeting. Mr. Iberle stated that the Buck Company has concluded that a TIF in the range of $5-8 million should provide the level of economic return to attract the necessary capital for the project to proceed. 3 He acknowledged that the TIF approach does not address the threat of extraordinary growth in property taxes undermining the necessary yield, but that the Buck Company is nevertheless willing to look at the project in this manner. Ald. Feldman asked Mr. Iberle if the Buck Company needed additional money with 100% occupancy in the proposed project to create a 10% return on investment. Mr. Iberle responded that the TIF proceeds would be an additional source of capital which would reduce the total amount of additional private capital required and would increase the return on private capital to over 10%. Howard Helton stated that the project had changed radically from previous discussion. Initially, the Committee and the Buck Company were speaking of contingent financing. In contrast, he added, the Suck Company is now proposing a straight subsidy. Previously, he stated, the suggested value of the Washington National land was not important. but it is critical now and it is driving up the cost of the project. He questioned why the City should help pay for the $4.5 million price tag on the land, especially when he believes this value estimate is not real. Ald. Engelman stated that he was also concerned about the change in the proposal to the City. He added that the initial concern as expressed by the developer had been about taxes and tax growth. Because of the School Districts' statutory limitations, the approach involving a cap on tax growth would not work. why not, he added, use TIF as a means to fund a similar guarantee to insure that the return on capital would be protected. The City also should receive some return for incurring this risk. Ald. Engelman concluded by stating that his biggest concern is that the revised proposal asks the City to take a 20 % interest in the project. Ald. Newman stated that he wants development in Evanston, but the amount of TIF funds requested by the developers involves substantial risk to the City. He added that the TIF funds provided for the Target and Sam's developments were based on the return to the City of newly generated sales and real estate tax increments. In the case of the Washington National Redvelopment as proposed, the City will only receive property taxes. He added that if the Washington National RFP sent to developers had stated that the City would provide $5 million 1n assistance, there might have been all types of interest and proposals. He concluded by stating that the request of $5--8 million at this time as a straight subsidy really turns the process over. Howard Melton stated that a subsidy of $5-8 million makes possible other things that could be built. In addition, he added, the other side of Chicago Avenue should be considered for inclusion. Mr. Helton suggested that the revised proposal is as different as night and day from the tax cap proposal. John Iberle responded by stating that other developers could have perceived the possibility of City participation. Other developers were not unaware that this was a possibility. Mr. Iberle added that the most recent discussions with the City had continued to focus upon long term real estate tax stabilization as well as a TIF approach. Dennis Raffensberger commented that he had difficulty equating a tax guarantee with the current proposal. He added that the guarantee would not have been valued at $5-8 million. Mr. Raffensberger concluded by stating that the assumptions of 6-9 months ago had not held up. John Iberle responded that the market requirements had changed and that more return would be required than anticipated. 4 z TES Howard Melton stated that at the December EDC Meeting there was consideration • of what appeared to be a reasonable proposal. that TIF money could be used as standby funding for what Buck had initially proposed to do: control tax growth. Mr. Melton added that the current proposal was unattractive and that the tax revenue generated would not be received for years. Aid. Newman stated that he wanted the Committee to be apprised of all updates and proposed changes in this project. He added that he hoped that the TIF consultant to be hired for this project will have substantial real estate experience and that he wanted an analysis of financing options for the project and the market demand for the units to be developed. Aid. Nelson opened the meeting to citizen comment. John Vauzanges of 1501 Hinman addressed the Committee and distributed two statements: one addressing a fiscal impact analysis of the proposed project and the other statement addressed the planned development standards. Mr. Vauzanges stated that the proposed project had not demonstrated finacial capacity as he had interpreted the planned development standards to require. He added that the project's pro forma projected net losses four of the first five years. He raised questions about the project's ability to attract interim and long term financing and expressed doubt that the projected condo conversion would happen. He concluded by observing that the project proposes to generate $1.040,000 in real estate taxes in the year 2005 which will achieve parity with the real estate taxes which will be generated in 1993. Aid. Newman requested a legal opinion based on Section 6-12-8-C-8 of the Planned Development Standards concerning adequate financial resources to insure completion of the Proposed Planned Development in a timely manner. After additional discussion, Aid. Newman and Eric Anderson agreed that Jack Siegel can comment on this issue provided that he does not do the financial analysis. Mr. Anderson indicated that he would speak to Mr. Siegel. Aid. Feldman requested clarification of the standards in question. He stated that he assumed that the standards addressed the overall financial capacity of the developer without focusing upon specific project financing. Judith Aiello confirmed that this was her interpretation of the standards. Aid. Newman responded that there had only been two planned developments previously so the City did not have a substantial history with these standards. Sid Ross. a citizen of Evanston stated that he was in favor of a residential development on this site, but he did not know if this was the right project. Judith Herbert of the Commission on Aging stated that on the basis of a survey conducted by the Commission on Aging, the proposed Buck Development was targeted for a more affluent and upscale senior population than has been looking for housing in Evanston. Ms. Herbert encouraged the developers to engage in an effort to help insure that all older persons have increased access to housing opportunities. Aid. Nelson proposed that it would be appropriate for the City to utilize a consultant to assist staff to investigate tine concept of a guarantee indexed to property taxes per square foot with a pay as you go feature. He added that the City should provide the financial floor in this arrangement, but that it Is not willing to be an equity partner without an equity interest in the development. 5 Aid. Feldman stated that if the developer is willing to look seriously at the pay as you go approach, he should be aware that the actual dollars will be dramatically lower than the $5 Million he has recently proposed for the TIF. He added that no one had Imagined a $5 million request. Aid. Feldman urged the developer to lower the dollars requested, that the current number was not acceptable to the community. John Iberle responded that he wanted some ackowledgement that this is a dynamic process and that there had been changes in Phase I such as excluding the health club and retail uses. He added that the project, however, has to be viable. Dennis Raffensberger stated that he was concerned about the characterization of this as a luxury project and asked staff to determine whether the composition of materials were consistent with a luxury development. Aid. Engelman moved that staff continuing working with the developer and a consultant to look at possible TIF financing with an appropriate floor and ceiling on the potential participation by the City. Howard Melton provided a second for the motion which was approved by the Comrittee on an unainmous vote. Proposed Redevelopment of the Rust-Oleum Project by Home Depot Aid. Nelson introduced Don Kane and Leslie Murphy of Kane -McKenna Associates and asked them to summarize their memorandum concerning the Home Depot proposal to develop the Rust-0leum Property. Leslie Murphy began by stating that Home Depot is the nation's largest retailer in the growing home center industry. She added that the company has 210 stores nationally with the closest location being in Tennessee. Home Depot plans to open five stores in the Chicago Metro area in the immediate future. She characterized Nome Depot as offering higher wages than most retailers (S7-9 per hour) and hiring a higher percentage of full time employees than most retailers (90%). Ms. Murphy added that the company was renowned for its training programs. According to Ms. Murphy, Home Depot projects $53 million in sales at the Rust--Oleum site with construction of a 130,000 s.f. store. She added that the City would receive over $1 million in the first year of stabilized sales via incremental property taxes and sales. Hs. Murphy reported that Kane -McKenna was working on a preliminary qualification report for the site and had concluded that the site should qualify. The timetable for the project was described as 180 days before TIF ordinances would be adopted followed by the negotiation of a redevelopment agreement. Don Kane stated that Howe Depot was willing to proceed with a pay as you go TIF which will enable the City to incur less risk. Aid. Nelson asked if there had been a specific inquiry from the developer to start the TIF process. Don !Cane responded that the developer would like the Committee to consider an inducement resolution. He added that the developer had estimated preliminary site problems that would generate extraordinary expenses in the range of $2.5 to $3 million. Among the issues to be addressed by the developer were the need for: pylon footings because of the landfill issue, soil remediation and possible other sources of contamination which would be identified once additional tests have been completed. A Howard Melton asked what a likely bonding amount would be. Mr. Kane responded that no bonds would need to be issued under a pay as you go scenario. Aid. Feldman stated that he had not seen the site plan for the development. {ion Kane presented the revised site plan which features the 131,000 s.f Home Depot store and one additional smaller store. There is consideration of the possible addition of a third smaller store for other retailers, but Nome Depot does not want to deal with this possibility until it detenaines how such of the land it needs for its store. Vaughan Jones asked Mr. Kane to describe his role with Horse Depot. Mr. Kane responded that he had been approached by Podolsky and Associates which is preparing the site for redvelopment and he had been approached by the City of Evanston 0 work on the project. He added that Podolsky and Company had given up its right to develop the site to Home Depot. Mr. Jones stated that this proposal represented a lot of new retail space and he did not want to run the risk of cannibalizing existing retail and the other retail the City has brought into Evanston. Mr. Kane stated that the trade area for Home Depot is very expansive. in the range of at least three to four miles. The company, he added, will find a site somewhere in the trade area if not the Rust-Oleum property thereby creating competition regardless of where they located within the trade area. Mr. Kane concluded by stating that 200 jobs will be created paying $7-11 per hour and that 90% of these jobs will be full time. Aid. Engelman stated that the Committee had discussed a site close to the Rust-Oleum property earlier this evening and that the proposed development is only two blocks array from a major competitor. Builders Square. He added that is important to realize that the Rust-Oleum property represents the last major site in Evanston for redevelopment. Aid. Feldman stated that Evanston faces the problem of so such money leaving the community in the form of retail purchases made in other communities. In this case, he is concerned that if Home Depot does not develop on the Rust- Oleum site it will be located just outside Evanston with the same competitive impact, but no benefits to Evanston. Aid. Newman stated that the City had enhanced Builders Square by locating Sam's next to them. The Home Depot proposal, he added, represents an excellent opportunity given the number of jobs and the quality of jobs. Aid. Newman concluded by stating he would like to go forward on this, especially given the pay as you go approach. Aid. Nelson moved that Mr. Kane request a letter from Hone Depot that would request a formal resolution of support from the Committee for the project. Aid. Feldman provided a second for the motion. Members agreed by consensus. Aid. Nelson asked Don Kane for his opinion concerning the impact of the proposed project upon Builders Square and Evanston Lumber. Before Mr. Kane could respond. Kevin McCuen, the Manager of Builders Square asked to speak. Mr. McCuen stated that the $50 million sales projection submitted by Home Depot was an inflated figure. In addition. he added, Builders Square was considering expansion of the Evanston store in the next year. 7 Howard Melton stated that he vieved Home Depot as a first class operation and that he expected them to locate somewhere along the McCormick Corridor. He added that his concern was less about Builders Square and more about other independent small businesses which sell building materials. Mr. Melton indicated that Home Depot captures 60% of the building realted sales in the market areas that it enters. Aid. Feldman commented that Home Depot appears seems to have the save philosophy as Wal Mart and Sam's. He added that the major difference between this proposed TIF and others is that there is no Issuance of bonds and that the developer will only receive a nickel if a nickel in increment is available. Consequently, there is no risk to the City at all. Howard Melton acknowledged that from a financial standpoint. this is the best of the recent econooldc development deals that the City has entered. Vaughan Jones responded that Mr. Melton's comment is accurate in the short run. but in the long run. the City risks a substantial increase in the vacancy of currently occupied stores. Sidney Zwick asked to speak and was recognized. Mr. Zwick stated that for the City to subsidize the development of a competitor of an existing business which did not receive any sui.sidy is inappropriate. Proposed Revisions to the Zoning Ordinance Members agreed by consensus to hold a special meeting of the Committee within two weeks to discuss the proposed revisions to the Zoning Ordinance. It was agreed that staff would poll members for the best dates. Members next discussed the timing of the approval of the New Zoning Ordinance by City Council. Ald. Engelman stated that many Aldermen wanted to to see the Ordinance passed by the Current Council instead of starting the process again . with a new Council. Ald. Newman stated that he was sympathetic to members of the Council who wanted to approve the Ordinance soon, but he did not want to rush the Ordinance which would be a disservice to the community. Howard Melton concurred with Ald. Newman. Ald. Feldman stated that he considered it realistic that the current Council could approve the proposed ordinance withour rushing the process. The meeting was adjourned at 10:20 P.M. Dennis Marino Economic Development Planner DRAFT - NOT APPROVED Economic Development Committee Meeting of February 24, 1993 Minutes Members Present: Aldermen Davis, Engelman, Nelson, and Newman. Vaughan Jones, Howard Melton Members Absent: Alderman Feldman, Scott Peters, Dennis Raffensperger Presiding Official: Alderman Jon Nelson. Chair Staff Present: Judith Aiello, Dennis Marino Guests: Don Kane and Leslie Murphy. Kane --McKenna Associates Summary of Action The meeting was called to order at 8:35 P.M. by Ald. Nelson, who explained the procedures for audience comment given the number of businesses and individuals who had expressed an interest in addressing the Committee concerning the Home Depot Proposal. Ald. Nelson next accepted the draft minutes of the Meeting of January 27, 1993 and acknowledged two communications: the February, 1993 issue of Land Use Digest and a memorandum from Tim Clarke to Judith Aiello describing the Main Street Commons Redevelopment Review Process. UPDATE OF CONTINUING PROJECTS Judith Aiello provided an update of the Howard -- Hartrey Project, stating that the City had met all of its obligations to date and that the developer needed to secure financing and execute the documents. In response to a question from Howard Melton. Ms. Aiello reported that the City had established a litigation fund to be used if necessary with cost sharing by four parties: the City. Bell and Howell. Dayton Hudson and New Center Development. Concerning Main Street Commons, Judith Aiello stated that the construction on the site is anticipated in the Spring of 1993 as soon as weather permits. Ald. Nelson reported that the Washington National site is beginning to be boarded up and that the company is preparing to move. He added that staff continues to examine the project and the Zoning Board of Appeals is exploring the size and type of structure to be permitted. Judith Aiello added that members had received a memorandum dated February 22, 1992 prepared by Charmain Borys and David Rasmussen concerning the City's experience with planned developments. This memorandum had been prepared in response to a request from Ald. Newman. HOME DEPOT PROPOSAL Aid. Nelson stated that Home Depot had submitted a letter requesting a resolution of intent to establish a TIF and to consider inducing Home Depot to redevelop the Rust—Oleum site. He added that the proposed resolution is not a commitment to support the project; it is a commitment to explore and determine if the proposed project is in the interest of the City. Judith Aiello distributed a map of the proposed trade area for the proposed Evanston store which had been supplied by Home Depot. She described the boundaries as Belmont Ave. on the south, the tollway on the west and Lake Cook Road on the north. Donald Kane of Kane, McKenna and Associates stated in response to a question by Aid. Nelson that Home Depot had indicated that this is a typical trade area for a 130,000 s.f. store. He noted that a small portion of the trade area is in the City of Evanston and that Home Depot had stated an intent to locate in the middle of the trade area whether the store is located in Evanston or not. Howard Melton commented that the trade area will be defined by where the store is located. He added that the southern boundary of Belmont Avenue is generous for an Evanston site. Mr. Melton asked Mr. Kane to state his firm's client in this project. He responded that the City was his client, however, the developer reimburses the City for all expenses incurred. Vaughan Jones asked Mr. Kane if he was acting for Podolsky, the developer of the site. Mr. Kane responded that the City is his client and that it is the City's decision to require that developers who are requesting City assistance to cover the cost of the City's consultants. Aid. Nelson stated that it is clear that Kane McKenna represents the City and Home Depot represents itself. Howard Melton stated that he had discomfort with a developer paying the City's consultant. He added that he was concerned about the controversy this could Venerate based on a perception issue. Aid. Nelson asked Mr. Kane if a document will be supplied that supports the designation of the market area. Mr. Kane reponded that a market study would be supplied to the City. Aid. Davis asked if the marketing efforts were to be consistently applied throughout the market area or would they be concentrated in the area closest to the proposed store. Mr. Kane responded that a market area usually consists of three subareas: primary, secondary and tertiary. He added that the most intense marketing occurs in the primary area. Aid. Davis asked if it is the intent of Hoare Depot that Evanston be within the primary trade area. Mr. Kane responded that Home Depot should answer directly, but that he believes the answer to be yes. Aid. Nelson asked Mr. Kane to comment on the impact of the proposed store on the primary market area. Mr. Kane responded that staff had required his firm to conduct a cross impact study. He stated that he did not believe that Home Depot would impact convenience hardware stores, but that Builders Square might be seriously affected. 2 i114 ,1111IIY'lll , Aid. Nelson asked Mr. Kane to describe how the cross imact study will be conducted. Mr Kane responded that the study will involve three tasks: (1) All competitors will be identified by location in relationship to the proposed site; (2) Competitors will be grouped by type: convenience hardware, lumber stores and Builders Square; (3) Total sales in the trade area: who will be affected and how they will be affected. Aid. Nelson asked Mr. Kane if his firm had experience conducting this type of study. He responded that the firm had conducted cross impact analysis. Vaughan Jones commented that the study will show what we want to hear, that Home Depot is benign. Donald Kane responded that City staff had given him direction to provide a real assessment of the impact. Aid. Newman stated that the issue goes beyond impact analysis. He stated that the City needed to know the alternative sites available and their impacts upon Evanston. Aid. Newman added that Evanston had lost its department stores because of Old Orchard and that the same situation is occurring with car dealers moving to Lincolnwood. Donald Kane responded that he believed that alternative sites in the immediate area would be in Skokie and Lincolnwood. but that Home Depot should be asked directly. Aid. Newman stated that he wanted an analysis of the impact on Evanston businesses if Home Depot locates in Skokie or Lincolnwood. Howard Helton stated that Home Depot is a very different type of retailer than Target or Sam's which each sell a wide range of merchandise. He added that Home Depot sells a specific class of merchandise in a manner which wipes out competitors. Mr. Melton concluded by stating that Home Depot is known to be a predatory company and data from other communities where it operates support this reputation. Vaughan Jones commented that it is not wise for the City to be an equity partner in a deal that hurts local businesses. _€ Aid. Nelson requested that members not pre -judge the proposal until more data = are collected. He observed that Builder Square, which is competing with Home m- Depot in other markets, should have substantial market data to supplement the . infnrmatinn aenerated by Kane McKenna. Aid. Engelman stated that he wanted a thorough understanding of the impact of £�= the proposal. He asked if Home Depot had the social responsibility goals of - -_ corporations like Dayton Hudson. Mr. Kane responded that he had discussed this issue with Home Depot and that Mr. Folio, the Regional Representative, had no f problem with a First Source hiring program for Evanston residents. He added _ that the company is known for intensive and continuous training as well as for paying above average wages ($7-10 per hour) and benefits relative to other retailers. Mr. Kane commented that 90% of the employees in the Evanston store have been projected to be full-time. He concluded by stating that Home Depot ahad not expressed any problem with developing an MBE/HBE program comparable to the programs which other retailers have committed to the City. Aid. Engelman requested that Home Depot's performance with regard to these programs in other market areas should be investigated. He added that the City == should not merely accept the company's word that they will implement the programs. Aid. Engelman requested that staff contact other municipalities to __,_._ determine the performance and impact of Home Depot. Aid. Nelson referred to a Home Depot store in Escondido. California which is located outside the central business district. He commented that the store attracts many people and that the community has demographics comparable to Evanston. Donald Kane responded that Home Depot is a tremendous competitor. as indicated by industry sources. Howard Melton commented that one of the strategies of Home Depot is to attempt to hire the employees of its local competitors. He added that this is one of the reasons the company is willing to agree to First Source hiring programs. Aid. Nelson invited several business representatives in the audience to comment on the Home Depot proposal. Robert Fischer of Evanston Lumber stated that nine people would like to address the Committee including representatives of Evanston Paint and Glass. Lemoi Hardware, Fashion Floors, Hines Lumber, Harald's Hardware. Cawley's Hardware. He added that a representative of Builders Square had planned to be present, but had another commitment. Mr. Fischer distributed a six page memorandum to the Committee jointly signed by nine businesses. He stated that the memorandum documented $38 million in sales from the current Evanston hardware industry. Mr. Fischer stated that he was especially concerned about misleading information that had been presented to the Committee concerning projected sales and benefits to the Committee. He asked Mac Hines of Hines Lumber Company to begin the critique of the information presented by Home Depot and Kane and McKenna. Mr. Hines stated that Home Depot is a publicly traded company with 207 stores generating $71 billion in sales or $34.2 million in sales per store. He added that the $52 million in annual sales projected by Kane McKenna for the proposed Evanston store is an especially bold number given these data. Mr. Hines observed that this projection was 50% higher than the average Home Depot store suggesting that the sales figures presented warrant careful reconsideration. Mr. Hines also questioned the size of the trading area for the store by expressing doubt that someone would drive from Northbrook to shop at Home Depot in Evanston. He concluded by critiquing the projected TIF sales tax increment as overstating the benefit to the City because it does not take into account the lost revenue from existing businesses in Evanston. Ald. Newman questioned whether the annual sales would depend on the size and age of a given store. He added that the projected annual sales for the proposed Evanston store should be compared to other stores of 130,000 s.f. Donald Kane responded that Home Depot had recently increased its store prototype from 100,000 s.f. to 130,000 s.f. Mac Hines also questioned the employment projections provided by Home Depot which indicated the generation of 200 jobs. He reported that a more reasonable projection would be IOG-120 employees with only 10% of the employees residing in Evanston. He reported that ninety percent of the employees of Builders Square lived outside of Evanston. Mr. Hines also questioned the reliability of the projected average wages of S7-10 per hour provided by Home Depot. He asked that the committee determine if salaried employees had been added to this calculation. In response to a question from Howard Melton about wages paid by local hardware businesses, Mr. Hines responded that the wages of his firm was between $8-$15.47 per hour with an employee making $5.50 per hour. Mr. Kelton added that it had been reported that Home Depot will hire more people than they need initially to give an impression of overwhelming service. 4 Ralph Lemoi Dupuis referred to an analysis of the negative impact on the pre—existing Atlanta building materials and hardware industry five years after Home Depot entered the area with eight stores. The analysis, included in the memorandum handed out at the EDC Meeting, was based on information provided by Ace Hardware National Headquarters. Ald. Nelson noted that most neighborhood hardware stores in the Atlanta market had survived Home Depot's entry into the marketplace. He questioned how this had occurred. Ald. Nelson asked Don Kane to investigate the report that hardware stores under 25,000 s.f. were relatively unaffected by Home Depot if they were more than three miles from the site. Mr. Dupuis confirmed that this was reported to have been the case. Mr. Dupuis stated that he had personally studied Home Depot for two years and that he had the following observations: (1) Home Depot will locate anywhere initially in a target area and; (2) The company will cannibalize its own stores by locating other stores nearby. Mr. Dupuis also commented that there were many other stores located in the trading area offering comparable merchandise including Courtesy. Handy Andy, Menard and Builders Square. He added that Hines also owned stores in Glenview and Wheeling. Ald. Nelson asked if the group had contacted appropriate stores in Skokie and Glenview to raise concerns about Home Depot. He added that the businesses concerned should ignore community boundaries given that Home Depot also ignores community boundaries. Bob Fischer and Ralph Dupuis responded affirmatively. Don Puls of Evanston Paint and Glass stated that his company had been operating in Evanston for three decades and that he was very concerned about the City helping to finance Home Depot's entry into Evanston. He asked that the sales figures included in the memorandum to the Committee be maintained confidentially. Ald. Nelson instructed staff and consultants to maintain these sales figures in confidence. Mr. Puls stated that his company had recently completed a major expansion at the corner of Green Bay and Harrison. He observed that the loss of hardware stores caused by Home Depot could have a significant negative impact on downtown and many of Evanston's neighborhoods. Howard Helton commented that some large retailers like KAL41ART do not participate in cultural or business activities in a community. He asked what would be Home Depot's relationship to the community. Donald Kane agreed to secure a response from Home Depot. Kathy Cornyn of Cawley's Hardware stated that each of the hardware businesses in Evanston anchors a neighborhood and that their demise would have a negative impact on the neighborhoods. In addition, she added, each level of the hardware industry in Evanston is interlinked. Ms. Cornyn concluded by stating that Home Depot does not just carry hardware, it sells everything but clothing. Bob Fischer concluded the presentation by stating that the businesses represented believe that competition is healthy, but that predatory competition such as Home Depot causes the assembled business to object to a subsidy. Mr. Fischer introduced two business people who had not addressed the Committee, Bob 0kita of Fashion Floors, who stated that he was concerned about the proximity of the Home Depot site to his store. and Dan Cawley, who stated that he did not object to competition, but that he did object to large corporations getting subsidies. 5 Aid. Nelson stated that the presentation was one of the best and most professional presentations he had witnessed in 16 years as an Alderman. He added that he sympathized with many of the concerns. He thanked the group for its appreciation and added that it was greatly appreciated. Aid. Nelson stated that if he had to vote tonight. he would vote against subsidizing Home Depot, however, the issue must be explored thoroughly with more information. He suggested several tasks which should be completed: (1) Staff should contact other municipalities in the area to determine how they may react to a Home Depot proposal. (2) Home Depot should be invited to an EDC Meeting to respond to the questions and critique raised this evening. (3) Consultants and staff should begin to explore strategies which might prevent negative impacts on the community if Home Depot enters the market here or nearby. Ald. Newman commended the business representatives for their presentation. He asked if there was any potential development option which would not request a subsidy from the City to develop the Rust-Oleum property. Donald Kane stated that he could not envision a development which would not require assistance given the soil conditions of the site and the extensive remediation and special construction that would be required. Howard Melton stated that he doubted whether the Rust—Oleum property could be developed without a TIF. He suggested that a use that does not exist significantly in the community be pursued to develop this site. Aid. Nelson stated that it would be premature for the Committee to pass the resolution of intent onto the Council without additional information and discussions with Home Depot. He proposed that the issue be addressed at the next meeting. The Committee agreed by consensus. Chicago Avenue Auto Dealerships Steven Syms of Syms Subaru made a presentation to the Committee requesting assistance in addressing long term conflicts he and other dealers have experienced with regulation of signage in the City, especially as administered by the Sign Review and Appeal Board. Specifically, Mr. Syms requested consideration of a special set of rules and regulations for regulation of signage for auto dealers. He added that current generic rules for signage are unreasonable and not sufficiently flexible for the special needs of auto dealers. Mr. Syms stated that Evanston has lost many dealers in the past thirty years, declining from a high of 27 dealers in the 1960's to 7 dealers today. Mr. Syms stated that he did not feel especially welcome in the community even though he was a long term business person and a resident. He encouraged the Committee to consider a sign ordinance enacted in Libertyville to assist auto dealers with appropriate signage. Aid. Nelson asked Mr. Syms if he had developed specific sign standards. Mr Syms responded that he had not yet developed standards. Aid. Engelman thanked Mr. Syms for his presentation. He observed that the philosophy of the current sign ordinance was that signage is for identification, not marketing as used by auto dealers. Aid. Engelman concluded by stating that he could envision a redesigned sign ordinance which would have varying standards for different streets depending on their functions. He contrasted two lane Central Street with a busier and wider Chicago Avenue with differing commercial uses with varying signage needs. 6 Judith Aiello reported that the Sign Review and Appeals Board had met last week and was considering a recommendation for addressing the concerns raised by Mr. Syms. Ald. Engelman asked if there were other groups besides auto dealerships where a similar problem exists. Ald. Newman stated that the $75 million in annual sales by car dealerships in Evanston generates $750,000 in sales taxes annually. He added that it must be a priority of the City to maintain car dealerships in Evanston by developing a strategy to alleviate their concerns which go beyond sign regulation. Ald. Newman concluded that the City should not be making life more difficult for this industry. Mr. Syms thanked the Committee for its support and added that he was shocked because he had not always been received warmly or in a supportive manner. Howard Melton acknowledged Mr. Sym's concerns, but he also spoke in defense of the Sign Committee which he characterized as a committed group charged with a difficult and complex task. He added that the sign ordinance is only enforced in Evanston when people ask for approval. Many businesses, he added, never seek permission, and erect non -conforming signs throughout the City. Ald. Davis stated that she agreed that differences in businesses and traffic flow on street should be taken into account, but that she did not want Chicago Avenue to be overrun with large signs because it is a busy street. She added that the size of the current industry helps with only 7 dealers instead of 27. Ald. Nelson proposed a memorandum from the EDC to the Planning and Development Committee suggesting that a moratorium for auto dealer signage until a revised ordinance can be worked out. In addition, he recommended that the ordinance be enforced with more flexibility in addressing the needs of business owners who want to make modest changes to signage which had been grandfathered by the current ordinance. The Committee agreed with this proposal by consensus. Ald. Newman asked that the auto dealership until a broader discussion of the industry possibility of a new Saturn dealership. The meeting was adjourned at 10:30 P.M. Dennis Marino Economic Development Planner issue be carried on the EDC agenda can occur, including the a 'n YI ui alli DRAFT - NOT APPROVED �IU . �I I , Y 1 u, d1 Members Present: ECONOMIC DEVELOPMENT COMMITTEE MEETING OF MARCH 24, 1993 MINUTES Aldermen Feldman. Nelson and Newman, Vaughan Jones. Howard Melton, Dennis Raffensperger Members Absent: Aldermen Davis and Engelman, Scott Peters Presiding Official: Alderman Jon Nelson Staff: Judith Aiello, Dennis Marino Guests: John Iberle and Greg Merdinger, John Buck Co. Summary of Action The Meeting was called to order at 7:55 P.M. by Alderman Nelson. The minutes of February 24, 1993 were approved as drafted by unanimous vote. Project Update Judith Aiello reported that negotiations among the developers of the Howard - Hartrey Shopping Center have continued. She added that the City Council will meet to approve additional modifications to the Redevelopment Agreement. Ms. Aiello stated that the Hain Street Commons Redevelopment had been finalized with the transference of land from the City to the developer. She added that numerous neighborhood meetings had occurred in the last month in response to neighborhood concerns. Alderman Feldman commented that the City Manager and staff had responded well to citizens groups and that representatives of the organizations involved would meet with the City Manager tomorrow. Ald. Feldman added that many of the concerns raised by neighbors were similar to the concerns raised over six months ago that the City had agreed to address. Alderman Nelson stated that analysis of the Home Depot Project continues. He added that City representatives had met with representatives of Home Depot and had delivered the message and concerns raised at the February EDC Meeting. Chicago Avenue Auto Dealerships Steven Syms of the Subaru Dealership stated that he was appearing tonight along with several other dealers as a follow up to the February EDC Meeting when he had raised a number of problems with sign regulation in Evanston. Other dealers present included representatives of Point One Chrysler and Toyota, the Oldsmobile/Volkswagon Dealership. the Buick dealership and the Nissan dealership. MINUTES OF ECONOMIC DEVELOPMENT COMMITTEE MEETING OF MARCH 24, 1993......... Page Two Mr. Syms summarized the following recommendations included in his memorandum to the Economic Development Committee which had been distributed during the Meeting. 1. Refacing a sign to reflect new ownership should be permitted. 2. Free Standing Signs a. One per business dealership to a maximum of two per parcel. b. Such signs shall be separated by a maximum of fifty feet. c. If there are multiple dealerships, only two dealerships may appear on a free standing pole. d. Free standing signs shall not exceed twenty five feet or the existing height of each sign. e. If grandfathered, modifications are allowed as they relate to modifying the face. f. Free standing signs are permitted at the lot line due to the lot line development of adjacent buildings. g. Maximum Gross Surface Area: 140 sq. ft. per sign face. 3. Nall Sign a. One wall sign per business entity b. Gross Surface Area: Not to exceed twenty five percent of the square foot area of the facade to which the sign is attached. c. Not to extend above the roof line upon which the sign is attached. 4. Uniform Sign Package When a dealership changes ownership, a sign package must be presented to the City for review and approval. S. Information on available service to be displayed on signage (i.e.. sales, parts, service. leasing, and used cars), not just dealership name. b. Flags on used car lots: this is representative of the industry and could be conditioned on uniform color and periodic replacement. Auto customers have been conditioned to locate the flags to find the used car section. Judith Aiello stated that auto dealerships have encountered two major signage problems: (1) Most of the existing pole signs are non --conforming and a change in the name on the sign triggers the non -conforming requirements; (2) the sign ordinance requires a pole sign to be set back as many feet as it is tall. Alderman Feldman asked how many used car lots exist in Evanston. Mr. Syms responded that there were five lots. Ald. Feldman stated that he wanted to determine the total impact of changes in signage if everything requested is granted. Terry Upton of Point One stated that the dealers need a lot of signage to be effective given that signage in the auto industry is used for advertising as well as identification. Mr. Upton stated that he has been frustrated by attempts in the past to address problems with sign regulations in Evanston. Dennis Raffensperger assured Mr. Upton that he was speaking before a sympathetic Committee. MINUTES OF ECONOMIC DEVELOPMENT COMMITTEE MEETING OF MARCH 24, 1993......... Page Three Aid. Nelson suggested that the EDC recommend that the proposed changes for auto dealers presented this evening be considered and adopted by the Planning and Development Committee. Aid. Newman stated that the regulatory concerns about signage needed to be addressed to keep the dealers in Evanston. Two of the dealers present stated that they were considering leaving Evanston. He suggested that a joint meeting between EDC and P & D should be convened to secure adoption of the recommendations and to pass them on to City Council. Dennis Raffensperger stated that the Planning and Development Committee should be encouraged to establish a separate signage category and standards for auto dealerships given their special needs. Members of the Committee present agreed unanimously with Mr. Raffensperger's recommendation. The Committee next discussed the parking problems that the dealers have been experiencing. The dealers present objected to rigorous enforcement of meter regulations in front of their businesses. Several dealers expressed repeated problems with customers receiving tickets or leaving the dealership for fear of receiving a ticket. Two dealers stated that this may be hurting sales. Alderman Newman proposed eliminating the meters in front of the dealerships. Steve Syms suggested giving stickers to the dealers that could be affixed to the cars of customers. Dennis Raffensperger proposed eliminating meter enforcement on Saturday in the locations affecting the dealers. Aid. Nelson requested that staff develop a program that would enable dealers to place stickers on customers vehicles. He suggested that the program be initiated with a six month trial period. Members present concurred with Aid. Nelson's proposal without dissent. In response to timing concerns raised by Mr. Upton and Mr. Syms, Judith Aiello stated that a proposed program could be submitted to City Council before the end of April. Alderman Newman asked the dealers present why auto dealers do not want to locate in Evanston. A representative of the Buick Dealership responded that sixty percent of the vehicles registered in Evanston are foreign autos. Consequently, an American manufacturer mould be reluctant to approve a new dealership in Evanston. Mr. Upton stated that there were other considerations including a lack of land for parking vehicles outside and a hostile regulatory environment. Alderman Newman encouraged dealers to return to the Committee with their concerns. Aid. Nelson added that the Chamber and Evanston Inventure can also be helpful to the dealers in advocating for change that improves business conditions. Washington National Redevelopment John Iberle of the John Buck Co. began his presentation by explaining the need for public capital to attract private capital to the proposed housing development. He stated that in order to attract private capital, the project needed to provide a stabilized return in the form of net operating income of 10% annually (net operating income/ new private capital). Mr. Iberle added that the projected return on capital without economic assistance from the City has been projected to be 8.28%. Under either of the two proposals listed below, the return on capital has been projected to be approximately 10%. MINUTES OF ECONOMIC DEVELOPMENT COMMITTEE MEETING OF MARCH 24. 1993......... Page Four 1. A capital contribution to the project of $2.5 million from TIF bond proceeds plus a "pay as you go' yield protection program in order to provide assurance to private capital sources that the project will provide a competitive return of 10%. Mr. Iberle stated that the yield protection program is designed to provide assurance to capital sources that the project will provide an appropriate return. This yield protection element will be calculated following`the end of each calendar year. 2. A capital contribution of $5 million from TIF bond proceeds with no yield protection component. Under this proposal, the City will be the owner of the garage structure which the project will lease on a triple net basis for $1 per year. The project will retain the right to purchase the garage for the outstanding balance of the TIF bonds. Mr. Iberle also presented the projected real estate tax impact on the local taxing districts if the site is not redeveloped before 1995. He projected that taxes will fall from the $1.073.000 paid in 1992 to an estimated $250,000 in 1995 (assuming the vacated building remains on the site). Aid. Nelson opened the meeting for discussion after summarizing proposal 1 as a blend of capital infusion and yield protection, and proposal 2 as direct capital infusion only with the City gaining title to a parking structure leased back to the development for its use on a triple net basis. Aid. Feldman asked if the $5 million cap on yield protection over the life of the TIF as included in proposal 1, combined with the $2.5 million capital contribution, could lead to $7.5 million in City assistance. Mr. Iberle responded affirmatively. Greg Merdinger added that in proposal 2, the generation of $5 million in net proceeds will require the issuance of a $6 million bond. Aid. Feldman asked how the developer would guarantee repayment of the bonds as stated in the proposals. Mr. Iberle responded that the developer would incur the burden of paying the difference between the annual debt service and incremental property tax revenue. Greg Merdinger added that based on the Buck Co's conservative projections, it was unlikely that this would occur. This was included to guarantee a no lose situation to the City. Aid. Newman asked how possible Council approval of the ZBA recommendation of 221 feet for height would affect the project. Mr. Iberle responded that the ZBA had approved the density requested and the financial projection presented this evening is based on the recommended density. He added that not having the upper nine floors might affect the economics of the project, but that this impact had not been calibrated yet. Mr. Iberle stated that the recommended height limitation would eliminate the ability to include open space in the second phase of the project. He added that a height of 250 feet would provide for a more elegant solution and enable open space to be included. Mr. Merdinger added that an increment of 30 feet is not noticeable. but that it would generate positive results including a fine pristine tower which is better than a short squat building. Mr. Iberle concluded by stating that a 250 feet height would permit the continuation of the wedding cake approach downtown. MINUTES OF ECONOMIC DEVELOPMENT COMMITTEE MEETING OF MARCH 24. 1993......... Page Five in response to a question from Dennis Raffensperger, Mr. Iberle confiroed that the second phase would be built with the recommended height limitation, but it is not clear what form this phase would take. Mr. Raffensperger asked why 221 feet was unworkable. Mr Iberle responded that it would increase visibility into the second tower from the first tower. Aid. Newman asked what the units would generate in real estate taxes when they are converted to condos. Mr. Merdinger responded that each unit would generate $5900 annually in real estate taxes. He added that the units would be expected to sell at $200 psf six years after the development has been completed. Aid. Nelson asked if Phase II would call for expansion of the TIF. John Iberle responded that it would not. Aid. Nelson stated that incremental taxes from Phase II mould help retire the bonds more rapidly that will be issued to help finance Phase I. Aid. Newman asked why the garage would be owned by the City under Proposal 2. Mr. Iberle responded that this arrangement was included to provide collateral for the bonds to be issued by the City. It was a legal mechanism to insure payment of the bond debt service by the developer if there is a shortfall in incremental taxes. Aid. Nelson stated that there would be a Joint Committee Meeting on Monday between the EDC and P&D concerning this proposal. He asked if the Committee was prepared to make a recommendation to Council or pass on its collective wisdom to Council. Aid. Newman requested that City staff verify the statements made by the Buck Company in its written proposal concerning the City's subsidy of the Evanston Place development. He questioned whether the points made about this development were correct. Aid. Herrman asked that the Committee receive a memorandum in response to this issue. Aid. Newman stated that he would like more time to analyze the latest version of the Buck Proposal and to consider the findings of the staff concerning Buck's contentions about City subsidy of Evanston Place. John Iberle stated that the relative subsidy of Evanston Place by the City is a key element of the Buck Co.'s argument in support of its proposal. He added that the $3100 per unit subsidy stated in his proposal to the Committee is actually conservative. Ald. Newman stated that there is not a lot of support in the community for giving this project $5 million, especially at such a desirable site. Greg Merdinger responded that the project benefits the community substantially. He added that this may be an educational issue. John Iberle asked what other forums he should appear before to get the message out. Greg Merdinger added that he had been addressing this for almost two years and that every conceivable option had been considered with the site. He added that it would take at least two years for Washington National to get this far with another developer and project and that the wait is harmful for the community. MINUTES OF ECONOMIC DEVELOPMENT COMMITTEE MEETING OF MARCH 24. 1993......... Page Six Aid. Feldman stated that there exists a break between what is going on in the EDC and what is going on in the community concerning the perception of this project. He added that there was not substantial support for the height nor for the amount of money requested. Aid. Feldman commented that the work required to sell this project has not been completed. Maybe the City did not hold enough public hearings, maybe the developers did not engage in sufficient public relations. He`concluded by stating that if it goes forward at this point. it may not succeed. Vaughan Jones stated that the job of informing the community of the benefits of the project had not been done. Aid. Nelson stated that it is the Committee's role to recommend to the Council. He added that we cannot let the developer go on forever and delay judgment day. Aid. Feldman stated that the case for this project is not compelling. In order to vote affirmatively, he added that he would need to feel comfortable with all aspects of the project. He asked for more definitive plans for possible retail uses and consideration of a commitment to the second phase of the project. Aid. Feldman concluded by stating it is not clear that the Committee should take the direction requested at this time. Aid. Newman stated that developers had not made a compelling case for the development. He recited a chronological history of the evolution of the development, indicating that in the initial meeting with the developer financial assistance was not mentioned. Aid. Newman commented that perhaps a lower amount of money should be considered with less increment devoted to repayment and more immediate benefit to people who are paying higher taxes now. He concluded by stating that he could not support a contribution of $5 million and that a final vote by the City Council on this matter by April 20th is not likely. Ald. Nelson stated that he wanted to bring closure to the discussion and that if the Committee did not want to vote now. then it could consider voting Monday evening. He added that a recommendation needed to be provided to City Council. The developer had given the Committee its best shot and it was time to act. Ald. Nelson requested feedback from the developer as to his preference to proceed with dialogue or to state to the Committee that the ball is in its court. John Iberle stated that the Buck Company would like to find out the sense of the Council. He added that to deny his organization an opportunity to address the Council at this time would be unfair. Ald. Newman stated that the developer had been very cooperative with the City and had worked hard and that he deserves a vote of the Council with full public discussion. He added that the process had been frustrating for everybody, but he does believe the Buck Company does quality work and that there are benefits to Buck being downtown. In response to a question by Ald. Newman, Judith Aiello described the planned joint committee meeting as the first blended discussion of zoning and economic development issues. MINUTES OF ECONOMIC DEVELOPMENT COMMITTEE MEETING OF MARCH 24. 1993......... Page Seven Aid. Nelson stated that the solution to this project will take zoning and economic development issues into account because they are intertwined. He added that the EDC has to present something to the Council. Aid Newman stated that the Council should deal with the issue of economic assistance because the money issue is cleaner. After considerable di'scussion of procedural issues. Aid. Nelson stated that the Committee could consider passing on to Council both proposals without any recommendation. Aid. Feldman stated that he was willing to do this given that such an important issue requires full Council debate. Aid. Feldman moved that the two alternative proposals from the Buck Company be referred to the City Council without a recommendation concerning either proposal. A second was provided by Howard Melton. Aid. Newman stated that he did not know who was giving the Buck Company advice. but the idea of trying to get this done in April is not necessarily making the project better off and it may be a mistake to rush the project. He added that Aldermen needed time to analyze the ZBA transcript and consult. John Iberle reiterated his desire to have a vote of the Council. Members voted 5-1 to transmit the two proposals to City Council for consideration without a recommendation (Aye: Feldman, Melton. Nelson. Newman. Raffensperger; Hay: Jones). Vaughan Jones stated that he had voted against the motion because he believed the Committee should have voted on actually recommending the proposals. Greg Merdinger asked Committee members whether they preferred a front end capital contribution or pay as you go. All six members present responded that pay as you go was the preferred approach. The meeting was adjourned at 11:10 P.M. Dennis Marino Economic Development Planner a DRAFT - NOT APPROVED Economic Development Committee Meeting of April 28. 1993 Minutes Members Present: Aldermen Davis, Engelman, Feldman. Nelson and Newman, Vaughan Jones. Howard Melton. Dennis Raffensperger Members Absent: Scott Peters Aldermen Present: Drummer, Heydemann, Holsman. Moran Staff Present: Eric Anderson, Judith Aiello. Dennis Marino Guests: Mike Folio, Home Depot; John Iberle and Greg Merdinger, John Suck Co; Don Kane. Leslie Murphy, Kane McKenna Associates. Thomas Pontarelli, Washington National Summary of Action The Meeting was called to order at 7:06 P.M. by Alderman Nelson. The ■lnutes of March 24, 1993 were approved unanimously as drafted. Ald. Nelson accepted two communications concerning the Home Depot proposal: a letter from Evanston Paint, Glass and Hardware and a letter from Federal Mood Floors, Inc. Project Update Judith Aiello reported that all parties (Dayton Hudson. Jewel. Best Buy and the City) had executed the signature pages of the Howard Hartrey Redevelopment Agreement. Ms. Aiello added that closing was anticipated by Fail and commencement of demolition thereafter. Ms. Aiello stated that the redevelopment of Main Street Commons had commented and that demolition activity had been initiated. She added that amendments to the redevelopment agreement had been approved at the last City Council Meeting. -ll 0.91 , Ill 11 n . u. u . 11.lo, u, .JIII, WJ 111 .. a i.0 I. a I, 4 � I II III. I .I 1 11 ..II, Home Depot Proposal Y J ill Illl idyl Aid. Nelson introduced Mike Folio, the Director of Real Estate for Home Depot. Mr. Folio distributed to Committee members a memorandum he had prepared. Mr. Folio stated that Home Depot and Podolsky and Company were the co -developers of the Rust-Oleum site. He added that he had been involved in the site for nine months after being contacted by Podolsky. To date, he added, the proposed project had received site plan approval by the Site Plan Review Committee of the City. Mr. Folio stated that three firms were consultants to Home Depot in this project including: Thompson and Associates (market analysis); PSI (environmental); Greenburg & Farrow (architectural). He added that the two major issues confronting the developers were environmental problems and subsurface problems. Mr. Folio next summarized the history of Home Depot beginning with its creation in Atlanta with three initial stores. The company pioneered the one stop shopping feature within the home improvement warehouse industry. In addressing the philosophy of the company. Mr. Folio emphasized its decentralized nature which empowers store managers and employees to make as many decisions as they can handle. He also underscored the company's desire to become involved in the community and its national efforts involving affordable housing, especially with Habitat for Humanity. Mr. Folio next presented an eight minute film which highlighted Home Depot's community involvement. At the conclusion of the film, Mr. Folio introduced Don Schesky, an Environmental Specialist with PSI. Mr. Schesky stated that the Illinois EPA had provided Rust-Oleum with a closure letter concerning a hazardous waste storage area and that all underground tanks had been removed. He added that two-thirds of the site is a former clay pit site which had been converted to a refuse landfill. Mr. Schesky stated that he has proposed filling the clay pit with a clay cover to minimize the risk of penetrating the contaminated pit area. He added that the support pilings for the building will then stand on a firm clay base. Aid. Nelson asked if the contaminants extend beyond the clay layer. Mr. Schesky responded that they did not based on his investigation. Aid. Feldman questioned why Mr. Schesky's assessment is not consistent with the IEPA closure letter. Mr. Schesky responded that the state's letter only addressed surface contamination. Aid. Feldman asked if the state can come into the entire site and demand clean up. Mr. Schesky responded that this depends on the concerns of the state which had been focused upon cleanup of a surface hazardous waste storage facility. Aid. Feldman asked if Rust-Oleum and the state were aware of the findings. Mr. Schesky responded that Rust-0leum was aware and that the state was not aware of the findings based on his knowledge. Aid. Nelson asked if all tanks had been removed. Mr. Schesky responded affirmatively. Aid. Feldman questioned if there was any possibility of the contamination seeping below the clay enclosure. Mr. Schesky responded that all contaminants appear to be contained within the clay pit. He added that the clay extends to the bedrock which is sixty feet below the surface. 2 Dennis Raffensperger asked if there was any desire to clean up the contaminants in the clay pit. Mr. Schesky responded that this is desirable, but very expensive. A follow up question concerned Whether the state had required such clean up elsewhere. Mr. Schesky stated that IEPA looks to pragmatic clean up of sites. Mr. Raffensperger asked if the wells had been tested. Mr. Schesky responded that there is no evidence of contamination. A final question concerned the possibility that the driving of piles will cause the contaminants to leech out of the clay pit. Aid. Feldman asked for an estimate of complete clean up of the site. Mr. Folio responded that it would cost $25-30 million. Mr. Folio introduced Frank Lamia of Greenberg Farrow Architecture to address issues concerning construction and site preparation plans. Mr. Lamia stated that the site is characterized by extraordinary problems with contaminated soils and soft clay. He added that he has recommended driving piles 60 feet to bedrock to support the building which would cost $1.2 million. This approach was reported to be preferable in order to minimize excavation which would generate a cost of $70-100 per cubic yard of soil removed. Mr. Lamia stated that other extraordinary costs would involve adding 46,000 cubic yards of new fill and compacting it throughout the site ($550,000): widening Oakton Street as recommended by the City's traffic engineer and; extra maintenance of the site ($ 0,000) to prevent settlement of the fill given the special soil and geological conditions. Aid. Feldman asked if the widening of Oakton was an extraordinary cost. Mr. Folio responded that this improvement was a TIF eligible expense. Aid. Nelson asked if Home Depot had encountered environmental difficulties on other sites and if municipalities had assisted with the remediation of these problems. Mike Folio responded that environmental contamination had occurred on other sites and that municipalities have assisted. He cited the constuction of a new store in Michigan as an example. Aid. Nelson requested that examples and documentation be provided to staff. Mr. Folio commented that the Rust-Oleum site is an extremely difficult site to approach. He added that Home Depot was committing to develop the site from corporate cash flow with the knowledge that the site could never be financed due to its extraordinary geotechnical and environmental problems. Aid. Feldman asked Mr. Folio if he was suggesting that no other developer could secure financing for this site. Mr. Folio responded that the chances of anybody securing financing are slim and that a developer would be required to search for a long time to find a willing lender. Rob Reiner of Thompson and Associates of Ann Arbor, Michigan addressed the characteristics of the envisioned trade area for a Home Depot located at the Rust-Oleum site. Mr. Reiner stated that the trade area which includes the north suburban area and a portion of the North Side of Chicago was a strong market area for Home Depot due to its high density. He projected that 13% of the stores sales ($7.8 Million annually) would be generated from Evanston and 87% of sales ( $52 million annually) would be generated from outside Evanston. The primary market area for the store includes Evanston, Skokie, Wilmette, Kenilworth, Glencoe, Northfield, Glenview. Morton Grove, Lincolnwood and Chicago (Pulaski on the Nest and Belmont on the South). 3 Mike Folio Commented that Thompson and Associates recomamonded that the store be located as close as possible to the intersection of Touhy and McCormick. Aid. Davis and Nelson each questioned the impact on Evanston sales if the site of the store were to be moved Nest or South. Fir. Thompson responded that he could not respond directly, but that the farther south one moves, the lower the sales generated from Evanston. Vaughan Jones asked what other sites Home Depot was considering for the Evanston/Skokie/North Side Chicago Trading Area. Mr. Folio responded that he had identified three alternative sites in Skokie. Lincolnwood and Niles. He added that his goal was to build as close to the McCormick/Touhy intersection as possible. Mr. Reiner and Mr. Folio addressed concerns raised by Evanston home improvement industry representatives during the March 1993 EDC Meeting. Mr. Folio stated that Atlanta is Home Depot's hometown where it was subjected to attack from other stores, especially Builder's Square which entered the Atlanta market in 1988 and closed its stores in 1992. Overall, Mr. Folio added. the 1988-92 period was characterized by a tough recession with a major drop in the sales of the home improvement industry. In response to a question from Howard Melton, Mr. Reiner stated that his firm does not study the impact of Home Depot on old competitors. but instead focuses upon the impact of new competitors on Home Depot. Howard Melton stated that Home Depot would be competing for existing market share in the Evanston area. He observed that retail sales in Cook County were actually declining in the past two years. Mr. Folio responded that Home Depot's entry into the market will create sales given that new services and products will be offered that are not available now. He stated that the market has the potential to support more stores than currently exist. Mr. Folio added that Home Depot personnel will recommend that customers shop at local hardware stores for products that Home Depot does not stock or for products that do not roll over quickly. He concluded by stating that small hardware stores have capitalized on the competitive advantage and niche that they have. Mr. Melton asked why the City should use tax money of local businesses so that Home Depot can come to compete with local businesses. Mr. Folio responded that TIF funds would not be used to assist Home Depot, they would only be used to bring the site up to a competitive position with other sites. He added that an expanded Builders Square (Builders Square II) would impact the existing businesses more than Home Depot would. Mr. Folio cited a Hardware Agg_ survey which concluded that Kai Mart created more competition for local hardware stores than home improvement warehouse retailers. Aid. Nelson asked if Home Depot is committed to building on a site within one mile of this site. Mr. Folio responded that he was very committed to penetrating the immediate market area. Aid. Heydemaann asked if there was a trend of people remodeling and expanding their homes instead of moving. Mr. Folio responded that this was a definite trend related to the population aging and less mobility in employment. He added that Home Depot had been surprised by the remodeling market in the Northeast. Aid. Heydemmman asked how many Home Depot's were operating and how many had received economic assistance. Mr. Folio responded that there were 225 stores, but that he did not know how many had received assistance. He added that he would supply information to answer this question. 4 I YI •d �• 1i� p! �'I i�. E.' ew �i �I�i J iI �li'u6 i iE�llJ`i11VilY�u w,>ir-- Jk � eaa �_. , Ald. Newman stated that Evanston should not be hostile to Home Depot because they are efficient and affective. He added that he did not rant a repeat of the Old Orchard situation where sales are drained from Evanston if Hove Depot locates in Skokie. He asked if the Committee scants to have Hove Depot in Evanston if it will not eliminata a lot of local businesses. Nike Folio commented that Home Depot is good for the local tax base, it is a good corporate citizen and will generate quality employment. He added that he was not asking the City to subsidize the company, but that funds be invested to address an unusual site. He concluded by observing that it takes a cwany with very deep pockets to accept the environmental risk involved in this site. Ald. Engelman asked how much money was needed. Mr. Folio stated that about $3 pillion was needed to remediate the site. Ald. Nelson asked if the other sites under consideration needed remediation. Mr. Folio responded that two sites needed remediation, but not to the same degree as Rust-Oleum. He added that the Rust-Oleum site is the most difficult and troubled site that Home Depot had ever considered. Ald. Drummer asked if there was a danger of contamination of the detention ponds. Mr. Schesky responded that a liner will be constructed for the pond and that it will be frequently tested. Leslie Murphy of Kane McKenna commented that there had been 14 prospects for the Rust Oleum site since 1988 and that six of these prospects were serious and five of the six prospects turned away. Ald. Nelson stated that he wanted to maintain the proposed project on the Committee's docket until the amount of money required for remediation is firm. He added that the numbers included in the February letter and packet to the Committee needed work. Dennis Raffensperger suggested that Home Depot pick a point in time and give a fixed dollar figure for remediation. Mike Folio responded that the current number is realistic, perhaps high. but he is willing to live with this number even if remediation costs are higher. Dennis Raffensperger asked if there had been industrial proposals for the site. Judith Aiello responded that there had not been any industrial proposals. Don Kane added that his firms had surveyed a large number of Industrial brokers and users and there was not a chance of absorbing the problems of this site in an industrial deveiopernt given that the TIF real estate tax increment would be much smaller and sales taxes would not be generated. Ald. Drummer asked the annual dollar value of the community assistance provided by Home Depot. Mr. Folio responded that this ranges from $20-30 million annually, but that he would provide more precise information. Howard Melton requested an estimate of the market value of the land. Mr. Kane responded that this is a difficult question to answer given that there have been five failed developments on the site and the user has to be able to self finance development. He concluded that a value of $6-8 per square foot was realistic. Howard Melton proposed that any analysis of TIF revenues should subtract the loss of sales and propert3 taxes of businesses which might close. Judith Aiello responded that the City did not plan to conduct a cross impact analysis until the Resolution of Intent to establish a TIF was passed by City Council. 5 m ul. .A�..I ,.nll.,1.A,AlAAAli 6hlitlIIwill �JIN11,IkiR.+YII,I, dLi IL,l1IIiAll ail�k, 1�11 Wiwi 14 1w 11 .611dI i1, II .I 1 111111 IIVI Aid. Engelman agreed with Ald. Nelson that firm numbers were needed and that he was not sure the Committee could approve $3.5 million. Mike Folio commented that regardless of whether the TIF number is $2 million or $2.5 or $3, he needed to know if the community believed that Home Depot was an appropriate use on this site. Aid. Nelson responded that there was no unanimous opinion in response to this question. Ald. Newman stated that the question of $2 or $3 million is not the major issue. The critical issue. he added, is the impact on local businesses and neighborhoods. Aid. Newman conclude.: by stating that the proposal has a lot of merit and that the request should be permitted to go to the City Council within thirty days, --ram >`� Aid. Nelson agreed that the Com mitteY should r� ec end that the Resolution of Intent should be voted up or down within thirty days. He requested that Home Depot meet with staff and the City's consultant to firm up the numbers and to provide additional information requested this evening. Aid. Nelson recommended that the Committee meet again on May 19. 1993 to consider the Resolution of Intent. He concluded by thanking Mr. Folio for his presentation and his interest in Evanston. Mike Folio commented that he hoped for direction from the Committee this evening given that timing is critical and that he wants the Oakton store to be one of the first Home Depot stores to open in the region. Ald. Feldman responded that he was not ready to make a recommendation tonight given that he was reviewing some information for the first time this evening and that time was required to consult with the neighborhood. Mr. Folio stated that he could adjust his schedule for the thirty day period that had been scheduled, however. he wanted to stress that timing was critical. After a brief recess, the Committee reconvened and Bob Fischer of Evanston Lumber asked to address the Committee and to summarize a report which he had prepared in cooperation with other representatives of the Evanston Hove Improvement Industry. Aid. Newman requested that Mr. Fischer distribute the report to the Committee, but that any presentation or discussion of the report be held over until the next meeting given that the Home Depot representatives are no longer present this evening. Don Puls of Evanston Paint and Glass stated that in Northfield a paint company had contributed contaminated land to the Village. The land has been remediated and will be the site of a new housing development. He suggested that this approach be considered in Evanston. Washington Rational Redevelopment Proposal John Iberle of the John Buck Company began the presentation by summarizing the revised proposal of 4-23-93 which had been included in the Committee's packet. The essence of the proposal continues to be one of two options: (1) a $2.5 million initial capital contribution and a yield protection element featuring a maximum of $5 million or; (2) a $5 million initial capital contribution without any yield protection element. 6 Additional information provided in the revised proposal included a potential real estate tax revenue projection to be generated by a Phase II Development. Mr. Iberle reported that a low density program consisting of a one story retail project of 25,000 square feet will generate another $2,251,000 in tax revenues over its first ten years; a high density program of 150 apartments coverting to condominiums after five years will generate $10,075.000 in new tax revenues. Aid. Davis asked if a lower height would affect the projections. John Iberle responded that at a height of 221 feet. only the low density retail would be possible. Dennis Raffensperger asked what would be the likelihood of 150 apartments in Phase II. Mr. Iberle responded that it is a function of the permitted height. John Iberle stated that one of the questions raised in previous discussions was the appropriateness of a TIF for a residential development compared to a TIF to support retail development. Mr. Iberle stated that a residential TIF would generate a substantial real estate tax increment and create Dore retail sales and sales tax by delivering over 600 new shoppers to the downtown area. He added that the new residents and the development would also increase the physical vitality of downtown which adds value to the City. Other benefits of the development were presented including: employment and contracting opportunities; participation by the developers in downtown planning and special projects, including improved streetscape plans; employment and contracting opportunities and; a Municipal Housing Fund contribution. Mr. Iberle concluded by stating that it is not unusual for TIFs to be used to assist residential development nationwide. Aid. Nelson asked if the following perception of the proposal was accurate: at the time of condo conversion (projected to be year 6). the proceeds of the sale would be used to retire the remaining TIF bond used to generate the capital contribution and that the yield protection feature would also be terminated. Mr. Iberle confirmed that the perception was accurate. Aid. Davis commented that planned payback of $2.5 million TIF at conversion makes condominium conversion more important than ever. Greg Merdinger responded that the chances for conversion were favorable given the large number of owner occupied units in the area. He added that there was an interest in converting early on in the development in order to keep conversion costs low. This would also assure the City of the retirement of bonds as soon as possible. Aid. Engelman highlighted the nine conditions created by the Planning and Development Committee for the project so that EDC members present were aware of this aspect of the Committee's recommendation to the City Council. Aid. Engelman also suggested that the developers pay back the City for the funds advanced under yield protection as well as the capital contribution. In addition, he encouraged Mr. Iberle to consider basing the yield protection upon the increase in taxes instead of a percentage of gross revenues. Mr. Iberle responded that 12% of gross revenue was more straightforward than a percentage increase in real estate taxes which created more uncertainty and depended upon the level of initial base taxes for the development. Aid. Newman asked if the proposed tax caps in Springfield would eliminate the need for yield protection. Mr. Iberle responded that this would depend on the initial amount of base taxes and he cannot anticipate where they will start. Greg Merdinger added that if assessments are consistent with Evanston Place and tax caps as proposed are imposed. then there probably will not be a need for yield protection. Eric Anderson commented that if taxes hold. then the City will not need to pay under the proposed agreement, but the protection will exist. Mr. Anderson stated that if taxes increase to 14% of revenue. the development could generate a 10% rate of return by raising rents. Mr. Nerdinger agreed provided that everything could be increased proportionally. Ald. Engelman stated that he would like to hear the developer's response to an issue he had raised previously concerning the City's opportunity to share in the profits generated by condo conversion given that the City has been asked to become an investor in the development. John Iberle responded by referring to the increased tax revenues generated by the development. Ald. Nelson stated that the City truly is an equity partner and it should receive a return on equity. Ald. Davis added that the yield protection aspect of the proposal does raise the issue of equity participation. Greg Nerdinger responded that he would need time to consider the implications of this request. Mr. Nerdinger asked if the Committee expected a return beyond the repayment of the yield protection funds paid out. Ald. Nelson responded affirmatively. Ron Kysiak of Evanston Inventure stated that cities had previously included equity kickers in UDAG's although in most cases, the interest on the funds loaned was considered the equity return. Aid. Newman moved at 10:45 P.M. that the Committee enter Executive Session. Alo. Davis provided a second. All members voted in favor of the motion on a rail call vote. All members of the Buck Company and Washington National were asked to leave and invited to use another meeting room if they desired. The public meeting reconvened at 11:30 P.N. Eric Anderson began by summarizing a possible framework for consideration of financial participation by the City in the project based on Proposal Option 1 presented by the Buck Company, which featured a capital contribution and a yield protection feature. The yield protection feature was hereafter referred to as a line of credit. At the time of condo conversion, Mr. Anderson suggested that the following use of proceeds from the conversion be considered after repayment of the outstanding mortgage. 1. Line of credit extended by the City plus interest is repaid as debt. 2. Other equity investors receive payments. 3. Deferred payments are paid to capital contributors including Buck ($1.0 million); Washington National (f4 million) and the City of Evanston ($2.5 million initial capital contribution). 4. Remaining net proceeds will be divided equally between Buck. Washington National and the City of Evanston. Greg Nerdinger responded that under the proposed scenario. the majority of benefits go to the City after 100% of the risk had been incurred by the developer. He added that the proposed participation of the City at 33% in net proceeds appeared outrageous. He added that the proposal also more than makes the City whole on the initial capital contribution because the ongoing annual debt service up to the point of conversion would have retired a significant portion of the bonds. He stated that this was onerous. 8 Ald. Engelman observed that the proposed revenue stream to the City helps Justify the yield protection risk incurred by the City. Ald. Feldman added that a clear return to the City is needed to sell the project with the funds generated being used for a coameunity valued purpose. Aid. Davis stated that without these elements. the City cannot get above the $2.5 million capital request. Greg Merdinger agreed to respond with what works and to work out the details with staff before returning to the Committee next week. The meeting was adjourned at 12:02 A.M. Dennis Marino Economic Development Planner Members Present: DRAFT - NOT APPROVED Economic Development Committee Meeting of May 26, 1993 M1 nutes Aldermen Drummer. Engelman. Heydemann and Moran, Vaughan Jones, Howard Melton Members Absent: Alderman Feldman. Scott Peters. Dennis Raffensperger Presiding Official: Alderman Engelman Staff Present: Judith Aiello. Dennis Marino Guests Present: Mike Folio. Home Depot; Don Kane and Leslie Murphy. Kane -McKenna Associates Aldermen Present: Alderman Holsman Summary of Action The Meeting was convened at 7:42 P.M. by the Committee Chairman, Alderman Engelman, who introduced all members and staff given that the meeting was the first of the newly reconstituted Committee. GREEN BAY ROAD PARKING ISSUE Ald. Engelman asked that the Committee consider the Green Bay Road parking issue as the first agenda item. He began the discussion by stating that the elimination of parking on Green Bay Road had been required as a condition of state funding of the improvement of the roadway. Howard Melton stated that the street parking on Green Bay Road, from Livingston to Lincoln, had been eliminated after the roadway was improved last year. He added that no one appeared, at that time, to give consideration to the negative impact this would have on area businesses. Representatives of Jilly's Cafe and Evanston Paint and Glass each stated that the removal of street parking had affected their businesses negatively. They also commented that the improvement had led to an increased speed of traffic which had lowered the visibility of their stores. Ald. Drummer asked staff to investigate why Wilmette has been able to maintain street parking on both sides of Green Bay Road while Evanston has not. Ald. Neydemann asked staff to investigate the increased speed of traffic on the street. In response to a question by Ald. Heydemann concerning parking capacity and use. Howard Melton responded that the parking lot where his store is located is often full on weekends and the spaces available on Green Bay Road had been extensively used. He added that when Mitchell Brothers has a meeting of all of its associates, which occurs one day per week, parking availability becomes limited. Aid. Drummer stated that it was highly unfair for the State and the Federal Governments to require the elimination of parking In Evanston given the parking supply problem that the City confronts. He suggested that the businesses and citizens write to Congressman Yates' office about this problem. Jonathan Perman of the Chamber of Commerce distributed a copy of a letter from State Senator Berman's Office which stated that any proposed changes in parking on Green Bay Road other than what had been approved previously by the Federal Highway Authority must be resubmitted for approval. Otherwise. Federal funds could be withdrawn. Mr. Perman suggested that an appropriate request for restoration of parking be submitted to this agency. Jim Holland of 2640 Green Bay Road asked if a hearing occurred before the construction and parking elimination on Green Bay Road was approved. Judith Aiello responded that the City Council and the relevant City Committees deliberated and approved the plan with opportunity for comments from citizens and businesses. She added, however. that there was not a special hearing concerning the project. The elimination of parking was a requirement of the funding which was from the Federal Government which enabled the City to resurface the road. Without such funding, the project would not have been undertaken. Hr. Holland asked how Central Street fits in with the City's overall economic development policy. Aid. Engelman responded that the Committee will be updating the City's economic development policy in order to take a more proactive approach with development. A strategy for Central Street and other business districts is an important element of a City wide policy. Aid. Engelman stated that parking along Green Bay Road is an important compenent of the viability of the shopping district and that the Committee will address this. Aid. Heydemann moved that the City appeal to the Federal and State governments to restore the parking on Green Bay Road. Aid. Drummer provided a second. The Committee voted unanimously In support of the motion (6-O). Aid. Drummer encouraged everyone present to stress the economic hardship the current situation imposes on area businesses and the fact that Wilmette allows parking on both sides of Green Bay Road. Judith Aiello suggested that this issue be maintained on the Committee's agenda. She also requested that the Chamber of Commerce collect information that would document the economic impact on area businesses. Aid. Engelman requested that staff work with the Chamber, the City's lobbyist, U.S. Senators, Congressman Yates and State Representatives and Senators to bring a speedy resol:tion to this issue. HOME DEPOT At Via request of Alderman Engelman, Judith Aiello summarized the Resolution of Intent to designate the Rust-Oleum Property as a Tax Increment Financing District. The resolution has been under consideration by the Committee for the past two months. Ms. Aiello also summarized three exhibits included in members' packets concerning the proposed development of the site by Home Depot which included: a statement of facts about the proposed project, a listing of the benefits of the project to Evanston, and a request by Home Depot for further actions by the City. 2 Aid. Engelman commented that although there are three new Aldermanic members on the Economic Development Committee, they were present in the audience at the last two meetings of the Committee. Aid. Moran stated that he wanted to disclose that he had represented Rust-Oleum through his law practice in certain specific instances which do not relate to the site that is the subject of discussion this evening. He stated that he was seeking an opinion from the City's Corporation Counsel concerning this possible appearance of conflict of interest. Until this opinion has been received, he added, he would refrain from voting and he will be quieter than he would otherwise be. Aid. Engelman stated that he hoped Aid. Moran would ask questions about the project. Aid. Drummer stated that he had reviewed the materials describing the project and that with new people on the Committee there may be some new questions and ideas designed to improve the benefits to the City from the proposed development. Bob Fischer of Evanston Paint and Glass was asked by Aid. Engelman to summarize the document dated May 26, 1993 which he had presented to the Committee which had been prepared by representatives of the Evanston Building Improvement Industry. Mr. Fischer stated that the members of the hardware industry present could not support the TIF to be used by Home Depot because it would give Home Depot a competitive advantage and the existing businesses believed that a level playing field should be maintained. He added that if the Committee approves the Resolution of Intent, then completion of a cross impact study of the potential impact of Home Depot's entry into the Evanston market upon existing home improvement businesses is essential. Mr. Fischer proposed that the resolution of intent be amended to include a required cross impact study and that the study must be completed before final approval of the TIF occurs. He also suggested that the proposed TIF, if established. should fund a Neighborhood Business Development Fund that would aid small neighborhood businesses to compete in today's retail environment. This Fund, he added, would provide $100,000 annually and not exceed $2 milTion over the life of the TIF. In conclusion. Mr. Fischer suggested that an . environmental impact study of the proposed project be conducted to examine noise, air and light pollution. Aid. Engelman clarified that this evening the Committee is considering only the first step in the TIF and Project consideration process. Other steps to come later include a TIF eligibility study, final consideration of the TIF by the City Council, and negotiation and final consideration of a redevelopment agreement. In addition. he noted, the passage of the Resolution of Intent does not bind the City, nor the proposed TIF to Home Depot. Ald. Heydemann asked when Builders Square had been developed and had it received TIF financing. Judith Aiello responded that it was developed in 1989 and that no TIF funds had been provided. Ald. Heydemann asked if a study had been completed to assess the impact of Builders Square upon the existing home improvement industry. Mr. Fischer responded that no study had occurred to his knowledge. Mr. Joel Hasku of 2105 Oakton asked if the property could be rezoned for residential use. Aid. Engelman stated that it could be. but the major environmental problems characterizing this site would be a substantial impediment to residential development. In addition. he stated. it is important to realize that commercial uses pay twice the real estate taxes paid by residential uses. Don Kane added that given the extraordinary cost of environmental and geological remediation, residential development could not be financially successful on this site. Aid. Engelman asked staff to provide Mr. Wasku with background information on the site. Aid. Engelman invited Mike Folio of Home Depot to wake a statement to the Committee. Mr. Folio began by referring to the two letters of May 24. 1993 from Greenberg Farrow to him which identified extraordinary development costs of slightly over $3 million due to environmental and geological conditions. These extraordinary costs were described by Mr. Folio as necessary to put the site in developable condition. Mr. Folio also distributed a list of Home Depot sites nationwide which had received governmental assistance. Most of the sites were located in California with two in Louisiana. Mr. Folio stated that his request for $3.0 million in TIF funds is to be distributed on a pay as you go basis from incremental revenues. It would not require the issuance of bonds by the City. Vaughan Jones asked Mr. Folio to characterize the Evanston/Skokie market. Mr. Folio responded that it was a mature. but vibrant market. Mr. Jones stated that Home Depot would be cannibalizing the existing sales of the local home improvement industry and that whatever revenues the City received in the short run. it would lose in the long run because of businesses deteriorating. Mr. Folio responded that industry studies have shown that small businesses with service niches have been least affected by large discount home improvement stores. Aid. Drummer asked how much money Home Depot contributes to communities. Mr. Folio responded that the company contributes $5.5 million annually on a nationwide basis to charity. Aid. Drummer asked Mr. Folio why the $3 million in TIF funds is so important when a large company like Home Depot has millions to draw upon to finance its activities. Mr. Folio responded that each store has to stand on its own and reach an acceptable profit level. if the $3 million in extraordinary development cost is added to this proposed store's cost. it will not generate sufficient net profit as required by the company. Howard Melton stated that he had a conceptual problem with the proposal given that the City was being asked to pay for a situation that is Rust-0lem's responsibility. He also stated that the project would have a devestating impact on local hardware businesses. Lionel Cherry of 2102 Warren asked about potential traffic impact. Mr. Folio stated that 25.000 customers have been projected to visit the store meekly, with the substantial majority arriving via McCormick to Oaktoi. Mr. Cherry stated that he was concerned about traffic using Dodge and endangering children using the parks and schools. Aid. Engelman stated that Aid. Feldman could not be present this evening. but he did submit a list of questions to be answered including one that concerned whether there would be 24 hour truck traffic. Mr. Folio responded that the substantial majority of all deliveries would be between 8 A.M. to 10 P.M. when the store is open. He added that very few deliveries would be made before or after these hours. Aid. Heydemann stated that her agenda was not to help Home Depot, but her agenda was to increase the tax revenue generated by this site. She added that she was, however. concerned about the potential impact on local businesses. 4 • In response to questions about how a TIF works, Including a concern about whether a TIF freezes the taxes paid, Aid. En elman explained that a TIF does not freeze taxes, but captures the incrementa? taxes paid by now development to be used to cover the costs of stimulating development. He provided additional detailed Information concerning the operation of a TIF. Leslie Murphy and Don Kane of Kane McKenna made a brief presentation which included the followigg: (1) Home Depot has gained control of two other sites in the immediate market area. (2) It has been reconfirmed that a store In this location of this size is projected to generate $60 million annually in sales. (3) Approximately 200 people will be employed in the store. 85% of which will bo full time positions, with wages ranging from $8.50 to $10.50 per hour. (4) $12-14 million in net present value is projected to be yielded from the proposed project in the form of sales taxes and property taxes. (5) If Home Depot locates within two miles of Evanston, it is projected to have the same Impact on the Evanston Home Improvement Industry as it would have if it located at the Rust-Oleum site. (6) Specialists are available to conduct a cross impact study who have conducted similar studies elsewhere. Aid. Engelman stated that he could only think of two ways to develop the site: (1) a large national corporation with sufficient cash to self finance the development of the site or (2) an off track betting facility that would generate sufficient revenue to cover the cost of developing the site, but that would not be acceptable to some in the community. Aid. Engelman moved adoption of the Resolution of Intent with two amendments including: (1) A study shall be conducted to determine the feasibility (including a legal opinion) of establishing a neighborhood Business Development Fund that would address issues of neighborhood development and identify preliminary components of such a program. (2) A cross impact study shall be done to determine the potential impact of Home Depot on the existing Evanston based hone improvement industry. Alderman Drummer provided a second. Vaughan Jones moved to table the resolution for a period of six months. His motion failed for lack of a second. Ald. Drummer proposed two amendments to the motion: (1) the developer shall identify a more detailed package of benefits for the community. including an -: MBE/ MBE program and (2) the developer shall coordinate with staff and the - - Alderman of the area to address site improvements and neighborhood issues. Aid. Heydemann provided a second. Ald. Heydemann proposed an amendment that the project be considered under the 1960 Zoning Ordinance since this had been the lax when the developer initially approached the City. Aid. Engelman provided a second. _ -1�== The Committee voted in favor of the motion and the amendments by Aldermen Engelman, Drummer and Heydemann by a 3-2 vote with one abstension (Aye: Drummer, Engelman and Heydemann; Hay: Jones. Helton; Abstension: Moran). Ald. Engelman move¢ to enter Executive Session at 10:45 P.M. to discuss potential land acquisition. Aid. Heydemann provided a second. Members voted unanimously to enter Executive Session on a roll call vote. The Public Meeting was reconvened at 11:55 P.M.. Ald. Engleman stated his intention to include economic development policy planning as an agenda item at the next meeting and asked members to consider issues to be addressed. The meeting was adjourned at 12:03 A.M. Dennis Marino Economic Development Planner DRAFT - NOT APPROVED ECOMOKIC DEVELOPKEi1T COMITTEE XZZTIEQ OF JUNE 23, 1993 Roos 2404 - 7930 P.M. 1[I1 UT38 Members Present: Aldermen Engelman, Feldman, Heydemann; Vaughan Jones, Howard Melton, Scott Peters, Dennis Raffensperger Members Absent: Aldermen Drummer and Moran Staff Present: Judith Aiello and Dennis Marino SUMMARY OF ACTION The meeting was convened at 7:43 P.M. by Ald. Engelman. The minutes of the Meeting of May 26, 1993 were approved by unanimous vote with one addition by Dennis Marino. Ald. Engelman acknowledged receipt of a letter and monograph from Ron Isaacson, Chair of the Evanston Arts Council. The monograph described how the Tucson, Arizona Arts Program had revitalized a downtown. Mr. Isaacson had suggested that this strategy was directly relevant to Evanston. Ald. Heydemann stated that the monograph reminded her of First Night, which she would like to place on the committee's agenda at a future date. In other cities, she added, First Night had created a climate which caused people to return to the downtown area for one evening who had not visited nor shopped in the area on a regular basis. After First Night, many citizens returned to shop and visit more frequently. Ald. Engelman stated that he had witnessed the revitalization of the Central Street Business District which had been, in part, due to the role of antique stores in attracting people to the area. He added that Mindscape Gallery and the Verdi and Puccini Cafe have helped the southern part of Sherman Avenue substantially. Economic Development Committee Meeting of June 23, 1993 Page Two PROPOSED FEASIBILITY STUDY OF WASHINGTON NATIONAL REDEVELOPMENT AS PROPOSED BY THE JOHN BUCK COMPANY Members reviewed a draft statement of purpose and inventory of issues to be addressed by the consultant who would perform the feasibility study required by Resolution 102-R-92. Ald. Feldman stated that the tasks included in the memorandum represented a comprehensive effort by staff. He proposed that the issue of legal protection for the City be addressed by the consultant in the event that the property is transferred in the future to condominium conversion specialists who receive a major percentage of the financial gain. Ald. Feldman also requested clarification of two other questions listed in the memorandum. Ald. Feldman also proposed the addition of a question which would require the consultant to address the possibility of any development generating $1 million in annual real estate taxes with little or no participation by the City. Ald. Feldman proposed four firms to be included on the RFP mailing list: LaSalle Partners, U.S. Equities, Coopers and Lybrand, and Pletcher and Noon. Dennis Raffensperger suggested that the consultant be certain to address two areas: (1) the most viable amount of retail space the site would support and (2) the projected maintenance cost included for each unit at the time of conversion to condominiums. Chuck Remen, a member of the audience, suggested that the consultant be given access to all appropriate documents which have _ been submitted to the City. In addition, he proposed that the -if MM consultant suggest a method for tracking the performance of the - project once it has been developed against the developer's pro _ forma. Jonathan Perman of the Chamber of Commerce suggested that the consultant study the potential positive impact of the proposed development upon the retail community and the extent to which it replaces the impact of the employees of Washington National. Ald. Engelman stated that it was important to determine the impact of the proposed development upon the existing residential market in Evanston. Will the development attract new families or will it cause the shuffling of families which have already located in Evanston? If the development is primarily composed of new families, the consultant should project what benefits will accrue to the City. IT Economic Development Committee Meeting of June 23, 1993 Page Three Ald. Engelman also questioned what the City will do with the information provided by this study. He cautioned against the tendency to collect too much information which is very expensive and may not significantly inform the decision -making process. Aid. Feldman stated that the proposed study should validate the City's action and enable the staff to develop the best redevelopment agreement possible in order to protect the City. He added that the study will provide an independent analysis that had not been available previously and that it will demonstrate that the City's approach to the project involves quality and professionalism. Ald. Heydemann commented that the study was essential for two reasons: (1) It would be foolish to invest money on the basis of the developer's information without independent analysis; and (2) Some areas of the proposed project lacked sufficient detail. Howard Melton added that developer's pro formas often overstate income and understate expenses, therefore, the proposed analysis is essential. Mr. Melton asked if the project would involve a competitive bidding process. Judith Aiello responded affirmatively and encouraged members to submit additional names to be added to the existing mailing list of 15-20 firms. In response to a question from Vaughan Jones about the timing of the study, Ms. Aiello commented that she had anticipated that the study would be completed by October 31st. She added that the TIF Process, beginning with an eligibility study, would be on a concurrent track as projected by Kane McKenna Associates, the City's TIF Consultant. Ald. Engelman stated that he was comments concerning the scope of not occur. He added that his determine how it will use the content of the study. not suggesting, in his previous the study, that the study should concern was that the City must study before it determines the Scott Peters suggested that the RFP encourage respondents to develop alternative approaches to the issues about which the City has been concerned. He added that there may be important issues which we have not identified or other issues which we have stressed excessively. Economic Development Committee Meeting of June 23, 1993 Page Four Ald. Feldman asked Ald. Engelman which questions he would eliminate in the memorandum. Ald. Engelman responded that he would not eliminate any questions, but he clarified that the City is requesting the application of the consultant's expertise to the issues confronting the City in this project. He added that we are not asking the consultant to second-guess the City Council's decision. Ald. Engelman suggested that the issues raised could be divided into three categories: primary importance; secondary importance; and information that would be nice to know, but is not essential. He encouraged the Committee to rely on the Consultant's expertise to decide which issues are most important. Howard Melton stated that the rental analysis is the most important task. He added that analysis of condo conversion will be speculative and that he would prefer that the money for the study be spent more on the rental analysis. Mr. Melton concluded by stating that there are three or four central questions in the RFP, but he would include all questions for now. Scott Peters commented that all questions except one relate to economic benefit to Evanston. The one exception, he added, is the possibility of alternative development on this site, which is a very different type of question. Ald. Feldman responded that the alternative development question goes to the heart of the debate. It has been contended repeatedly, he added, that no development of this nature would occur without City assistance, but this has never been confirmed by •. independent expert. Ald. Engelman stated that the real issue in an analysis of possible alternative development on this site is not could it be developed, but would it be developed without subsidy, given the economic return that would be generated. Chuck Remen, a citizen, stated that he hoped that the study would address the impact of the development on adjacent property values. Ald. Engelman concurred, adding that the study should address potential positive increases in property values due to the development as well as potential decreases in value. Ald. Heydemann moved that the Committee recommend to the City Council that the RFP for the study be finalized and released to potential contractors. Vaughan ,zones provided a second. The motion was adopted unanimously. Economic Development Committee Meeting of June 23, 1993 Page Five GREEN BAY ROAD UPDATE Judith Aiello reported that previously about the ability of Green Bay Road while Evanston that the Green Bay Road Right Wilmette, thereby permitting sa in response to questions raised Wilmette to have street parking on does not, it is her understanding of Way is wider when it reaches fe street parking. Howard Melton asked what the procedure would be for addressing the state and Federal role. Ms. Aiello responded that the City would review the street's capacity to support parking and raise the concerns expressed with the Illinois Department of Transportation Office in Schaumburg. Ald. Heydemann suggested that local businesses and property owners receive periodic updates of the City's actions. ECONOMIC DEVELOPMENT POLICY PLANNING AND PARTICIPATION Ald. Engelman summarized the memorandum he had transmitted to the Committee, explaining his desire to stimulate additional long-range planning concerning economic development and to encourage a more comprehensive approach that would help the City be more proactive and provide a clear framework for reacting to developers' proposals for specific sites. He added that he wanted to invite the participarion of school districts, community organizations, business groups and other appropriate Evanston institutions. A number of these organizations had been included in Ald. Engelman's memorandum to the Committee. Ald. Engelman reported that Chuck Icemen had recommended that the Southeast Evanston Neighbors Association and the Dewey Community Conference be included in a list of invitees for presentations before the Committee. Ald. Feldman stated that the proposed activity is an excellent approach and that he would recommend that Chuck Remen's suggestions be followed, given the degree to which neighborhood organizations have participated in discussions of individual economic development projects. Dennis Raffensperger suggested inviting the neighborhood associations and the business organizations from each distinctive neighborhood to the same meeting to present their views. Judith Aiello proposed that the discussions could begin in late summer or early fall with a 6:00 P.M. starting time for EDC Meetings. Chuck Remen stated that the Evanston Neighborhood Conference has a list of community organizations which could participate in these discussions. He encouraged the Committee to begin the proposed process and to state the City's economic development goals clearly. Economic Development Committee Meeting of June 23, 1993 Page Six Ald. Engelman proposed that the Committee hear from the Plan Commission first and the School Districts secondly. Judith Aiello proposed inviting Evanston Inventure, the Chamber of Commerce, and EVMARK early in the process. Jonathan Perman added that representatives of business sectors could be invited to address the Committee in addition to representatives of geographical business districts. He suggested that sectors such as the hospital industry, small retailers and manufacturers be included. Ald. Engelman commented that this is an excellent idea provided there was a willing spokesperson for each of the business sectors. Howard Melton proposed that the Committee first discuss among its membership future economic development priorities. Secondly, he added, the School Districts should be invited to join the discussion. Ald. Feldman commented that the Committee had been preoccupied with substantial opportunities during the past two years. He welcomed the opportunity to articulate a vision and hear from other parties concerning the possible direction of areas such as Chicago Avenue which needed to be addressed. Judith Aiello stated that staff will prepare a packet for the next meeting which will include the Committee's economic development priorities which were established in 1991, and the 1985 Strategic Economic Development Plan. Ald. Heydemann suggested that housing development be considered as an area for inclusion in any revised economic development strategy. HOWARD HARTREY UPDATE Judith Aiello reported that negotiations with Alderman Stone and affected neighbors have continued. MAIN STREET COMMONS REDEVELOPMENT Judith Aiello reported that the SAM'S CLUB STORE is under construction and is projected to open in October 1993. She added that there had been several meetings with adjacent neighbors, but a consensus concerning cul de sacs had not been developed. Ald. Feldman stated that the City's efforts involving the neighbors east of the SAM'S Store had been very positive. The neighbors no longer feel ignored and they view the City as being helpful and considering benefits for the neighborhood as it is impacted by adjacent development. Ald. Feldman recommended that a similar neighborhood process be considered if the Home Depot Proposal moves forward. Economic Development Committee Meeting of June 23, 1993 Page Seven There being no further business, the meeting was adjourned at 9:45 P.M. r Staff: Dennis R. Marino DRM/cw ECONOMIC DEVELOPIUMT COMMITTEE MEETING OF SEPTEMBER 90 1993 5:00 P.M. - ROOM 2401 MINUTES Members Present: Aldermen Drummer, Engelman, Feldman, Heydemann; Vaughan Jones, Howard Melton, Dennis Raffensperger Members Absent: Alderman Moran and Scott Peters Presiding Official: Alderman Engelman, Chairman Other Officials Present: Mayor Morton and Alderman Newman Staff Present: Judith Aiello and Dennis Marino Guests Present: Michael Folio, Home Depot; Don Kane and Bob Rychlicki, Kane - McKenna Associates SUMMARY OF ACTION: Chairman Engelman convened the meeting at 8:12 P.M. and introduced Michael Folio of Home Depot, who summarized the revised proposal he had submitted to the City, which had also been included in the EDC Packet for the current meeting (See attachment A to Minutes). He stated that Home Depot was no longer proposing that the City create a Tax Increment Financing District. Instead, he was proposing that the City designate the area a Special Business District and participate in a sales tax sharing agreement to reimburse Home Depot for the extraordinary development costs it will incur in redeveloping the Rust-Oleum site due to environmental and geological conditions present. Mr. Folio indicated that the company was requesting reimbursement of $3 million in costs to be generated by sales tax revenue received from the City as a result of sales by the Home Depot store. $500,000 of the $3 million received, however, would be contributed to the neighborhood for improvements. Mr. Folio added that Home Depot would be required to generate $25 million in sales annually before it would begin to share any sales tax proceeds with the City. consequently, the City would receive the first $250,000 in annual sales taxes without any obligation to reimburse Home Depot. Mr. Folio stated that the City would then share annual Home Depot -generated sales tax revenue between $250,000 and $600,000 on a 25% (City) - 751 (Home Depot) basis. Above $600,000 in annual sales tax revenue, the City and Home Depot would share on a 50%/50% basis. J� It, I. I I , W, u , r , , N' , „11 lihul�l��uijllll -3- Ald. Drummer also stated concern about the 8.54 rate of interest proposed. Mr. Folio responded that the rate is based on competitive rates for long-term investments. Ald. Drummer cautioned that this issue needed to be discussed. Ald. Feldman requested an explanation of the benefits for Evanston of a Habitat for Humanity program. Mr. Folio stated that the program's principal goal is housing for low-income families and the elderly. Methods used nationwide to achieve this goal include property rehabilitation, new home construction and low interest financing. Mr. Folio added that Home Depot participates in this program in 40 metropolitan areas. He concluded by stating that he would provide more information for the next meeting. Ald. Engelman stated that the potential impact of the Home Depot development upon existing Evanston businesse; had been discussed during numerous meetings. He asked Mr. Folio to provide information to staff from demographic and market studies which would enable benchmarks to be developed to assist in analyzing this potential impact. Mr. Folio agreed to produce this information, including the sales projection data which had been presented to the EDC in May 1993 by Thompson Associates, Home Depot's consultant for market analysis. Thompson Associates had projected that 131 of the sales for the proposed store will be drawn from Evanston. Mr. Folio stated that he would provide the supporting documentation for this projection. Kate Tabor of Evanston Lumber asked to make a statement on behalf of the existing hardware industry concerning the revised proposal submitted b} Home Depot. Ald. Engelman encouraged Ms. Tabor to proceed. Ms. Tabor commented that the revised proposal is a softer version of the original TIF proposal, which continues to provide an unfair competitive advantage to Home Depot over existing businesses that have served Evanston for many years. She added that Home Depot will not really use the subsidy of $3 million for remediation reimbursement, but that it will go into operations and be used for advertising and other uses which will provide an unfair operating advantage. Ma Tabor stated that Home depot could do this because it often sells its developments and leases them back or engages in other real estate and financing transactions which enables it to recover the cost of developing a store. Ms. Tabor added that existing businesses viewed the 8.5% interest payment as unacceptable and that this would lead to a payment as large as $2.25 million over the lire of the project. ECONOMIC DEVELOPMENT COMMITTEE MEETINGi OP SEPTEMBER 9r 1993 SzOO k'.K. - ROOX 2401 KINOTES Members Present: Aldermen Drummer, Engelman, Feldman, Heydemann; Vaughan Jones, Howard Melton, Dennis Raffensperger Members Absent: Alderman Moran and Scott Peters Presiding Official: Alderman Engelman, Chairman Other officials Present: Staff Present: Guests Present: SUMMARY OF ACTION: Mayor Morton and Alderman Newman Judith Aiello and Dennis Marino Michael Folio, Home Depot; Don Kane and Bob Rychlicki, Kane - McKenna Associates Chairman Engelman convened the meeting at 8:12 P.M. and introduced Michael Folio of Home Depot, who summarized the revised proposal he had submitted to the City, which had also been included in the EDC Packet for the current meeting (See attachment A to Minutes). He stated that Home Depot was no longer proposing that the City create a Tax Increment Financing District. Instead, he was proposing that the City designate the area a Special Business District and participate in a sales tax sharing agreement to reimburse Home Depot for the extraordinary development costs it will incur in redeveloping the Rust-oleum site due to environmental and geological conditions present. Mr. Folio indicated that the company was requesting reimbursement of $3 million in costs to be generated by sales tax revenue received from the City as a result of sales by the Home Depot store. $500,000 of the $3 million received, however, would be contributed to the neighborhood for improvements. Mr. Folio added that Home Depot would be required to generate $25 million in sales annually before it would begin to share any sales tax proceeds with the City. Consequently, the City would receive the first $250,000 in annual sales taxes without any obligation to reimburse Home Depot. Mr. Folio stated that the City would then share annual Home Depot -generated sales tax revenue between $250,000 and $600,000 on a 251 (City) - 75% (Home Depot) basis. Above $600,000 in annual sales tax revenue, the City and Home Depot would share on a 50$/50% basis. -2- Mr. Folio added that in addition to the receipt of $3 million in principal, Home Depot would also be eligible to receive interest payments of 8.5% Other features of the proposal include.: a commitment to pre -advertise employment opportunities three weeks in advance for Evanston residents; an agreement that Home Depotts Habitat for Humanity Division will cooperate with the City regarding programs for low-income and elderly housing; and a commitment to use all best efforts to reach affirmative action and MBE/WBE/EBE contracting goals comparable to goals the City agreed to with SAM'S and the Howard Hartrey Development. Mr. Folio concluded by stating that, under the revised proposal, the City and all taxing districts will immediately receive all real estate property taxes generated by the development for operations. He thanked the Committee for the opportunity to make the --evised presentation and offered to respond to comments and questions. Howard Melton asked Mr. Folio to confirm the statement that Home Depot would receive $2.5 million net under the proposal, and that the use of the additional $500,000 would be decided by the City. Mr. Folio confirmed that this was true and added that Home Depot proposes to receive $3 million and give $500,000 back for neighborhood improvements. Ald. Drummer asked for an estimate of the financial value of the Habitat commitment. Mr. Folio responded that he did not have a dollar figure this evening, but that Home Depot will have a full program proposal when the project is considered by City Council. He added that he will contact other institutions in the area to encourage their participation, including Northwestern University and ecumenical groups. Ald. Drummer asked, based on projections, how many years will be required before Home Depot is fully reimbursed. Mr. Folio stated that as many as fifteen years may be required to refund $3 million, however, the corporation is willing to place financial support upfront into a neighborhood improvement fund. Ald. Drummer questioned if Home Depot could do more than the current development projects in the area of Minority Business Enterprise participation. Mr. Folio responded that he had assumed that the level of participation was acceptable, otherwise the City would have not signed off on the projects. Ald. Drummer requested that Home Depot consider a more comprehensive package, including procurement issues. Mr. Folio responded that he would look into this request before the next meeting. -3- Ald. Drummer also stated concern about the 8.5t rate of interest proposed. Mr. Folio responded that the rate is based on competitive rates for long-term investments. Ald. Drummer cautioned that this issue needed to be discussed. Ald. Feldman requested an explanation of the benefits for Evanston of a Habitat for Humanity program. Mr. Folio stated that the program's principal goal is housing for low-income families and the elderly. Methods used nationwide to achieve this goal include property rehabilitation, new home construction and low interest financing. Mr. Folio added that Home Depot participates in this program in 40 metropolitan areas. He concluded by stating that he would provide more information for the next meeting. Ald. Engelman stated that the potential impact of the Home Depot development upon existing Evanston businesses had been discussed during numerous meetings. He asked Mr. Folio to provide information to staff from demographic and market studies which would enable benchmarks to be developed to assist in analyzing this potential impact. Mr. Folio agreed to produce this information, including the sales projection data which had been presented to the EDC in May 1993 by Thompson Associates, Home Depot's consultant for market analysis. Thompson Associates had projected that 13t of the sales for the proposed store will be drawn from Evanston. Mr. Folio stated that he would provide the supporting documentation for this projection. Kate Tabor of Evanston Lumber asked to make a statement on behalf of the existing hardware industry concerning the revised proposal submitted by Home Depot. Ald. Engelman encouraged Ms. Tabor to proceed. Ms. Tabor commented that the revised proposal is a softer version of the original TIP proposal, which continues to provide an unfair competitive advantage to Home Depot over existing businesses that have served Evanston for many years. She added that Home Depot will not really use the subsidy of $3 million for remediation reimbursement, but that it will go into operations and be used for advertising and other uses which will provide an unfair operating advantage. Ms Tabor stated that Home Depot could do this because it often sells its developments and leases them back or engages in other real estate and financing transactions which enables it to recover the cost of developing a store. Ms. Tabor added that existing businesses viewed the 8.5% interest payment as unacceptable and that this would lead to a payment as large as $2.25 million over the life of the project. -4- John Thompson, a resident of Evanston, requested an opportunity to address the Committee. He stated that he did not object to Home Depot, but he was opposed to the City granting a TIF or other financial assistance when there are many worthy local programs which have not been funded, including a community program he had proposed to the CDBG Committee last year. Howard Melton asked if there had been an interest payment component to the TIF proposal submitted by Home Depot. Ald. Engelman responded that there had not been an interest payment feature to the original proposal. He added that he understood the request from a present value analysis perspective, but the City's cost of money is less than 6.5% when it goes to the bond market. Ald. Heydemann encouraged Mr. Folio to participate in a future discussion with the City about current market interest rates. Mr. Folio responded that he would. Howard Melton stated that during the August EDC Meeting, the Committee had recommended a cross -impact study to estimate the potential impact of Hone Depot upon existing retailers. He asked what had happened to this recommendation. Ald. Heydemann responded that although she was not present during the Council Meeting when Ald. Drummer moved the question for approval, she understood that the council did not want to do the study as exemplified by the lack of a second for Ald. Drummer's motion. Ald. Engelman stated that the development will have an impact; however, waiting for the completion of the study may have caused Evanston to lose the possible development because of timing issues. Ald. Newman commented that he did not provide a second for Ald. Drummer's motion because he believes that Home Depot can provide the data necessary to assess the potential impact on local businesses. Mr. Melton responded that to a certain extent, the City may regret the secondary impacts. Ald. Feldman commented that the data from Home Depot should help with the impact analysis. Ald. Feldman stated that the original proposal had included a business improvement fund of $150,000, but he did not see this element in the current proposal. Mr. Folio responded that this was not included in the revised proposal because the City has the option to use the $250,000 in initial sales tax revenue each year to fund whatever it chooses. He added that Home Depot's primary concern is to benefit the immediate community through a mechanism such as the $500,000 fund for neighborhood improvements. -5- Ald. Newman proposed that the Committee consider obligating Home Depot to use the proposed $3 million for remediation and extraordinary construction costs in order to prevent the use of the reimbursement for operations which would give an unfair advantage over local businesses. He added that there should be a $1 for $1 match between eligible expenditures and reimbursement. Ald. Heydemann stated that this would not address the issue Ms. Tabor is concerned about. Ald. Feldman commented that it was his understanding that Home Depot has agreed to this provision. Ald. Engelman stated that the Committee needed to provide direction as to which proposal it would like to review in greater detail, the proposed TIF or the Sales Tax Sharing Agreement. Dennis Raffensperger stated that the project involves extraordinary costs due to the landfill problem. He added that the Rust-Oleum caused problems have been remediated and that it is not reasonable that Rust-Oleum should cover the extraordinary costs involved. Vaughan Jones asked if the impact of 250 people, who would probably be laid off due to the aggressive nature of Home Depot, had been considered adequately. Ald. Engelman stated that this was one of the issues to have been investigated by the proposed cross impact study. He added that staff can contact other communities where Home depot has located in order to determine employment impact. Howard Melton commented that there is no clear obligation for the City on the part of the City to do the clean up. He concluded by stating that this is a subsidy. Ald. Drummer responded by stating that the proposal its an incentive package to compete with other communities. Dennis Raffensperger asked Mr. Folio if Home Depot sells or refinances its stores as suggested by Ms. Tabor. Mr. Folio responded that the development of new stores is funded from company funds and that Home Depot owns 60% of its stores which the company carries on its books. He added that Home Depot has not sold a piece of property that it operates on since 1983. The company currently owns 160 stores and that the other stores which have been developed were leased from developers which built larger shopping centers in which a Home Depot store has been located. Mr. Ojida of Fashion Floors asked Mr. Folio if the $3.0 million to be spent on remediation is $3 million more than what the property will be worth. Mr. Folio responded affirmatively. Mr. Ojida questioned whether Home Depot will really end up owning the property and the developed store for a below market value if they receive the requested subsidy. -6- Howard Melton recommended that if the Committee proceeds with the proposal, he would not advise the inclusion of the extra $500,000 for neighborhood improvements, thereby reducing the request to $2.5 million and lowering the proposed interest rate. He added that if the city Council decides to support this proposal strictly because of the monetary gain, the City may not be ahead as much as it expects because of secondary impacts on existing businesses. Ald. Engelman responded that the $500,000 neighborhood improvement fund is important as part of the package because it is a commitment of funds to address the potential impact of the development upon the neighborhood. He added that he agreed that it would be desirable to have a lower interest rate. Ald. Heydemann stated that Home Depot will enter the Evanston market area whether this proposal is approved or not. Home Depot will have an impact on Evanston wherever it locates in the immediate area. She cautioned that members not view this as a situation where Home Depot will or will not have an impact upon Evanston businesses. Ald. Heydemann encouraged members to continue to explore the revised proposal in detail, and she added that it was superior to the TIF proposal because the school districts receive the new property taxes immediately. Ald. Feldman stated that he had developed a series of issues which will affect the neighborhood that required attention. These included issues of traffic, parking, truck routes and property values. More specifically, he wanted the following steps to be incorporated into the development: (1) there will be consultation with real estate experts concerning the impact on property values; (2) all truck traffic must enter the development from the west; (3) Dodge Avenue will become truck free; (4) all trucks would be required to use McCormick; (5) left hand turn lanes and signals would be constructed at Dodge and Oakton; (6) there would be a resident -only parking district on the north side of Oakton; (7) a section of the Home Depot parking lot will be available for use by users of James Park; (8) there will be consideration of building sidewalks along Oakton; (9) the east and west sides of Hartrey will be heavily landscaped; (10) alleys will be paved between Oakton and Warren and Hartrey and Dodge. Ald. Feldman also requested that there will be contact with other communities to determine how to assist local businesses with the transition caused by the entry of Home Depot. He also requested an indication of which experts exist and how they can be used. Ald. Feldman also requested documentation for a typical store that does not require remediation. Mr. Folio responded that he could present a comparison of typical versus extraordinary construction cost. -7- Ald. Drummer, Howard Melton, Vaughan Jones, and Dennis Raf f ensperger each stated that they preferred that the Committee explore, in greater detail, the sales tax sharing concept involving a Special Business District. None of the members present objected to this approach. Ald. Drummer requested that staff and Home Depot meet to work out the details and resolve any issues and return to the Committee for consideration and possible submission to City Council. Ald. Engelman requested that the Committee meet again on September 22, 1993 to discuss the proposal in greater detail and to be prepared to consider possible action. The meeting was adjourned at 9:50 P.M. Dennis Marino ' LA'' Economic Development Planner 14 DRAFT - NOT APPROVED ECONOMIC DEVELOPMENT COMITTEE MEETING Or ZZ p 1993 7:45 V.M. - Roos 2404 ILA.&111 W a gas Members Present: Aldermen Engelman, Feldman; Vaughan Jones, Howard Melton, Dennis Raffensperger. Members Absent: Aldermen Drummer, Heydemann and Moran; Scott Peters Presiding Official: Alderman Engelman, Chairman Other Officials Present: Alderman Holsman Staff Present: Guests Present: SUMMARY Or ACTIONt Judith Aiello and Dennis Marino Mike Folio, Home Depot; Don Kane and Leslie Murphy of Kane, McKenna & Associates The Meeting was convened at 8:00 P.M. by Alderman Engelman. Dennis Raf f ensperger moved approval of the minutes of the Meeting of September 9, 1993. Ald. Feldman provided a second. Members approved the motion unanimously. COID(UHICATIONS : Ald. Engelman acknowledged the article submitted by Ron Kysiak of Evanston inventure. He also thanked members of the Evanston hardware industry for the 1993 Chicago Tribune Marketing Resew Guide concerning the state of the home improvement industry. Thirdly, Ald. Fnggjman gommented on the three newspaper articles included, which highlighted the advantages and impact of the emergence of discount stores, including Home Depot, in the New York Metropolitan Area and other areas. 'IIl iW I. ,. I I w . W , , , W , , u �1 I IY I, , i IN I1iilii1 Economic Development Committee Minutes of September 22, 1993 Page 2 HOME DEPOT: Ald. Engelman requested that Judith Aiello report on the status of negotiations with Home Depot. Ms. Aiello stated that negotiations are ongoing and that they have not been concluded. Mike Folio of Home Depot commented that he was prepared to submit substantial marketing data to the Committee and staff to help analyze the potential impact of Home Depot's existence in the market area. Mr. Folio added, however, that the information was proprietary and he wanted it considered confidential if the Committee did not move forward on the proposal. He requested that he be permitted not to submit the data until there is greater agreement on substantive issues between the City and Home Depot. Ald. Feldman stated that he expected to receive the data before the Committee votes on the proposal. Mr. Folio responded that he would submit the data before the vote on the project. Ald. Engelman reminded Mr. Folio that there was no guarantee that the Committee would rubber stamp the terms that he and Ms. Aiello agree upon. Mr. Folio responded that he was aware of this possibility and that there was no guarantee that the proposal would proceed. Ald. Engelman stated that Mr. Folio should hold the proprietary information until he Feels comfortable sharing it publicly. Mr. Folio introduced Frank Lamina, Home Depot"s geotechnical engineer, who developed the cost estimates and verified the extraordinary costs upon which Home Depot's $3 million request for City assistance has been based. Mr. Folio stated that during the EDC's May 24, 1993 Meeting, members had questioned carefully the incremental costs associated with the project. Howard Melton stated that he did not have any questions as to the: cost determination or the relationship to the environment. His -_ concern was more philosophical as to who should be underwriting the -== cost. Mike Folio responded that he had wanted to give the committee == an opportunity to question the costs and to discuss the issues with r_ Home Depot's professional consultants. Ald. Engelman stated that it was his understanding that the funds requested of the City should never be more than the cost of the geotechnical issues to be addressed. Ald. Engelman asked the Home Depot representatives if there was anything they wanted to add to the May 24, 1993 memorandum to the Committee concerning this issue. Mr. Lamina highlighted the extraordinary construction that Home Depot will engage in due to geotechnical conditions of the site, including: driving piles sixty feet to get soil bearing capacity and the need to bring substantial soil onto the sita in order to minimize excavation and special hauling of existing soils. Economic Development Committee Minutes of September 22, 1993 Page 3 Ald. Engelman asked Mr. Lamina if he had any knowledge of contamination leeching off the site. Mr. Lamina responded that he had no knowledge of this occurring and that it would not occur in the future because of the landfill being encapsulated in a clay liner. Alderman Feldman asked if the dollar amount initially submitted to the City to address the extraordinary costs had changed. Mr. Folio responded that it had not changed and that the cost figures had been based on months of detailed analysis and were not merely pulled out of the air. Dennis Raffensperger asked if the projected cost for extraordinary construction on this site reflected a debit for the cost of normal slab and foundation construction on a typical site. Mr. Lamina responded that it had been debited. Mr. Folio stated that in response to a question raised at the last meeting, Home Depot will supply the City with final invoices when it seeks reimbursement detailing the extraordinary costs incurred due to environmental and geotechnical conditions. Ald. Engelman recognized Bob Fischer of Evanston Lumber, who had earlier requested the opportunity to address the Committed. Mr. Fischer introduced a three -member delegation from the Evanston hardware industry, including Don Puls of Evanston Paint and Glass, Dan Cauley of Harold's Hardware, and Kate Tabor of Evanston Lumber. Mr. Puls reiterated the industry's original objection to assisting Home Depot, which he views as using tax dollars to subsidize a competitor. He added that the sales tax sharing arrangement tied to a Business District was a new version of the old TIF approach with the same outcome -- that Home Depot will be subsidized. Bob Fischer stated that his attorneys believe that there is no legal basis for the City to share sales taxes with a specific business. He added that the Business District legislation only permits the expenditure of public funds, not the sharing of sales taxes. In addition, he continued, the Illinois Constitution prohibits a municipality from sharing sales taxes with a specific business. Mr. Fischer concluded by stating that the City has not factored out the sales taxes that it will lose due to the loss of sales to existing Evanston businesses. Dan Cauley commented that the Business District proposal does not address the overall impact on the City of Home Depot's entry into Evanston. He insisted that home Depot be required to submit a legal rationale for the creation of the District and sales tax sharing. Economic Development Committee Minutes of September 22, 1993 Page 4 Alderman Feldman requested a legal opinion concerning the City's authority to establish the Business District and engage in sales tax sharing as proposed. Judith Aiello responded that a written legal opinion will be requested. She added that in-house legal counsel and Burke and Ryan had reviewed the proposal and had stated that the City had the necessary authority under Home Rule. Howard Melton asked Mr. Fischer if he was considering a lawsuit to test the City's authority to do as proposed in the courts. Mr. Fischer responded that he could not speak for the other members of the industry who are not present. Ald. Engelman acknowledged receipt of the draft Business District Plan. Judith Aiello encouraged members to comment and raise questions about the plan, but that it did not require action this evening, given that it will be on the Committee's agenda on September 29, 1993. Ald. Feldman asked how the $500,000 to be expended in the neighborhood will be addressed in the negotiations and the agreements which will approve and regulate the project if the proposal is approved. Judith Aiello responded that there will be two types of agreements: one agreement will include the business points agreed to by the City and Home Depot, including $500, 000 for neighborhood improvements. The other agreement will be the detailed redevelopment agreement. The business points will include the $500,000 give -back by Home Depot for the neighborhood improvements, but it will not include the details of how the money will be expended on individual projects. Ms. Aiello added that some of the proposed improvements have City Council policy implications which need to be addressed. Ald. Feldman responded that the Council can commit to a specific amount of funds to be expended for neighborhood improvements in an area with defined boundaries without listing specifically which projects the funds will be expended upon. Alderman Engelman asked if the boundary for the proposed neighborhood improvements would be defined by the boundaries of the Business District. Judith Aiello responded that this was not the case, that funds could be expended beyond the Business District. She added that this was unlike the requirements of a Tax Increment Financing District. Ald. Feldman asked who within the City is working on the definition of the planning districts he had proposed for consideration to address the impacts of large commercial districts upon residential neighborhoods. Ald. Engelman responded that he had met with the Economic Development Committee Minutes of September 22, 1993 Page 5 Chair of the Plan Commission to discuss joint activity on this and other issues. Dennis Raffensperger stated that the Plan Commission had discussed neighborhood planning activity in Committee and will make a presentation to the EDC in October. He added that the Plan Commission had been asked to examine four possible neighborhood planning districts which would divide the City into quadrants. Ald. Feldman responded that he did not ask for the City to be divided into four quadrants. Ald. Engelman stated that the proposed Neighborhood District adjacent to the Home Depot site will be an experiment as to how the City might develop other neighborhood planning districts. Ald. Feldman stated that action on this issue is imperative and that it must be directly tied into the vote on Home Depot. He added that other commercial projects such as SAM'S and Howard/Hartrey are already underway and that the same consideration must be given in these impacted areas as will be given to the neighborhood adjacent to Home Depot. He concluded by stating that he hoped that district boundaries could be identified before the vote on Home Depot, given that it is not difficult to identify the boundaries of the neighborhoods impacted by commercial projects such as the Howard/Hartrey project. Ald. Engelman stated that the amount of funds available and the proposed neighborhood boundaries can be part of the business points agreed to between the City and Home Depot. Ald. Holsman commented that there is likely to be significant traffic flow generated between Home Depot and Target Greatland via the Dodge Avenue Corridor. He added that this impact needs to be addressed by the creation of neighborhood planning districts. Howard Melton suggested that Home Depot receive $2.5 million and that the City keep the extra $500,000 which Home Depot would give back for neighborhood improvements. He added that the City Council could then decide how to spend these funds. Ald. Engelman responded that the City does not normally use general revenue funds to finance capital improvements, but the City has to make a commitment to people that projects will have an impact upon. Mike Folio responded that Home Depot can substantiate incremental costs higher than $3 million for the development of a store on the Rust - Oleum property. He added that the company is clearly entitled to $3 million, however, it is willing to invest $500,000 into the community. Economic Development Committee Minutes of September 22, 1993 Page 6 Aid. Engelman thanked members of the local hardware industry and Home Depot for their participation and stated that the Committee will address the issues involved in real estate negotiations in Executive Session later this evening and that the Committee will again meet on Wednesday, September 29, 1993 to consider this issue. 1660 CHICAGO AVEZIUR: Judith Aiello summarized the projected timetable for the proposed TIF which had been included in members' packets. She stated that the John Buck company will complete the redesign of the proposed development next week. Aid. Engelman commented that the timetable apF-Rayed very tight. Ms. Aiello agreed and added that it could be extended somewhat if necessary. A member of the audience asked how the recommended feasibility study related to the proposed TIF timetable. Judith Aiello responded that it would proceed concurrently with the consideration of the TIF. Dennis Raffensperger commented that there is a 45-day notice requirement for the TIF Public Hearing and that if the feasibility study is completed during the month of October, then it will be available for the Public Hearing. Dennis Raffensperger moved to adopt the proposed timetable. Vaughan Jones provide a second. All members presented voted unanimously in favor of the motion. Judith Aiello stated that the City had received two proposals (Balcor Consulting Group and Draper and Kramer) in response to the RFP to conduct a feasibility study concerning the 1660 Chicago Avenue Development Proposal. She added that the RFP had been mailed to 40 firms and that a notice of its availability had been published in the Evanston Review and the =caao fie. Both proposals were more costly than anticipated. Ms. Aiello reported that an Evaluation Committee composed of herself, Valerie Kretchmer and Dennis Marino had interviewed both respondents and members of their respective teams. The Committee concluded unanimously that the Balcor Consulting Group proposal was superior on both a substantive and budgetary basis. Aid. Engelman commented that the proposed study is similar to the Home Depot proposal because it will use market data generated by the developer to assess impact and to verify benefits to the City. Howard Helton stated that he disagreed and that the nature of the Buck Feasibility Study is what the City should be doing on the Home Depot project. Economic Development Committee Minutes of September 22, 1993 Page 7 Ald. Engelman reported that he had received a call from Ald. Newman, who raised a concern about the involvement of Alex Darragh of the Balcor Consulting Group, who was the Chair of the plan Commission when it voted to approve the 1660 Chicago Avenue Proposal. Judith Aiello stated that this issue had been discussed with the City's Law Department and that it was not a problem because Mr. Darragh is not currently a member of the Plan Commission. Aid. Feldman stated that he shared Ald. Newman's concern and that he viewed it as unfortunate that the City does not have much of a choice. He added that he would feel more comfortable with someone who has not expressed a view concerning the project. Ald. Feldman commented that he hoped that there were things that could be done with the contract to insure that the City receives an objective analysis. Dennis Raffensperger stated that the Plan Commission Hearing and vote in December, 1992 concerning the proposed project was narrowly focused. The Plan Commission, under the 1960 Zoning Ordinance, only addressed whether a project conforms to the City's Comprehensive Plan. Consequently, he added, an affirmative vote was not a vote for the Project. Judith Aiello confirmed that this was correct. Ald. Feldman responded that this makes a difference in his view of the recommended consultant, given that the vote was on a limited issue involving the project. Howard Melton moved that the Committee recommend that the Administration and Public Works Committee authorize the purchase of services from Balcor Consulting Group in the amount of $65,500 to complete the tasks included in Priority 1 of Balcor's revised proposal submission. Dennis Raffensperger provided a second for the motion. All members present voted in support of the motion. At 9:27 P.M. Vaughan Jones moved to enter Executive Session to discuss negotiations concerning real estate. Dennis Raffensperger provided a second and all members present voted aye on a roll call vote. The Public Meeting was reconvened at 10:58 P.M. and adjourned at 10:59 P.M. Dennis Marino Economic Development Planner DM/cw i { i. Ibl n �, IIW� Vllidl a IV��biNR'iitrY os DRAFT - NOT APPROVED ECONOXIC DEVZLOPKZNT CONMITT22 KBETING OF BSPTMWZR 39, 1993 Members Present: Members.Absent: Presiding official: Other officials Present: Staff Present: IIllliMRS Aldermen Engelman and Heydemann; Howard Melton, Scott Peters, Dennis Raffenrsperger Aldermen Drummer, Feldman and Moran; Vaughan Jones Alderman Engelman Alderman Newman Judith Aiello, Dennis Marino Guests Present: Michael Folio, Home Depot; Don Kane and Bob Rychlicki, Kane, McKenna & Associates SUMMARY OF ACTION: Ald. Engelman called the meeting to order at 7:57 P.M. Dennis Raffensperger moved approval of the Minutes of the meeting of September 22, 1993 and Howard Melton provided a second. The minutes were approved unanimously. Ald. Engelman acknowledged receipt of the memorandum from the EDC to A&PW recommending that the City contract with Balcor Consulting Group to conduct the feasibility study of 1660 Chicago Avenue Redevelopment. He added that A&PW and the City Council had approved this recommendation. Ald. Engelman also noted that members had received a legal opinion this evening concerning the proposed Oakton Street Business District and the proposed reimbursement of Home Depot through sales tax revenue the proposed store would generate. Ald. Engelman stated that this would be reviewed in Executive Session and a determination will be made as to whether the opinion can be shared with the public and members of the hardware industry who have requested a copy. Economic Development Committee Meeting of September 29, 1993 Page 2 HOKE DEPOT: Ald. Engelman acknowledged receipt of a memorandum dated September 22, 1993 from Donald Kane and Leslie Murphy to Judith Aiello concerning a survey of east coast locations of Home Depot stores and perception of impact. This information had been included in packet for the meeting. Ald. Engelman stated that the discussion with and about Home Depot this evening had three components: a discussion of market data to be presented by Mike Folio; a summary of negotiation progress from Judith Aiello; and a statement of business principles to serve as a basis for the possible negotiation of a redevelopment agreement. ANALYSIS: Michael Folio of Home Depot began his presentation by stating that he was pleased to be able to share information with the Committee that would clarify the impact of Home Depot upon Evanston. The salient points of Mr. Folio's presentation are as follows. (1) Thirteen (13) percent of total sales of the proposed Home Depot Center have been projected to be generated from Evanston. The majority of the sales (87%) will be generated from the City of Chicago and adjoining suburbs. (2) If the store were to be located one mile west or south of the Evanston border, it would still generate 13% of total sales from Evanston. (3) If the store were to be located one mile north of Evanston, it would generate more than 13% of total sales from Evanston. (4) Fifty (50) percent of total sales for the proposed store will be generated from 0-4 miles of the location of the store. (5) Compared to four other Home Depot Center locations (Freeport, N.Y.; Clifton, N.J.; Glen Bernie, Maryland; and Elmont, N.Y.) that Mr. Folio analyzed and presented to the Committee, the proposed Evanston location ha3 been projected to have lower than average driving distances by customers due to the area's density, the nature of the local highways and distance to interstate highways. Mr. Folio encouraged the Committee and City staff to contact Thompson and Associates of Ann Arbor, Home Depot's market consultants, if additional information is desired. Economic Development Committee Meeting of September 29, 1993 Page 3 NBGOTIATIONO: Judith Aiello reported that there had been substantial progress in negotiations with Home Depot concerning the amount of net reimbursement ($2,032,000), a formula for sales that must be achieved annually to trigger reimbursement, a $500,000 give -back to the City for neighborhood improvements and the length of reimbursement of seven years. Ms. Aiello added, however, that she and Mr. Folio differed over the issue of an interest rate: staff's position is 0% and Mr. Folio's is 0. Ald. Engelman clarified that any agreed upon reimbursement of Home Depot must match geotechnical expenses on a $1 for $1 basis. Ms. Aiello concurred. Ald Engelman asked Mr. Folio if he understood that if he does not meet sales projections, then it will take longer to receive reimbursement. Mr. Folio concurred. Ald. Engelman also asked if it was correct that if the proposed store closes within five years, then the City is not obligated to pay Home Depot back even if another user occupies the Home Depot store. Mr. Folio responded that Ald. Engelman's comment was correct and in addition, that Home Depot would be obligated to pay funds, that Home Depot had already received, back to the City if the store closes within a certain period. Ms. Aiello stated that the two parties had agreed on several other principles: (1) Home Depot may not sell the store without the City's reasonable consent during the period of reimbursement; (2) The City will not enter into a Redevelopment Agreement without a letter from Rust-Oleum addressing some of the environmental issues; (3) In the construction of the Center, 25% of contracts for goods and services will be let to minority -owned, women -owned or Evanston based businesses; (4) The general contractor will hire, train and employ at least three Evanston residents on the project; (5) Efforts will made to insure maximum employment opportunities for Evanston residents; (6) If the City determines that it is in the City's best interest to construct a road between Oakton and Main, Home Depot will consider the project and donate needed land; and (7) Home Depot will establish and fund a housing rehabilitation project in Evanston. Ms. Aiello added that Home Depot had agreed to cause the development of an additional 43,000 s.f. retail store as well. Mr. Folio stated that he had not agreed that the City would have any approval right over the potential sale of the Home Depot store. He stated that this would need to be discussed. Mr. Folio also stated that he could not agree to a 0% interest rate, although he could compromise at 3%. ►1 I . u , u „ , u n YI . , YY i , 0� 1 Y,d 9w'ikiV Economic Development Committee Meeting of September 29, 1993 Page 4 Ald. Engelman responded that it was not good policy for the City to be paying Home Depot interest. Howard Melton concurred. Ald. Heydemann stated that interest in addition to a net reimbursement of $2,032,000 was not viewed favorably by a number of citizens and businesses who had contacted her concerning this proposal. Mr. Folio stated that he had asked that a portion of the reimbursement be paid faster in one year or the total amount be increased by $100,000 to compensate for the cost of money, but this had been rejected by Ms. Aiello. He added that Ms. Aiello's position reduced Home Depot to $1.5 million in net present value and that he was taking all the risk on payback of funds. He concluded by stating that 3% is more than justified, given that it is less than the rate for borrowing by the Federal Government. After additional questioning from Ald. Engelman concerning the certainty of his incremental cost figures, Mr. Folio proposed that he drop the 3% interest position provided that the City permit him to interchange within line items of the incremental costs of $2,532,000. Overall, however, his net reimbursement would not exceed $2,032,000, but Home Depot could recover incremental cost overruns in one category from other incremental cost categories where actual costs were less than projected. Ald. Engelman asked if there were any motions to recommend the proposed business principles to City Council. Howard Melton moved to table the proposed principles. Mr. Melton's motion failed for lack of a second. Dennis Raffensperger moved that the Committee recommend that the City council consider and adopt the proposed business principles agreed to between City staff and Home Depot. Ald. Heydemann provided a second. Howard Melton stated that he would not support the motion for two reasons: (1) He believed the net incremental sales tax projections were questionable and (2) He was concerned about equity and fairness for businesses which have operated in Evanston for many years. The motion was approved by a 4-0-1 (Melton abstained) vote of members present. Alderman Heydemann moved that the Committee recommend that the City Council adopt the proposed Oakton Street Business District as proposed. Scott Peters provided a second. The Committee voted 4-1 (Melton - nay) in favor of the motion. Economic Development Committee Meeting of September 29, 1993 Page 5 Ald. Engelman proposed that a special meeting occur on October 13, 1993 to review the draft Redevelopment Plan and Project and the Qualification Report for the proposed Tax Increment Financing District that includes the vacant Washington National property. The meeting will begin at 6:30 P.M. 1994 CDBG PROPOSALS PERTAINING TO ECONOXIC DEVELOPMENT: The Committee agreed to recommend that the CDBG Committee give favorable consideration to two CDBG proposals which have economic development implications although they are classified within the public service category for CDBG purposes: (1) The MBE/WBE/ESB Program submitted by the City Manager's Office (4-0-1 vote; Melton abstained) and (2) The Target Area Mobile Outpost submitted by the Evanston Police Department (5-0 vote). Alderman Newman questioned whether the Police Department should be outside the public service category, given the fact that this will cause the cap in that category to be exceeded. Ald. Heydemann moved to enter Executive Session to discuss a legal opinion issued by the Law Department. Dennis Raffensperger provided a second. On a roll call vote, the Committee agreed unanimously. The committee adjourned into Executive Session at 10:14 P.M. and reconvened the public meeting at 10:21 and agreed by consensus to release to the public the legal opinion concerning the Home Depot proposal and the proposed Oakton Street Business District. The Meeting was adjourned at 10:25 P.M. Dennis Marino Economic Development Planner DM/cw I MEMBERS PRESENT: MEMBERS ABSENT: STAFF PRESENT: GUESTS PRESENT: SUMMARY OF ACTION DRAFT - NOT APPROVED ECONOMIC DEVELOPMENT COMMITTEE MEETING OF OCTOBER 27, 1993 MINUTES Aldermen Engelman, Feldman, Moran; Vaughan Jones, Howard Melton, Dennis Raffensperger Aldermen Drummer and Heydemann; Scott Peters Judith Aiello, Dennis Marino, Jan Wolfensperger Lyle Foster, Valerie Kretchmer, Marty Norkett The Meeting was called to order at 8:00 P.M. by Alderman Engelman. The Minutes of the Meetings of September 29, 1993 and October 13, 1993 were approved unanimously. Ald. Engelman introduced Lyle Foster, the Chairman of the Evanston Plan Commission who was present, along with a delegation of Plan Commission members and staff, to begin a series of discussions about the Economic Development Policy of the City of Evanston. The EDC plans to continue this discussion with a number of Evanston institutions and organizations during the next several months. Mr. Foster summarized the current activities of the Plan Commission which include (1) Updating the Comprehensive Plan, (2) Implementing the new responsibilities of the Plan Commission created by the 1993 Zoning Ordinance Revisions; (3) Continuing the work of the Neighborhood Business District Task Force and; (4) Analyzing 1990 Census data on a black -by -block basis. Mr. Foster added that two of the emerging issues in Evanston which have been recognized by the Plan Commission are: the increasing number of young children in Evanston and; the need and opportunity for infill real estate development. Mr. Foster commented that he appreciated the opportunity to share perspectives with the EDC. He added that on numerous occasions the Plan Commission and the EDC have examined the same development with a different emphasis. He concluded by stating that the Commission would prefer to be involved earlier in the discussion and planning process involving major real estate development projects. Ald. Engelman responded that the two bodies do have different points of emphasis due to their respective roles and responsibilities. He encouraged the Plan Commission to become involved sooner in project and policy discussions. Ald. Engelman stated that the EDC and the Plan Commission should work jointly to address a wide range of issues including the following: (1) The forms of economic development desired by Evanston neighborhoods; (2) The impact of economic development projects upon neighborhoods and; (3) the impact upon the Main - Chicago neighborhood if a theater that competed with Northlight Theater were to be developed in the downtown area. Ald. Engelman concluded by stating that he was looking forward to working with all aspects of the Plan Commission, especially the Neighborhoods Task Force. Ald. Feldman asked how the Plan Commission views addressing the impact upon neighborhoods from development projects that have already occurred or which have already received City commitments. He added that in the case of three major projects, Howard - Hartrey, SAMS and Home Depot, he felt as if the developments were negotiated with insufficient attention given to area wide and neighborhood impacts within the Dodge Avenue Corridor. Ald. Feldman stated that collectively these developments would cause a significant change within a large part of the City which must be addressed. He added that the existing impacts from the Dodge - Dempster Shopping Center (Evanston Plaza) must be considered along with the new developments. Ald. Feldman commented that he had proposed a series of Planning Districts for the Southwest Neighborhoods that are smaller than had been proposed by the Plan Commission. He asked how the Plan Commission would approach the mitigation of impacts from commercial developments in these neighborhoods. Dennis Raffensperger, who serves on the Plan Commission and the EDC, responded that an evaluation of impacts would be required before remedies to mitigate perceived impacts were recommended and implemented. He added that the Plan Commission was interested in starting to evaluate and analyze the impacts of the projects, including Home Depot. Mr. Raffensperger commented that he did not believe it was feasible for the Plan Commission to become involved in every neighborhood where impacts need to be addressed. r. Lyle Foster stated that the Plan Commission was very sensitive to the need to create buffers between residential and commercial uses and residential and industrial uses. He added that in terms of anticipating future development in neighborhood areas, the Plan Commission was especially interested in addressing the future development of Chicago Avenue. Ald. Engelman commented that given that Home Depot had committed to provide $500,000 for neighborhood improvements, it is logical to involve the Plan Commission in the process of evaluation and planning in this area. Vaughan Jones asked who establishes the framework for the operation of a joint effort between the Plan Commission and the EDC. Ald. Engelman responded that he would suggest that the respective Chairs of the two bodies meet and develop a proposed plan of joint action and then meet with the other members. The Committee agreed by consensus that this was an appropriate next step. Ald. Engelman commented that an analysis of empirical data was needed for a substantive neighborhood planning process. Judith Aiello stated that staff would discuss plans for securing this data at a future meeting. Vaughan Jones asked what the timing would be for completing a neighborhood planning process. Judith Aiello responded that estimating the time required is difficult, but that it could require nine months to one year. Lyle Foster stated that the Plan Commission was also concerned about the erosion of industrial uses in Evanston. Dennis Raffensperger stated that the proposed Aldi Development was another example of replacing industrial uses with commercial uses. Ald. Engelman commented that he was interested in an analysis of the uses along the abandoned Mayfair Spur of the Chicago and Northwestern Railroad. He added that the retention of industrial uses in this area is of concern and that he had heard stories of residential developers expressing an interest in this area. Aid. Moran asked if the Plan Commission has a perspective on the possibility of an entertainment and cultural facility in the downtown area. Lyle Foster responded that the Plan Commission had created the Downtown Plan which address the possibility of entertainment uses. He added that the new library could have been developed as a joint venture which might have included theaters. Ald. Moran requested that the Plan Commission provide something more specific to the EDC about the possibility of such facilities in the downtown area. 3 16 Ald. Feldman commented that the development of a substantial cultural arts facility in Evanston would be a roaring success. He added that the issue is not would it work, but how could it be developed. He asked if the Plan Commission was willing to go beyond planning and address this type of issue. Lyle Foster responded that the Plan Commission had been responsible for the development of the Custer Street townhouses and that it had the capacity to implement plans. Dennis Raffensperger stated that the development of a cultural arts facility in the downtown area is a good idea for collaborative action between the two bodies. Ald. Feldman asked if there was an opportunity for Evanston to attract light industry to Evanston. Judith Aiello responded that two tenants had expressed interest in a former plan for an light industrial park in the Southwest TIF, but this had occurred during a twelve month period when one might have expected more demand. She added that when Rust-Oleum relocated from Evanston, the City had met with manufacturers and discussed an industrial park on the Rust-Oleum property, but this would have required substantial public investment to acquire the land, provide infrastructure and provide ongoing operating subsidies. Howard Melton added that two issues were discouraging the relocation of light industrial uses to Evanston: high land values and high property taxes. Despite these issues, he added, there is a demand for space in the range of 8,000 - 15,000 s.f. Ald. Feldman asked if the Plan Commission was experiencing any obstacles to achieving its objectives. Dennis Raffensperger responded that earlier notification and involvement in projects that have a major impact upon the City would remedy a concern of the Commission. Ald. Engelman thanked Lyle Foster and other members of the Plan Commission for attending the meeting and engaging in a discussion of mutual interests and concerns. EDC members next discussed the information needed to assess the City's current economic conditions, aeeds and opportunities as the basis for a revised Economic Development Strategy. Members cited the need to analyze situations where City efforts stimulated development and cases where development occurred without City involvement. Aldermen Engelman and Moran stressed the need for an analysis of market capacity and demand throughout the City, but especially in the downtown area and Central Street. Both members highlighted the linkage between sufficient parking and successful economic development. Ald. Moran suggested a comprehensive plan for parking was needed to address current needs and future demand. He added that the distinctions between surface and garage parking demand needed to be addressed as well as customer versus employee parking. Judith Aiello added that Main Street was experiencing parking difficulty and that the Research Park lots were almost filled to capacity. Howard Melton commented that the abuse of parking by business employees needed to be addressed. Ald. Engelman suggested that the EDC make a reference to the Parking Committee to recommend how to address the parking issue throughout Evanston, but especially in the areas cited above. Vaughan Jones proposed that members discuss the Research Park as part of the review of Economic Development Strategy. Members concurred by consensus and Judith Aiello suggested that this be initiated during the January Meeting of the Committee. Howard Melton stated that a comprehensive review of the Research Park is needed. He added that certain parcels of the Park should be ready for development, especially the southern portion which is immediately adjacent to downtown. He concluded by questioning whether the 1984 Master Plan makes sense as a complete blueprint. Judith Aiello added that the Committee also needed to act upon a reference from the City Council to review the current plan and development of the Research Park. After discussing the need to invite an appropriate expert to discuss broader economic development issues and trends with the Committee, members agreed by consensus to invite James Peterson, an Evanston resident and nationally know expert on economic development. Members next discussed the issue of parking on Green Bay Road. Judith Aiello reported that Larry Sufferdin had been engaged in discussions with IDOT and that the goal was to secure approval of street parking during non -rush hours. She added that City staff were conducting traffic counts and that the width of the street was greater by 1-2 feet in Wilmette between Isabella and Lake where street parking was permitted. 5 Me. Aiello updated the state of efforts to attract a newsstand to the space formerly occupied by the Main - Chicago newsstand. She added that the City had been involved in discussions with the CTA about the terms for use of the space. Ms. Aiello also informed members that the litigation between the City of Chicago and the City of Evanston continues concerning Evanston's effort to seek removal of the Howard Street wall in front of the Howard Hartrey Shopping Center site. The Meeting was adjourned at 9:50 P.M. Dennis Marino Economic Development Planner DRAFT - NOT APPROVED ECONON C DEVELOPMENT CONKITTEE 1[EET1XQ OF DECRMBRR 15, 1993 XINUTNS MEMBERS PRESENT: Aldermen Engelman, Feldman, Heydemann, Moran; Vaughan Jones, Howard Helton, Dennis Raffensperger MEMBERS ABSENT: Alderman Drummer, Scott Peters STAFF PRESENT: Judith Aiello, Dennis Marino GUESTS PRESENT: John Iberle (The John Buck Co.); Leslie Murphy, Bob Rychlicki (Kane, McKenna & Associates); Alex Darragh, Tim Schroeder, Brad Smith (Balcor Consulting Group); Gus Glick (Property counselors). SUMMARY OF ACTION: The Meeting was called to order by Alderman Engelman at 6:40 P.M. The Minutes of the Meeting of October 27, 1993, were approved, as drafted, by a unanimous vote of members present. Ald. Engelman acknowledged receipt of the November 1993 issue of Land Use Di,ggst. DEVELOPMENT PROJECTS UPDATE: Judith Aiello reported that demolition of the Bell and Howell property at Howard and Hartrey Streets continues. She reported that a neighborhood meeting had recently been held at Shure Brothers where the development team briefed neighbors about demolition and construction plans. Ms. Aiello stated that two monthly newsletters had been distributed door-to-door to neighborhood residents. Ald. Feldman asked if Sam's Club had contacted the City concerning a liquor license. Ms. Aiello responded that after initially expressing an interest in a liquor license before the redevelopment agreement was negotiated, Sam's decided not to pursue the issue. She added that it was her understanding that Sam's wanted to wait before deciding whether or not to pursue a liquor license. Members next discussed the ongoing sewer work on West Main Street and the impact of this project upon area businesses, including Sam'a. Ms. Aiello reported that Main Street should be fully reopened no later than March, 1994. iY i IV YI YW A!II ti"II II11 �ilIii iYIol�IIfYl ll� III Economic Development Committee Meeting of December 15, 1993 Page 2 PROPOSED DEVELOPMENT OF 1660 CRICAGO AVENUE Ald. Engelman requested that John Iberle of the John Huck Company begin the discussion by summarizing the design revision which had been made to the project. Mr. Iberle stated that the design revisions involved several minor changes which conform to the site plan which had been approved by the City Council. The changes included: (1) shifting the building slightly so that it is not precisely parallel to Chicago Avenue; (2) including a retail element in the apartment building; (3) adding a masonry and stone feature to the sixth floor of the building as well as the first five floors required by the City Council; (4) including a single story retail plan for the lot parallel to Church Street and east of the alley. Ald. Feldman asked if the color depicted in the rendering is representative of the actual coloring of the building. Mr. Iberle responded affirmatively, adding that it is similar to the shade of the brick used in the new Library. Ald. Engelman encouraged members of the audience to ask questions of Mr. Iberle concerning the design revisions. Harry Schubert stated that he hoped that the development would incorporate design features, especially on Chicago Avenue, which would make the development pedestrian -friendly. Mary Singh questioned the number of parking spaces which will be included in the garage. John Iberle responded that 330-340 spaces have been planned for the garage. Sara Winston stated that she objected to the proposed elimination of the landscaped park -like area along Church Street and its replacement with a single -story retail property that extends to the lot line. Mr. Iberle responded that a specific user for the proposed retail space had not yet been identified and that the design of the space will be user -driven. He added that the conceptual drawing presents a possible shape of the retail building, but this is not necessarily the way in which the building will be designed. Howard Melton asked if the project would be affected by the capital improvement plan for downtown. Judith Aiello responded that the development will need to be consistent with the plan. Ald. Feldman stated that he wanted the Committee to be apprised by Mr. Iberle as soon as his conceptual design becomes solidified. Judith Aiello commented that the final site plan for the project will be included in the Redevelopment Agreement which is subject to City Council approval. u I „ IL Y Ib 11f i, V 1 1 LII ni a u'L j Economic Development Committee Meeting of December 15, 1993 Page 3 Ald. Engelman introduced Alex Darragh of the Balcor Consulting Group (BCG), who presented the findings of the study examining the feasibility of the proposed development of 1660 Chicago Avenue. Mr. Darragh introduced Gus Glick of Property Counselors and two other Balcor staff who were involved in the study: Tim Schroeder and Brad Smith. In summarizing the credentials of the Balcor Consulting Group, Mr. Darragh said that the firm had completed over $500 million in apartment financing and had completed the market and feasibility analysis for more than $6 million of real estate equity, mortgage and joint venture investments. Mr. Darragh described Property Counselors Inc. as an appraisal and consulting firm with extensive experience in evaluating and executing condominium conversions. Concerning the methodology used to conduct the study, Mr. Darragh stated that BCG had assumed the underwriting position of a potential investor. Mr. Darragh summarized the major findings of the study as the following. 1. The development cost budget prepared by the John Buck Company (JBC) is reasonable. 2. The operating income/expense projections presented by JBC are reasonable. BCG made minor adjustments to these projections based on a survey of underwriting standards applied currently by lenders and investors. 3. BCG reported that the total project cost is projected to be approximately $46 million, composed of $41.4 million in new project capital; $3.2 million in land value and; $1,388,000 in deferred development management fees. Seventy percent of the project cost will be financed with debt capital and $14,944,000 in equity will be required. The sum of the land contribution ($3.2 million), the contributed development management fee ($1.388 million) and the proposed TIF contribution ($3.5 million) leaves a Gap Equity Requirement of $6,856,000 for the develop to raise. Economic Development Committee Meeting of December 15, 1993 Page 4 4. Mr. Darragh stated that the construction financing needed for the project will probably feature a loan -to -cost ratio of 60 to 70 percent, with a variable interest rate which will float with the prime rate or an appropriate index. Principal, interest, completion and other guarantees may be required by the construction lender and some institutions may require an appropriate forward commitment for permanent financing before issuing a construction loan. 5. According to Mr. Darragh, equity capital investors will expect a preferred return on investment of 7.5% annually, and an overall yield of 13-15t, with some situations requiring yields of 20t or more. In addition, equity investors are likely to require a 50% share of net proceeds when a property is sold or converted. 6. The BCG lender survey indicated that permanent financing, which is likely to be a large insurance company, currently features a loan -to -value ratio of 70 to 75% with a variable interest rate above Treasuries and a 20-30 year amortization. Mr. Darragh added that the Debt Service Coverage Ratio ranges from 1.25 to 1.30. Market Analysis Mr. Darragh reported that the market for luxury rental housing in Evanston is viewed as an emerging market. Rent levels included in the BCG analysis are based on competition in Evanston and Chicago. BCG projected rents slightly below Evanston Place to reflect uncertainty over the depth of the market. In addition, the probable rate of rent escalation was viewed as uncertain. Concerning the market study conducted by Real Estate Research Corporation, BCG agreed with findings of the study and concluded that the analysis was conducted appropriately. The BCG Study estimated retail rents based on current uses in downtown Evanston. Mr. Darragh commented that the proposed location of new retail in the project is secondary to Evanston's best retail locations on Sherman Avenue. The study assumed a 7% vacancy rate and stated that the developer plans to attract users before construction of significant retail space. Mr. Darragh introduced Gus Glick, one of the principals of Property Counselors, the firm which conducted the feasibility of condominium conversion of the proposed project. Mr. Glick stated that the conclusion of the analysis was that condominium conversion does not appear to be a realistic exit strategy at this time. Mr. Glick commented that the proposed rental development has the appropriate amenities to be considered a luxury rental development. i . t t Ii, I I d h . i, .Y 1 i I l u l II i ■ Ili64. Economic Development Committee Meeting of December 15, 1993 Page 5 However, he added, the level of amenities required by the market for a luxury condominium development requires a higher level of amenities. Mr. Glick concluded by listing the factors which would limit the condo conversion potential of the proposed rental development relative to competing units in the marketplace and market preferences. These limitations included the following: (1) the large number of units; (2) the small size of the units; (3) the finishes included in the units; (4) the required pricing of the units; and (5) the targeted tenant mix. Mr. Glick stated that successful condo conversion includes a significant number of existing rental tenants in a property buying units in a development under conversion. He added that he had studied the tenancy of Evanston Place which is able to pay a strong rent level for available units, but it is primarily a young transient population with high mobility and unlikely candidates for purchasing units. Concerning the issue of standards of amenities in condo buildings in the market currently, Mr. Glick stated that he had surveyed 18 other projects and found larger units than the proposed development as well as larger kitchens and baths, bigger room sizes, and high quality fixtures and cabinentry. He added, however, that the proposed amenities and unit characteristics in the proposed development were comparable to competitive rental luxury housing. Mr. Glick commented that he had toured 440 N. Wabash (Plaza 440), which had been developed by the Buck Company and he considered the units to most the standards of the luxury rental market, but not the condominium market. Alex Darragh next reviewed the range of potential investment returns likely to be required by capital sources, assuming three levels of possible terminal capitalization rates ranging from 7.5% to 8.5%. As part of this analysis, BCG had also analyzed the impact of the a $3.5 million TIF upon estimated rates of return. Without the TIF funds included, the BCG analysis concluded that the estimated returns on investment for the development, in all scenarios projected, fall below the returns likely to be required by investors. Mr. Darragh added that when the return on investment analysis included the proposed TIF funds, the estimated returns were projected to be within the range likely to be acceptable to investors, but on the low end of the range. Mr. Darragh concluded that this analysis proves the "But For Case" concerning the use of TIF funds and that the development is not financially feasible without TIF. Economic Development Committee Meeting of December 15, 1993 Page 6 In his concluding remarks, Mr. Darragh made the following points. 1. The ultimate feasibility of the proposed development will depend upon: interest rates; availability of capital for real estate; and the specif is investor/lender underwriting criteria of investors and lenders. 2. The proposed 1660 Chicago Avenue Development is targeted at an emerging marketplace. 3. The City of Evanston faces various constraints regarding the redevelopment of the Washington National site. The City does not have many choices as to what is likely to be developed on the Washington National site, given that there do not appear to be other sectors which could sustain new development. Mr. Darragh added that given the 20% office vacancy rate in the region, it will be a long time before lenders are willing to finance office development. He commented that retail development was unlikely because of the high demolition costs involved and the reluctance of retailers to go beyond the first floor. Consequently, Mr. Darragh stated, apartment development is the most feasible alternative because financing is possible, occupancy rates are the highest, and rents are increasing instead of decreasing. 4. Apartment industry investment conditions are currently favorable but will continue to change and evolve over time as the proposed development progresses. S. The Proposed 1660 Chicago Avenue Development will provide economic and tax benefits to Evanston including $900,000 in annual real estate taxes and 400-500 new residents. Ald. Engelman thanked Mr. Darragh for his presentation and opened the floor for questions and comments. Ann Rainey asked how a permanent lender determines interest rates. Alex Darragh responded that a permanent lender typically uses current rates plus 50 to 100 basis points to insure a cushion against a rising cost of money. He added that this is what the BCG analysis had assumed. Ald. Feldman asked if lenders would address higher risk by insisting upon higher rates, additional assurances and guarantees or would they not lend at all. Mr. Darragh stated that the study did not consider higher rates in this context, but that it focused upon at what level lenders would lend and whether they would lend at all. u W u , u , u 9 i, I � i� Wi � .. I Vr li , d uli ll!Lu lVl�l "iirll Economic Development Committee Meeting of December 15, 1993 Page 7 Chuck Remen asked how BCG had determined land values. Mr. Darragh responded that the figure used was provided by the Buck Company. Mr. Remen questioned how sale proceeds were determined when the development is projected to be sold as a continuing rental project. Mr. Darragh responded that they were based upon standard capitalization rates and returns that lenders would expect. Mr. Remen asked where lending on this type of project is occurring. Mr. Darragh responded that First Chicago and CB Commercial were doing this type of financing and over 120,000 units had been developed nationally within the past year. Mr. Remen requested examples of financing of this type of development in the past year in the immediate area. Mr. Darragh responded that he was not aware of financing of this type of development in the immediate area in 1993. Mr. Remen next asked if the 15-20% return expected by lenders was consistent with the Pro Forma for the development. Mr. Darragh responded that the return was consistent, but on the low end of the required range. Mr. Remen questioned if Balcor would invest in the project. Mr. Darragh responded that Balcor, which is now owned by American Express, is not currently investing in real estate. Dennis Raffensperger asked if lenders would permit full valuation of Washington National's land and the Buck Company's deferred fees as equity. Mr. Darragh responded that the final arbiter of this would be the actual lending source. Doraine Anderson asked if the numbers used for rental projections included the cost of heating the units. Mr. Darragh responded that the $1.46 psf projected rent included utilities except for electricity. John Iberle added that the development will be gas heated. Ald. Newman asked if the City portion could be funded by a Real Estate Investment Trust instead of TIF. Mr. Darragh responded that REITs primarily invest in operating properties and they would not be a likely source of financing for a new development of this scale. Ald. Newman asked if BCG analyzed the contention that real estate taxes would drop to $200,000 annually. Mr. Darragh responded that this had been examined and contacts had been made with the Assessor's Office which generally agreed with a $200,000 range after demolition. Mr. Darragh added that he would be pleased to look at this issue again if the Committee desired. Ald. Newman commented that he was interested in additional inquiry about probable tax levels with a vacant standing building and also with a demolished building. He questioned whether there was a sufficient incentive for WNIC to demolish the building. Economic Development Committee Meeting of December 15, 1993 Page 8 Ald. Newman next questioned whether Balcor had examined graduations in TIF amounts ranging from $0 to $3.5 million in its "But For" Analysis of TIF. Mr. Darragh responded that the study had examined $0 and $3.5 million. Ald. Newman also asked how gap equity investors would look at an emerging luxury rental market. He questioned whether the City should be concerned about a potential rent war between the proposed development and Evanston Place. He added that he was concerned about the potential for two buildings with high vacancy rates. Mr. Darragh responded that gap equity investors may vary the required yield according to concern about an emerging market issue. Ald. Newman asked if Balcor had examined Washington National's options and the corporation's carrying cost of the existing property. Mr. Darragh responded that his firm did not address this issue from Washington National's perspective. Howard Melton commented that Washington National experiences a lost opportunity cost and a significant carrying cost the longer the current property sits. David Johnson asked if the project is risky and speculative. Mr. Darragh responded that the project has risk and, like all real estate, involves speculation. Jake Arnov asked why the project is not feasible without a TIF. Mr. Darragh responded that the project would not provide the rate of return that a gap equity investor would require without a TIF. Harry Schubert asked if Balcor had conducted a market study. Mr. Darragh stated that Real Estate Research Corporation had conducted a market study which Balcor reviewed and found acceptable. Mr. Schubert asked if the study included an analysis of where tenants were likely to come from and would the project impact other buildings in Evanston. Mr. Darragh responded that the RERC Study addressed sources of market demand but did not address the impact on other buildings. Ald. Engelman commented that the Committee would certainly consider this potential impact. John Iberle commented that the rental market in Evanston is 15,000 to 16,000 units and that the proposed project would add 300 units, which is not a dramatic impact. In addition, the new units represent a product that does not currently exist in Evanston and that will attract new people to the City. Mr. O'Brien asked who receives the additional 501 in net proceeds after the equity investors receive the initial 50%. Alex Darragh responded that after the initial 50% net proceeds has been received by the gap equity investors, the remaining net proceeds flow to other .investors in the project. Economic Development Committee Meeting of December 15, 1993 Page 9 Richard Stillerman stated that the pro forma projects 181 of gross revenues be expended for real estate taxes. He added that he is aware of buildings in Evanston where 25% of gross revenue is expended for real estate taxes. He asked what the feasibility of the project would be with real estate taxes at 22-25% of gross revenues. Alex Darragh responded that the project would not be feasible. Rosie Rees asked if the sale of bonds by the City to generate the TIF funds was contingent upon the developer securing financing. Ald. Engelman responded that the City would not go forward until the developer has secured financing. Ms. Rees also asked if the sale of the property would affect the TIF. Alex Darragh responded that regardless of who owns the property, the real estate taxes must be paid with the incremental revenues flowing to cover the bond debt service. Ms. Rees also asked if it was possible for the City to require the use of the proceeds of a sale to retire the bonds. Mr. Darragh responded that this was possible but was subject to negotiations. Ms. Rees asked how much does the retail component affect the feasibility of the project. Mr. Darragh responded that the retail component is a relatively minor element of the project and it will not be developed without a user. In addition, a 7% vacancy factor was assumed after it is constructed. Tim Schroeder added that the retail component represents less than 10% of the projected tax revenues. Ms. Rees asked if the Buck Company was an experienced residential developer. Mr. Darragh responded that the study did not address how and why Washington National selected Buck; however, BCG and Property Counselors had visited 440 N. Wabash which was documented to be a high quality luxury rental development. Ald. Engelman stated that in conducting the feasibility study, Balcor took into consideration the financing market. He asked Mr. Darragh that if this is correct, then would Mr. Darragh agree that if the developers secure financing, then the project is feasible. Mr. Darragh responded affirmatively. Ald. Engelman asked Mr. Darragh if a residential development would be the highest and best use, given that the development of office or retail uses are not feasible. Mr. Darragh responded affirmatively and added that with the exception of specialty office niches like the Research Park, office development on this site was not feasible nor was exclusive use of the site by retailers. Economic Development Committee Meeting of December 15, 1993 Page 10 Ald. Engelman confirmed with Mr. Darragh that the study had confirmed the "But For" Requirement for a TIF. Ald. Engelman next asked Mr. Darragh if the environmental problems on the site would render the building, for tax assessment purposes, less valuable. Mr. Darragh responded that this was possible, but the study had not addressed this issue specifically. Ald. Engelman asked if the Buck Company had consulted with its architects to consider reconfiguring the unit mix and size of units to address the findings of conversion feasibility. Mr. Iberle responded affirmatively, but added that this had not occurred to the extent that it needs to occur. Ald. Newman asked if the building's tenancy includes 35-40% students, would this affect the attitude of potential investors. Mr. Iberle responded that he was not certain students would constitute such a high percentage of the tenancy given the projected rents. He added that if this were to be the case, however, lenders might vary assumptions about annual turnover and the costs associated with turnover of units. Ald. Feldman asked if the "But For" Concept and finding applies to any residential development on that site. Mr. Darragh responded that BCG had analyzed the "But For" issue using the specific requirements of investors regardless of the developer. Ald. Feldman asked if the "But For" finding would apply with a different residential concept which included well appointed and larger units. He questioned whether there was any way the site can be developed which would lessen the City's participation and reduce the City's risk. Mr. Darragh responded by saying that the more that would be added to the cost side of the project by pushing units to a higher standard of luxury and larger size, the more rental income that would be required. Additional construction costs would also lead to a larger gap equity need with consequent pressure from increased funding of rates of return and net proceeds. Ald. Engelman thanked Mr. Darragh for his presentation and his firm's work on this project. Ald. Engelman next introduced Bob Rychlicki of Kane McKenna to summarize the preliminary financial projections for 1660 Chicago Avenue which have been developed. Mr. Rychlicki made reference to the pro forma runs which had been distributed in members' packets. He stated that these preliminary runs assumed two different possible equalized assessed valuations (EAVs) for the base year ($2 million and $4 million depending on when the TIF is established as well as two different levels of annual real estate taxes ($2,200 or $2,800 per unit). Mr. Rychlicki cited several other assumptions that had been the basis of these projections. WW WI . i1 u I 1 it II 1 it,., I iowi I I+akit! Economic Development Committee Meeting of December 15, 1993 Page 11 These included: (1) The units are assumed to be leased over a four year period; (2) property tax rates are inflated at 3% per year; and (3) 1997 is the first full year of assessed value. Chuck Remen asked what the annual debt service will be for bonds. Mr. Rychlicki responded that this had not yet been determined. Ald. Engelman asked if the incremental revenues as projected would be sufficient to cover the debt service for bonds. Mr. Rychlicki responded that those numbers had not yet been calculated. He added that it would be premature until issues such as rates, capitalized interest, flow of funds, and overall project timing had been negotiated and finalized. Ald. Feldman questioned what would happen if the projected numbers are not realized. He stated that the City needed to take the most conservative approach to insure that tax dollars are not used to cover possible shortfalls in revenue from the project. Bob Rychlicki stated that the preliminary runs represent a conservative approach, especially the inclusion of a five year absorption rate for units. Dave Johnson asked how the shortfall in incremental revenues would be covered until the project is fully rented and assessed. Mr. Rychlicki responded that capitalized interest will be used to cover this gap and that these funds will be factored into the sizing of the bonds. Mr. Johnson asked if there was a procedure for distributing surplus increment to other taxing districts. Mr. Rychlicki stated that this would be done by the municipality annually. Ann Rainey asked what determines the establishment of the EAV base. Ald. Engelman responded that the procedure is established by state statute and is triggered by the passage of appropriate ordinances by City Council and the filing of the Ordinances with the County Clerk. Ms. Rainey added that she does not like the idea of a TIF for this type of use, but lenders are the feasibility police and there never has been a time when lenders have been more rigid. She asked if there had been any discussion about additional funds beyond the $3.5 million. Ald. Heydemann responded that she has no intention of increasing City support for the project. David Johnson asked if the $7.5 million budget included in the TIP Redevelopment Plan and Project would actually be expended. Ald. Engelman responded that these only represent the potential maximum TIF dollars which can be expended in the TIF. It does not mean they will be funded. Economic Development Committee Meeting of December 15, 1993 Page 12 John Iberle stated that the Buck Company negotiated what could be approved by the City Council, not what was needed to do the project. He added that it would be difficult to make the project work and that the challenge of financing the project had been understated. Judith Aiello next reported on the findings of the Joint Review Board which supported the eligibility findings on a 4-2 vote. Ald Newman asked how the Public Member was elected and how was Ald. Engelman authorized to represent the City. Ms. Aiello responded that the Chairman of the Economic Development Committee had been authorized to represent the City in the City Council Resolution setting the date for a Public Hearing and establishing the Joint Review Board. Ald. Feldman stated that the transcript made two references to the School Districts' reluctance to vote affirmatively during the Joint Review Board Meeting, but neither reference made clear exactly why the School Districts represented negatively. He added that he wished this had been explained. Ald. Sewman added that both School Districts had stated at City -School Committee Meetings the view that TIFs were taking money away from them. He encouraged the City to involve the School Districts in the development of projects. Howard Helton concurred. Judith Aiello stated that the Committee had been asked to consider recommending the three TIF Ordinances for introduction by City Council on January 24, 1994. Ald. Newman asked when final numbers would be available for TIF eligible costa. Ms. Aiello responded that final numbers would not be available until the Redevelopment Agreement has been crafted. Ald. Heydemann moved that the Committee recommend the three Ordinances (129-0-93; 130-0-93; 131-0-93) to City Council for introduction on January 24, 1994. Howard Melton provided a second. All members presented voted aye. RESEARCH PAkX Members next discussed the need to discuss the Research Park during its January Meeting. Ald. Newman stated that the use of the City's annual $250,000 contribution needed to be explored. Ald. Feldman concurred and stated his expectation that the City receive the details of how these funds have been expended. Ald. Newman added that the staffing structure should be addressed as well as the performance of the developer and whether anyone is in default. He stated that long-term parking issues need to be addressed as well as who constructs the planned parking garages. Economic Development Committee Meeting of December 15, 1993 Page 13 Judith Aiello suggested that the Park be addressed over the next three meetings with the following agenda: (1) Structure of the Park, Land Use and Planning Issues; (1) Financial Analysis; (3) Prognosis. Ald. Feldman commented that he needed a level of inquiry that will enable him to decide whether to continue the relationship. Howard Helton added that development alternatives should be discussed including housing, the Levy Center and the possibility of extending the downtown retail corridor along both sides of Church Street. Ald. Engelman and Feldman requested copies of the following three Research Park Documents: the Master Plan, the Statement of Understanding; and the Shaw/RPI Agreement. Ald. Engelman noted that the City will begin advertising for nominations and application for City appointment to the TOPCORP Board. The meeting was adjourned at 10:55 P.H. r Dennis Marino Economic Development Planner