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Home My WebLink AboutItem 01 Blue McKenzie Predevelopment Loan AuthorizationAGENDA ITEM SUMMARY Meeting Date: 4/26/2021 Meeting Type: Regular Meeting Department: CMO/CAO Staff Contact: Courtney Griesel/CMO Kristina Kraaz/CAO S P R I N G F I E L D ECONOMIC Staff Phone No: 541-726-3700 DEVELOPMENT AGENCY Estimated Time: 30 Minutes ITEM TITLE: BLUE MCKENZIE PREDEVELOPMENT LOAN AUTHORIZATION ACTION REQUESTED: Authorize the City Manager to negotiate and execute a Loan Agreement to loan $2,000,000 to Blue McKenzie LLC for acquisition and predevelopment work for the “Springfield Motors” development according to the terms herein, and whatever additional agreements or documents are required to give effect to the Loan Agreement. ISSUE STATEMENT: The Springfield Economic Development Agency (SEDA) Board is asked to authorize the City Manager to negotiate and execute a Loan Agreement to loan $2,000,000 to Blue McKenzie LLC for acquisition and predevelopment work for the “Springfield Motors” development. ATTACHMENTS: Attachment 1 – Blue McKenzie Project and Loan Details Board Memorandum Attachment 2 – Executed SEDA/Blue McKenzie LLC Memorandum of Understanding Attachment 3 – Loan Budget, Tasks, Timeline and Disbursement Request Template DISCUSSION/ FINANCIAL IMPACT: SEDA has been working over the past two years to support and outline a partnership for redevelopment of the Downtown Springfield ‘Motors’ site, now referred to as Blue McKenzie. This partnership has outlined a goal and plan for constructing a $27M, 8-story, mixed-use, market-rate residential, mass timber building to be constructed by 2023 in Downtown Springfield. Ongoing Board review and direction has resulted in a signed memorandum of understanding (Attachment 2) outlining a lending partnership between SEDA and the development owner, Blue McKenzie LLC for up to $10 million in SEDA funds. Staff is proposing a structure of two loans as discussed in Attachment 1 and detailed in the signed MOU (Attachment 2, Section D) and listed below: 1. Acquisition and Pre-Development Loan - SEDA Loan of up to $2 million for predevelopment costs, including $400,000 for Owner’s acquisition of the property. 2. Long Term Loan - SEDA Loan of up to $10 million for construction costs and including mandatory repayment of the $2 million pre-development loan ($8 million net). These goals, plans and loan details are discussed in Attachment 1 to this packet. The SEDA Board is asked at this time to authorize the City Manager to negotiate and execute a Loan Agreement for up to $2,000,000 to Blue McKenzie LLC for the first of the two loans listed above and detailed in the attachments to this packet. ATTACHMENT 1, PAGE 1 OF 4 M E M O R A N D U M Springfield Economic Development Agency Date: 4/26/2021 To: Nancy Newton BOARD From: Courtney Griesel, CMO Kristina Kraaz, CAO BRIEFING Subject: Blue McKenzie Predevelopment Loan Authorization MEMORANDUM ISSUE: The SEDA Board is asked to authorize the City Manager to negotiate and execute a Loan Agreement to loan $2,000,000 to Blue McKenzie LLC for acquisition and predevelopment work for the “Springfield Motors” development. BACKGROUND: During the summer of 2019 the Scherer family, owner/operator of the Downtown Springfield Motors (Buick) Site located at 702 A Street, approached the City to share their upcoming plans for closing of the business. In operation on the site since 1948, the Scherer’s were looking forward to retiring but felt a strong desire to move the property quickly into a future, new, active use that would continue the legacy of the site as a positive and vibrant corner in Downtown. Staff worked with the Scherer family to understand their areas of interest and goals and make introduction to Oregon based developer, Northwest Sustainable Properties (NWSP). The partnership between members of the Scherer family and NWSP is now referred to as Blue McKenzie LLC. Under a SEDA grant, NWSP assisted with assessment, feasibility, massing, and project sizing over the past 13 months. This grant work led to the conceptualized 8-story, mixed-use mass timber building, with an estimated $27M development cost. This project includes a SEDA lending partnership as part of the financing structure. The below timeline reflects the progress and Board engagement on the project over the past two years: ATTACHMENT 1, PAGE 2 OF 4 Project Assessment, Feasibility and Description In March of 2020, members of Blue McKenzie LLC approached the SEDA Board to request support in completing massing and financial feasibility assessments of developing the site. The Board authorized $85,000.00 to support the work. $35,000 of this amount utilized existing EPA Brownfield grant funds to complete environmental assessments. Despite the unanticipated emergence of the COVID19 global pandemic, Blue McKenzie and SEDA continued to keep pace on the project and assessment work. By early Fall of 2020, final environmental assessments showed a clean site and the shape and scope of a market sized concept was presented to the Board in October 2020. The project, as guided by detailed assessment and market research, reflects: • Use of taxlot 2300 • 8-story, mixed-use building o 7 Stories Market Rate Residential (approximately 85 units) o 1 Story Ground Floor Commercial (approximately 5,000 SF) • Mass Timber Construction • Estimated Project Cost of $27M • 2022 Construction and 2023 Completion • Taxable in Year 1 Project Funding and SEDA Partnership The estimated project cost to construct is $27M and introduces a new construction type and residential product to the Springfield market, setting a new pattern for property values and comparables in Downtown and the broader community. This positive first step requires SEDA partnership to mitigate the below factors, which contribute to perceptions of investment risk by developers, and more importantly, by lenders: • A lack of comparables to prove long-term performance • Lagging rent rates and population growth • Availability of opportunities in adjacent communities with comparables that demonstrate higher rents In December of 2020, the SEDA Board directed staff to focus efforts on a partnership which focuses SEDA financial contribution away from a public subsidy model and towards participation with an ATTACHMENT 1, PAGE 3 OF 4 expectation of direct recoup of SEDA funds. In March of 2021, the Board authorized the signing of a memorandum of understanding (MOU) outlining a $10M loan partnership between SEDA and the developer, Blue McKenzie LLC. LOAN TERMS The signed MOU between Blue McKenzie LLC and SEDA (Attachment 2) includes lending of up to $10M from SEDA to Blue McKenzie LLC. Staff is proposing a structure of two loans as outlined in the MOU (Section D) and listed below: 1. Acquisition and Pre-Development Loan - SEDA Loan of up to $2 million for predevelopment costs, including $400,000 for Owner’s acquisition of the property. 2. Long Term Loan - SEDA Loan of up to $10 million for construction costs and including mandatory repayment of the $2 million pre-development loan ($8 million net). The SEDA Board is asked at this time to authorize the City Manager to negotiate and execute a Loan Agreement for up to $2,000,000 to Blue McKenzie LLC for the first of the two loans listed above. This Loan Agreement includes lending for costs associated with property acquisition and pre-development activities. Terms of this loan are outlined below: Borrower Blue McKenzie, LLC Property Location Site located east of 7th Street and north of A Street in Springfield, Map Number 17-03-35-42, Tax lot 2300 Loan Amount Up to $400,000 for property acquisition and $1,600,000 for predevelopment costs; not to exceed $2,000,000 total. Interest Rate 0% per annum Loan Fee 1% of loan amount ($20,000), financed Predevelopment Period Not to exceed 18 months Repayment Term Entire loan due and payable at 18 months Loan Security Deed of trust in the acquired property; assignment of all predevelopment contracts and work product. Loan Forgiveness Loan is forgivable by SEDA if both parties determine not financially feasible to construct the development, and if Borrower voluntarily surrenders the security at no cost to SEDA. Loan Priority Loan will be primary during predevelopment work. Loan will be required to be repaid at time of construction loan. Disbursement Based on disbursement requests from Borrower documenting work to date using form in Attachment 3. Project Budget See Attachment 3 Project Timeline See Attachment 3 Misc. Terms Parties obligated to work together in good faith to negotiate construction loan agreement for full $10 million loan. Parties will agree to major terms of loan agreement within 6 months, unless extended by mutual agreement. ATTACHMENT 1, PAGE 4 OF 4 RECOMMENDED ACTION: Authorize the City Manager to negotiate and execute a Loan Agreement to loan $2,000,000 to Blue McKenzie LLC for acquisition and predevelopment work for the “Springfield Motors” development according to the terms herein, and whatever additional agreements or documents are required to give effect to the Loan Agreement. Attachment 2, Page 1 of 11 Attachment 2, Page 2 of 11 Attachment 2, Page 3 of 11 Attachment 2, Page 4 of 11 Attachment 2, Page 5 of 11 Attachment 2, Page 6 of 11 Attachment 2, Page 7 of 11 Attachment 2, Page 8 of 11 Attachment 2, Page 9 of 11 Attachment 2, Page 10 of 11 Attachment 2, Page 11 of 11 {00019345:1} BLUE MCKENZIE LLC PROJECT BUDGET, TASKS, TIMELINE & DISBURSEMENT REQUEST TEMPLATE Project Budget – Predevelopment Loan Predevelopment Activity Amount Development Management $409,000 Architectural Design $739,250 Structural Engineering $116,250 Civil Engineering $31,500 Mechanical Engineering $148,600 Surveying & Geotechnical $17,000 Cost Estimating $75,000 Loan Fee $20,000 Contingency $43,400 Predevelopment Total $1,600,000 Acquisition Activity Amount Property Acquisition $400,000 Acquisition Total $400,000 LOAN TOTAL $1,600,000 Project Tasks & Timeline The Project timeline is intended to inform estimated timing and relationship of tasks and predevelopment phases to be funded during the initial pre-development and property acquisition loan ($2M) phase. SEDA will disburse loan funds to Owner on a monthly basis according to the Predevelopment & Acquisition Loan Agreement. 1. Property Acquisition. Owner will acquire fee simple title to the Property no later than June 30,2021 2. Survey & Geotechnical. Owner will complete surveying and geotechnical work needed to complete the schematic design in four to six weeks, no later than June 30, 2021 3. Development of Project Concept and Scope. Owner agrees to refine the Project concept and scope for a mixed-use development that is consistent with the following attributes (“Schematic Design”): (a) eight-story mixed-use building; (b) seven stories of market rate residential development providing approximately 84 units; (c) approximately 5,000 square feet of ground floor commercial retail; and (c) CLT construction. Owner's Conceptual Design will include at least the following: (i) a site plan that shows the location of the structure, ATTACHMENT 3, PAGE 1 OF 4DRAFT {00019345:1} streets, any parking areas and open spaces; (ii) a program showing all proposed uses for the Project; (iii) the location of uses within the Project; (iv) the approximate square footage of each use; (v) building envelopes that show the approximate scale and massing of the proposed buildings; and (vi) illustrative sketches depicting the character of the overall Project, including public spaces. SEDA will have the right to review and approve or disapprove of the Schematic Design, which approval shall not be unreasonably withheld. The Schematic Design will be completed within 12 weeks of Survey no later than September 1 2021 4. Schematic Design. Owner will prepare schematic level architectural design drawings (“Schematic Design”) and engineering drawings and specifications of the Project, which shall be consistent with the Conceptual Design approved by SEDA. The drawings will include a site plan, floor plans, elevation views and renderings, and SEDA will have the right to review and approve or disapprove of the Schematic Design, which approval shall not be unreasonably withheld. Upon completion of Schematic Design, Owner will prepare and provide to SEDA a preliminary cost estimate and construction schedule for the Project, which cost estimate and schedule shall be subject to SEDA’s review and approval. Owner will provide SEDA with the Schematic Design for review no later than [date 12-weeks out.] 5. Design Development Drawings and Specifications. Owner will prepare the design development level architectural and engineering drawings and specifications of the structures (“Design Development Drawings”). The dimensioned drawings, details and the specifications will be sufficiently detailed to allow subcontractor pricing and for the contractor to prepare cost estimates, a schedule, construction contract, and to obtain a building permit. SEDA will have the right to review and approve or disapprove of the 50% and 90% Design Development Drawings, which approval shall not be unreasonably withheld. Upon completion of Design Development Drawings, Owner will prepare and provide to SEDA an updated cost estimate and construction schedule for the Project, which updated cost estimate and schedule shall be subject to SEDA’s reasonable review and approval. 6. Construction Documents. Owner will prepare construction documents for the Project sufficient to allow the City to review and issue a building permit for all vertical construction other than site work (“Construction Documents”). SEDA will have the right to review and approve or disapprove of 50% and 100% Construction Documents, which approval shall not be unreasonably withheld. The 50% Construction Documents must be provided to SEDA no later than and the 100% Construction Documents must be provided to SEDA no later than March 1 2022 7. Final Cost Estimate. Upon completion of Construction Documents and no later than May 15 2022 Owner will prepare and provide to SEDA an updated cost estimate and construction schedule for the Project, which updated cost estimate and schedules shall be subject to SEDA’s reasonable review and approval. After completion of a competitive subcontractor bid process for the construction of the Project, Owner shall provide to SEDA an updated project budget and timeline. The final project budget and timeline is subject to reasonable review and approval by the SEDA. ATTACHMENT 3, PAGE 2 OF 4DRAFT BLUE MCKENZIE Tranch 1 Performance Schedule May3 2021 -May 27, 2022 Project Duration 13 months May June July Aug Sept Oct Nov Dec Jan Feb Mar April May Tasks Development Mangament Property Acquisition Survey/ Geo Tech Architecture Schematic Design Design Development Construction Documentation Permit Documentation and issuance Tranche 2 Construction Taget Start is July 2022 Constrution Duration estimated at 24 months Senior Debit closes June 2021 SEDA 2nd Tanche June 2022 Blue Mckenzie investment June 2022 ATTACHMENT 3, PAGE 3 OF 4DRAFT Steps At set‐up of this form, please complete steps below for pre‐development phases 1 List Contractors in Column C 2 Insert Estimated Total Budget by Task in Column G Do Not Modify Column L TASK Prime Hours This Period Sub Fixed Costs This Period Total Estimated Task Budget Total Spent By End of Last Period Total Spent this Period Total Spent to Date Percent Task Complete to Date Percent of Total Task Budget Spent TASK 1 SCHEMATIC DESIGN 1 A Development Administration Prime: [FIRM NAME] 1 B Architectural Design Prime: [FIRM NAME] 1 C Architectural Design [FIRM NAME] 1 D STRUCTURAL Engineering [FIRM NAME] 1 E Mechanical, Electrical, Plumbing and Fire [FIRM NAME] 1 F Civil Engineering [FIRM NAME] 1 G Cost Estimating [FIRM NAME] 1 H Other/TBD [FIRM NAME] 1 J Other/TBD [FIRM NAME] SCHEMATIC DESIGN TOTAL 0 0 ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! Total Estimated Prime Hours for Task 1 TASK 2 DESIGN DEVELOPMENT 2 A Development Administration Prime: [FIRM NAME] 2 B Architectural Design Prime: [FIRM NAME] 2 C Architectural Design [FIRM NAME] 2 D STRUCTURAL Engineering [FIRM NAME] 2 E Mechanical, Electrical, Plumbing and Fire [FIRM NAME] 2 F Civil Engineering [FIRM NAME] 2 G Cost Estimating [FIRM NAME] 2 H Other/TBD [FIRM NAME] 2 J Other/TBD [FIRM NAME] DESIGN DEVELOPMENT TOTAL 0 0 ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! Total Estimated Prime Hours for Task 2 TASK 3 CONSTRUCTION DOCUMENTS 3 A Development Administration Prime: [FIRM NAME] 3 B Architectural Design Prime: [FIRM NAME] 3 C Architectural Design [FIRM NAME] 3 D STRUCTURAL Engineering [FIRM NAME] 3 E Mechanical, Electrical, Plumbing and Fire [FIRM NAME] 3 F Civil Engineering [FIRM NAME] 3 G Cost Estimating [FIRM NAME] 3 H Other/TBD [FIRM NAME] 3 J Other/TBD [FIRM NAME] CONSTRUCTION DOCUMENTS TOTAL 0 0 ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! Total Estimated Prime Hours for Task 3 Reimburseables ‐$ ‐$ ‐$ ‐$ CONTRACT TOTAL 0‐$ ‐$ ‐$ ‐$ ‐$ Invoiced Amount this Period ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! #DIV/0! ‐$ ‐$ #DIV/0! ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! ‐$ ‐$ ‐$ ‐$ #DIV/0! ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! ‐$ #DIV/0! ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0!‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! ‐$ ‐$ ‐$ ‐$ ‐$ #DIV/0! ‐$ ATTACHMENT 3, PAGE 4 OF 4DRAFT