HomeMy WebLinkAboutItem 03 Blue McKenzie Project OverviewAGENDA ITEM SUMMARY Meeting Date:
1/9/2023
Meeting Type:
Regular Meeting
Department:
City Manager's Office
Staff Contact:
Allie Camp
S P R I N G F I E LD ECONOMIC Staff Phone No:
541-726-3688
DEVELOPMENT AGENCY Estimated Time:
25 Minutes
ITEM TITLE: BLUE MCKENZIE PROJECT OVERVIEW
ACTION None; for information only.
REQUESTED:
ISSUE The Downtown housing project, Blue McKenzie, is reaching major project
STATEMENT: milestones. This agenda item summary provides current project information and
upcoming milestones. A history of the project is also provided in Attachment 1.
ATTACHMENTS: 1. SEDA Briefing Memo- Blue McKenzie Project History
2. PowerPoint Presentation
PREVIOUS SEDA March 2020 AIS- approved funding for site feasibility assessment.
DIRECTION: October 2020 AIS- directed staff to explore potential financial partnerships.
March 2021 AIS- directed staff to develop an agreement with project owner for
SEDA's financial participation.
April 2021 AIS, YouTube- authorized staff to execute predevelopment loan.
June 2022 AIS, YouTube- supported a delay in construction bidding.
November 2022 AIS 1, AIS 2, YouTube- approved extension of the
predevelopment loan; approved loan terms for construction loan.
DISCUSSION: Key Project Information
The Blue McKenzie project proposes a height of eight stories, including ground
floor commercial and seven floors of residential for 84 units of market rate housing.
SEDA is providing project financing in two avenues of participation, a $2M
predevelopment and acquisition loan and a $ l OM construction loan. These dollars
will come from the tax increment accrued through the Downtown Urban Renewal
Area. This is the first public/private partnership residential building in Downtown
Springfield in 15 years, and it is an investment in Springfield's downtown for future
buildings of this design and density.
Current Project Updates
With the assistance of the predevelopment loan, the project continues to proceed
through development of construction documents. Analysis of expenditures to date
confirm predevelopment loan activities are approximately 96% complete. In late
December 2022 the Site Review land use approval was issued for the project. The
owner, Blue McKenzie LLC, solicited construction bids in December 2022.
The developer has begun conversations with private lending institutions to secure
the remainder of the construction financing needed for the project. This lending
institution is referred to as the senior lender, representing its priority loan
positioning on the project. City staff have begun due diligence for the $1OM
construction loan tax increment borrowing. The project is on schedule to initiate
site work and prepare for groundbreaking for the structure in late Spring 2023.
Upcoming Project Milestones
After the financial steps of SEDA borrowing authorization for the construction
loan, completion of the increment borrow, and alignment with the senior lending,
the project will transition to a new phase with more tangible deliverables and
predictable steps: submission, review, and approval of building, Public
Improvement, and SUB permits, and coordination and site accommodations to
prepare for construction.
MEMORANDUM
Springfield Economic Development Agency
Date: 1/9/2023
To: SEDA Board COMMUNICATION
From: Allie Camp, Economic Development Manager PACKET
Subject: Blue McKenzie Project History MEMORANDUM
INFORMATION SHARE:
This communication provides the SEDA Board with a brief overview of key project information and a full
project history of the Blue McKenzie downtown housing project to date.
Key Project Information
Key project goals for the Blue McKenzie project have remained consistent from the project's inception.
Goals include -
1. Creating of a proof of concept to communicate viability and profitability of a new construction
type/height in Springfield.
2. Providing a market rate, high density, housing project to serve as a comparable to financial
institutions approving similar future projects.
3. Creating a dense development in downtown which spurs subsequent private, taxable, development
and increases market rate housing stock.
The Blue McKenzie project site is located directly adjacent to the Post Office, a 0.27 acre lot. However,
prior to property line changes, the property once measured just over 1 acre and was comprised of two
surface parking lots and the former Buick dealership building. Initial project feasibility examined
development across the entire site.
The Blue McKenzie project proposes a height of eight stories, including ground floor commercial and
seven floors of residential, providing 84 units of market rate housing.
This is the first building in Springfield that will be constructed using new, mass timber technology, and
only the second in the Eugene/Springfield area. Mass timber technology represents the proud timber
heritage of Springfield's economy while providing a modern and energy-efficient building style that
promotes a new way to define to livable buildings.
SEDA is providing project financing in two avenues of participation, a $2M predevelopment and
acquisition loan and a $ l OM construction loan. These dollars will come from the tax increment accrued
through the Downtown Urban Renewal Area. This is the first public/private partnership residential building
in Downtown Springfield in 15 years. This is an investment in Springfield's downtown for future buildings
of this design and density.
Project History to Date
In March 2020 SEDA reviewed and approved funding for a request for $85,000 from the Scherer family,
owner of the property located at 702 A Street to support initial feasibility assessments of a mixed-use site
redevelopment to include residential and commercial across the entirety of the site. The site at this time
included the former Buick dealership building and two surface parking lots.
Attachment 1 Page 1 of 3
In October 2020, the consultant hired for the feasibility study presented the findings to the SEDA Board.
Based on this presentation, the Board directed staff to further explore financial partnership strategies for
later Board consideration.
In December 2020, the SEDA Board directed staff to focus efforts on a project partnership which pivots
SEDA funds away from a public subsidy grant and towards contributions of resources that might generate
direct financial return to the Agency. This direction provided the content for what would later be included
in a memorandum of understanding with Blue McKenzie Apartments, LLC, the project owner.
In March 2021, the SEDA Board authorized SEDA to enter a memorandum of understanding (MOU) with
Blue McKenzie Apartments, LLC. The MOU outlined intent by SEDA to financially participate in a new
Downtown, mixed-use, market -rate project referred to as the "Blue McKenzie." This participation was
structured as two loans- $2,000,000 for predevelopment activities and land acquisition and $10,000,000 to
repay the predevelopment loan and fund a substantive portion of construction lending.
In April of 2021, the Board authorized staff to execute a loan for the initial $2M for predevelopment and
property acquisition. This loan authorization is an administrative and budgetary process step after approval
of the funds being loaned to the project.
The property was partitioned into three lots, and the Blue McKenzie lot was sold from a private party, the
Scherer family, to Blue McKenzie, LLC in June of 2021 for $400,000. The project's predevelopment work
continued in terms of financial feasibility and preliminary site preparations. Predevelopment work can take
time, and this large period between SEDA conversations about the project is reflective of that.
The SEDA Board determined in June of 2022 to support a delay of construction bidding until Winter of
2022 due to market instability in both labor and material costs and lack of predictable data to estimate
project performance. This delay meant a shift of construction lending to Winter of 2022 and
groundbreaking to Spring of 2023.
In November 2022, SEDA reviewed market conditions for construction bidding and approved to both
extend the time frame of the predevelopment loan agreement and proceed with the second portion of
financial participation by the SEDA Board- the $ l OM construction loan as committed in the MOU with
Blue McKenzie, LLC in March 2021. SEDA also approved the loan terms. Terms were refined from
assumptions under the MOU to adjust to the current market conditions' impacts to project costs. Many of
the terms are also tied directly to the senior lender requirements to assure coordination of funds is achieved;
the senior lender has not yet been identified by the owner.
Notable term conditions include:
• Loan amount- $2,000,000 for repayment of SEDA predevelopment loan and $8,000,000 for project
construction costs; not to exceed $10,000,000 total.
• Interest rate- SEDA's borrowing rate plus 0.5%. This interest rate can be adjusted should SEDA
refinance to a lower rate in the future.
• Repayment terms- Entire loan due and payable at 15 years (but may be extended as needed to
accommodate repayment following senior lender payment). There are no prepayment penalties.
• Loan security- Deed of Trust secured against title to the property, and an Assignment to SEDA of
predevelopment and development work product.
• Loan priority- SEDA loan principle will be in third position, behind both the to -be -determined
primary lender and $1,000,000 in Blue McKenzie Apartments, LLC equity contribution plus
earnings of 4% return on this equity.
2
Attachment 1 Page 2 of 3
• Hold back- All SEDA funds will be disbursed prior to the securing of permanent financing by Blue
McKenzie Apartments, LLC. Blue McKenzie Apartments, LLC equity investment must be spent at
same time, or proportionately with, SEDA loan funds.
Complete term conditions can be found in the AIS linked above.
In December 2022, the project received land use approval for the submitted Site Plan application.
Additionally, during the month of December, Blue McKenzie, LLC proceeded to solicit bids for
construction of the building for anticipated financing in Winter 2023 and groundbreaking in Spring 2023,
in alignment with the time frame discussed during the project's pause in June 2022.
Attachment 1 Page 3 of 3
BLUE MCKENZIE PROJECT UPDATE
SEDA Board Regular Session — January g, 2023
J
.x
r �-r
11 �_AWN
•
Key Project
Details
84 units of market rate housing
Ground floor commercial
Mass timber construction
L "ON W
- .1
F• � .�:
Attachment 2 Page 3 of 9
I
�. Creating of a proof of concept to
communicate viability and
profitability of a new construction
type/height in Springfield.
Project Goals 2. Providing a market rate, high
density, Housing pro� ect to serve
as a comparable to i-inancial
institutions approving similar
future projects.
3. Creating a dense development in
downtown which spurs
subsequent private, taxable,
development and increases
market rate housing stock.
Attachment 2 Page 4 of 9
SIN
s -
A.
Ae
. -
l
!t
Al
2020
• SEDA reviewed and
funds initial site
feasibility.
• Directed next steps
for working with
project owner, Blue
McKenzie LLC.
Attachment 2 Page 6 of 9
*
E
2022
• SEDA supported a
delay in June for
construction bidding
for the project.
• In November,
approved proceeding
with sloM
construction loan,
defined terms.
F
Ju
low.,
. jII
APW,
Alm