AGENDA #4d

 

MEMORANDUM

 

TO:                   Mayor and Town Council

 

FROM:            W. Calvin Horton, Town Manager

 

SUBJECT:       Amendment to Contract for Services for Stainback Public/Private Real Estate

 

DATE:             June 15, 2005

 

The attached resolution would authorize a contract amendment with Stainback Public/Private Real Estate to negotiate a Development Agreement.

 

BACKGROUND

 

On October 27, 2003, the Council authorized the Town Manager to execute a contract with Stainback Public/Private Real Estate to provide economic development consulting services for the future development of Parking Lots 2 and 5 in downtown Chapel Hill. 

 

The contract included the following phases:

 

 

 

 

 

 

 

The contract was structured to give the Council the ability to authorize each section of the contract as work progressed, thus giving the Council the opportunity to end the contract at each stage of the project.  To date, the Council has authorized work through Part 2 of the Contract.

 

DISCUSSION

 

Part 3 of the Scope of Work (please see Attachment 1) contemplated that the parties would amend the Work Statement at the time this phase is begun to provide greater specifics.

 

We propose to replace Scope of Work section in Part 3 with new wording providing additional detail on the tasks to be accomplished in the negotiation of a development agreement (please see Attachment 2).

 

The schedule portion of the contract contemplated Part 3 would be completed in July, 2005.  We propose extending the schedule to show an estimated completion time of October, 2005 for negotiating the development agreement (please see Attachment 3).

 

The Fees portion of the Contract (Section IV) states that SPPRE’s fees for Part 3 will be billed at an hourly rate not to not exceed $50,000 without prior written authorization from the Town of Chapel Hill.   The contract states John Stainback’s hourly rate is to be increased from $270/hour to $289/hour to adjust for two years of inflation and increases in the cost of doing business.  In addition, direct expenses are billed at cost.  A 9 ½% allocated expenses fee is applied to the professional fee to cover indirect costs.  We propose no changes in the fees for this portion of the contract. A reference to a firm partner no longer associated with the firm would be deleted.

 

The main contract includes a provision that if the Council decides to consider development proposals for just one of the sites (either Lot 5 or Lot 2), then the Town and the Consultant will negotiate reducing the professional fee to adjust for the corresponding reduction in the amount of work.

 

The main contract also provides that the Council has the right to terminate the contract following the completion of each of the parts of the contract (Part 1A, Part 1B, part 1C, Part 2, and Part 3). 

 

RECOMMENDATION

 

We recommend that the Council adopt the attached resolution authorizing the Manager to execute an amendment to the contract of October 27, 2003 with Stainback Public/Private Real Estate for Part 3, Negotiation of the Land Lease and/or Development Agreements with Selected Developer to include greater specificity of tasks, and to amend the schedule to reflect an October, 2005 completion date.

 

ATTACHMENTS

 

1.      Existing Part 3 of Scope of Work, Contract with SPPRE of October 28, 2003, as amended (p. 4).

2.      Proposed Revision to Part 3 Scope of Work, June 15, 2005 (p. 7).

3.      Proposed Revision to Contract Schedule, June 15, 2005 (p. 11).

 

 

 

 

A RESOLUTION AUTHORIZING A CONTRACT AMENDMENT FOR CONSULTING SERVICES With Stainback Public/Private Real Estate (2005-06-15/R-4)

 

WHEREAS, the Comprehensive Plan and Downtown Small Area Plan identify Town Parking Lots 2 and 5 as key redevelopment sites; and

 

WHEREAS, on October 27, 2003, the Council authorized the Town Manager to execute  a contract with Stainback Public/Private Real Estate to provide economic development consulting services for the future development of Parking Lots 2 and 5 in downtown Chapel Hill; and

 

WHEREAS, on June 14, 2004, the Council authorized proceeding with financial analysis of Master Plans for Lots 2 and 5 and the Wallace Parking Deck, with options including consideration of a Transit Transfer Center on Lot 2 and a parking structure on the privately-owned RBC Centura property; and

 

WHEREAS, the Council has solicited Request for Qualification proposals and Request for Proposals for the sites, and contemplates entering into negotiations with a developer;

 

NOW, THEREFORE, BE IT RESOLVED by the Council of the Town of Chapel Hill that the Council authorizes the Town Manager to execute a contract amendment with Stainback Public/Private Real Estate based substantially on the terms described in the attached memorandum of June 15, 2005 to provide greater definition to the Scope of Work and Schedule for negotiation of a Development Agreement. 

 

This the 15th day of June, 2005.

 

 

ATTACHMENT 1

 

(Excerpt from Existing Contract of October 27, 2003)

 

Part Three: The Negotiation of the Land Lease and/or Development Agreements with Selected Developer


Preface

 

If both the public and private partner make every effort to negotiate a Development Agreement in a timely manner, negotiations usually require about 60 to 90 days.  In order to achieve that fairly fast time schedule, SPPRE, the attorneys and the developer must act like deal makers not deal breakers.  Both the public and private partner must be flexible in negotiations-not hung up on one relatively unimportant deal point.  Both partners may also have to be creative to solve the typical “gap” financing.  Solving the gap in the cash flow and/or reducing the development budget are where the consultant plays an important role.

                                          

Description of Part 3 Tasks

 

The tasks described below are subject to greater specificity to be provided by amendment to this Work Statement at the time this phase is begun. Throughout the negotiations stage, SPPRE will report to the Council Committee and the Town Council as necessary.

 

Task 3.1: Negotiating the Ground Lease.


[Note: Omit Task 3.1 and skip to Task 3.2, Negotiation of Development Agreement, if the Council decides during the Developer Solicitation and Selection Process (Part 2) not to pursue the Ground Lease option]

 

If the Town decides to use a Ground Lease, the following six land lease payments to the Town will be considered:

 

·        Construction Period Rent: Developer payments to the Town prior to the opening of a building

·        Base Rent: Annual payment to the Town based on land value and maximum percentage of Gross Income

·        Indexed Rent: Payments adjusted periodically based on change in the Consumer Price Index, to avoid negative impact on income to the Town from inflation.

·        CAM Charge: Payments made by the developer or tenant to the Town for public space controlled by the Town

·        Percentage Rent: After debt service, required return to developer, and other key expenses, the Town could receive a negotiated percentage of the cash flow before taxes and depreciation

·        Net Sales Proceeds: When a private owner decides to sell a building the Town would receive a negotiated percentage of the net proceeds from the sale or refinancing.

 

Task 3.2: Negotiating the Development Agreement.


The negotiations process requires following a process that fosters effective communication between parties; it is difficult at this point to predict how the negotiations discussions will occur. Generally, the process likely will begin with an outline of a Development Agreement, proceeding into discussions between the Council/SPPRE team and the developer on each point. The agreed-upon draft agreement will be sent to attorneys for drafting the final, binding legal documents.

 

During the negotiations process, SPPRE will assess the financial impact of proposed changes to the draft development agreement and work to solve cash flow shortfalls (see Task 3.3).

 

Overview of Potential Development Agreement

Typically there are 20 to 35 sections included in most Development Agreements. Some of the more important sections include:

    - Description of the Proposed Development
    - Approvals and Development Program
    - Development  Covenants, Easements and Restrictions
    - Developer Obligations
    - Insurance, Indemnifications and Financing
    - Requirements of Public Partner(s)
    - Operation

Approval Rights for the Town of Chapel Hill

Using Approval Rights, SPPRE will optimize the Town’s control over the following:

    - Team Members
    - Legal Structure of Development Entity
    - Final Public/Private Finance Plan
    - Source of Debt and Equity
    - Design (Schematic Design (SD) and design Development (DD))
    - Quality of Materials (Outline Building Specifications)
    - Operation of the Building

 Task 3.3: Complete Financial Analysis

Throughout the negotiations SPPRE will complete any financial analyses and develop additional public/private finance plans, if required.  If there is a cash flow shortfall,  SPPRE will use five key approaches to solve a cash flow shortfall:
       

·        Part 1: Leverage government-owned real estate

·        Part 2: Creative public and private sources of financing

·        Part 3: Creative public/private finance and credit-enhancement techniques

·        Part 4: Ways to enhance cash flow and reduce development costs

·        Part 5: Federal, state and local government development, investment and operational incentives.

 

AT SOME POINT DURING PART 3, THE COUNCIL MAY ELECT TO END NEGOTIATIONS AND EITHER SELECT ANOTHER DEVELOPER TO NEGOTIATE WITH OR CLOSE OUT THE CONTRACT

 

ATTACHMENT 2

(Proposed Revision of June 15, 2005)

Part Three: The Negotiation of the Land Lease and/or Development Agreements with Selected Developer

Preface

 

If both the public and private partner makes every effort to negotiate a Development Agreement in a timely manner, negotiations usually require about 60 to 90 days.  In order to achieve that fairly fast time schedule, SPPRE, the attorneys and the developer must act like deal makers not deal breakers.  Both the public and private partner must be flexible in negotiations-not hung up on one relatively unimportant deal point.  Both partners may also have to be creative to solve the typical “gap” financing.  Solving the gap in the cash flow and/or reducing the development budget are where the consultant plays an important role.

                                          

Description of Part 3 Tasks

 

The tasks described below are subject to greater specificity to be provided by amendment to this Work Statement at the time this phase is begun. Throughout the negotiations stage, SPPRE will report to the Council Committee and the Town Council as necessary.

 

Task 3.1: Pre-Negotiation and Negotiation Tasks

1.      Complete background checks on the development team selected for negotiation prior to Council authorization of the Exclusive Right to Negotiate (ERN).

2.      Prepare a draft of an Exclusive Right to Negotiate (ERN) between the Town and the selected developer for Lot 5 and Wallace Deck.

3.      Town Attorney or outside legal counsel will prepare final ERN and Development Agreement.

4.      In conjunction with the Town Council, Council Committee and Town Staff, complete a comprehensive review of the proposed building program, urban design plans and architectural design submitted by the selected developer (a major portion of this review will be completed during a work session with the developer, their architect, the Town Council  and Town staff on June 20,2005).

5.      In conjunction with the negotiating team and/or Town staff determine how and when to use the projected nontax income and tax revenue paid to the Town as a result of the development of Lot 5 and Wallace Deck

6.      In conjunction with the negotiating team and Town staff determine a plan of action to finalize the market value of the project sites.

7.      Complete additional financial analysis of the technical proposal submitted by the selected developer.

8.      Develop the final public/private finance plan.

9.      Develop a comprehensive list of “deal points” to be negotiated and incorporated into the Development Agreement.  Prepare a list of developer and Town responsibilities. Prepare list of Approval Rights for the Town and prioritize. Prepare a list of financial and development safeguards for the Town.  Submit to negotiating team and Town staff for review.

10.  In conjunction with the selected developer, prepare a schedule to complete the negotiation of the MOU and Development Agreement. Discuss with developer and Town.

11.  Provide advice and develop a strategy to deal with the potential feasibility of building on the Wallace Deck, the potential inclusion of the RBC Bank site, soil borings, environmental analysis, and assignment of the Development Agreement, etc.  Discuss with developer and Town.

12.  In conjunction with the negotiating team and/or Town staff determine basis for termination of developer during and after negotiation of the Development Agreement.

13.  Determine at what milestone the developer will be awarded the Phase Two development (Lot 2 and RBC Garage). See safeguards included in developer RFP.

14.  Assist Town staff with presentations to Town Council before and during negotiation of the Development Agreement.  Attend meetings of the negotiating team, Council Committee and Town Council.



Task 3.2:  Negotiating the Ground Lease.

[Note: Omit Task 3.1 and skip to Task 3.2, Negotiation of Development Agreement, if the Council decides during the Developer Solicitation and Selection Process (Part 2) not to pursue the Ground Lease option]

 

If the Town decides to use a Ground Lease, the following six land lease payments to the Town will be considered:

 

·        Construction Period Rent: Developer payments to the Town prior to the opening of a building

·        Base Rent: Annual payment to the Town based on land value and maximum percentage of Gross Income

·        Indexed Rent: Payments adjusted periodically based on change in the Consumer Price Index, to avoid negative impact on income to the Town from inflation.

·        Common Area Maintenance:Charge: Payments made by the developer or tenant to the Town for public space controlled by the Town

·        Percentage Rent: After debt service, required return to developer, and other key expenses, the Town could receive a negotiated percentage of the cash flow before taxes and depreciation

·        Net Sales Proceeds: When a private owner decides to sell a building the Town would receive a negotiated percentage of the net proceeds from the sale or refinancing.

 

Task 3.3: Process of Negotiating the Development Agreement.

The negotiations process requires following a process that fosters effective communication between parties; it is difficult at this point to predict how the negotiations discussions will occur. Generally, the process likely will begin with an outline of a Development Agreement, proceeding into discussions between the Council/SPPRE team and the developer on each point. The agreed-upon draft agreement will be sent to attorneys for drafting the final, binding legal documents. 

 

The negotiating team is contemplated to consist of the Town Manager and staff, the Town Attorney and associated legal counsel, SPPRE, and members of the Town Council.

 

During the negotiations process, SPPRE will assess the financial impact of proposed changes to the draft development agreement and work to solve cash flow shortfalls (see Task 3.4).

 

Note: The developer shall be obligated to complete the development of Lot 5 and Wallace Deck in substantial accordance with their proposal as modified through negotiation and incorporated into the Development Agreement.  The Council Committee, staff and SPPRE need to decide on default provisions.

 

Overview of Potential Development Agreement

Typically there are 20 to 35 sections included in most Development Agreements. Some of the more important sections include:

    - Description of the Proposed Development
    - Approvals and Development Program
    - Development  Covenants, Easements and Restrictions
    - Developer Obligations
    - Insurance, Indemnifications and Financing
    - Requirements of Public Partner(s)
    - Operation


Approval Rights for the Town of Chapel Hill

Using Approval Rights, SPPRE will optimize the Town’s control over the following:

    - Team Members
    - Legal Structure of Development Entity
    - Final Public/Private Finance Plan
    - Source of Debt and Equity
    - Design (Schematic Design (SD) and design Development (DD))
    - Quality of Materials (Outline Building Specifications)
    - Operation of the Building

 Task 3.4: Complete Financial Analysis

Throughout the negotiations SPPRE will complete any financial analyses and develop additional public/private finance plans, if required.  If there is a cash flow shortfall, SPPRE will use five key approaches to solve a cash flow shortfall:
       

·        Part 1: Leverage government-owned real estate

·        Part 2: Creative public and private sources of financing

·        Part 3: Creative public/private finance and credit-enhancement techniques

·        Part 4: Ways to enhance cash flow and reduce development costs

·        Part 5: Federal, state and local government development, investment and operational incentives.

 

AT SOME POINT DURING PART 3, THE COUNCIL MAY ELECT TO END NEGOTIATIONS AND EITHER SELECT ANOTHER DEVELOPER TO NEGOTIATE WITH OR CLOSE OUT THE THIS CONTRACT