Title
Authorization to Enter into Agreements with TGen/City of Hope for Disposition of TGen Building (Ordinance S-43333)
Description
Request authorization for the City Manager, or his designee, to enter into any and all agreements necessary (“Agreements”) to facilitate the sale of the City-owned Translational Genomics Research Institute (“TGen”) and International Genomics Consortium (“IGC”) Headquarters Facility located at 445 N. 5th St. (“Property”) to TGen/City of Hope ("Purchaser"), or its City approved designee, and authorization for the City Treasurer to receive funds.
Report
Summary
The City constructed the building, a six-story, 156,215-square-foot facility, in 2004 to serve as a catalyst for development of the Phoenix Biomedical Campus (“PBC”). Construction of the building was financed through the sale of bonds, of which approximately $48.5 million in outstanding principal remains. The building is fully occupied and generates approximately $3.6 million in annual lease revenues. The tenants fully fund the building’s annual operating expenditures, in addition to funding a Renewal and Replacement (“R&R”) account for large capital outlays as the building ages.
In November 2015, with Council authority, the Community and Economic Development Department (“CEDD”) issued a Request for Proposals (“RFP-CED15-TGEN”) for the disposition of the Property. One proposal was received in response to the solicitation; however, negotiations were not successful and the RFP was cancelled. After the cancellation of the RFP, the City received interest from several parties through which direct negotiations commenced. The Purchaser provided the strongest proposed business terms to the City.
Subject to Council approval, the following business terms have been negotiated with Purchaser, which would be implemented through a Lease and Purchase Agreement:
- The parties shall enter into a lease term of the earlier of 20 years or full payment of the current amount of principal outstanding debt obligations on the Property as detailed in Attachment A. Ownership will convey to Purchaser at the end of the lease term.
- Purchaser shall make annual payments based upon the schedule in Attachment A or as otherwise approved by the Finance Department, so long as any modifications satisfy the City's debt obligations.
- Purchaser shall make a one-time payment of $1 million to City upon execution of agreement; and shall make supplemental payments totaling $2 million over the length of the agreement. Purchaser shall make these payments in annual installments of $100,000 each year of the term; however, should the agreement end early, Purchaser shall pay the remainder of the $2 million upon such earlier conclusion of the agreement.
- Purchaser shall provide the City a Letter of Credit from a mutually acceptable bank or other credit security acceptable to City for an amount of $25 million. As principal gets paid down, the Credit Security will be reduced by schedule recommended by the City's Finance Department as found in Attachment A.
- Purchaser will honor all existing tenant leases and amendments; and, acknowledges that the City is currently working on lease amendments with tenants.
- Purchaser will provide the indemnification and insurance satisfactory to the City.
- Purchaser shall have access to the R&R account for mutually agreed upon capital expenditures; and, concurrent with the Transfer of Title, the R&R account shall be transferred to Purchaser.
- Purchaser will assume all future operating and capital risks for the Property upon execution of the lease.
- Purchaser shall be responsible for management of the Property or hire a reputable property management company, approved in advance by the City, for the life of the lease.
- Purchaser will ensure that a minimum of 316 parking spaces shall be leased by the buildings tenants. Purchaser will be financially responsible to pay for any of the 316 parking spaces not allocated to a building tenant.
- City will work in good faith with Purchaser and owner of the parking garage to extend the license term through 2075, concurrent with the City’s groundlease with the owner of the garage.
- City agrees to enter into good faith negotiations with Purchaser for future parking needs after the conclusion of the parking license.
- The Agreement shall contain other such provisions deemed necessary and appropriate by City staff.
The sale of the Building is in line with the original intent of the PBC development plan, reduces current City debt obligations, and encourages additional private investment on the PBC.
Contract Term
The Term of the Agreement is 20 years, with the option for early purchase.
Financial Impact
The City will receive annual lease payments to cover the debt service schedule detailed in Attachment A, which will be deposited into the Bio Fund and shall be used to retire the debt associated with the Building. In addition, the Purchaser shall pay the City additional payments of $1,000,000 upon execution of agreements and $2,000,000 over the term of the contract, which funds shall be deposited into the General Fund.
Location
TGen/IGC Building, 445 N. 5th St.
Department
Responsible Department
This item is submitted by Deputy City Managers Paul Blue and Karen Peters, and the Public Works and Community and Economic Development departments.