Title
Authorization to Enter into Development Agreement and other Agreements with Concord Wilshire Capital, LLC for the Redevelopment of Metrocenter Mall and the Acquisition and Construction of Public Parking Garages
Description
This report requests the Economic Development and Equity Subcommittee recommend City Council approval to enter into a development agreement with Concord Wilshire Capital, LLC or its City-approved designee (Developer) for the redevelopment of the former Metrocenter Mall and the construction and acquisition of up to nine public parking garages, as well as a garage asset management agreement and other agreements as necessary.
THIS ITEM IS FOR DISCUSSION AND POSSIBLE ACTION.
Report
Summary
Developer is under contract to purchase five parcels, totaling an estimated 79 acres, located at the former Metrocenter Mall located at 9817 N. Metro Pkwy. W (Site). Developer intends to demolish the former mall, which closed in June 2020 and redevelop the property transforming it into a mixed-use project (Project) supporting City redevelopment goals. Site is located in the North Mountain Redevelopment Area established by Council in 2014, which contemplates revitalization of the former mall. At full build-out, the project will contain an estimated 3,200 multi-family units, 383,000 square feet of retail & commercial space, a public greenspace and an estimated 5,786 parking spaces located in up to nine (9) parking garages throughout the Site. The Project is intended to be built in three (3) phases and at full-build-out will represent a total capital investment of $935.9 Million.
The City recognizes the significant economic impact of the redevelopment, and has identified a need for public parking facilities to accommodate additional densities as authorized by the Planned Unit Development (PUD) approved by Council in 2016. To assist with the redevelopment, staff recommends the City enter into a Development Agreement (DA) with the Developer. The proposed DA shall contain the following business terms that have been negotiated by Staff and the Developer:
Developer shall have six (6) months from Council authorization to enter into the DA and secure additional parcels to construct the Project. Any deviation to the parcels composing the Site and the resulting Project must be approved by the CEDD Director.
Developer shall finance, develop and construct all Project improvements and must comply with Title 34 of Arizona Revised Statutes for any improvements proposed to be transferred to City ownership.
Parking garage assets constructed by Developer shall be transferred to City-ownership once it has received a Certificate of Occupancy (CofO) and Developer has satisfied all environmental and real estate due diligence on each garage parcel to the City's satisfaction. Each garage will be built on the Site, but the exact locations of each garage parcel will be subject to further negotiation between the Developer and City staff.
Each parking garage asset, land and structure, has an estimated value of $16.4 Million. City shall reimburse Developer the cost of construction, a commercially reasonable management fee of up to 4.5%, and the fair market value of the land as verified by a City-approved appraisal.
Upon transfer of the first garage of the Project, a Metrocenter Garage Revenue Fund shall be established to collect all user revenue. The fund shall be utilized to pay all annual operations and maintenance (O&M) costs as well as fund a capital reserve for long-term capital needs.
Each garage shall contain easement agreements with the property owners within the Site. Easements shall contain terms & conditions obligating properties who benefit from the easements to pay sufficient annual O&M and capital costs to operate and maintain each garage. These annual amounts shall be determined by an independent third-party feasibility analysis.
Upon the initial date of transfer to the City of first garage constructed through the agreement, the City shall dedicate 100% of the City's general fund portion of construction, lease, retail and other eligible transaction privilege tax dollars (TPT), as verifiable by the City, to the Garage Revenue Fund for a period of 25 years, from two geographies described below:
Project Site Area: Includes the Site location upon completion of each phase improvements as described above. Within the Project Site Area, 100% of the City's general fund portion of eligible TPT generated from eligible activities will be dedicated to the Metrocenter Garage Revenue Fund for a period of 25 years from the completion of each garage. The term for each phase will begin upon completion of the phase and continue for a period of twenty-five years after. The eligible TPT generated for each phase is estimated at $58.6 Million total over the term of the agreement. This amount includes an estimated $3.43 Million of Construction Sales Tax, which will be generated prior to the 25 year term, but will not be deposited into the Metrocenter Garage Revenue Fund until the Developer receives a CofO for a Parking Garage Asset.
Benefited Area: Bounded by 35th Avenue to the West, Peoria Ave. to the North, I-17 to the East and the Arizona Canal to the South. This area is designed to capture increased economic activity resulting from the Project, but beyond the boundaries of the Site. In this area, for a period of 25 years from the completion of the first phase, 100% of the City of Phoenix general fund portion of eligible TPT generated from economic activity over and above the current baseline amount of TPT generated as of FY 2021-2022 will be deposited into the Metrocenter Garage Revenue Fund. The total eligible TPT in this area is estimated at $9.2 Million total over the 25-year period.
Once annual O&M and capital requirements for all garages are satisfied, the City shall make an annual payment to the Developer for a period of not longer than 25 years for each phase in the amount of the TPT deposited into the Metrocenter Garage Revenue Fund plus the user generated revenue, less the O&M and capital expenses. The aggregate value of these payments shall not exceed the acquisition value of the garages. Any additional funds remaining in the Metrocenter Garage Revenue Fund after completion of the payments for the last garage would be the property of the City.
Should the revenues pledged by the City from TPT collections, construction sales tax reimbursements, and annual payments from the Garage Revenue Fund over the term of the DA not equal the acquisition cost for any garage, the City shall have no obligation to address any shortfall. The City’s financial contribution is limited to these aforementioned sources.
Developer shall have the option to enter into a management agreement with the City to manage the garages and the Metrocenter Garage Revenue Fund.
Parking Garages shall be open to public and parking revenue generated by public parking, special event parking, surface parking revenue, etc., will be contributed towards the Metrocenter Garage Revenue Fund.
Developer shall have the following construction performance benchmarks:
Within twenty-four (24) months of signing the DA, Developer shall obtain demolition permits for the existing mall structure and receive the first building permit for the Project.
Within thirty-six (36) months of receiving the aforementioned permits, Developer shall receive CofO for the first phase of the Project.
Following completion of the first phase, Developer shall have thirty-six (36) months to receive a CofO for each subsequent phase of the Project in order to retain eligibility for any reimbursements.
Public access to the greenspace constructed adjacent to the future LRT Station shall be secured through a perpetual easement agreement with the Developer.
Developer will have a first right of refusal to purchase any garages from the City at fair market value at the conclusion of the twenty-five (25) year reimbursement period.
The DA will include other terms and conditions as needed.
Developer and the City are discussing the potential of the establishment of a Community Facilities District (CFD) to facilitate development of the Project. Should Developer intend to utilize a CFD, the Developer shall file an application with the City pursuant to Arizona Revised Statutes (ARS), title 48, chapter 4, article 6 (A.R.S. Sections 48-701 to 48- 724) and the City’s CFD Financial Policy and Process Guidelines. Should the Developer file and complete the CFD application process, staff will review and an item will be placed on a future Council Agenda to request the formal creation of the CFD. Staff requests to collaborate with Developer on this application should the Developer select this option for the Project.
Project Timeline
Summer 2022 - Developer completes real estate transactions to acquire Site
Fall 2022/Winter 2023 - Demolition of former Metrocenter Mall
Early 2023 - Commence Construction of Phase 1
Late-2024 - Early-2025 - Completion of Phase 1
2025 - 2027 - Phase 2 Construction
2027 - 2029 - Phase 3 Construction
2029 - Completion of All Phases
Financial Impact
The City's financial impact will be the contribution of City of Phoenix share of eligible general fund sales taxes generated from the properties located within the Project Site and new sales taxes generated in the surrounding Benefited Area. Staff estimates the following TPT proceeds (General Fund portion only) to be generated and pledged to acquisition of the Garage Assets:
Project Area Generated TPT
An estimated total of $58.6 Million for Project Area Generated TPT. The first phase is anticipated to receive a Certificate of Occupancy in FY 2024-25. Construction Sales Tax will be generated as early as FY 2022-23, but will not be reimbursed until CofO is received.
Benefited Area Generated TPT
An estimated total of $9.2 Million.
The estimated TPT generated and pledged to the project from the above categories is $67.8 Million.
Only revenue generated by the Project within the Project Site or the Benefited Area shall be used for reimbursements. No other City revenues beyond these two geographies and the revenue from the garages shall be utilized.
The Project is expected to generate $89.4 Million in non-General Fund TPT Revenues over 25 years. Furthermore, the Project will be at the center of an important economic development opportunity that will create several thousand new jobs for the community.
Concurrence/Previous Council Action
None.
Public Outreach
Staff and the Developer presented the Project to the North Mountain Village Planning Committee on April 20, 2022, a meeting of District 1 Residents on April 25, 2022, and a meeting of the Metro District Community Collaboration Group to be held on April 27, 2022.
Location
9817 N Metro Pkwy N.
Council District: 1
Department
Responsible Department
This item is submitted by Deputy City Manager Ginger Spencer and the Community and Economic Development Department.