STRATEGIC PRIORITY: Economic Development
AGENDA DATE: September 27, 2023
COUNCIL DISTRICT(S): 6
DEPARTMENT: Office of Economic Development
EXECUTIVE: Majed Al-Ghafry
______________________________________________________________________
SUBJECT
title
Authorize (1) execution of a development agreement and all other necessary documents with Cabana Sycamore Development, Inc. and/or its affiliates ("Developer") in an amount not to exceed $41,000,000.00 payable from current and future Design District TIF District funds in consideration of the Cabana Design District mixed-income multi-family redevelopment project (“Project”) currently addressed at 899 North Stemmons Freeway (“Property”) in Tax Increment Financing Reinvestment Zone Number Eight (Design District TIF District); and (2) rescission of the TIF district funding and associated development agreement with Cabana Development, LLC, an affiliate of Centurion American Development Group, previously authorized by City Council Resolution No. 19-1804 on November 13, 2019 for the Cabana Hotel Redevelopment Project, effective upon Developer’s closing on the acquisition of the Property from Centurion American Development Group - Not to exceed $41,000,000.00 - Financing: Design District TIF District Fund (subject to annual appropriations from tax increments)
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BACKGROUND
Cabana Sycamore Development, Inc. (“Developer”), a Texas corporation whose officers are principals of Sycamore Strategies, LLC, a Texas limited liability company, submitted an incentive application to the City of Dallas Office of Economic Development to facilitate the Cabana Design District, a proposed mixed-income multi-family redevelopment project (“Project”) at 899 North Stemmons Freeway (the “Property”).
The Property is approximately 3.27 acres of land currently containing an approximately 122,776 square foot building (11 stories, plus basement), an approximately 138,484 square foot building (2 stories), and two parking garages (a 1-level structure and a 4-level structure) originally developed in 1962 as the Cabana Motor Court Hotel by Las Vegas hotelier Jay Sarno. The Property changed ownership a few times before being sold in 1984 to Dallas County for use as a jail facility. Since 2013, the Property has been vacant. The Property is listed on the National Register of Historic Places (No. SG100003923).
In 2017, Centurion American Development Group acquired the Property with plans for a historic rehabilitation of the Property back to a hotel. However, that project encountered delays and challenges as a result of the COVID-19 pandemic, and, as a result, the Property is now under contract with Developer. On August 18, 2023, Centurion American Development Group submitted a letter to the Director of the Office of Economic Development (Director) (1) confirming that it no longer desires to pursue redevelopment of the Property and (2) authorizing the Director to request City Council recission of the previous TIF district funding award, effective upon Developer’s closing on the acquisition of the Property from Centurion American Development Group.
On July 27, 2023, the Texas Department of Housing and Community Affairs (“TDHCA”) formally awarded competitive 9% Housing Tax Credits to the proposed Project. The proposed Project was the highest scoring/top-ranked application out of 24 total applications in Region 3/Urban. The proposed Project is also located at the edge of a High Opportunity Area.
The proposed Project consists of the rehabilitation and adaptive reuse (in compliance with the Secretary of the Interior’s Standards for Rehabilitation & Illustrated Guidelines for Rehabilitating Historic Buildings) of the two vacant historic buildings, partial demolition/retrofitting of the 4-level parking structure, and new ground-up construction of an approximately 19,472 square foot addition attached to the retrofitted 4-level parking structure to deliver 160 multi-family residential units (64 income-restricted units and 96 market rate units). The proposed Project includes approximately 283 total parking spaces (approximately 260 structured parking spaces, 19 on-site surface parking spaces, and 4 on-street parking spaces), an interior courtyard with a pool, other amenities, and several resident services.
A Land Use Restriction Agreement (“LURA”) in favor of the TDHCA will be placed on the Property in accordance with the Housing Tax Credit requirements for the Project. The LURA will ensure the provision of 64 income-restricted units (40% of the total 160 units) for 45 years. The breakdown of the 64 income-restricted units by Area Median Income (“AMI”) is as follows:
• 27 units at/below 30% AMI
• 9 units at/below 60% AMI
• 14 units at/below 70% AMI
• 14 units at/below 80% AMI
Redevelopment/rehabilitation/adaptive reuse of the former Cabana Hotel has been anticipated to be a catalyst project for the southern part of the Design District in the Design District TIF District Project Plan (“the Plan”). To date, 3,041 residential units have been completed or are under construction; however, only 63 units (2%) are income-restricted.
The total Project cost is estimated at $116,334,474.00 comprised of the following components:
• site acquisition cost of $28,000,000.00,
• demolition, on-site improvements, and off-site infrastructure costs of $3,074,220.00,
• building (hard) construction costs of $54,187,967.00,
• contingency of $2,461,299.00,
• professional fees of $2,487,500.00,
• soft costs of $14,471,630.00,
• reserves of $1,651,858.00, and
• developer fee of $10,000,000.00
The Project was reviewed by the City’s Urban Design Peer Review Panel (“Panel”) on May 26, 2023. The Developer has accommodated the Panel’s advice and will continue to collaborate with Planning and Urban Design Department staff to provide updated documents prior to building permit application.
In consultation with the City’s independent outside underwriter, staff reviewed the Developer's incentive application and structured the proposed incentive (“TIF Subsidy”) in an amount not to exceed $41,000,000.00 as gap financing to make the proposed Project financially feasible. On August 16, 2023, the Developer accepted the proposed TIF Subsidy and the associated terms and conditions in an executed Letter of Intent. The Resolution accompanying this agenda item contains the detailed terms and conditions of the proposed TIF Subsidy and development agreement.
Staff’s recommended TIF Subsidy is anticipated to be deployed from the Design District TIF District according to the following budget categories in the Design District TIF District Plan: (i) environmental remediation and demolition $150,200.00, (ii) public infrastructure improvements $2,505,734.00, and (iii) economic development grant $38,344,066.00.
The proposed TIF Subsidy in a total amount not to exceed $41,000,000.00 shall be payable in at least three (3) installments as further described below. TIF Subsidy payments shall also be made in accordance with the Design District TIF District Increment Allocation Policy.
• Installment No. 1: $5,000,000.00 payable to Developer contemporaneously with the acquisition closing of the Property, secured by (i) a second lien deed of trust on the Property which shall be subordinate only to the senior financing for the Project under the terms and conditions of a subordination agreement approved by the Director (the “Deed of Trust”), and (ii) a guaranty made by Sycamore Strategies, LLC and Hunt Capital Partners, LLC on a joint and several basis in favor of the City, which will include a $2,000,000.00 liquidity and $12,000,000.00 net worth requirement, such financial covenants which will be on an aggregate basis among the guarantors and tested (1) prior to payment of Installment Nos. 1 and 2, and (2) annually starting on December 31st the year after the acquisition closing (the “Guaranty”). The Deed of Trust and Guaranty shall be released upon Developer and Owner satisfying the requirements for the payment of Installment No. 3.
• Installment No. 2: $5,000,000.00 payable to Developer upon achievement of fifty percent (50%) completion of construction of the Project, as evidenced by detailed pay applications from a third-party construction manager approved by the Director as to the status of completion of the Project, in his/her reasonable discretion. Installment No. 2 will be secured by the Deed of Trust and Guaranty.
• Installment No. 3 (and future installments, if necessary): Up to $31,000,000.00 payable to Developer upon achievement of completion of the Project, so long as a Developer is otherwise in compliance with the terms and conditions of the development agreement.
Following completion of the Project and being placed in service, the City shall conduct a post-construction audit to review the Developer’s actual costs incurred to deliver the Project. For every $100,000.00 in actual costs incurred below the estimated total cost of $116,334,474.00, the City shall reduce the TIF Subsidy (in the Economic Development Grant category) by $35,000.00. The City agrees to complete such audit within three (3) months of City’s receipt of all necessary supporting documentation from Developer.
ESTIMATED SCHEDULE OF PROJECT
Begin Construction December 2024
Complete Construction December 2027
PRIOR ACTION/REVIEW (COUNCIL, BOARDS, COMMISSIONS)
On June 8, 2005, the City Council held a public hearing and authorized the establishment of Tax Increment Financing Reinvestment Zone Number Eight, the Design District TIF District, by Resolution No. 05-1780; Ordinance No. 26021, as amended.
On April 12, 2006, the City Council authorized the Project Plan and Reinvestment Zone Financing Plan for the Design District TIF District by Resolution No. 06-1076; Ordinance No. 26303; as amended.
On November 13, 2019, the City Council authorized a development agreement with Cabana Development, LLC, an affiliate of Centurion American Development Group, in an amount not to exceed $15,500,000.00 in Design District TIF District funding in consideration of the Cabana Hotel Redevelopment Project by Resolution No. 19-1804.
The Housing and Homelessness Solutions Committee was briefed regarding the proposed Project and the Developer’s request for a Resolution of Support related to its application to the Texas Department of Housing & Community Affairs for competitive 9% Housing Tax Credits (HTC) in the 2023 application cycle on January 23, 2023.
On February 22, 2023, the City Council authorized a Resolution of Support for Developer, related to its application to the Texas Department of Housing & Community Affairs for competitive 9% Housing Tax Credits (HTC) in the 2023 application cycle for the proposed Project by Resolution No. 23-0279.
On August 31, 2023 and September 11, 2023, the Design District TIF District Board of Directors reviewed the proposed Project, and the TIF District Board voted 3 to 1 to not recommend City Council authorization of a development agreement with Cabana Sycamore Development, Inc and/or its affiliates in an amount not to exceed $41,000,000.00.
The Economic Development Committee was briefed by memorandum regarding this matter on September 5, 2023. <https://cityofdallas.legistar.com/View.ashx?M=F&ID=12264930&GUID=0D270ACF-1B20-46C6-9DCF-DB2DDA747BD6>
FISCAL INFORMATION
|
Fund |
FY 2023 |
FY 2024 |
Future Years |
|
Design District TIF District Fund |
$0.00 |
$10,000,000.00 |
$31,000,000.00 |
DEVELOPER
Cabana Sycamore Development, Inc.
Jessica Krochtengel, President
OWNER
Cabana Design District LP
Jessica Krochtengel, Member
MAP
Attached