STRATEGIC PRIORITY: Economic and Neighborhood Vitality
AGENDA DATE: January 8, 2020
COUNCIL DISTRICT(S): 8
DEPARTMENT: Office of Economic Development
EXECUTIVE: Michael Mendoza
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SUBJECT
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Authorize the following: (1) a New Markets Tax Credit transaction (“NMTC Transaction”) between the Dallas Development Fund and its subsidiaries, Capital One N.A. and its subsidiaries (“Capital One”), and 3662 Investors, LP and/or its affiliates or subsidiaries for improvements within the Red Bird Mall Redevelopment Project (“Project”) located at 3662 West Camp Wisdom Road; and (2) a second amendment to the Chapter 380 Grant Agreement with WCWRD Inc and its affiliates or subsidiaries (“Developer”), a first amendment to the Tax Increment Development, Chapter 380 Grant, and Chapter 380 Loan Agreement with Developer, and to amend or execute any other documents necessary to (A) release the property owned by OMRB LLC (being the Foot Locker) and the property owned by OMRB II LLC (being the Lawn) from the lien Deed of Trust and the indebtedness evidenced by the City’s 15-year interest only loan; (B) specifically remove the condition of the disbursement of the second loan installment that all 2017 General Obligation Bond Funds be fully disbursed and expended by Developer and allow the second loan installment to be disbursed on or before January 31, 2020; (C) increase the Developer’s required total minimum investment for the Project by $1,000,000.00 from $115,000,000.00 to $116,000,000.00 as consideration for (A) and (B); and (D) make such other modifications which may be necessary to effectuate the foregoing amendments - Financing: No cost consideration to the City
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BACKGROUND
New Markets Tax Credits
The City of Dallas authorized the creation of the Dallas Development Fund (“DDF”), a non-profit Community Development Entity (“CDE”), by Resolution No. 09-0461 on February 11, 2009, to apply for a New Markets Tax Credit (“NMTC”) allocation from the U.S. Department of Treasury’s Community Development Financial Institutions Fund in its 2009 funding cycle. DDF was awarded $55 million in the 2017 allocation cycle, and was previously awarded $130 million in allocation from the 2009, 2012 and 2014 cycles. DDF has closed $157 million in allocation to date.
The NMTC Program permits taxpayers to receive a credit against federal income taxes for making qualified equity investments in designated CDEs.
These investments must be used by the CDE for projects and investments in low-income communities, as defined by the NMTC Program. The credit provided to the investor totals 39% of the cost of the investment and is claimed over a seven-year credit allowance period.
For over a year, staff has been coordinating with Peter Brodsky, owner/developer of Red Bird Mall, on his efforts to secure other sources of funding (specifically including New Markets Tax Credits) for the Red Bird Mall Redevelopment Project. On November 5, 2019, DDF considered and approved a NMTC transaction between DDF, Capital One, and 3662 Investors, LP (entity controlled by Peter Brodsky). This NMTC allocation will use up to $10 million of DDF's $55 million NMTC allocation. Capital One will invest up to $10 million in NMTC allocation from DDF which will in turn generate approximately $2.76 million in gross NMTC equity for the benefit of the Project. Capital One Community Renewal Fund also intends to provide $3 million in NMTC allocation, for a total allocation amount to the Project of $13 million.
Over the last two decades, the mall-which was built in 1975 and initially known as Red Bird Mall before being renamed to Southwest Center Mall, lost all four major retail anchors, leaving large vacancies and making it difficult to attract new smaller tenants without a fundamental rethinking of the mall’s function. By the 2010s, the mall was a shell of its former self and any redevelopment was made challenging because of fragmented ownership, lack of a master plan, and weak market conditions.
Now underway, Red Bird Mall Redevelopment Project is a multi-phase, multi-year transformation of a long-declining mall into a multi-purpose mixed-use campus where Dallas residents can live, shop, work, and dine. This $157+ million redevelopment is being led by 3662 Investors, LP, a joint venture between Peter Brodsky and other investors. First phase deliverables began this year with the opening of a Starbucks community store, which is exceeding projections and proving that the neighborhood can support new shops and restaurants at the site. The Dallas Entrepreneurial Center (DEC) and an extension campus of Jarvis Christian College have also opened, laying the groundwork for a diverse mix of tenants expected to locate at the Project in the coming years. These include a comprehensive primary care clinic, a 300-unit apartment complex, a Marriott Courtyard hotel, a Foot Locker Power Store, and an Urban Air Adventure Park.
NMTC is a key funding source to ensure the viability of the entire Red Bird Mall Redevelopment Project. DDF’s proposed allocation is for the initial phases of Redbird to help stabilize the Project and attract new tenants and private development that can support market rate financing sources. The NMTC Transaction will support two key components in the initial phase of the Project: tenant improvements for a 51,000 square foot business operations center for Chime Solutions, Inc and development of a 1.1 acre open space (“The Lawn”) including related infrastructure.
The Lawn will be the centerpiece of the redevelopment and a vital part of the overall vision but is challenging to finance, given the limited revenue to be generated by the Lawn. Flanked by a Foot Locker Power Store and several restaurants, the Lawn will incorporate a mix of active and passive spaces including a children’s park, games area, urban dog park, garden, and flexible performance stage. These spaces will allow for both informal neighborhood gatherings and free daily community programming like yoga classes, lecture series, outdoor concerts, and movie screenings.
The Project site is located at 3662 West Camp Wisdom Road in southern Dallas’ Redbird community. The site qualifies as severely distressed based on a median family income of 35.6% of the metro median and a poverty rate of 34.6%.
Additional information regarding the NMTC transaction and its proposed role in the Project can be found in Attachment A to the Resolution.
TIF/Chapter 380 Agreement
On June 13, 2018, City Council authorized entering into a Tax Increment Development, Chapter 380 Grant, and Chapter 380 Loan Agreement (“TIF/Chapter 380 Agreement”) with Developer in consideration of the Red Bird Mall Redevelopment Project by Resolution No. 18-0850, providing an incentive package including: (1) a conditional grant in an amount not to exceed $10,000,000.00; (2) a 15-year interest only loan in an amount not to exceed $12,000,000.00 (“Loan”); (3) a development agreement awarding an amount not to exceed $15,600,000.00 in tax increment funding from the Mall Area Redevelopment Tax Increment Financing District; and (4) an assignment of all increment payable under the TIF/Chapter 380 Agreement to the City, the Loan and performance obligations which are secured by the Deed of Trust and a guaranty provided by 3662 Investors, LP.
To address NMTC Transaction structuring issues as identified by NMTC tax counsel, the Developer has requested City Council authorization to execute a second amendment to the Chapter 380 Grant Agreement (“Chapter 380 Grant Agreement”) with Developer, a first amendment to the Tax Increment Development, Chapter 380 Grant, and Chapter 380 Loan Agreement (“TIF/Chapter 380 Agreement”) with Developer, and amend or execute any other documents necessary to (i) release the property owned by OMRB LLC (being the Foot Locker) and the property owned by OMRB II LLC (being the Lawn) from the lien Deed of Trust and the indebtedness evidenced by the City’s Loan as shown in the resolution as Attachment B.
Additionally, the Developer has requested an additional modification to the existing TIF/Chapter 380 Agreement. Currently, in the TIF/Chapter 380 Agreement, it states “the City will make disbursements of the Loan to Developer in two equal installments of $6,000,000, subject to the conditions set forth in Section 5.C. The first disbursement shall be eligible for disbursement to the Developer any time on or after January 1, 2019; the second disbursement shall be eligible for payment to the Developer any time on or after January 1, 2020 and after all 2017 General Obligation Bond Funds have been fully disbursed and expended by Developer.”
The Developer received the first disbursement of the Loan in June 2019. With this agenda item, the Developer is now requesting to specifically remove the condition of the second disbursement of the Loan that all 2017 General Obligation Bond Funds be fully disbursed and expended by Developer and to allow the second loan installment to be disbursed on or before January 31, 2020. In other words, the Developer is requesting the second loan installment to be disbursed on or before January 31, 2020, rather than at the later of January 2020 or drawing down on all of the 2017 Bond Funds.
The Developer’s reasons for this requested modification are as follows:
• Even with the City’s commitment to review and process grant payment applications as quickly as possible, the Developer is finding that the process of compiling all documentation needed for the City to approve grant payment applications is very time-consuming. This means that the “lag” (i.e. period between the Developer’s actual expenditure of funds and the receipt of reimbursement funds from City) is longer than the Developer originally expected. The longer lag results in the Developer’s need for more days cash on hand.
• To date, the Developer has spent approximately $6 million on infrastructure work. The Developer expects to complete the infrastructure work by mid-to late 2020 and, in doing so, will be spending an additional $20+ million. With the pace of spending accelerating so significantly, the Developer needs more days cash on hand.
• The $22 million of grant and loan funds from the City will not fully cover the Developer’s actual infrastructure spending. The Developer’s infrastructure costs are estimated at approximately $28 million (including value engineering of work that is not required now but will be required to be done with later phases of the project). Therefore, the Developer is pursuing NMTC funds to use for some infrastructure costs. Since the NMTC project is mostly infrastructure-related, the Developer will be escrowing some of the infrastructure funds (i.e. City’s loan and grant funds) with DDF and only accessing them as the Developer completes expenditures on particular portions of the infrastructure work associated with the NMTC Transaction. This also reduces the Developer’s cash on hand.
As consideration for making the above amendments, Developer has agreed to increase the Developer’s required total minimum investment for the Project by $1,000,000.00 from $115,000,000.00 to $116,000,000.00.
PRIOR ACTION/REVIEW (COUNCIL, BOARDS, COMMISSIONS)
On February 11, 2009, City Council authorized the creation of the DDF, a non-profit CDE by Resolution No. 09-0461.
On January 13, 2010, City Council authorized the acceptance of the $55 million NMTC allocation by Resolution No. 10-0210.
The Economic Development Committee was briefed on the DDF and the NMTC Program on January 19, 2010.
On May 14, 2014, City Council authorized the designation of Tax Increment Reinvestment Zone Number Twenty (“Mall Area Redevelopment TIF District”) by Resolution No. 14-0783; Ordinance No. 29340.
On June 17, 2015, City Council authorized the Mall Area Redevelopment TIF District Project Plan and Reinvestment Zone Financing Plan by Resolution No. 15-1145; Ordinance No. 29771.
The Economic Development Committee was briefed on the DDF and the NMTC Program on September 21, 2015.
On January 13, 2016, City Council authorized entering into a Chapter 380 Grant Agreement providing Developer with a $2,400,000 grant for the Project by Resolution No. 16-0103.
On June 13, 2018, City Council authorized an amendment to the Chapter 380 Grant Agreement by Resolution No. 18-0850 to extend all dates in the Chapter 380 Grant Agreement by eighteen (18) months.
On June 13, 2018, City Council authorized entering into a Tax Increment Development, Chapter 380 Grant, and Chapter 380 Loan Agreement (“TIF/Chapter 380 Agreement”) with Developer in consideration of the Red Bird Mall Redevelopment Project by Resolution No. 18-0850, providing: (1) a conditional grant in an amount not to exceed $10,000,000; (2) a 15-year interest only loan in an amount not to exceed $12,000,000 (“Loan”); (3) a development agreement awarding an amount not to exceed $15,600,000 in tax increment funding from the Mall Area Redevelopment Tax Increment Financing District; and (4) an assignment of all increment payable under the TIF/Chapter 380 Agreement to the City.
On November 5, 2019, the Dallas Development Fund was briefed on the Red Bird Mall Redevelopment Project and approved the NMTC Transaction.
On January 6, 2020, the Mall Area Redevelopment TIF District Board of Directors will review and recommend approval of (1) Developer’s requested amendments to the Chapter 380 Grant Agreement and TIF/Chapter 380 Agreement; and (2) as consideration for the requested amendments, an increase in the total minimum investment for the Project by $1,000,000.00 from $115,000,000.00 to $116,000,000.00.
The Economic Development Committee will be briefed by memorandum regarding this matter on January 6, 2020.
FISCAL INFORMATION
No cost consideration to the City.
OWNER/DEVELOPER
3662 Investors, LP
Peter Brodsky, Manager of General Partnership
WCWRD Inc
Peter Brodsky, President and Director