agenda cover memo

Agenda Cover Memorandum

Meeting Date: July 6, 2021

Meeting Type: Committee of the Whole City Council Budget Workshop

Item Title: Discuss Proposed Hotel Project at 1440 Higgins Road and Requested Incentive Agreement Action Requested: Approval For Discussion Feedback Requested For Your Information

Staff Contact: Joe Gilmore, City Manager Phone: (847) 318-5216 E-mail: [email protected]

Background: In January 2019 the City was approached by a group of investors, along with representatives of Scarlett Hotel Group (SHG), regarding the potential for a hotel development on Higgins Road. The concept was a four-story 112-room hotel located on the Mr. K’s Landscaping site. Throughout 2019 the hotel project moved through the Planning & Zoning Commission process, culminating in a vote of 8-1 to approve the application with conditions. In September 2019 the City Council approved the Final Reading of an ordinance approving the preliminary plan for a planned development for a four-story, 112-room hotel on Higgins Road (vote: 4-2, Ald. Shubert absent). Concurrently in 2019, Scarlett Hotel Group sent a letter to City Staff requesting certain economic incentives to assist the project. To determine if it was necessary to even consider incentives, the City of Park Ridge hired Hotel Appraisers & Advisors (HAA) to conduct a market feasibility study and gap analysis for the proposed hotel. The study was presented and discussed at the November 12, 2019 Committee of the Whole. Of particular interest, page 61 of the feasibility study concluded the following:

FEASIBILITY GAP ESTIMATE Based on the preceding analysis, we conclude that the proposed hotel development’s costs will exceed its value upon completion. This is common for hotel projects in small markets or locations with relatively high property tax expenses. According to our analysis, we estimate the proposed hotel project’s feasibility gap will be approximately $4.5 million. See link for the November 12, 2019 meeting packet and feasibility study: https://parkridge.granicus.com/MetaViewer.php?view_id=1&clip_id=1142&meta_id=50227

After thorough research and negotiations, the City Council approved an Economic Incentive Agreement for the hotel, with a maximum potential value of $1,621,000. The motion passed by a vote of 4-2 (Ald. Mazzuca absent). The approved hotel incentives included a sharing agreement for the hotel occupancy tax revenues over the first six years of operations (at a value to the ownership group not to exceed $1,405,000), and a property tax reimbursement agreement (at a value to the ownership group not to exceed $216,000). The approved economic incentive agreement of $1,621,000 represented 36% of the total feasibility gap ($4,500,000) estimated by HAA.

See link for the December 16, 2019 meeting packet and Economic Incentive Agreement: https://parkridge.granicus.com/MetaViewer.php?view_id=1&clip_id=1179&meta_id=52198

The hotel development group was required to submit a final plan/plat for the planned unit development for approval no later than September 3, 2020. This did not happen, presumably at least partially due to the COVID-19 pandemic and corresponding economic uncertainty. The land transfer was never completed and the preliminary plan for a planned development and the corresponding economic incentive agreement expired. Project Update: On December 8, 2020, the same ownership entity (MDSA Properties) and hotel developer (Scarlett Hotel Group) brought a Planned Development application to the Planning & Zoning Commission. This is for the same site (1424-1440 Higgins Road) and a similar plan (four-story, 108-room hotel) which, as noted, was previously approved and has since expired. The staff memorandum contains a table indicating differences between the two plans. (See Table 1, page 7 of the linked memorandum). The PZC voted to approve the application and forward to the City Council by a vote of 8-0 (Commissioner Pietryzkowski absent).

See link for December 8, 2020 PZC meeting packet: https://parkridge.granicus.com/MetaViewer.php?view_id=1&clip_id=1604&meta_id=71671

https://parkridge.granicus.com/MetaViewer.php?view_id=1&clip_id=1142&meta_id=50227



Agenda Cover Memorandum (Cont.)

of 2

On January 19, 2021, the City Council approved the Final Reading of an Ordinance Granting a Special Use for a Planned Development for a Hotel at 1424-1440 Higgins Road (vote: 6-1).

See link for January 19, 2021 City Council meeting packet: https://parkridge.granicus.com/MetaViewer.php?view_id=1&clip_id=1641&meta_id=73519

Revised Economic Incentive Agreement Request After the Special Use approval, the hotel development group reached out to staff to inquire about submitting a new Economic Incentive Agreement request. Based on many previous negotiations and lengthy public discussions on the topic, staff suggested that the best approach would likely be to keep incentive requests consistent with what was approved by City Council in December 2019. It was also made clear that incentive agreements are at the sole discretion of the City Council, and that prior approval does not signify future outcomes. After some discussions and clarifications, the hotel development group and their new Development Advisor (SB Friedman) submitted the attached memo (“1440 Higgins Road Hotel – Request for Financial Assistance”). The memo provides their perspectives on the economy, hotel and debt markets, and justification for their revised request. They will be on hand at the meeting to present their proposal and answers questions. The requested financial assistance is detailed in the memo and summarized below:

• Hotel Tax Reimbursement (75% for Years 1-3, 50% for Years 4-6) o This is consistent with the 2019 Incentive Agreement

• City Property Tax Reimbursement (75% for Years 1-3, 50% for Years 4-6) o This is consistent with the 2019 Incentive Agreement

• Building Permit and Inspection Fees Reimbursement (for costs incurred and paid above $75,000) o This is consistent with the 2019 Incentive Agreement

• Support the Developer’s request for a Cook County 7B Property Tax Incentive Class (“Class 7B”) to be applied to the Site

o This is a new request, which would have a significant impact on the amount of property tax paid by the developer, and collected by the City of Park Ridge, and all other property tax recipients (D207, D64, PR Park District, etc.) over the initial twelve years of the hotel project.

Staff seeks direction from the City Council on their collective willingness to consider an Economic Incentive Agreement. Recommendation: Discuss Proposed Hotel Project at 1440 Higgins Road and Requested Incentive Agreement Attachment(s), if any:

• SB Friedman_MDSA_Park Ridge City Council Presentation • SB Friedman memo “1440 Higgins Road Hotel – Request for Financial Assistance” dated June 7, 2021 • CPS 31: Economic Incentive Agreements


PROJECT

RIVER

RD

City Council | July 6, 2021

Request for Financial Assistance1440 HIGGINS ROAD HOTEL

SB Friedman Development Advisors 2

$23.1M hotel development

108 room hotel on underutilized parcel along Higgins Road

The Project was unable to proceed on the timeline of a previous incentive agreement with the City in 2019 2019 feasibility study noted a $4.5M feasibility gap The 2019 Incentive Agreement did not fully cover the gap, but the Developer believed they would be able to secure

adequate financing with favorable terms and close the deal

Financial gap has grown due in a large part to COVID, as well as the following changes: Real estate market conditions (slower ramp up) Construction costs (increased by 4.3% from 2020 to 2021) Capital market conditions (harder to attract debt) Reduced size of the project (112 rooms to 108 rooms)

PROJECT BACKGROUND & OVERVIEW

2019 2020 2021 2022 2023 2024 2025

2019 Incentive Agreement

Request for Financial

Assistance

Project Stabilizes

Hotel Opens

Construction begins

SB Friedman Development Advisors

Project Site has been identified in public plans as a key redevelopment opportunityPROJECT BENEFITS

3

25-30 hotel employees

$79,658$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

2019 2025 2032 2035

Hotel Taxes, Development with Requested Assistance

Additional Property Taxes, Development with Requested Assistance

Property Taxes, No Development

TAX REVENUES NET OF ASSISTANCE

Source: MDSA Properties, SB Friedman

13xTotal City tax collection on

Site upon stabilization (2025) vs. today (2019)

$80k

$420k

$860k

$1.6M

4xProperty tax generation on

Site upon stabilization (2025) (i.e. benefiting

schools) vs. today (2019)

SB Friedman Development Advisors

Same financial assistance request as included in the 2019 Incentive Agreement, plus Cook County 7B

Hotel Tax Reimbursement [1](75% for Years 1-3, 50% for Years 4-6)

City Property Tax Reimbursement [1](75% for Years 1-3, 50% for Years 4-6)

Building Permit and Inspection Fees Reimbursement [2](for costs incurred and paid above $75,000)

Support the Developer’s request for a Cook County 7B Property Tax Incentive Class to be applied to the Site

FINANCIAL REQUEST

4

Metric No Assistance With Assistance

Leveraged IRR -1.9% 11.7%

PROJECTED FINANCIAL RETURNS

Source: MDSA Properties, SB Friedman

[1] As in the 2019 Incentive Agreement, we understand that the total amount of hotel tax and property tax reimbursements shall not exceed $1,621,000. In the current modelling, due in part to a slower ramp up and the impact of Class 7B on the Project’s assessed value, the hotel tax and property tax reimbursements only reach $1.53M. While the Developer hopes to outperform the current projections, the projected financial returns are based on $1.53M of hotel tax and property tax reimbursements.[2] The Developer anticipates spending a total of approximately $150,000 on City permit and inspection fees, so the City would be anticipated to reimburse approximately $75,0000.

PRESENT VALUE OF REQUESTED ASSISTANCE: $5.1M

221 N. LaSalle St, Suite 820Chicago, IL 60601312-424-4250 | sbfriedman.com

VISION | ECONOMICS

MARKET ANALYSIS AND REAL ES TATE ECONOMICS

S TRATEGY

DEVELOPMENT S TRATEGY AND PLANNING

FIN ANCE | IMPLEMENTATION

PUBLIC-PRIVATE PARTNERSHIPS AND IMPLEMENTATION


SB Friedman Development Advisors 312 424 4250 221 N LaSalle St Suite 820 Chicago IL 60601 sbfriedman.com

MEMO To: Joe Gilmore, City Manager, City of Park Ridge From: Geoff Dickinson, SB Friedman Development Advisors [email protected] Date: June 7, 2021 RE: 1440 Higgins Road Hotel – Request for Financial Assistance

Project Background & Characteristics PROJECT OVERVIEW SB Friedman was engaged by MDSA Properties (“the Developer”) to assist in their request for financial assistance to support the development of a 108-key upper-midscale hotel (the “Project”) at 1440 Higgins Road (the “Site”). The Developer is requesting financial assistance from the City of Park Ridge (the “City”) to make the $23.1 million development project feasible. The Project will add jobs and tax revenues to the City and other affected taxing bodies. The Project is expected to support 25-30 hotel employees. As will be further explained in this memo, the Developer requests financial assistance in the form of property and hotel tax reimbursements, permit and inspection fee reimbursements, and support on the Developer’s request for a Cook County 7B Property Tax Incentive Class (“Class 7B”) to be applied to the Site. Assuming the requested assistance is granted, in 2025, the first year of stabilization, the Site is expected to generate nearly four times the property taxes in comparison to if it had no development on it. This quadrupling of property taxes will mostly benefit the grade and high school districts. Additionally, the Site will be generating revenues for the City from hotel taxes. Figure 1 below illustrates property tax and hotel tax collection on the Site today (2019), 2025, 2032, and 2035. The property taxes are separated into what would be collected if no development occurred on the Site and the additional property tax collections if the Project were to be successful.

mailto:[email protected]

MDSA / 1440 Higgins Road Hotel –Request for Financial Assistance


Figure 1. Property & Hotel Tax Collection

Source: MSDA Properties; SB Friedman The Project was not able to proceed on the timeline in The Hotel Economic Incentive Agreement by and Between the City of Park Ridge and MDSA Properties, LLC (1440 Higgins Road) (the “2019 Incentive Agreement” and the “2019 Agreement”). Thus the 2019 Agreement expired. A copy of the 2019 Agreement is attached as Appendix A. The Project as it was contemplated in 2019 had a significant financial gap. The HA&A Feasibility Study – Proposed Hotel Park Ridge IL (the “HA&A Study”) dated November 1, 2019 and attached as Appendix B, estimated the Project’s feasibility gap would be approximately $4.5 million (HA&A Study, Page 58). The 2019 Incentive Agreement did not fully cover the gap, but the Developer believed they would be able to secure adequate financing with favorable terms and close the deal. That did not happen, and due in a large part to the COVID-19 pandemic (“COVID”), the financial gap has grown by $0.6 million to $5.1 million. Market and lending conditions for hotel development nationally will hopefully start to improve soon and the Developer is seeking once again to finance and develop the Project. Given the large public benefit of converting a blighted piece of land to a new construction hotel, the Developer is again requesting public financial assistance to make the Project financially feasible. SUMMARY OF KEY TERMS OF THE 2019 INCENTIVE AGREEMENT In December 2019, the 2019 Incentive Agreement was approved by the City Council to support the Project. The 2019 Incentive Agreement provided for up to $1.62M assistance in the form of both property and hotel tax reimbursements over six years. Furthermore, the 2019 Incentive Agreement said that the Developer was to pay full City building permit

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

2019 2025 2032 2035

Hotel Taxes, Development with Requested Assistance

Additional Property Taxes, Development with Requested Assistance

Property Taxes, No Development



fees but that the City would reimburse the Developer for any permit and inspection fees above $75,000 incurred and paid. CHANGES SINCE 2019 INCENTIVE AGREEMENT There are four key changes related to the Project and other conditions since the 2019 Incentive Agreement was approved:

1. Real estate market conditions, 2. Construction costs, 3. Capital markets conditions, and 4. Size of the Project.

All of these factors adversely impact the Project’s overall financial performance. First, due to COVID the Developer has not yet started the Project. COVID not only caused delays in the development of the Project but is also anticipated to impact the hotel’s performance for the next several years. The Developer is now anticipating a slower ramp up to stabilization. The Developer does not anticipate reaching stabilized occupancy until the third year of operations. Typically, a project like this would require only a one-year ramp up period. Second, construction costs have increased materially since 2019. Figure 2 below illustrates rising construction costs in the Chicago metro area since 2009. Construction costs from the first quarter of 2020 to the first quarter of 2021 increased by 4.3% in Chicago, according to Mortenson. Figure 2. Chicago Construction Cost Index

Source: Mortenson Third, the capital markets have tightened especially for hospitality projects, making it harder to attract debt for hotel development projects right now. This being the case, to secure financing today, the Project will likely need higher returns than were required in 2019. The markets are volatile and there have been few hotel development projects financed in the Chicago market since the start of COVID. Additionally, lenders are requiring more equity from the



developer.1 Pre-COVID hotel developments such as this one typically could attract debt equal to 70% of project cost, the Developer anticipates only being able to secure debt equal to 60% of project cost and thus will need to fund at least 40% of project cost with equity for the Project to be financeable. Equity requires higher rates of return than debt and this shift makes it more difficult to make the economics of the Project work. Finally, the proposed Project has changed from 112-rooms to 108-rooms since 2019. The reduced room count is a result of an updated site plan which responded to community feedback regarding the site plan, specifically the location of waste bins. Fewer hotel rooms will generate less revenue for the Project, while some project costs will not be reduced as a result of a reduction in the number of rooms. These changes have resulted in an increased need for financial assistance. PROJECT TIMELINE The Developer has been pursuing the Project for nearly two years. The Developer has been in regular discussions with the current owner of the Site and has a contract to purchase the Site if a satisfactory partnership can be achieved with the City. The Developer has until July 31, 2021 to achieve this partnership and anticipates a closing date of on or before August 15, 2021. Construction is anticipated to take approximately 18 months. The Developer is hoping to move quickly to redefine the partnership with the City. If a workable partnership cannot be achieved, the Developer will terminate the purchase contract, as the current Site owner is not interested in further extending the contract.

Financial Gap Review PROJECT BUDGET The Project is estimated to cost approximately $23.1 million, or approximately $213,800 per hotel room (or “Key”). The budget can be found in Figure 3 below.

1 “The Impact of COVID-19 on Hotel Values,” published April 10, 2020 online at https://www.hvs.com/article/8745-the-impact-of-covid-19-on-hotel-values

https://www.hvs.com/article/8745-the-impact-of-covid-19-on-hotel-values

https://www.hvs.com/article/8745-the-impact-of-covid-19-on-hotel-values



Figure 3. Development Budget Uses Total Budget Land $3,000,000 Development Costs $17,658,000 Contingency $1,766,000 Financing Costs (i.e. working capital, capital markets fees) $303,000 Permitting / Entitlements $150,000 Other (i.e. site remediation, appraisal, franchise application fee, legal) $215,000 $23,092,000

Source: MSDA Properties; SB Friedman KEY FINDINGS OF HA&A STUDY The HA&A Study from 2019 estimated the Project’s feasibility gap would be approximately $4.5 million (HA&A Study, Page 58). As mentioned above, the 2019 Incentive Agreement did not fully solve the financial gap. However, at the time, the Developer was hopeful they could close the gap through value engineering or other efforts. The HA&A Study noted the relatively high cost of land. They attributed this fact to its location in a major market near an international airport (HA&A Study, Page 59). The Developer has negotiated with the current owner of the Site and has brought the cost of land down by approximately 9% from $3.3 million to $3.0 million. FINANCIAL RETURNS WITHOUT CITY ASSISTANCE The Developer analyzed financial returns including debt by calculating the leveraged internal rate of return (“leveraged IRR”). Leveraged IRR is the annualized rate of return the Project’s equity investors would be Projected to realize over their full investment period, including an assumed hypothetical sale of the Project at the end of the 10-year analysis period. The Developer calculated financial returns for the Project without financial assistance, as shown in Figure 4 below. Figure 4. Project Financial Returns

Metric No Assistance

Leveraged IRR -1.9% Source: MSDA Properties; SB Friedman Without any financial assistance, the Project’s leveraged IRR is -1.9%. Projects with negative returns will not attract lenders. Thus, the Project, without assistance, is infeasible.



Request for Financial Assistance NEED FOR ASSISTANCE The Developer has spoken with hotel lenders who indicated that they currently require projects to achieve leveraged IRRs between 10-20% to secure financing. If the Developer does not receive adequate public assistance, the Project will not have sufficient financial returns to attract conventional debt and thus will not proceed. REQUEST FOR ASSISTANCE The Developer requests the following assistance, (together, the “Requested Assistance”):

- Hotel Tax Reimbursement (75% for Years 1-3, 50% for Years 4-6) - City Property Tax Reimbursement (75% for Years 1-3, 50% for Years 4-6) - Building Permit and Inspection Fees Reimbursement (for costs incurred and paid above $75,000) - Support the Developer’s request for a Cook County 7B Property Tax Incentive Class (“Class 7B”) to be applied

to the Site The Developer requests the same financial assistance as included in the 2019 Incentive Agreement, plus the City’s support toward a Cook County 7B Property Tax Incentive Class designation. For more information on the Class 7B incentive, please see Figures C1 and C2 in Appendix C. As noted in the 2019 Incentive Agreement, the Developer is seeking reimbursement of certain taxes and fees that the Developer pay to the City over a period of 6 years. First, the Developer requests a hotel tax reimbursement of 75% for Years 1-32 and 50% for Years 4-6. Per the 2019 Incentive Agreement, the City’s hotel use tax rate is assumed to be 9%. According to the 2019 Incentive Agreement, the City agrees not to increase the hotel use tax rate above 12% during the six-year term of the agreement. Second, the Developer also requests a property tax reimbursement of 75% of the Annual Property Tax Increment for Years 1-3 and 50% for Years 4-6. In 2019, the composite property tax rate for this parcel was 9.116%. The City of Park Ridge had a tax rate of 0.753% and the City of Park Ridge Library Fund‘s rate was 0.223%, for a total of 0.976% associated with the City, or approximately 10.7% of the composite tax rate. As in the 2019 Incentive Agreement, we understand that the total amount of hotel tax and property tax reimbursements shall not exceed $1,621,000. Third, the Developer requests the reimbursement of all City permit and inspection fees for anything incurred and paid beyond $75,000. The Developer anticipates spending a total of approximately $150,000 on City permit and inspection fees, so the City would be anticipated to reimburse approximately $75,0000.

2 Year 1 is defined as the first year of the Project’s opening.



Furthermore, the Developer seeks an ordinance in support of the Class 7B incentive. To do that, the City must make a finding of blight. Further study may be required. Figure 5 below shows the projected financial returns for the Project with and without assistance. The modelling of the property tax and hotel tax reimbursement was based on the terms in the 2019 Incentive Agreement. However, the base property tax revenues were adjusted to 2019 values. In the current modelling, due in part to a slower ramp up and the impact of Class 7B on the Project’s assessed value, the hotel tax and property tax reimbursements only reach $1.53M. While the Developer hopes to outperform the current projections, the projected financial returns are based on $1.53M of hotel tax and property tax reimbursements. Figure 5. Projected Financial Returns with Assistance

Metric No Assistance With Assistance

Leveraged IRR -1.9% 11.7% Source: MDSA Properties; SB Friedman If the Developer were to receive the Requested Assistance, the Project would have a projected leveraged IRR of 11.7%. This leveraged IRR would put the project in the range needed to secure financing from lenders. As proposed, the Project would receive public assistance over time, and therefore the total value of the public assistance has been summarized in present value terms, discounted to 2021 dollars assuming a cost of funds of 5.5%. The present value of the projected public assistance, including Class 7B, in 2021 dollars is approximately $5.1 million. The $5.1 million financial gap represents a $0.6 million increase from the $4.5 million financial gap reported in the HA&A Study and is due the slower ramp-up to stabilization, increased construction costs, altered capital market conditions since 2019 and the reduced number of Keys in the Project.

Public Benefits of the Project The City is currently working on an update to the comprehensive plan. One guiding principle of The Commission Draft Review of Chapter 6 – Land Use | Planning & Zoning (“Draft Updated Comprehensive Plan”), dated April 13, 2021, is maximizing the City’s tax base. A hotel on the Site would provide multiple tax revenue streams, including property, hotel, and sales taxes. In addition to adding directly to the City’s tax base, a hotel would help diversify the property tax composition of the City. Currently 88% of the City’s equalized assessed value (EAV) is residential which is high relative to peer communities such as Glenview and Arlington Heights, which are 76% and 74%, respectively (Draft Updated Comprehensive Plan, Page 8). Furthermore, the Site was identified as a key redevelopment opportunity in the Higgins Road Corridor Plan (2010) (the “Corridor Plan”). The Corridor Plan suggests commercial development on the Site while the draft Comprehensive Plan notes the proposed hotel on the Site. Both the Corridor and Comprehensive Plans indicate a preference for additional commercial development along Higgins Road. The Developer will be dedicating approximately 4,500-5,000 square feet to the City along the northern boundary of the Site.



The Project will add jobs and tax revenues to the City and other affected taxing bodies. The Project is expected to support 25-30 hotel employees. In addition to adding jobs in the community, the Project will greatly increase City’s tax base, as shown in Figure 6 below. Figure 6. Projected Property & Hotel Use Tax Generation and Collection

2019 2025 2032 2035

Today Development, 7B & Reimbursements Development, 7B Development

Total Property Taxes $79,658 $341,548 $420,062 $1,147,532 Schools $54,815 $235,030 $289,057 $789,652 School District 64 $32,506 $139,377 $171,416 $468,277 Maine Township High $22,309 $95,653 $117,641 $321,374 Other $16,314 $69,951 $86,031 $235,020 City Share (before reimbursement) $8,529 $36,568 $44,974 $122,860

Reimbursements ($21,029) City Revenues $8,529 $15,538 $44,974 $122,860 Total Hotel Tax $0 $407,817 $443,761 $470,923 Reimbursements ($305,863) City Revenues $101,954 $443,761 $470,923 Total City Tax Revenues $8,529 $117,493 $488,735 $593,783

Source: MSDA Properties; SB Friedman Figures may not sum due to rounding. Today, the Site generates less than $9,000 for the City in annual tax revenues, all of which comes from property taxes. The Site also generates property taxes of approximately $32,500 for School District 64 and $22,300 for the Maine Township High School (together, the “Schools”). With the Requested Assistance, the following is projected to occur. In the first year of stabilization (2025) the City will collect more than $117,000, 13 times what they are collecting now from the Site. This is primarily due to the new revenue stream of hotel use taxes. Upon development of a new hotel, the Site is expected to generate nearly four times the property taxes in comparison to if it had no development on it, which will benefit the City as well as the Schools. In 2032, after the six years of property and hotel tax reimbursements, but within the twelve years of the Class 7B incentive, the Project will generate nearly $0.5 million for the City (more than 40x what the Site would generate if no development occurred) and more than $289,000 for the Schools annually. In 2032, the Schools are projected to collected more than four times what they would have collected if the Site stayed as is today with no development. In 2035 when the Class 7B Incentive expires and there are no more incentives in place on the Project, the City is projected to collect nearly $0.6 million from property and hotel use taxes annually (more than 50x what the Site would generate if no development occurred). From property taxes alone, the Schools are projected to collect nearly $0.8 million from the Project annually (more than 10x what the Site would generate if no development occurred).



Conclusions The Developer is eager to develop the Project, but the Project has become less financially feasible since 2019. To develop the Project, which will add to the City’s tax base and enrich the Higgins Corridor, the Developer requests the following financial assistance.

- Hotel Tax Reimbursement (75% for Years 1-3, 50% for Years 4-6) - City Property Tax Reimbursement (75% for Years 1-3, 50% for Years 4-6) - Building Permit and Inspection Fees Reimbursement (for anything incurred and paid beyond $75,000 for six

years) - Cook County Property Tax Incentive Class 7B support

Without the Developer’s full requested assistance, the Project is not financially feasible. The Developer is hoping to move quickly to redefine the 2019 Incentive Agreement and work with the City to establish a finding of blight to support an application for Class 7B. We appreciate your consideration of this request and look forward to discussing it with you.



Appendix C Figure C1. Cook County Property Tax Class 7B Overview

Class 7B Overview Incentive Length 12 years with potential renewal

Assessment Structure

commercial property typically assessed at 25% of its market value, but the Class B incentive includes the following assessment:

10% of fair market value for the first 10 years 15% of fair market value for the 11th year 20% of fair market value for the 12th year

Municipality Involvement

The Application must include a resolution or ordinance from the municipality where the real estate is located or from the Cook County Board of Commissioners if the real estate is located in an unincorporated area. The resolution or ordinance must expressly state that the five eligibility factors that must be present to demonstrate that the area is “in need of commercial development” are satisfied and that the municipality consents to and supports the Application.



Figure C2. Cook County Property Tax Class 7B Eligibility Matrix Eligibility Factor Eligibility Detail Designation of Area: The project must be located in an area designated within the last 10 years as one in need of commercial development by a federal, state or local governing body or agency.

Includes: a conservation, blighted or renewal area or an area encompassing a

rehabilitation or redevelopment plan or project;

a federal Enterprise Zone or Enterprise Community; or

similar designations under similar statutes or ordinances

Real Estate Tax Analysis: Real estate taxes within the area, during the last 6 years, have declined, remained stagnant, or potential real estate taxes are not being fully realized due to the depressed condition of the area, and/or subject site, or property values as determined by the assessed value

Demonstration that depressed conditions are the cause of declining, stagnant or unrealized tax revenues should include data on such factors as:

adverse market conditions;

structural or functional obsolescence;

extent and duration of vacancies;

absence or near absence of new business formations;

pattern(s) of tax sales, delinquencies, or forfeitures in the area

Viability and Timeliness: There is a reasonable expectation that the development, redevelopment, or rehabilitation of the commercial development project is viable and likely to go forward

Evidence of the following should be submitted to demonstrate economic viability and timely completion of the project:

development plan;

economic feasibility;

financing;

owners, developers, prime tenants, and other interested parties;

development schedule

Assistance and Necessity: Certification that the development or redevelopment would not go forward without the full incentive offered

Supporting documentation for the need for the incentive includes:

financial proforma comparing results with and without the incentive

failure of public bidding or other evidence of limited developer interest in the area

physical isolation or substandard location of the project area

special environmental problems adding to the development costs

municipal requirements for landmark preservation

Increased Tax Revenue and Employment: Certification that the development or redevelopment will increase real estate property tax revenue and employment opportunities in the area

Application should include:

tax revenue projection with and without development

employment projections (full-time, part-time, and temporary construction)



Limitations of our Engagement

Our deliverables are based on estimates, assumptions and other information developed from research of the market, knowledge of the industry, and calls with the City and the Developer during which we obtained certain information. The sources of information and bases of the estimates and assumptions are stated in the deliverable. Some assumptions inevitably will not materialize, and unanticipated events and circumstances may occur; therefore, actual results achieved during the period covered by our analysis will necessarily vary from those described in our report, and the variations may be material. The terms of this engagement are such that we have no obligation to revise analyses or the deliverables to reflect events or conditions that occur subsequent to the date of the deliverable. These events or conditions include, without limitation, economic growth trends, governmental actions, changes in state statute and county or city ordinance, additional competitive developments, interest rates, and other market factors. However, we will be available to discuss the necessity for revision in view of changes in the economic or market factors affecting the proposed project. Our deliverables are intended solely for your information, for purposes of reviewing a request for financial assistance, and do not constitute a recommendation to issue bonds or other securities. The report should not be relied upon by any other person, firm or corporation, or for any other purposes. Neither the report nor its contents, nor any reference to our Firm, may be included or quoted in any offering circular or registration statement, appraisal, sales brochure, prospectus, loan, or other agreement or document intended for use in obtaining funds from individual investors without our prior written consent. We acknowledge that upon submission to the City of Park Ridge, the report may become a public document within the meaning of the Freedom of Information Act. Nothing in these limitations is intended to block the disclosure of the documents under such Act.

COUNCIL POLICY STATEMENT

Policy No. 31 General Subject: General Specific Subject: Economic Incentive Agreements Date Approved: November 7, 1994 Date Revised: October 7, 1996 PURPOSE To establish a policy under which incentives may be offered for business expansion or development within the City limits. POLICY STATEMENT In order to improve the City’s economic base, the City Council may offer incentives for business development within City limits. The benefits to the City for offering economic development incentives may include increasing sales tax receipts, improving the property tax base, helping the City to remain economically viable and competitive with surrounding communities, attracting additional retail business into the City, providing additional goods and services to Park Ridge residents, and protecting or increasing the revenue base of the City. The City of Park Ridge shall require any economic development investments provide a demonstrable quantitative and qualitative return on the City’s investment to be realized during a reasonable period of time after such investment. Whether the City participates in the agreement, and if it participates, the amount or nature of the incentive will be determined on a case-by-case basis. The City’s participation in the incentive agreement should be necessary to assure the feasibility of a private business to expand or develop within Park Ridge.

CPS31 – 1 of 1

agenda cover memo

Documents