140 West Pine Street Missoula MT 59802 phone 406.552.6160 fax 406.552.6162 email mra@ci.missoula.mt.us www.ci.missoula.mt.us/mra

M E M O R A N D U M

TO: MRA Board

FROM: Chris Behan, Assistant Director

DATE: August 17, 2015

SUBJECT: Consumer Direct Grant Creek Campus – TIF Request

At the MRA Board’s February 18, 2015 meeting, Consumer Direct Family of Companies

(Consumer Direct), a national home-health management company based in Missoula, made an

initial presentation of their proposed headquarters project to be located on a parcel southeast of

the intersection of North Reserve Street and Interstate 90. The project site was on a parcel that,

until recently, was adjacent to the North Reserve/Scott Street Urban Renewal District boundary

(NRSS URD). Prior to MRA considering providing assistance to the project, two City Council

actions were required. The first Council was annexation of the project site into the City limits,

which occurred on July 6, 2015. The second was modification of the North Reserve/Scott Street

Urban Renewal District boundaries to include the parcel. At its June 9, 2015 meeting the MRA

Board recommended the City Council adopt the District boundary change and initial actions

regarding financing TIF assistance should such assistance be approved at a later date.

After a public hearing on July 20, 2015, the City Council adopted Ordinance No. 3550 which

modifies the NRSS URD boundary to include the newly annexed Consumer Direct project parcel

and amends the Urban Renewal Plan to include both the Consumer Direct project and Bretz RV

and Marine project (approved by the MRA Board at its April 16, 2015 meeting) as official Urban

Renewal Projects. The latter action is required for and future financing of TIF assistance to

either project. The Ordinance becomes effective on August 19, 2015. The documentation

required for the boundary modification to be certified the Montana Department of Revenue has

been filed with for certification and a response is expected by early September.

Consumer Direct Grant Creek Campus LLC, the real estate entity for Consumer Direct, recently

acquired the project parcel and submitted an application for TIF assistance.

THE PROJECT AND TIF REQUEST: Consumer Direct is a rapidly growing company that is currently made up of 19 companies and

over 22,000 employees spread across 12 states. The headquarters with approximately 275

employees is presently scattered in five locations around Missoula. The proposed building will

provide room for new local services in addition to home care and management of other companies

including nursing, hospice, metal health, and retail sales of durable equipment and other items.

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The project would include construction of a four-story, 73,077 square foot building made up of

office, retail, and storage uses, and space for anticipated near-term growth. The estimated total

cost of the project is $23 million of which the building construction cost is estimated at

$17,525,000. The development master plan includes a second building on the north end of the

project parcel for mid-term future business expansion and a contiguous parcel to the south of

Howard Raser Drive that will accommodate future growth in the long-term.

Consumer Direct has requested $630,000 in TIF assistance for construction of two City streets

(with appropriate pedestrian and bicycle facilities), extending Howard Raser Drive to the eastern

edge of the site and construction of Hobbs Drive along the west side of the project. Work on

Howard Raser Drive includes upgrade and partial reconstruction of existing improvements

(called “west” below) and new construction to extend the street to the District boundary (called

“east” below) (see attached aerial photo). Additionally, the request includes extension of utility

main or trunk lines including power, gas, and communication as well as the cost of engineering,

easements, and permits directly associated with those activities.

With a base year of 2014, the North Reserve/Scott Street District (District) would not typically

have accumulated any TIF resources. However, construction of the My Place hotel last year and

some changes in values on centrally assessed properties (private utilities, railroads, etc.) yielded

approximately $58,000 in tax increment for the 2016 fiscal year. Assistance to any project of a

larger size must still be through private placement of debt based on the total anticipated District

TIF revenues from the projects currently underway. Any TIF debt must be approved by the City

Council upon advisory recommendation by the MRA Board.

The costs of specific items requested for TIF assistance include:

Raser Drive (east section new construction + upgrade western section) ..........$262,930

Hobbs Drive (new construction) .......................................................................$150,450

Power and Gas main line easement purchased from adjacent land owner .........$19,429

Water main upgrade to provide required fire suppression pressures ..................$30,000

Conduit for fiber and telephone (utility to provide cable and connections) .......$22,000

Public boulevard right-of-way landscaping ........................................................$14,400

Engineering, tests, inspections, permits, contractor fees for eligible items ........$75,448

Contingency Total (contingencies vary on above items from 5% - 20%) ..........$55,343

TOTAL .................................................................................................................$630,000

ANALYSIS: The criteria for analyzing TIF requests are the same in each district but the format is different to

emphasize certain redevelopment goals.

Economic Development Potential: Tax Generation: An estimate of increase in taxes as a result of this project is between $235,000

and $270,000 per year based only on current construction estimates. There are no structures to

demolish therefore no net loss in tax increment value. The 2014 taxes on the land were $13,964.

Upon recommendation of the local Department of Revenue office, MRA Staff did not attempt to

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evaluate changes to land value due to the new use or the impact of the parcel’s recent annexation

into the City. New City related taxes on the land and any change in value of the parcel from

change to active office use rather than vacant industrial land will be attributed to the NRSS URD

tax increment but there will be some offset to any increases tax increases as the owner will no

longer pay certain County assessments such as for Rural Fire service.

Relationship of Public and Private Investment: The ratio of TIF to private investment in this

project is 1:36 which includes construction and land costs as well as “soft costs” such as design,

permits, etc. The ratio for construction cost only is 1:28. These ratios are well within the range

that has been acceptable in past MRA projects.

Job Creation: Consumer Direct currently has 275 local employees and over 22,000 full and part

time jobs in the entire 12 state operation. The company anticipates creation of at least 120 jobs

in Missoula over the next four years. Those local jobs will emphasize administrative and

professional positions to oversee and manage new business growth nationwide. Additional local

caregiving and other jobs will likely be created during that timeframe. Based on its growth since

inception 17 years ago and analyzing growth over the past seven years, the company feels that its

nationwide employment will rise by over 50% from 2014 levels; so the projected increase of 120

new local jobs may be conservative. There will be a number of construction and building trade

jobs created or maintained in Missoula over the duration of the project.

Investment Spin-Off: This will be the first large scale, non-hotel, commercial development in

the North Reserve Street area. As a result of inadequate internal transportation circulation and

utility infrastructure, this area has an abundance of vacant and underutilized land that can

accommodate large scale developments. The availability of TIF funds and projects like the new

Consumer Direct headquarters building may help reveal the opportunities in the NRSS URD to

businesses of a similar scope. The number of employees and clients at this location will also

create opportunities for the area’s existing and potential service businesses.

Special Opportunities or Effects: Potential availability of TIF investment for infrastructure deficiencies in the North Reserve/Scott

Street Urban Renewal District has revealed a pent up demand for property for large scale

developments and expansion of existing businesses. The partnership of public resources and

private investment in this area is helping large businesses to choose to locate within the urban

service area rather than having to choose “greenfield” development in areas in which municipal

services are difficult to provide and costly to the entire community.

The number of employees at this location will significantly help promote expansion of transit and

non-motorized transportation services to and within this heavily auto-dominated area.

Logistical Considerations: Project and TIF Financing: Financing is in place for purchase of the land and construction of the

proposed project through Bank of Montana. Long term financing is also complete through Bank

of Montana augmented through Montana Board of Investment programs.

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As mentioned above, any TIF assistance granted to this project must be financed. It has been

difficult for the Developer’s lender, Bank of Montana, to find a comfortable fit for TIF revenue

based debt within its internal processes and mission. MRA staff, City, Mayor’s Office, and the

City’s financial consultants and Bank of Montana have discussed the issue for several months

but have not been able to arrive at terms that fully meet the goals of both parties. Recently, First

Security Bank expressed interest in purchasing a bond that includes TIF assistance costs related

to the first phase of the Scott Street Village project at the former Clawson Manufacturing site

along with the Bretz and potential Consumer Direct TIF assistance.

First Security Bank has been eager to purchase TIF debt and is able to provide terms that meet

MRA’s objective of assuring TIF participation in potential future debt financing. For example,

within the past couple years, First Security Bank has purchased a TIF bond for assistance in the

Corso residential project at the former Intermountain Lumber site, the bond that included

construction of Wyoming Street, development of Silver Park, and replacement of the railroad

trestle over Wyoming Street at Cregg Lane; and TIF bonds in other Montana communities.

All TIF debt must be approved by the City Council. If the MRA Board approves this TIF

request, Staff will work to qualify the final bond related costs including lender fees, capitalized

interest, legal and financial advisor fees, etc. Then the Board will be asked to evaluate the bond

package and provide a recommendation to advise the City Council decision.

Project Feasibility: Although seemingly small in comparison to the cost of the entire

development, the feasibility of the project depends greatly on MRA participation in non-equity

costs such as street development and utility main extensions.

Developer’s Ability to Perform: The Developer is very experienced in the home health business

but not necessarily as a real estate developer. Therefore, it has engaged experienced consultants to

provide project design, management, and financing skills. Members of the project architect firm,

Encompass V2, have experience in projects involving large buildings. Additionally, the onsite

project manager Scott Johnson of Cost Management Services, and Bank of Montana have

experience working with large projects. Swank Construction, the project contractor, has

successfully completed many large scale construction projects across Montana.

Timely Completion: Project construction is anticipated to begin by the end of August 2015 and

be completed by the end of 2016. Given the contractor’s experience in similar projects, this

schedule is reasonable and achievable.

Payment of Taxes: All taxes and other assessments on the property are current.

STAFF DISCUSSION AND RECOMMENDATIONS: Although perhaps occurring earlier than expected, the proposed development matches the goals

for the northwest portion of the North Reserve/Scott Street Urban Renewal District listed in the

Urban Renewal Plan. It represents a shift from the current exclusive highway oriented

development in the area toward commercial infill within the urban service area.

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If the project request is approved, a final TIF financing package must be negotiated and will

require an approval and recommendation to the City Council by the MRA Board prior to the sale

of a bond. To put the bond structure and costs together will require assistance by the City’s

financial advisor and legal advice and document preparation by bond counsel.

Staff recommends the MRA Board:

1. Approve $630,000 in TIF assistance for eligible items within the Consumer Direct

Grant Creek Campus LLC project and authorize the Chairman’s execution of related

documents under the following conditions:

A TIF financing arrangement acceptable to the City, MRA, Bank of Montana, and

First Security Bank (or other institution) can be negotiated with a final principal

amount and other financing terms to be approved by the MRA Board prior to

submittal to the City Council for final approval.

The development agreement between MRA and Consumer Direct Grant Creek

Campus state that assistance reimbursements will be made upon completion of

discrete work items listed above and the reimbursement request will be based on

paid contractor invoices and submission of subcontractor lien waivers for that work.

2. Direct Staff to engage Dorsey & Whitney as bond counsel and the City’s financial

advisor, Springsted, Inc., to assist in analyzing TIF financing terms and to prepare

related official documents which will be subject to approval by the MRA Board and

City Council. The costs of the legal and financial services will be added to the bond

principle.

Attached:

1. General Site Plan

2. Site Plan with Landscaping

3. Aerial Photo with Howard Raser Drive sections shown

4. Building Elevations

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Site Plan with Landscaping 1

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