Revenue bond issuance for the Marketplace of Warsaw moved another step forward Tuesday with the Warsaw Economic Development Commission’s approval of a resolution authorizing the necessary actions to be taken.
The Commission’s action came less than a day after the Common Council approved a resolution for a development agreement between the city of Warsaw, Warsaw Redevelopment Commission and Sullivan Wickley, the developers of the shopping center; and an ordinance – on first reading – authorizing the city to issue economic development revenue bonds in connection to the Marketplace.
Randy Rompola, attorney with Barnes & Thornburg, explained to the Commission Tuesday, “What you have before you is a resolution approving the issuance of bonds by the city and recommending to the City Council that it approves the bonds by ordinance. The city and Redevelopment Commission have talked to the developer, Sullivan Wickley, about the Marketplace of Warsaw and the developer has been here.”
Sullivan Wickley (SW) took ownership of the Marketplace in October and wants to renovate it and find new tenants to make it viable again, Rompola said. SW talked to the city and Redevelopment Commission about getting access to tax increment finance (TIF) revenues to help them do that.
“So, what is before you is the resolution. The Council has heard the ordinance on first reading. The Redevelopment Commission and the Council both have approved a development agreement. That development agreement provides for the city to issue bonds that would be payable from the TIF revenue from the Marketplace Allocation Area,” he said.
The Marketplace was in a larger TIF area – the Winona Interurban – but the Redevelopment Commission carved the Marketplace Allocation Area out of it.
“So any improvements in that Marketplace site will increase the assessed value, and by creating the allocation area, the Redevelopment Commission will be able to capture the taxes that will be generated from the increases in the assessed value – effectively what tax increment is. That TIF will be pledged to the payment of these bonds,” Rompola explained.
Lake City Bank has stepped up and agreed to purchase the bonds.
“So the money will come in at closing. The bond proceeds will be put into an escrow agreement. As the developer signs leases with tenants, (SW) will be able to draw down those bonds to reimburse themselves or pay the expenses of renovating the Marketplace,” he said.
The development agreement provides for the issuance of approximately $1,711,000 in bonds. The city will issue the bonds. Proceeds from Lake City Bank buying the bonds will go to the benefit of the developer. The bonds will be repaid from the tax increment generated by the Marketplace Allocation Area.
Lake City Bank requested that for the first 10 years of the bonds they wanted some additional security, Rompola said. So, for the first five years, the developer will back those bonds; for the second five years, the Redevelopment Commission pledged additional TIF from the consolidated Northern Economic Development Area to pay the bonds. Then for the last 10 years of the bond issue, “it would be payable solely from the Marketplace” tax increment.
“So the bonds would not be a general obligation of the city. There would be no tax levy that the city would be required to pay. The only obligation of the city and the Redevelopment Commission would be to be sure that any tax increment that’s generated in that Marketplace arena would be used to pay those bonds,” he said.
For years five to 10 of the bond, if there’s any shortfall in the Marketplace tax increment, the Redevelopment Commission also would use the consolidated Northern Economic Development Area.
He explained that there’s a particular statute that involves the Economic Development Commission. “Because under that statute, the city can issue bonds, provide the proceeds to a developer or private company and those proceeds can be used by the developer and not be an obligation of the city,” he said.
Commission Vice President Dan Robinson asked if Lake City Bank would have lien rights on the property if the bonds defaulted. Rompola said no.
“The taxes themselves – failure to pay the taxes – would create a lien that could go to tax sale,” Rompola said, but the bank would rather take over the tax payments than let a property go to tax sale. “It’s those tax payments that become the tax increment.” Lake City Bank would not have a mortgage or lien on the property. Rompola said the bank wanted the first 10 years of the bonds to have extra security to be sure that it’s developed, leased and operated appropriately.
Warsaw Economic and Development Director Jeremy Skinner said SW doesn’t get any of the revenue until leases are signed. Big Lots is moving into the former Pier 1 and Dunham’s location by October, and Planet Fitness is opening in July. Two other retails establishments are planning to lease space but they have not been publicly announced yet – one of which will move into the former Carson’s location.
Commission President Tom Allen asked how long the leases were for, and Warsaw Mayor Joe Thallemer said 10 years. Rompola said, if he recalled correctly, SW has 30 months to sign leases.
“So, effectively, if they got to the end of the period and if there was some sort of footage that was left unleased, the bond proceeds that were sitting in the escrow would simply go back to the bank and the part outstanding would simple be reduced,” Rompola said.
To clarify a question Robinson had about the bond amount, Rompola said the $1.711 million is the bond amount expected to be issued; the bond ordinance sets up a parameter of an amount not to exceed $1.9 million with an interest rate not to exceed 7% in the “off chance” that the deal with Lake City Bank were to fall through and the developer would have to go find another bank to buy the bonds. Lake City Bank’s quoted interest rate is 5.55% for the bonds.
Rompola said, “We will not issue more bonds than can be serviced by the Marketplace TIF.” Baker Tilly, the municipal advisor for the city, did a report showing that the TIF would support the $1,711,000 in bonds.
Robinson said that while it was in the community’s best interest for the Marketplace to become viable again, he asked if they were giving the developers an unfair advantage over existing businesses.
Rompola said as part of the report, one of the required statutory findings was if there was any adverse competitive effect.
“I think when you look at commercial retail development, there is certainly significant development in and around that area, but I think when you look at commercial retail development, typically you see … if you elevate Marketplace to what it can be, a thriving retail space, that will simply draw more people into Warsaw, Warsaw residents and people from the surrounding area, into that greater retail commercial area. So we don’t think … we don’t see there being any adverse competitive effect simply because more retail begets more retail,” he said.
A public hearing was held on the financing, but no one was there to speak against it.
The Commission approved the resolution moving forward. The Common Council will have the second reading and approval of the bond ordinance at their next meeting.
