FORT WAYNE – With construction of The Harrison six weeks under way, the projects developers said they will begin working diligently to fill the building with retail businesses and renters.
The better they do in securing tenants, the less likely the city will have to provide money to keep the project solvent.
The $18.5 million downtown development includes two financial safety nets for the New Harrison development team. While the programs were outlined previously, their final drafts had not been disclosed publicly. Fort Wayne officials last week released final agreements for the potential subsidies to The Journal Gazette.
The documents show programs that provide specific pots of money should the development have problems, yet also protect general taxpayers. One of the subsidies sets reasonable standards of success, according to at least one real estate professional.
The subsidy pots will make about $2.3 million available to the developers over the first decade of the project. The money could be used for other city projects, but it would not come directly from most city taxpayers.
Christopher Guerin, president of the city Redevelopment Commission, said the subsidies are not without precedent but the expectation is they wont have to be tapped.
Obviously our hope is we have a full occupancy as early as possible, he said.
Guerin is the lone city official to sign the subsidy agreements, as the redevelopment commission was the entity to sell the land to the developers.
Regardless, including the two safety net provisions was critical to securing financing with PNC Bank, according to Larry Shine, associate city attorney. Shine, who works closely with the redevelopment commission, said the subsidies were thought of as a way to help allay any bank concerns about the project.
The four-story building has about 100,000 square feet of space to lease, including 44 luxury apartments on the top two floors, office space on the second floor and retail on the first floor.
The Carson Boxberger law firm has already signed to fill the second floor. OReillys Irish Bar, an Indianapolis company, will use 4,000 square feet on the first floor, and 3Rivers Federal Credit Union will use 3,800 square feet on the first floor.
The first potential subsidy, titled the Residential Growth Fund, provides up to $350,000 to the developer over seven years if it doesnt hit income targets.
The money for the subsidy comes from annual $50,000 payments from Hardball Capital, owner of the Fort Wayne TinCaps. The team plays in Parkview Field, which sits adjacent to The Harrison project. The team owner was originally listed as a guarantor of construction of the project when the developer was Barry Real Estate.
In a later agreement, the team agreed to pay $50,000 annually to the commission over 19 years and invest $1 million into the ballpark if The Harrison was never constructed. Under the final terms, the team agreed to make the payments and investments regardless as a way to help the development happen. The first $50,000 payment was made last July.
The first seven payments will be placed into the subsidy fund and can be drawn upon by the developers if the project does not earn $1.2 million in gross rental income in a year. The teams other dozen payments and any money not used from the subsidy would go to the redevelopment commission for any other project.
The developer must inform the city in writing within the first 60 days of a year if it did not hit this income goal the previous year.
Shine said the $1.2 million threshold came from the developers accountant and represents a 90 percent occupancy rate.
The income expectancy might seem high, but it also appears manageable, according to Steve Zacher, owner of The Zacher Co. While the company has no direct interest in the project, Zacher has wide experience in local commercial real estate.
Using just rough calculations, Zacher said having half of the limit – or $600,000 – coming from the apartments seemed achievable. To generate the revenue, all 44 apartments would need to average $1,136 in rent a month. Developers previously said the apartments will start at $900 and most will cost about $1,500 a month. There is a waiting list of people interested in the apartments, according to Chris Schoen, one of the developers with New Harrison.
I do think people would live there, that part doesnt bother me, Zacher said.
Having the other half come from the first two floors is even less problematic, he said, especially with a solid large tenant taking the entire second floor. He said it would need to average $12 a square foot, which is high but not unachievable.
On the surface, it seems like a very doable, reasonable arrangement, Zacher said.
Schoen said he understood the rents would be higher than normal for Fort Wayne but added that the project is unique in its location and quality. He said he was hopeful to announce future tenants, including another restaurant, a dry-cleaning business and a gym, in the next six months.
Keeping its taxes
The other potential subsidy is slightly more vague in how much will be available or when it could be used.
Called the Tax Increment Backstop Agreement, this safety net collects all property taxes generated by the project over the first decade and maintains the money in a separate fund. City officials previously estimated the project would generate about $2 million in property taxes over this term, which accounts for its already approved tax abatement.
The pot is likely to have little money in it at the beginning because taxes are paid a year later – taxes for 2013 are paid in 2014 – and the approved abatement further limits early tax liability for the development.
The money can be used by the developers to offset the construction cost of the buildings underground garage but only if the revenues for the project are not enough to cover its debt payments. The developer may apply for money from this fund each month by submitting a written request to the commission with documentation showing the shortfall.
The developer cant ask for more money than is in the fund, however. Shine said all requests must be approved by the redevelopment commission before money is given to the developer, although the agreement states PNC would approve the applications.
The money given from this fund is not a direct grant, however.
Any payment the city makes earns it a corresponding ownership stake in the development. The developer can buy back this ownership by reimbursing the city any subsidy given. So if the city pays $50,000 from the fund to the developer, that money essentially buys percentage ownership in the project. The developer could then repay that $50,000 to reclaim full ownership.
Any money not used in this subsidy fund would revert to the commission for its use on other projects.
While the two subsidies are separate, Shine said the developers cannot double dip.
Any revenue taken from the tax increment subsidy would count as monthly income toward the $1.2 million threshold in the residential growth fund, he said. This means if the project was short $10,000 in one month and received that money from its property tax pot, it could not also claim that shortage from the money given by the TinCaps.
They cant be made whole twice, Shine said.
Both subsidies basically start once the building receives its certificate of occupancy. Schoen said the building is scheduled to be open to the public by Feb. 1, 2013.