City of Oak Creek

Common Council Report

Meeting Date:  May 1, 2007

Item No.:  21

Recommendation:  That the Council consider and provide staff with guidance on the elements of a proposed development agreement between the City and Liberty Property Trust for the development of the Liberty Corporate Preserve at Oak Creek as part of Tax Incremental District No. 7.

Background On Friday, April 27th the Joint Review Board was scheduled to meet to consider the creation of Tax Incremental District No. 7 in the City of Oak Creek.  One of the development proposals that initiated the discussions leading up to the creation of the TIF was the Liberty Property Trust proposal for a business park for the properties at 9950, 10068 and 10168 S. 27th Street.

Liberty Property Trust (LPT) is proposing to develop the Liberty Corporate Preserve at Oak Creek, a Class “A” office and industrial park within the 27th Street corridor along an extension of Reinhart Drive between Southbranch Blvd. and Oakwood Road.  The development consists of five buildings totaling app. 300,000 square feet, including:

Building I – 9,700 sf retail

Building II – 44,000 sf office

Building III – 68,500 sf office/showroom

Building IV – 172,000 sf warehouse

Building V – 5,000 sf restaurant

More detailed information on the proposal is contained in the attached PUD application submitted by Liberty Property Trust.

This evening you are being asked to consider and comment on possible terms for a development agreement between Liberty Property Trust and the City.  Central to that discussion will be the total amount of subsidy that LPT is requesting in order to make the project feasible, and the length of time that those increments will be paid back (and at what percentage) to LPT from the taxes generated by the new development within the TIF district.

After a series of negotiations, there appears to be a consensus between LPT and the City staff and TIF 7 working group that a figure of $3,000,000 is appropriate.  This figure  represents costs associated with the provision of public infrastructure within and adjacent to the corporate park, as well as an incentive to develop an office building at this location in accordance with the 27th Street Corridor Plan.  This figure is substantially less than the approximately $4 million that was previously requested by LPT.

The draft fiscal analysis that has been completed by Gruen & Associates has indicated that there is a need for a subsidy in this instance.  The final report is not yet complete, however the preliminary draft indicates the need for a $2 million subsidy in order to make this development minimally competitive with market conditions.  In discussions between the TIF 7 working group and Gruen & Associates, it was acknowledged that the $3 million dollar figure was within a range that was appropriate, especially given the risk being taken by LPT by developing an office building in an unproven market.  That risk, and the risk of not being fully reimbursed, should the development not provide as much increment as designed, falls entirely on Liberty Property Trust.  The City will not be borrowing money for these public infrastructure improvements.  They will only be committing a percentage of the revenue generated by the project to LPT for a maximum period of time, which may not exceed the 17 year life of the TIF district.

At this point that time period and the percentage of the increment being paid back in any given year are still the subject of negotiation.

It appears that a workable solution may be to (using the $3 million dollar figure) enter into a development agreement designating that Liberty Property Trust would receive 100% of the increment that they generate for the first five years.  After that, and throughout the maximum 17 year payout period (or until the $3 million figure + interest is reached) LPT would receive 73% of the increment generated.  The remaining 27% would be put back into the TIF district for use in other designated projects.

Paul Thompson, the City’s financial advisor, has performed a preliminary analysis on this proposal, and has indicated that under those terms, there would be sufficient increment available to Liberty Property Trust within the life of the district as well as providing remaining revenue for use in other TIF eligible projects.

More detail may be provided prior to the meeting, as staff continues to work with LPT and our financial advisors on this issue.

Fiscal Impact:  The direction provided by the Council will form the basis for a development agreement that will outline the terms under which Liberty Property Trust is reimbursed through the increment they provide in the TIF district.

Prepared by: Doug Seymour, AICP Director of Community Development

Respectfully submitted, Patrick DeGrave City Administrator

Fiscal Review by:

Beverly A. Buretta, CMC

City Clerk