CITY OF TALLAHASSEE
CITY COMMISSION AGENDA ITEM
ACTION REQUESTED ON: January 28, 2009
SUBJECT/TITLE: Amendment to Reciprocal Easement Agreement with McKibbon Hotel Group Inc. to Increase Reimbursement Amount for Underground Stormwater Facility
TARGET ISSUE: Economic Development

STATEMENT OF ISSUE
On March 26, 2008 the City Commission approved the sale of a parcel on the Floridan Block to the McKibbon Hotel Group (MHG) for the construction of a hotel. The sale price for the hotel site was $1,696,552. The Commission also approved an option agreement with MHG to sell an additional parcel on that block for $1,303,448. As part of the sales agreement the City agreed to reimburse the developer for up to $550,000 for the cost of building an underground stormwater facility on the site. This was necessary because the existing surface pond on the site had to be replaced to allow for the full development of the Floridan Block. The reimbursement amount was based on the estimated construction costs for the underground facility. As the project has progressed, the estimated costs for the stormwater facility have increased to $803,347. A portion of the cost increase ($145,662) is attributable to design modifications that the City has required. The developer has requested that the City increase the reimbursement amount to cover the revised cost for the stormwater facility. Staff is recommending that the City increase the reimbursement amount by $145,662, to a total not to exceed $695,662, to cover those additional costs incurred due to design modifications required by the City.

RECOMMENDED ACTION
Approve Option 1: Approve an amendment to the Easement Agreement with the McKibbon Hotel Group Inc. to increase the reimbursement amount for the construction of the underground stormwater facility, to an amount not to exceed $695,662.

FISCAL IMPACT
The funds for the original $550,000 reimbursement were reserved from the hotel site sales proceeds. The additional $145,662 needed for the amendment will be supplied through a loan from the stormwater fund. The Office of Budget and Policy has reviewed this agenda item and concurs with the recommendation.

Thomas H. Lewis, Director, Economic and Community Development

Anita Favors Thompson, City Manager

For information, please contact: Michael Parker, Assistant Director, Economic and Community Development, 891-6500

SUPPLEMENTAL MATERIAL/ISSUE ANALYSIS
HISTORY/FACTS & ISSUES
In March of 2008 the City Commission and the Tallahassee Community Redevelopment Agency (CRA) took a series of actions to facilitate the construction of a new 160-room hotel on the Floridan Block located on the southwest corner of Monroe Street and Tennessee Street. These actions included the following:

1. The City sold a .83-acre parcel to the McKibbon Hotel Group Inc. for $1,696,552 for the construction of a new hotel.

2. The City entered into an option agreement with the McKibbon Hotel Group to sell a .63-acre parcel for the construction of a 90,000 square-foot office building. The option agreement has a three-year term and stipulates that the McKibbon Group will purchase the property for $1,303,448. The developer made a payment of $130,345 for the option agreement, which will be credited toward the purchase price if the option agreement is exercised. If the developer does not meet the terms of the option agreement the City will retain the payment.

3. The CRA purchased the .98-acre western portion of the Floridan block from the City for $2,100,000. This transaction was necessary to allow that portion of the property to be used for parking to support the hotel and office development. The Agency approved a parking lease with the McKibbon Hotel Group to provide the parking to support the project.

The purchase agreement for the sale of the hotel site also included a Reciprocal Easement Agreement that provided that the City would reimburse MHG for the costs of the construction of the master stormwater facility up to a maximum amount of $550,000.

Prior to the hotel development, the Floridan Block’s stormwater needs were serviced by a small surface pond in the center of the site. The majority of the Florida Block was covered with surface parking lots. While there will be some addition stormwater demand generated by the proposed development, the primary design challenge was to accommodate the stormwater serviced by the existing surface pond. The proposed development of the hotel, office building and future parking garage could not be accommodated on the site if the surface stormwater pond was retained.

As part of the sales and development negotiations for the property the City agreed to reimburse MHG for the cost of replacing the current stormwater pond with an underground facility that could provide for the redevelopment of the entire block. The justification for the City’s financial participation in the stormwater solution was based on the premise that to realize the full value of the City-owned property it was necessary to accommodate the stormwater such that the entire site could be redeveloped. The underground stormwater facility was designed to meet the stormwater needs of the entire block.

At the time the purchase agreement was executed, the design for the proposed underground stormwater facility had not been completed. The estimated cost for the facility developed by MHG was $526,242 based on the preliminary specifications. Staff from the Public Works Department reviewed the preliminary design and required a number of enhancements to the design during the permitting process. These enhancements were requested to address safety concerns and to support the maintenance of the facility. These items include:

1. Installation of a steel stairway to allow easy access to the vault.
2. Installation of oversized steel doors to access vault area.
3. Installation of permanent spark proof lighting in the vault area.
4. Installation of permanent mechanical ventilation for the vault area
5. Installation of a retaining wall to support future construction of a future access room to the vault facility.

These additional items were required as part of the permitting process and added $145,662 to the construction costs of the stormwater facility. MHG has also encountered additional expenses associated with increases in materials needed for the vault construction. The final cost estimate for the underground stormwater vault is $803,347.

MHG has requested that the City increase the reimbursement amount for the stormwater facility to cover the revised cost estimate. Staff has reviewed this request and recommends that the City increase the reimbursement amount by $145,662 to cover the additional costs associated with the City required design modifications. This will increase the total reimbursement to an amount not to exceed $695.662.

Staff is reviewing one of the requested design modifications (the replacement of steel grates with access doors) to determine whether a less costly alternative can be identified. If a less costly modification is feasible, then the actual reimbursement amount will be adjusted accordingly.

The $145,662 in additional funds necessary for the recommendation will be provided through a zero interest loan from the Stormwater Fund. The loan will be repaid using the proceeds from the sale of the remaining City owned parcel on the Floridan block. The Option Agreement stipulates that MHG has the right to acquire the remaining parcel at a price of $1,303,448. That agreement expires in May of 2011. If MHG does not exercise the option, they will forfeit the $130,345 option payment. At that point the City would be free to market the parcel for sale to other parties.

The hotel is currently projected to open on August 15, 2009, and will be an important component to support the City downtown revitalization efforts. The appraised value of the hotel upon completion is $29,800,000.

CHARITABLE CONTRIBUTIONS
NOT APPLICABLE

OPTIONS
Option 1: Approve an amendment to the Easement Agreement with the McKibbon Hotel Group Inc. to increase the reimbursement amount for the construction of the underground stormwater facility to an amount not to exceed $695,662.

Pros
· Will support the continued construction of the new hotel.
· Will provide for additions to the stormwater system design that will improve the operational safety and efficiency of the facility.
· Will support the City’s commitment to provide resources for the storm water facility to service the Floridan block.
· The support the City’s ability to sell the remaining parcel on the Floridan block, which is also supported by the stormwater facility.

Cons
· Will increase the City’s financial commitment to the construction of the stormwater facility by $145,662.

Option 2: Do not approve the proposed amendment to the Easement Agreement and limit the City’s financial commitment to the $550,000 currently authorized.

Pros
· Would limit the City’s financial commitment to the stormwater facility to the $550,000 currently authorized.
Cons
· Could delay or compromise the construction schedule for the hotel project.
· The value of the remaining City owned parcel on the Floridan block would be negatively impacted if an adequate stormwater facility were not provided.
· Could result in MHG petitioning the City to eliminate the safety and operational design improvements requested by City staff in order to bring the construction costs for the facility back in line with the original cost estimates

ATTACHMENTS/REFERENCES

Attachment 1: Itemized Cost estimate for Stormwater Facility
Attachment 2: Description of design enhancements requested by City