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HomeMy WebLinkAbout05-02-07 Finance Com - MinutesFINANCE COMMITTEE OF DUBLIN CITY COUNCIL Wednesday, May 2, 2007, 8:30 a.m. Minutes of Meeting Mr. Keenan, Chair called the meeting to order in Council Chambers. Committee Members present: Mr. Keenan and Vice Mayor Lecklider [Mr. McCash was absent]. Staff members present: Ms. Brautigam, Mr. Smith, Ms. Ott, Michele Hoyle and Melody Kennedy. Guests present: Margie Amarose {Executive Director, Dublin Chamber}; Marino Colatrugio {Cardinal Health}; Ms. D'Amore {Duke Realty}; Chris Stiffler {President, Dublin Chamber Board of Directors}; former Council Member A.C. Strip. Mr. Keenan, Committee chair, noted that the topic of discussion is the Dublin Chamber of Commerce lease of the City-owned building at 129 S. High Street. He asked Ms. Brautigam to provide background regarding the lease. Ms. Brautigam stated that in February the City received a letter from the Chamber Board of Directors requesting that the City begin action to renew or renegotiate the lease agreement between the City and the Chamber. The 20-year lease will expire in July 2008. As the Chamber prepares their budget for next year, they need to have the new lease information. The information previously provided to Council reflected the Chamber's hope that the lease rate would be reduced to 50°!0 of the original lease. Currently, they are paying $6.40/square foot in a 2,500+ sq. ft. building. The Finance Committee met on April 2 to review the details of the existing lease. Subsequently, the Committee directed staff to meet with the Chamber representatives to discuss potential lease terms. They also asked staff to provide an appraisal of the fair rental value of an office building located within the Historic Dublin. That appraisal was provided to the Committee with the meeting materials. It indicates a fair market value of $12.001$13.00 per square foot. The Chamber was also asked to provide for this meeting information on the users of the building from the community. The Chamber provides a significant service to the community by providing rent-free space for community groups to meet, including the City's Architectural Review Board. The Chamber has provided a list of the groups that meet in the building and the frequency of their use. The issue has now returned to the Finance Committee for review and recommendation for negotiation strategies. Mr. Keenan noted that Council has established two facts: {1) the City does want to retain ownership of the property, as they believe it is important to retain the City presence within the Historic District; and {2} Council members were agreeable to extending the lease for afive-year period. Therefore, the continuing discussion will focus on the new lease rate. Council has reviewed all the materials. Council must balance their obligation to the taxpayers to secure a fair rental rate with the value of the Chamber's service to the community. There are some provisions in the lease that acknowledge the Chamber may sublease 20% of the premises to the City for the City's use on an as-needed basis. That would be far whatever purpose the City might Finance Committee Minutes May 2, 2007 Page 2 of 10 consider appropriate for occasional use of the facility. Public access to restrooms within the Historic District was one of the reasons for that provision. It would seem appropriate to take the fair rental value, discuss the 20°~ City use component, and determine the value of the space made available to the community at no charge. He requested Ms. Amorose to provide a brief overview of the entities named on the Chamber's list. Ms. Amorose stated that the list documents the groups which used the building in 2006, but it is a fair representation of prior year usage. For instance, the Rotary holds their board meetings and some of their special committee meetings there. Mr. Keenan inquired if in keeping with the spirit of the original lease, the 20% use by the City would be carried forward in the renewed lease. Mr. Smith concurred. Ms. Amorose stated that the Chamber has consistently covered all the costs associated with the building, for instance: snow removal, insurance, and updating the carpet and furniture. Mr. Keenan responded that would be consistent with the lease terms. One requirement that appears not to have been met was that the Chamber would provide the liability insurance and also provide a certificate of coverage to the City. Because evidence of coverage was not provided, it was necessary for the City to carry coverage. Ms. Amorose responded that she could provide the proof of coverage. Mr. Keenan responded that looking forward, it might be better if the City were responsible far carrying that coverage. Ms. Brautigam stated the Committee's direction at the April 2 Finance Committee meeting was that tonight's meeting would be for the purpose of discussing the lease cost. The insurance and the certificate of insurance would be housekeeping issues. Mr. Keenan noted that the existing lease also permitted sublease of portions of the area. That may no longer be an issue, as the Chamber now needs the entire space, but there could be issues regarding taxable status that could impact the Chamber in the future. Vice Mayor Lecklider inquired the amount of the annual insurance premium. Ms. Amorose responded that she believes the premium is $625. The Chamber carries a $1 M liability policy. Mr. Keenan responded that component could be taken out or left in place. It is necessary to discuss this issue with Mr. Whittington. The amount of the premium is inconsequential, but it should be clarified so that everyone is certain of the process. The City does carry a high retention an the property side. The lease language is from 20 years ago and needs to be updated. Finance Committee Minutes May 2, 2007 Page 3 of 10 Vice Mayor Lecklider referred to page 3 of the lease - is that to be considered independent of the list of the organizations that use the facility? Mr. Keenan stated that it could be interpreted either way, but the intent was to keep the area open for Historic Dublin. That is not included in the list. Vice Mayor Lecklider inquired what uses the City receives for the 20% reduction in rent. Ms. Ott responded that the primary one would be the monthly meeting of the Architectural Review Board. Ms. Brautigam noted that, infrequently, the City holds other types of meetings in the building. Mr. Strip stated that at one time a larger number of City meetings were held in this building. There was also the intent, although it was not specified in the lease, to provide a City restroom downtown for visitors to the Historic District. Ms. Amorose stated that at that time, most of the buildings on that street were historical without public restrooms. That impacted business in the area. Therefore, the Chamber building was constructed so that the rest of the facility was secured from the hallway where the public restrooms were. Vice Mayor Lecklider stated that he appreciates that information. He is trying to determine what the City is receiving now for the 20°~ reduction in rent -- what is the fair value to the organizations that are using the building today? Ms. Brautigam stated that having public restrooms in the Historic District is a significant value to the City. Mr. Strip stated that who is using the building or how much it is used is not as important as the fact that it is available for use. It is not possible to know this year which organizations will need to meet in the facility next year. The concept was not to track 16% usage this year and 20% next year. The value was in the fact that it would be available for 20% use. Vice Mayor Lecklider stated that while such usage could vary, his impression is that the use has not approached that percent in the last few years. Therefore, a taxpayer could fairly ask if the City is receiving the value of the $7,200 reduction in rent. Mr. Keenan noted that according to the current lease language, the City will continue to provide the Chamber a 20°~ reduction, The Chamber has the right to continue the lease in 5-year increments indefinitely, or until the City deems the property should be used for some other opportunity. Mr. Smith stated that is true. However, the original lease terms have expired and the terms can now be changed. Finance Committee Minutes May 2, 2007 Page 4 of 10 Mr. Keenan noted that the terms indicate the Chamber agrees to sublease 20% of the building to the City for the City's use, and today that would be the Architectural Review Board and other meetings the City might desire to hold there. While there are other community organizations that use the facility, they are not related specifically to the City. Vice Mayor Lecklider stated that whenever he has been downtown and it was necessary to point out the availability of a public restroom, he identified the Dublin Convention & Visitors Bureau's public restroom. It never occurred to him that there were public restrooms in the Chamber building. How much traffic is seen there from the street for that purpose? Mr. Colatrugio stated that he was unable to attend the recent St. Patrick's Day celebration. However, he has spoken with many of the Cardinal Health folks who attended the event. Some of those individuals indicated to him that they were aware of and had used the public restrooms in the Chamber building. During Cardinal Health's recent changes which involve moving some employees from the Waukegan office to Dublin, the Chamber will be a good resource to those relocating employees. From the perspective of the service provided and the good will generated with businesses such as Cardinal Health, the City is reaping value. Ms. Amorose noted that following the recent Cardinal Health announcement, the Chamber has received many calls requesting relocation information. They provide them the Chamber Directory, which contains an overview of community resources. Vice Mayor Lecklider responded that committee members recognize the value of what the Chamber does and what it provides to the local business community. Ms. Amorose noted that the organizations using the Chamber facility are also bringing business to the Historic District of Dublin. Mr. Keenan noted that revitalization of Historic Dublin is one of Council's goals. There is one other factor that should be discussed, and that is the condition of the facility itself. The building seems to be in good condition; the Chamber has taken excellent care of it. However, typically, at the end of a long lease that is being re-negotiated, the tenant will ask for certain improvements. The cost of those improvements is usually factored into the new lease rate. The Chamber is not asking the City for any improvements, so there is no such cost to be factored into the new rate. The appraiser has indicated a rate of $12.OOlsquare foot in this area. So the only factors to be considered are the 20% available City usage and the use by other community organizations. The Committee is charged to make a recommendation to Council. The aforementioned factors would be reason to recommend a rate less than the fair market value, but certainly more than the $6.40 rate the City agreed to 20 years ago. Finance Committee Minutes May 2, 2007 Page 5 of 10 Vice Mayor Lecklider noted that the lease provides the option of a 5-year renewal, but the Chamber has requested another 20-year lease. Ms. Amorose responded that the Chamber had a 20-year lease because that is when the debt would be paid. Mr. Keenan clarified that there never was any debt. The City did incur costs in renovating the building, but there were no bonds issued. It was handled as a traditional business lease -the developer invests the money and expects to recover the cost through the terms of the lease over a period of time. Ms. Amorose responded that all of that money will have been recovered by July 2008. Vice Mayor Lecklider stated that what the City is looking at now is a 5-year renewal with a continuing 5-year renewal option. Mr. Smith responded that the Chamber is requesting a longer lease versus frequent renegotiations with perpetual 5-year renewals. Mr. Keenan stated that the issue with a longer lease is the flexibility that Council may or may not wish to have in regard to the City's future desires for that building. If the building were located at the corner of Bridge and High streets, that would be a critical factor; he is not certain that makes a difference in this case. Ms. Amorose noted that the building is located at the end of the Historic District. Mr. Keenan stated that he would not be opposed to a 10-year lease. Ms. Brautigam responded that 10 years is much more reasonable than 20 years, perhaps a 10-year lease with a 5-year renewal option thereafter would make sense. Mr. Keenan stated that the original lease was for $16,000/year, so the City will have collected $320,000 in 20 years. However, the City funded renovations of $220,000 on the facility, so essentially, the City leased the property for $100,000 over 20 years, or $1.90/square foot. The more significant consideration is that the Chamber has taken excellent care of the facility, and the City does not need to invest additional money in the building, even though it has been 20 years. He inquired if Vice Mayor Lecklider agreed with reducing 20% from the $12.00/sq. ft. appraisal rate, looking at past usage and the availability of public restrooms. Vice Mayor Lecklider agreed. Mr. Keenan inquired if the list of other organizations that use the facility and the fact that the City does not need to do additional improvements to the facility should also be considered. Finance Committee Minutes May 2, 2007 Page 6 of 10 Ms. D'Amore stated that in regard to the tenant improvement dollars, the leases that Duke has been doing in this market range for a property close to this type of building include approximately $5/sq. ft. for TI allowance as part of the renewal. Mr. Keenan noted that is amortized over the lease period, not $5/sq. ft. for each year. Ms. D'Amore agreed it would be over a 3-5 year term. Vice Mayor Lecklider noted that this could be for a longer term, potentially 10 years. Mr. Strip stated that the Committee is viewing this as a business deal. This is not a business deal, nor was it ever intended to be. This building was in a state of disrepair before it was renovated. Since then, the building has been an asset to the downtown area. That is an intangible to which a dollar amount cannot be affixed. In addition, the Chamber is sometimes viewed as a City function. The Chamber's service includes receiving calls for contact information for the City and for other area services -what dollar value can be placed on that? It would be similar to trying to place a dollar value on the Dublin Counseling Center's services or on the Arts Council's services, which are part of the City. This is not a business deal. Mr. Keenan stated that the building is a City asset, and therefore Council has a fiduciary responsibility. Council is charged with trying to balance the taxpayers' rights to the property versus how much the community is served and arrive at a fair rate. What other method should be used? Mr. Strip responded that the question is, "Are the residents receiving their money's worth out of the property?" and the answer is "yes." Mr. Keenan responded that he believes it is still appropriate to view and handle the lease from a business perspective. Vice Mayor Lecklider stated that Council would take into consideration the value to the community when they agree on the final terms. However, the public would not think it fair if there were not some adjustment to the existing lease rate. Should it be the market rate, which the appraiser has indicated as $12.00 - $17.00 per square foot? Then there is the 20% adjustment for City use, as included in the existing lease. It has also been suggested that Council take into consideration that there has been no request for facility improvements. There is also the consideration of renewing the lease fora 10-year term, which could be a benefit to both parties. Mr. Keenan noted that there is value to the Chamber in having aten-year lease term without a rate escalator built into it. If that occurs, Council would be agreeing to a rate that would not change for ten years. He is interested in being fair. Vice Mayor Lecklider stated that he agrees with Mr. Keenan that the correct starting point is to look at it from the business perspective. That is the reason the process began by obtaining an appraisal of rental rates. Finance Committee Minutes May 2, 2007 Page 7 of 10 Ms. Amorose requested that Council continue to factor in the service the Chamber provides to the City in helping businesses locate in Dublin. Mr. Keenan responded that the Council has a similar situation with other organizations, such as the Dublin Arts Council, which also argue that they should be charged a lesser rate because they are providing a community service. The City must treat everyone the same and be mindful of precedence setting. Ms. Amorose stated that the difference is the Chamber assumed a lease that was to be paid out in 2008. The Chamber fulfilled those terms and has never asked the City for anything. Mr. Keenan inquired if Vice Mayor Lecklider wanted to discuss a possible rate. Vice Mayor Lecklider indicated he did and suggested a starting point of the $12Isq. ft. appraisal rate. Mr. Colatrugio stated that if $12 is first discounted by 20%, then the value of not having a need for site improvements should be factored in. Ms. D'Amore indicated that with most of their Dublin properties, Duke has been allowing $5/square foot. Mr. Keenan stated that if that is amortized over 10 years, it would be $.50. Mr. Colatrugio stated that the next consideration would be the additional value that the Chamber brings to the community. Ms. Brautigam stated that $12.00 minus 20% is $9.60 minus $.50 is $9.10; currently, the lease rate is $6.40/sq. ft. Ms. D'Amore inquired if the parking lot is considered a public parking lot. If sa, was that considered under the original lease? If not, it could be an additional factor. She would estimate that the Chamber is spending a couple of cents per square foot to maintain that on an annual basis. Mr. Strip stated that when this lease was originated in 1988, Dublin had recently become a city, and had 5,000-6,000 residents. The Chamber now serves 37,000 people, so it provides more services. As a resident and taxpayer, he would have no qualms about leaving the rent as it currently stands for another 10 years. Mr. Keenan responded that he does not believe Council would approve that. Mr. Colatrugio inquired what percent of the building is a public space. Ms. Amorose responded that it would be approximately 50%. Mr. Colatrugio suggested that if half the building is designated for the Chamber administrative offices and the other half is available to the community, that should also be factored in. From a business standpoint, it is possible to arrive at a rate close to the current rate. It is a reasonable argument to make to the citizens. Finance Committee Minutes May 2, 2007 Page 8 of 10 Vice Mayor Lecklider responded that he appreciates the feedback. However, it is not necessary to impress upon him or any of the Council members the value of the services the Chamber provides to the community. They do appreciate that. Ms. D'Amore stated that there is one other business consideration and that is the fact that the property is aging. There is a cost of maintaining the property, which the Chamber has covered. That cost will continue to escalate as the property ages, and could also be factored in. Ms. Amarose noted that the building will soon need to be repainted and the parking lot should be re-paved. The Chamber did not want to invest that money while there were questions about the lease, but those expenses would need to be budgeted. Vice Mayor Lecklider stated that the last number mentioned was $9.10, and there were suggestions that followed that would lower it. Mr. Keenan stated that if the use by other organizations was calculated at 10°~, that would result in a rate of $7.90. His personal view is that the rate needs to be between the market value and the current lease rate. He believes that would be a good recommendation for Council and justifiable to the taxpayers, an auditor, or other interest. Vice Mayor Lecklider inquired the timeline for negotiation. Mr. Keenan responded that it is August 1, but the Chamber would appreciate having it resolved as soon as possible. It should be possible to decide by the end of May. Mr. Colatrugio inquired the amount of the last figure mentioned. Mr. Keenan responded that reducing the $12.00 by an additional 10% brings the number to $7.90, essentially $8.00. He believes a rate of $8.00 or $9.00 would be fair. The committee must explain the methodology used to reach the recommended rate to Council. Mr. Colatrugio suggested that the only other consideration that could be applied is the value of having the Chamber acting on behalf of the City of Dublin. The Chamber, along with the City, helps make this a great community for businesses and residents. That value could additionally reduce the figure from $7.90. Ms. Brautigam stated that the Committee members already factored that in. It was the 10% additional community value factored in. Mr. Keenan stated that a renegotiated rate of $6.00 would not be acceptable to Council. Council has had similar issues and discussions over the last three years with other organizations. He agrees with all the arguments presented today. He is one of the Finance Committee Minutes May 2, 2007 Page 9 of 10 Chamber's biggest proponents. Nevertheless, it is Council's fiduciary responsibility to look after its assets. Mr. Smith noted that the Chamber will have another year at the current lease rate as the existing lease will not expire until July 2008. Mr. Strip noted that times have changed since the original lease was written. The Chamber is serving a community 7 times larger and servicing groups that did not exist 20 years ago. He reiterated that this is not a business deal. The Chamber is an arm of the City that produces money for the City, and the taxpayers will not complain about this continuation of the lease rate. Mr. Keenan responded that all the arguments are compelling and can be made directly to Council when this item is scheduled for a public hearing. Vice Mayor Lecklider stated that one point that has not been made is that in five years, the market rate could be 3-4 times higher. He agrees, however, that the rate should be less than the current market rate. Mr. Keenan inquired if the Committee wants to formulate a recommendation. Vice Mayor Lecklider stated that there probably is not sufficient value in two Council members making a recommendation. He would prefer to schedule it as a topic for full Council discussion. Ms. Amorose inquired if the Chamber would have the opportunity to be present at that discussion. Mr. Keenan responded affirmatively Ms. Brautigam stated the lease renewal would be scheduled as an agenda item, and the Chamber could attend and speak on the topic. Mr. Keenan stated that he agrees that this decision should follow a full Council discussion. This could potentially beaten-year lease, and it would be better if all Council members were engaged in the consideration. Ms. Bautigam agreed. Many factors have been brought up -- tenant finish, parking lot, economic development -that are valid considerations, and which all of Council would want to hear. The individuals present would be able to make a more compelling statement than Committee members attempting to report it second-hand. Ms. D'Amore Hated that if the 20% City usage is in question, the public parking lot is an important factor. It consists of 12-14 spaces. Mr. Keenan agreed. The public parking lot is a compelling argument for the 20% reduction. Finance Committee Minutes May 2, 2007 Page 10 of 10 Ms. Brautigam stated that the City could possibly take over the maintenance of the parking lot. Ms. Ott noted that falls in line with Council's goal to make public parking available in the Historic District. Therefore, it would make sense for the City to manage the parking lot versus the Chamber. Mr. Keenan stated that this could be added to Council's May 7 agenda. Mr. Smith noted that it would not be possible to advertise this, due to the timeframe involved. Following discussion, consensus was to schedule the topic on the June 4 Council agenda. The meeting was adjourned at 9:40 am. Clerk of Council