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Thursday, February 19, 2015

Fort Thomas' New Plan for the VA Homes

Fort Thomas City Council: Adam Meier, Roger Peterman, Jeff Bezold, Eric Haas, Lisa Kelly, Ken Bowman, John Muller
After two unsuccessful attempts at soliciting bids for the ten historic VA homes (15 units) in Tower Park, the Fort Thomas City Council voted (5-1) to move forward with a different strategy. Instead of requesting proposals for developers to buy the property at a minimum price bid set by the city of Fort Thomas, the city will instead advertise for developers to submit applications of their qualifications and interest in the homes.

In the new solicitations for developers, the city will be reviewing qualifications such as their experience in the acquisition and restoration of historic structures, and demonstrate they have the financial ability to complete the project. The City and the developer would then work in partnership to identify methods to close the “profit gap” for the project.

Previously after two rounds of a failed bidding process, the city met with developers to determine why they did not receive any bids.

In 2011, when the appraised value was $1,350,000 developers told the city that there was a 1 million dollar profit gap from where the starting bid was to where they could begin to make money.

In 2014, the appraised value was dropped to $510,000. There were still no bids in January 2015. This time when the city met with developers, they identified a profit gap of up to three million dollars.

Besides the purchase of the property, each of the homes must be cleared of asbestos and lead. On top of that, because the city determined previously it did not want to be involved in the process, the developer would have to oversee the replacement of a new sanitary sewer main and lateral, a water main replacement, a gas main replacement, street lighting, the removals of garages and sheds, new street pavement, curbs, sidewalks and drives.

The unknowns, according to Mansion Hill Developer Mark Ramler, is why he thinks developers are unwilling to take on the project. "There's just no way for a smaller developer to take this on and even the more established developers would be taking a huge risk with the city not wanting to put any skin in the game," he said.

The city believes that working with one developer, getting them in the door, then working with them in tandem to find ways to close that 2-3 million dollar gap is the way to go about it now. (Ideas for how to bridge that gap are listed at the end of the article).

Adam Meier, who has done the most independent research of any council member past or present on the VA Homes, doesn't agree with this approach. His vote was the only one dissenting against the city's recommendation to solicit qualified bids from developers.

He indicated during the meeting that it may be premature to use the "RFQ" process. "We are effectively locking the city into one developer and losing much of its negotiating leverage without first exhausting competitive options," he said.  "We have had two no-bid competitions. The minimum bid price was not realistic and deterred offers.  This gave us the appearance of competition, not actual competition." 

Meier favored an approach that would have the city establish the TIF district (explained later in the article) and other applicable incentives in advance to try and close the gap and then go out one more time for competitive bid prior to going the RFQ route.  "This could result in a competitive award," he said, "and if not, the city can still pursue an RFQ relationship without losing much time, since the city will have already completed the most time consuming part of the process of establishing the TIF district."

In a best case scenario under the RFQ, the request for qualified developers is advertised and multiple developers apply to the city, from which they pick the best, most qualified developer. The city works with the developer over the next year to identify opportunities for found money to surface to bridge the 2-3 million dollar gap the developers identified after the second round of zero bids.

The 3 million dollar "profit gap" is found and the asbestos and lead abatement starts in June 2016, with restoration starting in January 2017.

In a worst case scenario under the RFQ, the city only gets one qualified developer to look into the process. The city would then work with the developer and spend more city hours trying to get the deal to work. The city and developer would spend a year trying to identify money only to have the developer ask for more incentives than the city is willing to give or simply walk away.

With a 5-1 vote, the RFQ process will begin and here is the estimated timeline:
March 2015 - Advertise for RFQ’s

May 2015 - Receive RFQ’s

June 2015 - Council selects a preferred developer

June 2015 – June 2016 - Developer and City work cooperatively to identify sources of funding to offset project costs, and to identify appropriate zoning designation for the site.

June 2016 - Developer  begins abatement of hazardous materials.

December 2016 - Homes are transferred to City, then to Developer.

January 2017 - Developer begins restoration of homes.

Ideas City Staff Presented to Council to bridge the profit gap to developers
- The approval of Tax Increment Financing (TIF) District.  A TIF is a tool that allows municipalities to promote economic development by earmarking property tax revenue from increases in assessed values within the designated TIF district.  Three taxing entities – the City, the County and the Schools – would be approached seeking approval of the TIF.  This could generate up to $1 million over a ten year period. 

- The approval of state and federal historic tax credits.  Historic tax credits, generally, provide a dollar-for-dollar reduction of federal and state income taxes owed up to a percentage of the cost of rehabilitation of certified historic structures.  It is estimated that this could provide credits of up to $800,000 to the developer.

- Working with utility companies to reduce the cost of new and upgraded utilities.  Current estimates of utilities for the project are between $1 million and $1.5 million.  This cost might be reduced through negotiations with the utility companies.  The cost could further be reduced by partnering with the City to allow the City’s General Services Department to complete some of the work.  It is estimate that the cost could be reduced by as much as half - $500,000 to $750,000.

- Ask the city to waive the $100,000 administrative costs already spent on the project.  These are costs the city has spent over the past decade on this project and will not be recuperated if the project is not successful. 

- Work with our state and federal legislators in an effort reduce the cost of abatement of hazardous materials.  While this is feasible, it is not likely as a 100% credit of appraised value towards the abatement cost is already approved.  

- Working with state legislators for a direct appropriation for the infrastructure improvements to the site.  Again, due to current budgetary constraints in the state’s budget, this may not be feasible.

- Allow for 1 to 3 additional building lots where new, single-family homes could be constructed.  The design of these homes must compliment and not detract from the historic integrity of the existing homes.  

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