NDA Research Technology Park - First Addition to SBHE Contract

Transcription

1 NORTH DAKOTA STATE UNIVERSITY, April 12, REQUESTED ACTION: Request approval of the attached capital/major operating lease agreement between NDSU and the NDSU Research Technology Park. It is NDSU s understanding that the document is called an operating agreement because the original bond resolution and financial structure for the deal calls for there to be an operating agreement between NDSU and the NDSU Research and Technology Park. It was called an operating agreement because it was intended for the legal title to be in the hands of the NDSU Research and Technology Park after the bonds were paid. The payments were intended to be more of a rent payment in the original deal. However, under generally accepted accounting principles, the lease meets the criteria of a capital lease, because NDSU is in substance paying for the entire building with its lease payments (i.e., the 90% criteria). Since SBHE Policy uses the same capital lease criteria for requiring Board approval, this so-called operating agreement is being submitted to the SBHE at this lease renewal time. In addition, the debt is actually classified on NDSU s financial statements as bonds payable for financial reporting purposes, through a previous agreement with the ND State Auditor s Office. Lease Description (description of leased premises, proposed use, etc.) The Research 1 Operating Agreement that is being presented for approval is for the Research Building #1 located on Lot 1, Block 2, NDSU Research and Technology Park First Addition to the City of Fargo, North Dakota. This includes a 40,000sf facility and adjacent parking lot. The building is comprised primarily of office and wet lab space and is occupied by the following NDSU departments/offices: Vice President for Research, Creative Activities, Technology Transfer; Sponsored Programs Administration and Technology Transfer Offices; Department of Coatings and Polymeric Materials; the Center for Computationally-Assisted Science and Technology; the NDSU Research Foundation; and the EPSCoR Office. Background: The agreement being presented at this time relates to the one of two research buildings (named Research 1 and Research 2 ) that are leased based on a complicated financing structure involving the City of Fargo, North Dakota State Board of Higher Education ( SBHE ), North Dakota State University ( NDSU ), and the NDSU Research and Technology Park, Inc. ( RTP ). This Research 1 Operating Agreement was originally entered into for a 10-year period that ended 6/30/2011. It is up for renewal at this time. The Research 2 Operating Agreement is up for renewal on 7/1/2013. The financing arrangement for Research 1 is summarized below: (Research 2 has a similar structure) 1. The State of North Dakota and the SBHE (on behalf of NDSU) entered into a Master Ground Lease and Development Agreement dated December 30, 1999 (the Ground Lease ), with RTP, with respect to 40 acres of land on the northwest side of the NDSU campus. 2. RTP assigned a portion of the Ground Lease to the City of Fargo, North Dakota (the City ) pursuant to a Partial Assignment of Ground Lease, with respect to the Research 1 site. 3. The City issued its Lease Revenue Bonds of 2000 (North Dakota State University Lease Obligation) Series A and Series B (Taxable) dated as of November 1, 2000 pursuant to a Mortgage and Trust Indenture dated as of November 1, 2000, between the City and U.S. Bank Trust, National Association (the Indenture ).

2 4. The City leased the Research 1 site and improvements to RTP pursuant to a Lease Agreement dated as of November 1, 2000 (the Lease Agreement ) which provides for Basic Rent sufficient to pay the principal and interest on the Series 2000 Bonds. The Lease Agreement also provides that title to the facility will be in the City of Fargo until the bonds are paid, at which time the City will transfer all of its rights to Research 1 and the ground lease to RTP. 5. Pursuant to an Assignment of Lease Agreement dated as of November 1, 2000, RTP assigned its interest in the Lease Agreement to NDSU, except for the right to acquire Research 1 upon payment of all of the bonds. The intent was for title to Research 1 to revert from the City to RTP after the bonds are paid. The Research 1 Operating Agreement being presented for approval outlines the specific terms of the agreement between the RTP and NDSU. SBHE Policy 909 (Real Property Leases), part 1, provides four criteria (1a 1d) for classifying a lease as a capital lease requiring Board approval. Although the Research 1 Operating Agreement does not provide for title to transfer to NDSU at the end of the lease term (criteria 1a), the Agreement does provide for the amount of the annual lease payments to cover all of the debt service requirements on the bonds issued to finance construction of the facility; so criteria 1d is met, and the Agreement requires SBHE approval. The quarterly rent payments are more than just the debt service requirements on the bonds. The lease payments total $628,943 per year. The annual principal and interest due on the Research 1 bonds is around $510,000. (The original bonds for Research 1 were issued for $6,500,000.) The amount of lease payments in excess of the debt service requirements is intended cover other debt service costs (such as trustee fees, legal fees, arbitrage rebate fees), as well as NDSU Research and Technology Park management fees and money to set aside for future repair and replacements to the facility. Although the Research 1 Operating Agreement requires SBHE approval under SBHE Policy 909, for financial reporting purposes NDSU reports the RTP s Lease Revenue Bonds (and related refunding bonds) under NDSU s long-term debt using a Bonds Payable classification, so the Research 1 Operating Agreement is not reflected in reporting of NDSU capital leases. This financial reporting classification was through an agreement with the ND State Auditor s Office at the inception of this financing structure. Both the original Series 2000 Bonds (for Research 1) and Series 2002 Bonds (for Research 2) were partially advance refunding by Series 2007A and 2007B Bonds. The financing structure did not change with the refinancing, just the payment schedule on the RTP bonds. Lease Term Operating Agreement: The Term of this agreement is for one (1) year (to July 1, 2012) with an option by Lessee to renew for an additional ten (10) years plus further option to renew for the balance of the BOND LEASE twenty-five (25) year term to November 1, The annual payment shall be readjusted by mutual agreement every two years to coincide with the fiscal biennium of NDSU. This request is only for Research 1 and only for one year as the RTP real estate committee would like to meet regarding the next agreement prior to its renewal. NDSU understands that another separate request for Research 2 will be submitted at the appropriate time, as required.

3 Lease Agreement and Assignment to NDSU: The term of the Lease Agreement between the City of Fargo and the NDSU Research and Technology Park, Inc. (and assigned to NDSU) is November 1, 2000 December 30, The lease may be terminated earlier upon full payment of the Bonds or the defeasance of its Bonds as provided in the Indenture. Annual Lease Payments or Rent The annual total of the lease payments is $628,943 and the payments are made at the beginning of each quarter. The annual principal and interest due on the Research 1 bonds is around $510,000. The amount of lease payments in excess of the debt service requirements is intended cover other debt service costs (such as trustee fees, legal fees, arbitrage rebate fees), as well as NDSU Research and Tech Park management fees and money to set aside for future repair and replacements to the facility. Other Estimated Annual Costs (utilities, maintenance, etc.) Estimated $400,000 Explanation Regarding Need for Leased Premises The Division of Research, Creative Activities, and Technology Transfer (RCATT) was created in 2000 and given a charge to interface between the federal, state, and private sectors to develop a campus research infrastructure and position NDSU to be a leader in technology- based economic development. The Research 1 facility in the NDSU Research and Technology Park has enabled these activities and their co-location has provided opportunities to more easily partner with companies housed in the Park. The facility provides much needed research infrastructure, particularly wet laboratories, necessary for the continued growth of programs. Consistency with Campus Strategic Plan and Budget The facilities leased by NDSU at the NDSU Research and Technology Park are a key resource that is consistent with NDSU s strategic plan for pursuing scientific research. Since the inception of the lease agreements and financing structure in the early part of the last decade, lease payments and other operating costs have been paid from the facility and administrative costs recoveries on grant and contacts. This resource is budgeted as an NDSU local fund. For Capital Lease: 1. Description of property to be transferred to state or institution and date of transfer and projected future use, or 2. Description of improvements to be paid for with public funds and explanation regarding why the improvements are needed. Neither of these items applies. Once the RTP bonds are paid off, via the NDSU lease payments, the title to the property will reside with the NDSU Research and Technology Park, as established in the original financing structure (see background, under Lease Description, above). The expected payoff date is April 1, Source and Availability of Funds for Lease or Rental Payments and Other Costs Facility and Administrative Cost Recoveries on federal, state and private grant and contracts are used by NDSU to make the lease payments. This is the same source for the other annual operating costs estimated at $400,000 per year. Future Operating/Improvement Costs and Funding Source(s): Not Applicable For Capital Lease Improvements, Estimated Project Timeline and Completion Date: Not Applicable

4 Information requested by NDUSO for SBHE approval of operating agreement between NDSU and the NDSU Research & Technology Park, Inc. Relationship of NDSU and Tech Park The NDSU Research & Technology Park (NDSU-RTP) is an affiliated foundation to North Dakota State University. NDSU s relationship with the NDSU-RTP falls under the requirements of SBHE Policy (Foundations). The NDSU-RTP is classified as a discretely presented major component units in the financial statements of the North Dakota University System. The NDSU Research & Technology Park is a separately incorporated IRS 501(c)(3) organization established in 1999 under the laws of North Dakota. The majority of the Park s board of directors (7 of 10) works in private industry. Vacancies are filled by a majority vote of the board. Officers of NDSU fill the remaining three positions. The President of NDSU serves as president of the board of directors and has control over final building plans for any new building at the Park. The NDSU-RTP was formed to aid NDSU by: A. Assisting NDSU in its teaching, research, and public service missions. B. Achieving successful, technology-based economic development through the establishment of a park where partnerships between start up entrepreneurs, high-tech businesses and the research of NDSU will lead to the creation of new business ventures. C. To create a technology incubator by providing space, infrastructure and technical assistance to start-up businesses and new ventures for existing businesses and entrepreneurs which will be of mutual benefit to NDSU and the State of North Dakota. D. To provide park occupants with access to the research, development and problem solving resources of NDSU. These resources include a pool of future professional and technical workers from the University s degree programs, as well as faculty and academic staff engaged in the application and transfer of knowledge gained through scientific investigation and research. E. To create a business environment dedicated to applied research and technological discovery for the benefit NDSU s faculty, staff and students. In addition, to provide a pool of professionals to serve as a potential resource for teaching and applied research and development. F. To create an environment to facilitate the transfer and application of scientific research for NDSU and to the global economy. G. To promote economic development in the City of Fargo and the State of North Dakota. The development of a research park will enhance the value of funds invested in NDSU by the citizens of North Dakota and the economic base of North Dakota will be enhanced. H. To pay out and distribute the Corporation s funds to NDSU for scientific investigation, research, technological advancement, and educational opportunities at said University, at such times and in such amounts as shall be in the sole discretion of the Board of Directors.

5 Explanation of project financing arrangement and how this lease arrangement fits with that overall finance arrangement See Board Request Facility use(s) See Board Request Other NDSU debt related to the Research and Technology Park There are other operating leases between NDSU and the NDSU-RTP where NDSU departments are paying rent for lab, classroom, and office space in NDSU-RTP buildings other than Research 1 & Research 2. A summary is as follows: Candlewood Suites (rent $38,031/year), Appareo Building (rent $234,234/year), Technology Incubator building (rent $26,850/year). In the NDUS financial report these agreements are considered operating lease commitments and are not reported as debt. Complete list of NDUS outstanding operating and capital lease debt The schedules below detail NDSU s capital leases, leases payable to component units, and bonds payable. Operating leases are not considered debt. (Assumes the NDUSO is requesting NDSU debt, not NDUS debt) List of Capital Leases as of 1/31/2012: ND Industrial Commission-Energy Conserv $ 40, Butler Machinery-Generator $ 67, GE Capital-No Till Drill $ 11, GE Capital-2007 Case Skid Steer $ 3, GE Capital-Almaco Row Crop Planter $ 5, GE Capital-Almaco Seed Drill $ (212.29) Wells Fargo-Daktech Rackmount Servers $ 17, GE Capital-Forage Harvester $ 20, Wells Fargo-Athletic Field Turf $ 335, JPR Investments LLC-StopNGo--Build Out $ 95, Wells Fargo-File Servers $ 10,754.49

6 Cityscapes- Security Office Fit-up loan $ 123, Cityscapes- Bookstore Fit-up loan $ 94, Bank of America-Energy Savings Performance Contract $ 7,266, Wells Fargo-File Servers $ 16, Wells Fargo-File Servers $ 30, Wells Fargo-Maxxum 125 MFD Loader $ 23, Wells Fargo-New Holland Tractor/Loader $ 59, Wells Fargo-Analytical Instruments $ 59, Wells Fargo-New Case 440 Skidsteer $ 13, Wells Fargo-Olympus FV100 Fd Laser Scanning Confocal System $ 49, Wells Fargo-Wintersteiger Classic Combine $ 103, Wells Fargo-John Deere 444 K 2011 Loader $ 42, Wells Fargo-2007 Case IH MX245 MFD Tractor $ 38, Wells Fargo-Almaco Model SPC2-B Combine $ 157, List of Due to Component Units (Foundations) as of 1/31/2012: $ 8,687, NDSU Development Fnd-Equine Science Center $ 3,070, NDSU Development Fnd-Fargodome-Paid from NDSUDF $ 2,498, GE Capital for NDSU Dev Fnd-Aircraft $ 1,413, NDSU Development Foundation-Barry Hall $ 6,951, NDSU Development Foundation-Klai Hall $ 3,653, NDSU Development Foundation-Renaissance Hall $ 5,505, $ 23,093, List of NDSU Bonds Payable as of 1/31/2012: Housing and Auxiliary System Revenue Bonds: 2002 Living Learning Center * $ 6,375, Minard Hall * $ 2,450, Refunding Bonds (1992 series) * $ 750, Bison Court Replacement $ 8,975, Memorial Union Addition $ 17,495, A Wellness Center Addition $ 9,100, B Wellness Center Refunding(1999) $ 2,620, LLC East/Ceres Hall $ 11,375, Niskanen/WDC $ 25,765,000 Subtotal - NDSU $ 84,905,000 NDSU Research & Tech Park, Inc.** Research 2 (Series 2002 Bonds) $ 515,000

7 Research 1(Series 2007A Refunding Bonds) $ 4,535,000 Research 2 (Series 2007B Refunding Bonds) $ 17,715,000 $ 22,765,000 Total NDSU Bonds Payable $ 107,670,000 *Bond issue will be retired or refunded in fiscal **NDSU-RTP Bonds are shown as NDSU bonds payable in NDUS financial reports. Other pertinent information If this is a one year initial lease (to July 1, 2012) which is it coming forward now, as opposed to July 1, 2011? When did the last lease agreement expire? The Research 1 Operating Agreement was originally entered into for a 10 year period which ended 6/30/2011. It is up for renewal at this time.

8 OPERATING AGREEMENT This AGREEMENT is made July 1, 2011, by and between the NDSU Research & Technology Park, Inc. ( LESSOR ), and North Dakota State University of Agriculture and Applied Science ( LESSEE or NDSU ). RECITALS WHEREAS, the Parties entered into a MASTER GROUND LEASE AND DEVELOPMENT AGREEMENT dated December 30, 1999, for the development of a research and technology park on the campus of NDSU ( RESEARCH PARK ), and WHEREAS, in order to finance Research Building #1 located on Lot 1, Block 2, NDSU Research and Technology Park First Addition to the City of Fargo, North Dakota ( FACILITY ), the City of Fargo ( FARGO ) issued its MIDA $6,500,000 Lease Revenue Bonds of 2000 ( BONDS ) on or about November 1, 2000, and WHEREAS, as part of the financing, FARGO and LESSOR entered into a Lease Agreement ( BOND LEASE ) dated November 1, 2000, which was assigned by LESSOR to NDSU on said date, and WHEREAS, the parties, in furtherance of the BOND LEASE and for funding the construction and equipping of the FACILITY and its subsequent operation by NDSU hereby enter into this OPERATING AGREEMENT ( AGREEMENT ) for payments and operation of the FACILITY; NOW THEREFORE, the Parties agree to the following: 1. RENT. NDSU shall pay to LESSOR the sum of $628, annually payable quarterly as follows: July 1, October 1, January 1, and April 1. Attached as Exhibit A is the breakdown of rental costs. 2. TERM. The Term of this AGREEMENT shall be for one (1) year (to July 1, 2012) with an option by Lessee to renew for an additional ten (10) years plus further option to renew for the balance of the BOND LEASE twenty-five (25) year term to November 1, The annual payment shall be readjusted by mutual agreement every two years to coincide with the fiscal biennium of NDSU. This AGREEMENT is subject to funding and legislative appropriations. 3. FACILITY. The FACILITY includes Building # 1 and the lot as stated above and the furniture and fixtures purchased with the BONDS proceeds. Exhibit B will be attached to this AGREEMENT which will list the furniture. 4. OPERATING COSTS. NDSU is responsible to pay all operating costs of operating the FACILITY to include insurance, all utilities including, but not limited to, heat and electricity, water, garbage and sewer, telecommunications charges, security charges (if any), snow removal and normal repairs and maintenance. Normal repairs and maintenance means all maintenance and repairs except structural repairs (e.g., roof) or fixture replacement. 5. SUBLEASE. NDSU can sublease the FACILITY within the limits of the BOND LEASE and the Internal Revenue Code. SIGNATURES: FOR LESSOR: FOR LESSEE: Date: Tony Grindberg Executive Director NDSU Research & Technology Park, Inc. Date: Bruce Bollinger Vice President for Business & Finance North Dakota State University