DEBT SEMINAR Columbus, OH April 30, 2009 POLARIS A Case Study in Tax Increment Financing
What is Polaris? Over 1,000 acre mixed use development Retail Office Hotel Restaurant Entertainment Residential
What is Polaris? Major retail components Polaris Fashion Place 1,500,000 square feet of retail space 7 anchor tenants including Barnes & Noble, JC Penney, Macy s, Saks Fifth Avenue, Sears, The Great Indoors and Von Maur 155 specialty stores Polaris Towne Center 440,000 square feet of retail space Businesses including Best Buy, Lowe s, Old Navy, OfficeMax, Kroger and Target Other Retail Shoppes at Polaris Capella Center II Polaris Neighborhood Center Sancus Retail Center Costco
What is Polaris? Major office components JPMorgan Chase Operations Center Approximately 2,000,000 square feet built in two phases Approximately 8,000 employees with ability to accommodate 10,000 Each phase abated for 10 years Estimate market value of over $200 million McGraw Hill Office Building 550 employees Partially abated for 10 years Estimated market value of $20,000,000 Mettler Toledo Over 300 employees Originally abated for 10 years with recent 5-year extension Estimated market value of $17,000,000
What is Polaris? Hotel Development Hilton full service hotel is flagship Polaris hotel 252 guest rooms Fitness center and indoor pool Full service restaurant and bar Approximately 15,000 square feet of meeting space Other hotels include Hilton Garden Inn, Candlewood Suites, Wingate, Extended Stay Deluxe and Comfort Inn Residential (Not captured by TIF) Apartments Condominiums
What is Polaris? Summary of Project Close to 1,000 acres have been developed Final build-out projections call for 11,000,000 square feet of improvements Well over 100 buildings already constructed and over 200 companies are accommodated Current assessed valuation of approximately $216,800,000
Polaris Financing History Land accumulation for Polaris commenced in late 1980 s In 1994 City began negotiating TIF Agreement with developer and Olentangy Local Schools Original TIF negotiations centered upon a proposed Mills Outlet Mall School District rejected TIF participation Political fallout at School District level Project abandoned
Polaris Financing History Negotiations commenced anew centered upon Polaris Fashion Mall School District approved a modest level of participation School District proposal rejected by City Project became a hotly debated political issue at City level
Polaris Financing History
Polaris Financing History In 1996, a non-school TIF was created Revenue flow commenced in 1998 and grew to over $1.2 million in 5 years Year Revenue % Increase 1998 $67,959 N/A 1999 $103,757 52.67% 2000 $474,434 357.25% 2001 $858,006 80.85% 2002 $1,283,958 49.64% 2003 $1,573,395 22.54% 2004 $1,523,134 (3.19%) 2005 $1,501,331 (1.43%) 2006 $1,637,540 9.07% 2007 $1,819,674 11.12% 2008 $2,123,484 16.70%
Polaris Financing History Initially, some improvements were financed by developer and reimbursed from TIF cash flow First financing completed in 2001 $4,000,000 variable rate demand TIF revenue bonds Backed by bank Letter of Credit Proceeds used to pay for and reimburse developer for street improvements (Lyra Drive, Gemini Parkway and Polaris Parkway) In 2004, Ohio Department of Transportation accepted bids for a new interchange construction project estimated at $27,600,000
Polaris Financing History City issued $20,000,000 in TIF revenue bonds in 2004 Refinance balance of 2001 bonds ($2,100,000) Provide a portion of funds necessary for interchange project ($15,965,000) TIF revenue bonds were insured by AMBAC and received a A underlying rating from Standard & Poor s TIF revenue stream could not fund entire interchange due to Coverage requirements Inability and unwillingness to finance based upon speculative revenues Only completed projects and projects underway were included in financing revenue stream
Polaris Financing History The City reserves the right to pursue additional improvements in the TIF area and to pay for them (or reimburse the developer) after its obligations to Senior Lien and Deferred Bond Holders are met The City of Columbus considers Polaris a TIF success story Annual TIF revenues are currently exceeding the amounts that were projected in 2004 by roughly 7% Senior and Deferred Bond debt service is comfortably being paid The City was able to accomplish the financing plan while shifting development risk to the developer and bondholders
Evaluating Risk There is Risk Associated with Every TIF Transaction - WHO TAKES IT??
Evaluating Risk Development Risk Issues Will the project be completed? Will it be completed in a timely manner? Will it be valued at an appropriate level? Least Development Risk Well defined Proven Short development horizon Proven developer Most Development Risk Unique project Multiple Phases Not fully controlled by single developer
Evaluating Risk Mitigating Development Risk Developer agrees to minimum assessed valuation or minimum payment schedule TIF financing structured with ample coverage requirements Provide for generous Ramp Up period
Evaluating Risk Credit Risk Issues Fluctuation in tax rates (only unvoted millage increases with inflation) Developers ability to pay Assessed valuation of property declines
Evaluating Risk Mitigating Credit Risk Provide coverage sufficient to cover maximum tax rate fluctuations Developer secures debt service payments with letter of credit or other financial guaranty Developer forfeits right to appeal property valuation Developer signs on to minimum payment schedule
Lessons from Polaris All TIFs involve two types of risk Development Risk Credit Risk In Polaris, City of Columbus has transferred virtually all development risk to the developer In Polaris, all credit risk transferred to insurer and developer Senior lien bondholders and City essentially insulated from both types of risk
Lessons from Polaris Polaris is unique because of sheer magnitude of project Not always possible to protect school revenue General obligation support is sometime necessary Goal is normally to minimize risk not eliminate it
Lessons from Polaris Implement TIF early and for entire project area Polaris lost some potential revenue by not creating TIF prior to 1995 Important to monitor TIF revenue and verify accuracy on an annual basis First several years of Polaris, State rollback revenue was not being distributed to TIF by County. Dispute was settled by State Department of Taxation
Lessons from Polaris Patience is key Developer projections are often optimistic in terms of time and dollars Must allow for a prolonged revenue ramp up period
Panel Participants Argus Growth Consultants, Ltd. Bradford M. Sprague, Vice President 100 South Third Street Columbus, Ohio 43215 (614) 227-8975 (Telephone) bsprague@argus-growth.com Bricker & Eckler LLP Price D. Finley, Esq. 100 South Third Street Columbus, Ohio 43215 (614) 227-8897 (Telephone) pfinley@bricker.com City of Columbus Hon. Hugh J. Dorrian, City Auditor 90 West Broad Street, Room 109 Columbus, Ohio 43215 (614) 645-7615 (Telephone) hjdorrian@columbus.gov Olentangy Local School District Rebecca Jenkins, Treasurer/CFO 814 Shanahan Road Lewis Center, Ohio 43035 (740) 657-4035 (Telephone) Rebecca_jenkins@olentangy.k12.oh.us