ADDENDUM ITEM # 7KEY FOCUS AREA: Economic Vibrancy

AGENDA DATE: June 26, 2013

COUNCIL DISTRICT(S): 3

DEPARTMENT: Office of Economic Development

CMO: Ryan S. Evans, 670-3314

MAPSCO: 43 S T W & X________________________________________________________________

SUBJECT

Authorize certain amendments to the terms for the Canyon Development Agreement with SLF III – The Canyon TIF, L.P. (“SLF”) previously approved on June 8, 2011, by Resolution Nos. 11-1570 and 11-1571, in Tax Increment Financing Reinvestment Zone Number Sixteen (Davis Garden TIF District) to clarify the allocation of tax increment revenues and priority of payment among the approved projects in the Davis Garden TIF District - Financing: No cost consideration to the City

BACKGROUND

This item clarifies several terms of the development agreement related to the The Canyon of Oak Cliff, a large tract of undeveloped land located southwest of the intersection of IH-30 and Westmoreland Road. This project is unique in that the property owner has agreed to fund infrastructure improvements for the 200+ acre site, but will not construct vertical development. The original resolution specified terms more applicable to the private developers purchasing land in this area, however, since this contract is with the land developer, terms are recommended to be adjusted to reflect components of the City’s adopted TIF policy. The proposed amendments also reflect that North Oak Cliff Municipal Management District (“NOC MMD”) overlays the boundaries of the Davis Garden TIF District. The NOC MMD is anticipated to increase future financing options for this TIF Reinvestment Zone.

City Council approved SLF’s request for $69,808,000 in TIF Subsidies plus an additional grant up to $59,067,756 for a total TIF Subsidy of $128,875,756 to support the development of Sub-District A in the Davis Garden TIF District (“the Canyon”) on June 8, 2011.

Agenda Date 06/26/2013 - page 2

BACKGROUND (Continued)

The project includes environmental remediation, demolition of existing structures and facilities, park and open space improvements, infrastructure improvements (water, wastewater, drainage, sidewalks, lighting, streets, landscaping and engineering) for the 210-acre site which has never been served by public roads and other utilities.

This item amends Resolution No. 11-1570 which authorized staff to execute a development agreement with SLF related to the redevelopment of the Canyon in Oak Cliff. The amendments to the terms of the development agreement will facilitate its execution, clarifies reimbursement priorities for the Davis Garden TIF District and adjust other provisions of the agreement.

PRIOR ACTION/REVIEW (COUNCIL. BOARDS, COMMISSIONS)

On June 13, 2007, City Council authorized the establishment of Tax Increment Financing Reinvestment Zone Number Sixteen, the Davis Garden TIF District by Ordinance No. 26799, as amended.

On February 27, 2008, City Council authorized the Project Plan and Reinvestment Zone Financing Plan for the Davis Garden TIF District by Ordinance No. 27090, as amended.

On June 8, 2011, City Council authorized (1) a development agreement with SLF to dedicate future TIF revenues for eligible project costs and for an economic development grant pursuant to the Davis Garden TIF District Grant Program to support the development of the Canyon in Oak Cliff located in Tax Increment Financing Reinvestment Zone Number Sixteen (Davis Garden TIF District) and to participate through Dallas Water Utilities (DWU) in the costs of certain water and wastewater infrastructure improvements subject to future appropriation from current funds and pursuant to the provisions of Dallas City Code Chapter 49, Section 62(j); and (2) the Davis Garden TIF District Board of Directors to dedicate up to $69,808,000 plus an additional grant up to $59,067,756 pursuant to the Davis Garden TIF District Grant Program for total funding not to exceed $128,875,756, by Resolution Nos. 11-1570 and 11-1571

On June 6, 2013, the Davis Garden TIF Board of Directors recommended City Council consideration and approval of various amendments to the terms approved by Resolution No. 11-1570 for the Canyon Development Agreement.

On June 21, 2013, a memo was submitted to the Economic Development Committee regarding the amendment to Resolution No.11-1570.

FISCAL INFORMATION

No cost consideration to the City

Agenda Date 06/26/2013 - page 3

OWNER INVESTOR

Various affiliates of: SLF III – The Canyon TIF, L.P.SLF III – The Canyon TIF, L.P. A Texas limited partnership A Texas limited partnership

Phillip F. Wiggins, Managing Member Phillip F. Wiggins, Managing Member

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COUNCIL CHAMBER

June 26, 2013

WHEREAS, the City recognizes the importance of its role in local economic development; and

WHEREAS, on June 13, 2007, City Council authorized the establishment of Tax Increment Financing Reinvestment Zone Number Sixteen (the Davis Garden TIF District) in accordance with the Tax Increment Financing Act, as amended, V.T.C.A Texas Tax Code, Chapter 311 (the “Act”) to promote development and redevelopment in the District through the use of tax increment financing by Ordinance No. 26799, as amended; and

WHEREAS, on February 27, 2008, City Council authorized the Davis Garden TIF District Project Plan and Reinvestment Zone Financing Plan by Ordinance No. 27090, as amended; and

WHEREAS, on June 8, 2011, City Council authorized (1) a development agreement with SLF III – The Canyon TIF, L.P. (“SLF”) to dedicate future TIF revenues to support the development of the Canyon in Oak Cliff (the “Canyon Development Agreement”) located in Sub-District A (the “Property”) of Tax Increment Financing Reinvestment Zone Number Sixteen (Davis Garden TIF District) and to participate through Dallas Water Utilities (DWU) in the costs of certain water and wastewater infrastructure improvements subject to future appropriation from current funds and pursuant to the provisions of Dallas City Code Chapter 49, Section 62(j); and (2) the Davis Garden TIF District Board of Directors to dedicate up to $69,808,000 plus an additional grant up to $59,067,756 pursuant to the Davis Garden TIF District Grant Program for total funding not to exceed $128,875,756, by Resolution Nos. 11-1570 and 11-1571; and

WHEREAS, on June 6, 2013, the Davis Garden TIF Board of Directors recommended that certain provisions in the Canyon Development Agreement be amended in support of the underwriting for a future North Oak Cliff Municipal Management District (“NOC MMD”) bond sale and the potential commitment of the TIF Subsidy secured by SLF to the NOC MMD in support of such NOC MMD bonds; and

WHEREAS, in furtherance of the Davis Garden TIF District Project Plan and Reinvestment Zone Financing Plan, the City desires to amend certain terms for the Canyon Development Agreement per the Davis Garden TIF Board of Directors recommendation and to make certain clarifications regarding the allocation of tax increment revenues among approved projects in the Davis Garden TIF District.

NOW, THEREFORE,

BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF DALLAS:

COUNCIL CHAMBER

June 26, 2013

Section 1. That the City Manager, upon approval as to form by the City Attorney is hereby authorized to execute a development agreement with certain amendments to various terms approved in Resolution No. 11-1570 for the Canyon Development Agreement with SLF in support of the underwriting for a future potential NOC MMD Bond sale and the anticipated commitment of all or a portion of the TIF Subsidy secured pursuant to the Canyon Development Agreement to the NOC MMD:

A. Specify that any default of the affordable housing or fair housing provisions shall not be considered a default by SLF, impede payment or result in termination of the Canyon Development Agreement provided that SLF has executed and recorded public deed restrictions approved as to form by the City Attorney and in accordance with the Canyon Development Agreement, and that the City may approve a marketing plan implemented by SLF or the NOC MMD that references all residential developments within the Property in lieu of individual marketing plans by future private developers and future operators.

B. Modify the minimum size requirements for each Affordable Housing unit constructed in the Canyon Project from 550 square feet to 500 square feet.

C. Specify that BID goals for certified M/WBE participation for new private construction and professional services related to such private construction shall be 5% and that such M/WBE participation shall be secured by SLF with future purchasers/developers in The Canyon through SLF’s sales contracts and that such future purchasers/developers shall be contractually obligated to provide documentation to the City that they made commercially reasonable efforts to follow the City’s BID process in order to achieve a 5% M/WBE participation rate for all new private construction and professional services related to the initial private construction in The Canyon; further the failure to comply with the City’s BID process for new construction in The Canyon on the part of a purchaser shall not be an event of default under the development agreement so long as SLF can document that they secured the BID obligation in its sales contracts with the purchasers prior to any new private construction.

D. Specify that the failure to complete any subsequent phase of infrastructure improvements or failure to complete the total $69,808,000 in infrastructure improvements after the first phase of infrastructure improvements are completed will not be considered an event of default for those phases that have been completed in accordance with all the requirements of the development agreement prior to its expiration or termination.

COUNCIL CHAMBER

June 26, 2013

E. Specify that the accrual of the Grant portion of the TIF Subsidy shall not begin until SLF submits documentation supporting a calculation of minimum private investment value for completed or initiated development, as evidenced by a building permit or building permits, in Sub-District A of $120,000,000. The Grant shall begin to accrue on all TIF-eligible Project Costs for those infrastructure improvements that have been completed at that time. Thereafter the Grant shall begin to accrue on expenditures for additional infrastructure as such additional infrastructure is completed. Private investment value will be calculated as captured appraised value of completed development combined with land appreciation and contract value on development on which construction has been initiated, as evidenced by a building permit or building permits.

F. Specify that the interest rate to be used to calculate the Grant portion of the TIF Subsidy shall be 3.97%.

G. Specify that only infrastructure expenditures in addition to that portion of the $1,600,000 in infrastructure improvements already committed pursuant to the Hillside West agreement and that portion of the $2,071,197 committed to the Taylor Farms agreement for which the developers under those agreement provide verification may be reimbursed to SLF from the $69.8 million and no eligible infrastructure costs may be reimbursed more than once.

H. Substitute attached Exhibit C – Davis Garden TIF District Revenue Allocation for Exhibit C – Increment Allocation Policy approved in Resolution No. 11-1570.

Section 2. That the attached exhibit shall be attached to the final Canyon Development Agreement to specify the tax increment revenue allocation and priorities among approved projects in the Davis Garden TIF District.

Section 3. That nothing contained herein commits any Davis Garden TIF Funds to the NOC MMD since any such commitment is subject to future Davis Garden TIF Board and City Council consideration and approval.

Section 4. That nothing contained herein commits or identifies any other sources of revenue (taxes, assessments, maintenance fees, if any, levied by the NOC MMD) and nothing herein otherwise amends the current NOC MMD operating and development agreement with the City to allow for the issuance of any NOC MMD bonds or otherwise approves any conditions for such MMD bonds, the issuance of such NOC MMD bonds being subject to a two-step review and approval process as outlined in the City’s consent Resolution No. 09-0459, approved on February 11, 2009.

Section 5. That all other terms and conditions as set forth in Resolution Nos. 11-1570 and 11-1571, approved by the City Council on June 8, 2011, shall remain in full force and effect, except as amended or updated herein.

COUNCIL CHAMBER

June 26, 2013

Section 6. That this resolution shall take effect immediately from and after its passage in accordance with the provisions of the Charter of the City of Dallas, and it is accordingly so resolved.

Exhibit C Davis Garden TIF District

Revenue Allocation June 26, 2013

The availability of tax increment financing (“TIF”) available for The Canyon Development Agreement and the reimbursement of TIF Subsidies (defined herein) are subject to the following Increment Allocation Priorities for the Davis Garden TIF District (the “Davis Garden TIF District” or “District”). This exhibit will be used for administering tax increment revenues in the District. In 2011, the Project Plan was amended to designate two distinct sub-districts within the boundaries of the Davis Garden TIF District. “Sub-District A” was designated generally as the land south and west of the intersection of Westmoreland Road and IH-30, and the future mixed-use development planned for Sub-District A is referred to as “The Canyon”. The Canyon includes the Taylors Farm and Hillside West developments. The City approved a development agreement on June 8, 2011, by Resolutions No. 11-1570 and 11-1571 with SLF III – The Canyon TIF, L.P., (“SLF III”) to provide TIF Subsidies (defined herein) for the significant infrastructure that is required to support The Canyon development of approximately 210 acres. There is no significant existing public infrastructure in Sub-District A other than infrastructure constructed/funded by the developers of the Taylors Farm and Hillside West projects or SLF III. Pursuant to SLF III’s development agreement for The Canyon, a TIF Subsidy of $128,875,756 (NPV of $46.0 million) has been committed to finance the needed infrastructure improvements for Sub-District A in the Davis Garden TIF District. The Canyon’s TIF Subsidy of $128,875,756 is payable solely from tax increment revenues attributable to Sub-District A that are received and deposited into the tax increment fund during the life of the Davis Garden TIF District subject to the prior Davis Garden TIF District obligations noted herein. “Sub-District B” was designated as all the remaining property within the boundaries of the Davis Garden TIF District. This area is primarily a redevelopment area, and Sub-District B initially contained a number of aging apartment complexes. The City determined at the time the Davis Garden TIF District was created that development or redevelopment of such properties would not occur solely through private investment in the reasonably foreseeable future. Definitions Administrative Expenses – the share of the District’s annual TIF revenue that will be retained by the City for administration of the City’s TIF program. This may include charges from the Office of Economic Development as well as other departments including the City Attorney’s Office for any litigation involving the Davis Garden TIF District. Affordable Housing Set-aside – after administrative expenses have been paid, 20% of the annual Total Increment in the Davis Garden TIF District tax increment fund will be set aside for affordable housing related Projects until the later of (a) 2017 or (b) the full reimbursement of the

Funding Priorities – The Canyon (Approved June 26, 2013) Page 2

Taylor Farms and Hillside West projects. After that the Taylor Farms and Hillside West projects have been satisfied in full, 20% of the increment from Sub-district B wil be set aside for affordable housing in Sub-district B. Available Cash – cash in the Davis Garden TIF fund that is not already allocated, encumbered, or otherwise set aside for other purposes. Cumulative Individual Increment – the amount of Total Increment that a Project, or Related Project/Developer has produced in all years since Project completion. Cumulative Effective Individual Increment – for the IH 30 Frontage Road Design Project, the amount of Total Increment generated by the area bounded by Interstate 30 (north), Westmoreland Road (east) Fort Worth Avenue (south) and Pinnacle Park Boulevard (west) in all years since project completion. Developer/Owner – a person or entity that has completed all the requirements for the payment of TIF Subsidies pursuant to a fully executed development agreement between the Developer/Owner and the City. District-Wide Improvements – improvements that publicly benefit the District but are not specific to a single development site such as public parks, gateways, trails, public open space, public facilities, transportation facilities or utility/streetscape improvements. After administrative expenses, the Affordable Housing Set-aside, and the obligations of the Third Priority agreement (hereinafter described) are funded, 5% of the annual Total Increment in the Davis Garden TIF District tax increment fund will be set aside for District-Wide Improvements (the “District-Wide Improvements Set-aside”) such as the Twelve Hills Nature Center and the proposed trolley/streetcar to North Oak Cliff. Effective Individual Increment – for the IH 30 Frontage Road Design Project, the amount of Total Increment generated by the area bounded by Interstate 30 (north), Westmoreland Road (east) Fort Worth Avenue (south) and Pinnacle Park Boulevard (west) in a given year following project completion. Individual Increment – the annual amount of tax increment revenues that are deposited into the District’s TIF fund by the City and any other participating jurisdictions in the District that is generated on a Developer/Owner’s own captured appraised value for his or her Project at the time the Project becomes eligible for reimbursement. Project – development or redevelopment that increases the captured appraised value of taxable real property in the District. A Project that has been approved for TIF funds will be eligible to receive tax increment revenues pursuant to this policy if all requirements for payment of TIF subsidies have been met as set forth in their respective development agreement. Related Project/Developer – If a Developer or a Developer’s Affiliates have other projects in the District not under contract with the City, then in addition to their Project, increment from those Related Project(s) may be included in the Individual Increment amount for purposes of

Funding Priorities – The Canyon (Approved June 26, 2013) Page 3

calculating the total reimbursement to be assigned to a Project under this policy, provided that increment generated by a Related Project has not otherwise been allocated under an executed development agreement. A Developer of a Project must have at least 50% ownership in any Related Project for that Project to be considered a Related Project. These requirements may be further specified in a development agreement where applicable. Related Projects must create new taxable real property value for the District based on the following criteria:

New development on previously vacant land or site of demolished structures. Redevelopment or major modification of an existing building that exceeds the building’s

original taxable value by 50% or more, or any increase in a building’s original floor area if the expansion exceeds 50% for residential projects, 65% for mixed-use projects, and 75% for office/showroom projects

Shared Increment – After the First through Fourth Priorities (hereinafter described) have been completely funded, the remaining Total Increment will be apportioned among the Kessler Theater, IH 30 Frontage Road Design, Taylor Farms and Hillside West projects in proportion to their Cumulative Individual Increment or Cumulative Effective Individual Increment to the sum of all the Cumulative Individual Increments and the Cumulative Effective Individual Increment, (as hereinafter described). After the funding of the Kessler Theater, IH 30 Frontage Road Design, Taylor Farms and Hillside West projects, remaining Total Increment will be split between Sub-District A and Sub-District B in proportion to their respective contributions to Total Increment. The portion of remaining Total Increment attributed to Sub-District A will be assigned to The Canyon Development Agreement. The portion of remaining Total Increment attributed to Sub-District B will be assigned to Projects in Sub-District B in the amount of their Individual Increment. If there is any Total Increment remaining after Individual Increment for all Projects In Sub-District B are satisfied, such remaining Total Increment or “Shared Increment” will be shared among all eligible Projects in Sub-District B, based on a ratio of Cumulative Individual Increment or Cumulative Effective Individual Increment of a Project to the sum of all the Cumulative Individual Increment and Cumulative Effective Individual Increment generated by all Projects eligible for TIF reimbursement for a given year. TIF Subsidy – the total contractual commitment of tax increment revenues the City remains obligated to assign to a Developer for a Project during the term of the District upon satisfaction of all the terms and conditions of the Project’s development agreement. The TIF Subsidy is generally based on the total TIF-Eligible Project Costs expended by the Developer for a Project, and the entire TIF Subsidy may not be fully reimbursed if captured appraised values are insufficient to generate tax increment revenues equal to or exceeding the TIF Subsidy prior to the expiration of the District.

Funding Priorities – The Canyon (Approved June 26, 2013) Page 4

Total Increment – the annual amount of property taxes levied and collected on the captured appraised value of real property taxable by the City and other participating jurisdictions in the District and that is deposited into the District’s tax increment fund. Funding Priorities First Priority. Administrative Expenses. Annually on or about June 1st of each calendar year, after the Total Increment has been deposited in the District’s TIF fund, the City will first fund Administrative Expenses (approximately $75,000 annually). Second Priority. Affordable Housing Set-aside (20%). Twenty percent of remaining increment of the Davis Garden TIF District, after the funding of Administrative Expenses, shall be set-aside to fund eligible projects that supply affordable housing for the District. Initial projects funded under this category are Taylor Farms and Hillside West. Once these two projects are fully reimbursed, the Affordable Housing Set-Aside will only be collected from increment generated in Sub-District B (after funding of Administrative Expenses). Third Priority. The initial TIF funding commitment for the INCAP/SLF project (in the amount of $4,000,000) will be fully reimbursed from increment generated from both Sub-District A and Sub-District B. Fourth Priority. District-Wide Improvement Set-Aside (5%). After the Third Priority project is fully reimbursed, the District shall set-aside five percent of remaining increment of the Davis Garden TIF District, (after funding Administrative Expenses and the Affordable Housing Set-Aside) for District-Wide Improvements. Initial projects funded under this category are Twelve Hills Nature Center and the Streetcar (in that priority order). Fifth Priority. The TIF funding commitments for the Kessler Theater project (in the amount of $139,643), the IH 30 Frontage Road Design Project (in the amount of $436,343), and any remaining unreimbursed commitments for Taylor Farms and Hillside West shall be fifth in priority and will be reimbursed from increment generated in both Sub-District A and Sub-District B. After the payment or reservation of funds for the First through Fourth Priorities, as applicable, the Kessler Theater, Taylor Farms, Hillside West and IH 30 Frontage Road Design Projects shall be eligible for payment from their respective Individual Increment or Effective Individual Increment and are eligible to share in payments of the Shared Increment from both Sub-District A and Sub-District B, if any, in proportion to each of their Cumulative Individual increment or Cumulative Effective Individual Increment to the sum of all Cumulative Individual increment and Cumulative Effective Individual Increment for these projects.

Funding Priorities – The Canyon (Approved June 26, 2013) Page 5

Sixth Priority. After the Kessler Theater, Taylor Farms, Hillside West and IH 30 Frontage Road Design Projects are fully reimbursed, Total Increment will be divided between Sub-District A and Sub-District B in proportion to each Sub-District’s captured appraised values. Tax increment revenues for Sub-District B will be committed to TIF Subsidies for Projects located within Sub-District B. The amount of tax increment revenue committed to a Developer shall be based on that Developer’s Individual Increment for a Project, Related Projects/Developers and in accordance with the separate development agreements for each Project. The Davis Street Market Project shall be funded under this priority category from Sub-District B increment and Affordable Housing Set-Asides (after the full reimbursement of the Hillside West and Taylor Farms projects). Tax increment revenues for Sub-District A will be committed to funding The Canyon Development Agreement. No other Sub-District A projects shall be funded under this priority category for Sub-District A. Process The Dallas Central Appraisal District (DCAD) certified values for each tax year including the District’s base year shall be the data source for determining the captured appraised values of real property in the District and the amount of Available Cash for allocation pursuant to this policy. No tax increment allocation will be made, however, unless a Project or specific phase as defined in a development agreement is completed in accordance with all terms and conditions of the development agreement by June 1st of a given year. Once a Project is eligible for payment pursuant to the requirements of their respective development agreement, the administration of tax increment revenues shall be made annually. The frequency of payments to a Developer/Owner under their respective development agreement shall coincide with the frequency of payments made by the various taxing units into the District’s tax increment fund from fiscal year to fiscal year. Notwithstanding the foregoing, the Director of the Office of Economic Development shall have the sole and final determination if any differences of opinion arise regarding the amount of tax increment that will be reimbursed to any Project in any given year. Further, the City reserves the right to make TIF Subsidy payments in advance of annual allocations if in its judgment sufficient TIF revenues are available.