Agenda Item No.

IV-1

City of Wichita City Council Meeting November 19, 2013 TO: SUBJECT: Mayor and City Council Public Hearing and Request for Letter of Intent for Industrial Revenue Bonds (High Touch/120 S. Main, LLC) (District I)

INITIATED BY: Office of Urban Development AGENDA: New Business ______________________________________________________________________________ Recommendation: Close the public hearing and approve the Letter of Intent for Industrial Revenue Bonds. Background: High Touch Technologies (High Touch), located at 110 S. Main in downtown Wichita, was founded in 1984 to write custom software and design automated systems for the rent-to-own industry. The software is known as Cynergi Suite and allows companies to track inventory, customers and payments. High Touch has since expanded its services to include web development, security from spam, viruses and other threats, managed IT solutions, unified communications (systems of phones, email and computers), cloud computing, colocation of servers, mobile devices and apps and custom programming. High Touch is requesting a Letter of Intent for Industrial Revenue Bonds (IRBs) in an amount not-toexceed $2,000,000 for the purpose of financing the cost of acquiring and remodeling a 106,000 square foot office building located at 110 S. Main in downtown Wichita, for use as its corporate headquarters. High Touch is also requesting a 100% five-year tax exemption on bond-financed property, plus a second five-year exemption subject to City Council approval, subject to a payment-in-lieu-of-taxes (PILOT) based on current taxes. Analysis: High Touch, an employee owned company, has approximately 200 employees in Wichita, Denver and Kansas City, providing technology solutions to small and midsize businesses in all 50 states and seven countries. Approximately 115 of those employees are based at its Wichita headquarters. Wayne Chambers, President and CEO of High Touch, intends to acquire the multi-story office building located at 110 S. Main through his real estate holding entity 120 S. Main, LLC. The office building is in need of significant repairs to the elevator systems as well as upgrades to the building. High Touch will occupy four of the ten floors. There are 30,000 square feet of vacant space in the office building. An analysis of the uses of IRB project funds is: USES OF FUNDS Building Acquisition Repairs Tenant Improvements Total cost of Project $1,150,000 $ 500,000 $ 350,000 $2,000,000

As a result of the project, High Touch intends to hire 50 new employees in the first five years at an average annual salary of $65,000. The NAICS average is $52,146. The City proposes to offer High Touch up to 180 employee parking spaces in nearby city-owned parking facilities at the monthly rate of $35 per stall, for a five-year term guaranteed.

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High Touch / 120 S. Main, LLC November 19, 2013 Page 2

The City of Wichita has a judgment lien against the property located at 110 S. Main due to a lawsuit over a parking garage located at 215 S. Market. The current owner of the 110 S. Main building, Main and Market, LLC, also had a land lease with the City for the land under the parking garage. The lawsuit was initiated by the City due to the fact that Main and Market, LLC quit paying rent on the land lease and had allowed the structure to become significantly dilapidated. The City received a judgment on the garage, which allowed the City to cancel the lease and take ownership of the structure. That judgment also places a lien on any property owned by that ownership entity in the same county. Therefore, a lien was placed against the 110 S. Main building in second position behind the mortgage. For clear title to be issued to High Touch the City needs to release the judgment lien. The City intends to stabilize the parking structure at 215 S. Market, remove the street barricades and renovate the garage to allow at least 108 spaces on the first two floors. Total renovation of the 550 stall parking structure will cost approximately $9.2 million and will be phased over several years. Staff will present funding options to the City Council to consider when formally authorizing the repairs at a future date. High Touch will be offered up to 180 spaces in the parking garage as spaces become available based on repairs made to the garage. Financial Considerations: High Touch agrees to pay all costs of issuing the bonds and agrees to pay the Citys $2,500 annual IRB administrative fee for the term of the bonds. High Touch, Inc. intends to purchase the bonds. The cost/benefit analysis performed by the Wichita State University Center for Economic Development and Business Research reflects the following benefit-cost ratios: City of Wichita City General Fund City Debt Service Fund Sedgwick County USD #259 State of Kansas 2.99 to one 2.70 to one 3.50 to one 2.34 to one 1.43 to one 10.69 to one

City staff and High Touch have negotiated the terms of a property tax abatement designed to abate the taxes only on the increased value of the property due to a renovation. Under this arrangement, all bond-financed improvements will be subject to a 100% five-year abatement, plus a second five years subject to Council review and approval. Each year of the abatement period, High Touch will pay the City a PILOT equal to the general taxes that are currently levied ($33,250). Since no current taxes are being abated, the policy provision that existing property must be vacant for two years before consideration of a tax abatement, does not apply. Legal Considerations: The law firm of Gilmore & Bell PC will serve as bond counsel in the transaction. The final form of all bond documents are subject to review and approval by the Law Department prior to the issuance of any bonds. Recommendations/Actions: It is recommended that the City Council: 1) close the public hearing and approve a one-year Letter of Intent to 120 S. Main, LLC/High Touch, for Taxable Industrial Revenue Bonds in an amount not-to-exceed $2,000,000, subject to the Letter of Intent Conditions; 2) approve a 100% tax abatement on all bond-financed property for an initial five-year period plus an additional five years following City Council review subject to payments-in-lieu-of-taxes; 3) authorize the application for a sales tax exemption on bond-financed property; 4) authorize the preparation of the form of a release of judgment and a satisfaction of judgment form for the 110 S. Main building; 5) authorize a satisfaction of judgment form for the parking garage structure should the owner offer a quitclaim deed in exchange for the satisfaction; 6) authorize an agreement to provide up to 180 parking spaces at $35 per space per month for five years; and 7) authorize necessary signatures. Attachments: Letter of Intent Application.

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