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Item 13.
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| City Council Regular | |
| Date: | 07/12/2021 |
| Title: | Stillwater Building Buy-Sell Agreement |
| Presented by: | Iverson Jessica |
| Department: | City Hall Administration |
| Presentation: | Yes |
RECOMMENDATION
Staff recommends approval by Council to enter into a contingent Buy/Sell agreement with the seller for the purchase of the 'Stillwater Building' located at 316 N. 26th Street for $17 Million.
BACKGROUND (Consistency with Adopted Plans and Policies, if applicable)
In August 2019, the City of Billings issued a Request for Proposals (RFP) for law and justice/city hall facilities to accommodate the City's current and future facility needs. Several proposals were received and the RFP committee selected the Stillwater Building located at 316 N 26th Street based on the suitability of the building to meet the City's needs for the foreseeable future (50+ years). Once the Stillwater Building was selected, the city administrator created a negotiation committee that included council members, Boyette, Purinton, Joy, Shaw, Neese, as well as Iffland, Zoeller, Iverson and architect Randy Hafer. The City entered into a negotiation and due diligence phase, ultimately resulting in negotiating the proposed buy-sell agreement for the City to purchase the entire building in its current state for $17 Million.
At $17 million, the negotiated purchase price is $85 per square foot. The current condition of the building is dark shell except for the finished portions of the 3rd and 4th floors, the building has been demoed and prepped for redevelopment. The estimated cost of build out is $100 per square foot, given current construction costs, for a total of approximately $9 million to $10 million to meet space needs based on the 2019 Facilities Master Plan. These numbers are current estimates and are expected to fluctuate with revisions to the Master Plan and during the programming and design phase, along with variable construction costs. When adding the current purchase price and build-out costs we anticipate the project will cost a total of between $28 and $30 Million over the next 3 years. Construction costs for a new mid-rise office building are estimated at $325-375/sq ft based on 2020 statistics. A new building to meet the City's 20-year anticipated space needs would cost a total of $39-$45 Million. As the city reviewed alternative options, only one other building was large enough to meet the needs identified in the facilities plan. All other options included significant demolition and renovation costs. Because the Stillwater's interior has been fully demoed, there are far fewer un anticipated expenses. Compared to the alternatives of building a new facility, or buying other spaces for renovations, continuing to operate out of multiple facilities, which decreases efficiencies and ease of public access, the Stillwater building offers the greatest value to the city.
The City of Billings will end FY21 with approximately $20,000,000 above the recommended minimum balance for the General Fund, in large part because of federal dollars provided to the city as a result of the global pandemic. By using these one-time cash dollars to purchase and renovate the Stillwater building we are avoiding significant debt and borrowing costs for the public. Build-out is anticipated to take approximately three years, funded by individual departments. We anticipate seventy percent of the build-out will be occupied by criminal justice and general fund services and will therefore be the responsibility of the general fund.
Currently, the City occupies over 24,000 square feet in leased space. Which ranges from $14.34/sf to $18.26/sf, or a total of $385,150 per year. This covers only the cost to occupy the space, as build-out was paid for by the departments when they occupied the space originally. The Miller Building tenants have an option to end their lease agreement starting in November of 2022. We envision the Planning, Community Development, Zoning, Code Enforcement, and Building Divisions will move into space at the Stillwater Building and terminate their Miller Building lease at that time. The lease at the Depot will run out on 7/31/2023, at which time we envision Public Works Engineering and Public Works Administration would move into the Stillwater Building.
Before the expiration of those lease agreements, the City will engage an architect to design work spaces with each department to ensure the best space utilization for the public, council, and the staff. We estimate this service to cost a total of $1,000,000 - $1,200,000.
Estimated costs to operate the Stillwater Building are approximately $18.50/sf based on projections of the current owner’s operating costs. Currently, at City Hall, the cost to operate the building is $16.36/sf.
The Stillwater Building currently has one tenant, Yellowstone County, that occupies 17,395 sq ft on the third floor. The City would assume their lease with the purchase of the building. The County lease expires in May 2025 and the lease rate, including rent and estimated CAMs is approximately $365,000 for the current year with a 3% annual rent escalator. At this point, the majority of county commissioners have expressed their desire to leave the Stillwater building. I recommend we continue to pursue an option to extend a lease with Yellowstone County or condo the building, as well as identify other key partners who provide criminal justice and public services. Our goal is to maximize efficiencies in the delivery of all local government services to our community in one location.
The purchase of this building is a capital investment to meet current and future needs for a Law and Justice Center and City Hall facilities for decades into the future. Failure to obtain the property or other properties, limits the City's options to meet the community's needs, causes us to continue expanding lease arrangements to house city services and limits the organization's efficiency and effectiveness.
The proposed Buy/Sell agreement is a contingent, binding agreement. The contingencies include inspections and final Council approval at a future meeting to complete the purchase. The city will hire subject matter expert professionals to conduct the inspections (mechanical engineer, electrical engineer and a building envelope specialist as examples).
At $17 million, the negotiated purchase price is $85 per square foot. The current condition of the building is dark shell except for the finished portions of the 3rd and 4th floors, the building has been demoed and prepped for redevelopment. The estimated cost of build out is $100 per square foot, given current construction costs, for a total of approximately $9 million to $10 million to meet space needs based on the 2019 Facilities Master Plan. These numbers are current estimates and are expected to fluctuate with revisions to the Master Plan and during the programming and design phase, along with variable construction costs. When adding the current purchase price and build-out costs we anticipate the project will cost a total of between $28 and $30 Million over the next 3 years. Construction costs for a new mid-rise office building are estimated at $325-375/sq ft based on 2020 statistics. A new building to meet the City's 20-year anticipated space needs would cost a total of $39-$45 Million. As the city reviewed alternative options, only one other building was large enough to meet the needs identified in the facilities plan. All other options included significant demolition and renovation costs. Because the Stillwater's interior has been fully demoed, there are far fewer un anticipated expenses. Compared to the alternatives of building a new facility, or buying other spaces for renovations, continuing to operate out of multiple facilities, which decreases efficiencies and ease of public access, the Stillwater building offers the greatest value to the city.
The City of Billings will end FY21 with approximately $20,000,000 above the recommended minimum balance for the General Fund, in large part because of federal dollars provided to the city as a result of the global pandemic. By using these one-time cash dollars to purchase and renovate the Stillwater building we are avoiding significant debt and borrowing costs for the public. Build-out is anticipated to take approximately three years, funded by individual departments. We anticipate seventy percent of the build-out will be occupied by criminal justice and general fund services and will therefore be the responsibility of the general fund.
Currently, the City occupies over 24,000 square feet in leased space. Which ranges from $14.34/sf to $18.26/sf, or a total of $385,150 per year. This covers only the cost to occupy the space, as build-out was paid for by the departments when they occupied the space originally. The Miller Building tenants have an option to end their lease agreement starting in November of 2022. We envision the Planning, Community Development, Zoning, Code Enforcement, and Building Divisions will move into space at the Stillwater Building and terminate their Miller Building lease at that time. The lease at the Depot will run out on 7/31/2023, at which time we envision Public Works Engineering and Public Works Administration would move into the Stillwater Building.
Before the expiration of those lease agreements, the City will engage an architect to design work spaces with each department to ensure the best space utilization for the public, council, and the staff. We estimate this service to cost a total of $1,000,000 - $1,200,000.
Estimated costs to operate the Stillwater Building are approximately $18.50/sf based on projections of the current owner’s operating costs. Currently, at City Hall, the cost to operate the building is $16.36/sf.
The Stillwater Building currently has one tenant, Yellowstone County, that occupies 17,395 sq ft on the third floor. The City would assume their lease with the purchase of the building. The County lease expires in May 2025 and the lease rate, including rent and estimated CAMs is approximately $365,000 for the current year with a 3% annual rent escalator. At this point, the majority of county commissioners have expressed their desire to leave the Stillwater building. I recommend we continue to pursue an option to extend a lease with Yellowstone County or condo the building, as well as identify other key partners who provide criminal justice and public services. Our goal is to maximize efficiencies in the delivery of all local government services to our community in one location.
The purchase of this building is a capital investment to meet current and future needs for a Law and Justice Center and City Hall facilities for decades into the future. Failure to obtain the property or other properties, limits the City's options to meet the community's needs, causes us to continue expanding lease arrangements to house city services and limits the organization's efficiency and effectiveness.
The proposed Buy/Sell agreement is a contingent, binding agreement. The contingencies include inspections and final Council approval at a future meeting to complete the purchase. The city will hire subject matter expert professionals to conduct the inspections (mechanical engineer, electrical engineer and a building envelope specialist as examples).
ALTERNATIVES
City Council may:
- Approve the contingent buy-sell agreement to purchase the property for $17 Million; or,
- Not Approve and provide further direction to staff
FISCAL EFFECTS
Anticipated cost to purchase and build ranges from $28-$30 million. Anticipated sources and uses of funds is provided for Council consideration:
| Sources | |
| Excess General Fund Reserve | $ 20,350,560 |
| Departmental Build out Contribution (30%) | 3,439,363 |
| ARPA Funds for Public Safety Build out | 5,810,077 |
| Total Estimated Sources | $ 29,600,000 |
| Uses | |
| Stillwater Purchase Price | $ 17,000,000 |
| Architecture Costs | 1,200,000 |
| Estimated Build out | 10,000,000 |
| Contingency @ 12.5% | 1,400,000 |
| Total Estimated Uses | $ 29,600,000 |
SUMMARY
Please review this memo and the attached draft PowerPoint presentation in order to best understand why staff and the negotiating committee are recommending the Council authorize the Mayor to sign the enclosed contingent Buy/Sell Agreement.