The Downtown Billings Partnership (DBP) Board of Directors recommends that the City of Billings purchase lots 8-12, block 109 of the Original Townsite of Billings, generally located on the north side of Montana Avenue between N. 27th St. and N. 28th St. (Broadway). The property contains the Northern Hotel parking garage. The property would be purchased as part of the land assemblage for a new, 500 space public parking structure, presently being called the Empire Parking Garage. The purchase price would be the review appraisal amount, presently estimated to be $900,000.  The final appraisal review will be completed prior to April 15th.  If Council approves the purchase agreement, the property will be purchased as soon as feasible.  The funding is available in the form of $1,500,000 from the N. 27th Street Tax Increment District and $1 million Parking Fund reserves.  The owner's willingness to sell is conditioned on the Council also approving a development agreement that would reimburse the Northern Hotel for some of the public improvements that are part of the hotel's redevelopment.

The City Council may:

• Approve the purchase agreement;
• Reject the purchase agreement and delay the proposed parking garage until an undetermined time in the future; or 
• Amend the agreement

Per Resolution No. 93-16740, the City staff requested two real estate appraisals and a review appraisal for the property purchase. The review appraiser will deliver his work no later than April 15, so the final purchase price is not known. The two primary appraisals have a $200,000 spread, so the average of $900,000 is being used at this time. The proposed sources of funds for the purchase are the N. 27th Street Tax Increment ($1.5 million) and the Parking Fund ($1 million). There are sufficient funds to accomplish the purchase, however, additional large projects will not be possible for the remainder of the year.  Depending on the Council's decisions on three (3) other transactions, there may not be funding available for other large projects until the increment grows substantially higher and parking reserves are replenished. The Parking Fund payment will use all of the discretionary reserves and the tax increment portion of the payment equals almost 80% of the tax year 2010 increment.

The three associated items are approving a development agreement and grant for the Northern Hotel, purchasing additional property in the same block and constructing a new parking garage. The other property is the remainder of the 1/2 block, being the Windsor Court building and the surface parking lot between the Northern parking garage and Windsor Court.  Those properties are located on the east 7 lots of the block.  The estimated cost of that purchase is $1.65 million.  After the property is secured, the DBP will propose that the City bond for constructing a 500 +/- space parking structure.  That structure could cost $11 million to $17 million.  If the Council approves that proposal, the bond debt service will require commitment of over half of the annual tax increment income, sale of the Park IV structure and $100,000 per year payment from the Parking fund. 

The development agreement and grant are for the purpose of reimbursing the Northern Hotel developer for public improvements associated with the hotel's redevelopment.  Examples of those improvements are streetscape, curbs, gutters, sidewalks and work on the building exterior or facade.  The maximum grant is approximately $2.1 million and would be paid over as many as 20 years.  The property owner will sell the garage to the City only if the development agreement and grant are approved by the City Council.  Starting with an annual tax increment of $1.9 million and deducting $1.1 million for garage bond debt service, $300,000 for the DBP management agreement and $100,000 for other committed expenses, about $400,000 per year should be available for projects.  If the developer receives the proposed 45% of the available increment, or $180,000/year, there will be $220,000 per year available for all other downtown public improvement projects. 

In 2009, the City contracted for and received a parking demand study. Its primary purpose was to identify areas in the downtown that have the highest demand for additional public parking. The study indicated that there are two or three downtown locations where the City should consider building a new parking structure. The area around the new Federal Courthouse and at 4th and Broadway were identified as high priority but not having immediate parking needs. The area near a proposed downtown convention center on Montana Avenue was the highest potential demand site. The study estimated that there would be a 500+/- parking space deficiency at this location within 5 years, but only if a convention center is constructed (see Section 5 Summary Recommendations, page 62).
After obtaining the study, the Downtown Billings Partnership (DBP) contracted for a convention center market study. The study indicated that the city, specifically downtown, can support a 25,000 sq. ft. convention center. It should be constructed, owned and operated by one of the downtown hotels. The DBP approached those businesses to determine their interest in a convention center and a new parking structure to support it. None of the hotels or other businesses have committed to building and operating the convention center but the DBP is still working with them to develop that interest and commitment.

The preferred parking structure location is on Montana Avenue between N. 27th and N. 28th (Broadway). That structure would contain approximately 500 spaces and approximately 18,000 sq. ft. of retail space on the ground floor, facing Montana Avenue.  The estimated cost is between $11 million and $17 million.  Zootist Hospitality purchased the Northern Hotel and parking garage in 2009 at a tax sale.  Since then, the owners remediated the environmental hazards, demolished the interior of the hotel and stabilized the parking structure.  About 70 parking spaces are being used for the hotel contractors and for month to month parking leases.  The owners are still seeking financing for the estimated $20 million to $30 million project.
 
City Resolution No. 93-16740 sets property acquisition standards. Two appraisals and a review appraisal are required due to this property's value.  The DBP contracted for an appraisal and the City contracted for the other appraisal and the review appraisal. The two appraisals indicate the value of the garage to be between $800,000 and $1 million, so the average of $900,000 is used for this report.  The review appraiser will deliver his report no later than April 15th and Zootist has agreed to accept the review appraisal price. The purchase agreement sets a number of conditions for the property sale. The principal ones are:

• The City Council must approve a development agreement and grant of up to $2.1 million to reimburse the hotel developer for eligible tax increment project costs;
• $15,000 earnest money deposit that is forfeited if the City doesn't close;
• Zootist may use the parking structure free until ordered to vacate by the City;
• City will provide free parking for 100 Northern Hotel construction workers, managed by the DBP;
• If the Hotel reopens prior to the City completing the new parking garage, the City will provide free valet parking for 110 guests, managed by the DBP;
• Design approval for the new garage;
• Option to purchase or lease up to 187, 1st and 2nd floor parking spaces in the new garage for approximately $4,300/space;
• Option to purchase the west corner of the retail space for the market price to be determined later;
• If the City fails to construct the new garage within 2 years, Zootist may reacquire the property.