Barely beating a tight deadline, the city and JDS Development have signed a development agreement on the roughly $188 million Judge Doyle Square project south of Capitol Square.
The agreement sets key pieces of the project — a headquarters for booming Exact Sciences Corp., a hotel for Monona Terrace, a bicycle center and 1,250 parking spaces on blocks that hold the Madison Municipal Building and Government East parking garage. Included in the deal is a review of $42.5 million in city investments.
In late May, the City Council voted to pursue exclusive negotiations with JDS, composed of the Hammes Co. of Madison and Majestic Realty of Los Angeles, despite getting three other proposals.
The sides have been rushing to meet a deadline set by Exact Sciences, which wants to break ground in December so it can occupy new offices by summer 2017. Exact Sciences extended an initial deadline for a development agreement from June 29 to Tuesday.
Mayor Paul Soglin and JDS signed the agreement late Tuesday. The sides will now negotiate unresolved matters including parking, number of hotel rooms, and what happens if the project doesn’t proceed. They must bring an amended agreement to the city’s finance committee on Aug. 24 and full council on Sept. 1. JDS will proceed with design.
“This is the first important milestone of the project,” city project manager George Austin said. “If we hadn’t done this, we would have been moving to the other three proposals, and Exact Sciences would be looking to locate at another site.”
Hammes president Robert Dunn praised what he called “a spirit of cooperation between the city, ourselves and Exact Sciences” to get the project underway. “We feel very good about it. It’s going to be a landmark project for Madison.”
Downtown Ald. Mike Verveer, 4th District, said the agreement was just one of “many steps that have to be taken. A lot of heavy lifting is left to be done.”
The agreement doesn’t impress Ald. David Ahrens, 15th District, the project’s biggest critic, who questions the scale of the investment and guarantees.
“I think the city is taking extraordinary risks with a record amount of money and an unprecedented investment in an untested enterprise,” he said.
As initially proposed, JDS would deliver 250,000 square feet of office space for Exact Sciences on the Municipal Building block and 107,000 square feet of expansion space on the Government East block, a hotel with 215 to 250 rooms on the Government East block, and a mix of above-ground and underground parking spaces.
The agreement requires Exact Sciences to sign a minimum 15-year lease for at least 175,000 square feet of office space in the Municipal Building block office building. It sets a “goal” for a 250-room hotel with details to be negotiated later.
The Government East block could include more office space for Exact Sciences, another office tenant, additional hotel capacity or a residential use.
JDS would do a market study on the hotel and, under the agreement, construction would be subject to market conditions. The city could reacquire the airspace for the hotel component if JDS doesn’t start construction on it by May 2017. JDS could extend that deadline by up to a year.
- JDS would pay the city $15 million for the blocks, including the Municipal Building and Government East, and immediately lease those structures back to the city.
- Property for the private part of the project is valued at $10.8 million. Of the $15 million payment, $13.9 million would go to private equity to develop the Municipal Building block and $1.1 million to buy property. The city would use a $9.7 million tax incremental financing (TIF) grant to cover the remaining cost of property.
- JDS would provide at least $130 million for the private components of the redevelopment.
- The city would provide $18 million in Parking Utility reserves to build 600 public parking spaces to replace Government East; $1.3 million for 40 spaces for city vehicles; and $1 million for the bike center.
- The city would provide $20.8 million in TIF to build 650 private parking spaces.
- JDS would provide a two-tier guarantee on the $20.8 million that’s to be repaid with property taxes over time. JDS would guarantee $10 million with revenue from the private parking garage and provide a $6.8 million corporate guarantee for the other $10.8 million. If there’s still a shortfall in property taxes, JDS’ parking revenues would fill the gap.
- The city would provide $12 million in TIF to Exact Sciences to help build its office building.
- Exact Sciences would provide a two-stage jobs guarantee for the funds. First, it would guarantee 300 jobs at the time of opening and 400 jobs by Jan. 1, 2019. Each job would be valued at $30,000. If the company doesn’t meet that target, it would get six months to do so and then pay a penalty of $30,000 per job short of the target. Second, it would provide a $12 million corporate “relocation” guarantee. After the first year, the guarantee would be reduced by $1.5 million annually until it’s satisfied after eight years. For example, if Exact Sciences relocated after four years, it would pay the city $7.5 million.
- JDS would lease the private parking structure from the city and run it for 27 years with an annual $40,000 payment. The city would also get 20 percent of income. The sides would negotiate a deal to let JDS reserve some spaces in the public ramp during peak periods. At the end of the lease, JDS would buy the private structure for $4 million. Those funds would cover any remaining property tax shortfall.
The agreement requires a full TIF analysis, analysis of the impact of a 17-month closure of Government East on the Parking Utility and city budget, and written commitments from lenders on JDS’ private debt. The agreement reduces exceptions to city TIF underwriting and policy.
City Council President Denise DeMarb said she’s happy the process is moving forward but has concerns, especially in the areas of parking and transportation. “We still don’t have a plan for losing parking before we bring it back,” she said. And a transportation plan is “going to be really important as we move forward.”