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					Missoula Redevelopment Agency
140 West Pine Street
Missoula MT 59802
406.552.6160 phone • 406.552.6162 fax
www.ci.missoula.mt.us/mra
mra@ci.missoula.mt.us

                                      MEMORANDUM
      TO:               MRA Board
   FROM:                Chris Behan, Assistant Director
    DATE:               January 10, 2012
 SUBJECT:               Recommendations to City Council Regarding City Shops Project

This memorandum updates a previous communication as to the Safeway project on West
Broadway.

Condensed Project History:

In February of 2000, the City issued a Request For Proposals for the former City Shops property
on West Broadway. In August of 2000, the City Council issued Resolution 6351 authorizing
negotiation with St. Patrick Hospital for a project that included aggregating adjacent Hospital
property with the City parcels to form a two city block parcel. Upon acquisition of the City land,
the Hospital proposed to exchange the entire parcel for the current Safeway site at 600 West
Broadway. The Hospital further proposed that subsequent to the exchange, Safeway would build
a new store at the City Shops/Big Broadway site and the Hospital would move certain operations
and parking to 600 West Broadway from the former Western Montana Clinic location. After
considerable public input regarding consistency of the project with the neighborhood plan,
historic preservation of the City Shops building, and other issues; in September of 2003, the City
Council conditionally vacated portions of Nora and Pine Streets and enacted a special zoning
district that specified the use and design of the site and buildings. A Buy/Sell Agreement was
agreed upon nearly a year later followed in September 2004 by adoption of an Ordinance, based
on a recommendation of the MRA Board, amending the URD II Plan and declaring the project
an Urban Renewal Project.

In April 2004, a group of citizens formed to oppose the project called itself "Citizen Advocates
for a Livable Missoula" (CALM). CALM appealed to the court to reject the special zoning
enacted by the City. The District Court denied the appeal in September of that same year as the
Council was considering the Urban Renewal Plan amendment. An appeal to the District Court
decision was soon filed with the Montana Supreme Court who rejected the appeal in March
2006. With the exception of considerable legal work by the City, all project activities were on
hiatus during court proceedings. Soon after the Supreme Court decision, project planning,
design, and financing was restarted by St. Patrick Hospital, Safeway, MRA, Office of Planning
and Grants, and the Public Works Department. During the legal processes, extensions of
deadlines within the Buy/Sell Agreement and conditional Right-Of-Way vacations were granted


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annually. The most recent extension lists a deadline for St. Patrick Hospital's purchase of the
City property by June 30, 2007. It also states that the Council did not intend to issue further
extensions.

Current Project Status:

Shortly after planning and design work restarted it became obvious that simply picking up after a
two years was not possible. New design efforts had to be initiated, older agreements
renegotiated due to changed and new conditions, new rules and regulations addressed, the near
hyper-inflation in construction materials costs examined, and a new financing scheme agreed
upon.

Construction Management: In its role as Developer for the first phase of the project (land
acquisition, relocation of eligible residential tenants, and preparation of the site for construction
of the new store including soil remediation, provision of all required utilities and public
infrastructure, and construction of site finish work such as parking lot, retaining walls, and
landscaping) St. Patrick Hospital has engaged Gordon Construction to as Construction Manager
for the primary work and MCS. Inc. to design, bid, will oversee the environmental work. All
work categories have received bids from sub-contractors.

Environmental: Environmental issues had become more complex since 2004, due in part to
discovery of relatively light petroleum contamination under the City Shops building but
primarily because of changes in rules related to disposal of lead tainted soil on the Hospital
(former Big Broadway) parcel. The lead is apparently a residual of a crude vehicle battery
recycling effort several decades ago. Buried lead is not considered a contaminant until it is
disturbed. However, the local landfill is apparently no longer receiving the material so it will
have to be shipped; probably to a hazardous waste landfill in Boise, Idaho. An overall
environmental cleanup plan, as drafted by MCS, Inc. of Missoula has been approved by all three
parties as well as the MT Department of Environmental Quality (DEQ). The plan has three
distinct parts, petroleum soils removal on City property, asbestos remediation in the City Shops
building and the Hospital's apartment building, and lead removal.

Sections of the Buy/Sell Agreement between the Hospital and City essentially states that the
City's property would be delivered to the Hospital free of environmental contamination. For
much of the past several years it had been generally assumed that the contamination on the City's
parcels was minimal due to past efforts in cleaning up specific spills and leaking tanks in the
1990s. More meticulous post-Buy/Sell Agreement investigation of the site found several more
areas of petroleum in the soils and a much more sizable amount of asbestos in the City Shops
Building than had been originally reported. Escalating costs of the remainder of the project over
the four years since they had been originally been estimated have led the Hospital to ask the City
to clean up the contamination outside the capped bond amount. There are apparently three
potential funding sources for this cleanup:

        Increase the bond cap. This must be approved as an amendment to the 2004 Ordinance
         officially designating the project an Urban Renewal Project by the City Council. There
         are potential political problems with this alternative but negative sentiment over the


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         project seems to have lessened since the Supreme Court Action. Because of the
         requirement for a public hearing to amend an Ordinance, there would be a fairly
         significant delay to the current construction schedule. Tax increases from the project
         would probably cover the increased amount but Safeway, Inc as Tax Increment Bond
         guarantor and entity paying the interest payments during construction and until the first
         full tax payment is less than enthusiastic about this alternative.

        Reduce the City Shops land cost. This alternative would require the City Council to
         amend the Buy/Sell Agreement. There are some concerns as to the political potential for
         this alternative at the Council and from public pressure. This concern comes from the
         vocal opinion of some individuals that the price should have escalated over the years to
         keep pace with land values in Missoula. This action could stall at the Council level
         causing delays in the current project timeline.

        URD II funds the cleanup. The City, as current owner, could request the MRA fund the
         project from general URD II funds. There will likely be no "reimbursement" of this TIF
         investment from the project for many years as the increased taxes will first be applied to
         bond payments, then to reimbursing any deficiency tax payments to the bond made by
         Safeway, then to an account to allow early bond principal payments to decrease the term.


Hospital/Safeway Real Estate Exchange Agreement: An Exchange Agreement was executed by
the Hospital and Safeway in 2004. Deadlines for certain actions required by that document have
passed, conditions regarding the TIF bond have been realized that change the party's
responsibilities, and certain exchange processes in the document have become dated and
cumbersome. The two parties are currently completing re-negotiation of the Exchange
Agreement to streamline processes and reflect current conditions. A signing date is dependent
on final Development Agreement and TIF bond guarantee conditions. The exchange will occur
upon completion of the site improvements by the Hospital. The current schedule has the
exchange occurring in late February 2008.

Relocation of Tenants: There are three residential structures on project parcels owned by the
Hospital. Pursuant to MRA's Relocation Policy, tenants in place at the time the MRA received
an assistance application from the Hospital may be eligible for relocation assistance. Because of
the dated nature of portions of MRA's policy, its use will be as a guide and specific eligibility
and assistance decisions will be made pursuant to the federal Uniform Relocation Act used by all
federal and Montana State agencies. As part of newer rental agreements, the Hospital's property
managers have been including a notice that the new tenants will be given due notice to move but
will not be eligible for assistance. (This notice, provided by the Missoula Housing Authority
(MHA), is derived from a suggested form used under the Federal Uniform Relocation Act.)
Because of its experience with the Uniform Relocation Act, access to information regarding
affordable and subsidized units in Missoula, and experience with low-income and supervised
clients; the Hospital has entered into a relocation agreement with MHA as consultant or agent
role in relocating the tenants. Depending on final eligibility analysis there may be as many as ten
eligible tenants. Initial official discussions with tenants have occurred. It is hoped relocation



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could be complete by October. Most remediation (excepting some asbestos removal at the
apartment building) and demolition of other structures can occur prior to the final relocation.

Zoning Compliance: Site design of the project is very detailed within the special zoning district
Ordinance. Due to changes in building codes and actual conditions, the plans have had to be
submitted and amendments negotiated several times with the Office of Planning and Grants. The
OPG believes that nearly all "major" amendments have been settled and inconsistencies between
the Buy/Sell, Street Vacation Resolution, and Zoning Ordinance resolved. An amended plat of
the project site must be created prior to issuance of the Phase I building permit. The plat must
also show trail easements, a bus stop easement, and easements for use of a parcel by MRL. (The
MRL Bitterroot Line is located on a vacated street that had no subsequent easement for railroad
use.) Conclusion of the items and issuance of a zoning compliance permit for the first phase is
anticipated in by September 1st.

Site Design and Construction: Design of site improvements is complete and most major work
categories have been bid by the Construction Manager. The total cost from the bids is time
restricted but puts Gordon Construction at risk for most overages. As expected, costs, especially
concrete, asphalt, and steel, are significantly higher than estimated in 2004. The construction
schedule for the first phase anticipates soil remediation and demolition to occur during this
September and October with the remainder of the activities following immediately. Some
paving and sidewalk installation may occur as weather and building construction work allows.

Safeway Construction Plans: A negotiated bid for the structures should be completed by August
7th with a corporate decision on the costs made within a few days of that date. Zoning
compliance for the second phase will be completed during the building permit process for the
structures. It is Safeway's intent to open the new store by November 2008. That will place the
structures and land on the tax roles as of January 1, 2009 with a first full payment due in
November of that year.

TIF Bond: The TIF bond is proposed to reimburse certain activities in the first phase of the
project. The parties have agreed to use D.A. Davidson as the bond agent. There is consensus
among the parties regarding the basic structure of the bond. Safeway has offered to guarantee
the bond. That is, Safeway will assure that any deficiency between the increment derived from
the property (including areas along Pine Street indicated by the zoning district as residential) and
the bond payment will be paid by Safeway. Safeway has also offered to pay the bond interest
during construction and prior to the date the first principal payment is due (after the first full tax
payment). An account will be created to place any increment from the project site in excess of
the amount required for the bond. That fund will reimburse Safeway for interest payments made.
To minimize long term risk of its guarantee, Safeway would like to have any increment "excess"
in a given year, after interest payments have been, be placed in that fund to be used to pay down
or call portions of the bond at regular intervals.

It is important to maximize the bond proceeds use for project expenses rather than bond costs.
The guarantee allows discussion that the bond purchasers not require a debt service reserve, no
bond insurance, and no rating. Although no increment will be available to URD II from the



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project for some period of time, it is possible the total cost of bond could be less. It is feasible to
prepare and sell the bond in time to meet the proposed first phase construction schedule.

Development Agreement: The three-party development agreement primarily covers the timing,
processes, responsibilities, and consequences of default of the primary project components
described above. Although there are several items currently under discussion, most major issues
in the development agreement have been negotiated and the document is nearing final draft form.
Staff will discuss the Development Agreement in more detail at the August 7, 2007 Board
meeting.




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