Delaforum

News

August 28,  2008

Renaissance Village backers
try to defuse 'negative' rumors

County Councilman John Cartier urged his Claymont constituents to "please trade on the facts" when considering the varied aspects related to the Renaissance Village project.

While acknowledging that "we're doing bold and new things" in the effort not only to replace the blighted Brookview apartments complex but also to revitalize the broader community, he said there are ample checks and balances in place to safeguard the interests of current Claymont residents.

Robert Ruggio, executive vice president of Commonwealth Group, lead partner in the  redevelopment venture, said there is no validity in rumors questioning economic viability of the project. He pointed out that the 68-acre site has been cleared and infrastructure work is well along. "That wouldn't have happened if we didn't have the proper financing," he said.

Cartier and Ruggio spoke at a meeting of the Claymont Design Review Advisory Committee at which Timothy Fry, New Castle County government's bond counsel, explained how incremental-tax and special-development-district financing, which are proposed to help the developer pay for providing sanitary and storm sewers and streets for the site. Legislation sponsored by Cartier to authorize such financing is pending before County Council and is expected to be enacted when Council next meets on Sept. 16.

To an large extent, the speakers were engaged in proverbial 'preaching to the choir' because committee members and other regular attenders at the meetings are already supportive. Although meetings of the committee, an arm of the county Department of Land Use, are open to the public, virtually no one from the general public showed up for the meeting on Aug. 27.

Ruggio repeated information previously reported by Delaforum that a builder has been selected to begin construction of the first phase of the project -- townhouses in two blocks on the Darley Road side of the tract. He said he is not yet at liberty to disclose the identity of the builder pending signing of a contract beyond saying that it is a "very well-known" Delaware-based firm.

There will be a public announcement soon and "that block will begin coming out of the ground in November," Ruggio said. Commonwealth will undertake the second phase -- retail establishments and apartments at the main entrance to the community at Philadelphia Pike and Manor Avenue -- in early 2009.

He said Commonwealth is in active discussions with three firms with national reputations about construction of other phases of the project. At one time or another, he said, seven or eight of the country's 12 "top-rated" building firms have expressed serious interest in being involved in the project.

Although he said "there is still a tough [real-estate] market out there," there are signs the housing situation is brightening. There is demand for townhouses selling in the $190,000 to $200,000 range -- the 'product' planned for the first phase, he said. "We feel they are going to sell."

Fry and Ruggio after the meeting confirmed a Delaforum calculation that the proposed infrastructure financing indicates that Renaissance Village property owners will pay something over $30,000 during the 30-year life of bonds sold to provide the money, compared to something around $23,000 to $25,000 during the life of a 30-year mortgage if the infrastructure costs were factored into the selling prices of the residential units. Buyers of the commercial properties would have slightly higher obligations.

Going that route would enable Commonwealth to reduce interim financing costs and recoup all or a large part of its $17 million infrastructure-related investment up front rather than piecemeal as the properties are sold during a five-to-seven-year buildout.

In different contexts, Cartier said at the meeting that providing local government subsidies is a common method "used all over the United States" to encourage redevelopment of blighted or underused locales. "From the beginning, this has been a public-private partnership [to] address the blighted Brookview apartments complex," he said.

While the intended infrastructure financing is new to Delaware and only two jurisdictions -- Millsboro and Bridgeville in Sussex County -- have used it, there is comparable precedent in state financing of the Christina Riverfront development in Wilmington. "Over $300 million of direct state subsidy" has gone into that project, Cartier said.

In empowering New Castle County government to use incremental-tax financing, the General Assembly specifically limited its use to the area included in the Claymont 'hometown' zoning overlay, which centers on Philadelphia Pike.

The subsidy will have no ill effect on county government's gilt-edged bond rating or its current fiscal situation, he said. Nor will county government or its taxpayers "be held responsible in any default situation or bankruptcy," Cartier added.

"There's no way Councilman Cartier would put county finances at risk," he said.

Also in another context, Ruggio said that, even with the initial $1,000-a-year special tax and its 2% annual escalation, Renaissance Village's residential property owners will not be overburdened. Their tax obligation will still be "competitive" with adjacent Pennsylvania and New Jersey, he said.

Cartier said that incremental tax on increased value of the site that county coffers will 'lose' will be more than offset by an estimated $30 million in increased revenue from the property-transfer tax when units are sold and resold.

The Brookview complex generated $32,500 in property-tax revenue a year. "In policing alone, we were spending more than that on a weekly basis," he said. "We have a lot to gain with very little liability to New Castle County or Claymont."

 Basis for the proposed financing would be establishment of a special development district which the proposed ordinance defines as being the property covered by the approved Renaissance Village development plan. Only property owners in the district would be involved.

The special development district is an entity separate from County Council, state legislative, school and other districts which include Renaissance Village or the rest of Claymont.

County government would then sell up to $20 million of special-purpose bonds at an interest rate not to exceed 9%. Both are upper limits, Fry explained. The actual amount, he said, would probably be somewhere between $12 million and $15 million. Because interest on the bonds would be tax-exempt for most investors, the interest rate would be lower than a mortgage rate. But, because the bonds would not be backed by the 'full faith and credit' of county government -- an euphemism for its power to tax -- the rate would be higher than what the county's general-purpose bonds would command.

The proposed ordinance specifies Bank of America as the underwriter. Fry told Delaforum that a "negotiated arrangement", rather than competitive bidding, would be employed because of the complexity of the arrangement. He said that is not unusual with special-purpose bond issues and would not likely be challenged by any other bank or financial services firm.

Although Fry did not specify an expected interest rate, it would likely be somewhere around 6%.

The proposed ordinance gives County Executive Christopher Coons authority to determine the details of the bond issue. That, too, is normal practice with all bond issues and allows flexibility and dealing with the underwriter, Fry said.

Proceeds from the bond sale -- which likely would occur toward the end of the year -- would be given to the joint-venture developer -- identified in the ordinance and other county records as Brookview Townhomes Development L.L.C., although that name has not been publicly associated with the project -- to reimburse the cost of infrastructure it has provided. Fry limited that to roads and sewer lines, but the proposed ordinance lists any kind of infrastructure that serves the redeveloped area, whether located there or not, as eligible for reimbursement.

Ruggio said having replaced the deteriorated sewer system which served Brookview apartments carries a bonus benefit in that it provides the Claymont area with additional sewer capacity which, in turn, will allow other development projects to proceed.

The developer and builders would still be obligated to pay the various impact fees that county government requires.

The bonds, Fry said, would carry a 30-year maturity, but could be called at face value for refinancing or other reason after 10 years. Interest would be paid semi-annually, but the principle would not be paid until the bonds mature or are called earlier.

To provide money to pay the principle while avoiding an huge end-of-term payment balloon, a county-administered fund would receive payments through the life of the bonds. Because the set-aside amounts are scheduled to increase year-to-year, the proposed ordinance provides for a 2% annual escalation of the special development tax property owners will pay, Fry explained. The bonds' interest rate will be fixed at their sale and will not change.

Money to service the debt, including accumulating the eventual principle repayment, would be generated from two sources. Eighty percent of it would come from a special development tax which would be set initially at up to $1,170 for residential units sold at market value and $572 for the 10% of the units designated as reduced-price 'workforce', or 'affordable' housing. The special tax on commercial properties would amount to up to 81.2 per square foot.

The other 20% would come from the amount of county property tax that would be generated by the amount the assessment on the property increases as the result of its having been redeveloped. The difference between that figure and the amount generated from the current assessment, which county government would continue to receive, is the amount of the public subsidy involved.

According to data included in the one of the exhibits attached to the proposed ordinance, the Renaissance Village tract includes 25 tax parcels. Delaforum could not learn the current total assessment nor confirm the reputed $32,500 county obligation as this article was being prepared.

The special tax would be collected each September as part of county government's normal annual levy.

Cartier stressed that property owners outside of Renaissance Village would be taxed at the same then-current rate as those in the rest of the county. Renaissance Village owners would pay school taxes at their full assessment at the same then-current rates as other property owners. Brandywine and New Castle County Vocational-Technical school districts would receive the full amounts of revenue due them.

As things now stand, Renaissance Village properties would be assessed at 1983 market values, as is all real estate in the county. Any general reassessment in the future would be applied to Renaissance Village.

The special tax would be treated as any other property tax. In addition to interest and penalties, Renaissance Village property owners also would have to pay what the proposed ordinance refers to a 'backup special' tax. That would be up to $144 on market-priced residential units, $71 on 'workforce' units and 10 per square foot on commercial property.

Properties with delinquent tax obligations would also have a tax lien placed against them.

Fry said that the special tax, like other tax obligations, would have priority over other debt in the event of bankruptcy affecting any Renaissance Village property.

Cartier said the net effect of Council's approving the financing plan will be "to help Claymont become a thriving community."

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Read previous Delaforum article: Revised Renaissance Village plan approved

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