Project: 308,990-square-foot city hall
Owner: City of Las Vegas
Developer: Forest City/LiveWork
Delivery method: Design-build
Estimated completion date: April 2012
Just north of the glittery Las Vegas Strip familiar to most visitors lies the gritty downtown area that leads to Old Las Vegas. The streets are lined with wedding chapels, bars, and check-cashing stores while casinos from another era, like Binion's, beckon the budget-conscious.
But soon to make downtown its home is a new city hall that should help revitalize the worn-out area. We were able to finance the nearly $150 million project, in part, through Build America Bonds — part of the federal stimulus package created as a low-cost alternative to municipal bonds — and a land swap brokered between the city and a national development company.
The building is integral to a much broader initiative that we anticipate will act as a local stimulus package by creating 13,000 permanent jobs and thousands of temporary construction jobs, as well as attracting $4.1 billion in private investment and generating $16 million to $20 million in annual tax revenues. The five-block district of new office buildings and retail outlets is anchored on the north by the new city hall and on the south by a new hub for Southern Nevada's bus system, also partly funded by stimulus dollars, that's already under construction.
Both facilities are designed to meet the Silver LEED standard established by the U.S. Green Building Council.
All five blocks will be redeveloped so that streets and sidewalks adhere to our downtown development plan, which in 2007 established streetscape standards designed to encourage foot traffic. These improvements, which include 10-foot-wide sidewalks and a 5-foot-wide amenity zone with trees and streetlights, are built into the city hall and transit terminal project budgets.
Also built into the budgets: Transmission and distribution lines are being temporarily relocated until they're buried. The city had to front the $2 million relocation cost of the entire five-block district. Developer Forest City/LiveWork will reimburse the city for the pro-rata portion of the cost — about $1.3 million — as the three retail/office blocks are completed.
We also plan to convert two busy thoroughways into an east/west one-way couplet system that will reduce congestion and make downtown more pedestrian-friendly. The project is expected to cost $7 million.
Instead of buying or acquiring land through eminent domain, we suggested a trade. In exchange for approximately 6 acres of city-owned land in a planned downtown mixed-use development, Forest City/LiveWork gave us 2.7 acres of property in the heart of downtown.
LiveWork is a New York City-based development company that teamed with Forest City, a national real estate firm headquartered in Cleveland, Ohio, that has developed multiple properties in Las Vegas. Forest City has a long history of successful public-private partnerships, especially in the urban arena.
The new city hall replaces a publicly owned office building located just north of Old Las Vegas. Built in 1973, the structure is showing its age — the electrical distribution system, for example, is so old that replacement parts aren't offered anymore. The new location brings city hall closer to other government buildings, creating a civic spine downtown while freeing the old city hall site for future development.
In addition to sustainable design elements, the eight-story building includes a single-level basement with 47 parking stalls and seven stories of office space. It has 2,000 square feet of retail space on the ground floor, as well as council chambers, a cafeteria, and an outdoor patio area. We estimate that 834 employees will initially occupy the building.
We're using “lease-purchase” (installment-purchase) financing to get the lowest possible cost and flexible repayment terms. Certificates of Participation (COPs) in the lease were sold to investors. A COP is an investment that's backed by a lease payment. Unlike general obligation bonds, which are backed by the full faith and credit of the issuer, these are supported only by the payment of rent. Under a default, the investor can't look to the city's general funds for repayment, only to the lease and the real estate. At the end of the lease, the city will own the building without any additional payment.
Late last year the city council approved financing of the new city hall through the federal Build America Bonds program. Created as part of the American Recovery and Reinvestment Act of 2009, this type of bond is designed to stimulate government spending on quickly deployable capital projects. Thanks to this, we financed the project at a lower effective tax rate.
Under the program, a municipality issues taxable bonds, which currently pay about 1.5 to 2 percentage points more than comparable U.S. Treasury bonds, The federal government then rebates 35% of the interest costs on the bonds back to the municipality, allowing state and local governments to sell the bonds at net rates that are competitive with corporate securities.
Nevada and the Clark County Debt Management Commission approved our request to issue up to $267 million of debt for the project. Although direct costs are estimated at $146 million, financing costs, interest reserves, and closing and underwriting costs boost the total to $185 million. In addition to COP proceeds, we're using $9 million from capital project funds and internal service funds, which are fees collected from users of internal services such as computers, telephones, fleet vehicles, and facility maintenance.
The bonds were sold through an underwriting team to institutional investors at an average net interest rate of 5.26%. While the investor receives a higher, taxable interest rate on its investment, the bonds are issued by the same public agencies — like Las Vegas — that are considered to be excellent credit risks.
To qualify for the bonds, our financing plan had to receive high credit ratings from each of the three major rating agencies: Fitch, Moody's, and Standard & Poor's. Given the state of the economy, we're understandably pleased with the AA- rating that the COPs received. This is just one notch below our general obligation bond rating of AA. The rating was critical to securing an affordable interest rate of 5.26% on the financing transaction. The federal subsidy on the Build America Bonds is expected to save up to $82 million over 30 years.
We believe we're in a good financial position to more than cover the future bond payments.
The first full payment of $13.4 million isn't due until 2017, at which time we expect the economy to have rebounded. That figure is less than 3% of total general fund revenues. We typically spend 5% to 6% of general funds on capital projects, so the lease payment should easily fit within our future capital project funding plans.
This is also a unique opportunity to establish a new sense of place and vitality in one of Las Vegas' most treasured and historic areas.
With its new look and location, Las Vegas' city hall joins a plethora of other downtown redevelopment projects:
For more on Forest City's public-private partnerships, click here.