Ugh, part one is here . . . had to abandon that long post and work from a fresh slate – computer wasn’t updating well!
STILL QUESTIONS OF PUBLIC SPEAKERS
Sorry, I missed an exchange between Rummel and Susan Schmitz . . . just a minute or two . . .
DeMarb asks questions of Steve Brietlow, can you tell us more about the Project-Labor agreement, that hasn’t been buttoned up in the staff presentation. Breitlow says we are buttoned up to the last button, we were waiting for the Labor Peace Agreement, that was done last week and they are finishing up – the main part of the PLA is done, they have to work on workforce development.
David Ahrens asks about the agreement, is there a requirement to come to the union for job referrals? He says there will be different referral rules for each union. They are confident it will be a union project. Ahrens asks if it is enforceable – he says yes.
Mayor Paul Soglin asks about Big Step and members who aren’t part of the union – how does that work? Will Mr. Clingan’s clients get to work on the project. Breitlow says first you need the jobs and they can bring them in through apprenticeships.
Barbara McKinney asks how her former clients would get to work on the projects, she respects the program, where do black and brown people fit and what guarantees do we have to have them in the mix. We have been looking at details, but she wants to keep his in the discussion because the city is moving in the direction of a diverse workforce and we all need to make that happen. Breitlow says the key to getting people in the workforce, is to have jobs, it was hard to bring people in with no jobs, they brought Big Step in to try to work with organizations. They work with people through the apprenticeship program. 40% of the union workers had been out of jobs and it was hard to bring people in. The opportunities weren’t there. The model works great in Milwaukee.
Mike Verveer asks Breitlow where everyone is, usually their people are there in droves, but there is a conflict with a conference in Milwaukee. Breitlow agrees.
Verveer asks about guarantees about having workers from the area, not out of state, what guarantees do they have in the PLA about residency. He says that its practical, they don’t like shipping their guys elsewhere, they will bring them back, worst case scenario, if they bring people in from other areas, they bring money in, we will spend $300,000 in private contributions to the training program. We want to work local, and we want to work with the local people. Is there a guarantee the contractor and subcontractors will be from the state- he says yes.
Verveer asks about working with Unite HERE and community workforce agreement requirements and training. Is this something you would work with the service sector on. He says that they had the opportunity to meet with Unite HERE and since then he has asked about the opportunities for training for jobs outside the trades and they will look into it, if the industry calls for it, they will do it.
Larry Palm asks Matt Kozlowski – he says you can have better jobs or subsidize better living, you were talking about using this for housing, we are talking about good jobs, why isn’t this appealing to you. Koz says they are not mutually exclusive, we can get these jobs by building housing but you can’t have a sustainable model that doesn’t have homes and affordable rents, you can’t price people out of the city, we won’t have jobs or sustainability, to him its a win win to go the other way, we need to build affordable housing and have a PLA for that. We need the housing more than anything else, that is where people are falling through the cracks.
Mayor Soglin says they are utilizing Housing Tax Credits, and TIF, where do we get the money to subsidize it. Koz says expanding TID 25 would build housing downtown, he hears that if we grow the tax base we will have money to do those things, but we need the housing now. Mayor asks how we will pay for that. How would the housing be operated if we built it. Koz doesn’t have an answer (I do! Rents, the CSS programs and other ways the city will save money due to people being in Housing First!)
DEVELOPER – BOB DUNN PRESENTATION
Dunn says this all started with your RFP and this is round two, look at the goals in that RFP and what has been negotiated, the goals are addressed. He talks about the $44M investment in the hotel and block 89 and that it is $67M in today’s dollars. He says you need to look at what this investment will be in the future – this will be a better deal than the Hotel investment. He says the results will be even more interesting – using conservative estimates, the direct return on investment is 6 to 8 times more than the dollars you are investing day one. This is a greater return. He says the direct returns will be high. HE says remember the goals and consider if this makes a meaningful impact moving forward.
Questions will be later.
EXACT SCIENCES – KEVIN BILL AND SARA
Mayor apologizes for being late.
Bill is head of finance, Sara is head of operations. Kevin Conroy says democracy in action is great, he brags about how they are saving the world through their work. (Sorry, getting too tired for this kind of sales job) He says early detection is key, cologuard is a major breakthrough. He spouts numbers about who gets tested and survival rates and other things . . . he thinks this is the way people will get tested in the future. Insurance companies cover the tests, so does medicare. Sales job, sales job, sales job . . . nothing about the project specifically is being said. He says they won’t go away. He talks about the banks that are funding them. Back to talking about how many tests they do. He talks about how the company is growing. They are running out of space. They expect growth, their average pay is $70,000 a year. They have a multiplier, they don’t know what it is, good paying jobs will lead to more jobs. This is good for Madison, he doesn’t want to be in Fitchburg or Middleton. There are other jobs that will be created that they haven’t talked about, he grew up in Flint Michigan, he sees what happened when General Motors pulled out. If this ends up someplace else future generations will ask why. He talks about how hard it is to get a test through FDA and get it paid for. They are in a strong position. If a blood test is invented tomorrow it could be 7 – 8 years before it get to the market. They want to look at other tests for other types of cancer.
QUESTIONS OF THE DEVELOPMENT TEAM
Mark Clear asks about phase 2 and 3 and how that plays into your plans and your financials. Dunn says the city concern should be how do you get the tax base and from a developers perspective they have that concern based on the fact that they have to make a greater investment in terms of debt – they get their investment back in phase 2 and 3. He says questions have been raised about building another hotel downtown, he says to get a return on their equity they have to make a second and 3rd phase investment. They are committed to another hotel in downtown Madison. (Whew! All the developer talk made my brain shut off, hope that made sense . . . )
Clear asks if he would seek another tenant if phase 2 office is needed. Dunn will market the next project right away, to teantns beyond Exact, he hopes for co-tenancy to allow Exact to grow into the space. They have a phasing strategy in the lease. Phase 3 isn’t sequential in nature, as soon as phase 1 is under way they will move to phase 3.
Bidar asks about the office market and the rates. How is $30/sq ft given that the market rate is $36 – 37? Dunn says that they are the realities between downtown and elsewhere. They have unique costs – you can’t build a loading dock at grade, it is in the building. THere are 50 items like this, additive/extraordinary costs of building for Exact on this site. They were trying to eliminate the extraordinary costs to get them downtown. The want to be in the range of suburban to urban rents, they want to get the rent even lower. A more conventional tenant would be asking for even lower. They don’t have to close the entire gap, but they want to eliminate costs where they can.
Samb Baldeh says that this looks like a good company with diverse staff, but what is the percentage of JDS minority employees. Dunn says they own and invest, they don’t have employees and won’t in the future. What they do have tho is workforce development programs and targets in the PLA for construction and operations of the hotel and management of commercial properties and he thinks the goals are agressive.
Baldeh says no one works there? Dunn says they will in time.
Baldeh asks how they will get the money if there are no employees. Dunn says the capital and equity is from the investment group which is him and Ed Roske (Magestic Reality) (sp?)
Baldeh asked a question I didn’t quite get but it was about equity and financing – Dunn says they finance through the leasing. Usually the tenant doesn’t provide capital through the lease, if they were going to do that they would own the property.
Baldeh asks if he will go through with the project if you don’t get $46M at the expense of the rest of the citizens. Dunn says no.
Chris Schmidt asks why he wants to build a hotel here. Dunn says that Madison can be a great destination city, we have the make up and attractive element to bring more visitors and to get there we have to make more investments in downtown, principally in the hospitality industry. He made a major investment on the other side of town and they are complimentary to each other. He says they can co-operate two properties and have efficiencies. They can have more impact with two properties than with one.
Schmidt asks about the parking that gets money from leasing spaces at $140/month per stall, what is the roll of the revenue in the cash flow. Dunn says first to debt and expenses. (missed some) He says parking operational risks will be on them, they can’t generate revenue beyond the daytime revenue, they are second in line to the parking utility. He says they might need to support parking with other portions of the project.
Schnidt asks if they would get financing without the parking revenue. No.
Schmidt asks about Anchor Bank paying us back in 10 years for the $13M, did you consider private parking. Dunn says they will get their eventually, they will buy it in 27 years. Could you own it from the outset. Dunn says its another burden, more than they have already accepted, they originally didn’t calculate in the taxes, they don’t want to add burden.
Schmidt asks about the three TIF applications, the first is $1.6, the 9.6 and then $14.1 in tenant improvements, everything else was the same – what is that? What is causing the increase, it is developer equity. Dunn says that as the design evolved, they looked at a series of program solutions, some departments are more expensive than others and there are relocation issues to get them federally approved. They have had fluctuation in cost to support the build out. The project continues to be worked on and they are using their equity for it. They are tapped out on debt and they city funding is capped, so they have to invest that.
DeMarb asks if they are committed to phase 3, and you wold work on it before 2? Dunn says they are committed to all three, but the order might vary. AS soon as the parking is built they will go forward with the hotel. The one area of our economy that suffers the most is hospitality. WE don’t expect that to happen, they fought through that with the Edgewater and got it financed. On phase 3, as soon as phase 1 is moving, they will market for phase 3. If they can find a portion of the tenants they would start. They have incentive to do this as soon as possible since that is where their return is.
DeMarb asks if they are involved in other developments at this time. Dunn says Destination Medical Center in Rochester Minn, Lambeau Field, Viking Stadium, a major project in Allentown and several in California.
DeMarb asks if you are doing that under this LLC. Dunn says bankers won’t allow it. They require special interest entities. He says even in JDS they will have three entities to allow for phases of the development. They have many LLCs.
DeMarb asks about commitment to phase 2 and 3 why wait? Can you do it all at the same time. Dunn says that is how they look at it, they are working on the hotel now. It’s hard to get a lender right now to commit on something that construction doesn’t start for 20 months. The interest rate would be high if they did it now. Phase 3 office they would like to get started marketing that. Depending upon the market and Exact’s growth they will start that.
DeMarb asks why Exact? Why $30/sq ft. What is your commitment. Dunn says in round 1 is was a hotel led RFP, there was a great degree of uncertainty about what the rest would be. He thought of Exact then to find a multiple anchor project. Things solidified with Exact when they stepped back. He thinks this is one of the few opportunities to define our downtown around life sciences. There isn’t a city in the country that wouldn’t jump at this. Why Exact, he doesn’t think they will have a better opportunity, is there a risk, yes, are they comfortable, they are being smart, they are willing to make a good investment because they believe in Madison and Exact (u-ra-ra) The city is protected, they have an equity investment that makes them reinvest. They have looked at this closely and are comfortable making the investment.
DeMarb asks about the floor plate, she has heard it is too big to rent out, can you speak to that. Dunn says that their strategy to re- market the building has to be considered, its big for Madison. The likelihood of another Exact Sciences is highly unlikely, so they created a suburban floor plate to respond to market demand if the they have to remarket the building. They have a plan to break the floor plate up to accommodate multiple tenants.
DeMarb asks about the parking lay out. She says to meet the dealine of Exact it won’t be laid out well. She says that there are $4M to do the underpinning required. How difficult is the parking structure, have you done a traffic study on it. Is it viable? He says that when you account for everything and the plans presented, the parking efficiency is only 10 – 15 feet of differential. It’s a nominal swing, that is the facts of efficiency of parking. The idea of that underground is better is odd, it is always more expensive. The underpinning would be the Municipal Building and that would be expensive. 3 points of entry impact the efficiency. (ugh, still talking, stopped listening . . . time for a break!)
DeMarb apologizes for taking all this time and asks about the smaller hotel (less rooms) and the office building being smaller, the city is losign tax revenue because we aren’t building it for more density – was this all about Exact’s deadline. Dunn says that one of the concerns about how marketable the building is on the next block if the building is built from the grade up. You wait to build phase 3 or Exact to grow for the extra parking and that is a phasing issue. He says phase 3 will happen sooner.
Mayor says 1/3 of the council is in the queue to ask questions.
Shari Carter asks if he will be operating the hotel? He says that they will work to determine the operating partner.
Carter asks about Hammes – what is the break down of those employees. He says they ahve 275. She asks for the breakdown of minorities and women. He says he will provide that.
Rummel asks about the test and why it isn’t annual. Why 2032 and 2044, what is the hesitation for the annual. Dunn says with the equity investment, the city has more security and they prefer to have targets and time frames so they don’t have an additional burden to meet the increment. He says that it is uncommon to see this much private equity and they are balancing that out with their other obligations.
Rummel asks if he had this type of agreement before – what other situations have you had? Dunn says every situation is different. He says Madison is certainly one of the most conservative communities we have worked in to administer public investment, we have conservative underwriting criteria. He says other communities the guarantee structure are not as rigid as we see in Madison. In Allentown we spent 100s of millions of dollars of public funding and the structures are less rigid.
Rummel asks about the TIF coordinator report and the loan agreement, how do banks usually structure a consortium of banks. What is the role of the smaller banks. Dunn says this is common, in transactions in 10s of millions there are many banks and participation agreements and most situations like this the lending structure is over subscribed. In the end the loan documents are not different than a single lender. She asks if they stay through to the end. He says they do.
Rummel asks why they have 10 years for the hotel if it is so needed? He says that they can’t put a shovel in the ground tomorrow, its a dominant factor in the advancement of JDS. He says that a question was raised about what if they don’t build the hotel, that is ridiculous since that is what we lead with in the first round. History has shown they are committed to that part of the project. By the time the ramp is built, they will have millions invested to make this happen, we won’t want to see that be extinguished and have the city move on with someone else. They agreed to the reversionary right, and they want it back if the city doesn’t do something.
Verveer asks about why the city is doing business with outstanding liens at the Edgewater. Dunn says that they had a fixed price contract, they have paid the full value with the exception of the retainer, there was an overrun and payments have been made by the contractor to the subs, the owner can’t pay because they don’t have a contract. That is a process they will work through to better identify the value of the liens. Many of the liens appear invalid. They are investigating the true value of the liens. People will be paid and they will be paid base don the value of the work received. He isn’t happy about this, they will work through it and they will be paid what they can e=demonstrate they are due.
Verveer asks about concerns about the general contractor and subs being from the area. Dunn says there is a lot of interest in the project, even more than Edgewater when that was a down time in the economy. They haven’t seen any impact yet about that.
Verveer asks about the PLA and LPA – where are they at and is there any hesitation or are you confident this will get done. Dunn says they have outstanding relations with labor, they do more than others do, they expect that to carry forward and in time we will point at how this is a model. They don’t have final agreements until we have a project, but he has a high level of confidence.
Verveer asks if the hotels would be concerned? Dunn says that is why they want to get them in the fold, that is why they are waiting until the full operating team is in place.
Rebecca Kemble asks about tenant parking when Fire and Building Inspection don’t allow for parking when the hotel and phase 2 isn’t done yet? This is the same issue as the Festival Foods, the steel and concrete need to be done. Dunn says this is a classic vertical expansion.
Mayor says Natalie Erdman can answer. She says if the parking structure is done, they can occupy the garage, they don’t have an issue working above the garage as long as they have ingress and egress plans.
Kemble asks about concerns of construction cranes above – Erdman says it was a metal roof not concrete at Festival Foods and the garage was not finished.
Matt Phair asks about the amenities of the hotel, you said it would feel full-service, can you give examples. Dunn says that in the first proposal they wanted a full service hotel and the public investment was very steep to the point the city backed away. AS they thought about it, they created a mixed use development that is a block of rooms, other tenants in the building can share food and beverage and back of house spaces. The hotel will be enhances by amenities for other tenants. Phair asks what phase this will be in, he says mostly phase 1. Phair asks if it will be free or they have to pay. They haven’t decided yet, generally there is no charge.
QUESTIONS OF EXACT SCIENCES
It’s midnight.
Amanda Hall asks about the average salary of $70,000. He says it could be higher, doubts it would be lower. She asks what went into the average, does it include the top executives? Conroy says it is a range of salaries – the senior executives are excluded. This is base salary, the bonus is not included. Here is also an equity component and benefits.
Mayor asks what the equity is. Conroy says stock options.
McKinney asks what the jobs TIF will mean to black and brown people. She wants to make and amendment – on page 9 in the agreement. She wants to add monthly reporting and partnerships with community organizations. Would you be comfortable with that as part of the agreement? Who in the city would this reporting be to. Conroy asks if this is a proposed amendment? He says this is the first time he as seen it. He asks Sarah – VP of Human Resources to respond.
Clear asks about point of order. Clear says the development agreement is with JDS, perhaps we should ask them. ERdman says that this is between Exact and the City and its a requirement for closing.
McKinney asks if she is asking the question of the right person.
They take a 5 minute break.
AWKWARD!
Mayor, Verveer, George Austin counting votes, they think they have 11 . . . Verveer arguing that they don’t have votes they think they have. Mayor counting Eskrich and Bidar.
MORE QUESTIONS FOR JDS
12:10
May says this is a correct question for Exact Sciences.
Conroy says that adding the language about partnerships and reporting is acceptable to them.
McKinney says she upset that they are at the 11th hour and they are still adding language about including minorities in the overall plans. She says they need accountability in the language – she appreciates how they moved. Conroy says that there is a difference in the language and how they operate. He says that the percentages of women and people of color are greater than we have in the community, so he is comfortable with this.
Phair says that the $12M TIF grant is put back in the project, please explain. Bill answers for Conroy. He says it will be used to reduce project costs. Phair asks how? What will it be used for? He says there will be a shell and core, and tenant improvements and it will be spent on those.
Schmidt asks if Exact Sciences has equity in the project. No. They do have a security deposit.
Schmidt asks if they can tolerate any delays – not just for us but there may be other delays. Conroy says that hey are expanding rapidly and they struggle and they have their teams in different buildings and it is hard to function. He says they need to be in one physical location. He says they aren’t coming back til 2017, to extend beyond that it is a fundamental challenge and its a steep price.
Bidar asks about the number of employees. 200 relocated are existing and commitment is to add 200 more. Conroy says yes. Is 300 including new employees. He says a couple hundred could move in today, by 2017 could be 400. It will be a significant number of people. They have some options because they bought a building to handle overflow, that could contain them for some period of time.
Bidar asks about the money flow, the $12M won’t be touched, it goes to JDS for the build of the space, no money goes into your coffers. Conroy says it will go into the building and they can’t get that back.
Baldeh thinks Exact is a good company and you have diversity in your employees, but why is this coming up now, is it relevant to you being located here? Conroy says it has been part of the conversation since the start of the project. He’s not sure when it became part of the MOU. He says it has been occurring for months. Baldeh asks if they will do this even if they weren’t located here. He says yes. It’s part of their goal. It’s important to everyone. 55% of the employees are women. 15% are people of color, they think they end up with better results with a diverse workforce. They have a personal commitment, he’s on the board of the Urban League for 4 – 5 years. He went to diverse schools, 50 – 80% african american, it is built into the fiber of who they are. They can do a lot moving forward.
Baldeh asks how much space they have in their currently location. He says 100,000 or 120,000 square feet. Maybe 105,000 in Madison.
Baldeh asks if they will all move downtown. Conroy says they are expecting rapid growth, they are erring on the side of building more capacity.
Baldeh asks if there was a space today, would they move today. Conroy says the type of space they need wouldn’t be available. Baldeh asks if they need a special design. Conroy says yes.
Verveer asks about UW Research Park and if that is plan B and you will they leave Madison. Conroy says they prefer not to go outside the city, but the reality of money is real. They might stay at UW Research Park or go to Fitchburg. They need structured parking in Research Park. He says he is an employee and he manages the business. They would try to work something out in the city, but he puts it at 60-40 but they have to figure out some things quickly. Fitchburg is cleaner, there is an open plan – Research Park doesn’t offer amenities for employees. Fitchburg would have shops built in to an urbanish environment. They would have to work through that and they would prefer to stay in the City of Madison.
Shari Carter asks what they are moving downtown and what will be elsewhere. Conroy says executive team, research and devleopment, sales and marketing, billing and maybe customer contact would all come downtown. Operations part of it will come downtown, the leadership element. They might leave some manufacturing where it is or move it – but its expensive to have it downtown. They are still working on it.
Carter asks how many of the upper management are minorities. Conroy says that one is Indian, one is from Puerto Rico, that is 2 of the 7 on the executive committee.
Schmidt asks about Research Park being by West Transfer point, west gate and the other mall. Are there other challenges with research park? He says he never walks to lunch and he has asked for an urban walking environment, a 10 minute walk is hard to squeeze in lunch. He says that they don’t want people to get in a car to go to lunch. Schmidt asks about bus service in Fitchburg. Conroy says he assumes that will be a challenge.
Moving on to part 3.
