CC MEETING: August 6, 2024
DATE: July 30, 2024
TO: Erin Rinehart, City Manager
FROM: Ravi Shah, Executive Director of Development
Title
Consider A Resolution Amending Resolution No. 4445 Relating To A Development Agreement By And Between The City Of Carrollton, Texas And Trinity Mills Office I Owner, LLC. For The Development Of A Class ‘A’ Office Building In The Trinity Mills Station Project.
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BACKGROUND:
Trinity Mills Station continues to be well positioned despite the current depressed office market nationwide. However, the D/FW market has notable new office developments under construction. According to Jones Lang LaSalle (JLL), there have been multiple leasing inquiries on the Class A office building at Trinity Mills Station, but credit worthy tenants remain reluctant to engage on leasing discussions prior to commencement of vertical construction. While this has historically been simply a preference, construction commencement is now more or less a requirement in today’s development environment.
The developer’s lender has notified the City that a Master Lease Agreement between the City and developer is necessary to secure a $54 million loan from the lender to construct the building with a total construction cost of approximately $72 million. A Master Lease Agreement would provide for a Lease Guaranty by the City to the developer for the purpose of providing monthly lease assistance for up to 63,000 square feet of the rentable area at $35 per square foot plus NNN (taxes, insurance and utilities) for a period not to exceed five (5) years for a total amount not to exceed $14,525,000. This includes $11,100,000 in rent plus an estimated $3,425,000 for NNN.
Trinity Mills Office I Owner LLC. has committed to repay the City one hundred percent (100%) of the Lease Guaranty plus ten percent (10%) of the total expended by the City from the proceeds of the sale when the asset is sold. The City will be paid ahead of any other equity but after repayment to the lender.
The developer will construct a Class A Office Building containing not less than 133,000 square feet of gross building area, in not less than six (6) stories and include at least 10,000 square feet of retail space on the first floor and a minimum four-story parking structure providing parking spaces for at least 540 motor vehicles and constructed on the property with other ancillary facilities and landscaping
The company will develop a Class A Office Building on the land, in accordance with the Trinity Mills Station Program Plan approved by the City for the Trinity Mills Station with a commencement of construction date of no later than December 31, 2024.
FINANCIAL IMPLICATIONS:
By amending the Master Lease Agreement there is a higher likelihood that a greater portion, or the entire amount, of the City’s commitment may not be necessary based on the current lease-up trends of the new office market in the DFW area. There is a better chance that a greater amount of the building will be leased once the construction commencement has occurred.
IMPACT ON COMMUNITY SUSTAINABILITY:
The Master Lease Agreement is aimed at making the first office project at Trinity Mills Station market-competitive and to provide a catalyst for this transit-oriented development (TOD) area to be a successful destination point for Carrollton.
STAFF RECOMMENDATION/ACTION DESIRED:
The Council TOD Committee received a presentation at their July 8, 2024 meeting regarding the request for a Master Lease Agreement. Staff recommends City Council approval of a resolution authorizing the City Manager to negotiate and execute a Development Agreement with Trinity Mills Office I Owner, LLC. with the proposed new terms.