NUMB:
940118
VERS:
Substitute 1
XXBY:
Chair
TITL:
Substitute resolution approving an Amendment No. 3 to a Turnkey Development, Operating and Maintenance Agreement regarding a skywalk between the City of Milwaukee and Skywalk Associates.
ANLS:
-Analysis-
This resolution authorizes the execution of a third amendment to the Turnkey, Development, Operation and Maintenance Agreement entered into by the City of Milwaukee and Skywalk Associates on December 31, 1994 (the "Turnkey Agreement"). The Turnkey Agreement provides for the repayment by Skywalk Associates of certain costs relating to the construction of the skywalk that were initially paid with City funds. Currently, payments in the amount of $91,402.95 are due on December 2 of each year ending on December 2, 2017. The amendment reduces the annual interest rate on the balance owed for these costs from 10% to 6% to reflect current and projected prevailing market conditions and to conform to the City's established policy of revenue-neutrality respecting Skywalk loan assistance, but increases the amount of each payment to $91,718.23.
The outstanding cost recovery principal balance as of December 2, 1993 is $811,952.10. The effect of the amendment will be to retire the cost recovery obligation 11 years earlier, on December 2, 2006.
BODY:
Whereas, The City of Milwaukee ("Milwaukee") and Skywalk Associates ("Associates") on December 31, 1984 entered into a Turnkey Agreement, the purpose of which was to provide for the construction, maintenance and operation of an enclosed elevated pedestrian walkway joining the Henry S. Reuss Federal Plaza, the Hyatt Regency Hotel, and the Commerce Building (the "Skywalk"); and
Whereas, The Turnkey Agreement was amended twice on April 1, 1986 by two separate documents (the "First Amendment" and the "Second Amendment"); and
Whereas, Pursuant to the Turnkey Agreement and the First and Second Amendments, Associates constructed and conveyed the Skywalk to the City; and
Whereas, A portion of the cost of constructing the Skywalk was paid by a grant to the City from the Economic Development Administration of the United States Department of Commerce, and the balance of such construction costs were paid initially by the City, but subject to an agreement by Associates to make certain payments ("Cost Recovery Payments") to the City annually for a period of thirty (30) years beginning one year from the date the Skywalk was conveyed to the City, each such payment to be in that amount which would fully amortize over thirty (30) annual payments the Cost Recovery Principal Amount (as defined in the Turnkey Agreement and the First and Second Amendments) and interest thereon at a rate of 10% per annum; and
Whereas, The Cost Recovery Principal Amount, determined in the manner set forth in the Turnkey Agreement and the First and Second Amendments, was $861,647.82, and the amount of each annual Cost Recovery Payment, calculated as aforesaid, was determined to be $91,402.95, such payments falling due on December 2 of each year beginning with 1987 and continuing through 2017; and
Whereas, Associates has made the payments falling due on December 2,1987 through and including December 2, 1993, such that the outstanding cost recovery principal balance ("Cost Recovery Principal Balance") as of December 2, 1993 is $811,952.10; and
Whereas, In structuring the provisions of the Turnkey Agreement and the First and Second Amendments concerning Cost Recovery Payments, it was the intent of the City and Associates that Associates should pay sufficient interest to cover the City's cost of funds, but not to provide a profit to the City in connection with the transaction, and the interest rate of 10% per annum was agreed upon by the parties as a rate which would have accomplished this intent under then prevailing market conditions, the City not being willing at that time to utilize an adjustable or fluctuating rate of interest which would reflect changes in prevailing rates of interest; and
Whereas, In providing loans to assist in paying the construction costs of other skywalks subsequently constructed in the downtown area, the City adhered to its policy of revenue-neutrality, but implemented such policy using adjustable interest rates to reflect prevailing market conditions; and
Whereas, Because interest rates were at historically high levels when the Skywalk was constructed, and because the Turnkey Agreement specified a fixed rate of interest, Associates has been in recent years and is now paying interest at a rate substantially in excess of the City's cost of funds, which situation is inconsistent with the party's intent at the time the Turnkey Agreement and the First and Second Amendments were executed and with the City's established policy regarding loan assistance for construction of skywalks; and
Whereas, Associates has requested that the City amend the interest rate applicable to Cost Recovery Payments to reflect current and projected prevailing market conditions and to conform to the City's established policy of revenue-neutrality respecting skywalk loan assistance, without, however, lowering the amount of each annual payment, thus resulting in earlier retirement of Associates' Cost Recovery Payment obligation, and the City has determined such request to be fair and reasonable; and
Whereas, Interest rates have stabilized in recent years, and it appears that current prevailing rates are generally reflective, with relatively minor variations, of conditions to be expected for the foreseeable future; and
Whereas, An interest rate of 6% per annum, although in excess ofthe City's current cost of funds, will substantially conform the transaction to the City's policy of revenue neutrality respecting skywalk loan assistance while providing at the same time reasonable protection to the City against such fluctuations in prevailing rates as may hereafter occur; now, therefore be it
Resolved, By the Common Council of the City of Milwaukee that the Mayor, City Clerk and Commissioner of Public Works are authorized and directed to execute the Third Amendment to the Turnkey Agreement, a copy of which is attached hereto as Exhibit A; and be it
Further Resolved, That the Common Council authorizes and directs the Comptroller to countersign said Agreement regarding the Skywalk; and be it
Further Resolved, That the Common Council authorizes the City Attorney to make non-material, non-substantive changes in Exhibit A prior to its execution by the City's officers.
CATT
DFTRn-material, non-substantive changes
in Exhibit A prior to its execution by the City's officers.
CATT
DFTR