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2. Memorandum of Understanding - Gateway West Mall Property TransferCity of Kalispell OFFICE OF THE CITY MANAGER TO: Mayor Fisher and Kalispell City Council FROM: Doug Russell, City Manager DATE: April 1, 2013 SUBJECT: MOU with FCEDA for Gateway Mall Property Transfer BACKGROUIND: In February of 2000, FCEDA and the City of Kalispell partnered on an economic development project which included a joint acquisition of real property within the Gateway Mall at 1203 Highway 2, Kalispell, MT. With the purchase and refurbishment of the property, the parties have been able to lease the facility to Stream International and most recently to Teletech. As was discussed at the work session on the 25t' of March, the current lease agreement expires on the ls` day of March 2014. As we are nearing that date, it is appropriate to review the success and fulfillment of the initial project expectations and to consider potential mutual benefits with an alteration of this arrangement. With that consideration in mind, FCEDA has approached the City with the proposal to acquire the City's interest in the Gateway Mall and create a singular ownership for this property in order to provide efficiency of management operations, including the development of improvements and lease negotiations, all of which would now be under FCEDA's scope of operations. The attached Memorandum of Understanding (MOU) has been developed as an outline for a transfer arrangement and identifies the expectations and terms for both parties. After passage of the MOU, the parties will begin completing the necessary work to complete the transfer of ownership. FINANCIAL IMPLICATIONS: As part of the MOU outline, FCEDA will receive the financial contribution that the city currently receives from the lessee until a $300,000 amount has been received (approximately $50,000 per year), to be used for maintenance needs. After FCEDA receives that amount, the city will receive 25 % of revenues FCEDA receives from the lessee that are above and beyond the payments that the taxing entities receive from the beneficial use and personal property tax that are paid (approximately $90,000). RECOMMENDATION: It is recommended that Council approve the Memorandum of Understanding with FCEDA. www.kalispell.com Memorandum of Understanding between CITY OF KALISPELL A Montana Municipal Corporation and FLATHEAD COUNTY ECONOMIC DEVELOPMENT AUTHORITY A Montana State Authorized Corporate Public Body 1. Purpose and Scope The purpose of this Memorandum of Understanding [MOU] is establish and memorialize the understanding between the City of Kalispell [hereinafter the "City"] and the Flathead County Economic Development Authority [hereinafter "FCEDA"] regarding the transfer of ownership of that real property located in the Gateway West Mall in the City of Kalispell and owned by the parties as tenants in common and the rights and obligations of each of the parties to such real property thereafter. 2. Recital of Facts A. The City and Flathead County, on behalf of FCEDA, entered into an Interlocal Agreement on the 17`h day of February, 2000 in which the parties agreed upon the acquisition, financing, ownership, management and future disposition of certain real property located in the City of Kalispell, Flathead County, Montana and more particularly described as approximately 60,000 square feet of real property within the Gateway West Mall, 1203 Highway 2, Kalispell, Montana and identified by Geocode 07396512407050000. Pursuant to that agreement the City acquired a 63% undivided interest in the property and FCEDA acquired a 37% undivided interest in the property. B. On the 7t' day of February, 2000 the City passed Resolution No. 4536 authorizing and directing the issuance of a $2,500,000 West Side District Taxable Tax Increment Urban Renewal Revenue Bond for the acquisition of the above described property, which bonds were secured and paid with tax increment and the Port Authority Levy. This debt was retired on the 20 day of July, 2010. C. Since the time of the property purchase and refurbishment the parties have leased the property, initially to Stream International and then assigned to Teletech, both firms operating call centers. Upon the assignment of its lease, Stream International retired all of its obligations to the City and to FCEDA. Page 1 of 4 D. The leasehold and use agreements with the lessee contain the following salient terms: 1) The required rent payments to which the lessee is obligated shall be reduced or negated through the lessee meeting certain employment of labor and wage criteria. The lessee has always met this threshold and therefore no rental payments have been required. 2) The lease agreement requires the lessee to pay all costs of the Lessor (triple net) including the Common Area Maintenance charges and excepting those costs of maintaining the structural integrity of the improvement. 3) A deficiency tax payment clause in the use agreement requires the lessee to pay no less than $140,000 per year with any difference between the beneficial use taxes paid and the threshold amount paid directly to the City. 4) The current lease agreement expires on the 1" day of March, 2014. 3. MOU Term The term of this MOU is Ninety (90) days commencing upon the execution of this Agreement. 4. Associated Parking Area The parties acquired additional real property to further serve the lessee's parking needs in 2005 and own this property as cotenants with undivided interests as well. 5. Conveyance of City Interests to FCEDA and Allocation of Taxes The parties have determined that the City is interested in conveying its interest in all of the subject property described above, including the parking area, to FCEDA and FCEDA is interested in acquiring the City's interest in the property. To this purpose the parties agree that documentation shall be drafted that shall include the following terms: A. The City and FCEDA will execute all necessary conveyance documents to transfer ownership of the City's interests in the Gateway West Mall property and associated parking lot to FCEDA as well as all leasehold interests. B. The tax base portion of the Beneficial Use Tax and Personal Property Tax paid by the Lessee shall continue to be paid out to the taxing entities otherwise entitled to such payment. C. The increment portion of the Beneficial Use Tax and Personal Property Tax from the property shall be paid to the West Side Tax Increment District so long as such District is in existence. Page 2 of 4 D. FCEDA shall receive the entire portion of the revenues above the Beneficial Use Tax and Personal Property Tax amounts paid annually by the lessee until such time as a total of $300,000 has been received for the purposes of building an adequate maintenance reserve for the property. Thereafter, and in consideration for the City transferring its property interests, FCEDA shall remit to the City 25% of all revenues it receives from the Lessee which are above the Beneficial Use Tax and Personal Property Tax amounts which will continue to be paid to the taxing entities. E. In the event that a maintenance fee is required to be paid by the lessee, FCEDA shall receive such funds to cover the maintenance obligations of the property, except as otherwise noted in section S.D. F. In the event that the property is vacated by the lessee the parties understand that these taxes will not be paid and received by the parties until it is again under lease. 6. City Responsibilities The City shall execute all documents necessary to effectuate this agreement. 7. FCEDA Responsibilities FCEDA shall execute all documents necessary to effectuate this agreement. S. Prior Agreements Upon execution of the documents that transfer ownership of the subject property and assign the interests in the subject leasehold all prior agreements between the parties regarding ownership and use of the property shall be deemed null and void. 9. No Third -Party Beneficiary This Agreement is for the exclusive benefit of the parties, does not constitute a third - party beneficiary agreement, and may not be relied upon or enforced by a third party. 10. Modification and Termination Any and all amendments must be made in writing and must be agreed to and executed by the parties before becoming effective. 11. Effective Date and Signature This MOU shall be effective upon the signature of the City and FCEDA authorized officials. The City and FCEDA indicate agreement with this MOU by their signatures. Page 3 of 4 Signatures and dates Authorized Signature of the City Authorized Signature of FCEDA Doug Russell, City Manager 7 �l Date Dat Page 4 of 4