1. Consent to Assignment of Lease - Stream InternationalREPORT TO:
uity of Kalispell
Post Office Box 1997 - Kalispell, Montaim 59903-1997 - Telephone (406)758-77€ 0 fax
The Honorable Mayor Pamela B. Kennedy and City Council
FROM: Susan Moyer, Community Development Director
Chris A. Kukulski, City Manager
SUBJECT: Replacement of Call Center ,Yobs
MEETING DATE: December 22, 2003
BACKGROUND:
Teletech, Inc. is interested in locating an in-bound/out-bound call center at the former Stream site in the Old
Gateway West Mall owned by the City and the Port Authority. Concurrently, Stream :international, Inc. is
looking to achieve a "buy out" of their remaining financial obligations at this site. Attached are individual
Memoranda of Understandings as negotiated with both parties which will allow Teletech to assume any
remaining obligations from which Stream would need to be released:
Teletech Inc.
1. Lease Arrangements:
It is contemplated that the lease will commence on or about February 1, 2004 and run for a ten-year
term.
Tenant desires an option to terminate the lease anytime after the end of the fifth year of the lease by
providing the City/Port Authority six (6) months prior written notice. In order for this to occur, the
following has been negotiated with Teletech:
2. The City's loan with Montana Board of Investments (MBOI) has a six and one-half year term
remaining in the amount of approximately $1,903,011. The original total of the MBOI loan was for
$2.5 million to complete the acquisition of the Stream site. Responsibility for the cash flows to pay
the City of Kalispell's portion of the remaining debt will contractually be taken on by Teletech at
such time as Stream is released from this financial obligation.
3. Teletech is seeking a "Tenant Improvement Allowance" of $1.18 million to be financed by a loan
from the City ofKalispell/Port Authority amortized over 10 years at 4% interest (Fair Market Rate as
well as a municipality's borrowing rate for infrastructure). The funds for the below market loan will
be derived from the cash payoff by Stream of their Base Rent Obligations and repayment of the
City's Tenant Improvement Allowance (UDAG loan). The Tenant Improvement Allowance shall be
used for construction costs (material and labor), communications infrastructure, as well as any soft
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costs and fixtures that are mutually agreed upon by the parties. The City will not incur any additional
debt in order to make this Tenant Improvement Allowance Loan to Teletech.
4. Teletech's contractual obligation to cover the remaining debt to MBOI. This will happen through:
a. Guaranteed five years of semi-annual debt payments to the City of Kalispell. The City then,
along with the Port Authority's annual payment of $125,000 will pay down the MBOI debt.
b. In the event TcleTech exercises its option to terminate the lease at the end of five years, the
last year and a -half of the City's portion of the debt will be paid from the funds paid to the
City by Stream and held in a reserved account for this purpose. The City will then be able to
earn interest on these funds while they are held for this contingency. Thus, the City will not
be placed in a position of paying off the bond early which would result in a quicker sunset of
the TIF District.
The City has estimated that Teletech will generate property taxes payable similar to those generated
by Stream and based on current tax rates and mill levies in an amount not less than $140,000 a year.
Teletech understands and acknowledges that the City's ability to retire its debt with Montana Board
of Investments (MBOI) for the purchase of the site on behalf of Stream International, Inc. The City's
ability to enter into this Agreement is dependent on the use of this site to generate taxes and
additional Tax Increment Revenue within the District. This is the same structured arrangement that
the City had with Stream and which Stream continues to pay until such time as this Buy -Out occurs
and the obligation is assumed by Teletech. The $140,000 per year is commonly referred to as "floor
rent."
6. Base Rent shall accrue during the terra of the lease at an annual rate of $4.54 per square foot, triple
net, and shall be payable annually in arrears. Teletech shall receive credits against Base Rent and
Base Rent shall be reduced by such credits as follows:
a. During the first 12 month period of the lease term, Teletech shall receive a credit equal to
100% of Base Rent for such period so long as the Full Time Agent hourly wage rate is no less
than $8.00 per hr. and receives a benefit package valued at an additional 20% of hourly wage.
b. Commencing on the first day of the 131h month of the lease term and continuing for each
consecutive 12-month period thereafter, Teletech shall receive a credit equal to 100% of Base
Rent for each Lease Year so long as the Full Time Agent hourly wage rate no less than $8.00
per hour as well as the benefit package.
Commencing on the 24`h month of the lease term and continuing for each consecutive 12-
month period thereafter, Teletech shall receive a credit equal to 100% of Base Rent .for each
Lease year so long as the Full Time Agent hourly wage rate is no less than $8.00 per hour as
well as the benefit package.
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7. A total of 425 jobs will be created of which 80% will be "full time" employees (FTEs) at $8.00 per
hour. The ramp up schedule is:
a. Year I — 125 jobs of which 80% are FTE (100 Full Time Employees)
b. Year 2 — 250 jobs of which 80% are FTE (200 Full Time Employees)
c. Year 3 — 425 jobs of which 80% are FTE (340 Full Time Employees)
8. Stream, believing that parking would not be an issue in such a small, rural community, completed
their parking negotiations at less than 1/z of what call centers typically negotiate. They accepted our
local zoning requirement of I to every 400 sq. ft. of office space. Teletech, Inc. wants the industry
standard for parking of 1 to 120 sq. ft, of office space. Thus, we are 250 parking spaces short of what
the industry standard is and what Teletech insists upon.
a. In order to address the 250 parking space deficiency, the Port Authority has entered into
negotiations with a landowner to lease or, preferably, buy .94 acres of land directly across
Glenwood Drive at the east rear entrance to the old Stream site. In addition to buying the
land, they will be paying the full infrastructure construction costs to pave and light the site. It
is anticipated that 130 parking spaces will be created upon this site.
b. A parking deficiency of approximately 120 spaces would then remain to meet Teletech's
need. Preliminary negotiations with American Capital would indicate the City could meet
this demand through purchasing land between the already improved mall parking area to the
north of the building and Two Mile Drive. American Capital is prepared to enter into an
option to purchase with the City at $4.50 per sq. ft. The City has received reliable
information that the Discovery Developmental Center purchased the 1 acre site directly to the
west of Montana Fish and Game for $4.50 per sq. ft. Based on this recent acquisition and the
tentative purchase of a neighboring site by the Port Authority, staff is estimating the same
$4.50 per sq. ft. as market rate. The actual parking improvements are estimated to be around
$100,000.
c. The funding ability currently exists within the Westside TIF District to acquire and improve
the site in the spring of 2004 as well as fulfill the previous commitment to MDOT for the
widening of Meridian Road. Staff would recommend to Council that the parking lot
improvements be paid using existing TIF funds. Staff further would like Council to consider
negotiating with American Capital to finance the acquisition of the additional parking site
over a five-year period to so that current funds remain within the District to assist in other
future development activities.
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Stream International, Inc.
The Buy -Out Memorandum of Understanding between the City and Stream makes the City "whole" in its
financial obligations when taking into consideration the obligations Teletech will be assuming.
RECOMMENDATION: Staff is recommending that the City Council, as a partner with the Port
Authority, approve:
• Entering into a ten year lease with Teletech, Inc.
• Approve the conditions as stated in the Memoranda of Understandings
• Authorize the preparation of any necessary subsequent documents to be prepared by Dorsey Whitney
and reviewed by the City Attorney
• Approves the acquisition of the necessary additional parking and improvement of the parking
infrastructure.
In addition, staff is recommending that the issue of additional parking needs be addressed now so that the
City/Port Authority owned site meets the industry standards should future lease opportunities be created.
Occupancy of this high tech space will bring on additional technical upgrades during the life of the lease.
Should the building continue to sit idle over the next couple of years, it is only logical that it will be a much
more expensive renovation to retrofit the structure for occupancy at a later time.
FISCAL IMPACT: 340 Full Time Jobs @ $8.00 per hour equates to $16,640 + a 20% benefit package of
$3,328 for all employees wishing to have such a benefit package. The Full Time Jobs alone would generate
$5,657,600 annually within the community, and the part-time employment could generate an additional
annual wage amount of approximately $88,400 plus elected benefits. The projected total wages generated
would be approximately $5,746,000 annually without factoring in any excess employment created over the
ten year period.
Actual cost to the City for entering into the Teletech proposal would be land acquisition and parking
improvements. Parking acquisition should run $196,020 to $288,030 depending on size of parcel to be
acquired and $40,000 to $60,000 in parking improvements.
ALTERNATIVES: As suggested by Council.
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Respectfully submitted,
Susan Moyer, Director
Community Developm
Memo generated: December 17, 2003
2Lj. �11-11�
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Chris Kukulski,
City Manager