Bettendorf sports complex developers to get more than $7 million in upfront grants and loans; no plans to conduct 'due diligence' review of development

Even though Bettendorf will upfront more than $7 million in cash, grants and land acquisition to developers of a $45-million sports complex, city officials say they do not intend to conduct any detailed financial review of the project or project partners.

Asked via email if the city had in the past, or planned in the future, to conduct any due diligence review of the finances of developers involved in the project, City Administrator Decker Ploehn replied with a one-word answer: "No."

In past Tax Increment Financing (TIF) development deals, city officials have been unconcerned with developer finances because city tax rebates wouldn't occur unless the development was completed at the agreed upon investment by the developer.

If the project was not completed, city officials reasoned in the past, there would be no "incremental tax" to then rebate back to the developers.

However, the development package prepared by city officials and scheduled for a public hearing and approval May 2 by the city council, would provide $1.9 million in cash, a $4.9 million upfront grant, plus $600,000 to buy 10-acres from the developers when the building permits for the sport complex are issued this summer.

Actual completion of the project on 79 acres at Forest Grove Road and Interstate 80 isn't expected until August of next year.

There also is no guarantee in the agreement that the developers will invest $45 million in the project; only that the project provide a minimum property assessment sufficient to generate "incremental" taxes to pay the principal and interest on the $4.9 million debt (issued by the city) that is to be paid upfront to the developers.

The city in the agreement also must immediately begin construction of $3.9 million in site improvements, including all sewers, stormwater facilities, asphalt walking paths and street improvements to and within the development.

Those infrastructure improvements, which are to be completed by the end of this year, will not get repaid through incremental tax revenue from the project, but will be paid solely by taxpayers.

The upfront money to be provided developer Doug Kratz, manager of BettPlex LLC and Middle & I-80 Project LLC, along with his partners in the two limited liability corporations, includes:

• $4.9 million, to be repaid through incremental taxes after completion of the project. The TIF agreement on the sports complex property is for 20 years. Once the $4.9 million is paid back from the incremental taxes, the remaining years of TIF payments will rebated back to the developers.

• $1.9 million, comprised of two payments: $500,000 before July 31 and another $1.4 million when the building permits are issued. (If the developers don't build an 80- to 100-room hotel adjacent to the sports complex by Jan. 1, 2021, they would repay the $1.9 million (without interest) over a 10-year period beginning July 1, 2021.

• $600,000 to purchase 10 acres of property adjacent to the sports complex. The developers would retain the right to use the land for sports complex parking, and would have the right of first refusal to buy back the land from the city if the city wanted to sell to a third party. And, if the city doesn't use the land for its own use within 10 years, the developers have the right to repurchase the land for that same $600,000 amount.

The development agreement says BettPlex "agrees to construct the BettPlex Project at a cost of approximately $45 million," but it is unclear from the agreement how much of the project costs are in land and/or buildings and whether the city's investment in site infrastructure is included in that total. The city has not been provided with detailed construction drawings of the sports complex.

The developer has not conducted a marketing study for the sports complex; instead providing city officials with a marketing analysis for a bowling facility, which is envisioned to be part of the project.

"The BettPlex Project will include a six-acre indoor facility consisting of a full-size synthetic turf soccer field, hardwood basketball/volleyball courts, sand volleyball courts, batting cages, family entertainment center, personal training, physical therapy, food, beverage and retail space," the agreement states. "The outdoor complex will include synthetic turf soccer and baseball/softballs fields with lighting for nighttime activities, walking paths and parking. Construction of the project shall commence on or about June 1, 2017. The BettPlex Project shall be completed and operational by August 1, 2018."

Under the proposed agreement, the city also would rebate all incremental taxes for 20 years on developments built on the 39 acres of adjacent property along Middle Road. That land is targeted for hotels, restaurants and convenience stores.

The developers agreed in the contract to a "$5 per room per night fee to be charged on each sold hotel room" for hotels built on the commercial parcel, and "agree to execute an agreement" for a minimum assessment on the commercial property of $4 million Jan. 1, 2019, $8 million Jan. 1, 2020 and $12 million Jan. 1, 2021.

Due diligence is defined as an investigation of a business or person prior to signing a contract, or an act with a certain standard of care. The theory behind due diligence is that performing such an investigation contributes to informed decision-making in a deliberate manner considering all its costs, benefits and risks.

CLICK HERE to download a copy of the BettPlex development agreement with the city.

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