The City Council has entered into a public-private partnership with Richard Kessler (via his affiliated company) to redevelop six acres of West River Street.  The City has agreed to invest in new infrastructure--mainly water and sewer, lighting, garage and riverwalk extension--from part of the incremental new taxes generated by some $300 million in private development.  Mr. Kessler has invested private funds to redevelop the abandoned Plant Riverside into a J.W. Marriott Hotel, entertainment complex and public park. 

Agreements include development of an underground parking garage by Mr. Kessler that the City approved in 2016 to serve the hotel and for public parking.  Under the agreement, the Downtown Savannah Authority (DSA) will own the parking garage and issued $33.06 million in bonds to fund the project, while Mr. Kessler will construct the garage and then operate it under a Garage Management Agreement.  During construction, Mr. Kessler’s contractor hit unforeseen deep subsurface conditions (old timber foundations) that required extensive added work and delayed completion.

Facts & Findings:

1. Kessler is seeking an additional $9.5 million for the parking garage to offset the additional expense related to the unforeseen deep subsurface conditions (old timber foundations) and delay. The City of Savannah would need to request that the DSA issue an additional $9.5 million (principal) in bonds; however, all requirements of the 2016 agreements would be continued. Among the 2016 agreements, Kessler entered into a guaranty (2016 Guaranty) that commits him personally to complete the parking garage as well as to pay the debt service payments on the 2016 bonds for four years after two years of capitalized interest. From then forward, projections show the garage should generate sufficient income to pay the debt service.

2. Since the 2016 Intergovernmental Agreement with DSA obligates the City to guarantee the debt, staff needed to analyze whether the future fees from the parking garage would be sufficient to cover increased debt service payments on an additional $9.5 million in debt. Parking and Mobility Services reviewed the projected parking revenue based on market rates, adjusted for vacancy, versus projected expenses based on typical staffing, maintenance and other operational costs. Staff has determined that the parking garage’s projected revenue will support the debt service on an additional $9.5 million in bonds.

3. The 2019 bonds would be secured by another intergovernmental agreement between the City of Savannah and the DSA. The agreement would obligate the City to DSA should Mr. Kessler default; an amendment to the 2016 Guaranty would extend the terms of Mr. Kessler’s guaranty to the debt service on the 2019 bond. In other words, all terms under the 2016 agreements would be extended to the 2019 bond.

Alternatives:

1. That the City Council adopt the motion as presented to approve a resolution authorizing the City Manager to send a letter to the Downtown Savannah Authority (DSA) to request an additional $9.5 million (principal) in taxable revenue bonds for the parking garage that Plant Riverside is constructing under agreement with the City.

2. That the City Council take no action and require the developer/investor to proceed per the terms of the 2016 Guaranty that commits Mr. Kessler to complete the parking garage as well as to pay the debt service payments regardless of costs and delays due to unforeseen deep subsurface conditions (old timber foundations).

Policy Analysis:

Decision-making authority whether to incur additional debt on the parking garage remains solely within the discretion of the City Council based on its judgment whether net income would be sufficient to pay debt service.

Approval