The proposed $155 million mixed-use project known as North of South cleared another hurdle Wednesday afternoon when the Indianapolis Metropolitan Development Commission blessed a possible financing arrangment involving the city.
Locally based Buckingham Cos. is leading the development set to be built on 14 acres owned by Eli Lilly and Co. north of South Street between Delaware Street and Virginia Avenue downtown.
The city is offering to provide an $86 million loan for the project by issuing bonds and using income generated by the development to pay off the costs. It also will spend $9 million on infrastructure to get the project off the ground. The MDC approved the financing with an 8-0 vote.
Development plans call for a boutique hotel, retail space, a YMCA branch and 320 upscale apartments on a site now used for parking. Buckingham would like to break ground on the project by the end of the year but faces a difficult timeline to get all approvals.
“I think it will be a terrific addition to the city,” MDC member Diana Hamilton said of the project.
Hamilton threw her support behind North of South after she and other MDC members serving on the commission’s economic development committee heard financing details Wednesday morning from city officials and Buckingham representatives.
Developers did their best to alleviate any fears that the city might be on the hook for the loan if the project were to fail by presenting a laundry list of safeguards.
Those safeguards include a $6.9 million reserve funded by Buckingham; an assurance that 125 percent of the estimated debt will be covered by project revenue; and an agreement that Buckingham will not receive any profit until the developer has paid all outstanding debts.
Further, the city will be shielded from any risk for five years from the project’s start date and will drop its involvement after 10 years. Buckingham then will need to refinance remaining debt with a traditional bank.
“We understand it’s a bit of a new way of doing things,” acknowledged Deron Kintner, director of the Indianapolis Local Public Improvement Bond Bank. “But we think we’ve taken certain steps to mitigate that risk.”
The $155 million price tag for the project includes the $86 million city loan and its $9 million pledge for infrastructure improvements, as well as a $7 million contribution from Buckingham, a $6 million grant from the Indiana Economic Development Corp., the $29 million in land Lilly is donating and $18 million for the YMCA branch.
If one take's the YMCA out of the equation, because it will provide its own funding, Indianapolis is financing nearly 64 percent of the project—a large amount for the city to swallow, MDC member Randy Snyder said.
“I just want to make sure we do everything we can to protect the city,” he said.
Instead of $86 million, however, the city actually is borrowing $98 million to pay for administrative costs related to the bond sale and for interest payments while the project is under construction.
City officials said the additional $12 million adds flexibility to the bond issue because it’s often impossible to know how the bond markets will perform between the time of filing and issuing of debt. They also say bond issues involve “soft costs,” such as interest.
Lilly will continue to own the land, so the state’s involvement makes the project a public-private partnership. The state is contributing because it plans to designate an area within the development as a certified technology center.
The city has had discussions with a few universities that might be interested in occupying space within the tech center but has no agreement yet, Deputy Mayor Michael Huber said.
The project is expected to create 2,200 temporary construction jobs and 200 permanent jobs. It also is anticipated to generate $1.7 million in annual revenue for the city.
The MDC next is expected to hear a request to rezone the property at its Dec. 15 meeting. The City-County Council ultimately needs to sign off on the project.