By Jason Crane
The Aurora City Council is set to vote on a Resolution to approve a redevelopment agreement between the City of Aurora and The Barrera Organization LLC for the Renovation of the property known as the Galena Hotel at 116 W. Galena Boulevard.
City government of Aurora documents show the plan is for adaptive reuse of the vacant and long dilapidated property for twenty-one “micro apartments” with an affordable pricing structure renamed Lincoln House.
Known originally as Fox River House, the Galena Hotel was rebuilt in 1860, after a fire destroyed the original building. It was owned and operated by Edward Huntoon, cousin to one of the original settlers of Aurora in the early 19th century. It served as a popular location for parties, balls, weddings and community events with residents coming there after attending social events at the popular Dunning block by River Street. The Galena Hotel is notable for its original architecture, and is one of the few buildings still standing that was built prior to the Civil War. It was continuously used until its closure few years ago. The building is listed on the National Register for Historic Places.
After the building was shuttered for continued unaddressed and dangerous code violations, it was purchased by Fernando Barrera, an Aurora native with an accounting and finance degree from Benedictine University and more than ten years’ experience in the real estate industry. After working in public accounting, he started his own real estate business and has amassed a portfolio of 150 residential units. He is known for his work with first time home buyers and investors and promoting community and economic growth in the historic neighborhood of his youth. For this project, he has assembled an experienced team of design, construction, and historic building compliance professionals.
There are challenges and opportunities inherent in the redevelopment of the Galena Hotel. The building is only about 9,300 square feet with 6,663 rentable based on the layout. Because historic regulations severely limit the altering of the original layout, approximately a third of the building will be non-income producing as common area. The result is that renovation costs including provisions for accessibility compliance are extremely high as measured on a per unit or on a per square foot basis. Similar to other downtown buildings that sat vacant for decades because there was no economic rationale for repositioning them, the Galena Hotel, without financial assistance from the City, has no means to become a vibrant revenue producing asset that will attract many new residents downtown.
Fortunately, the Federal and Illinois state tax codes encourage preservation through the sale of tax credits providing as much as a 45% effective offset of project costs. This translates into a reduction in the impact of the total Galena Hotel renovation costs from approximately $6,650,000 (a hard to fathom $1000 per square foot, due to amortizing these high costs over such a small amount of space) to closer to $4,450,000, which is still approximately $500 per square foot. With Fernando having purchased and carrying the building for $200,000, obtaining a loan for approximately $2,000,000 and contributing another $500,000 in equity or a total of $3,159,450 in risk capital, the gap is $1,300,000. This equates to approximately $62,000 per unit, which is in line with both the trends of prior City incentives (inflation adjusted) and the current DAC request. Even after accounting for both the City contribution and the impact of the historic tax credits, Fernando’s anticipated returns on a cash-on-cash basis are modest. Also imputed in the projections is utilizing the preexisting TIF #13 that was created for the Hobbs development with the inclusion of the Galena Hotel.
At this time, taxes on the property are $4,800. If the property remains in its poor and vacant condition, these taxes will likely stay the same or decrease. The RDA calls for these taxes to remain flat for the five years it is anticipated to complete construction and get the project stabilized. After that, a minimum threshold is established where all taxing bodies will receive 20% of the increment above $4,800 and the developer will be eligible to receive an 80% incremental tax reimbursement. If after five years, revenues increase to a point where the developer can earn 8% on its invested capital (net income after debt service of $52,000) then the split would reduce to 70% (developer) and 30% (taxing bodies). At a 10% return, (at $65,000), the split will be 60% (developer) and 40% taxing bodies. Should the developer be able to earn a 12% return ($78,000), there will be a final adjustment where all incremental tax revenues are divided equally for the remainder of the TIF life. The total incentive to the developer as defined in the RDA will be these TIF benefits and the aforementioned $1,300,000 forgivable loan that will be forgiven when the project is completed.
The building design is based on a strong need, as demonstrated most recently by the affordable housing study presented to the City Council September 3rd that showed a very strong demand for housing in the City, notably at rents that are in line with standard norms as measured by housing expenses as a percentage of gross income. The units at Lincoln House, while not categorized as affordable as measured by direct government operating assistance, (in other words Lincoln House is market housing), will serve an untapped need by serving residents wanting a place to live downtown and are willing to consider smaller units (think a little larger than a standard hotel room) at rents that are affordable as compared to gross month rents in the downtown often at least $300 higher per month. The average rents in the first couple of years are projected at about $1,050 per unit. Ironically this is higher than even the DAC development on a per square foot basis- but is affordable based on the total monthly tenant outflow.
A micro unit, typically 350 square feet or less is a refined version of a studio apartment with an open floor plan, minimalist design such as neutral colors, sleek lines and compact furnishings such as a Murphy Wall bed that allows for a seamless transition from living room to bedroom. They typically rent for approximately 30% less than studio apartments within the same market. (Apartment Living) and attract predominantly young professional singles looking to supplement their smaller living space with nearby services and activities, restaurants, with access to public transportation.
The RDA is conditioned on Fernando obtaining a Conditional Use Planned Development to allow for residential on the first floor to allow and the smaller than permissible square apartment footage. In addition, Fernando will need approval from the FoxWalk Design Review Committee. Fernado and his professionals have already had a DST meeting with staff. Today’s request from Council does not include the approval of these zoning changes as they will come back through the Economic Development Committee and back to Council.
Having an additional 21 apartments rented in the downtown, in a market where there is little vacancy, will serve a need and help continue a cycle where more residents induce more retail sales and a wider offering of services that in turn will attract new residents to the downtown.