The Tale of the Broad Ripple Parking Garage: Taxpayers Pay to Build the Facility While the Developer Gets 100% of the Ownership and Revenue



Proposed Broad Ripple Parking Garage

A source in City government recently provided me with a copy of the Broad Ripple Parking Garage contract.  I spent several hours pouring through the contract and now am ready to offer my review.   (Unless otherwise indicated, the information below is an analysis of Section 10, that runs from p. 14-16.)

• The contract discusses two funds, the “Project Account”and the “Developer Funds.” The “Project Account” is an escrow account maintained by the Disbursing Agent.  (see page 6, Project Account" definition) which is to be made up in total of the $6.35 million of the City’s payment under the contract. The “Developer Funds” consists of the construction loan taken out by the Keystone (see page 2, "Developer Funds: definition) There is no requirement that Keystone take out a construction loan or how much needs to be borrowed.
  
• The City is to pay $6.35 million for 10 years of rent of a police substation to be located located in the garage.  The money is to be paid upfront as discussed below.  Although the money is designated as "rent," (see p. 2, "DMD Purchase Price" definition), elsewhere in the contract the $6.35 million is designated to be used to purchase and build the facility. My guess is that the parties are calling the $6.35 million "rent" rather than a gift from the City is to somehow limit Keystone's tax liability.  I'm not sure the IRS would be amused.

• Despite the payment, IMPD will have to pay a proportional share of the utilities at the parking garage.  After the 10 years expires, the IMPD has to pay rent at "market rate."  (See page 4, "IMPD Lease" definition.)
• Regarding the $6.35 million upfront payment, the City first puts puts $1.9 million into a “Project Account, " and escrow account held by the Disbursing Agent. That money is  paid to the developer at the time of the execution of the contract (which occurred on September 2, 2011) to pay for land acquisition and construction costs incurred by the developer.
• The City later puts the remaining $4.45 million into the "Project Account." When the City does this, $1.275 million gets paid out to Keystone for documented land acquisition and construction costs.
• The remaining $3.175 million of the City’s money (which at this point is 50% of what has been deposited) contained in the Project Agreement is then paid to Keystone for construction costs on a proportionate basis using a “fraction.”




Former Deputy Mayor
Paul Okeson now works
for Keystone


• The “fraction” used for the proportion is $6.35 million divided by total "Developer Funds," which consists of any funds the Developer borrows.  According to the agreement,  $6.35 million is the Numerator, the Developer Funds is the Denominator. So let’s say that the Developer borrowed $9 million and for simplicity sake we’ll use $6 million for the City’s share, then the fraction is 6/9 2/3. So the math on a $3 million of additional bills Keystone presents for payment, the city pays $2 million while Keystone pays $1 million.
   
• There is nothing in the contract, which stops Keystone from borrowing less than $9 million, thus making the Developer Funds less and changing the fraction in their favor. Let’s say Keystone borrows exactly $6.35 million, so the ratio is 1/1.  then any bills then any bills are 100% paid for by the City until the $6.35 million Project Account fund is exhausted.
• Once the $6.35 million is exhausted, then, and only then, is Keystone responsible for 100% of the construction and land acquisition costs.  However, as reported a parking garage of the type designed typically costs in the range of $6 million.
• There is absolutely nothing in the contract supporting the City's suggestion that the garage will somehow cost $15 million, contrary to the much lower figure other garages have cost.
• There is absolutely nothing in the contract that requires Keystone to put up a dime for the project.
• Keystone (actually the entity created for the project is 6280 LLC) gets 100% ownership of the garage, 100% of the parking revenue and 100% of the rental money for the 20% of the space in the garage devoted to commercial.
• The $1 buyback option is a myth.  For the City to buy back the garage the formula is $1 + $10,000 ("transaction costs") + 80% of at least $6.35 million, i.e. the cost of the garage and land acquisition. (See p. 3, "Garage Acquisition Price" definition.) (Note: we would not be buying buck the 20% devoted to retail space.) Nonetheless the $1 buyback provision expires after five years.   (See p. 3, "Garage Option" and "Garage Option Agreement" definitions.

In this City we have seen sweetheart deals with the Pacers and Colts, and most recently the ACS contract in which we agree to give away 70% of the revenue of the City's parking meter revenue for the next 50 years. But this Broad Ripple Parking Garage deal is the sweetest of the sweetheart deals.  We taxpayers put up the money to buy the land and build the garage.  Yet the developer gets 100% of the ownership of the building, 100% of the parking revenue, and 100% of the money from commercial rents in the building. There is no requirement, none, that Keystone put a dime into the project.

Unbelievable.