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"We completed Phase I of the center in the fall of 1998," Koman said. "Phase II, which included a 170,000-square-foot
expansion, was completed in 2002.
The shopping center is 100 percent occupied and annual gross sales are averaging between $160 million and and $170
million."
As is common with commercial projects, Koman entered into a note with the city of Fairview Heights to be paid back from
Lincoln Place revenues in exchange for the infrastructure he created for the municipality. Typically initial financing
agreements between a city and a developer carry a high borrowing rate for the developer, commensurate with the degree of risk
early on in the effort.
As Lincoln Place reached full occupancy and revenues surpassed projections, and as a means of freeing up his credit lines
and allowing him to invest in another effort, Koman turned to Stifel, Nicolaus & Co. Inc. and the Southwestern Illinois
Development Authority, asking the two entities to respectively structure and issue developer note bonds. The arrangement
allowed a developer such as Koman to reclaim the money he invested in a particular project minus a slight discount, in return
for liquidity.
Simply put, developer note bond structuring allows a city to swap who it is paying, potentially decrease its overall
interest rate and to pay off its debt on a commercial development much sooner. The developer also wins in the redevelopment
bond process, because he gets paid off much more quickly.
As the conduit issuer of redevelopment bonds, SWIDA is able to issue the bonds at a more attractive interest rate, since
the degree of risk on a completed or nearly completed development is much lower than on a brand new project.
"We feel it's a beneficial program to get development dollars back on the street and off the tax rolls," said Joe Behnken,
executive director of SWIDA.
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For municipalities, the doubly double tax-exempt nature of the bonds - both federally and state tax exempt - is often as
much as 250 basis points less than the interest rate the city had been paying the developer on the initial loan. Developer
note bonds translated into significant tax savings for Fairview, Behnken said.
"Generally there's always that spread between risk based on risk and no risk on the high interest rate that the initial
bonds carry," said Stifel Nicolaus First Vice President Mary Kane, whose public finance division works steadily with
Southwestern Illinois governmental entities on refinancing ventures. "The interest rate between pre-construction bonds and
post-construction bonds is significant."
Although the current market doesn't evidence a big difference between tax-exempt and taxable bond rates, Kane said all
relevant interest rates in a redevelopment agreement are negotiated.
"The whole (redevelopment bond) process is something that can work in a number of places in Southern Illinois," said Cathy
Nicholson, assistant vice president at Stifel Nicolaus. "It's a great way to free up capital and lower economic development
costs. A city is just not at risk if the deal is structured correctly. If we're comfortable with the feasibility study and the
cash flow, Stifel Nicolaus is able to transfer the general obligation away from the city; no general obligation pledge is
required. The bondholders are assuming the risk instead of the city having to assume it. And if the city does opt to make a
general obligation pledge, the interest rate is even lower."
Weingarten Realty Investors, the new owner of Lincoln Place I and II, is a real estate investment trust with more than 300
properties in 18 states, largely in the southern portion of the U.S. Included in Weingarten's portfolio are some 250
neighborhood and community shopping centers, more than 60 industrial properties and one office building.
editor/publisher: Kerry Smith
email: ksmith@ibjonline.com
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