Brian Smith doesn’t live in the Warsaw city limits, but he had a lot of questions Monday for the Redevelopment Commission about the city’s subleasing of the West Hill Development third shell building.
The agreement is between the city of Warsaw Building Corporation and West Hill for up to 24 months and covers the approximately unoccupied 70,000 square feet of the existing third shell building at the Warsaw Tech Park. Mentor Media occupies the other 30,000 square feet of the building. The sublease rate is for $42,000 per month, not to exceed $1 million over the 24 months of the lease. If another company leases the unoccupied space, or if Mentor Media should expand, that monthly sublease rate will be reduced or end.
The public hearing for the resolution authorizing the execution of the sublease with West Hill took place Monday during the commission’s meeting.
Cary Groninger, of G & G Hauling & Excavating and a county commissioner and a partner with West Hill, told the board, “The partnership that West Hill and the city of Warsaw have had in developing the Tech Park, this is just one of the other steps that we’re taking to be able to have those ... buildings ready to be moved into or relatively close to be ready to be moved into, except for some finishes. It’s what our clients are requiring nowadays to be ready to go. Nobody wants to wait for the time it takes to construct a building.”
Community and Economic Development Director Jeremy Skinner told the commission the resolution authorized the execution of the sublease. He said the resolution was the second step in the process. The city council approved the resolution Friday, and the master lease will go before the Building Corporation Tuesday, Dec. 5.
Randy Rompola, bond counsel with Barnes & Thornburg, explained the resolution to authorize the execution of the lease with the Building Corporation.
“As Jeremy said, this is all a way to provide an incentive to the developer as it relates to that shell building. And so you would be entering into a lease with the Building Corporation. The Building Corporation would then be entering into a lease with the developer (West Hill). So you would use tax increment revenue to pay a lease rental to the Building Corp., which then, in turn, would use that revenue that is received from you to pay to the developer.”
After the meeting was opened up to public hearing, Smith asked if the city was going to use the building for storage or offices for the Tech Park.
Skinner said no, the intent was to lease it out to a company. “We’re actively marketing it on our end and they have hired someone to market the building. It’s a shell building that was built as basically like a pre-building. You pre-build a spec house. We’re pre-building industrial property to get industrial new development to come to Warsaw,” he said.
Commission President Tim Meyer said it was consistent with what they had done with other spec buildings in the Tech Park with West Hill. Skinner said this was their third shell building. The first one is occupied by Patrick Industries, and the second one by Medartis. The city will not actually utilize the shell building while it’s subleasing it.
“So what would happen if you didn’t make this lease? What would happen if you did not agree to the payments? What would happen? Would they not be able to make the payments on their loan, if they have a loan? I guess my only question is, why is it necessary to spend $42,000 a month?” Smith asked.
Skinner said the subleasing is an incentive to build. “From my perspective, we can do nothing and have nothing out there. Or we can incentivize someone to spend $12 million to build a building. So we may be paying a $1 million lease over a two-year period, but they (West Hill) invested $12 million to build a shell building,” he stated.
The hope is that the building will bring someone to the community who employs “a bunch of people,” Skinner continued.
Smith asked what else was going to be built if the building was “partially” already constructed and was the lease to finance more construction onto the building.
“Not necessarily,” Skinner said. Meyer said it would depend on what the people taking possession of the building in the future would need for their business. The building was built so it could be expanded if a company needed more space.
Meyer also said if a company needed less than the 70,000 square feet available, that left space for another lessee in the building, depending on their requirements for floor space.
“This shell building was designed to potentially have multiple tenants. It could have one large tenant, or it could have multiple tenants,” Skinner said.
Meyer added that the sublease was limited to two years.
Smith asked, “So was there any type of agreement before this was built that the city would step in as a lessee in the event that a lessee was not found once the building was finished, or in useable condition?”
“Yes,” Skinner replied. “Well, our conversation was that we would support them in building a shell building, and this is the support that we agreed upon.”
Meyer said it was not formally agreed to until Monday’s meeting.
“This is the process to create that agreement, but in our conversations with the developer, to incentivize them, we told them we would support them in building a shell building and we had to determine what that support was. The support I’m presenting to this Redevelopment Commission, the Building Corp., the city council is this agreement,” Skinner said.
After the public hearing was closed, Commission member Councilman Mike Klondaris said, “The money that is being paid by the city to incentivize West Hill to build these buildings is not taxpayer money. If you’re concerned about your tax rate and property taxes, it’s not taxpayer money. This is a return on our previous investments down at the Technology Park.”
Smith said he was glad the Tech Park exists, and the city was attracting businesses from around the world, but, he asked, “What would you say to the argument that a politically connected person is going to be on the receiving end of a city contract? It’s a question that I have and it’s a question that I want to know how you would answer that.”
Klondaris responded, “Everybody knows everybody in this community, and if you network and you do business, you know people. And, yeah, they’re going to benefit, but we’re all going to benefit. Everybody is going to benefit, not just them. Schools are going to benefit. The street department is going to benefit. All that money gets thrown right back into our community.”
Skinner said Smith was tying it to politics and he was just tying it to the community.
“If you have people in your community, companies in your community that hire people that live in your community, shop in your community and they’re able to do the things that your community needs, why would you not invest in them instead of going and hiring somebody” not from the community? Skinner said.
Meyer said it wasn’t just people locally who get incentives from the commission. “This group is not politically motivated in any way. We exist for the benefit of this community, Warsaw, Indiana, and we have issued benefits like this for similar construction like Kohl’s. We’re working now on the Gatke property. All of which were not local,” he said.
Skinner stated 459 jobs have been added out at the Tech Park since 2016. The assessed value out there is about $50 million and growing.
“The more we grow the tax base, the less taxes you and me and everybody up here has to pay because the tax base is being broadened,” Klondaris said.
The commission unanimously approved the resolution to authorize the execution of the sublease.