In 2021, the Town solicited development proposals for a transit oriented development project on city-owned property north of DART’s Addison Transit Center, in anticipation of the opening of rail service on the Silver Line, with an option to include DART’s property in future phases. The Town and DART subsequently approved an Interlocal Agreement (ILA) that set forth the terms and conditions for the Town to enter into a long-term ground lease of the transit center property, which is 5.5+- acres in size. DART’s property holdings include the existing transit center and the adjacent office building (the “Baumann Building”).
At the October 24th meeting, City Council had questions about the following provisions of the lease:
Timeline for Engaging a Developer and Commencement of Construction - After the effective date of the lease, the Town has 48 months to engage a master developer and enter into a development agreement or sublease for the property. The lease also provides a 60 month “Pre-Development Period” for the developer to secure zoning, financing, prepare plans and commence construction. These time frames are concurrent.
Rent Commencement – Annual rent is not due until the first to occur of the following:
- 60 months after the effective date (the “Pre-Development Period”);
- The town issues a Certificate of Occupancy for the first building; or
- Construction activities impact DART’s transit activities.
Determination of Annual Base Rent and Subsequent Rent Adjustments – the initial annual base rent is determined by an appraisal process and does not change for the first five years after rent commencement. After five years and then at 10-year intervals, a reappraisal process adjusts the annual base rent by no less than 2% or more than 3% per year.
Unsubordinated Ground Leases – An unsubordinated ground lease allows the master developer and tenants of the project to obtain financing and encumber their respective leasehold interests to secure the loans, but DART’s ownership cannot be encumbered. If the master developer defaults on a loan, its lender has no right to foreclose on DART’s interest in the property. However, the master developer and its lender have the right to cure defaults under the master lease and also the right to receive a recognition agreement from DART that acknowledges the interests of the mortgage holder.
Summary of Lease Terms:
The major provisions of the Master Lease Agreement, which are in accordance with the approved ILA, are:
Term
- An initial term of 49 years, with two 25-year extension options.
- DART may terminate the Master Lease Agreement if no construction has commenced on the DART property within 60 months of its approval. The lease may also be terminated on the Baumann Building property if construction has not commenced within 10 years.
- The Town may terminate the Master Lease agreement if no sublease or development agreement with a master developer has been approved within 48 months after the effective date of the agreement.
Base Rent
- The lease provides a Pre-Development Period of up to 60 months for the Town to select a master developer, who in turn must acquire financing and complete the surveying/zoning/planning/platting and permitting process. DART receives no base rent during the Pre-Development Period. Rent will commence when the Pre-Development Period ends, or the Town issues a Certificate of Occupancy for the first building on the DART property, or when DART’s ability to use the transit facilities is adversely impacted, whichever occurs first. DART will continue to collect all rent and other revenue from the lease of the Baumann Building until Base Rent becomes payable.
- Annual base rent is calculated as follows:
- For the first 5 years of the lease, the base rent for DART’s land is determined by an “as developed” appraisal conducted immediately after selection of the master developer, based on the proposed development plan, but also taking into consideration the impact of DART’s operational and infrastructure requirements. The appraised value of DART’s land will be multiplied by 4% to establish the base rent.
- Appraisals will be conducted by one appraiser selected by the Town and DART and another chosen by the master developer. If the two appraisals are within 5% of the same value, the average will be used to calculate the base rent. If the difference in the two appraisals differs more than 5%, the two appraisers shall jointly select a third appraiser to make that determination.
- A reappraisal shall be conducted initially after 5 years, and then every 10 years to reset the base rent. During these periods, the base rent shall be adjusted by not less than 2% but not more than 3% per year since the previous adjustment.
- In addition, if the improvements actually constructed on the DART property deviate significantly from the original development plan, DART or Addison may require an adjustment to the annual base rent. The appraisal for this adjustment would be based on the actual improvements on DART’s property.
- Excess Rent – Although unlikely, if the Town receives annual rent from the master developer for DART’s property that exceeds the rent payable to DART, the excess rent is shared equally between the Town and DART. Property tax, sales tax and other tax receipts are not considered base rent, nor is any rent paid by the master developer which is rebated, credited or refunded by the Town for reimbursement of development costs.
Unsubordinated Ground Lease – the Master Lease Agreement will be unsubordinated, but with appropriate protections for subtenants and lenders.
Covenants, Conditions and Restrictions (CCRs) – The Town and DART will enter into a set of CCRs that prohibits noxious uses on all properties but promotes the development of a high-density, mixed-use transit-oriented development. Development and uses shall comply with DART’s adopted Transit Oriented Development Guidelines and specific uses, such as self-storage and a stand-alone parking garage are prohibited on DART’s property.
Capital and Operational Expenditures
- Project Capital and Operational Expenditures – The master developer will be responsible for all capital expenditures for infrastructure and facility improvements and replacements, and for property management. DART will remain responsible for capital expenditures related to the rail line and platform, ticket kiosks, information boards and associated infrastructure, as well as operating expenses related to transit operations.
- DART Operational and Infrastructure Requirements – DART’s ongoing bus and rail operations must be accommodated and continued as part of the development, in accordance with the requirements attached as Exhibit “B” to the lease.
Master Developer Selection – The Town has exclusive authority to solicit proposals from developers, to select the master developer and enter into a sublease for DART’s property and associated development agreements. DART will review correspondence and documents related to any development proposals, development agreements and sublease documents.
FTA Compliance – The lease and use of DART’s property is subject to compliance with Federal Transit Administration requirements.
General Provisions – The lease also contains general provisions such as requirements for insurance, utility and tax payments; provisions for use of maintenance of the property and improvements; and the terms for subleasing to the master developer. |