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Clarifications Regarding Evanston Lakehouse & Gardens and City of Evanston Negotiations

by A Guest Essay By Tom Hodgman May 1st 2018, Evanston Roundtable

As President of the Board of Evanston Lakehouse & Gardens (ELHG) I have likely been closer and more deeply involved in the negotiations regarding Harley Clarke than any other individual at the City or at ELHG.

There has been a lot of activity in the press and social media following the City Council’s recent vote on April 9 to not continue negotiations with ELHG and not to accept the lease as presented on April 9. In an effort to provide accurate and complete information to the community, our Partners, our supporters and our donors I am providing this statement and responding to some of the statements that have been made which I believe do not provide complete or accurate information. Below this statement is also a timeline of events and activities leading up to today, and several key details related to our proposal and lease negotiations. ELHG does not believe that there is any grand conspiracy regarding the Harley Clarke mansion. With that said, the process has not always been a smooth one, which I believe has led to miscommunication and has led some people to become upset.

I do not believe that Mayor Stephen Hagerty’s recent statement about Harley Clarke suggesting conspiracy theories and opening the door to demolition is appropriate or consistent with the public process outlined below. It is not consistent with his statement in November 2017 that ELHG was “the solution we [the City] need to rally around.” It would be one thing if the City had given ELHG the lease and three years to raise the capital, and the City enthusiastically supported the project, and then ELHG failed to raise the money. But, this never happened.

To suggest that ELHG was given a chance and failed is just plain wrong.

It was very clear all the way through the process that the lease needed to provide for a fundraising period, and that having a lease indicating the City’s approval and support of the project was critical to raising money – especially given that the City would not allow us to use pledges to meet benchmarks. ELHG already enjoys broad community support. To secure major cash donations, we need certainty from the City via the lease agreement or some other commitment.

ELHG remains willing to get this project back on the tracks and finalize a lease with the City. To do so will require leadership across the City – from Staff, to City Council, to the Mayor. It will require Vision for the Future. This should be fun and exciting, and we would welcome proactive engagement from City leadership to help realize this Vision.

Here is an interesting question – Will the City approve the lease if ELHG shows up with substantial financial commitments? What amount is required to secure their approval of the lease? Will they give us the time to do that?

An answer of YES and a clear indication of the dollar amount of commitments necessary for approval would be a strong statement of good faith and would show that the City is honoring the process they laid out. An answer of NO, would erode trust and faith in our governmental processes.

Below is a useful timeline of events with additional detail:

June 2015 – Harley Clarke Citizens Committee (chaired by Steve Hagerty) – The Committee did not reach a consensus. Each committee member submitted their own letter of recommendation. The Survey conducted by the Committee had the following results with associated scores: Non-profit partnership was the top choice (3.83 score); City owned and operated (3.74 score); demolish building (2.73); sell to a private business for hotel or event space (2.55 score); sell for senior housing (2.15 score).

July 2015 – ELHG incorporated in Illinois.

October 2015 – Council tables discussion of Harley Clarke until the State passes a budget.

December 2015 – ELHG receives determination letter from the IRS confirming that we qualify as a 501 c 3 public charity non-profit organization.

Sept. 12, 2016 – City Council passes motion (made by Ald Wilson) that Harley Clarke will be owned and operated by the City of Evanston. The Council allocated $250,000 for immediate improvements and instructed the City Manager to use the property in 2017 for City-sponsored recreation activities. The resolution instructed the Parks and Rec Board, Lighthouse Landing Committee and City Manager’s office to develop a plan for future operation of the property beginning in 2018.

This Committee became the ‘Harley Clarke Planning Committee’ chaired by Alderman Revelle. The resolution specifically instructed the Committee to identify community groups and non-profits that may wish to use the property.

The City was instructed to establish a Harley Clarke Mansion account within the Evanston Parks Foundation to receive donations to support improvements (no account was ever created with the Evanston Parks Foundation).

Nov. 22, 2016 – City Staff presented a memo and detailed supporting information indicating that to make the building suitable for recreation programs would require $660,000 of investment. As this was more than the $250,000 allocated by Council in September 2016, they elected to wait on recommendations from the Harley Clarke Planning Committee chaired by Eleanor Revelle.

November 2016-June 2017 – Harley Clarke Planning Committee held regular public meetings over 7 months to evaluate the future use and programs at Harley Clarke. ELHG participated in all of these meetings as did some other organizations who made presentations. Any other interested individual or organization could have participated. The Mayor did not participate in any of these meetings. No Council members, besides Ald Revelle, participated in these meetings. The Committee determined that ELHG’s plan was the best use for the property. Before making a recommendation to Council, the Committee held a public meeting in the parasol room in April 2017 to solicit broader public feedback on ELHG’s plan, and it received overwhelming support from a packed room.

June 26, 2017 – HC Planning Committee recommended to City Council that the City enter lease negotiations with ELHG to form a public / non-profit partnership to allow restoration and operation of the Property. Alderman Revelle made a motion that the City Manager negotiate a lease with ELHG and that the $250,000 allocated for repairs remain dedicated for improvements and critical repairs. The motion was seconded by Ald Suffredin. Alderman Wilson provided his opinion that because the Sept 2016 resolution said “owned and operated by the City of Evanston”, that he had not expected the Committee to recommend a lease to a non-profit, and made a substitute motion that the City issue a Request for Proposals “RFP” to allow any other groups to offer a different proposal. In discussion, Alderman Wilson and several others were very specific that demolition was not an option. The motion to issue an RFP passed.

Aug. 3, 2017 – RFP for Non-profits issued.

Oct. 9, 2017 – ELHG submited its response to the RFP. ELHG had a pro forma financial statement in an Appendix 3 to the RFP on page 97 which showed raising ~$5M in about 3 years to repair the building. The other fundraising in the pro forma was for ELHG operations. On page 17, ELHG’s RFP stated:

“The total budget for restoration and repurposing of the building is $4.8 million. Depending on the pace of fundraising, the restoration may take place in two phases:

  • Restoration Phase 1: Bring the building up to code and begin operations at an initial, demonstration scale. Estimated cost of $1 million.

  • Restoration Phase 2: Full restoration of all interior and exterior spaces. Estimated cost of $3.8 million.”

It was clear that depending on the pace of fundraising, the project could be undertaken in phases.

On Page 21 of the RFP, ELHG outlined our proposed lease terms: “In exchange for Evanston Lakehouse & Gardens’ proposed approximate $5 million investment in the Harley Clarke House and Coach House, we are proposing an initial lease term of forty (40) years, at a monthly lease rate of $1/month. These terms are based on the large capital investment required to make the building safe, accessible and usable for our desired programming. In a typical lease agreement, the landlord would provide the property in good condition and ready for occupancy or would provide a Tenant Improvement Allowance to make necessary repair and improvements to the property. The forty-year term is comparable to the prior Evanston Art Center lease and the initial lease that the Chicago Botanic Gardens entered into with the Forest Preserve District of Cook County.

A review of office and retail rental rates for properties in Evanston from CoStar shows that typical net effective rental rate in Evanston for properties of 10,000 sq. ft. and above is $18 per square foot per year. Applying this rate to Harley Clarke’s 20,650 sq. ft. equates to an annual lease of $371,000 per year. Applying a 7% cap rate (or discount rate) to a 40-year lease payment stream of $371,000 per year equates to a net present value of approximately $4.9 million.

In this case, the tenant is being asked to invest in and build out a property that it will not own and provide the majority, if not all, of the funds for improvements and restoration. This large investment is effectively an upfront payment of rent on the property. Even assuming the City stands by its commitment to invest $250,000 in the building, ELHG’s approximate $5 million investment in the property, when added to the value of services that ELHG board members and volunteers will provide, exceeds the $4.9 million net present value of a 40-year market lease for the property.”

Nov. 13, 2017 – City Council reviewed RFP responses. With strong support from ELHG partners, supporters and its Board in public comment, the City Council voted 8-1 to accept ELHG’s response to the RFP and instructed the City Manager to negotiate a lease with ELHG. At some point at this meeting or prior, the $250,000 allocated towards repairs at Harley Clarke was no longer available. I believe the rationale given by Alderman Wilson was that it was for immediate repairs only, and was not designed to support a public / non-profit partnership.

Mayor Hagerty’s public statement following the RFP approval was: “This was an exercise in civic engagement, ” said Mayor Stephen Hagerty of the crowd of supporters at the Council meeting and throughout the lengthy public process. “Given the untenable nature of other options and the Council’s vote, this is the solution we need to rally around if we are to save the mansion. By doing so we will create programming that benefits our youth, a beautiful place for special occasions, and a community asset for generations to come.”

Dec. 2017-April 2018 – ELHG and the City conducted on lease negotiations. Some important points are below:

  • The City Staff that ELHG interacted with on the lease were Erika Storlie, Grant Farrar and Michelle Masoncup. Alderman Revelle sat in on most of the meetings. City Manager Bobkiewicz was not present at any meetings.

  • City legal staff indicated that they would not permit ELHG to use pledges towards fundraising goals. Pledges are a common tool used in capital campaigns and taking that tool away, presents challenges. As the City was not going to permit ELHG to use pledges, ELHG requested more time, and the City Staff agreed. From the very first meetings, the City was reminded that ELHG was not securing significant cash funds until it had a lease, primarily in fairness to donors and because, as had been said many times at public meetings, evident City commitment was a necessary component of the fundraising toolkit — perceived City reluctance actually operates as a major obstacle to fundraising.

Not allowing pledges was a big surprise to ELHG, as the City has used pledges towards fundraising goals on other City projects, most recently the Robert Crown project. The Feb 19, 2018 City Council Packet states: “As of Feb. 16, 2018, Friends of the Robert Crown Center (FRCC) has raised a total of $11.1 million in pledges towards a new Crown Community Center. A majority of these gifts are 5-7 year pledge agreements, payable through 2023. FRCC has received $2.4 million in donations and pledge payments to date.”

This is very exciting and we commend the work by FRCC and CCS. This campaign was also supported with $763,458 from the city to pay for fundraising consultant CCS, who was hired in 2015. So, in three years the Crown campaign secured $2.4 million in cash, with another $8.7 million in pending pledge payments, and this was accomplished with the support of the volunteer FRCC as well as $763,458 from the City to pay for professional fundraising services from CCS.

The City seems to be suggesting that ELHG should raise $5 million in cash in three years with no support from the City – this would be double the cash fundraising, with no support from the City, in the same amount of time. This is a very different standard being applied to ELHG.

Why? To be clear, ELHG is not asking for money from the City, but we are asking for time. ELHG believes that is a very fair deal for the City.

Jan. 23, 2018 – ELHG received a first draft of the Lease from the City Corporation Counsel, which was ‘subject to further negotiation and discussion’. Over the course of the next 6 weeks ELHG Board members, the City Staff, and ELHG’s Attorneys Kirkland & Ellis met several times to negotiate lease terms that both parties could agree to. The lease did not represent a unilateral ‘proposal’ from either side, rather it was negotiated and agreed to by both parties.

Much discussion was spent on the Fundraising Benchmarks. It’s important to differentiate between a pro forma financial statement from the RFP and a contractual lease agreement. A lease agreement is designed to protect the lessor and lessee in case something does not go right.

The fundraising benchmarks in the lease – unlike pro forma targets – should be triggered only in a “worst case scenario” – an outside boundary – and not a “best case” or “normal case” scenario. This was intentional to provide flexibility given the inherent difficulty to predict a capital campaign schedule, especially if the City would not allow pledges to count towards the benchmarks. The $2 million in the original lease was three times the $660,000 estimate provided by the City to get the building operational (see Nov 22, 2016 City memo – memo begins on page 99).

ELHG wanted to go well beyond the minimum upgrades contemplated by the City, and we felt this was appropriate protection. ELHG always stated that was a minimum, and we intended to raise all the full amount represented in the RFP as fast as possible, but the benchmarks needed to provide flexibility.

February 19, 2018 – I met with Mayor Hagerty at the Civic Center and provided him an update on the lease negotiations, including the $2 million minimum as the compromise because ELHG would not be allowed to use pledges. I also discussed the RFP’s we had issued for architects and fundraising consultants so that we would be ready to launch our campaign once the lease was approved. So, Mayor Hagerty was aware that our campaign had not launched, and that we were waiting for the lease. I also discussed that once we began our campaign that we might need Mayor Hagerty to help us engage certain major donors, as the City was a primary partner in the project. Mayor Hagerty indicated that he would be happy to do that.

March 12, 2018 – City Council Reviewed the lease agreement and provided feedback to City Staff and ELHG. The Lease was adopted for Introduction and action at the April 9, 2018 meeting. Based on feedback from Council, ELHG and the City Staff made additional edits to the lease, including the fundraising benchmarks to be a minimum of $2 million in 3 years and $5 million in 10 years. Again, due to the lack of use of pledges, City Staff agreed to allow more time in the benchmarks.

April 9, 2018 – City Council considered the revised lease. Council identified a few items where they were not comfortable with the terms agreed to by City Staff and ELHG including fundraising benchmarks, casualty insurance and environmental clauses. ELHG indicated in the meeting our willingness to work towards different terms if the Council did not agree with the lease negotiated by Staff. ELHG also announced a new $10,000 matching grant it had received, bringing its total commitments to $110,000 to launch our campaign. The City Council voted against tabling the discussion to allow continuing negotiations and then voted against the lease as currently presented.

To suggest, as Mayor Hagerty has in recent comments, that we were not ‘honoring our original proposal’ is not an accurate statement. The negotiated lease terms were developed based on the restrictions the City was putting on ELHG – including not allowing us to use pledges to meet the fundraising benchmarks.

April 20, 2018 – Despite Council voting against addressing the concerns they raised on April 9, ELHG worked with our attorneys at Kirkland & Ellis to make edits to the lease to address the concerns raised by City Council, and sent a memo outlining proposed edits and a full edited lease to City Council, the Mayor, and the City Staff we had worked with on the lease. No one from the City responded to this email.

April 23, 2018 – ELHG presented the revised lease to council in public comment and reiterated our desire to work with them on terms that were acceptable to all parties and would set the project up for success. No motion was made by Council to reconsider.

We look forward to continued conversations and hope that a resolution can be reached to bring this exciting idea to fruition.

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