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<br />Kevin Ringwald
<br />October 14, 1997
<br />Page 2
<br />.
<br /> only the soils correction work, but also the substantial improvements to the exterior of these
<br /> buildings.
<br />2) Soils Correction. As I outlined earlier to you in my memo dated October 7, 1997 (copy
<br /> attached, with attachments), we have, as a result of substantial additional research work on site,
<br /> determined that there are very substantial soil conditions (mostly on the City's Kern Milling
<br /> parcel) which are in fact quite expensive to correct, and for which there is no identifiable source
<br /> of funds.
<br /> Although it would be most convenient if the projects were so "financially advantageous" as to
<br /> allow the additional $272,000 in soils correction work, they frankly are not. In fact, the yield on
<br /> total investment in both Phases II and III has plunged below 9.5% per annum on a stabilized
<br /> basis, with internal rates of return (assuming sales in the 10th year at capitalization rates of
<br /> 10%) of barely 10.0%. In addition, as a result of prior negotiation of the conversion of Phase IV
<br /> into a "build-to-suit" for the Apache Group, if we do not receive the tax increment assistance
<br /> requested, we would actually lose at least $75,000 after two years work on Phase IV. In
<br /> addition, it should be noted that there is absolutely no development fee included in the Phase
<br /> IV deal. That development fee was lost as a result of the financial impact of all of these factors
<br /> on the Phase IV transaction with Apache.
<br />. In addition, we are now working on Phase II with AmbcrJack, Ltd., the affiliate of State Farm
<br /> Mutual Insurance of Bloomington, Illinois (the owner of the Phase I project). As a result of the
<br /> unfortunate and surprising amount of soil correction work as documented in that prior memo
<br /> to you, the AmberJack project, to say nothing of our own interest in the Phase III project, has
<br /> also fallen on difficult times.
<br /> You may wish to note that the total land acquisition and preparation costs for the project,
<br /> including mitigation and correction work on those sites totals almost $3 million, or $2.76
<br /> invested per square foot of buildable land. As you know, although we acquired a total of 31.76
<br /> acres, 7.34 acres of that area has been utilized for dedication of Gateway Boulevard, dedication
<br /> of Round Lake Court, and setting aside of substantial areas for wetlands, conservation
<br /> easements to the City, and the additional easement provided to the City for our Round Lake
<br /> foot path. In any event, even though the site totals 31.76 acres, only 24.42 acres remain for sale,
<br /> by virtue of the fact that 7.34 (as noted above) cannot be considered buildable under the Final
<br /> Plat.
<br /> This $2.76 per square foot land cost frankly would put the economics of all three phases of the
<br /> project in jeopardy. This is a direct result of the unbudgeted and unforeseen soil corrections
<br /> costs which we have now determined to be necessary for anv development/developer, as a
<br /> result of our additional geotechnical research.
<br /> You may also wish to note that on all three phases, totaling over 300,000 square feet, with
<br /> aggregate project costs of approximately $13,885,000, the total developer overhead fee payable
<br /> to Welsh Development Company, LLC, would be $291,699, i.e., less than $1 per square foot of
<br /> project, and equaling approximately 2.1 % of the total project cost, which as you know, is
<br /> extraordinarily low. Architect and contractor fees have also been reduced to levels well below
<br />. market.
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