Debt is at the center of the economic downturn, and the Village of Oak Park shoulders its share. The village owes $7.6 million for purchasing two downtown Oak Park buildings in 2006, and all of it is due this December.
So Oak Park is planning to ask the bank for more time. In the meantime, the village has already paid $1,185,030 in interest for the two buildings, opting not to pay the principal balance of the debt.
“It’s easy to look back and question things now and say it’s a bit disconcerting, but this is happening throughout our economy,” said Village Manager Tom Barwin. “As we move through this age of austerity, you’re going to see households, families, businesses and municipalities getting back to the basics and planning their finances based on very real economics, very real projections and a lot less on hopes, dreams and what now looks like smoke and mirrors.”
Staff plans to go before the village board Monday, May 18, to ask for permission to refinance the debt, used to purchase 1145 Westgate and 1125 Lake, commonly referred to as the Colt building. If trustees allow the refinancing, Oak Park would have a variety of ways to pay down the debt, said Chief Financial Officer Craig Lesner.
“I would expect the board to agree to refinance because it’s the only option that’s fiscally prudent for us,” Lesner said. “We still have roads to maintain. We still have streets to patrol. We still have lots of different things to do, and we’re not going to stop doing those because we have to pay off this $7.6 million in debt.”
Village President David Pope agrees.
“Looking at a refinancing option is a logical thing for the village to be considering at this point and is something that has been anticipated by the board over the last couple years,” he said. “At the same time, it’s important to ensure that we pay down the principal balance in a reasonable timeframe.”
Options for paying down the debt, which is serviced by Park National Bank, include selling a bond, going to the credit market or renegotiating short-term notes, Lesner said. Oak Park could probably pay off the entire $7.6 million when it’s due Dec. 1, but the village would likely need to cut expenses to make the payment.
“We would have to defer a lot of things to be able to do that,” Lesner said. “It’s not like we have $7.6 million in cash hanging out.”
A board-appointed ad hoc steering committee came up with a plan for the Colt “superblock” in 2005, an area bordered by Lake, Marion, North Boulevard and Harlem. The plan called for the demolition of the Colt building, but the majority of the village board disagreed, saying the building should be preserved for its historic significance.
In February of 2006, the village bought the Colt building from developer Sy Taxman, who had a 5-year-old “put-call” agreement with Oak Park. As part of the agreement, the village had to either approve Taxman’s plan for the superblock or buy the building. Oak Park ended up paying $7.5 million for both the Colt and 1145 Westgate buildings.
Oak Park spent more than $500,000 in consultant costs in 2006 to figure out whether it was tenable to preserve the Colt building, which was built in the 1920s. Consultants found that only 20 percent of the building’s original facade remained, and it would cost at least $7 million to preserve/reconstruct it.
The village issued a request for proposals in October of 2006, looking for ideas for developing the site. Two responses came back, and both were thrown out as developers asked for millions in subsidies.
Then in October of 2007, Oak Park issued a less strict “request for qualifications,” which now included a village-owned parking lot on North Boulevard plus 1145 Westgate. Seven developers responded, and the village board whittled the field down to three in December of 2007.
With the economy tanking, two of the finalists dropped out. In July of last year, trustees chose the last remaining developer – a joint venture between AvalonBay Communities and Clark Street Development – to redevelop the 81,000-square-foot piece of village-owned property.
But in January, AvalonBay dropped out of the partnership because of the downturn in the housing market. Clark Street, meanwhile, said it wanted to continue with the project. They are still looking for another partner, according to Barwin.
Pinholes of optimism
Lesner, who joined village staff in April of 2007, said Oak Park was likely paying interest only on the Colt purchase because the village expected to turn around and sell the building quickly.
“We just haven’t been able to get anything moving on that yet,” Lesner said. “So the expectation was that we would’ve done something with these parcels by now. I think it’s just a zig and a zag in the process that we have to accommodate.”
Barwin, who also joined village staff after the purchase was made, said Oak Park hopes to pay down the debt over the next 5-7 years, without an early payoff penalty. He emphasized that the village could still sell those properties in the coming years, which would completely wipe out the debt.
“We’re seeing little pinholes of optimism out there, in terms of the economy getting back to whatever the new normal will be,” Barwin said, citing an increase in real estate activity in April.
In the meantime, Oak Park is having the two buildings razed to create a parking lot and a blank slate for a possible developer to reinvent.