Construction has begun but bond issue key to Mellody Farm project in Vernon Hills
Site work started weeks ago but the key to a $200 million development in Vernon Hills soon will play out online.
On May 16, Speer Financial Inc., on behalf of the village, will host an auction for an estimated $20.7 million in general obligation bonds, a form of borrowing, approved as an incentive to allow the project at Townline Road (Route 60) and Milwaukee Avenue (Route 21) to proceed.
"It's usually about 10 minutes or so. Each of the banks can submit their bids and you watch it online," said Nikki Larson, village finance director. The village board that evening will get the results and vote on the bond issue.
In January, the village agreed to reimburse developer Regency Centers $20 million to cover a portion of the public improvements and land costs associated with the project.
Known as Mellody Farm, the development features a 272,242-square-foot shopping center anchored by Whole Foods and a 3-story, 260-unit apartment building. When complete, the center is expected to generate $700,000 a year in sales tax for the village.
The funding agreement is subject to 19 conditions, including Regency closing on the 50-acre site and providing proof the shopping center is 50 percent leased. Those conditions have been met and the village has 75 days to provide its portion of the project funding.
The live online auction is intended to obtain the most competitive interest rate. Larson said the expected rate the village will have to pay bond buyers is 3.5 percent to 4 percent.
Because the bond proceeds will benefit a private use, the interest to buyers is taxable and commands a higher rate than nontaxable bonds, which are used for public projects, Larson noted. Rates on tax-exempt bonds have been below 3 percent.
Vernon Hills recently was affirmed a AAA rating -- the highest issued by Standard & Poor's -- with a stable economic outlook.
"That will go a long way in obtaining a lower interest rate," on the bonds, Larson said.
The bond issue will cover an $18 million upfront payment to Regency. The remainder of the issue will be used for the village's closing costs and three years of interest payments, Larson said.
Regency is eligible for an additional $2 million when two of five outlot buildings are constructed. That will be covered by village operating funds.
Vernon Hills does not levy a municipal property tax but will use property taxes to pay principal and interest on the bonds. That's possible because the area has been designated a tax increment finance district.
Under a TIF district, property tax increases generated as the site is improved and the value increases are put in a special fund to pay various development-related expenses, rather than going to other taxing agencies.
When issued, the village's outstanding debt will double to $42.2 million. Though wary of the big incentive, village officials demanded protection in case the project falters. A provision calls for Regency to pay the village $26 million if the project is not substantially complete in four years.