STONE, LEYTON ?1 GERSHMAN A PROFESSIONAL CORPORATION ATTORNEYS AT LAW TELEPHONE: (3I41721-roli 1"?33 BOULEVARD FACSIMILE: (3I4) rzl-saso SUITE 500 ST. LOUIS. MISSOURI 63 05 Via Certi?ed Mail, Return Receipt Requested And Regular Mail Land Clearance for Redevelopment Authority Attn: Executive Director 1520 Market Street Suite 2000 St. Louis, Missouri 63103 LCRA Holdings Corporation Attn: Executive Director 1520 Market Street Suite 2000 St. Louis, Missouri 63103 June 27, 2018 City of St. Louis City Hall 1200 Market Street St. Louis, Missouri 63103 Attention: Mayor, Room 200 Also by fax (622-4956) to: City of St. Louis City Hall 1200 Market Street St. Louis, Missouri 63103 Attention: Julian L. Bush City Counselor, Room 314 Re: 6/12/18 ?Notice of Events of Default? from Julian L. Bush; and (ii) Notice ofDefault to LCRA. LCRA Holdings Corporation and City of St. Louis Dear Sits/Madam: Please let this letter serve as Northside Regeneration, response to the June 12, 2018 Notice of Events of Default, and as Notice of Default directed to LCRA, LCRA Holdings Corporation, their principals (including the City of St. Louis) and agents. Introduction First, let me say that I was surprised and disappointed by the tone and misleading content of Mr. Bush?s letter. I would expect more from an of?cer of the Court and public employee, and I certainly would not expect to see that sort of rhetoric in what purports to be a technical notice of a contractual default. 1 must, and will, respond with an accurate account of redevelopment progress and the City?s consistent and unwarranted interference with it. Notably absent from Mr. Bush?s six page diatribe, in which he complains that ?promised redeveIOpment has not come, nor is there any indication that it will,? is any mention of the new NGA STONE, LEYTON E7 GERSHMAN A PROFESSIONAL CORPORATION June 27, 2018 Page 2 western headquarters facility (the Project?) that NSR brought to north St. Louis. That is an odd omission given Mr. Bush?s complaints. The NGA Project is the largest federal project in the history ofthe City of St. Louis (the ?City?), with a cost exceeding $1.7 billion, a redevelopment project that will keep 3,100 high-skill, high?wage jobs in the City, will create thousands of new construction jobs and will generate extraordinary growth opportunities for the surrounding area. A project of that magnitude and signi?cance to the entire City clearly would seem to fall under the de?nition of ?promised redevelopment.? It is an odd omission coming from the City of St. Louis, which had applauded my investment in north St. Louis just a few years ago to the Missouri Supreme Court even before NSR delivered the promise Northside submitted the Redevelopment Plan for consideration by the City in September 2009. By the time the Plan was presented to the Board of Aldermen later in the Fall of 2009, Northside had invested more than $20 million in the redevelopment area. By the end of 2009, Northside had borrowed $27.6 million which was invested in the redevelopment effort, all of which was guaranteed by McKee personally. Substitute Brief of Appellants The City of St. Louis, Board of Aldermen for the City of St. Louis and the TIF Commission for the City of St. Louis, submitted by Carmody MacDonald, PC in Smith v. City of SI. Louis (?Aldermen?s Brief?) at 7. It is odd that the City would ignore the NGA project when it was the promise of NGA that drove the City to actively mislead NSR and induce transfer of its property to assemble the north St. Louis site for NGA: ?Williams said the city did not act against McKee sooner for various reasons, including because it needed 330 of his parcels within the site that will house the National Geospatial? Intelligence Agency's new $945 million western headquarters. The city was competing against a site in St. Clair County, Illinois.? 6/12/18 St. Louis Business Journal. Mr. Williams? extraordinary admission provides graphic context for a decade of City interference with redevelopment. Instead of supporting NSR who, alone, undertook the mammoth risk associated with investing in the revitalization of north St. Louis, the City?s development agency has consistently sought to undermine and delay progress. NSR has provided the City?s Board of Aldermen with a Memorandum outlining the City?s interference, which I would be happy to provide to you if you have not already received a copy. A copy of the Memorandum and documents referred to therein is available at the following link: Now, as federal investment and jobs advance toward reality, Mr. Bush says ?it is time to allow other developers? to capitalize on success. Mr. Bush?s open call to and support for cronyism is an affront to his profession, public position, NSR and me personally. If ?other developers? STONE, LEYTON Er GERSHMAN A PROFESSIONAL CORPORATION June 27, 2018 Page 3 are now interested in north St. Louis, please let NSR know who they are and NSR can direct them to the ample property available for purchase and redevelopment in north St. Louis outside redevelopment area. Furthermore, as you know or should know, current redevelopment agreement provides a mechanism to appoint co-deveIOpers?obviously, without terminating development rights. This ?other developer? rationale is illusory, at best. As will be set forth in this letter, the City is in no legal or moral position to hand hard fought success to third parties whose investment in north St. Louis has been non-existent for more than 50 years. Please be advised that my client will not sit idly by while government officials offer to their benefactors development opportunities created by and Paul McKec?s hard work and personal sacri?ce. 1. Response to 6/12/18 Notice of Events of Default First, as a general matter, the City has waived or is estopped from asserting any default because the City purposefully misled NSR (please see Mr. Williams? public comments referenced above and the discussion in Part II) and by virtue of its express contractual promises discussed in Part 11. Without waiving that position and reserving the right to assert additional defenses to the City?s assertions, NSR states as follows: I. Use of DALA Tax Credits, ?7.24 a. Land Assemblage Without citing any authority, the City complains that NSR violated the DALA Act by using land assemblage tax credits to assemble land. It is difficult to reSpond to such a facially illogical argument. First, in the NSR Redevelopment Agreement, the City agreed that ?Work? would include ?property acquisition??in fact, it is the first item listed under the definition. Further, the City?s complaints ignore the contrary position that the City took in the Missouri Supreme Court in the Sim?I'm case referred to above. There, the City urged the Missouri Supreme Court that the statutory definition of ?redevelopment project? and the relevant statutory provisions surrounding it make clear that the term is to be understood broadly to include any development- oriented plan, undertaking or enterprise that would further the larger-scale redevelopment plan (Aldermen?s Brief at p. 29). There, the City and its Aldermen (represented by the same lawyers who are now making the exact Opposite argument in default notices) acknowledged that redevelopment ?Work? speci?cally included, by definition, ?property acquisition? (Aldermen?s Brief at pp. 11, 12). The City?s initial position on the scope of the DALA Act not only was correct, but also re?ects common sense. Without accomplishing the large?scale land assemblage contemplated by the DALA Act, there would be nothing STONE, LEYTON ?7 GERSHMAN A PROFESSIONAL CORPORATION June 27, 2018 Page 4 to ?redevelop,? and the NGA HQ facility project would not be underway in north St. Louis. NSR denies any default. b. Seller-Financed Transactions The City?s allegation that NSR contracted to purchase property ?to generate cash for Northside? is not only false, it demonstrates a fundamental misunderstanding (or intentional misstatement) of the DALA Act and the transactions at issue. First, The DALA Act provided that ?funds generated through the use or sale of the tax credits issued under this section shall be used to redevelop the eligible project area.? That is, NSR had to, and did, reinvest all of the DALA tax credit proceeds in the redevelopment project, including the net proceeds received on account of the Elkay transaction mentioned in footnote 1. Thus, regardless of the City?s characterization of the transaction, NSR used the tax credit proceeds in a manner completely consistent with the DALA Act.I Second, with respect to the Buster Brown transaction, the City fails to mention that the State took back every penny of the tax credits issued (by refusing tax credits for later transactions). However, that did not change the fact that NSR had already paid the seller nearly $1,000,000 by the time DED took its unilateral action. This is real money that NSR paid pursuant to a very real sale transaction. NSR could not, and did not, ask for its money back and could not, and did not, ask the seller to re?negotiate when DED imprOperly clawed back the previously issued credits. Third, the fact that the City mentions the Magazine transaction at all, when the City is fully aware that the State did not issue any tax credits for that transaction, confirms the real purpose of the City?s ?default? letter?to impugn or embarrass NSR with unfounded claims of wrongdoing. NSR denies any default. 2. Development in RPA A and RPA C, ?3.4 The City?s position ignores delivery of the NGA facility. Although site work has admittedly yet to commence on the NGA project, NSR submits that the delivery of a $1.7 billion '1 Many months after DED issued the Elkay tax credits, and after NSR sold the credits to a third party and reinvested the proceeds in the redevelopment project, the Elkay owners insisted that NSR unwind the transaction. The DALATC Act does not provide for or contemplate any mechanism to strip tax credit proceeds from an ongoing development project. NSR questions the legality and wisdom of such an approach, given its implications for north St. Louis, NGA, the market and the hospital. Nonetheless, NSR has been and remains willing to discuss reasonable alternatives with the State. NSR would like for that conversation to include consideration of belief that the State incorrectly withheld more than $4,100,000 of DALA tax credits, well in excess of the credits issued in connection with the Elkay transaction. STONE, LEYTON E7 GERSHMAN Pl PROFESSIONAL June 27, 2018 Page 5 redevelopment project that will keep 3,100 high-skill, high-wage jobs in the City and create thousands of new construction jobs constitutes substantial compliance with the letter and spirit of the NSR Redevelopment Agreement. NSR denies any default. 3. Development in RPA and RPA D, ?3.4 First, the Redevelopment Agreement does not quantify the amount of site construction that must be commenced, only places a start date and ending date by which it must be completed. Therefore, it is of no moment that NSR has, in your Opinion, ?failed to commence any other redevelopment? other than the Greenleaf market. Second, as noted above, the City?s position ignores delivery ofthe NGA facility. NSR denies any default. 4. Real Estate Taxes, ?6.6 Section 6.6 does not mention the payment of real estate taxes. I suspect that is why Mr. Bush selectively quoted from the section. Section 6.6, as he must be aware, simply obligates NSR to ensure that TIF revenues are directed to the appropriate allocation fund. The failure to timely pay real estate taxes does not constitute a default or breach of this or any other section of the redevelopment agreement. 5. Property Maintenance, ?7.l 9(a) Property maintenance constitutes work that is subject to reimbursement from Revenues. The City has unilaterally, anticipatorily and wrongfully refused to release Revenues to reimburse NSR for property maintenance and, therefore, the City has waived or is estopped from assertng a default under this section. 6. Demolish Structures, ?7.19(b) Demolition constitutes work that is subject to reimbursement from TIF Revenues. The City has unilaterally, anticipatorily and wrongfully refused to release Revenues to reimburse NSR for demolition and, therefore, the City has waived or is estopped from asserting a default under this section. 7. Engagement of Co-Developer, ?3.10 Section 3.10 does not set a deadline by which NSR must engage a co-developer. Until NSR was able to deliver the NGA project, local and national developers showed little to no interest in sharing in the extraordinary risk assumed by NSR under the redevelopment agreement, which is consistent with the lack STONE, LEYTON ?7 GERSHMAN A PROFESSIONAL CORPORATION June 27, 2018 Page 6 of interest shown by developers (and the City?s development agency) over the past 60 years. NSR hopes that its success will change that dynamic. See also, discussion at page 1. NSR denies any event of default. 8. Notice of Pr0perty Transfers, ?3.1 To the extent that any failure to list a property transfer constitutes a technical default under the Redevelopment Agreement, which NSR believes is cpen to question, it is de minimus and immaterial, as evidenced by the fact that the City has listed?and is therefore aware?of the transfers. The transfers were memorialized with the City by the recordation of deeds and certificates of value, which constitutes record and effective notice to the City. NSR denies any event of default. II. Notice of Default under the 1/27/16 Future Assurances Agreement, as amended As you may already know, in January 2016, the City, LCRA, LCRA Holdings, Inc. and the Mayor (the ?City Parties?) all made contractual promises to NSR and its lender, Bank of Washington (the ??Bank?) to induce NSR to transfer real estate and its interest in Economic Activity Taxes to ensure the relocation of the NGA facility. The Bank agreed to release its liens and rights to both the real property and EATS as well. The City Parties? promises are included the FAA. Included among those promises was the City?s waiver of potential defaults under the RedeveIOpment Agreement provided that NSR met certain deveIOpment deadlines, which NSR has done. After NSR and the Bank transferred the real estate and EATS once the City Parties got what they wanted), the City Parties have attempted to renege on their promises While, at the same time, insisting that NSR and the Bank are compelled to honor theirs. As I am sure you can appreciate, neither the law nor common decency supports this kind of duplicity. I am writing to give notice that the City Parties are in default under the FAA. Background Once NSR involved the City in discussions with the NGA, the City undertook a series of actions culminating with the execution of the FAA. First, in early 2015, the Board of Aldermen blighted the NGA Site and empowered LCRA to acquire it ?through the exercise of eminent domain or otherwise.? Ordinance 69977. The Board of Aldermen subsequently adopted resolutions authorizing use of eminent domain and acknowledging that ?in order to meet the National Geospatial-Intelligence Agency?s directive that property be assembled and consolidated under common ownership as a condition of its selection of a site STONE, LEYTON Ear GERSHMAN A PROFESSIONAL CORPORATION June 27,2018 Page 7 for relocation has undertaken the project of acquiring all land in the prospective relocation site.? Resolution No. 112 and Resolution No. 142AA. Next, on July 10, 2015, the Board of Aldermen empowered ?the City, acting directly, through an af?liated or the to pursue the acquisition of property and ?nancing for that acquisition, indicating they the City (or its agents) were authorized ?to take such further actions and execute such other documents as may be necessary or desirable to carry out and comply with the intent of this Ordinance?. Ordinance 70074. NSR owned more than 330 parcels (roughly 50 acres) within the NGA Site, making NSR the largest property owner within the site.2 Negotiation of FAA and Related Agreements Against this backdrop, the City approached NSR and the Bank to discuss the acquisition of property within the NGA Site. On July 27, 2015, the City delivered a Term Sheet proposing terms for the City?s acquisition of property, including the suggested scope and terms of a proposed second amendment to the parties? existing Redevelopment Agreement (the ?Second Amended Redevelopment Agreement?). Following extensive negotiations, the parties entered into a series of inter?dependent agreements on January 27, 2016, including: 1. A Term Sheet, executed by LCRA, LCRAH, the Land Reutilization Authority of the City of St. Louis, the Planned Industrial Expansion Authority of the City of St. Louis, the St. Louis Development Corporation, NSR and Bank of Washington; 2. The 3. A Purchase and Sale Agreement, executed by NSR, Bank of Washington, LCRA and LCRAH (the and 4. An Escrow Agreement, executed by NSR, Bank of Washington, LCRA, LCRAH and U.S. Title Guaranty Company (the ?Escrow Agreement?). 2 NSR also owns more than 1,600 additional parcels outside the NGA Site and holds redevelopment rights over approximately 1,500 acres, including the NGA Site and the surrounding area. LCRAH directly owned only ?ve acres of property within the NGA Site, having acquired such property from Titan Fish, LLC, at a total cost of $7 million million paid at closing, with an additional $2 million due upon closing of the acquisition of the NGA Site by the federal government). STONE, LEYTON E7 GERSHMAN A PROFESSIONAL CORPORATION June 27, 2018 Page 8 By letter dated January 25, 2016, Mayor Francis Slay acknowledged and approved the ?nal agreements, enclosing a copy of the Term Sheet as an exhibit to his letter. The Parties? Promises A. NSR and Bank of Washington 1. The EATS Under Section 3.1 ofthe Future Assurances Agreement, NSR agreed that: percent of all Economic Activity Taxes (as de?ned in the TIF Act) 100% of the portion captured by tax increment ?nancing, which portion is referred to herein as the generated from the NGA Site shall be applied in the manner set forth in the NGA Financing Agreement, until payment in full of the bonds secured by the NGA Financing Agreement and of any redevelopment project costs bene?tting the NGA Site which are to be paid pursuant to the NGA Financing Agreement. Thereafter, all EATS generated from the NGA Site shall be applied in the manner set forth in that certain Amended and Restated Redevelopment Agreement, dated as of May 13, 2014, by and between the City and Northside (the ?Existing Redevelopment Agreement?) (as the same may be amended pursuant to the Second Amended and Restated Redevelopment Agreement contemplated under the Future Assurances Agreement)? This was a major concession conferring an extraordinary ?nancial bene?t on the City. It also made possible issuance of bonds to pay for the acquisition of property for NGA. The publicly af?rmed the FAA (and its reliance upon transfer ofthe EATS) in connection with its issuance of$108,200,000 in Annual Appropriation Redevelopment Revenue Bonds (National Geospatial-Intelligence Agency Site Improvements Project), Series 2016 (the Bonds?): The TIF Redeveloper and its lender [Bank of Washington] have committed, pursuant to an agreement dated as of January 27, 2016 (the ?Future Assurances Agreement?), to permit the City to apply Revenues from the NGA Site to payments due under the Financing Agreement. It is anticipated that the City and the TIF Redeveloper will also support the Next NGA West Campus development by undertaking a variety of STONE. LEYTON ?7 P. PROFESSIONAL CORPORATION June 27, 2018 Page 9 ancillary development and public improvements in the areas adjacent to the NGA Site. Preliminary Of?cial Statement regarding the NGA Bonds, dated October 21, 2016 at page 29. 2. Development Thresholds NSR agreed to ?New Minimum Development Threshold Requirements? for its redevelopment project. FAA, Section 4.3 required NSR to annually ?commence? projects of $5,000,000 or greater. In December, 2017, within the new guidelines, NSR began construction of the Greenleaf Market and ZOOM store project, with project costs in excess of $20 million (and thus satisfying the New Minimum Development Threshold Requirements with respect to 2018, 2019 and 2020). 3 3. NSR ?5 Assignment of Revenues In reliance upon the City Parties? performance under the other terms of the FAA, in a subsequent amendment to the FAA, NSR agreed to re?de?ne Revenues? under its redevelopment agreement so that certain signi?cant revenues?those generated from the St. Louis Metropolitan Police Department facility at 1915 Olive Street, the Police Retirement System of St. Louis facility at 2020 Market Street and the NGA Site?that would otherwise inure to the bene?t of NSR under its TIF ordinance would instead flow directly to the City?s general fund. 4. Sale of Property Within NGA Site NSR agreed to sell its approximately 50 acres within the NGA site to LCRAH, and the Bank of Washington agreed to release its liens against the property. B. Promises of LCRA and the City4 1. Second Amended Redevelopment Agreement 3 The minimum requirements carry over; that is, generally, if project costs exceed $5,000,000, the excess is applied to the next year, and so on. 4 At various times, the City has suggested that it is not bound by its promises in the FAA. I understand now, in light of Mr. Williams? public statements, that the City was prepared to say and do anything to induce compliance, but the City?s attempt to duck its promises by acting like it did not make them is beyond the pale. Further, and perhaps more important, if the City Parties are not bound by their agreements, then all of the parties? mutual promises fail for lack of consideration. As noted above, the City?s bond ?nancing associated with the NGA project is predicated upon assignment ofthe EATS. Thus, this is a dangerous game being played with the City and its reputation with bond rating agencies. If the City intends to renege on its written agreements, it should carefully consider the consequences, both short and long-term. STONE, LEYTON ?7 GERSHMAN A PROFESSIONAL CORPORATION June 27, 2018 Page 10 The City Parties agreed to ?in good faith negotiate the terms of an amendment and restatement of the Existing Redevelopment Agreement? - a task much simplified because the FAA sets forth in extensive detail (7-1/2 pages) the agreed material terms of the Second Amended Redevelopment Agreement. FAA, Article 4. The City Parties also agreed to ?cooperate diligently and in good faith to pursue and obtain all necessary aldermanic and other approvals required? for the amendment. FAA, 2. Standstill Agreements The City Parties agreed that they would not claim a default under the Existing RedeveIOpment Agreement or any of the Acquisition Agreements so long as, commencing with the date of the NGA Announcement, Northside adheres to and complies with such New Minimum Development Threshold Requirements and deadlines? under the FAA. FAA, The City Parties also agreed to forego any default proceedings until December 2, 2018 if the Board of Aldermen failed to take action following the parties? submission ofthe agreed Second Amended Redevelopment Agreement. FAA, 3. Other A greemems Among other things, the City Parties agreed: 0 To acquire property owned by the highway department and to offer the same for sale or lease to NSR. FAA, ?4.8.2 0 To cooperate with NSR toward the development of projects in the vicinity of the NGA Site. FAA, ?2.1 - ?1f the NGA selects the NGA Site, [to] cause the timely completion of improvements to Jefferson Ave. (from Highway 40 to Natural Bridge) and Cass Ave. (from Tucker Blvd. to Grand Blvd), substantially consistent with the May 2013 summaries prepared by FAA, ?2.2 ?If the NGA Announcement selects the NGA Site, LCRA and the Developer will work together to qualify Redevelopment Projects (as defined in the Existing Redevelopment Agreement) as Offsite NGA Project Costs (as defined in the Financing Agreement (including any amendments and supplements thereto) entered into by and among the State of Missouri, the City and the LCRA (the Financing FAA, ?2.3 Notice of Defaults Section 9.1 of the Future Assurances Agreement provides as follows: ?In the event that any of the City Related Parties breaches any material term in this Agreement, and such breach is not cured STONE, LEYTON E7 GERSHMAN A PROFESSIONAL CORPORATION June 27, 2018 Page 11 within thirty (30) days after the transmittal of written notice to such party or parties, then Northside may exercise its available rights and remedies at law or equity, including seeking specific performance of the terms of this Agreement.? Please let this letter serve as notice of breach of the following material terms of the FAA: The City Parties have failed to negotiate in good faith the execution of the Second Amended Redevelopment Agreement consistent with the terms mandated by the FAA. The City Parties have therefore and thereby prevented the submission of the Second Amended RedeveIOpment Agreement to the Board of Aldermen for approval. The City has declared Northside to be in default under the Existing Redevelopment Agreement. The City Parties have failed to undertake good faith efforts to lease or acquire the MHTC Excess Property, and to offer the same for lease or purchase to Northside. The City Parties have failed to cooperate?and, in fact, have actively worked to undermine?NSR?s development of projects in the vicinity of the NGA Site. LCRA has not undertaken the timely completion of improvements to Jefferson Ave. (from Highway 40 to Natural Bridge) and Cass Ave. (from Tucker Blvd. to Grand Blvd), substantially consistent with the May 2013 summaries prepared by Cole. LCRA has not cooperated with Northside to qualify Redevelopment Projects (as defined in the Existing Redevelopment Agreement) as Offsite NGA Project Costs (as defined in the NGA Financing Agreement). Northside hereby makes demand upon LCRA, and the City, to cure each and every one of the aforesaid breaches within thirty (30) days (including, without limitation, the immediate rescission of the City?s Default Notice to Northside.). In the event that such cure is not accomplished within the aforesaid time, please be advised that Northside and the Bank of Washington reserve the right to exercise any and all rights and remedies available at law or equity, including seeking specific performance and/or rescission with reSpect to the subject transactions. a. Pau J. Puricelli/ STONE, LEYTON ?7 A PROFESSIONAL CORPORATION June 27, 2018 Page 12 CC: Northside Regeneration, LLC 1001 Boardwalk Springs Place, #10/200 O?Fallon, Missouri 63368 Attn: Paul J. McKee, Jr. Bank of Washington 200 West Main Street Washington, Missouri 63090 Attn: L.B. Eckelkamp, Jr. Chief Executive Of?cer Bank of Washington 200 West Main Street Washington, Missouri 63090 Attn: Louis B. Eckelkamp, [11 President Land Clearance for Redevelopment Authority Attn: David Meyer 1520 Market Street, Suite 2000 St. Louis, Missouri 63103 City of St. Louis 1520 Market Street Room 3005 St. Louis, Missouri 63103 Attention: Deputy Comptroller St. Louis Development Corporation 1520 Market Street Suite 2000 St. Louis, Missouri 63103 Attention: Executive Director Teasdale LLP 7700 Boulevard, Suite 1800 St. Louis, Missouri 63105 Attention: Thomas Ray Gilmore Bell, P.C. One Metropolitan Square 21 1 N. Broadway, Suite 2350 St. Louis, Missouri 63102 Attention: Mark D. Grimm