Woodstock allocated up to $2.1 million in tax credits for old courthouse, sheriff’s jail renovation

Woodstock officials announced last week that the city was awarded tax credits tied to the rehabilitation of the historic Old McHenry County Courthouse and 1887 Sheriff’s House and Jail on the downtown Square worth up to $2.1 million, moving the project much closer to construction.

“This is just a great, great, great bit of news,” Woodstock Mayor Brian Sager said.

Now, to continue with plans to renovate the prominent city structure, officials need to find an investor willing to purchase the credits. Doing so would help the investor monetize a limited liability corporation the city would create that will own the improved building until the tax credit values are used. The LLC would remain under the full control of the city, city staff said.

“The investor will contribute upfront funds to help cover initial expenses. The investor will expect to make up their investment with a combination of cash flow from the project and with the tax credits associated with the project over the five-year period after the building goes into service. After that time, the ownership of the building will be returned to the city,” city staff said in a memo to the City Council.

The council decided to stick with the more aggressive of two timelines for starting construction, with groundbreaking as soon as fall of next year. But the project’s pace will depend on the market for investors in the tax credits.

Both federal and state tax incentives for the preservation of historic sites are set to be used to fund the project. Federal credits are worth 20% of a project’s eligible expenses. The Illinois program, which is limited in funds and uses a competitive selection process, provides credits of 25%, city staff said.

The pool of potential city financial partners for the redevelopment could be influenced by the actions of two local businesses. The Public House restaurant, currently operating in the courthouse, and Ethereal Confections both have expressed a desire to lease space in the revamped facility. However, their ability to lease that space will depend on how they are able to respond over coming months to the economic fallout of the COVID-19 pandemic.

The Public House’s and Ethereal Confections’ abilities to lease will impact the pool of financial partners because investors considering buying the tax credits and operating the building with the city’s LLC will want to know that leases already are in place before coming onboard, city staff said.

City staff said that had the council expressed preference for a later construction start target of spring 2022, as opposed to the fastest possible track, Ethereal Confections and Public House could be better situated to commit to leases when the city needs them to.

“They both recognize that this [faster] timeline would be a little tight for them,” Woodstock planner Darrell Moore said of the businesses. “We really don’t know what’s going to happen in the next six months, and they don’t, either, and that’s part of what makes that a very tricky proposition for them.”

The city could search for alternative renters to fill the space in order to satisfy investors if either of those two businesses hesitate, Assistant City Manager Paul Christensen said.

“If there was no COVID-19, I don’t even know if we would be bringing this to you. Plan A [the faster timeline] would be the plan, and we would be going forward with it, because we would secure our tenants, they would sign the contracts and we would go forward. COVID has just thrown a wrench in there, and we’re just not sure they may be able to take that on when we need them to commit to a lease,” Christensen said.

City leaders are confident that private investment will rebound in Woodstock as the coronavirus is brought under control and that the upgraded courthouse could work to satisfy businesses seeking space.

“There is going to be a large rush to invest. I am absolutely committed, and believe that. We would be in a good position if we were quickly ready to accept some of that investment,” Sager said.

Once the courthouse building is transferred back to the city’s ownership from the LLC, the remaining rehabilitation expenses will be covered by a taxable general obligation bond issued by the city, according to a memo to council. The bonds would be repaid using revenues generated by the property and tax increment financing district funds.

Current financial estimates for old courthouse and sheriff’s jail project

• Renovation costs: $7.9 million
• Upfront revenues from investment entity, TIF funds, retroactive tax credits and fundraising: $3 million
• Bond: $5 million
• Annual building revenues: $215,000
• Annual TIF supplemental bond payments: $230,000

Source: City of Woodstock