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HRA Regular Session Meeting Date: 03/11/2014 Submitted For: Kurt Ulrich, Administrative Services By: Jo Thieling, Administrative Services Information Title: Discuss Development Management Incentive Compensation - McDonald's 5. 2. Purpose /Background: Purpose: To have discussion relating to Development Management Compensation as it relates to McDonald's. Background: In October 2012, the HRA discussed Development Management Compensation. The case for discussion included development fee worksheets. The worksheet was based on the then current pro -forma values, projected development costs, and maximum values established in the contract. The HRA approved the proposed development management compensation in 2012, however since that time a number of substantial changes were made to the project, including: - actual development costs for the site are now known - the McDonald's building was reduced in size - the final allocation of costs to McDonald's is known - the number of projects moving forward as part of this development went from three (i.e., Super America, Wiser Choice, and McDonald's), to solely McDonald's As a result of the above fundamental and substantial changes to the project, the contract with Landform allows for the reconsideration of the incentive fee compensation. Consequently, a recalculation of the incentive fee has been conducted (see attached) and a revised incentive compensation fee schedule is now presented to the HRA for approval. The fee is proposed to go from the estimated $51,441 to the fee based upon actual amounts, of $36,184. Based upon additional feedback from Landform, staff will be looking at additional modifications the may change this number prior to the meeting. The meeting minutes from the October 23, 2012 HRA Regular Meeting are enclosed, and the discussion at the time indicates that there would be revisions to the fees if substantial changes occurred in the project. Notification: Landform has been notified of the proposed changes being considered by the HRA. Observations /Alternatives: The HRA can make payment on the estimated project costs approved in 2012, or the modified costs based on actual development costs. Due to the fact that there has been a fundamental and substantial change to the project, with a significant impact to the incentive fee, staff recommends that the incentive fee be based upon today's actual numbers. Notably, Landform objects to any reduction in the incentive compensation at this time and has threatened litigation. The City's HRA Attorney has indicated that it is within the City's discretion to modify this fee, since there appears to be significant differences from when this project was first approved in 2012. Based upon previous legal opinions, staff is not recommending non - payment as an option. There was previous concern that Landform was acting as a broker in receiving "incentive" fees, however the co- mingling of activities of development management and possible broker activity makes it impractical to pursue this approach.