Subject
title
Discussion and Instructions on the Town Square Management Agreement and the Rockville Economic Development, Inc. Agreement
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Department
City Manager's Office (CMO)
Recommendation
Staff recommends the Mayor and Council discuss the Town Square Management Agreement and the Rockville Economic Development, Inc. Agreement and provide direction to staff on what to include in agreements for the period beginning July 1, 2024.
Discussion
Interim Management Agreement for Town Square
The Rockville Town Square is a 12.5-acre mixed-use development located in the heart of Rockville City Center, and is encompassed within the area bounded by Beall Avenue to the north, Hungerford Drive to the east, Middle Lane to the south, and North Washington Street to the west, and consists of (i) a City-owned public plaza, which is intended for use by the general public, and includes a pavilion, stage, interactive fountain and storm water management 636 facilities (the “City Plaza”), (ii) a building owned by the Montgomery County government, which houses the Rockville Memorial Library and a commercial space, and (iii) five mixed-use developments, which include residential, commercial, and office spaces, a privately-owned parking garage, and three City-owned public parking garages (the “RTS Mixed-Use Development”).
The Town Square Management District (“TSMD”) was established in 2006 as Town Square was opening, to ensure a high and consistent level of maintenance across the five ownership blocks. A companion district was also created in 2006, the Town Square Street and Area Lighting District. For the first few years after the opening of Town Square in 2006 - 2007, the City set tax rates to collect revenues that would fund maintenance. At that time, in accordance with the development agreement, Street Retail (a wholly owned subsidiary of Federal Realty) was the assigned manager, meaning that the City collected the revenues and then paid Street Retail the costs of ensuring “first class” maintenance, as required in the development agreements.
Cognizant of the need to efficiently and effectively maintain certain common areas within RTS including the Town Square Plaza, the Mayor and Council, and Street Retail, LLC, a Maryland limited liability company and successor by conversion to Street Retail, Inc., a Maryland corporation (“Street Retail”), executed an Interim Management Agreement effective July 1, 2011. Pursuant to the terms of the Interim Management Agreement, (i) the Mayor and Council agreed to (a) levy a tax against all non-exempt real property within the Town Square Street and Area Lighting District at the rate of zero cents ($0.00) on each $100 of assessable value of said property, and (b) levy a tax against all commercial property within the Town Square Commercial District at the rate of zero cents ($0.00) on each $100 of assessable value of said property, and (ii) Street Retail agreed, among other things, to provide, at its sole cost and expense, (y) certain management and maintenance services for the City Plaza (a City-owned park and not technically part of the district), and (z) certain management and maintenance services for the privately-owned sidewalk areas of the RTS Mixed-Use Development properties.
The initial term of the Interim Management Agreement was to automatically terminate when; (i) a long-term Management Agreement became effective or (ii) on June 30, 2013. Since no long-term Management Agreement was imminent by Spring 2013, the Mayor and Council and Street Retail, Inc., entered into the First Amendment to the initial Interim Management Agreement dated April 22, 2013. Subsequent annual Amendments to the Interim Agreement have been approved by the Mayor and Council until the current 11th Amendment, which expires on June 30, 2024 (Attachment A). Morguard now has responsibility for Street Retail’s requirements under this agreement.
The Mayor and Council directed that staff include the requirement for Morguard to “sponsor” a series of concerts in the City-owned public plaza in the next agreement. This requirement was previously in a Naming Rights Agreement, dated November 21, 2011, between the Mayor and Council and Street Retail, Inc. According to the Naming Rights Agreement, in exchange for providing Street Retail, Inc. with the right to name the Pavilion in the Public Plaza “Dawson’s Market Stage,” with signage to be placed on the Pavilion at Street Retail, Inc.’s cost and expense, Street Retail, Inc. agreed to “sponsor” at least 17 concerts in the Public Plaza between the beginning of May and Labor Day, commencing in the spring of 2012, for the term of the Naming Rights Agreement.
Street Retail’s sponsorship included (among other things) (i) scheduling and advertising the concerts, (ii) engaging and compensating the performers, (iii) providing sound and stage lighting, (iv) obtaining the proper licenses for all copyrights or other similar rights necessary for the concerts, (v) maintaining appropriate volume levels during the performances, (vi) repairing any damage to City property in connection with the concerts, and (vii) cleaning up the Public Plaza immediately following each concert.
According to the previous City Manager, the term of the Naming Rights Agreement expired in 2018 when the first owner of Dawson’s Market closed the market.
Josh Nolan, Associate Vice-President of Morguard, was made aware of the City’s desire to include the concert sponsorship in the next agreement. He stated that he believed 14 concerts was in keeping with their concert series plan, instead of 17 in the Naming Rights Agreement. Additionally, the issue of security and security cameras was discussed. This was another issue that has come up in the recent past and Josh agreed to get back to the Acting City Manager on any plans they may have for changes in Town Square security. Finally, Josh was interested in extending the agreement instead of the year-by-year amendments that have occurred.
City staff does not have the capability or desire to maintain the private infrastructure in the Town Square District. The “first class” maintenance desired in Town Square is best carried out by Morguard, who manages the area and is present daily to monitor the conditions. Additionally, the City continues to receive the benefit of Morguard maintaining the daily maintenance of the City-owned park plaza.
While continuing to amend the Interim Management Agreement annually may provide more flexibility in negotiating a more permanent agreement, the economic conditions for Town Square are not expected to change in the near future. It is extremely unlikely that the City will be able to achieve more favorable conditions in a new agreement with Morguard within the next few years. Conversely, a longer agreement will allow Morguard to focus more on bringing in more Town Square tenants and possibly invest in improvements towards that end, including possible improvements to the Gibbs Streetery.
Recommendation
Therefore, it is staff’s recommendation to negotiate with Morguard to include concert sponsorship in the next Town Square Management Agreement, retain the obligation for Morguard to maintain the Town Square Plaza (park) and possibly seek to include additional security arrangements. Staff further recommends a three-year Management Agreement with Morguard, specifically excluding “Interim” from the agreement.
Rockville Economic Development, Inc. Agreement
The current Agreement between Rockville Economic Development, Inc. (REDI) and the City of Rockville was approved by the Mayor and Council on November 9, 2020, for the period January 1, 2020, through June 30, 2024 (Attachment B). Since the agreement is set to expire, a new agreement is needed. Therefore, staff seeks the Mayor and Council’s direction on what to include in the new agreement.
The purpose of the REDI agreement is to establish the framework by which the Mayor and Council provides funds for REDI’s activities, with the agreement stipulating as an operational covenant that “REDI agrees to use the funds exclusively to: seek to establish the City as a leading center for economic development, endeavor to improve the tax base, and create an environment attractive to businesses, residents, workers and visitors in accordance with the Mayor and Council’s policies and priorities.”
The Mayor and Council have options as to how to proceed with the agreement. The Mayor and Council can seek: 1) a multi-year agreement, similar in duration to the current agreement, 2) a one-year funding agreement, in which other particulars can be set forth, and 3) both a multi-year agreement and a one-year funding agreement, each year during the duration of the multi-year agreement.
Cindy Rivarde, CEO of REDI, has stated that REDI is seeking a multi-year agreement to “provide comfort to employees and the Board in long term planning.” The attraction and retention of high-quality employees and Board Members is aided knowing there is a long-term relationship. It also promotes the confidence of the business community (See REDI Letter at Attachment C).
REDI has provided several small changes they desire to the existing agreements (Attachment D). Staff concurs with these changes. In addition, staff recommends the Mayor and Council consider a change to Sec. 4.2 of the current REDI agreement, which states that, “The City Manager or his or her designee, will serve as a member of the REDI Board of Directors, and shall attend Board of Directors’ meetings on behalf of the City.”
Members of the REDI Board are legally bound by their fiduciary responsibility to REDI. Often, the City Manager must perform duties on behalf of the City that may be at odds with the interests of REDI, to which he has a fiduciary responsibility. Examples of this are the City budget, for which the City Manager makes funding recommendations balancing the City’s needs that is not necessarily in REDI’s best interest. Additionally, the agreement between the City and REDI must be negotiated by the City Manager and will go before the REDI Board for approval. The City Manager will obviously have a conflict when trying to decide between agreement provisions that may not be agreeable to both the City and REDI and possibly when asked to vote on the agreement as a member of REDI’s Board of Directors.
Recommendation
In addition to making the changes suggested by REDI, it is staff’s recommendation to eliminate the provision that the City Manager be a member of the REDI Board and instead, require the City Manager, or his or her designee, be a liaison to the REDI Board and to attend REDI Board of Directors’ Meetings. The Mayor and Council may wish to examine whether one of its members should serve on the REDI Board of Directors, as also required by Sec. 4.2 of the current REDI agreement.
Unless the Mayor and Council anticipate significant changes to the City’s relationship with REDI, staff recommends a 3-year agreement with REDI and an annual funding agreement, after each year’s budget approval by the Mayor and Council.
Mayor and Council History
The Mayor and Council approved the Interim Management Agreement for Town Square on June 20, 2011, for the period July 1, 2011, through June 30, 2013. The Mayor and Council approved annual amendments to this agreement every year beginning in 2013, until the current 11th Amendment, which expires on June 30, 2024.
The Mayor and Council approved the current REDI agreement on November 9, 2020, for the period January 1, 2021, through June 30, 2024. There were no amendments to the current agreement. The previous REDI agreement was approved by the Mayor and Council on June 13, 2016, for the period July 1, 2016, through June 30, 2019. The Mayor and Council subsequently approved five amendments to the agreement. The First Amendment which was approved on August 1, 2018, provided City funds for REDI to conduct a recruitment process for its new Executive Director. The Second Amendment, which was approved on November 13, 2018, provided funds for REDI to launch the new Rockville Small Business Impact Fund. The Third Amendment, which was approved on May 20, 2019, extended the agreement until September 30, 2019. The Fourth Amendment, which was approved on July 15, 2019, extended the agreement through June 30, 2020. The Fifth Amendment, which was approved on June 1, 2020, extended the agreement to December 31, 2020.
Fiscal Impact
There are no changes recommended that will have a fiscal impact on the City different from the current Town Square Interim Management Agreement. If the Mayor and Council decided to implement a tax rate other than zero for the Town Square Commercial Properties and/or the Street and Area Lighting District, then it will have a fiscal impact depending on the rate(s).
The fiscal impact to the City for the REDI agreement changes each year and is approved as part of the City’s annual Operating Budget. The REDI budget for the remainder of this fiscal year (through June 30, 2024) and the budget for FY 2025 is shown below. Future fiscal impacts will be determined by future Mayor and Council budget allocations.
Next Steps
After direction is provided by the Mayor and Council, the Acting City Manager will negotiate the agreements with Morguard and REDI. The City Attorney will draft agreements consistent with the Mayor and Council’s direction and negotiations with Morguard and REDI. Staff will then return with agreements for the Mayor and Council to approve.
If this cannot be achieved by June 10, 2024, then staff will negotiate and bring to the Mayor and Council for approval an extension to the applicable agreement by June 10, 2024.