Herndon leaders indicated this week that they’re confident enough in the town’s financial reputation to put it on the line for the sake of Comstock’s long-awaited downtown redevelopment project.
As discussions continue on a new agreement with the developer that must be finalized by Dec. 10, the town is starting to hammer out a financing plan for the public portions of the project that could involve borrowing money through the issuance of municipal bonds.
An estimated $15 to $20 million would be needed, primarily to support the planned arts center and public spaces in the parking garage, Davenport and Company Senior Vice President Kyle Laux told the Herndon Town Council at its meeting on Tuesday (Nov. 12).
Some of the funding could also go toward common spaces in the nearly 5-acre development and construction and other “soft” costs, according to the presentation from Davenport, the town’s financial advisory firm.
“Nothing in the world is a hundred percent [without risk] per se, but I think the term ‘reasonable’ is apt,” Laux said of the proposed financing plan. “If it’s in the $15 to $20 million [range] and at the end of the day, you’ve got a vibrant economic development project with people being drawn downtown and spending money in restaurants and shopping and all those things, that’s exactly the project that this should be doing.”
How the financing plan would work
Because the Town of Herndon doesn’t have its own economic development authority, the town council authorized interim town manager Christopher Martino on Tuesday to sign a letter of intent designating the City of Fairfax Economic Development Authority as the “conduit” that would issue the bonds.
If the plan is approved, Comstock would be required to make lease payments to the town until the amount of the borrowed money is recovered. The town will have a lien on the 712-space parking garage that would give it permanent ownership of the facility should Comstock fail to make its payments.
“You are indeed cosigning, and if the primary borrower doesn’t pay, in that context, you get to take over the house,” Laux explained, confirming the accuracy of a house-buying analogy used by Councilmember Pradip Dhakal.
According to Laux and town staff, the proposed bond-based financing plan will help make the project more feasible for Comstock, which put it on hold for two years in response to increased construction costs and other economic challenges resulting from the COVID-19 pandemic.
Even after the two-year pause lifted, the town council and developer have pushed back a deadline for signing a new comprehensive agreement multiple times, though staff expressed confidence at a September meeting that it’ll be ready for the town council’s approval on Dec. 10.
Unlike the original agreement signed on Nov. 1, 2017 and subsequent updates, the new agreement will have a firm timeline requiring Comstock to close on financing for the redevelopment by March 31, 2025 and start construction by April 30.
The parking garage will be a priority for the first phase of construction, potentially getting delivered by July 2026, Comstock CEO Chris Clemente said when updating the public on the project’s status in August.
Bounded by Center, Elden and Station streets, the development will also add 273 apartments and 17,000 square feet of retail in downtown Herndon. However, the size of the arts center has been significantly reduced, dropping from 16,265 square feet to 4,265 square feet.
Herndon well below debt threshold, financial advisor says
Though they unanimously approved the resolution authorizing the letter of intent with the Fairfax City EDA, some council members suggested they were reluctantly supporting the arrangement because the town has few other options for advancing the redevelopment.
Councilmember Donielle Scherff cautioned that Herndon could wind up the “proud owner of a $20 million garage in the middle of town” if Comstock fails to make its payments and deliver the rest of the project.
“We’re in this partnership for better or worse, and what we’re talking about tonight is just the next, tiny step forward in an arduous process,” Scherff said. “There are a lot of ‘ifs,’ and we are leveraging our credit rate, our capacity, our history of paying back quickly what we borrow for a large corporation that has asked us to do that.”
According to Laux, the town is well-positioned to borrow, since even with the additional commitment for this project, its existing debt of roughly 3 cents for every dollar spent in its budget is below the 12-cent limit set by its own financial policy guidelines.
Herndon also has maintained a AAA bond rating that enables it to borrow money at lower interest rates than what Comstock could obtain as a private company, though the bonds won’t be issued until the developer secures financing for the rest of the project.
“While there’s certain actions that would need to occur administratively and legally to get things teed up, we would not enter the market and borrow those dollars until we had assurances from Comstock that they have their own financing in place,” Laux said.
The town council could be asked to officially authorize the bonds in December or January, and they would be issued in February. Laux noted that the town will continue monitoring interest rates and get final funding numbers from Comstock in the coming months.
Before the vote, Mayor Sheila Olem defended Comstock from the impression that it has been “dragging” its feet on the downtown redevelopment, observing that other projects like the Herndon Biergarten and a replacement for the still-vacant Ice House Cafe have similarly struggled with rising costs and other economic obstacles.
“They’re not going to go so far in debt doing something that they can never get any profit out of,” she said. “… So, I think this is an opportunity, and I totally support it and [am] ready to move forward.”
Site plan via Town of Herndon
