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HomeMy WebLinkAbout04/04/2019 EDAC PacketCITY OF LINO LAKES ECONOMIC DEVELOPMENT ADVISORY COMMITTEE MEETING Thursday, April 4, 2019 8:00 A.M. Community Room AGENDA CALL TO ORDER AND ROLL CALL 2. APPROVAL OF MINUTES: February 7, 2019 and March 7, 2019 3. DISCUSSION ITEMS A. 49 & J Lyngblomsten TIF request B. Project Updates 4. ADJOURN CITY OF LINO LAKES ECONOMIC DEVELOPMENT ADVISORY COMMITTEE MINUTES DATE: February 7, 2019 MEMBERS PRESENT: Jim Schueller, Thomas Colgan Andrew Cravaro, Patrick Kohler, Chad Wagner, Don Johnson MEMBERS ABSENT: Julie Schwartz, Michael Ruhland, Nathan Vojtech OTHERS PRESENT: Mike Grochala, Mara Strand, Monika Mann APPROVAL OF MINUTES It was moved by Mr. Cravaro to approve the minutes from November 1, 2018 and seconded by Mr. Kohler, passing unanimously. DISCUSSION ITEMS A. 49 & J Lyngblomsten Planned Unit Development Michael Grochala, Community Development Director, presented the staff report. Board members questioned the public service impact of a senior care facility. Mr. Grochala stated that the Public Safety department and Lyngblomsten have had conversations regarding site protocol what Lyngblomsten staff can handle verses a call to public safety. Mr. Grochala noted that the project also be a job generator with over 50 positions with fairly decent wages. Mr. Grochala stated that construction would likely to begin in late summer. Mr. Johnson asked what the response has been from the business owners on the east side of Hodgson. Mr. Grochala responded that feedback from community members has been generally positive noting that the site development will bring water and sewer to the area. The townhouses will be rental homes and all property maintenance will be taken care of by Lyngblomsten. Mr. Grochala explained that staff was anticipating Lyngblomsten to submit a request for assistance to redevelop the area. If received the application will be evaluated against our business subsidy and a recommendation made by staff and our financial advisors. Staff has preliminarily looked at tax increment options and establishment of a housing district may be one possibilty. Under housing district, there are affordability requirements However, seniors typically meet the income requirements, by default. B. Business Retention and Expansion Program Survey Michael Grochala, Community Development Director, presented the business retention and expansion program as well as the proposed 35E tech corridor. Staff noted the surveys would be sent to 30-40 businesses and anticipates a 25% response rate. Mr. Colgan stated that business want access to the high schools in similar context to college recruiting. There could be opportunities to get a workforce program initiated. Mr. Wagner stated that one of the issues he experiences is attracting workers due to the minimal affordable housing in the area. He noted a good portion of his staff live in Minneapolis and drive up daily. Mr. Grochala explained that as the City continues to grow, it will need to address this issue. Board members provided input to staff on ways to improve the survey. Mr. Schueller offered the committee as a way to help out with the survey and initial outreach. Mr. Colgan stated he has a list of contacts and could provide suggestions regarding the best way to help approach individuals. C. Project Updates An appraisal has been completed on the property south of 77th Street but an offer has not been made. Mr. Grochala spoke with the owner directly north of the site; the owner stated they are willing to sell and are interested in working with a developer. Main Street Shoppes 2nd Addition will begin construction in the spring. Model homes will be going up in Watermark shortly. Sewer and water is nearly complete and grading is on hold for the winter. Nature's Refuge will be coming back to the City with final approvals. Love to Grow On is under construction. All Seasons Rental will begin construction shortly. The City is working with the Council on making an offer to construct a northeast drainage channel from Lennar property to Peltier Lake. 2 A new water tower is to be constructed by Fire Station #2. Mr. Schueller asked if the pickle ball courts have been approved. Mr. Grochala noted that Council is still working on it. Staff is continuing to work with Anoka County on attaining the old house, next to the Rice Lake Elementary School, to use as a well house. The White Bear Lake lawsuit is ongoing. The DNR has appealed the lawsuit and a decision will likely be made in the next 90 days. In the meantime, the City is unable to drill any new wells while the lawsuit is still going on. Mr. Wagner updated the committee on Chomonix Golf Course. ADJOURNMENT The meeting was adjourned at 9:04 A.M. CITY OF LINO LAKES ECONOMIC DEVELOPMENT ADVISORY COMMITTEE MINUTES DATE: March 7, 2019 MEMBERS PRESENT: Andrew Cravaro, Thomas Colgan, Don Johnson, Julie Schwartz, Chad Wagner MEMBERS ABSENT: Patrick Kohler, Michael Ruhland, Jim Schueller, Nathan Vojtech, OTHERS PRESENT: Mike Grochala, Mara Strand, Monika Mann, Bruce Sayler, Jaquel Hajder. APPROVAL OF MINUTES Approval of the February 7, 2019 minutes was tabled. DISCUSSION ITEMS A. I-35E Technology Corridor Mr. Grochala presented the staff report. Ms. Hajder, Economic Development Specialist with Anoka County, explained the County's involvement in the I-35E Technology Corridor initiative. Anoka County Regional Economic Development website (www.anokacountysuccess.org) is a resource available. Mr. Sayler, Principal — Community and Economic Development with Connexus Energy, explained the capacity of the region and the assets it has to offer. Site selectors look for the following: • Collaboration • Available property • Connectivity o Mr. Grochala added that 6 years ago, Anoka County expanded to work with Zayo, a fiber optics provider, on a project called "Connect Anoka County". This project ran fiber throughout the county to link the cities within. Ms. Hajder explained that Lino Lakes has a long haul network. The long haul network is located under I-35 connecting the Lino Lakes community to Canada, Chicago, and Dallas, which are large data center markets. Mr. Cravaro asked about sonic rings and the additional physical paths in case of a catastrophe. Mr. Sayler explained the task force available and site selectors involved in the project. Data centers build a contingency plan and do not want a single point failure. • Energy • Water • Workforce • Tax incentive from the state of Minnesota A concept promotion video presented. Ms. Schwartz suggested adding content about the tax incentives, smaller acreage areas available, and listing areas for sale. Staff explained they are working with interested property owners to promoting their sites and using MNCAR (Minnesota Commercial Association of Real Estate/Realtors). Mr. Sayler noted the promotion video can be utilized at upcoming events. Connexus Energy is signing a contract with a web developer and the video will be reshot. Ms. Hajder explained the state-wide advantage as there are minimal technology corridors. Mr. Wagner asked if this project would spur an on/off ramp at 140th Avenue. Mr. Grochala explained that it would bring a 2 mile sewer and water run, road improvements, but would not drive an interchange. Mr. Colgan asked for clarification on why data centers are interested in Minnesota. Mr. Sayler explained that datacenters try to build close to population centers and users. Mr. Colgan acknowledged that data centers do not pay personal property taxes or tax on equipment but they do pay real estate taxes based on the asset value put into the investment. Mr. Cravaro explained that the end user does not care where data centers are physically located. Ms. Schwartz asked about the price target per square footage. Ms. Hajder explained it differs depending on the type of data center. Mr. Grochala explained that Lino Lakes is far enough away but close to municipalities. The building values make the cost of land inconsequential. Mr. Cravaro stated that data centers look at the likelihood of natural disasters. Mr. Grochala explained that other businesses can benefit from the technology corridor. Ms. Hajder gave an overview of the Anoka County Regional Economic Development website (https://www.anokacountysuccess.orgo. Ms. Schwartz asked if the land information automatically updates DEED. Ms. Hajder stated that DEED had the lowest number of users and was not always accurate. B. Projects Updates 2 City Council and Planning and Zoning Board had a 2040 Comprehensive Plan joint meeting on Monday, March 5. City Council and Planning and Zoning Board voiced support for Lyngblomsten. The City is anticipating a TIF application for assistance to be submitted. Ms. Schwartz stated that previously there was an unwritten rule that if the Centennial school district closes, the meeting will not be held. Staff was unaware of rule and will look into further. Mr. Colgan asked about the ration of salt for roads. Mr. Grochala stated the City's salt is co - located with Anoka County. ADJOURNMENT The meeting was adjourned at 8:57 A.M. 3 ECONOMIC DEVELOPMENT ADVISORY COMMITTEE AGENDA ITEM 3A STAFF ORIGINATOR: Michael Grochala, Community Development Director EDAC MEETING DATE: April 4, 2019 REQUEST: Lyngblomsten Request for Financial Assistance BACKGROUND The City has received a request for financial assistance from Lyngblomsten. The City Council will be having a preliminary discussion on the request at the April 1, 2019. A copy of the staff report and memorandum from our financial advisor, Springsted Inc. is attached. Staff will provide an overview of the request and update of the City Council discussion at the meeting. EDAC CONSIDERATION Staff is comment from the board regarding possible financial assistance for the project. ATTACHMENTS 1. April 1, 2019 City Council Work Session Report, Lyngblomsten WS — Item 3 WORK SESSION STAFF REPORT Work Session Item No. 3 Date: April 1, 2019 To: City Council From: Michael Grochala, Community Development Director Re: 49 & J Redevelopment - Lyngblomsten Background The City has been working with Lyngblomsten, a senior care provider, regarding construction of a senior community in the northwest quadrant of the Hodgson Road (CSAH 49) and County Road J (Ash Street) intersection. The preliminary plat/development stage plan was recommended for approval by the Planning and Zoning Board on February 13, 2019. The City Council will be considering preliminary approval of the project at the April 8, 2019 regular council meeting. The intersection of 49 & J is a major gateway into the city and has been a high priority redevelopment objective over the past 20 years. The site has been the focus of several proposed commercial/residential development proposals. However it has proven to be a challenge for development/redevelopment due to a number of factors including: • lack of public utilities • inadequate transportation infrastructure • multiple property owners/businesses • meeting neighborhood/community expectations • development timing Over the past nine months Lyngblomsten has been working to overcome these challenges, as well as address comments received from residents, advisory boards, and the City Council. Lyngblomsten has incorporated the 4 corner properties into the site plan, obtaining purchase options on each. They have also been working with Anoka and Ramsey County Highway Departments to address some of the existing traffic concerns. While still under review, the overall plan has addressed a number of long standing city goals for the area. The total project cost is estimated at $77,000,000. Due to costs associated with the highway improvements, utility improvements and land acquisition, the developer is requesting public assistance in the form of Tax Increment Financing (TIF). Springsted Inc. is in the process of reviewing the application and has prepared a summary of the review status. Mikaela Huot, of Springsted will be present at the City Council meeting to discuss the attached memorandum, dated March 29, 2019. As more fully discussed in the memorandum, Lyngblomsten has requested Tax Increment Financing assistance in the amount of $5.3 million. The request would be "pay as you go" financing as reimbursement of eligible costs over a term of 15 years. In the past is has been the practice of the city to limit the term/assistance to the increment generated over 5 to 6 years. As noted in the memorandum Springsted is still working through the process of the evaluating the proposal. The Springsted evaluation will be the basis for the City making an informed "but for" decision on the need for assistance. The 49/J master plan did contemplate the possible need for assistance to facilitate redevelopment of the area. The project, as proposed, does address a number of City goals related to this area including: • Demolition and consolidation of existing underutilized properties. • Redevelopment of corner with new commercial opportunities • Extension of public water and sanitary sewer areas currently without service. • Extension of trunk water main through development area shortening remaining looping needs for southwest area. • Creation of approximately 130 FTE jobs with average hourly wages of $22.50/hour. • Provision of variety of senior housing options not previously provided for in the City. • The applicant will still be subject to all city fees including building permits, trunk utility and park dedication requirements. • County road improvements. • The project would generate include additional taxable market value While the review is still underway staff believes it is important to check in at this point with the council on the following questions: 1) Is the City willing to provide assistance for the project, provided the need is demonstrated; and 2) Is there a maximum term the City Council is unwilling to exceed regardless of demonstrated need i.e., 5-6 years. Requested Council Direction Staff is requesting Council direction regarding the use of tax increment financing for the proposed Lyngblomsten project. Attachments Springsted Memo, dated March 29, 2019 ® Springsted MEMORANDUM Springsted Incorporated 380 Jackson Street, Suite 300 Saint Paul, MN 55101-2887 Tel: 651-223-3000 Fax: 651-223-3002 www.springsted.com TO: Michael Grochala, Community Development Director, City of Lino Lakes Sarah Cotton, Finance Director, City of Lino Lakes FROM: Mikaela Huot, Vice President/Consultant DATE: March 29, 2019 SUBJECT: Financial Review of Preliminary Application for Assistance through Tax Increment Financing (TIF) for Proposed Lyngblomsten Senior Care Campus Project Background The City of Lino Lakes has received an application for financial assistance through Tax Increment Financing (TIF) to assist with financing a portion of the extraordinary development costs related to the construction of an approximate 200-unit senior care campus and 19 adjacent rental townhomes. The project also includes the acquisition of several properties on the corner of County Road J and CSAH 49 where the senior housing development will not occur but will present future development opportunities. The total investment budget including acquisition of all properties is about $77M and includes approximately $9.6M of TIF eligible expenditures including site improvements, acquisition, and demolition. City Council will be discussing the application with City staff at the April 1 work session. The purpose of this memorandum is to provide a summary of review status of the application and next steps Springsted will incorporate regarding the submitted materials. Included will be review of the development project costs, sources of revenue, and operating pro forma as provided by the developer to assist the City with making a determination if the project as proposed would be unlikely to proceed without the requested Tax Increment Financing (TIF) assistance, and to determine the appropriate amount, if any, of financial assistance based on TIF-eligible costs. Developer Request for Assistance Assistance has been requested for financing a portion of the costs associated with completion of the project. The developer has proposed the $77.2 million project will be funded by an estimated $9.8 million of equity and $66 million through a bank loan with a TIF request of $5.3 million. The developer's submitted information provides that the request for assistance would be pay -as -you -financing as reimbursement for extraordinary development costs and has requested a term of 15 years. Additional analysis regarding the financing components, estimated amount of Public Sector Advisors City of Lino Lakes, Minnesota Prelim Review of Lyngblomsten Request for TIF Assistance April 1, 2019 Page 2 available tax increment revenues and the amount necessary for the project to proceed will need to occur as the project proceeds. The total estimated sources and uses of funds is shown below: Sources Amount Uses Amount Equity $9,800,000 Property Acquisition $3,620,000 Debt $66,000,000 Building Costs $44,855,442 TIF * $5,300,000 Site Development $6,000,000 Soft Costs $19,570,162 Financing Costs $850,000 Contingencies $2,325,267 Total $77,220,871 Total $77,220,871 . TIF assistance would be provided as pay-as-you-go (reimbursement) and not upfront Tax Increment Financing Assumptions Springsted made certain assumptions to calculate the estimated amount of tax increment revenues generated by the project. Those assumptions include the following: • Estimated 6-year collection term o Maximum term for housing districts is 26 years ■ 25 years after receipt of first increment o First year taxes payable 2022 (construction commences in 2019) ■ Full year collected in 2022 • Total base value for land and building o Housing District: $634,300 ■ Parcel ID: 31-31-22-43-0018 • Total completed value following development o Housing TIF District ■ 100 independent living units valued at $21,990,000 ■ 50 assisted living units valued at $6,840,000 ■ Total estimated taxable value of $28,830,000 ■ Preliminary — based on construction cost estimates • Construction schedule o Commences in 2019 and complete in 2020 o Partial value as of assess Jan. 1, 2020 for taxes payable 2021 o Full value as of assess Jan. 1, 2021 for taxes payable 2022 o Election to delay receipt of first increment until full value realized • Payable 2019 tax rates constant o Combined rate of 117.574% City of Lino Lakes, Minnesota Prelim Review of Lyngblomsten Request for TIF Assistance April 1, 2019 Page 3 o ISD 12 and watershed district included o Will change each year with actual rates • Tax rates, class rates and future market values o Rental (Housing TIF District) ■ 1.25% • No annual market value inflator • Net present value o Discount rate of 5.0% o Subject to financing assumptions Tax Increment Revenue Estimates Based on the assumptions outlined above and the City's past practice for terms of TIF Districts, the projected tax increment revenues that may be generated from the project are shown in the chart below. Housing TIF Estimated Total Taxable Value $28,830,000 Estimated Annual Increment (full buildout) $412,893 Total Gross Tax Increment 6 total ears: first collection 2022 $2,477,358 City Retainage (5%) $123,870 Net Amount Available to Development (95%) $2,353,488 Estimated Present Value City Share $95,046 Estimated Present Value Developer Share $1,805,832 Total Remaining Increment 20 ears $8,257,860 The values for the townhomes would not be included within the boundaries of the TIF District and would be included within the taxing entities existing tax base once constructed and on the tax rolls. The construction schedule is assumed to be in conjunction with the senior care campus. In addition, redevelopment of the corner to include new commercial buildings would also enhance the tax bases and not be included in the district. Developer Pro forma But -For Analysis In approving a TIF district and project, the City must make several findings, including the "but for" test: that the proposed development would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future. The developer has stated the assistance is necessary due to the high costs of City of Lino Lakes, Minnesota Prelim Review of Lyngblomsten Request for TIF Assistance April 1, 2019 Page 4 developing/redeveloping the site, including acquisition of the 17-acre site, in addition to the properties on the corner to create a larger redevelopment opportunity. There are also significant public improvement and site development costs to allow access into the site. The project is unable to entirely support those extraordinary costs upon completion. Based on the developer's stated position relative to the need for tax increment financing assistance, the City could make its "but for" finding and provide tax increment assistance. We recommend, however, that the City also consider an appropriate level and type of TIF assistance for the project based on the information submitted by the developer. The application includes a requested 15-year term of assistance to equal approximately $5.3 million. The City's position relative to the use of tax increment has typically been to finance extraordinary costs and the level of assistance is in part dictated by the `extraordinary' costs of the project. Historically, on past projects the maximum term of assistance has been about 5-6 years. Following thorough evaluation of the project as provided allows the City to be prepared to make an informed "but -for" decision based on the likelihood of the project needing assistance, as well as the appropriate level of assistance. The "but -for" test is used to determine whether a project is likely to proceed as proposed without the use of public dollars. To complete this analysis, we review the developer's provided operating proforma and will also construct similar ten-year project proformas, showing a result if the developer receives the assistance as pay-as-you-go (reimbursement for TIF eligible costs) and showing a result if the developer does not receive assistance. Our analysis of the proformas include a review of the development budget, projected operating revenues and expenditures, and the project's capacity to support annual debt service on the bank loan. The purpose of evaluating the operating proformas is to understand the potential returns to the developer through the initial development of the project and the operation of the enterprise over a period. A 10-year period may not be indicative of the developer's intended investment period. Generally, should the rates of return lie below a reasonable range without assistance; we could assume the project as proposed would not move forward without assistance. Should the returns lie within a reasonable range with the assistance, we could assume the amount of assistance tested is appropriate for the project. All such estimates should be viewed as general indicators of performance and not exact forecasts. The number of current and future variables affecting these estimates and actual results are great. There are no set rate of return benchmarks that dictates whether a project needs TIF assistance or not; however, there are market/industry standards for certain types of projects, as well as more specific investor/developer thresholds that need to be achieved. An additional measure of project feasibility is the Debt Coverage Ratio (DCR), which is a calculation detailing the ratio by which operating income exceeds the debt -service payments for the project. If the DCR is greater than 1.0 it indicates the project has operating income that is greater than the debt -service payment by some margin; conversely if the DCR is less than 1.0 it indicates the project is incapable of meeting its debt -service payment and would need to seek additional revenue sources in order to pay its debt. Typical lending standards will require a DCR of significantly greater than 1.0 as a measure of cushion in the event actual revenues and expenses are different than projected. City of Lino Lakes, Minnesota Prelim Review of Lyngblomsten Request for TIF Assistance April 1, 2019 Page 5 Project Financing There are generally two ways in which assistance can be provided for most projects, either upfront or on a pay-as- you-go basis. With upfront financing, the City would finance a portion of the developer's initial project costs through the issuance of bonds or as an internal loan. Future tax increment would be collected by the City and used to pay debt service on the bonds or repayment of the internal loan. With pay-as-you-go financing, the developer would finance all project costs upfront and would be reimbursed over time for a portion of those costs as revenues are available. Pay -as -you -go -financing is generally more acceptable than upfront financing for the City because it shifts the risk for repayment to the developer. If tax increment revenues are less than originally projected, the developer receives less and therefore bears the risk of not being reimbursed the full amount of their financing. However, in some cases pay as you go financing may not be financially feasible. With bonds, the City would still need to make debt service payments and would have to use other sources to fill any shortfall of tax increment revenues. With internal financing, the City reimburses the loan with future revenue collections and may risk not repaying itself in full if tax increment revenues are not sufficient. The developer's financial information includes pay-as-you-go financing. Cnnclncinn Per the submitted application for assistance, the developer has requested approximately $5.3 million over 15 years as related to development of the project site and construction of a senior care campus. Through the submission of the tax increment financing application and supporting financial information, the developer has indicated that the project as proposed would not occur on the current site without financial assistance from the City due to extraordinary costs associated with acquisition of the additional properties and site development/infrastructure improvements. We recommend additional review as the project proceeds relating to the following: • Identification of extraordinary project costs for reimbursement o Acquisition of redevelopment properties o Installation of public improvements Estimated amount of assistance necessary for the project to proceed o Number of years required ■ City preference of maximum 6 years ■ Developer request of 15 years Thank you for the opportunity to be of assistance to the City of Lino Lakes. Please contact me at 651.223.3036 or 651.368.2533 or mhuot o(o)springsted.com with any questions or comments. Attachments: Proiect Qualifications: Definition of Housing Districts Tax Increment Financing (TIF) District — Housing In order to establish the area identified above as a Housing TIF District, the project as proposed will need to qualify for inclusion within a housing TIF District. A housing TIF District is a type of tax increment district which consists of a project that is intended for occupancy by persons or families of low and moderate income. Revenue derived from tax increment from a housing district must be used solely to finance the cost of a housing project as defined. The cost of public improvements directly related to the housing projects and the allocated administrative expenses of the City may be included in the cost of a housing project. For the proposed project to qualify as a tax increment financing housing district, the property must satisfy the income requirements for a qualified residential rental project as defined in section 142(d) of the Internal Revenue Code. The requirements of this subdivision apply for the duration of the tax increment financing district. The income requirements are as follows: • at least 20% of units are occupied by individuals whose income is 50% or less of area median income, or • at least 40% of units are occupied by individuals whose income is 60% or less of area median income. In addition, not more than 20 percent of the square footage of the buildings that receive assistance from tax increments may consist of commercial, retail, or other nonresidential uses. Public Sector Advisors