Loading...
HomeMy WebLinkAbout2004-139 Council Resolution• CITY OF LINO LAKES RESOLUTION NO. 04-139 RESOLUTION APPROVING A CON '1'RACT FOR PRIVATE DEVELOPMENT BETWEEN THE LINO LAKES ECONOMIC DEVELOPMENT AUTHORITY, THE CITY OF LINO LAKES AND LEGACY HOLDINGS/LINO LAKES, LLC BE IT RESOLVED By the City Council ( "Council ") of the City of Lino Lakes, Minnesota ( "City ") as follows: Section 1. Recitals. 1.01. The Lino Lakes Economic Development Authority ( "Authority ") administers Development District No. 1 (the "Project)" pursuant to Minnesota Statutes, Sections 469.124 to 469.134 ( "Development District Act "). 1.02. The Authority, the City and Legacy Holdings/Lino Lakes, LLC (the "Developer ") have proposed to enter into a into a Contract for Private Development (the "Contract "), setting forth the terms and conditions of redevelopment of certain property within the Project, referred to generally as the Legacy at Woods Edge Project. • 1.03. The Council has reviewed the Contract and finds that the execution thereof and performance of the City's obligations thereunder are in the best interest of the City and its residents. • Section 2. City Approval; Further Proceedings. 2.01. The Contract as presented to the Council is hereby in all respects approved, subject to modifications that do not alter the substance of the transaction and that are approved by the Mayor and City Administrator, provided that execution of the documents by such officials shall be conclusive evidence of approval. 2.02. The Mayor and City Administrator are hereby authorized to execute on behalf of the City the Contract and any documents referenced therein requiring execution by the City, and to carry out, on behalf of the City its obligations thereunder. SJB- 253373v1 LN140 -80 -84- • • Approved by the City Council of the City of Lino Lakes, Minnesota this I P — of 0 ciro 6,ilv , 2004. ATTEST: City Clerk SJB- 253373v1 LN 140 -80 -85- 85 E. SEVENTH PLACE, SUITE 100 SAINT PAUL, MN 55101 -2887 651- 223 -3000 FAX: 651-223-3002 ./ MEMORANDUM TO: FROM: SPRINGSTED Advisors to the Public Sector Gordon Heitke, Director of Administration Lino Lakes Michael Grochala, Community Development Director Lino Lakes Mary Alice Divine, Economic Development Coordinator Lino Lakes Al Rolek, Finance Director Lino Lakes Paul Steinman, VP Housing & Economic Development Terri Heaton, Senior VP Client Representative Mikaela Huot, Project Manager CC: Steve Bubul, Kennedy & Graven DATE: September 20, 2004 SUBJECT: Legacy at Woods Edge Project Analysis Revised section on minimum assessment/value agreements This purpose of this memo is to provide an outline of the primary development points of the Legacy at Wood's Edge project. Background The project as proposed includes a geographic area of about 40 acres. Of that, approximately half lies within TIF District 1 -11, a redevelopment district. This split development is a bit unique, and provides a number of financial advantages to the City which will be discussed later in this memo. The following states the value of new construction for each component of the proposed project: • Outside the TIF District $60,131,100 - $68,006,100 • Inside the TIF District $55,785,000 - $69,855,000 Total estimated final value of project $115,916,100 - $1 37,861,100 The build -out schedule anticipates the final commercial and multi - family projects will be completed in 2008, allowing full value of the development to be assessed 2009 for taxes payable 2010. This Hartford proposal has been under consideration for about a year. Since that time staff and Springsted, along with Kennedy & Graven, legal counsel, have held numerous meetings to discuss the major development points of the project — including planning, timing, financing, CORPORATE OFFICE: SAINT PAUL, MN • Visit our website at www.springsted.com IOWA • KANSAS • MINNESOTA • VIRGINIA • WASHINGTON, DC • WISCONSIN - 8 6 - • • • City of Lino Lakes September 20, 2004 Page 2 infrastructure improvements, YMCA commitments, Metropolitan Council grants, and most specifically the developer's request for assistance. Special Assessments Typically, a maximum special assessment amount would be established within the development agreement including a waiver from the developer requiring acceptance of special assessments up to that amount. Should the project come in below the estimated costs, the special assessments would then be reduced accordingly. Total estimated infrastructure costs, as identified in the feasibility study, include the following: TABLE 1 Sanitary Sewer $8,382,027 $242,590 Water Main Tax increment and other sources toward Lake Drive improvements $492,356 Storm Sewer Total cost (assessed to developer) $5,382,865 New $647,115 Reconstruction $210,819 Street New $1,060,196 Reconstruction $573,807 Streetscape $1,246,717 Community Green Streetscape $147,736 Park Improvements $442,541 Lake Drive $2,401,521 Street Lighting $916,630 Total Project Cost Estimate $8,382,027 The following revenues m ay be applied to reduce the cost to the developer: TABLE 2 Total Project Cost Estimate $8,382,027 Park Dedication fees (paid by the developer and sub - developer s) ($442,541) ($2,401,521) ($155,100) Tax increment and other sources toward Lake Drive improvements Other sources (trunk utility fund) Total cost (assessed to developer) $5,382,865 Proiect Assistance Tax Increment Financing (TIF) can be used to pay for a variety of costs related to this project. The City also has as an additional potential source of assis tance, the Livable Communities grant of $450,000, which the developer has req uested to reduce the extraordinary costs of site • • City of Lino Lakes September 20, 2004 Page 3 grading associated with the project. The following proposal has been negotiated in response to their initial request for assistance. TABLE 3 TIF, Century Farms, County funds, Fairview land sale proceeds; to pay Lake Drive im provements $2,401,521 TIF assistance to provide a land write down $2,700,000 Livable Communities grant $ 450,000 Improvement Bonds to pay infrastructure costs $5,382,865 Total assistance package $5,551,521 Based on this proposal we have estimated approximately 16 years of tax increment to pay the TIF expenses. Attached is a TIF analysis based upon the following primary assumptions: • $57.1 million of new value constructed by 2009 • No inflation to new values through the term of the di strict • Present value rate of 6% You will note earlier in this memo that the developer estimated the in- district value to be in the range of $55,785,000 - $69,855,000, with all but about $2 million of construction to be completed in 2006. For the purpose of creating a conservative analysis, we used a reasonable low side of their range, and extended their buil d -out to 2009, in addition to a 0% inflation rate on new value through the life of the T IF District. Deal Structure The deal is proposed to be structured and financed through a variety of tax increment bonds and pay -as- you -go notes, special assessment bonds, internal funding, a nd Metropolitan Council grants. The general financing structure is proposed followed by a narrative expl anation of each: TABLE 4 Sources A) GO Tax Increment Bonds to pay for a portion of the Lake Drive improvements $2,285,999 TIF B) Improvement Bonds to pay infrastructure costs $5,382,865 Assessments C) Tax Increment pay -as- you -go note to Developer $1,000,000 TIF D) Internal loan to Developer — A portion to be reimbursed by Met Council Grant, if not, then reimbursed with TIF 1,700,000 TIF *Bond A) GO Tax Increment Bonds to pay for a portion of the Lake Drive improvements • • City of Lino Lakes September 20, 2004 Page 4 The total estimated cost of Lake Drive improvements is $2,401,521. It is proposed that several sources of revenue be applied to reduce that cost. F unds from Anoka County ($7,500), Century Farms ($25,500), and the Fairview Land Sale ($82,522) would all be available when needed to directly reduce the estimated cost of the project and, as a result, the size of the bond issue. A summary follows: TABLE 5 Total cost of Lake Drive $2,401,521 Anoka County $7,500 Century Farms $25,500 Fairview Land Sale $82,522 Total GO Tax Increment Bond $2,285,999 Pooled TIF from Panattoni is not available up -fron t, but would be pledged to pay a portion of the debt service over the next 8 years as the increments are annually paid. __As tax increment is_ generated -an- nua ll-y, the first priority for its- use - would -be-to -pay debt- service - -- - - - - -- on these bonds. B 1m • ro - u infrastructure costs The total estimated cost of the improvements is $8,382,027, proposed to be reduced by other revenues as shown in Table 2 to $5,382,865, which woul d be identified in the development agreement as the maximum assessment amount. Improvement bonds are proposed to be issued to pay $5,382,865 of infrastructure cost s, which will be assessed to the developer. C) Tax increment pay-as-you-go note to developer We are recommending a land write down in the am ount of $2,700,000 total, with $1,000,000 provided in the form of a 16 -year pay -as- you -go note, carrying a 6% interest rate. The remaining land write down is described in D below. D) Internal loan to Developer — A portion to be reimbursed by Met Council Grant, if not, then reimbursed with TIF The developer has requested that $1,700,000 be provided near the be ginning of the project to reduce out of pocket expenditures related directly to the redevelopment property. We have negotiated several m easures to securitize these "up- front" dollars in the followi ng manner: • It would not be paid until completion of demolition of all buildings within the District, removal of the billboard, and approval of the prelim inary plat for the townhome development. • When it is paid, it would be put in escrow with a requirem ent that it not be released until such time as the first building permit is obtained on the townhome project. • • City of Lino Lakes September 20, 2004 Page 5 The City will receive, through the purchase of City owned land, approximately $2,200,000 from the developer at the tim e of closing. It is envisioned that this, in com bination with the Metropolitan Council grant, may be the source of funds need ed to provide the land w rite down. The grant would potentially provide $1,000,000 and the City then would loan $700,000 to the project. The City would anticipate being reim bursed in full through tax increments generated from the district over a 16 year period. Without the grant, a gap of $1,000,0 00 exists in the project. As a possible fall back position, the City may consider increasing its loan to the project through the use of its land sale proceeds. This amount, $1,700,000, would then be reimbursed in full through tax increments generated from the district over a 16 year period. Security There are three primary financing components proposed for this project. These include: a) General Obligation bonds, both TIF and Improvement a. General Obligation bonds will become general obligation of the taxpayers if other sources of revenue are not available to service debt. b) Internal loan — to be reimbursed with tax increm ent a. If tax increment is not available to provide the reim bursement, the City will have little or no recourse to collect its money and repay its internal I oan. c) Developer pay -as- you -go note — to be paid only to the extent tax increme nt is available a. The developer is only paid if there is sufficient tax increm ent to do so. The following measures have been taken to leverage City assistance and maximize its security. 1) Minimum assessment agreements and m inimum value requirements a) The City's security primarily rests upon the construction of buildings w ithin the TIF District, which create taxable value. One of the m ethods of assuring that the value that is projected for the District, is actually constructed and maintained throug hout the life of the District, is to have the developer execute minimum assessment agreements for each parcel. The developer has argued that minimum assessment agreements will be an impediment to development on a site that already will bring some challenges to attracting commercial and housing developers. Staff and Springsted agree tha t specifically the commercial components of the developm ent face stiff competition from nearby sites, even after the provision of assistance to the project. On one hand the City needs development to occur in the TIF District to generate necessary revenue to pay costs, and on the other hand it needs security that such development meets and maintains certain taxable m arket value thresholds. After several negotiation sessions on this issue, we are comfortable recommending the following approach: i) That a minimum value agreement be put in place on the owner - occupied components of the developm ent, with the agreement dropping off proportionately as each individual unit is sold. ii) That a minimum value agreement be put in place on the re ntal components of the development, with the agreement dropping off when a building perm it is issued on the building(s) meeting the value requirements. • • • City of Lino Lakes September 20, 2004 Page 6 iii) That the development agreement contain a provision that a m inimum assessment agreement will be required for any components of the project that wil I continue to be owned by the Developer. As with any standard minimum assessment agreement, it will continue in force on any components of the project owned by the Developer. These agreements will provide some surety that a certain level of i ncrement will be initially generated. It does not shelter the City from any changes such as to class rates, or changes in the tax increment I aw or other property tax laws in general. 2) Assessment to developer a) $5,382,865 will be assessed to the developer after construction of the infrastructure improvements to the project. Should the final assessment amount be less, the total assistance amount would be reduced by an equal sum. 3) Up -front assistance a) This scenario will apply regardless whether the Metropolitan Council grant is approved. The $1,700,000 "up- front" dollars will not be paid until specified benchmarks have been met, and once these are met the dollars will be placed in escrow until such a time as the first building permit is issued on the townhome project. The benchmarks for placing the $1,700,000 in escrow are: i) Acquisition, demolition, relocation of TIF properties has been com pleted ii) Removal of the billboard in the TIF District iii) Approval by the City Council of the preliminary plat for the townhome development within the TIF District. 4) Priority distribution of annu al increment a) The tax increment bonds will receive 1st priority for annual distribution of increment. b) The remainder of annual increment will be proportionately distributed to reimburse the City on its internal loan and to reimburse the developer on its pay -as -you- go note. Of the remaining annual increment after debt service on bonds, the following distribution would occur based on whether the M etropolitan Council grant is received: TABLE 6 Loan Amount % of annual increment distribution City internal loan, without Metropolitan Council grant $1,700,000 62.96% Developer pay -as- you -go -note $1,000,000 37.04% City internal loan, with Metropolitan Council grant $700,000 41.18% Developer pay -as- you -go -note $1,000,000 58.82% Additional Deal Points It is important to note that the developer is sharing a fair am ount of the risk in this project by financing approximately $7.9 million in acquisition costs and agreeing to $5,382,865 in assessments. The developer has also crafted a project which will satisfy the infrastructure requirements of the YMCA. The developer is estimating their costs at approximately $17,000,000, which includes the following: • • • City of Lino Lakes September 20, 2004 Page 7 $7,917,754 Land Acquisition $225,000 Third Party Reports $900,000 Municipal fees $648,324 Other City Charges $750,000 Grading $1,520,000 Financing Costs $5,382,865 Assessments $17,343,943 TOTAL The developer has agreed to provide a minimum 20% of affordable units within the project. Additional definition of the term "affordable" will be contained within the development agreement. On the issue of the distribution of rental units vs. owner occupied, the developer has agreed to a range of rental units between 40% and 50% of the total. Their initial estimate is 192 rental units out of a total 450 units, or 4 3% Tax Revenue Comparisons As stated earlier in this memo, the Legacy project is unique because ap proximately half of the new value proposed wi II lie outside TIF District 1 -11. If we only use the minimum projected values the amounts are: • Outside the TIF District • Inside the TIF District $ 60,131,100 $ 55,785,000 TOTAL $115,916,100 By comparison, the Marketplace development, on about the same size parcels (40 acres), is projected to have a market value upon full buil d -out of approximately $33,500,000. This comparison shows that the value projected outside the TIF District alone, is almost 2 times greater than the Marketplace development at full build out, and the total projected value (in district and out) is about 3.5 times greater. Estimated tax revenues for each of the two developments, after deducting for fiscal disparities, are shown in the following table: TABLE 7 Marketplace Legacy at Woods Edge City $175,858 City $554,019 Anoka County $146,472 Anoka County $461,445 Forest Lake SD $86,800 Forest Lake SD $273,452 Other $26,503 Other $83,495 TOTAL $435,633 TOTAL $1,372,411 The unique distribution of TIF and non -TIF tax base provides significant benefits to the City as the project will, immediately upon completion, generate tax base w hich benefits all Lino Lakes taxpayers. The developer has shown that without assi stance, neither the TIF tax base nor the non -TIF tax base will occur, therefore there is not a negative fi nancial impact resulting from this project. Rather, because of the unique TIF and non -TIF tax base planned, it can be arg ued that • • • City of Lino Lakes September 20, 2004 Page 8 the non -TIF tax base will provide revenues to s upport the service requirements of the entire project. AGENDA ITEM 6C STAFF ORIGINATOR: Mary Alice Divine DATE: 09/27/04 TOPIC: Public Hearing: Consideration of Resolution No. 04- 139, Approving a Redevelopment Contract for Legacy at Woods_ Edge Vote Required: Simple Majority BACKGROUND: On November 24, 2003 the City established TIF District No. 1 -11. This district is a 25 -year redevelopment district intended to provide a source of revenue for development of the city's downtown area, known as Woods Edge. Hartford Group, Inc. has submitted a proposal for development of this project, estimated to develop market value in the range of approximately $116 million - $138 million: This proposal is-in-keeping with the city's Comprehensive Plan, which designates the area for high density, pedestrian oriented mixed -use. The Comprehensive Plan's objective for development of this site is to establish a central gathering place, or "downtown" for residents that will be a source of community identity and pride. This development has not occurred solely through private efforts and Hartford Group has requested public participation to develop in a manner consistent with the Comprehensive Plan goals for this site. In addition, improvements to Lake Drive and the 35W bridge may justify some public expenditure. The major components of the Redevelopment Contract are explained in the attached report from Springsted, the city's financial consultant on the project. The city's Economic Development Advisory Committee has reviewed the applicant's request and recommended approval of the proposal. EDAC also recommended that the city pursue addressing the 35W bridge replacement option to take best advantage of the $2.4 million in Lake Drive improvements. EDAC also recommended the city continue to pursue senior housing options. Members want to encourage a senior rental component, but do not want to tie a developer to pursue options the market does not support. After taking public testimony, staff recommends the public hearing be continued to Monday, October 11, 2004 at 6:30 p.m. On October 11 both the EDA and the City Council will consider approving the Redevelopment Contract . RECOMMENDATION: Open the public hearing.