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HomeMy WebLinkAbout04-12-1999 EDA CITY OF MOUNDS VIEW ECONOMIC DEVELOPMENT AUTHORITY MONDAY,April 12, 1999 AGENDA ROLL CALL: President Coughlin, Vice President Stigney, Commissioner Marty, Commissioner Quick, Commissioner Thomason C '' 1. AGENDA ADDITIONS None 2. APPROVAL OF MINUTES A. Approval of EDA minutes from March 22, 1999 3. SPECIAL ORDER OF BUSINESS none 4. CONSENT AGENDA none 5. EDA BUSINESS A. Consideration of Resolution No. 99EDA-108, Resolution Approving An Amended Development Assistance Agreement with Michael Investments Concerning the Building N Project 6. REPORTS 7. ADJOURNMENT EDA CITY OF MOUNDS VIEW MEETING MINUTES MONDAY,MARCH 22, 1999 10:27 P.M. 1. CALL MEETING TO ORDER I 2. ROLE CALL: Coughlin, Marty, Stigney, Thomason. NOT PRESENT: Quick. 3. APPROVAL OF EDA MINUTES Motion/Second: Coughlin/ . To approve minutes of EDA for March 8, 1999. Ayes - 4. Nays - 0. Review of RFP request for proposal for sale of lot 6991, Pleasant View Drive. Steve Dorgan stated on the subject site, the staff has arranged for demolition of the building which should be completed in the first week in April and part of that we should begin setting out "for sale"lot to get the construction going as soon as possible with the tax rules as the policy dictates. Attached to the staff report are essentially the information, and that is standard as what we have sent out in the past. One issue that EDA may want to look at is setting a minimum for the lot. The appraised value for the land last June for purchase was $35,000. Once the RP is sent out and we receive bids back we will bring those back to the EDA for approval. Once the EDA k issues a buyer, they would then turn to a participation agreement which will essentially hold the lot for them. They would provide a City a$500 deposit and that would hold that lot for 30 days until we have a purchase redevelopment agreement signed to sell the lot. Mr. Marty asked what does the City have tied up in this project. Steve stated the property was purchased for $60,500, and that was the appraised value of the land. The demolition is going to cost $7900. Additional staff and legal time,probably $68,000 to $70,000. The lot has an appraised value of$35,000. In speaking with some real estate agents, the lot will go for $40,000 to $45,000. There is some loss obviously to the investment part of the program. Motion/Second: Coughlin/Marty. To extend the meeting five minutes. Ayes - 4. Nays - 0. 24 U:\CARIS\COUNCIL\MINUTES\MVCC22.MAR �* Mr. Marty stated if we put a minimum price on the lot, appraised at$35,000, and we put a $45,000 minimum on the bids, is this viable? Steve stated the minimum value is $35,000, we still are going to get bids that may come in over that. Calls are received daily requesting information for this lot. The demand could be high and go up to $45,000. We may run into a problem and get less quality bids for housing design, or what may actually be built on the site. Mr. Marty stated the property should be sold for $40,000. Motion/Second: Marty/Stigney. To approve request for 6991 Pleasant View Housing Program to set the minimum bids to reflect$40,000. Ayes - 4. Nays - 0. Mayor Coughlin closes meeting at 10:34. Respectfully Submitted, James Merrill { 25 U:\CARIS\COUNCIL\MINUTES\MVCC22.MAR Item No. 9 M Meeting Date: 4/12/99 Staff Report No. Type of Business:EDAB WK Work Session;PH:Public Hearing; CA:Consent Agenda;EDAB:EDA Business Mounds View City Economic Development Authority Staff Re ort To: Mounds View Economic Development Authority From: Kevin Carroll, Economic Development Coordinator Item Title/Subject: Consideration of Resolution 99-EDA-108, a Resolution Approving and Authorizing Execution of an Amended Development Assistance Agreement with Michael Investments (Everest Group) Regarding the Building N Project. Date of Report: April 8, 1999 SUMMARY As you will recall,this issue was addressed at the work session on March 1st, the regular Council/EDA meeting on March 8th, the Economic Development Commission meeting on March 25th, and the regular Council/EDA meeting on April 5th. Accordingly, an extensive review of the progress of this matter is probably not required, but the more recent historical highlights include the following: • On August 25, 1997, the EDA approved Resolution 97-EDA-67, which dealt with the"original" Development Assistance Agreement regarding the Building N Project. However,the Agreement was never executed by the parties. • On September 14, 1998,the EDA approved Resolution 98-EDA-97, which dealt with a modified version of the original Development Assistance Agreement. The primary modifications permitted the construction of a 97,463 sq. ft. building rather than the 103,000 sq. ft. building that was initially envisioned, and allowed the developer more flexibility with respect to a possible"build-to- suit" arrangement. This revised version of the Agreement was also never executed by the parties. • On December 28, 1998, the City Council approved Resolution#5298, which dealt with an alternate site plan for the Building N Project. The new site plan permitted the construction of either a 69,000 sq. ft. office/flex/showroom or the larger office/warehouse/manufacturing facility that had been initially planned. EDA Memo-Housing Replacement Program April 8, 1999 Page 2 The developer is now requesting that the Development Assistance Agreement be further amended to clarify certain"housekeeping"matters, including: 1. A change in the date of the Agreement. 2. A revision of the definition of the term"Improvements"to reflect the alternate site plan approved by the City Council in December of 1998. 3. A change to indicate that the development entity is a general partnership and not a corporation. 4. A change to indicate that Jeffrey L. Neilsen is the General Partner and not President of Michael Investments. Jim O'Meara from Briggs and Morgan,who drafted the original agreement on behalf of the EDA,has reviewed the proposed changes and indicated that there are no legal issues with the proposed changes. At least one EDA member inquired about the 8%interest rate specified in Section 3.2 (d)of the proposed Agreement. That particular figure was arrived at during the negotiations that led to the original Agreement in 1997, and it has appeared(unchanged) in each of the revised versions that have been prepared since that time. Mr. David Maroney of Community Partners, who advises the City on TIF and related financial matters from time to time, has indicated that the 8%interest rate is comparable to the interest rates that other cities are currently using in development assistance agreements that are similar to the proposed Building N Agreement. Mr. Timothy Nelson of Everest Development has also indicated that a nearby community(Brooklyn Park) used interest rates of 8.5%, 9%and 9.5%in the last three TIF assistance agreements that it negotiated. I have not yet been able to confirm this information,but I have no reason to dispute it. It is my hope that any other actual or potential concerns regarding the proposed Agreement have been properly addressed through the information that Rick Jopke and I have provided at the last few City Council and EDA meetings. However, if that is not the case, and if questions or reservations about the Agreement still remain,I encourage you to contact me(717-4029),Rick Jopke(717-4021)or Mr. Tim Nelson at Everest(651-636-5500) as soon as possible, so that issues that are of concern to you can be addressed in advance of next Monday's meeting. I have attached a copy of the proposed Resolution, which has not been changed since it was provided to you in connection with the March 8th EDA meeting. In light of its length [30 pages], and the fact that a copy of it was previously provided to you,I have not attached another copy of the proposed Development Assistance Agreement. However, extra copies will be available at next Monday's meeting in case they are needed. Finally, inasmuch as it was not clear to me whether you were previously provided with a copy of Mr. Nelson's letter dated March 10, 1999, a copy has now been enclosed for your review. Mr. Nelson's letter includes a summary of the benefits that the proposed project might provide to the City, along with background information regarding some of the compromises and concessions that the developer agreed to during the course of past negotiations. From a staff perspective,the terms of the proposed Agreement, and the type and amount of City financial assistance, are consistent with other Business Park projects that the City has assisted. The advantages of"closing"this matter by adopting the proposed Resolution include"finishing"this part of the Business Park, increasing the City's commercial tax base,providing new employment opportunities, and maintaining a positive working relationship with a major local developer(who owns other Mounds View properties with significant development potential). ACTION TO BE CONSIDERED Approval of Resolution 99-EDA-108, a resolution approving and authorizing the execution of an amended develo•ment assis . - agreement with Michael Investments regarding the Building N project. (tt e Carroll Economic Development Coordinator N:\DATA\GROUPS\ECONDEV\EDA-EDC\EDA\STAFF99\0412-99.WPD MOUNDS VIEW ECONOMIC DEVELOPMENT AUTHORITY RESOLUTION NO. 99-EDA108 A RESOLUTION APPROVING AND AUTHORIZING THE EXECUTION OF AN AMENDED DEVELOPMENT ASSISTANCE AGREEMENT WITH MICHAEL INVESTMENTS REGARDING THE BUILDING N PROJECT It is hereby resolved by the Board of Commissioners (the "Board") of the Mounds View Economic Development Authority (the "Authority") as follows: 1. Recitals. (a) The Authority has the powers provided in Minnesota Statutes, Sections 469.124 to 469.134 and 469.090 to 469.108 (collectively, the "Act"). (b) Pursuant to and in furtherance of the objectives of the Act, the Authority has undertaken a program to promote development and redevelopment of certain land within the City of Mounds View and in this connection is engaged in carrying out the Mounds View Economic Development Project (the "Project") within the City. (c) There has been approved pursuant to the Act a Project Plan for the Project. (d) The redevelopment and development of property within the Project by private developers are stated objectives of the Project Plan. (e) In order to achieve the objectives of the Project Plan, the Authority has determined to provide substantial aid and assistance through the financing of certain of the public costs of development. (f) Michael Investments (The "Developer"), has presented the Authority with proposals for the completion of certain improvements within the Project, consisting generally of an approximately 97,000 square foot building, or an approximately 69,000 square foot building and a certain amended Development Assistance Agreement between the Authority and the Developer (the "Development Agreement") stating the terms and conditions thereof and the Authority's responsibilities respecting the assistance thereof has been presented to the Board for its consideration. 2. The Board hereby determines that the Authority's execution and performance of the amended Development Agreement would be in furtherance of the Project Plan and hereby approves the amended Development Agreement substantially in the form presented to the Board and hereby authorizes the officers of the Authority in their discretion and at such time, if any, as they may deem appropriate to execute the same on behalf of the Authority, with such additions and modifications as those officers may deem desirable or necessary, as evidenced by their execution thereof. 3. Upon execution and delivery of the amended Development Agreement, the officers and employees of the Authority (including members of the City staff, acting in their capacity as staff to the Authority as well) are hereby authorized and directed to take or cause to be taken such actions as may be appropriate or necessary on behalf of the Authority to implement the amended Development Agreement, including without limitation issuance of the EDA Note and execution of the Certificate of Completion under the amended Development Agreement. 4. The Board hereby determines that the execution and performance of the amended Development Agreement will help realize the public purposes of the Act and are in furtherance of the Project Plan. Adopted by the Board of Commissioners of the Mounds View Economic Development Authority on March 8, 1999. ATTEST: President (SEAL) Executive Director Mann EVEREST DEVELOPMENT, LTD. A MEMBER OF THE EVEREST GROUP,LTD. March 10, 1999 Via Facsimile#612/784-3462 Rick Jopke Community Development Director CITY OF MOUNDS VIEW 2401 Highway 10 Mounds View, MN 55112-1499 Re: Building N, Mounds View Business Park Development Assistance Agreement Dear Rick: I was astonished and extremely disappointed at the action of the EDA on Monday, March 8, to postpone consideration of the requested changes to the Building N Development Assistance Agreement ("Agreement"). As you know, (and as you reported to the EDA), the requested modifications are not deal points but are housekeeping in nature and would make the Agreement applicable to and consistent with the alternate site plan for an upgraded office/flex project approved by the City Council in December, 1998. We have requested no changes to the economic terms of the Agreement as previously negotiated and approved by the EDA. Our sole purpose in requesting changes to the Agreement was to allow us to proceed with a revised project that we expect to have more appeal in the marketplace and that offers several benefits to the City: • A more attractive and higher quality building — with a brick and glass front as contrasted to the painted masonry block exterior on the previously approved office/warehouse building. • High probability of higher level of office finish, in the range of 50-75%, resulting in a greater number of higher paying head of household jobs. • Equal or higher tax value, due to higher quality construction and higher finish levels. 2665 Long Lake Road Suite 120 • Roseville, MN 55113 (651)636-5500 Fax: (651)636-0183 Page Two March 10, 1999 • Less intensive building-to-land coverage (more open space) — 23% building coverage with office/flex plan as compared to 34% building coverage with office/warehouse plan. • Less truck traffic The existing Agreement was initially approved by the City in February, 1998, after several years of discussion, presentation, earnest negotiation and compromise. The existing Agreement remains valid and effective as approved, even though unsigned. The only reason the Agreement is unsigned is that the prior Council/EDA required, as a condition to execution of the Agreement, prepayment of the park dedication fee imposed in connection with the replat of the Building N site. As a real estate developer operating in an ever-changing marketplace, we elected not to pay the park dedication fee and sign the Agreement until such point as we were certain we could proceed with the project. Under the existing Agreement we have the right to develop the office/warehouse project originally contemplated under the terms of the pay-as-you-go TIF deal contained in the Agreement. We are seeking the flexibility to develop a higher quality office/flex project under the same essential terms and conditions. Although the EDA members were not very specific Monday night in their reasons for postponing consideration of the Agreement modifications, there was mention of questions regarding the 8% interest rate in the TIF Revenue Note. It is important for the EDA members to understand that the interest rate is but one element among many interrelated economic terms in the Agreement, terms that were arrived at and agreed upon as a result of long and sometimes contentious negotiation, trade-offs and compromise. The interest rate cannot be looked at in isolation. In point of fact, there are several financial components of the Building N TIF deal to which Everest objected but ultimately compromised on in finalizing the Agreement. Some of these components are as follows: 1. Park Dedication Fee. The City imposed a park dedication fee in connection with the Building N site replatting in an amount nearly 3 times what we thought it should be under a fair and reasonable application of the City's park dedication ordinance. Prior City staff calculated a park dedication fee of $56,771 versus our calculation of $20,342 using the same appraised value. We believe the City's park dedication fee calculation misapplied the City's ordinance by requiring park dedication fees for portions of the property previously platted, for which park dedication fees had previously been paid. In addition, as mentioned previously, the City imposed the unusual requirement that the park dedication fee had to be paid in full prior to execution of the Development Assistance Agreement, rather than at the time of building permit issuance or plat filing, as typically required. Page Three March 10, 1999 2. Appraisal. The appraiser retained by the City (at Everest's expense) to appraise the Building N site in connection with the Agreement was directed by City staff to appraise the site based on an office/warehouse use, rather than according to the "highest and best use" appraisal standard typically applied. Since portions of the site were zoned for commercial use, this appraisal restriction had the obvious effect of limiting or reducing the appraised value of the property. In turn, under the pay- as-you-go formula in the Agreement, this limited the potential TIF recoverable by the developer. 3. TIF-Eligible Project Costs. The City's bond counsel excluded certain categories of site and public improvement costs from the description of costs eligible for TIF reimbursement pursuant to Exhibits D and E of the Agreement. Bond counsel eliminated certain cost categories (e.g. paving, TIF application deposit, park dedication fees, SAC and WAC fees, contractor's overhead and profit) despite the fact that (a) the City's written TIF policy specifically authorizes them as eligible TIF costs, and/or (b) they have been commonly recognized as TIF-eligible costs in other cities. Everest submitted a legal opinion to the City supporting the excluded cost categories as TIF-eligible, and, demonstrated that the City's bond counsel firm routinely authorizes TIF expenditures in a competing city (Roseville) for the same cost items. The effect of bond counsel's limitation of the eligible TIF items is to make it more difficult and less likely that Everest will receive the full $1.2 million dollar TIF amount provided under the Agreement. 4. Tax Class Rates. Early in the negotiations, Everest expressed concern that the state legislature may in the future reduce the real estate tax classification rates for commercial/industrial property. Everest requested some form of protection against decreasing tax rates to assure that it could receive the full amount of TIF bargained for on the Building N project. The City was unable or unwilling to provide a solution to this concern in the Agreement. Subsequently, the state has in fact reduced the tax class rates, and Everest is now vulnerable to receiving less increment than originally projected under the agreed pay-as-you-go TIF approach. The cumulative effect of the foregoing terms or requirements is to reduce the opportunity for Everest to receive the full benefit of the $1.2 million TIF assistance negotiated for the Building N project. And, under the pay-as-you-go TIF format, where no TIF is paid out until the project is completed and producing increment, Everest bears essentially all of the risk in this regard, while the City bears none. Page Four March 10, 1999 For all of the foregoing reasons, it would be inappropriate, unfair, and damaging to the Everest/City relationship to reopen any of the financial terms of the Building N Development Assistance Agreement at this time. We request that the EDA simply consider and approve the requested housekeeping changes to the Agreement and allow Everest the opportunity to develop and complete an upgraded Building N project of which we can all be proud. I must again emphasize that in requesting modifications in the existing Agreement, Everest sought/seeks no revision to its financial terms. If any attempt is made by the EDA to change the financial terms of the Agreement, Staff is directed to consider our request (for modifications to the Agreement) withdrawn, and we will rest on the terms of the existing, approved agreement, which our legal counsel has confirmed remains valid and effective through December 31, 1999. I look forward to speaking with you soon concerning this matter. Sincerely, EVEREST DEVELOPMENT, LTD. imothy J. Nelson TJN:Ic LetMv3-99 win/letters