HomeMy WebLinkAboutCC WORKSESSION 11111985 Meeting Sheet
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Box: 21
Folder: CC MINUTES AND AGENDAS 1985
Document: CC WORKSESSION 11111985
CITY OF ST. ANTHONY
SPECIAL WORK SESSION
ON
KENZIE TERRACE REDEVELOPMENT PROJECT
November 11 , 1985
The work session regarding changes from condominiums to rental units in Phases IIB
and III of the Kenzie Terrace Redevelopment Project, which had been requested by the
developers, Arkell Development Company, convened at 7:30 P.M. with the following in
attendance:
Mayor Sundland and Councilmembers Marks, Ranallo, Enrooth, and Makowske;
Planning Commissioners Franzese, Madden, Wagner; and Bowerman Clones arrived at 7;55 P.M.) ;
City Manager Childs; City Attorney Soth; Bonding Counsel Jerry Gilligan of Dorsey
& Whitney; and Financial Consultant Richard Treptow of Springsted, Inc; and
Rddevelopers John Arkell , Stephen Yurick, and J. Patrick Brinkman of Arkell Develop-
ment; and Gary Tushie of Tushfe-Montgomery Architects.
As he had indicated in his November 6th call for the informal discussion of Arkell 's
proposal to construct 300 market rate rental units for persons over 55 instead of
the same number of condominiums in the project, the Manager reiterated that the
developers had also asked the City to consider the issuance of Housing Revenue as
well as Tax Increment bonds to finance the new project. In his memorandum to the
Council and Planning Commission the Manager had also indicated the Planning Commission
would be required to consider changes in the original Development Concept Plan under
• the P.U.D. Ordinance. In relation to these changes, the Planning Commissioners had
also been provided with copies of the Special H.R.A. October 29th meeting where
the changes had been discussed at great length and the Manager had included copies of
newspapers articles related to tax-exempt bonding changes anticipated at the federal
level which would seem to make action on the Kenzie project imperative before the
first of the year.
Mr. Childs gave a brief historical background of the project, including the problems
Arkell had encountered getting construction financing for the Kenzington condominium
project for Phase I, including META's involvement in that phase, which as far as he
knew was not present for the final phases. The Manager also commented that in the
last five years it had become almost impossible in the current market, to construct
a market rate rental project without Housing Revenue bonds, which along with Tax
Increment Bonds would have to be issued before January lst to avoid the changes which
could make such development tools unavailable after that date.
The Manager reiterated the H.R.A. members' concerns which had been recorded in the
minutes of their October 29th special work session related to this project, including
those related to the financial strength of the developers to complete the project;
the ability of the market to absorb 300 additional units of rental housing; the risks
the City would be taking with the proposed changes, and finally, the reaction of the
community to the change in housing type.
Arkell would be asking the City to issue the maximum amount of $24,000,000 in Housing
Revenue Bonds for the project because that figure could only be adjusted downwards
• after the approval is given, Mr. Childs said. He also indicated that although the
changes in the P.U.D. or the City's issuance of Tax Increment Bonds were really not
an issue for setting a hearing on the Housing Bonds, he perceived the developers
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would have to know whether the City would accept the change from condos to rental or
• would be able to purchase the property to complete the final phases of the project
with Tax Increment Bonds, which are also in jeopardy of losing their tax exempt
status after the first of the year before proceeding with the Housing Revenue Bond
issuance.
Because of the latter, the Manager said, he had requested the City's Financial Con-
sultant, the Springsted Company, to project the tax increment cash flows which would
be needed to make a 300 unit rental project work now that the 150 unit Kenzington
condominium and the Walker project, with 45 units of elderly subsidized rental , are
underway, with the timetable for the new project set in such a manner as not to
complete with the marketing of the Kenzington condominiums.
The study to be presented by Richard Treptow of Springsted, projected the cash flows
for 300 units of elderly market rate rental housing with an average rent of $800 to
be constructed in two phases of about 150 units each, the first to be started in the
spring of 1987 for occupancy the following spring and the second phase of construction
to commence in August of 1988 and to be ready for occupancy the next summer.
Councilmember Ranallo said he perceived the issue, which was very important, was
whether the community was ready for the change in the project.
Commissioner Jones arrived at 7:55 P.M. , just after Mr. Treptow had distributed
copies of the Springsted projection of cash flows and tax increment tax revenues for
all three phases of the Kenzie Terrace project. The consultant pointed out that the
cash flow projections in Schedule A indicated an annual surplus of available capital
• of around $300,000, which would be almost double the amount needed to retire the debt
service and which, Mr. Treptow added, might conflict with the federal arbitrage
schedule which regulates against building up surpluses. Because of this the financial
adviser indicated he had also drawn up Schedule B which would accelerate the payoff
of the bonds three years earlier, leaving an annual cushion of $150,000, or over 33%,
more than the estimated debt service.
In any event, Mr. Treptow said, he viewed this to be a _very strong bond issue in terms
of the City's ability to pay it off as compared to many other tax increment projects
against whom the financial consultant said he would rank the City' s project as either
an 18 or 19 on a scale of 1 to 20 (.with 20 being the most financially strong) .
When the Mayor questioned what effect delays like those experienced with the Kenzing-
ton could have on the City's risk, Mr. Treptow indicated he perceived the timing of
the $442,400 purchase of land from the shopping center owner to be very critical
because, as he saw it, the time the City would be most at risk would be during the
interim between the purchase and construction start up on the first 150 units.
Because of this risk, this City would need sufficient guarantees from the developers
that performance would occur as projected, he said. Mr. Treptow also said the levels
of those guarantees and how they are exercised would have some legal implications
which could affect the validity of the bond sales.
Mr. Arkell 's response to these statements later in the discussion was that the $400,000
Letter of Credit carried by the developers should sufficiently cover that guarantee.
The Financial Consultant answered a question from the Manager about the feasibility
• of proceeding with the project with taxable bonds, by saying that would require more
bonds with later payment dates which could cost the City about a half a million
dollars more in interest.
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When Councilmember Makowske asked how the assessed valuations had been figured "
• Mr. Childs told her they had been taken from Dick Krier's estimations, and the-Manager
indicated that although he was comfortable with the H.R.A. Planning Consultant's
estimated acquisition costs, he questioned whether the relocation costs might now be
higher.
.Mr. Soth .affirmed that the bonds could be sold and the money' invested until they had
to be paid off, ' but,. he added, the $100.,000 administrative and legal expenses might
be at risk. Mr.. Gilligan suggested instead, that an early call could lock in the low
interest rates and bail out the issue.
Commissioner Jones indicated hi.s concern that the same. amenities and maintenance be
.provided with .the rental. pr.oject as. had been proposed for the condominiums, saying
he perceived the rents would have to be structured to make the project viable. He
also wondered whether -the developers had taken into considerationthe possibility
that the government might be changing the. tax -incentives which make -rentals desirable.
Mr. Brinkman said,_that since the original Kenzie Terrace project had been approved, -
three years ago, there had been _a _drastic .change in the .senior housing market, with
studies now showing that 70% of .the seniors preferred rentals and only. 30% continuing
to buy condominiums. He said he perceived the reasoning behind this was that a senior
couple could take advantage of the.one time exemption granted them. on the sale of their
home and by investing that equity could almost pay the rental cost from the interest
on their investment. The developer said he perceived that by going_ to rental , the
City .would still be achieving its original goal to provide housing to keep their
senior residents at the same time the properties left behind by the seniors would
• be opened to the younger family .market. The Manager added that the total assessed
valuation for 300 rentals would be almost exactly the same as for 300 condominiums.
Commissioner Jones said he could agree with those assumptions, but was still concerned
that the. same quality would be provided with the new project because his own limited
experience with renting to seniors had been that they expected to have the same
quality and maintenance in'rental that they had enjoyed in their own homes. When he
put forth.the example of the Sons of Norway conversion of the old West High School
building as a project which he believed was now oversold because of its quality, Mr.
Yurick said he knew for a. f act that the project was only 40% sold to a great extent
because some of the persons who had initially been very enthused about the, project
had changed their minds when they actually saw the area they would be living in.
Mr. Childs told Commissioner Jones he believed the original study of the redevelopment
of the subject had only considered occupancy, by empty -nesters-..and young professionals
and never young families, because of the land size constraints.
Mayor Sundland indicated all the studies he had seen related to current demograhics
certainly supported the assumption that more seniors were now opting to rent rather
than to reinvest their home equity in another form of home ownership, but he hoped
the lapse in time between the Kenzington and this project-would result in the other
30% buying 'a condominium in the Kenzington first.
Councilmember'.Ranallo indicated he wanted anyone who might ask why the City wasn't
considering townhomes or single family residences in the redevelopment project to
understand that with a 1 .8 million dollar project to be built on only six and a half
• acres, the land under the townhome units alone would probably cost close to $65,000
per unit, when many residents have indicated to him that they perceived $40,000 per
lot was too high for single family residences being built on -the Johnson property.
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Commissioner Jones commented that to squeeze townhomes or single family residences
• into that site would certainly result in the loss of all the amenities such as land-
scaping and water areas planned for this project, which he would personally vigorously
oppose.
The proposed plans for the new rental project were displayed side by side with the
plans for the original condominium and Mr. Tushie pointed out that the two buildings
would retain the original five and eight story heights. Each building would be
constructed with 150 units and an enclosed level of parking under each building with
a ratio of .9 spaces provided per unit. This .project would also satisfy what is
perceived to be a senior preference, to live above grade, and would provide more
parking than is .normally needed for senior housing but which, the architect said,
St. Anthony buyers seem to prefer.
The developers had added 33,000 square foot of resident-geared commercial space to
the new proposal and Mr. Tushie indicated he perceived the parking which had been
provided for in front of the building should be more than adequate to provide for
the overflow and the commercial .
The architect pointed out the grassy areas which had been retained with this proposal
and said the amenities included the retention of the original water features with some
relocation of the holding pond. He said he believed the plans from a conceppual
and site standpoint had been really well laid out to leave lots of open space and
still permit all the activities which were proposed.
Commissioner Madden expressed his concerns about the inclusion of commercial in the
• building, recalling that the original goal of the Kenzie Terrace Study group, of
which he had been a member, had been to eliminate what was then perceived to be
unneeded commercial space in this area so the remaining commercial could be upgraded
to a viable shopping center.
Mr. Tushie pointed out that the area occupied by the City-';s liquor operation alone
nearly 20,000 square feet and indicated the 33,000 square feet of commercial to be
added to this project would be geared to only serving the residents in the apartments
and not towards the displacement of businesses in the other shopping center. He
said a market rate restaurant might be most appropriate in -that space since the
planners had learned from other projects they have been involved in, that seniors
seem to prefer restaurant rather than a cafeteria type atmosphere in their community
spaces. In the Woodlake project Arkell is just completing in Richfield, the pro-
spective buyers have indicated they would consider the roof plaz4, the developers
have been able to provide, as their own little gathering area and, Mr. Tushie said,
a visit to Woodlake Point, which is 52% sold out, should indicate something about
the quality and lifestyle the developers are capable of providing.
Councilmember Ranallo said he saw the necessity for the developers to mount a good
reselling of the new project to the original Kenzie Terrace Task Force, especially to
convince them that the proposed commercial would not be competing with the existing
businesses in the adjacent shopping area. Councilmember Enrooth suggested aggressive
merchants from that area would probably be vying to move to this project. Commissioner
Madden said it would probably be correct to assume that with all the new people living
in the project, merchants would be attracted to the new commercial area, but he was
still skeptical about the reaction to creating a new shopping center to compete with
• the adjacent one which now has so many empty stores.
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Mr. Soth explained that the impending Internal Revenue Service ruling on tax incre-
ment bonds would probably call for an amendment of the Redevelopers Agreement with
Arkell to indicate the City would not enforce the developer's guaranty beyond 5%
of the bond issue. He indicated he perceived the $400,000 Letter of Credit would
back up the guaranty in the agreement, among other things, that the developer would
make good on any tax increment shortfall . Mr. Treptow speculated that the City
might not be able to enforce $300,000 of that guaranty.
Councilmember Ranallo said he woul.d like to get some positive aspects of the proposal
from the developers, especially how they proposed to proceed with the project without
the delays they had encountered when construction financing had become a problem for
the Kenzington. Mr. Arkell told him he perceived that, after the Woodlake and Kenzing-
ton projects, the developers had a "better handle" on how to proceed successfully
with this proposal . He said Housing Revenue Bonds would provide the financing and,
with $200,000 in services in the building, the $800 rents would not be too high,
especially when you considered the number of new buildings in Roseville which are
renting for $1 ,200 or more. The same quality service package as had been provided
in the Kenzington and the Richfield projects should assure that none of the quality
proposed for the condominiums would be diminished for the rental project, the .
developer said.
Councilmember Ranallo said it was not uncommon to see homes in St. Anthony selling
for $100,000 and even with 8% interest rates, the $800 rents should be no problem.
Mr. Yurick told Councilmember Makowske that it would not be necessary for all 300
potential senior families to move into this project from St. Anthony alone because
the senior demographics all around St. Anthony are better than any other place in the
• country outside one of the closest in Chicago suburbs. He said he perceived there
was a prime senior market within a four or five mile radius of the Kenzington project
because studies have shown that within that radius there are between 23,000 and 25,000
families, 55 and over, whose annual income is in excess of $15,000. Eight percent
of that figure is already housed in senior facilities which left, what the developer
termed, an adequate number of prospective renters considering a 2-1/2 or 3% capture
rate. Councilmember Ranallo added, however, that he perceived a large number of
those people might spend three or four months in another geographic area, which might
lead to a preference for owning a condominium over renting.
Councilmember Marks indicated he believed, "we have a really good project here," and
he speculated that the shops in this project might even prove to be an inducement
to rent since residents wouldn't have to go outside to get some services. The
Councilmember said he didn't perceive the square footage involved would be great
enough to adversely impact the existing shopping center. He also perceived that the
somewhat circular configuration of the buildings around the parking areas might
especially appeal to that particular age group of tenants. However, the Councilmember's
one concern was whether the market could absorb that additional number of rentals in
the time anticipated by the developers. Mr. Yurick indicated that was why the project
was proposed in two phases with only 150 units having to be absorbed in from 10 to
12 months.
When Councilmember Marks indicated he would like to see the units built so they could
easily be converted to condominiums after ten years if the market changed in the
meantime, Mr. Arkell said he wasn't certain the bonding restrictions would permit
an expression of that intent. Mr. Gilligan confirmed that "there could be that intent".
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Mr. Arkell said he expected the Kenzington to be substantially sold out by the
following ,spring and he believed the market demographics indicated the ability to
fill up all 300 units right away, but he said his firm had chosen to proceed a
little more conservatively than that. In regard- to the type of service he would
anticipate would take advantage of the available commercial space, the developer
speculated that some health care service might jump at the chance to open an office
in the project and it was his opinion that, with. from 700 to 800 new people brought
into the area, there would be more businesses attracted into the community rather
than to the businesses that are already there..
Commissioner Madden. said he agreed that the commercial space in the apartment build-
ings would certainly fill up rapidly but he still perceived a potential detriment
to the existing-businesses. The Commissioner said if the new commercial were not
made available, the same health services might chose to fill up the empty store
spaces to create a more viable shopping center.
Commissioner Bowerman indicated he had not been convinced that rents of $800 a month
and $9,600 a year. would not prove too high for this community. Mr. Arkell responded
that without the service package, the units could probably be rented for $550 a month.
It would be the lifestyle a person would be paying for in these apartments just
like the association fees are for condos. He said it had to be understood that the
difference between the proposed units and two bedroom apartments which rent for $650
would be the provision of extras seniors are asking for, like 24 hour security, van
service, specialized kitchens, etc.
Mayor Sund.land said he didn't perceive "by any stretch of imagination" that all
• seniors would be paying all their rent from the interest they got from the equity
in their homes because some of them would not have more than $40,000 or _$50,000
equity coming and might have to pay an additional $300 in rent, which was probably
the amount they had to spend to stay in their homes in the first place.
Councilmember Marks said when the developers had clarified what they meant by
"lifestyle" they had put a whole new light on the matter for him. He also added that
he perceived that with this project, St. Anthony would now be offering seniors a
whole continium of housing services levels all the way from the Kenzington to this
project and down to the Chandler Place, none of whom would actually be competing
with each other. Councilmember Enrooth agreed that the services would be stratified
to serve all levels .
Mr. Arkell said he would anticipate a low turnover rate in senior rentals and
reiterated that a close observance of the rental market would reveal a great number
of $1;200 :a month units renting well . Councilmember-.'Ranallo..added that a_check of
limited partnerships in senior projects indicated rents averaging $1 ,165.
The Councilmember then said he wanted to re-emphasize that it was going to take a
strong reselling effort' to convince the merchants and residents who had served on the
original Kenzie study .group that rentals were the way to go. He requested that all
those, persons be invited to participate in' the Planning Commission's cons-ideration
of the 'P.U.D. changes which,, because of publication regulations, couldn't be scheduled
earlier than Monday,..December 2nd..
Councilmember Ranallo concluded by saying he perceived the Council and Planning
Commissioners who were present-were all in agreement that the "project would fly"
• with, perhaps, some modifications. of th_e-commercial proposal .
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commissioner Bowerman cautioned the developers. to be prepared to justify the parking
they :had proposed to service the .commercial . Mr: Tushie responded by saying if the
services are geared only towards serving the..senior residents, parking requirements
should be minimal .
Mr. Treptow outlined the time constraints which existed between the Commission hear-
ing and the sale of bonds two days later. He said the City could always reject the
bids if the project weren't finally approved.
The meeting was closed at 9:50 P.M.
Respectfully submitted,
Helen Crowe, Secretary
Mayo
ATTEST:
City Clerk