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2000-12-04MOUND HOUSING AND I DELOPMI NT AUTHORITY MINUTES - DECEMBER 2000 The Mound Housing and Redevelopment Authority of Mound, Hennepin County, Minnesota, met on Monday, December 4, 2000 at 6:30 PM in the Council Chambers at 5341 Maywood road in said city. Those present: Chairperson, Pat Meisel, Commissioners, Bob Brown, Mark Hanus and Leah Weycker. Andrea Ahrens was absent. OPEN MEETING AT 6:30 PM THE CONSIDERATION AND ACTION ON THE DEVELOPERS OPTIONS FOR THE REDEVEOPMENT OF A UDITOR'S ROAD AND LANGDON DISTRICTS. At this time Mayor Meisel turned the meeting over to Council Member Hanus and excused herself due to a possible conflict of interest. Jim Prossor addressed the Council. Chair Members at the last HRA Meeting, the HRA directed Staff for additional research to be sure that both developers understood the nature of the parameters for redevelopment. Mr. Beard had previously worked on this project for about a year. There were some issues Beard Development was familiar with and Gramercy was not. Those issues were explained. It is unlikely there will be any docks available for private use for a marina at the Lost Lake Site. There would be a need to maintain some type of fight-of-way adjacent to/part of the railroad right-of- way. The tracks may be abandoned but the right-of-way needs to be maintained for a period of time. An additional issue is the potential need for redesigning the plaza area to accommodate the need for some surface parking for the True Value Hardware and other surface parking in that area. There is also a potential need to relocate the ponding area. Bruce Chamberlain and Jim Prossor reviewed these issues as well as a few additional issues with Gramercy. Gramercy indicated that they were comfortable with those issues and they will work them out. Staff did not address design on any of these issues but indicated they were not insurmountable issues or problems. Council Member Hanus questioned what Mr. Prossor is requiring at tonight's meeting. Does Staff require a MOTION approving a developer. Mr. Prossor indicated that is correct. He added this is basically to move into a predevelopment and development agreement. Now we are looking to just negotiate. Council Member Hanus asked what terms we are we looking for in regards to the development agreement and for the negotiations for the predevelopment agreement. Mr. Prossor answered for the predevelopment agreement. We believe that we should be able to negotiate these issues within 45-60 days. In this phase, we must make sure that it appears that there is a likelihood that we can develop a design and financial performer that will allow us to move into the next stage of development agreement. Council Member Brown is concemed with the Hotel Site. He questioned Staff if they were in contact with the previous hotel developers. City Manager Kandis Hanson replied that Staff did confirm the interest of others in developing the Hotel Site. This not only includes people who have in the past expressed an interest; but it includes a call that was received last week bom a party who is interested in developing a hotel with a meeting center plus an attraction of some sort that would bring many people into Mound. Council Member Weycker questioned if there are other areas in the city that can develop a hotel other than the Lost Lake Site. One of the issues that needs to be addressed is "how successful is a hotel likely to be given our knowledge of the current market without some of the other develop occurrence". The project team has identified that for many reasons it is important to keep the Lost Lake Site in that general area as a key attraction/visitor welcome area. Staff hopes to accommodate that in any design. Staff also realizes that if there remains strong interest in a hotel concept we are likely to see that strengthen to the point of being economically viable. Interest at this point does not mean it is economically viable. Council Member Weycker questioned location wise, will there be a location available in 3-5 years. Mr. Prossor replied one of the things that Council can do is direct the project team, while going through this predevelopment negotiation period, identify some sites and report back to Council. Council Member Brown inquired if we enter into an agreement with these developers, either one of them, and that site is put aside for housing, don't we cut our throats by not allowing this to be a hotel site. Mr. Prossor responded that very clearly Council has a choice. Beard Group has indicated that they are willing to proceed without the Lost Lake Site and Gramercy is subject to modification. What Staff is suggesting is that we would certainly be working with both developers to see if that could still be achieved in this proposal. In the Gramercy case, they have indicated an openness to provide some hotel type rooms and the banquet facility. Staff needs more work to identify how that could be accomplished, maybe through a restaurant concept. The hotel market, even along areas like Highway494, is not very strong at this time. Even 30-40 rooms would not be viably economical at this time. You need probably at least 60 rooms to make it work. That market is just not there. So we could take some time and take a look at that option fight now. It is not likely going to yield us what we are looking for. We can keep the site available but then we might potentially lose one of the developers that has an interest here. Mr. Prossor assures the Council that the project team will do what we can to achieve the overall objectives of the HRA and your community. Council Member Brown asked if the discussion Staff had about the hotel site with the attraction, is it a very viable person or a good company? City Manager Kandis Hanson responded that we have presented this person with the idea that they have to present to us in the next phase who their investors are and their financial capabilities. They seem to be willing to do that. It is a local Adventurist. Council Member Weycker stated the Senior Center will be completed soon and there will be some facilities there available for the community with a banquet facility. It would compete with the new Senior Center. Council Member Hanus agrees that a hotel is important. He also agrees that this particular site is probably the most natural place to put such a feature. It is tree if we went with Gramercy, it would most likely lock up that site and not make that site available for that type of a project. Personally, I think whatever site is picked, needs to be on Lost Lake. We heard just a few minutes ago that a real small concern probably cannot make it no matter where they are. It is not large enough to warrant management and so forth. One direction I am looking at is working with a developer and possibly seeing ffwe work out some kind of a minimum inn and incorporate it right into the Auditor's Road section. Not as a separate entity but possibly an off shoot of the rental housing and that perhaps by marrying the two we can make that work and make it viable. That is not my first choice but it is a alternative in my opinion for some sort of inn or rental rooms for people coming in from out of out town. Council started the hotel deal 6 or more years ago and have had people in and out and it sounds like it is a borderline case. Council Member Brown stated that he sees a lot of new houses being built on the Metro Plain site--massive houses going at the Langdon section along with Auditor's Road. There is a problem with more housing go on the Lost Lake Site; since Council has an opportunity to put a viable commercial property there that would offset a lot of the new housing. Plus with all this new housing there will be people coming with families and relatives with no place to stay. Council Member Hanus asked Council Member Brown what he is suggesting? Council Member Brown responded to talk to both sides and ask them questions and see if we can work with them on something like that. Maybe its not a possibility. Council Member Weycker: I guess tonight though what we were supposed to doing not the details of the plan so we should be choosing a developer to work that are getting to those points. Council Member Brown: I agree with you but if we are giving one side the Lost Lake Site to work with development for housing or the other side not included we are not working apples to apples. Council Member Weycker: And I don't know if we determine that tonight though. ~ acil Member Brown: But that' s what we said "If we go with Gramercy ~ Lost Lake Site will be housing". It will not be a hotel, but if we go with me Beard group the Lost Lake Site will be left open. Council Member Weycker: Staff Question, If truly are choosing not by design tonight this committee sounds like we are picking a design. Mr. Prossor: I think you are identifying your program developments, that's not to say that when we get into a final design that you are going to accept that design, but Gramercy is saying one of their components is going to be housing on that site and if that is not clearly not the intention of the HRA to entertain or accept a good design for that, than you should not select Gramercy. That is what it comes down to. Council Member Weycker: So design does play a little factor. Mr..Prossor: Not design, but project components. ...... Council Member Hanus: They indicated very clearly that they feel to be viable that they need piece of land included in their project. Mr. Prosser: I want to add I don't believe this is a situation where the developer is just saying that to say it. The problem that we have here is finance. To make this thing work this is a very, very difficult redevelopment _ proposal. And that is why the City gets involved because there are difficult land assemblies, difficult finances. And this developer is saying in order to make the finances work, they believe, based upon their experience, that they need to look at this type of housing. They are looking at a variety of different types of housing again. This is a. Two of the concepts are co-op rentals which is a type of ownership and a third is a straight market apartment. And I think what they are looking at is the idea of being able to market those and be able to effectively and efficiently built and construct that variety of properties and they are able to handle some of those overhead costs that would make this think work. Mr. Beard has a different concept that does not require that. And again that is what we are trying to weigh on. They are not pressing it ..... from a design standpoint; they are pressing from a finance standpoint. Council Member Hanus. Mr. Prossor, I am going to ask you a question and it is not a terribly easy question to stand here is this form and answer. Which of these two applicants do you feel has the best likelihood of carrying off this project? Mr. Prossor: There are certain advantages to both of these developers. In different situations I would probably recommend different developers. But in this one there is no question in my mind that, and I would say that the others from our firm, would recommend Gramercy. It is the variety of projects that they bring. Their experience in this type of redevelopment we are looking at and their ability to understand as well as obtain financing for some very unusual projects. They have demonstrated that in a number of different projects. And I think also just the type of different types of housing are some suited to unity based on my experience. Again, the Beard Group has demonstrated some real strengths in other areas. They have done some wonderful work in Hopkins and other areas. And I would probably recommend them in some other situations. But here there is no questions that I am more confident that Gramercy can complete this project. Council Member Hanus: The Beard Group, we know from experience, they are good folks to work with. But I ask that question because I think in my mind that is most important than anything here. Because what we cannot afford to do is to do what happened the last time. Spend a year or two and get nothing at the end. And again, I am not saying negative about Beard, they did the best they could, and they did it honestly and they did it fight up front and everything. It just did not work. If another finn appears to have a better shot at pulling off this thing, even though it may not have each bell and whistle and everything perfect the way we would like to see it, I think the overall project is more important than a detail here and a detail there. Again, ! am definitely leaning in that direction. Council Member Weycker: I have just one other thing to point out. Even though they want to use that site for housing, they have included more retail than the Beard plan. Council Member Hanus: They are real close though. It maybe slightly more. Council Member Weycker: Actually there more like 36,000 to 23,000 square feet. Mr. Prossor: In the initial proposal they have come back in order to reduce project costs and they are leaving the west side of Commerce Blvd. Undeveloped. So there is not really apples to apples comparison. I think they are taking a look at taking some of that retail and put it along Auditor's Road. So I still say. I think the. When you make your decision. What we are saying is because in the final design, I think these are very similar bom a program development stage. Council Member Brown: I know where you are going Mark. But I sure do hate to see. If there is anyway Gramercy can work with us, I would be more than happy to go with them if they will study to make the opportunity to try to work. And I sure do not want to give up that Site. I think there is an opportunity that we are going pass up if we do. Like putting a viable, good, retail spot on that site. That it going to come back to help us. Council Member Weycker: Mark I agree with you. I would make a MOTION to start preliminary discussions with Gramercy. Seconded by Hanus. Mr. Prossor asked if Council Member Weycker is going to propose the HRA back. Council Member Weycker: Actually I know you said last meeting he said 30- 45 and then it jumped a little 45-60 so I will say 45 days. NO FURTHER DISCUSSION AYES: 2 (Hanus, Weycker) NAYS: 1 (Brown) Council Member Brown would like to state for the record I still think we need to look at the Hotel Site as a viable site. And I hate to see that go away. Mayor Meisel returned to the meeting. DISCUSSION/A CTION ITEM WITH THE DEVELOPMENT AGREEMENT WITH METRO PLAINS DEVELOPMENT As you have indicated this is a discussion or potential action on a proposed contract for private redevelopment between the City, the HRA and Metro Plains. At the meeting on 11-28-00, I passed out a, what was then the most current, drat~ of the document. I know have a more current draft of the document which contains basically the results of the meetings which were held with the developer last week. On Friday. There are additional revisions following that meeting. What I guess I would like to do if possible, is to start with a brief overview, then to the extent, since I, possibly you have all had a chance to look at the one I passed out last week. And indicate what the differences are between the two documents. And then open it up to questions or comments that you might have. If that is okay with you. Essentially there are two pieces to this project as there are to any. And they closely mirror the one that you have already done and is under construction. I will refer to it now as the Coast To Coast or however you want to refer to it development. The first provision or the first set of activities, in this instance is, that the developer, Metro Plains, acquires the site, constructions the improvements in accordance with the, to be approved City Zoning requirements and the concept plans which are addressed in the agreement itself. The private improvements which are to be constructed by this contract are of two sorts. They are described as two separate components in the agreement. The first is a commercial development of 50,000 square feet. The second one is a residential development which in total is 99 units of residential. The value of those developments is in the assessment agreement on page 1 exhibit b. The commercial component upon completion will be worth, will have a minimum market value of $4,619,000.00. The residential component which will be completed in phases. At the conclusion of the first, more or less phase, it will have a minimum market value of $8,750,000.00. And upon final completion of all of the residential. The minimum market value will be $17,325,000.00. So there is. In our agreements to all of that, there are undertakings and obligations on the part of the developer to all of those things in the agreement. The commercial part of the development of 50,000 square feet is to be commenced, construction is to be commenced October 1,2001. With completion of commercial component on October 1, 2002. The residential will be spread out a little bit more. Part of it will start in May of 2002. And part of it will be completed in May of 2003. All of the residential will be completed by the end of the year 2003. So that is part of what the developer is doing in terms of the private portion of this. The developer is also obligated under the development contract as well as the developer will be obligated under other agreements as well, to provide for certain greenways, recreational areas, pedestrian trailways, ponding, and also certain street parking areas that are needed to deal with some of the parking issues that relate to the development. All of those have to be completed as well within the time schedule. The City's obligation, you know all of this, is to pay the developer out of tax increment, in other words, that is the source of the payment here out of the tax increment that is generated by their development, an amount of money up to $2,840,000.00. This is a partial reimbursement to them for their costs in acquiring the site and preparing the site for development. They won't receive that money until three conditions have been met. First of all, they have to generate some tax increment. If they don't generate any tax increment they don't get any money. Secondly, the expenditures must be determined to qualify for reimbursement under the agreement and the determination of qualification is made by the HRA. And then finally, the total level of reimbursement must be consistent with the, analysis that will be prepared for by the City's fiscal consultant. In other words, the City's fiscal consultant will have to determine that the assistance that we are providing. That the development would not occur unless assistance at the level that we are providing is make available to the developer. If they can get by on half of the assistance that we are making available, if our consultants conclusion is that, then the developer will receive one-half of the assistance of $2,840,000.00. And that is the analysis that the City's consultant will be making. And as you will notice, in a minute when the proposed resolution on this, that is one of the conditions on which the contract would be approved. Again, I want to reemphasize that the sole source of payment by the HRA and by the City to the developer for the cost it incurs on this site, is the tax increment. There is no other source of funding that the City will use. No general obligation that the City, no taxes payable by other City residents, or anything of that sort. The sole source of assistance to the developer is the tax increment. That is generated flrom the development on this site. A couple of other just real quick aspects of the contract, and then I will talk about the changes over the last few days. Council Member Hanus: Just to make sure the Public is fully aware. If the statement is true, but there are potential other funds that are being applied for that could in fact go toward this site. Not out of City coiffeurs but there are potential grant monies and so forth that could end up. And I didn't want that statement you just made to be viewed that there is not a dime fi.om anywhere anytime, anyplace could ever enter into this. Because it could. I think what I said was it will not fall onto the taxpayers or the City through the property taxes. Again there maybe other sources of grants. I don't know what they may be at the moment. But for example if they receive a state grant or something of that sort that will be a grant funded out of money. If someone fi.om Mound doesn't take advantage of those, someone fi.om other city will take advantage of those grants. A couple other aspects of the contract and that I will just mention real quickly. And that is just the main one is that there is another agreement that has to be entered into as well. Look at page 8 of the document real quick. Oh forget about page 8. Let's see. What this is. There is a separate obhgation proposed in these kinds of by the Department of Trade and Economic Development and that is in that in addition to this agreement there be a separate agreement referred to as a business subsidy agreement. And you will see the reference in there that the assistance payable to the redeveloper under this agreement which also meets that definition of a business subsidy under the Minnesota Business Subsidy Act, shall not be paid until the parties have entered into Business Subsidy Agreement. Now, there is a portion of Economic assistance that is being provided here that does qualify as a business subsidy under the Statue. And that is the portion that is being paid for the commercial development. That is 1.8 million of the total. Let me take a look here. Is that right. So the Business Subsidy is the $1.8 million and there is a. The business Subsidy Act requires a separate public heating on that matter. Notice has been given on that heating and that hearing is schedule to be held by both the I-IRA and by the City Council next Tuesday, December 12, 2000. So that is a separate agreement that has to be entered into. The other thing I would like to point out real quickly in terms of sometimes these agreements have within them the nature of the agreement to agree as to certain elements. And there is part of that here if look on page 8 of the agreement dealing with public improvements. That section indicates that within the next 60 days, assuming that this is approved, following the approval of this agreement, we have to, the developer and the HRA have to reach agreement on a number of public improvement type issues having to do with the design, construction timing, and financial responsibilities for them and they include the street scape along Lynwood Blvd. and Commerce Blvd. the traffic lane modifications required by Hennepin County. A parking bay along Lynwood Blvd., park improvements for res/dent/al areas, street scape enhancements along the road and parking along those as well, pedestrian trails and improvements to be constructed within the outlots to be conveyed to the public. There are a number of things that yet need to be resolved before the developer will actually be able to proceed with construction of the project. That is fairly typical in these matters. Obviously, one of the important aspects of the development contract is to eliminate as many things as we can, agree on as many things as we can and then list the items that yet need to be agreed to so that we can kind of proceed to rap things up in an orderly basis. And that is what essentially is what is being proposed here. Now in terms of a lot of the changes in the 11-28 draft and the 12-01 draft are pretty unimportant and I just kind. Page 3 in the name addition on 2 we make it clear that the concept plan involves site work under the improvements. Page 5 the new paragraph is what call a "big boy representation". It just means that there are grownups and they are going into this knowing that trouble could happen and they could loose money and they are willing to proceed in an understanding. Page 6 4.21 relocation of utilities. Deals with the, makes it clear that it is the obligation of the developer to relocate public utilities currently located on the property that have to be moved in order to accommodate the development. We talked already about the stuff on page 8. One page 9, these are the numbers that ! mentioned to you a minute ago. The amounts of the note. The level of assistance. Page 13 in the events of default. We have separate the two components in terms of default. In other words if there is a default in an obligation under the commercial piece. That default does not give rise for us to terminate the agreement as it relates. In other words there is not cross default provisions. Each piece then stands or falls on its own merits. Which is a fairly typical provision in these agreements. The only other significant change is in the note itself. ! have taken out what was referred to as a listing of scheduled payments under the note and instead now the note provides that on each scheduled payment date the developer will receive, essentially, 90% of the tax increment which generated by the develop. We are no longer paying on the basis of scheduled payments. It is just simply 90% number. Among the reasons we are doing that is that it makes it easier for the developer to re-market these notes. That is the first reason. The second reasons is that there may be well situations where because of fluctuations of market value, we may not be able to make a full schedule payment and there might be some carry-over of scheduled payments. That just really kind of creates a bookkeeping nightmare for the City and if we simply say you get 90% of the available tax increment that is there on any schedule payment date. That is really in most ways a better way to do it. If the property roms out to be far more successful, in terms of market value, then we will just pay off the note faster. Which is not such a bad thing either for use or for the developer. So that is the primary change on the note. The assessment agreement we feel that the market values and they are all shown on the first page of the assessment agreement. That is exhibit D. Council Member Weycker: Because it was a school district site which is tax exempt. JOHN: What happens is those parcels get readjusted to what would have been the original value of the property and that becomes the base of the captured tax capacity. Even though it has not paid taxes before. Council Member Brown: Basically this property has been sitting dormant, not making any tax money for the city. By putting this in it will generate new taxes, is that correct? Yes it will generate taxes that were not generated before, both on the base level and in tax increment. The tax increment portion will go to make payments on the note for 25 years. Section 11.3 of the document. What would occur in the event that there is a determination that the school district site was not property included in the tax increment. In the event that such a determination is finally found to be correct then the HRA agrees to utilizes its best efforts in cooperation with the city to take the necessary to qualify the redevelopment property for tax abatement treatment in accordance with the provisions of the Tax Abatement Act. Council Member Weycker: Section 11.3. It is doesn't qualify for the TIF district, then the City would takes the steps necessary to qualify it through the Tax Abatement. There is ongoing discussion with the State Auditor in this regard. Council Member Hanus: The blanks on Exhibit B. That. have not dates but dollar figures, as well as a percentage amount that need to be completed. Eight percent of the note mount. And the principle amount is Actually we are still working on that it may be 9% because of the current market placement on that note. It terms of the principle amount, Mark, as you know there will be two notes. There is one for each component. The mounts for those on shown in the agreement on Page 9. The Commercial Note will be $1,800,00.00 and the Residential Note will be $1,040,000.00. This is just an example form. Council Member Hanus: What does this document establish, what does this document do, what does this document lock into, and what does it not lock into? What it does is what it says it does. Basically it sets forth a procedure whereby if the other preliminary matters are resolved and the developer builds/constructs improvements on the site in accordance with the requirements and finishes those, then they are entitle to a level of assistance not to exceed $2,800,000.00. There are provisions in there for what happens in that doesn't occur, but basically that is what it does. Both components are being dealt with in a single document. This is not unusual that it occurs this way. Among the things Council wants it to have both pieces develops and this does require that. Council Member Hanus: I wish to state my position on this. Subject to, of course, hearings and subject to not any new information that comes along, I think that this project is good for Mound and I think it is basically a good project. I have some problems with TIF. Not with the commercial portion but on the residential portion. I have always felt that I think that there is too much paid for the property. In support of that the City had some appraisals done and we make an offer on the property. It was considerably less then what was settled on. I feel that too much has paid for it and now as a result, there is some public assistance being asked for to consummate the deal. I have a real problem with doing that. Commercial is much higher risk property to try to put together than residential. I think that the chances of this developing as residential without assistance is much greater than the commercial portion. My point is this. I cannot bring myself to support putting in public funds into a project that I think was paid. There was too much paid for it. It light of that I have a hard time doing this. I think I have to at least not vote for the residential portion. I don't know what that does to the project. I don't want it to stop the project. If the soils as an example were not required to be corrected, the land would have a certain value. And perhaps that what was paid for; but, in this case, there are some serious soil corrections that have to be made. That comes at a big price. That is way the assistance is being requested. The sale price was too high. Mayor Meisel is looking at this as a complete project. Which would be a $22,000,000.00 project. The commercial side of it will produce more jobs. The residential will produce more people which will support the rest of the redevelopment that goes on. This is a combination all the way around. I think this is a venture that the City cannot afford not to go along with. Council Member Brown: In a way I am with Council Member Hanus. I struggle with putting TIF into housing. I have not problems with the commercial portion. We with benefit the City to have TIF on the resident/al to get the taxes back eventually from the residential portion. Yes I think it will. The city will get something back. Council Member Weycker: Some of the later estimates we were getting on the property were coming in at the same price that Metro Plains is paying for it. So I don't know if that is an exaggerated price. If not the property by now has probably increased by that amount. I would not use that reasoning. If we pass this, and latter on tonight, but we don't do anything with the project, what happens to this. The obligations to the HRA and the City of Mound only occur if the project gets built. MOTION by Brown, seconded by Weycker the following resolution: RESOLUTION tt l14A RESOLUTION APPROVING THE PROPOSED DEVELOPMENT AGREEMENT WITH METROPLAINS DEVELOPMENT Ayes: 3 (Meisel, Weycker, Brown) Nays: 1 (Hanus) II Jl I1 I ,,J 4, Act{rog City Clerk Chairperson, Pat Meisel THIS PAGE LEFT BLANK INTENTIONALLY