6. HRSR 05-02-2011Item 6.
Cit;r
MEMORANDUM
1vr
TO: Housing & Redevelopment Authority
FROM: Catherine Mehelich, Director of Economic Development
DATE: May 2, 201 I
SUBJECT: Update -The Bluffs of Elk River
Attachment
• Memo from Jenny Boulton, Kennedy & Graven to HRA dated Apri122, 2011.
At its March 2011 meeting the HRA requested follow up from staff and the HRA attorney
regarding the rental of housing units in The Bluffs of Elk River.
Attached is a memo from HRA Attorney, Jenny Boulton of Kennedy & Graven regarding
hex review of the Development Agreement between the City of Elk River and MetroPlains
Development.
Staff will continue to work with the current property owner, MinnWest Bank and developer,
MetroPlains to market and maintain the property fox its long term intended use as owner-
occupied residential.
Kennedy Offices in 470 U.S. Bank Plaza
200 South Sixth Street
Minneapolis Minneapolis MN 55402
Saint Paul (612) 337-9300 telephone
Gray en (612) 337-9310 fax
St. Cloud ~'~'µ'•kennedy-graven.com
CHARTERED Affirmative Action Equal Opportunity Employer
MEMORANDUM
TO: Board of Commissioners of the Housing and Redevelopment Authority in and for
the City of Elk River, Minnesota
FROM: Jenny Boulton
DATE: Apri122, 2011
RE: Development Agreement with Metroplains Development, LLC
The City Council of the City of Elk River and the Board of Commissioners of the Elk
River HRA have requested additional information regarding the use of the Bluff Block
Development under the Development Agreement with Metroplains Development, LLC
("Metroplains").
1. Back rg_ ound. On December 6, 2004 the City and Metroplains entered into a
Development Agreement to provide tax increment assistance for a development including the
construction of approximately 67 units of owner-occupied housing and approximately 11,513
square feet of retail space, together with related parking facilities (the "Bluff Block
Development"). At Metroplains' request the City amended the terms of the original agreement,
pursuant to an Amended and Restated Development Agreement with Metroplains, dated as of
February 28, 2006, (the "Development Agreement") to provide, among other things, for (i) the
Bluff Block Development to be designed and constructed by Bluff Block, LLC or CSS Builders,
Inc., or its principal, Charles Schulz and (ii) to provide a mechanism for Metroplains to secure a
construction loan (rather than permanent financing after construction and lease-up) by assigning
the payments under the tax increment revenue note to a bank. Shortly after signing the
Development Agreement, Metroplains obtained a construction loan for the construction of
approximately 32 units of rental housing and approximately 10,806 square feet of retail space,
together with related parking facilities, (the "Jackson Block Development") secured by the
payments under the tax increment revenue note. Also, the Bluff Block property was conveyed to
Bluff Block, LLC, which obtained construction financing from MinnWest Bank ("MinnWest")
secured by a mortgage on the Bluff Block property, and construction of the Bluff Block
Development proceeded to the point of a complete building shell and approximately 15
completed housing units. Bluff Block, LLC subsequently defaulted on its construction loan and
MinnWest foreclosed its mortgage and is now the owner of most of the Bluff Block property.
Three of the housing units are independently owned and one of those is occupied by its owner.
MinnWest is leasing the remaining 12 housing units to residential tenants.
2. Rental of Bluff Block Housing Units. The Bluff Block housing development is
defined in the Development Agreement as "approximately 67 units of owner-occupied housing".
Accordingly, the Bluff Block Development has been set up for separate ownership of housing
384281v2 JSB EL185-7
units under the Minnesota Common Interest Ownership Act. The Bluffs of Elk River
Condominium Amended and Restated Declaration establishes The Bluffs of Elk River
Condominium Association as the entity with authority to establish rules for the Bluff Block
Development. Both the Declaration and the Rules and Regulations adopted by the Association
provide that the units may be leased for three to twelve month terms. Throughout the
Development Agreement it is clear that the Bluff Block housing development is intended to be
constructed and operated as owner-occupied housing and not for long term rentals. However,
while it may be possible for the City to pursue remedies under the Development Agreement,
MinnWest is not a party to the Development Agreement, Metroplains does not control the use of
the building, and Metroplains' lender is receiving the tax increment revenue stream so it is not
clear that exercising remedies under the Development Agreement will change the outcome
without cooperation from the various parties involved.
384281v2 JSB EL185-7 2