5.1. SR 06-10-2002MEMOEANDUM
Item # 5.1.
TO:
FROM:
DATE:
SUBJECT:
Mayor & City Council
Director of Economic Developmen~///L//
Catherine
Mehelich,
June 10, 2002
Public Hearing & Consideration of Property Tax Abatement for
Elk Path, LLC Professional Office Building Project
Attachments
· Tax Rebate Financing Application
· Tax Rebate Financing Proposal Review Worksheet
· Tax Rebate Financing Projection Worksheet
· City of Elk River Tax Rebate Financing Policy
· DRAFT Abatement Agreement
· Abatement Resolution
Issue
At its May 13, 2002 meeting the Economic Development Authority recommended that the
City Council consider the Elk Path, LLC application request of up to $200,000 in tax
abatement (tax rebate financing) for the construction of a 42,000square-foot speculative
professional office building located in the West Business Park. The statutory public hearing
is on two questions, namely, granting the abatement and granting this business subsidy
exceeding the amount of $100,000.
Background
J.L.T. Partnership, L.L.P. and John C. Weicht & Associates, L.L.P. will be forming a
partnership by the name of Elk Path, L.L.C. in order to construct a 42,000 square-foot
multi-tenant office building in the West Business Park. The building will be designed for
lease to professional, medical, and legal related businesses. Local company, John Oliver &
Associates, Inc. will occupy 7,000 square-feet of the building. The building will include
amenities such as fiber optics, a T-1 [me, heated underground parking and environmentally
efficient geothermal heating and cooling system.
The total cost of the project is estimated to be $4,720,000. Sources of financing include a
$3,456,000 loan from First National Bank of Elk River, and a $864,000 equity contribution
by the partners.
Public Heating - Tax Abatement Request by Elk Path, L.L.C.
June 10, 2002
Page 2 of~
The applicant is requesting that the city abate its portion of the property taxes up to
$200,000 on a pay-as-you-go arrangement. The Sherburne County Assessor's office has
estimated the project market value of $3,346,200. The estimated annual city portion of the
project's property taxes is $28,852. Accordingly, the $200,000 abatement would be provided
over a term of up to 8 years (see attached TRF Projection Worksheet). In addition, the
applicant has submitted an application to Sherburne County for property tax abatement up
to $200,000. The total tax abatement request is $400,000.
The proposed project meets several economic development goals of the City including:
Job retention (John Oliver & Associates, Inc. - 40 full-time) and job creation, the
applicant has projected to create up to 100 new full-time positions at a wage of
$21/hour exclusive of benefits. Per the MN Business Subsidy Law, the applicant
would be required to commit to meeting the job and wage goals within a two-year
period from date of certificate of occupancy, or repay the pubhc assistance provided
plus interest. Section 4 of the attached draft Abatement Agreement specifically
defines the "Job Goals" for the project and payback provisions if the goals are not
met.
The new development will likely spur additional private investment in the West
Business Park. The project will be the first to build under the city's revised Business
Park design standards and will likely establish a quahty image for the West Business
Park.
· Increase the city's commercial/industrial tax base.
The proposed project includes a geothermal heating and cooling system that is
consistent with the city's "Energy City" goals. Section 2(a) of the draft Abatement
Agreement covenants the project to contain the geothermal system.
While the application meets the general requirements of the city's Tax Rebate Financing
Policy, the following issues should be considered:
The proposed development is 17% pre-leased by John Oliver & Associates, Inc. Is
the office market demand sufficient to fill the remaining 83% without a significant
negative cash flow? Perhaps a smaller scaled project would be more financially and
market feasible without the use of tax abatement.
The proposed development includes several amenities that add to the cost of the
total project. Are the proposed amenities necessary to the project thereby making
the project more affordable without the use of tax abatement?
While the city's Tax Rebate Financing Policy allows for applications from office
facilities that satisfy Business Park zoning requirements, does "speculative" off~ce
space in Elk River need public financing assistance? Generally such a project would
Public Hearing - Tax Abatement Request by Elk Path, L.L.C.
June 10, 2002
Page 3 of 3
be driven by market demand. Additionally, what precedence will the use of tax
abatement for speculative office space have on furore developments and does it
create a competitive advantage over other office facilities in the community?
Action Requested
Following the public hearing, the City Council may consider action on the tax abatement
request by Elk Path, L.L.C.. The City Council may consider the following options:
· Approve the requested amount of up to $200,000 or 8-years, whichever occurs
earlier. Approval of the attached Abatement Resolution and Abatement Agreement.
· Consider a lesser maximum amount and term of abatement.
· Do nothing/deny the request.
03/28~02
VII. APPLICATION FOR TAX REBATE FINANCING
A. APPLICANT INFORMATION
Name of Corporation/Partnership: J.L.T. PARTNERSHIP, L.L.P and
JOHN C. WEICHT & ASSOCIATES, L.L.P.
Address: 580 Dodge Ave, Elk River, MN 55330
Primary Contact: Lynn Caswell
Address: (Same)
Phone: 763-441-2072 Fax: 763-441-5665 Email: eriver~oliverassoc.net
On a separate sheet, please provide the following:
· Brief description of the corporation/partnership's business, including history,
principal product or service, etc... Attach as Exhibit A.
· Brief description of the proposed project. Attach as Exhibit B.
· List names of officers and shareholders/partners with more than five percent
(5%) interest in the corporation/partnership. Attach as Exhibit C.
· A but-foranalysis and narrative. Attach as Exhibit D.
Attorney Name: TERPSTRA, BLACK, BRANDLL & JENSEN
Address: 913 Main St NW, Elk River, MN 55330
Phone: 763-441-7040 Fax: 763-441-0901 Email: ronblackC, sherbtel.net
Accountant Name: MOSFORD, BARTHEL & CO, P.L.C.
Address: 372 Jackson Ay, Elk River, MN 55330
Phone: 763-441-1384 Fax 763-295-4804 Email: IbarthelCb. mbcocpa.com
Contractor Name: JOHN C. WEICHT & ASSOCIATES, L.L.P.
Address: P.O. Box 368, Elk River, MN 55330
Phone: 763-633-3600 Fax: 763-633-3601 Email: weichtassocC, usa.net
Engineer Name: W.T. McCALLA
Address: 6600 - 75 ½ Av N, Brooklyn Park, MN 55428
Phone: 763-560-7446 Fax (same) Email (n.a.)
Architect Name: PAUL MEYER ARCHITECTS, INC
Address: 15650 36 Av N, Plymouth, MN
Phone: 763-557-9081 Fax: 763-557-9233 Email: pma@usgo.net
03/28/02
B. PROJECT INFORMATION
1. The project will be:
Industrial: x New Construction __ Expansion Redevelopment/Rehab.
X Office/research facility that conforms to business park standards
Commercial Redevelopment/Rehabilitation/Development
Retail
Other
2. In addition to the City of Elk River, applicant is requesting TRF funds from:
Sherburne County
School District #728
X
X
3. The project will be: Owner Occupied X Leased Space
· If leased space, please attach a list names and addresses of future lessees and indicate
the status of commitments or lease agreements. Attach as Exhibit E.
4. Project Address: Lot 1, Block 1, Elk Path Business Park, 2nd Addition
· Include Legal Description and PID Number. Attach as Exhibit F
5. Site Plan and Floor Plan ( foot print) Attached:
X Yes No
6. Total Amount of TRF Requested: $ 400,000. over
City Portion of TRF: Annual $ 25,000.
County Portion of TRF: Annual $ 25,000.
lSD 728 Portion of TRF: Annual $
Township Portion of TRF: Annual $
X years.
Total $ 200,000.
Total $ 200,000.
Total $
Total $
7. Current Real Estate Taxes on Project Site: $ 400.
Estimated Real Estate Taxes upon Completion: Phase 1 $100,000.
Phase II $.
8. ConstructiOn Start Date:
Construction Completion Date:
If Phased Project: N/A
Year
Year
07/01/02
07/01/03
% Completed
__% Completed
9
03~28~02
PUBLIC PURPOSE
It is the policy of the City of Elk River that the use of Tax Rebate Financing
should result in a benefit to the public. Please indicate how this project will serve
a public purpose.
X Job Creation: Number of existing jobs NONE
Number of jobs created by project 100+
Average hourly wage of jobs created* $ 21.00+
* attach a position specific hourly wage
X New industrial, commercial, or retail development which will result
in additional private investment in the area.
X Enhancement and/or diversification of the City's economic base.
X The project contributes to the fulfillment of City's Economic Strategic
Plan for Economic Development.
Removal of blight.
Rehabilitation of a high profile or priority site.
Other:
D. SOURCES & USES
SOURCES NAME AMOUNT
Bank Loan FIRST NATIONAL BANK $ 3,456,000.
BDF Loan $
Other Private Funds $
Equity PARTNERS $ 864,000.
Fed Grant/Loan $
State Grant/Loan $
EDA Micro Loan $
Tax Rebate Financing CITY / COUNTY $ 400,000.
ID Bonds $
TOTAL $ 4,720,000.
USES
Land Acquisition
Site Development
Construction
Machinery & Equipment
Architectural & Engineering Fees
Legal Fees
Interest During Construction
Debt Service Reserve
Contingencies
TOTAL
AMOUNT
$ 300,000.
$
3,626,000.
$ 65,000.
$ 100,000.
$ 100,000.
$ 329,000.
$ 200,000.
$ 4~720~000.
10
03~28~02
E. ADDITIONAL DOCUMENTATION
Applicants will also be required to provide the following documentation.
* A) Written business plan, including a description of the business,
ownership/management, date established, products and se~/ices, and
future plans
* The Attached 2 year Financial Projection is our plan.
c)
X
X
B) Financial Statements for Past Two Years
Profit & Loss Statement
Balance Sheet
Current Financial Statements
Profit & Loss Statement to Date
Balance Sheet to Date
D) Two Year Financial Projections
F) Personal Financial Statements of all Major Shareholders
Profit & Loss
Current Tax Return
.G) Letter of Commitment from Applicant Pledging to Complete
During the Proposed Project Duration
H) Letter of Commitment from the Other Sources of Financing,
Stating Terms and Conditions of their Participation in
Project
I) Application fee of $5,000 (to be returned upon completion of project.
J) Attach the following documents as Exhibits
X Exhibit A - Corporation/Partnership Description
X Exhibit
X Exhibit
X Exhibit
X Exhibit
X Exhibit
B - Description of Project
C - List of Shareholders/Partners
D - BUT-FOR Analysis
E - List of Prospective Lessees
F - Legal Description
Note: All Major shareholders will be required to sign personal guarantees if up front
financing of the project is required.
The undersigned certifies that all information provided in this application is true
and correct to the best of the undersigned's knowledge. The undersigned
authorizes Sherburne County to check credit references and verify financial and
other information. The undersigned also agrees to provide any additional
information as may be requested by the County after the filing of this application.
Applicant Name 0 L,T' ~¢:r~&,~-'c.g,¢<~ ~ Date ~/'?.,~ fo ~
11
ADDITIONAL DOCUMENTATION
PARAGRAPH (VII E) D.
TWO YEAR FINANCIAL PROJECTION
ELK PATH PROFESSIONAL BUILDING
Rental Income:
2T003 2,004 2,005
Rent 41,889 SF @ 12.50 523,612 523,612 523,612
Storage 5,500 SF @ 8.00 38,672 38,672 38,672
Parking 18 @ 360/YR 6,480 6,480 6,480
S U BTOTAL 568,764 568,764 568,764
Vacancy Loss (312,820) (85,315) (56,876)
Oper. Ex. Re-imb. 41,889 SF @ 6.12 115,377 217,935 230,755
TOTAL REVENUE
371,321 701,384 742,642
MORTGAGE
$3,456,000 @8% - 20Yr.
346,889 346,889 346,889
Operatin.q Expenses
Taxes
Insurance
Utilities
Bldg. Maint.
Custodial/Lawn
Admin
Snow Plowing
P-Lot Maint.
Trash
TOTAL OPEn. EXP.
EXPENSEISF
100,000 100,000 100,000
18,000 18,000 18,000
75,000 75,000 75,000
10,000 10,000 10,000
15,000 15,000 15,000
25,594 25,594 25,594
6,000 6,000 6,000
5,000 5,000 5,000
1,800 1,800 1,800
256,394 256,394 256,394
6.12 6.12 6.12
NET INCOME/(LOSS)
(231,962) 98,101 139,359
RETURN ON INVESTMENT -26.85% 11.35% 16.13%
DESIGN
BUILD
JOHN C.
AND
',IATES LLP
GENERAL CONTRACTORS
P.O. Box 368, Elk River, Minnesota 55330
Telephone: (763) 633-3600 · Fax: (763) 633-3601
ADDITIONAL DOCUMENTATION
PARAG1L~PH (VII £) G.
LETTER OF COMMITMENT FROM APPLICANTS
BUILDINGS
We, J.L.T. PARTNERSHIP, L.L.P. and JOHN C. WEICHT AND ASSOCIATES, L.L.P., the owners, are
committed to the proposed project called Elk Path Professional Building, provided that all parties can
participate.
The owners commit their finances, time and experience to make this project happen.
J.L.T. PARTNERSHIP, L.L.P.
JOHN C. WEICHT & ASSOCIATES, L.L.P.
Lyn~aswell, Partner -
hn C. Weicht, Partner
03~28~02
EXHIBIT A
Description of the corporation or partnership
EXHIBIT B
Description of the proposed project
EXHIBIT C
Names of officers and shareholders/partners with more than five percent (5%)
interest in the corporation/partnership.
EXHIBIT D
But-for analysis
EXHIBIT E
Prospective Lessees
EXHIBIT F
Legal Description and PID Number
14
DESIGN
BUILD
JOHN C.
;OCIATES LLP
GENERAL CONTRACTORS
P.O. Box 368, Elk River, Minnesota 55330
Telephone: (763) 633-3600 · Fax: (763) 633-3601
BUILDINGS
EXHIBIT A
Elk Path, L.L.C. is being formed by J.L.T. Partnership, L.L.P. and John C. Weicht and Associates, L.L.P.,
who are principals in two existing businesses in Elk River. The purpose of this new endeavor is to create a
42,000 square foot prime location for professional, medical, and legal rental office space. Our plan is to
build this property. This is not the primary business of either of our businesses.
Lynn Caswell & Terry Herman are the managing partners of J.L.T. Partnership, L.L.P, a local real estate
investment firm.
John C Weicht is the managing partner of John C. Weicht & Associates, L.L.P., a local general contracting
firm that specializes in design build work in the commercial and industrial fields. With other investors, he
owns and manages over $10,000,000 in other real estate holdings in Sherbume County. The construction
management, as well as future management of Elk Path Center will be done by John C. Weicht &
Associates, L.L.P.
John Oliver and Associates, Inc. is the only committed tenant for 7,000 square feet so far. Small
professional office tenants usually cannot wait six months or longer when they need space. This has been
verified by calls from existing small firms looking for immediate rental space. When we cannot help them,
they go elsewhere. We feel Sherburne County is losing potential business because of a lack of adequate
prime professional, medical and legal office space.
DESIGN
BUILD
JOHN
C. AND ;SOCIATES LLP
GENERAL CONTRACTORS
P.O. Box 368, Elk River, Minnesota 55330
Telephone: (763) 633-3600 · Fax: (763) 633-3601
EXHIBIT B
BUILDINGS
Purpose:
ELK PATH BUSINESS CENTER
The purpose of this project is long range investment and growth for all owners
involved. In order to do this, Elk River needs to be a strong growing community.
It is lacking in good quality office and professional space, in our opinion, therefore
the proposed building.
Description:
A prime location for Professional, Medical, Legal and related business.
Building Size:
42,000 square foot Professional office building on three stories.
14,000 square foot secure lower level parking and temperature controlled storage.
Date Opening:
Fall, 2002.
Rates:
$ 12.50 Net -Office
$ 8.00 Gross- Storage
$360.00 Each - Parking
Operating Exp:
$ 6.12 S.F.-Approximate
Amenities:
Fiber Optics
T-1
Heated Parking available
Next to Sherbume County Government Center and close to Alina Medical Center
Close to Elk River City Hall, Lake Orono and Orono Park
Environmentally efficient geothermal heating and cooling
U.~,~HICHWA Y NO. ! 0
I
C
/ 895.69
/
/
/
/
OUTLOT
ELK
PA TH
BUSINESS
CENTER
75
DESIGN
BUILD
JOHN C.
AND - SSOCIATES LLP
GENERAL CONTRACTORS
P.O. Box 368, Elk River, Minnesota 55330
Telephone: (763) 633-3600 · Fax: (763) 633-3601
BUILDINGS
EXHIBIT C
The proposed "Elk Path Business Center" will be owned by Elk Path, L.L.P., a partnership of J.L.T.
Partnership, L.L.P. and John C. Weicht and Associates, L.L.P.
J.L.T. Partnership, L.L.P. is owned by:
1. Lynn Caswell
2. Terry Herman
John C Weicht & Assoc., L.L.P. is owned by:
1. John C. Weicht.
2. William Weicht
3. Dave Cornelius
4. Dean Leshovsky
DESIGN
BUILD
JOHN
Co
GENERAL CONTRACTORS
P.O. Box 368, Elk River, Minnesota 55330
Telephone: (763) 633-3600 · Fax: (763) 633-3601
EXHIBIT D
LLP
BUILDINGS
Following is the "but-for" analysis for Elk Path Business Center. A review of this document will
show that the implementation of this project is not financially feasible without the use of the Tax
Rebate Financing option.
Without TRF, our return on investment would be too Iow (7.03%) to justify the huge commitment to
this project.
With the help of TRF, we feel the return on our investment (11.67%) is justifiable.
DESIGN
BUILD
JOHN C.
AND SSOCIATES LLP
GENERAL CONTRACTORS
P.O. Box 368, Elk River, Minnesota 55330
Telephone: (763) 633-3600 · Fax: (763) 633-3601
BUILDINGS
WITH NO WITH
TAX REBATE FINANCING TAX REBATE FINANCING
SOURCES AND USES SOURCES AND USES
SOURCES SOURCES
Mortgage 3,856,000 3,456,000
Equity 864,000 864,000
Tax Rebate Financing 0 400,000
TOTAL SOURCES 4,720,000 4,720,000
USES USES
Land 300,000 300,000
Site Work 65,000 65,000 i
Soil Correction
Demolition
Relocation
Subtotal Land Costs i 365,000 365,000
Construction 3,626,000 3,626,000
Finish Manufacturing
Subtotal Construction Costs 3,626,000 3,626,000
Soft Costs 100,000 100,000
Taxes
Finance Fees 100,000 100,000
Project Manager 184,000 184,000
Developer Fee 92,000! 92,000
Contingency 253,000 253,000
Subtotal Soft Costs 729,000 729,000
TOTAL USES 4,720,000 4,720,000
Income Statement Income Statement
Sq. Ft. Per Sq. Ft. Sq. Ft. Per Sq. Ft.
Rent-Space 1 41,889 $12.50 523,612 41,889 $12.50 523,612
Rent-Space 2 4,834 $8.00 38,672 4,834 $8.00 38,672
Parking 18 $360.00 6,480 18 $360.00 6,480
Vacancy Loss 10% (56,876) 10% (56,876)
Oper. Expense (64,098) (64,098)
Mortgage 20 Term 387,038 20 Term 346,888
8.00% Interest 8.00% Interest
3,856,000 Principal 3,456,000 Principal
Net Income 60,752 100,902
Total Return on Equity 7.03% 11.67%
DESIGN
BUILD
JOHN C.
2IATES LLP
GENERAL CONTRACTORS
P.O. Box 368, Elk River, Minnesota 55330
Telephone: (763) 633-3600 · Fax: (763) 633-3601
BUILDINGS
EXHIBIT E
The targeted market will be Professional, Medical, Legal, and related businesses.
The first primary tenant will be John Oliver & Associates, Inc., who will be leasing approximately 7,000
square feet.
DESIGN
BUILD
JOHN C.
',IATES LLP
GENERAL CONTRACTORS
P.O. Box 368, Elk River, Minnesota 55330
Telephone: (763) 633-3600 · Fax: (763) 633-3601
BUILDINGS
EXHIBIT F
LEGAL DESCRIPTION:
Lot 1, Block 1, Elk Path Business Park, 2nd Addition.
i
.............. - L::'[
TAX REBATE FINANCING PROPOSAL REVIEW WORKSHEET
TO BE COMPLETED BY CITY STAFFc/~///~ 5--~-~_
The project meets the criteria set forth in Section V of the Tax Rebate Financing
po~>_, a)
e/
b// d)
Meets at least one of the objectives m Section III.
Demonstrates need for TRF wkh the but-~br analysis.
Consistent with all city. plans and ordinances.
Serves at least vx'o public purpose as defined in Section V.
2. Ratio of Private to Public Investment in Project:
$ ~',3:~3,(2x::~ Private investment
$ q/oq~Ooo Public Investment
/o. o°;/ Ratio Private: Public Financing
Less than
Points:
5:1 5
4:1 4
3:1 3
2:1 2
2:1 1
3. Job Creation in the City of Elk River:
/0:3 Number of ne~v jobs as a result of the project.
__ Number of e:dsdng/retained jobs divided by 10.
/"~D Total
Less than
Points:
25+ 5
20+ 4
15+ 3
10+ 2
10
4. Ratio of TRF to new jobs created:
$ ff/<:~, <3OO TRF request
/00 Number of new jobs created
$ ~/<5:7~ of TRF per new'job created
5. Wage Level of jobs created:
Average hourly wage
of jobs created: ~3~__~/. oo
Points:
$8,000 or less 5
$10,000 or less 4
$12,000 or less 3
$15,000 or less 2
Over $15,000 I
Points:
Over $21 / hour 5
$18-21 / hour 4
$14-17 / hour 3
$10-13 / hour 2
Under $10 / hour
6. Project size:
The project will result in the construction
of square feet ~,//~ ~;,~v?
Points:
40,000+ 5
30,000+ 4
20,000+ 3
10,000+ 2
10,000 or less 1
11
7. Type of Project:
__ 100% Owner Occupied
J MLx Oxvner Occupied & Investment
__ Investment Property
8. Use:
__ Industrial or Business Park Project
__ Commercial Rehabilitation/Redevelopment
9. The project will pay annual
taxes in the first fully
propertYassessed year of$
10. Likelihood that the project will result in
unsubsidized, spin-off development, t//
Points: (
5
4
3
Points: :5-
5
4
Points: ~-
35,000+ 5
25,000+ 4
15,000+ 3
10,000+ 2
Under $10,000 1
Points: ~'
__High 5
Moderate 3
Low 1
Sub - Total Points: ~"~'
of a possible 45 points.
9. Bonus Points
Bonus Points: ~"
__ The project xvill be 100% Pqy-as:yoz~-go TRF.
__ The project contributes to the goals of Energy City.
· Product promotes sensible use of energy, OR
· Project utilizes sigmficant energy efficient design &/or
materials m construction.
3 points
2 points
Total Points: ~//~7
Overall project analysis:
~-'-High
Moderate
LoLv
Not Eligible
45-38 points
37-29 points
28-20 points
1%0 points
12
CITY OF ELK RIVER
TAX REBATE FINANCING PROJECTION WORKSHEET
Project Name: Elk Path Professional Building
TRF Project: 42,000-square foot office building
Assumption: Final construction 12/31/02, assessed 1/01/03 for payable 2004
First TRF payment to developer available 2004
State Class Rate
Up to $150,000
Over $150,000
Tax Capacity Rate
City Portion
County Portion
School District Portion
State Portion
0.015
0.020
0.436
0.47577
0.45969
0.57933
ASSUMPTIONS
Pay 2002
Pay 2002
Pay 2002
Pay 2002
Pay 2002
Pay 2002
Land Value $ 548,600:00
Building Value $ : 2,:797,600.00
Total Market Value $ :: 3,346,200.00
Years of TRF Project l0
Property's Total Tax Capacity $ 66,174.00
City Portion $ 28,851.86 $ 288,518.64
County Portion $ 31,483.60 $ 314,836.04
School District Portion $ 30,419.53 $
State Portion $ 38,336.58 $
Joint City & County Portion $ 60,335.47 $ 603,354.68
$200,000
*Amount of abatement will vary depending on market value, tax rates, class rates, construction schedule and inflation on MV.
FILE:JoliverTRF.xls ~
City of
l 3ver
Economic Development
Tax Rebate Financing
Policy & Application
Adopted: April 10, 2000
City of Elk River, Minnesota
Table of Contents
I. Policy Purpose
II. Difference Between TRF & TIF
III. Objectives of Tax Rebate Financing
IV. Policies for the Use of TRF
V. Project Qualifications
VI. Subsidy Agreement & Reporting Requirements
VII. Application Process
City of Elk River
Application to Other Political Subdivisions
VIII. Application
Applicant Information
Project Information
Public Purpose
Sources & Uses
Checklist & Additional Information
7
8
8
9
10
IX. Application Review Worksheet
X. Exhibits
A
B
C
D
E
Corporation/Partnership Description
Project Description
Shareholders
Bat-~r Analysis
Prospective Lessees
Xl. Sample But-ForAnalysis
3
3
3
4
5
6
6
7
II
13
15
2
I. POLICY PURPOSE
For the purposes of this document, the term "City" shall include the Elk I~'ver CiV Count/, t~conomic
meve/opment ~utho~i~, and Housing and Redevdopment ~luthoff~.
The purpose of this policy is to establish the City of Elk River's position relating to the
use of Tax Rebate Financing (TRF), otherwise referred to as Tax Abatement, for private
development above and beyond the requirements and lirmtations set forth by State Law.
This policy shall be used as a guide in the processing and review of applications
requesting tax rebate assistance. The fundamental purpose of tax rebate fmancing in Elk
River is to encourage desirable development or redevelopment that would not otherwise
occur bu/for the assistance provided through TRF.
The City of Elk River is granted the power to utilize TRF by the Minnesota Tax
Abatement Act, as amended. It is the intent of the City to provide the minimum amount
of TRF, as well as other incentives, at the shortest term required for the project to
proceed. The City reserves the right to approve or reject projects on a case by case basis,
taking into consideration established policies, project criteria, and demand on city
services in relation to the potential benefits from the project. Meeting policy criteria does
not guarantee the award of TRF to the project. Approval or denial of one project is not
intended to set precedent for approval or denial of another project.
II. DIFFERENCE BETWEEN TRF & TIF
The primary difference between Tax Rebate Financing (TRF) and Tax Increment
Financing (TIF) is the way in which the dollars are awarded to the project. When TIF is
awarded to a project by the city, the other political subdivisions (the school district and
the county) are required to contribute their portion of the increased taxes to the project.
Conversely, when TRF is requested, each political subdivision has the option of granting
its portion of the increased taxes to the project. Subsequently, the dollars generated for
the project with TRF are generally less than the dollars generated with TIF.
III. OBJECTIVES OF TAX REBATE FINANCING
As a matter of adopted policy, the City will consider using TRF to assist private
development projects to achieve one or more of the following objectives:
· To retain local jobs and/or increase the number and diversity of jobs that offer
stable employment and/or attractive ~vages and benefits.
· To enhance and diversify the city of Elk River's economic base.
· To encourage additional unsubsidized private development in the area, either
directly or indirectly through "spin off" development.
· To facilitate the development process and to achieve development on sites
which would not be developed without TRF assistance.
To remove blight and/or encourage redevelopment of commercial and
industrial areas in the city that result in high quality redevelopment and private
reinvestment.
3
I¥.
To offset increased costs of redevelopment (i.e. contaminated site clean up)
over and above the costs normally incurred in development.
To create opportunities for affordable housing.
To contribute to the implementation of other public policies, as adopted by the
city from time to time, such as the promotion of quality urban or architectural
design, energy conservation, and decreasing capital and/or operating costs of
local government.
POLICIES FOR THE USE OF TRF
TRF assistance will be provided to the developer upon receipt of taxes by the
City, otherwise referred to as the pqy-as:yo,-ego method. Requests for up front
financing will be considered on a case-by-case basis.
Any developer receiving TRF assistance shah provide a minimum of twenty
percent (20%) cash equity investment in the project.
TRF will not be used in circumstances where land and/or property price is in
excess of fair market value.
Developer shall be able to demonstrate a market demand for a proposed
project.
TRF will not be utilized in cases where it would create an unfair and
significant competitive financial advantage over other projects in the area.
TRF shah not be used for projects that would place extraordinary demands
on city services or for projects that would generate significant environmental
impacts.
The developer must provide adequate f'mancial guarantees to ensure
completion of the project, including, but not limited to: assessment
agreements, letters of credit, personal guaranties, and etcetera.
The developer shall adequately demonstrate, to the City's sole satisfaction, an
ability to complete the proposed project based on past development
experience, general reputation, and credit history, among other factors,
including the size and scope of the proposed project.
For the purposes of underwriting the proposal, the developer shall provide
any requested market, financial, environmental, or other data requested by
the City or its consultants.
4
V. PROJECT QUALIFICATIONS
All TRF projects considered by the City of Elk River must meet each of the following
requirements:
a. The project shah meet at least one of the objectives set forth in Section III of
this document.
The use of TRF will be limited to:
Industrial development, expansion, redevelopment, or
rehabilitation; or
· Commercial redevelopment or rehabilitation; or
· Office or research facilities that satisfy Business Park zoning
requirements;
· Residential development and redevelopment may be eligible for
TRF under a separate set of policies and only with the
recommendation of the HRA.
· New commercial or retail development is not eligible for TRF.
c. The developer shah demonstrate that the project is not fmancially feasible
b,/-for the use of TRF.
d. The project shah comply with all provisions set forth in the state's Tax
Abatement Law, statues 469.1812 to 469.1815, as amended.
e. The project must be consistent with the City's Comprehensive Plan, Land
Use Plan, and Zoning Ordinances.
The project shah serve at least two of the following public purposes: · Job creation.
· Increase of tax base.
· Enhancement or diversification of the city's economic base.
· Development or redevelopment that will spur additional private
investment in the area.
· Fulfillment of defined city objectives, such as those identified in the
· Strategic Plan for Economic Development or the city's
Comprehensive Plan, among others.
* Removal of blight or the rehabilitation of a high profile or priority site.
5
VI. SUBSIDY AGREEMENT & REPORTING REQUIRMENTS
All developers/businesses receiving Tax Rebate Financing assistance from the City
of Elk River shah be subject to the provisions and requirements set forth by state
statute 116J.993 and summarized belo~v.
AH developers/businesses receiving TRF assistance shall enter into a subsid~y a~,reement
with the City of Elk River that identifies: the reason for the subsidy, the public
purpose served by e subsidy, and the goals for the subsidy, as well as other criteria
set forth by statute 116J.993.
The developer/business shah file a report annually for two years after the date the
benefit is received or until all goals set forth in the application and performance
agreement have been met, whichever is later. Reports shall be completed using the
format drafted by the State of Minnesota and shah be fried with the City of Elk
River no later than March 1 of each year for the previous calendar year. Businesses
fulfilling job creation requirements must file a report to that effect with the city
within 30 days of meeting the requirements.
The developer/business owner shall maintain and operate its facility at the site
where TRF assistance is used for a period of five years after the benefit is received.
In addition to attaining or exceeding the jobs and wages goals set forth in the Subsidy
~tegreement, the borrower shall achieve at least one of the objectives set forth in
Section III of this document.
Developers / Businesses failing to comply with the above provisions will be subject
to frees, repayment requirements, and be deemed ineligible by the State to receive
any loans or grants from public entities for a period of five years.
VII. APPLICATION PROCESS FOR TRF
A. CITY OF ELK RIVER
1. Applicant submits the completed application along with all application fees.
2. City staff reviews the application and completes the Application Review
Worksheet.
3. Results of the Worksheet are submitted to the appropriate governing authorities
for preliminary approval of the proposal.
4. If preliminary approval is granted, aH necessary notices, resolutions and
certificates are prepared by City staff and/or consultants.
5. Public hearing(s) on the proposed project are held.
6. The EDA or HRA recommends approval or denial of the proposal to the City
Council.
7. The City Council grants final approval or denial of the proposal.
Abatement Agreement
This Abatement Agreement (the "Agreement") is dated as of June 10, 2002; is by and
between the City of Elk River, Minnesota (the "City"), and Elk Path, LLC, a Minnesota
limited liability company (the "Company"); and provides as follows:
Section 1. Recitals.
(a) The Company has proposed to construct an approximately 42,000 square
foot professional office building on the property located in the City of Elk River on
property directly west of the Sherburne County Government Center on Business Center
Drive consisting of current tax parcel no. 75-687-0105. Said land and facilities, as they
may exist from time to time, are hereinafter collectively referred to as the "Project."
(b) In order to assist the Company in completing the Project, the Company
has requested the City to grant the abatement hereinafter described (the "Abatement")
pursuant to Minnesota Statutes, Sections 469.1812 through 469.1815 (the "Abatement
Law").
Section 2. Representations and Covenants of the Company. The Company hereby
represents and/or covenants as follows:
(a) The Company expects to begin construction and make substantial progress
in 2002 on the Project and the Company specifically covenants to substantially complete
the Project no later than 2003. The Company covenants that the Project will contain an
environmentally efficient geothermal heating and cooling system, consistent with the
Company's initial building plans and consistent with the City's "Energy City" goal to
support projects which utilize significant energy efficient design and/or materials in
construction.
(b) The Company is undertaking the Project for lease to and occupancy by the
Company's tenants. The Abatement is not being granted for the purpose of land
speculation.
(c) The Agreement may be terminated by the City upon violation by the
Company of any of its obligations hereunder.
(d) The Company has and will retain fee title to the real estate for the Project.
(e) The Company covenants that all property taxes, special assessments (if
any), public utility charges and other City or other governmental levies, charges and
impositions shall be paid in full, when due, subject to statutory, ordinance or similar
rights to contest the same.
Section 3. Abatement. In consideration of this Agreement and the compliance by the
Company of its obligations hereunder, the City hereby agrees to grant the following Abatement
to the Company: for property taxes payable on the Project beginning in the year 2004 and (to the
1410047vl
extent necessary) in each year thereafter through 2011, the City will abate to the Company the
paid City taxes with respect to the Project in each such year; provided that the total amount of all
abatements hereunder shall be limited to $200,000, whereupon all abatements hereunder shall
cease. It is understood and agreed that the taxes levied by taxing jurisdictions other than the City
are not abatable pursuant to this Agreement and that such things as taxes payable and levied with
respect to market value (e.g., certain referendum and other levies, if any) are not subject to
abatement.
Section 4. Business Subsidy Agreement. The City and the Company recognize and
agree that the Abatement under this Agreement is a "business subsidy" under Minnesota Statutes,
Sections 116J.993 through 116J.995, as amended (the "Subsidy Law"), and is subject to the
provisions thereof, including without limitation reporting requirements and five year
commitment by the Company.
Accordingly, it is agreed:
(a) The estimated fair market value of the assistance and subsidy hereunder is
$200,000. The type of the subsidy is property tax abatement.
(b) The public purposes of the subsidy are to further development of the City's
commercial/industrial tax base (including a spur to additional private investment in the
West Business Park) and to retain and create jobs.
(c) For purposes of Section 116J.994, Subdivision 3, of the Subsidy Law, the
goals of the subsidy are completion of the Project and the operation and leasing thereof
by the Company for at least five years after the "Benefit Date" of the subsidy, as defined
in the Subsidy Law, which is hereby determined to be the date of the City's Certificate of
Occupancy for the Project.
(d) For purposes of the Subsidy Law, the Abatement shall be considered to be
a forgivable loan to the Company from the City. It is agreed, as required by Section
116J.994, Subdivision 6, that if the Company is in default under this Section 4, the
Company shall immediately be obligated to repay to the City the full amount of the
Abatement plus interest thereon from its date at the implicit price deflator, as defined
under Minnesota Statutes, Section 275.70, Subdivision 2. The Abatement is needed in
order to induce the Company to develop and operate the Project in the City of Elk River.
The Company covenants that it will continue to operate the Project for at least five years
after the Benefit Date.
(e) The Company represents that it has no parent corporations.
(f) The Company represents that the following are all of the State of
Minnesota and "local government agency" grants for the Project (other than the
assistance hereunder):
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Grantor Value ($)
Grantor Value ($)
(g) The Company represents that it is not in default on the date hereof on any
subsidy agreement entered into by the Company under the Subsidy Law.
(h) For its "Job Goals" under this Section 4, the Company covenants that it
will cause the Project to provide at least 100 additional new full-time equivalent
permanent jobs in the City within two years of the date of the City Certificate of
Occupancy for the Project. These jobs must have an average annual salary of at least
$42,000, or approximately $21.00 per hour, exclusive of benefits. These jobs must also
be "new" jobs to the City of Elk River, meaning jobs provided by employers not located
in the City at any time prior to occupying space in the Project. The foregoing
requirement also means that future jobs at the Project provided by employers which are
or were located in the City (e.g., John Oliver & Associates, Inc.) may be counted toward
meeting the 100 new job requirement. Such "new" jobs created at the Project by
employers presently located in the City must be evidenced by completion of the attached
Exhibit A at the time of occupancy to the Project and again at the required filing date.
(i) The Company shall complete and file with the City from time to time the
report in the form of the attached Exhibit A. The Subsidy Law provides that if the
Company does not make such reports, when due, the City must mail the Company a
warning within one week of the required filing date, and if, after 14 days after the
postmark date of that warning, the Company continues to fail to report, then the
Company is required to and shall pay the City a penalty of $100 for each subsequent day
until the report is filed, up to a maximum of $1,000. The Company shall file these
reports with the City, in care of the City's Economic Development Director, on March 1
of each of the years 2004 and 2005, or until the job goals stated in Section 4(h) above are
met, whichever is later. Each March 1 report shall report on the prior calendar year, and
each other report shall report on the period since the last reporting period.
(j) This Section 4 is intended to be the "subsidy agreement" required by
Section 116J.994, Subdivision 3, of the Subsidy Law. In the event that any provision of
this Section 4 is inconsistent or in conflict with any provision of the Subsidy Law, and in
the event that any provision of the Subsidy Law provides additional requirements, the
provisions of the Subsidy Law shall apply and govern. In addition to all reporting
obligations of the Company under this Section 4 and Exhibit A, the Company agrees to
provide the City with any additional information which may be required in order for the
City to comply with its reporting requirements, as they may exist or be amended from
time to time, under the Subsidy Law.
* Would add Sherbume County property tax abatement ($200,000 requested), if granted.
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(k) Nothing in this Section 4 is intended to limit or otherwise amend the other
terms of this Agreement. To the extent that provisions in this Section 4 are more
extensive or restrictive than any related term elsewhere in this Agreement, the provisions
hereof shall govern. The above commitment of the Company to operate the Project for at
least five years from the Benefit Date is a requirement of the Subsidy Law (subject to
procedures therein allowing relaxation or waiver of said requirement) and shall apply and
govern.
Section 5. Miscellaneous. This Agreement is governed by the laws of the State of
Minnesota and may be executed in any number of counterparts, each of which shall constitute an
original hereof and all of which shall constitute one in the same instrument. In the event that any
provision hereof is declared invalid by a court of competent jurisdiction, the remainder hereof
shall remain in full force and effect as though said offending provision did not appear herein.
In Witness Whereof, the City and the Company have duly executed this Agreement.
CITY OF ELK RIVER, MINNESOTA
By
Its Mayor
By
Its City Administrator
ELK PATH, LLC
By.
Its
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EXHIBIT A
BUSINESS SUBSIDY REPORT
Report by Elk Path, LLC, as Recipient of Business Subsidy
This report is required by Section 4 of that certain Abatement Agreement, dated as of
June 10, 2002, (the "Agreement"), between the City of Elk River, Minnesota (the "City"), and
Elk Path, LLC, a Minnesota limited liability company (the "Company"), and as required by
Minnesota Statutes, Section 116J.994, Subdivision 7, as amended. Capitalized terms which are
used but not otherwise defined in this report have the meanings given to those terms under the
Agreement.
The City has under the Agreement granted a certain business subsidy to the Company,
consisting of up to $200,000 of City property tax abatements on the Company's approximately
42,000 square foot professional office building in the City (the "Project").
Under the Agreement, the Company is required to file reports with the City's Economic
Development Director on March 1 of each of the years 2004 and 2005, or until the job goals
stated hereinbelow have been met, whichever is later. Each report is required to report on the
prior calendar year, and each other report shall report on the period since the last reporting
period.
The Company's Jobs Goals under Section 4 of the Agreement are to create at the Project
at least 100 new additional permanent full-time equivalent jobs in the City within two years of
the date of the City's Certificate of Occupancy for the Project (the "Benefit Date"). These jobs
are required to have an average annual salary of at least $42,000, or approximately $21.00 per
hour, exclusive of benefits.
The Company hereby certifies to the City the following:
(1) As provided in the Agreement, the fair market value of the subsidy is
estimated to be $200,000, the type of subsidy is a property tax abatement and the public
purposes of the subsidy are to further development of the City's commercial and tax base
and to create jobs.
(2) The hourly wage of each permanent full-time equivalent job which has
been created at the Project since the Benefit Date, with separate bands of wages, are as
follows:
Number of Jobs
Wage Level per Hour
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(3) The cost of health insurance provided by the Company (or its tenants in
the Project) for the above-referenced jobs, separated by bands of wages, is as follows:
Wage Level Per Hour
Cost of Health Insurance
(4) If the Company has not already met the Job Goals, it reasonably expects
that it will meet those goals on or before ,200__, and is taking the
following steps to meet the Job Goals:
(5) The Company's completion of the Project did not involve the relocation by
the Company of any of its facilities located elsewhere.
(6) The Company has no parent corporations.
(7) Other than the assistance and subsidy provided by the City under the
Agreement, there are no other State of Minnesota or "local government agency" grants of
business subsidy to the Company for the Project, except for:
Grantor Value ($)
Grantor Value ($)
(8) The Company hereby agrees to provide upon request such other
information as the Commissioner of the Department of Trade and Economic
Development of the State of Minnesota may request the City or the Company to provide
or as may be required by the Subsidy Law.
(9) The Company represents that it has continuously operated and leased the
Project since its completion and expects to continue to do so for the foreseeable future.
* Would add Sherburne County property tax abatement here ($200,000 requested), if granted.
1410047vl A~2
(10) The Company is not in default on the date hereof of its obligations under
any subsidy agreement under the Subsidy Law.
ELK PATH, LLC
By
Its
This report is to be filed with:
City of Elk River
Elk River City Hall
13065 Orono Parkway
Elk River, Minnesota 55330-5600
Attn: Economic Development Director
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CITY OF ELK RIVER
COUNTY OF SHERBURNE
STATE OF MINNESOTA
RESOLUTION NO. 02-
RESOLUTION APPROVING PROPERTY TAX ABATEMENTS
FOR ELK PATH, LLC PROJECT
BE IT RESOLVED by the City Council (the "Council") of the City of Elk River,
Minnesota (the "City"), as follows:
1. Recitals.
(a) Minnesota Statutes, Sections 469.1812 through 469.1815 (the "Abatement
Law"), authorizes the City to grant certain abatements.
(b) Elk Path, LLC (the "Company") has requested the City to abate up to
$200,000 of the City's share of the property taxes to be generated on the Company's
proposed development of its approximately 42,000 square foot professional office
building on the property (the "Property") which is located in the City directly west of the
Sherburne County Government Center on Business Center Drive and which generally
consists of current tax parcel no. 75-687-0105 (collectively, said project and the Property,
as they may exist from time to time, are hereinafter referred to as the "Project").
(c) The Abatement Law limits the maximum annual amount abatable by the
City to the City's total local tax rate times the net tax capacity of the Project for that year.
The City's share of the taxes on the completed Project are estimated to be approximately
$28,850 per year, and the proposal is for the City to abate up to a total of $200,000 of
such City taxes, beginning with the taxes payable in the year 2004. Accordingly, it is
estimated that approximately seven years of those City taxes will be required to complete
the total $200,000 abatement. In no event, however, would more than eight years of City
taxes (payable 2004 to 2011), or $200,000, whichever is less, be abated.
(d) On the date hereof, the Council held a public hearing on the question of
the Abatement, and said hearing was preceded by at least 10 days but not more than 30
days prior published notice hereof.
(e) The Abatement is a business subsidy pursuant to Minnesota Statutes,
Sections 116J.993 et seq.
findings:
Findings for the Abatement. The City Council hereby makes the following
(a) The Council expects the benefits to the City of the Abatement to at least
equal the costs thereof because the Council expects that the Project will generate
1410047vl
significantly higher market value for tax purposes. Upon termination of the period of the
Abatement, all of these significantly increased taxes will benefit all of the applicable
taxing jurisdictions. In addition, the completion of the Project fulfills City development
goals for the Property.
(b) Granting the Abatement is in the public interest because it will increase
the tax base, retain and provide new employment, help construct and/or support public
and other facilities necessary for the Project and spur additional private investment in the
West Business Park.
(c) The Council expects that the public benefits described above to be derived
from the Abatement will equal or exceed the costs to the City thereof.
(d) The Property is not located in a tax increment financing district.
(e) In any year, the total amount of property taxes abated by the City by this
and other resolutions does not (and may not) exceed the greater of five percent (5%) of
the current City levy or $100,000.
3. Terms of Abatement. The Abatement is hereby approved. The terms of the
Abatement are as follows:
(a) The Abatement shall first apply to the City taxes payable in the year 2004
and thereafter (if necessary), subject to earlier expiration or termination as provided in
this Resolution and the Abatement Agreement described below.
(b) The Abatement shall be as follows: the City will abate to the Company the
City's local tax rate times the net tax capacity of the Project for taxes payable in 2004
and, if necessary, in each successive year through 2011; provided that the aggregate
amount of Abatement granted by the City hereunder shall not exceed $200,000,
whereupon the Abatement shall terminate.
(c) Absent the Company's default under the Abatement Agreement described
below, the Abatement may not be modified or changed by the City during the term set
forth in (a) and (b) above, except with the prior written consent of the Company.
(d) The Abatement shall be subject to all the terms and limitations of the
Abatement Law, the Abatement Agreement and this Resolution.
(e) In order to be entitled to the Abatement, the Company shall not be in
default of its obligations under the Abatement Agreement.
(f) To be entitled to the Abatement, the Company and the City shall have
executed and delivered the Abatement Agreement substantially in the form presented to
the Council. The City's execution of said Agreement is hereby authorized and approved.
1410047vl 2
If any provision of this Resolution conflicts with any provision of the Abatement
Agreement, the latter shall apply and govern.
Adopted on June 10, 2002, by the Elk River City Council.
Councilmember moved the adoption of the foregoing Resolution and
said motion was duly seconded by Councilmember ., and upon vote
being taken thereon, the following Councilmembers voted in favor thereof:
and the following Councilmembers voted against the same:
whereupon said resolution was declared duly adopted.
1410047vl 3
CITY CLERK'S CERTIFICATE
I, the undersigned, being the duly qualified and acting City Clerk of the City of Elk
River, Minnesota, DO HEREBY CERTIFY that I have carefully compared the attached and
foregoing extract of minutes of a duly called and regularly held meeting of the City Council of
said City held on the date therein indicated with the original minutes thereof on file in my office
and I further certify that the same is a full, true, and correct transcript thereof insofar as said
minutes relate to the tax abatement approval for the proposed Elk Path, LLC professional office
building project.
WITNESS my hand officially and the official seal of the City this day of
,2002.
City Clerk
Elk River, Minnesota
(SEAL)
1410047vl A-1