5.0. HRSR 11-01-2004 ITEM # 5.
City of
Elk
River
MEMORANDUM
TO: Housing and Redevelopment Authority
FROM: Catherine Mehelich, Director of Economic Development//�e7
DATE: November 1, 2004
SUBJECT: Downtown Revitalization Project Update
Attachment
• April 28, 2004 Memo Re: Proposed MetroPlains Project
Background
At its October meeting the HRA adopted a resolution recommending that the City Council
consider approval of the TIF Plan for the project.
Current Activities
Establishment of TIF District
The Planning Commission recently adopted a resolution finding that the TIF Plan conforms
to the general plans for development and redevelopment in the city. The City Council will
hold a public hearing at its November 1 meeting to hear public comments on the TIF Plan
and Business Subsidy.
Land Use Approvals
The Planning Commission and City Council recently approved the preliminary plat for
Jackson Block and Bluff Block projects.
Development Agreement
Staff continues to meet with MetroPlains and Ehlers to discuss ongoing issues related to the
proposed development and development agreement. Mary Ippel of Briggs &Morgan is
drafting the development agreement consistent with the attached HRA and MetroPlains'
agreement of key issues dated April 28, 2004. Staff anticipates the development agreement
to be reviewed by the HRA and City Council in November/December.
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• MEMORANDUM
TO: MetroPlains
FROM: City Staff
Ehlers& Associates, Inc.
Briggs and Morgan, P.A.
DATE: April 28, 2004
RE: Proposed MetroPlains Project
Two memorandums dated April 7, 2004 and April 22, 2004,to MetroPlains were
prepared by the City and it's representatives. These memorandums were based on financial data
provided to Ehlers &Associates by MetroPlains. Two memorandums dated April 16, 2004 and
April 28, 2004 were prepared by Larry Olson of MetroPlains.
This updated memorandum incorporates the comments and requests of MetroPlains that
are acceptable to City Staff, Ehlers &Associates and Briggs and Morgan and is based on
financial data submitted by MetroPlains.
• Prior to the preparation of a Development Agreement in connection with the proposed
Bluff Block project and Jackson Block project we thought it would be helpful to set forth in a
memorandum certain key points to be included in the Development Agreement,
These points are as follows:
1. Linkage between the Jackson project and the Bluff project.
Concerning the linkage of the Jackson and Bluff projects and all of the provisions relating
to linkage, it is becoming increasingly apparent that the City's requirements will not permit
construction of the Jackson Block to start before the Bluff Block. Therefore, MetroPlains is
willing to commit that Bluff Block construction will commence prior to or simultaneously with
construction of the Jackson Block.
2. Amount of tax increment financing assistance.
The Development Agreement will identify the amount of tax increment financing
assistance for both the Bluff and Jackson projects. Relative to the discussion about the tax
increment notes and the formation of the tax increment district(s), MetroPlains and the City
agree to consider structuring the districts within the limitations of the tax increment financing
law, to achieve maximum flexibility (i)in the permissible use of the tax increments between the
two projects; and (ii) the pledge of tax increment to the payment of the notes.
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The note(s) for the Jackson project will be issued when the construction financing for the
• Bluff project closes and after the building permit for Bluff project is issued.
The Development Agreement will contain a"look back"method for both the Bluff and
Jackson projects. With regard to the look back provision for the for-sale residential portion of
the Bluff Project, MetroPlains understands that it will be allowed a specific amount of profit tied
to a percentage of the total cost of acquiring and constructing the for-sale portion of the Bluff
Project. If after the sale of all of the units MetroPlains' profit exceeds the allowed profit, the
HRA's assistance for that portion of the project will be reduced. On the rental housing and
commercial portion of the Jackson and Bluff projects MetroPlains will be allowed development
fees and a return on equity based on a preliminary sources and uses statement. To the extent that
final costs are less than those shown in the preliminary sources and uses statement increasing
MetroPlains' return, the assistance for that portion of the project will be reduced.
The amount of profit, return and fees that the amount of tax increment financing will be
based on and the "look back" method will be based on is as follows:
Bluff Block
For-sale housing-10% of costs
Commercial-5% development fee, market rate leasing commissions and a 12%cash on
cash rate of return
Jackson Block
Rental Housing-12% developer fee based on costs approved by MHFA
Commercial-5% development fee, market rate leasing commissions and a 12% cash on
cash rate of return
The Development Agreement will provide that any reduction of the assistance for one of
the phases of the project will be offset by verifiable increased costs on other phases,
3. SAC/WAC/Park Dedication/Building Permit Fees.
The City is willing to reduce or waive in their entirety the SAC and WAC fees, if
necessary, to make the projects feasible. MetroPlains acknowledges that the City's utility
commission must approve these reductions or waivers. The City will not reduce park dedication
fees, building permit fees or other applicable City application and development fees that are
payable in connection with the projects. MetroPlains is not in a position to bear the tax
increment inflation risk. MetroPlains agrees that the City can recapture these amounts from tax
increments derived from inflation. The City will recommend to the Park and Recreation Board
that the park dedication fees are used for park, boardwalk, gazebo relocation and other
improvements related to the downtown redevelopment.
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4. Cost of the Bluff Block.
The Development Agreement will identify the purchase price that MetroPlains must pay
to acquire the Jackson Block.
In addition to being willing to reduce the SAC and WAC fees, if necessary, to make the
projects feasible the City is willing to reduce the cost of the Jackson Block in its entirety if
necessary. However,the City is willing to reduce the SAC and WAC fees and the cost of the
Jackson Block only if construction of the Bluff Block occurs. MetroPlains agrees that the City
can recapture the value of the Jackson Block from tax increments derived from inflation.
5. Issuance of City Tax Increment Bonds.
The Development Agreement will state that in order to enable MetroPlains to achieve the
profit, fees and rate of return contemplated by this memorandum, the City will consider issuing
revenue or general obligation tax increment bonds to refinance the Bluff Block tax increment
revenue notes.
The City will consider issuing General Obligation Tax Increment Bonds subject to the
following conditions,
• it is determined that the construction of the Bluff project will not occur without
the issuance of the bonds;
• the principal amount of the bonds will not exceed the amount of tax increment
generated by the Bluff project;
• bonds will not be issued for the Jackson project.
• bonds will not be issued until the construction financing closes on the Bluff
project;
• personal guarantees of shortfall in tax increments will be required from principals
of MetroPlains or MetroPlains' parent company, MetroPlains Properties, Inc. if determined by
Ehlers and Associates to have sufficient net worth and asset liquidity;
• no profit can be taken out of the Bluff project by MetroPlains until the actual
market value of the completed Bluff project is determined and the actual amount tax increments
generated by the Bluff project is established;
• if tax increments are less than expected,developer profit will be used to pay the
debt service on the bonds;
• minimum sale prices established for the Bluff housing units cannot be changed
without HRA consent.
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6. Purchase of Bluff Block properties.
• The City will not finance the acquisition of the Bluff Block properties. If the actual cost
of acquiring and carrying the Bluff Block properties is greater than the costs contained in the
financial analysis prepared by Ehlers &Associates, it is agreed that the financial analysis will be
recalculated and the City is willing to consider the reduction of SAC and WAC fees and the cost
of the Jackson Block in order to make the Bluff project feasible.
7. Type of Bluff Block Project.
MetroPlains is willing to proceed with the Jackson and Bluff Blocks linked. If efforts to
finance and market the Bluff Block show that financing and marketing thresholds cannot be
achieved and if MetroPlains has by that time expended substantial amounts of money and time
on design, marketing and approvals,the Development Agreement will state that the HRA and
MetroPlains will explore the feasibility of other types of projects on the Bluff Block, including a
combination of commercial and rental (if market rate) and/or for-sale housing.
Accepted by MetroPlains this aC1 Today of AP p-1 L- , 2004.
METROPLAINS DEVELOPMENT, LLC
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