4.2. SR 05-22-2000Item ~ 4.2.
MEMORANDUM
TO:
DATE:
SUBJECT:
City Council Members
Marc Nevinski, Acting Director of
Economic Development
May 22, 2000
Public Hearing & Consideration of
Approval for the use of TRF by
R&W Enterprises.
18sue
The Economic Development Authority recommended at its
May 8, 2000 meeting the R&W Enterprises receive Tax Rebate
Financing for the construction of a multi-tenant industrial building
in the McChesney Industrial Park. Staff requests that the council
hold a public hearing on the matter and consider granting final
approval of the TRF request.
Background
Recently, John Weicht and Mark Rothfork formed R&W Enterprises
in order to construct a multi-tenant industrial building on the last lot
in the McChesney Industrial Park. The building will be designed to
house approximately three to four light industrial companies, who
hopefully will grow and expand in Elk River. Additionally, the site
plan, which has been approved by the planning commission,
combines the parking area with the existing parking at Mark
Rothfork's building (see attached site plan in the application), which
subsequently increases the size of the building on the site.
The total cost of the project is projected to be approximately
$758,000. Sources of financing include a $630,000 loan from The
Bank of Elk River and a $128,000 equity contribution by R&W
Enterprises.
Mr. Weicht is requesting that the city rebate its portion of the taxes
on the building for a period of four years. Staff has estimated this
amount to be $6,159 per year or $24,683 over the term of the rebate
period. Mr. Weicht also intends to request that Sherburne County
rebate its portion of the taxes on the project for the same four year
period. The county's portion is estimated to be $6,412 per year or
$25,649 annually. The total tax rebate over the four years is
estimated to be about $50,000.
Upon receipt of Mr. Weicht's TRF application, staff completed the
ratings worksheet used to help analyze such proposals. The proposed
project scored a "33", which equates to a "moderately desirable"
project. Staff frequently receives inquires for the type of space Mr.
Weicht is proposing to construct. Subsequently, although no tenants
have as of yet committed to the space, it is likely that the building
will lease quickly.
Action Requested
Staff requests that the City Council:
1. Hold a public hearing to consider the use of TRF for the
construction of a multi-tenant industrial building by R&W
Enterprises.
2. Consider approval of the TRF application.
Attachments · TRF Application
· Draft Minutes from May 8, 2000 EDA Meeting
· Public Hearing Notice - May 10, 2000
VII. APPLICATION FOR TAX REBATE FINANCING
A. APPLICANT INFORMATION
Name of Corporation/Partnership ~
Address ~ t~. J~ ~' J> ~'~
Primary Contact
Address ~. d,
Phone~/~ ! J])7~
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-for analysis. Attach as Exhibit D.
Address
Phone/~ '// ? O ~ Fax Email
Accountant Name
Phone~ ?~" q-f-4~
Address
Phone ~'/
Engineer Name
Address g'(~
Phone ('/,fi. .,~¢
Email
Architect Name'
Address ~ ~
Phone(/+' .fi 7
8
B. PROJECT INFORMATION
1. The project will be:,~:/" ,
~"Industrial: ~'New Construction __ Expansion Redevelopment / Rehab.
Class A or B Office which conforms to business park standards
Commercial Redevelopment/Rehabilitation
Other
2. In addition ,.to the City of Elk River, applicant is requesting TRF funds
from: "' Sherburne County School District 728
3. The project will be: Owner Occupied ~eased 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 ~--~Y'
· Include ~g~ Description ~d PID Number. Attach as Exhibit F
5. Site Plan Attached' ~Yes No
6. Total ~ount of TRF Requested: $ ~over
City Portion of TRF: ~nual $ ~Total $
County Portion of TRF: ~nual $~~Total $~~
ISD 728 Portion of TRF: ~nual $ ~otal $
7. Current Real Estate Taxes on Project Site: $
Estimated Real Estate Taxes upon Completion: Phase I $
Phase II $
8. Construction Start Date:
Construction Completion Date:
If Phased Project:
Year % Completed
Year % Completed
C. 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
th, if project will serve a public purpose.
*' Job Creation: Numberofexistingjobs Y ~
Number of jobs created by project ?~
Average hourly wage of jobs created t/~ -/.~-"
Y/New industrial development which will result in additional private
~/investment in the area.
/,/X ' Enhancement and/or diversification of the city's economic base.
)~-~The project contributes to the fulfillment of the City's Strategic
Plan for Economic Development.
Removal of blight.
Rehabilitation of a high profile or priority site.
Other:
9
D. SOURCES & USES
SOURCES
Bank Loan
Other Private Funds
Equity
Fed Grant/Loan
State Grant/Loan
EDA Micro Loan
~Tax Rebate Financing
ID Bonds
TOTAL
NAME
_AMOUNT
$
$
$
$.
USES
Land Acquisition
Site Development
Construction
Machinery & Equipment
Architectural & Engineering Fees
Legal Fees
Interest During Construction
Debt Service Reserve
Contingencies
TOTAL
AMOUNT
$
10
E. ADDITIONAL DOCUMENTATION ·
Applicants will also be required to provide the following documentation.
V/ A) Written business plan, including a description of the
business, ownership/management, date established,
products and services, and future plans
B) Financial Statements for Past Two Years .,L
__ Profit & Loss Statement
Balance Sheet
C)
Current Financial Statements ~/~ Profit & Loss Statement to Date
~ Balance Sheet to Date
D) Two Year Financial Projections
F)
G)
H)
I)
Personal Financial Statements of all Major Shareholders
/ Profit & Loss
~ Current Tax Return
Letter of Commitment from Applicant Pledging to Complete
During the Proposed Project Duration
Letter of Commitment from the Other Sources of Financing,
Stating Terms and Conditions of their Participation in
Project
Application fee of $5.000 (to be returned upon project
completion.)
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 the City of Elk
River 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 City after the
filing of this application.
Applicant Name /ff
Date
!
11
TAX REBATE FINANCING PROPOSAL REVIEW WORKSHEET
Office Use Only
1. The project meets the criteria set forth in Section V of the Tax
Rebate Financing policy.
*/ a-) -' Me~tsmlnimum thresholds for size, value, and tax capa~;I,y.-IV]l~
g' b) Meets at least one of the objectives in Section I~. [/F_-
__~.. c)~ Demonstrates need for TRF with the but-for analysis.
e) Consistent with all city plans and ordinances.
~" f)' Serves at least tw.._o public purpose as defined in Section V.
2. Ratio of Private to Public Investment in Project:
$
70~, voo
Points: .
Private investment ~-~)5:1 5
Public Investment '~ 4
Ratio Private: Public Financing 3:1 3
2:1 2
Less than 2:1 I
3. Job Creation in the City of Elk River:
__ Number of new jobs as a result of the project.
__ Number of existing/retained jobs divided by 10.
15 Total
Points:
25+ 5
20+ 4
1-0¢ .... 2
Less than 10 1
4. Ratio of TRF to new jobs created:
$ g~oc~ TRFrequest
15 Number of new jobs created $-~(~0~'~'r less
of TRF per new job created
$12,000 or less
$15,000 or less
Over $15,000
Points:
5
4
3
2
1
5. Wage Level of jobs created:
Average hourly wage
of jobs created: ~ - ~"~
Points:
Over $21/hour 5
$18-21 / hour 4
2
l..Tffder $10 / hour 1
6. Project size: Points:
The project will result in the construction q,~0,000+ 5
of square feet J ~C)C) ~,4'0,000+ 4
~0,000+ 3
2
---~;0o0 6~]~s 1
12
7. Type of Project:
~ 100% Owner Occupied
__ Mix Owner Occupied & Investment
~ Investment Property
Points:
5
4
3
8. Use:
//~ Industrial Project
__ Commercial Redevelopment
__ Class A or B office construction
Points:
5
4
3
9. The project will pay annual
property taxes in the first fully
assessed year of $
Points:
35,000+ 5
15,000+ 3
10,000+ 2
$10,000 or less i
10. Likelihood that the project will result in/
unsubsidized, spin-off development. *~
Points:
__High 5
Moderate 3
. Low~*~ 1
Sub - Total Points: ~)
of a possible 45 points.
9. Bonus Points
Bonus Points:
__ The project will be 100% Pay-as-you-go TRF. ~'~L~3 p0i'~i~
__ The project contributes to the goals of Energy City. 2 points
· Product promotes sensible use of energy, OR
· Project utilizes significant energy efficient design &/or
materials in construction.
Total Points: ~ '-~
Overall project analysis:
High
~-~oc~erat~
Low
Not Eligible
45-38 points
~~9 p°int~,-'
19-0 points
13
w LLC Exhibit D
BUT-FOR ANALYSIS
WITH NO' i WITH
TAX REBATE FI.NANClNG TAX REBATE FINANCING
SOURCES AND USES , SOURCES AND USES
... .SOURCES SOURCES
Mortgage 830,000 579,713
Equity 128,597 ' 128,597
.Tax Rebate Financing 0 50,.287
TOTAL SOURCES 75,8/597 758.597
USES USES
Land= 45,0d0 45,000
Site Work' 22,500 22,500
Soil Correction 0 0
Demolition : 0 0
Relocation 0 01
Subtotal Land Costs 67,500 67,500
Construction 627,976 627,976
Finish Manufacturing 0 .0
*Subtotal. Construction Costs 627,976 627,976
Soft. Costs 10,000 10,000
Taxes 0 0
Finace Fees 21,882 21,882
Project Manager . 0 0
Develper Fee 0 0
Contingency, 31,239 31,239
Subtotal Soft Costs 63,121 63,121
TOTAL USES 758,597 758,597
Income Statement Income Statement
Sq, Ft. Per Sq. Ft. ~ Sq. Ft, Per'Sq. Ft.
Rent-Space 18,720 $5 93,800 18,720' $5 93,601
Vacancy Loss (936) $5 (4,680) (936) ' $5 (4,680)'
Other 0 $0 0 I $0 '0
Subtotal Rent 88,920 88,921
Mortgage. Z0 Te.rm 71,744 20 Term 66,050
9.75% Interest 9.75 % Interest
630,000 Principal 579,7,13 Principal
Net Income 1 '~I 176 22,870
Total Return on Equity 13.:37% 17.78%
NOTE:
Anticipating a 50% occupancy
first year
or a
negative cash flow of
$14,625
EO 39~d DOSSV QNV ±HDIBM C BLI~I~IB L~:~ 800E/§8/~8
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04/05/2000 22:37 6124415176 J WEICHT AND ASSOC PAGE
Exhibit B
R & W ENTERPRISES, L.L.C.
P. O. Box 368
Elk River, ':Minnesota 55330-0368
Telephonel. (763) '441-4112 Fax: (763) 441-5176
April 5, 2O00
.City of Elk River
13065 Orono Parkway
Elk River, Minnesota 55330
Attention: Mr. Marc D. Nevinski
Dear Marc,
In response to your letter of April 4, 2000, here is the information you have requested.
R.& W Enterprises, L.L.C. is.being formed: by, Mark Rothfork and John Weicht, who are
principals in two existing businesses in Elk River. The purpose of this new endeavor is to create'
needed commercial rental'space in the city of Elk River, Our plan is to build as demand
requires. This is not primary, to' either of.our businesses and growth will be restricted to
· capability to'carry vacant rental space until occupied.
Mark Rothfork, the "R", owns an existing building that houses his powder coating company,
Ultra Image, and rental space for three other businesses.
John Weicht, the "VV", is the managing paCtner in John C. Weicht & Assoc. LLP, a local general
contracting firm that specializes.in design build work in the commercial and industrial fields. With
other investoi's, he owns over $4';000,000 in other real estate holdings in the Elk-River area.
.. R & W Enterprises, L,L,C. will.be owned equally between the two par'[nets, unless financial
constraints dictate otherwise. The construction management, as well as future management will
· be done by John C. Weicht & Assoc. LLP..
There are no current prospects for te. nants; in this proposed buil.ding. Small industrial'tenants
cannot wait six months or 'longer when they need space. This has been verified by calls from
existing small industrial firms Ioo. king for immediate rental space. When we cannot help them,
they go elsewhere. We. feel EI.k River. is losing potential business because of a lack of adequate
space available for this type Of rental.
Thank you for your help in this matter.
.Sincerely,
John C. Weicht
R & W ENTERPRISES, L.L.C.
P. O. Box 368
Elk River, Minnesota 55330-0368
Telephone: 763/441-4112 Fax: 763/441-5176
BUSINESS PLAN
April 4, 2000
Triple net leases to average $5 per square foot:
18720 square feet at $5 equals $93,600
5% vacancy loss (4680)
Annual income $88,920
Bank loan:
$630,000 borrowed
20 year amortization at 9%% equals
Miscellaneous expenses:
Estimate
$5,978.70 monthly
$71,744.40 annually
$4,315.90
10% return on investment:
10% of $12,859.70 equals
$12,859.70
INCOME
Monthly Annually
Rental Rate $7,800 $93,600
5% Vacancy Loss (390) (4,680)
Net Income $7,410 $88,920
EXPENSES
Monthly Annually
Bank Loan $5,979 $71,744
· Note
Interest only during 18 months
Lease up 5,119 61,425
Miscellaneous Exp. 360 4,316
Net Expenses $5,619 $67,428
RETURN ON INVESTMENT Monthly
10% Return on $128,597 $1,072
Annually
$12,859
TAX REBATE FINANCING PROJECTION WORKSHEET
Project Name: R & W Enterprises
TRF Project #: 1
Date: 4-Apr-00
1st $150,000
Remaining Value
Tax Capacity Rate
City Portion
County Portion
School District Portion
0.02
0.03
1.19362
0.30194
0.31433
0.56032
Market Value I $
Years of TRF Project
I
Property's Total Tax Capacit~¢ $
730,000.00
4
20,400.00
Total Property Taxes $ 24,349.85 $ 50,287.63
City Portion $ 6,159.58 $ 24,638.30
County Portion $ 6,412.33 $ 25,649.33
School District Portion $ 11,430.53 $ 45,722.11
Tim
OF ELK l~IVER
Member FDIC
February 10, 2000
John C. Weicht and Associates LLP
Box 368
Elk River, MN 55330
RE: Commitment Letter to R & W Enterprises LLP
Dear John and Mark,
It gives our bank pleasure to provide this Commitment Letter to you in connection with the
construction of a building in the McChesney Industrial Park presently owned by Mark Rothfork.
AMOUNT: The maximum loan will be Six Hundred Thirty thousand dollars
($630,000.00) ....
II.
TERMS: The $630,000.00 loan will be repaid in monthly installments based on up to
a twenty-year amortization with interest computed on a 360-day basis with monthly
payments with interest only for up to the first eighteen months. The note would have
a five year maturity.
III. COLLATERAL: The Bank will have a First Lien position on the land and building.
IV.
LOAN AGREEMENT: The loan agreement will dictate the covenants of the loan as
it relates to financial reporting, defaults and acceleration clauses and insurance
coverage requirements.
V. INTEREST RATE AND FEES: Interest will be computed at a variable rate of New
York Prime (currently 8.75%) plus 1.00 (currently 9.75%) and the option to fix the
rate for five a_tier the eighteen (18) month interim period. One-half percent bank
origination fee plus out of pocket costs will be charged including lien searches, and
recording fees, appraisal, title insurance, flood check, etc.
VI. GUARANTORS: John C. Weicht and Mark Rothfork.
MAIN STREET OFFICE
630 Main Street
Elk River, MN 55330
(612) 441-1000
Fax (612) 441-0847
SCHOOL STREET OFFICE
846 Freeport Avenue
Elk River, MN 55330
(612) 441-9000
Fax (612) 441-0791
OTSEGO OFFICE
15800 88th Street NE
Otsego, MN 55330
(6 i 2) 441-77(X)
Fax (612) 441-7755
VII. CONTINGENCIES: This commitment is subject to the following:
1. Satisfactory receipt of appraisal for a minimum of $905,000.00.
2. Satisfactory receipt of a final approvals from the City of Elk River.
3. Satisfactory financial information provided to the bank on the borrower
and the guarantors.
41 Title Insurance insuring over mechanics liens with bank disbursement of funds.
Please sign the enclosed "copy" of this letter indicating your approval of this letter and along with
a check for $1,000.00 to be applied toward closing costs and return a copy in the enclosed
envelope by February 21, 2000. If you have any questions or points needing clarification, please
don't hesitate to call me. This commitment will expire in 60 days from the date of this letter.
Sincerely,
Jack E. Ellis
Vice President
F.,nc.
I, the undersigned, do accept this commitment.
Borrowers
R & W Enterprises LLC
Guarantors
John C. Weicht
Mark Rothfork
MEETING OF THE ELK RIVER
ECONOMIC DEVELOPMENT AUTHORITY
HELD AT THE ELK RIVER CITY HALL
MONDAY, MAY 8, 2000
Members Present:
President Dwyer; Commissioners Gongoll, Koenig, Klinzing,
Thompson, Farber and Motin
Members Absent: None
Staff Present:
Executive Director Pat Klaers; City Clerk Sandra Peine; Acting
Director of Economic Development Marc Nevinski
1. Call Meetin.q To Order
Pursuant to due call and notice thereof, the meeting of the Elk River Economic
Development Authority was called to order at 6 p.m. by President Dwyer.
Consider A.qenda
COMMISSIONER MOTIN MOVED TO APPROVE THE 5/8/00 AGENDA. COMMISSIONER
FARBER SECONDED THE MOTION. THE MOTION CARRIED 7-0.
3. Consider Consent A.qenda
The EDA requested the following corrections to the EDA Minutes.
April 10, 2000
· The meeting was called to order at 5:30 p.m.
April 14, 2000
· Strike Commissioner Bender and add Commission Koenig under
Members Present
COMMISSIONER KLINZING MOVED TO APPROVE THE CONSENT AGENDA AS
FOLLOWS:
3.1.
3.2.
3.3.
4/10/00 EDA MINUTES - APPROVED AS AMENDED
4/14/00 SPECIAL EDA MINUTES - APPROVED AS AMENDED
CHECK REGISTER - APPROVED
COMMISSIONER MOTIN SECONDED THE MOTION. THE MOTION CARRIED 7-0.
4. Open Mike
No one appeared for this item.
Consider Request for Tax Rebate Financin.q, John Weicht, R&W Associates
Acting Director of Economic Development Marc Nevinski indicated that John
Weicht of R&W Associates is requesting to use tax rebate financing ~RF) to
Economic Development Authority Page 2
May 8, 2000
construct an 18,000 square foot multi-tenant industrial building in the McChesney
Industrial Park. He noted that the total cost of the project is projected to be
approximately $758,000 and that Mr. Weicht is requesting that the city rebate its
portion of the taxes on the building for four years, which is $24,683 over the term
of the rebate period. Marc indicated that Mr. Weicht also intends to request
Sherburne County to rebate its portion of the taxes on the project for the same
four-year period. Marc explained that the project was rated by the TRF worksheet
which resulted in a moderately high rating of 33 points on a scale of 45.
John Weicht indicated that the lot on which he is proposing to build would
require a unique design to make a project without having to spend a lot of
money on soil corrections. He indicated that this is the last lot available in the
industrial park.
Commissioner Motin questioned how the but/for test was used in this case.
President Dwyer indicated that each request was tried on a case-by-case basis.
He explained that the present proposal includes working with a difficult piece of
land and shared parking, which causes some risk to the project. Commissioner
Thompson felt that the EDA might be setting a precedent if profitability is used as
a factor to determine whether TRF should be considered.
Commissioner Klinzing questioned Mr. Weicht regarding whether the project
would go forward without the use of TRF. Mr. Weicht indicated that there would
be no project without TRF.
Discussion was held regarding whether Sherburne County would approve the
request. John Weicht indicated that he would be bringing the request to
Sherburne County. He noted that if Sherburne County did not approve the
request, he would ask the city to extend its rebate to 8 years. It was the consensus
of the EDA that it would not approve an 8-year rebate, but would be in favor of a
four-year rebate for this project.
COMMISSIONER MOTIN MOVED TO APPROVE THE REQUEST FOR TAX REBATE
FINANCING BY JOHN WEICHT FOR A FOUR YEAR TAX REBATE PERIOD BEGINNING
WITH TAXES PAYABLE IN 2002. COMMISSIONER FARBER SECONDED THE MOTION.
THE MOTION CARRIED 7-0
6. Discussion on Jackson and Main Street Site
City Administrator Pat Klaers reviewed the issue of whether the EDA should
continue to hold onto the Main Street site and pursue marketing of the site or turn
the site over to the city for green space.
Commissioner Thompson noted that if the property was going to be held as
green space it should be turned over to the city. Commissioner Gongoll
concurred with Commissioner Thompson. Commissioner Motin indicated that he
felt the area should be preserved as green space, but felt the EDA should retain
the property as there are no present plans for the downtown area. Commissioner
Farber indicated that he concurred with Commission Motin.
Economic Development Authority
May 8, 2000
Page 3
COMMISSIONER THOMPSON MOVED TO TURN THE PROPERTY BACK TO THE CITY OF
ELK RIVER TO BE USED AS GREEN SPACE OR PARK PROPERTY. COMMISSIONER
KLINZING SECONDED THE MOTION.
Commissioner Klinzing indicated that the city should encourage groups who are
interested in developing the site. Commissioner Koenig indicated that some plans
should be in place prior to relinquishing title.
THE MOTION CARRIED 4-3. Commissioners Koenig, Farber, and Motin opposed.
6. Update on Director of Economic Development
City Administrator Pat Klaers updated the EDA on the status for the search for the
Director of Economic Development.
7. Other Business - Incubator Update
Acting Director of Economic Development Marc Nevinski informed the EDA that
he has received an application from a company to locate in the incubator. He
further informed the EDA that T1 lines have been wired in the incubator building
and that the cost to wire the suites is $500 to $1,000. He further noted that the T1
lines will hopefully affract some high tech companies.
8. Consider Offer to Settle Northstar Die Castin.cl Law Suit
COMMISSIONER GONGOLL MOVED TO CALL AN EXECUTIVE SESSION OF THE EDA
TO DISCUSS PENDING LITIGATION REGARDING THE NORTHSTAR DIE CASTING LAW
SUIT. COMMISSIONER MOTIN SECONDED THE MOTION. THE MOTION CARRIED 7-0.
10.
Adiournment
There being no further business, COMMISSIONER GONGOLL MOVED TO ADJOURN
THE MEETING. COMMISSIONER MOTIN SECONDED THE MOTION. THE MOTION
CARRIED 7-0.
The meeting of the EDA adjourned at 6:46 p.m.
Sandra Peine
City Clerk
?~.; du.~ ~ ~.o.n'MOnday,' May ?;..
~;:~ 22;~2000,.:at 6t'pm~;~ at~the',Elk Rive~;;~:-'
Cit~ ! Ha11,',i3065 i Oroiio. parkway, '! in
~ Section 1469,1812~th!migh
~iimende~ t0'cOnSider'a. Pf~posal.for the.
~?se,,~,of~ ~.'xRebate. Financing
~:.Ab~.' .t~.~}.~it):.~_' the construction of
~Vldaus~:~uflding' .on lot. 3,. block
~,'~ttefidf. th~?ublic beefing ~o expresS'~'e-
err.,:' qllestions, and/or ,commellts
'. Hearing ~mpaired persons planning to
attend;[~ho.ineed an interpreter 'or
other p~rsbfls with disabilities.wh0 }[
require'ai~xiliary aids should COntact :.~
Sandy Peine', City Clerk, at 4~14906
by MaY~IT;* 2000: If: you. would ~
.informatibn",~ regarding' the above-
d__~ lk~blic hearing notice, please~?
call Elk ~Elk,,P~?~ City Hall at 241-.~526. :
;~:~i_ ;~. '.';.~ ..... ~ ,., · .Mar~Nevinski
:~:~':~;~ iy-li~)jf~*~:~:''~' ~: ';.!"! "". Development..
~-'::'i;. f.i.~'-?.'.'~ ~...' . -- . . , .~.' '9..t. ..'