2.3. SR 08-25-2004Elk RAver
Municipal Utilities
13069 Orono Parkway
Elk River, MN 55330
Item ~ 2.3.
phone: 763.441.2020
Fax:763.441.8099
August 16, 2004
To:
Elk River City Council
Elk River Municipal Utilities Commission
From: Bryan Adams
Subject:
Downtown Revitalization Project
The Downtown Revitalization Project continues to move along with Metro Plains
Development as the developer. This entails redeveloping the Bluff Block and Jackson
Block of our downtown area. One area of significant upfront cost is the WAC and SAC
fee of $1500 and $2000 per unit respectively. Pat Klaers has asked if the Elk River
Municipal Utilities would forgo the upfront WAC fee payment and be agreeable to
collect this fee over time through the TIF reimbursement.
In an effort to support this project, this appears to be a reasonable strategy as long as the
SAC fees are treated in the same fashion and this is not viewed as setting precedence for
future developments.
MEMORANDUM
Item ~ 2.3.
TO:
FROM:
DATE:
Mayor & City Council
Elk River Municipal Utilities Commission
Catherine Mehelich, Director of Economic Development,t~.~
August 25, 2004
SUBJECT:
SAC and WAC Fees for Downtown Redevelopment Projects
and General Update on Status of Parking Lot Expansion
Plans/Utilities Building Removal
Attachments · Downtown Revitalization Project - Project Description, June 2003.
· Memo from Sid Inman, Ehlers RE: MetroPlains But For Analysis, August 19, 2004.
Background
Since 2002 the HRA and City Council have been working with MetroPlains Development
for a redevelopment project in downtown Elk River. The project, as described in the
attached fact sheet, includes development of housing and commercial on the Bluff Block
and Jackson Block. The project is in the stage of establishing a Tax Increment Financing
(TIF) district and drafting a final development agreement.
Issue for Discussion
If necessary to make the project financially feasible the City has offered to reduce, waive, or
delay payment of the SAC and WAC fees, with the understanding that the utility commission
must approve the WAC reduction or waiver. The attached memo from Sid Inman of Ehlers
& Associates describes the method in xvhich the need for financial assistance will be
determined. In addition the City has retained the ability to be reimbursed for any SAC and
WAC reductions and a cost for Jackson Block land annually through market value inflation
of the project over the 25 year TIF term.
Staff has estimated the following SAC and WAC amounts for the proposed project:
Bluff Block
Residential (68 ~ 0.8 = 54.4 units)
WAC Rate $1,500/unit
SAC Rate $2,000/unit
Total Due $102,000
Total Due $136,000
SAC and WAC Fees for Downtown Redevelopment Projects
August 25, 2004 Special Meeting of City Council and Elk River Mumcipal UtiLities
Page 2 of 2
Bluff Block continued
Commercial (7 Units)
WAC Rate $1,500/unit Total Due
SAC Rate $2,000/unit Total Due
$ 10,500
$ 14,000
Jackson Block
Residential (32 ~ 0.8 = 25.6 units)
WAC Rate $1,500/unit
SAC Rate $2,000/unit
Total Due $ 48,000
Total Due $ 64,000
Commercial (10 Units)
WAC Rate $1,500/umt
SAC Rate $2,000/unit
Total Due $ 15,000
Total Due $ 20,000
Totals WAC $175,500
SAC $ 234,000
Staff requests the Council and Utilities Commission discussion and direction regarding how
SAC and WAC fees could be calculated for this and furore downtown redevelopment
projects.
City
Rdver
PROJECT DESCRIPTION
JULY 2003~...~egl&g~-- , ~'
~_~~Enhancing Downtown Elk River's Role
al Retail, Commercial and Residential Area.
Primary Goal of Downtown
Revitalization Project:
To assure the long-term viability of downtown by mak-
ing a connection to the rest of the community and by
utilizing the riverfront location. Redevelopment will
enhance downtown Elk River's role as a residentiaJ,
retail and commercial area and also revitalize invest-
ment in the downtown business district.
Development Objectives:
. Mixed use (residential/retail/service)
. Consideration of the historic context study results
. Strengthen connection to the community
· Traditional downtown design elements
o Brick, stucco, stone materials with visual breaks in
the building design
o Increased residential density
Pedestrian orientation
o Increase exposure tothe riverfront
o Recognize those buildings that have potential
for rehabilitation
· Replace market/economic obsolete buildings
o Multiple types of housing products
(i.e. townhomes, senior rental coops,
market rate apartments)
· BLUFF BLOCK DEVELOPMENT
-- 10,000 s.f. commercial on first floor along
Main Street ($13/s.f. avg. rent)
-- 52 units of for-sale housing
-- 3 and 4 stories
-- 70-80 below grading parking stalls for housing
& commercial residents
-- Connection to City's Riverwalk development
· JACKSON BLOCK DEVELOPMENT
-- 10,000 s.f. commercial on first floor along
Jackson Street and at the corner of Jackson
and Main
-- 32 units rental housing (16 1-bedroom units at
$600 per month & 16 2-bedroom units
at $700 per month)
-- 3 stories
-- Up to 52 below grade parking units for housing
residents and commercial and 18 surface units
· JACKSON BLOCK DEVELOPMENT
EHLERS
& ASSOCIATES INC
From:
Date:
Subject:
Cathy Mehelich, City of Elk River
Sid Inman, Ehlers & Associates, Inc.
August 20, 2004
Metro Plains But For Analysis
As you are aware, the tax increment statute requires that when the city council approves a tax
increment plan it makes a finding that the "proposed development" would not be expected to occur
solely through private investment within the reasonably foreseeable future. This is sometimes
referred to as the "Bur For" test. To evaluate this "But For" test, Ehlers has been reviewing the
developer's request and has been preparing certain review documents.
These analyses are in three forms. The first looks at the for-sale housing part of the project and
measures the amount of assistance needed based on a redeveloper profit standard. The next analysis
looks at the retail part of the project and reviews the project from what is referred to as "cash on
cash" return. The last looks at the rental housing part of the project and measures the developer fees.
These analyses are based on what is currently considered a "market project" and bench marks the
developer's request against the market. Any assistance given is used to get the project to what is
referred to as financially feasible. Therefore, what is recommended as total assistance in the
development agreement is based on this analysis.
At this point we have agreed with the redeveloper on what we think will be the costs and the incomes
of the project. Since all of our analysis is based on assumptions, there is a chance that the project
could perform better, and in that case it could be argued that we provided the redeveloper too much
assistance. In order to account for this event we have in the redevelopment contract a "Look Back"
provision. This means that after the project is completed, we will review what actually took place,
and if the returns and profits were higher that anticipated, the assistance would be reduced. If the
project did worse that expected, then the assistance does not change.
At the current time the assistance the city could provide may come from three sources. First tax
increment assistance, next a reduction of the cost to the developer for buying the Jackson Block and
last a reduction of the SAC and WAC charges. The amount of this assistance will be based on the
analysis discussed above. If the city provides a land write down and SAC and WAC reductions,
these amounts including interest, will be paid back to the city using tax increment based on increase
market value over the life of the tax increment district. While the final term will be based on the
projects market values, it is currently estimated that if all of the assistance was needed it would take
20-22 years of annual principal and interest payments to pay back the assistance to the city.
Please let me know if you have questions or comments.
LEADERS IN PUBLIC FINANCE
3060 Centre Pointe Drive
Rosevi[Le, MN 55113-1105
Phone: 651-697-8507 Fax: 651-697-8555
sid®eh[ers-inc.com