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7.0. EDSR 11-04-2005 ITEM # 7. City of Elk. River MEMORANDUM TO: Economic Development Authority FROM: Catherine Mehelich, Director of Economic Developments/1/�� DATE: November 14, 2005 SUBJECT: Consider Recommendation to City Council for Approval of Tax Rebate Financing Assistance for Quality Label, Inc. Project Attachments • Quality Label Preliminary Site Plan for Elk River Business Park • Tax Rebate Financing Policy& Quality Label, Inc. Application • • Tax Rebate Financing Proposal Review Worksheet Issue Staff has been working with Quality Label, Inc. for the past several months to identify a site and financing assistance to relocate and expand the company's operations to Elk River. The EDA is asked to review the company's request and consider recommending to the City Council approval of the Tax Rebate Financing (TRF) assistance request and business subsidy. Project Description Quality Label is a family-owned printing company specializing in labels for the food and beverage, health and beauty,promotional and medical industries. The company is owned by Jon Jacobs and Chad Johnson. The company currently employs 23 full-time staff with an average hourly wage of$21.00 per hour. In addition to the 23 current staff,within two years of the expansion the company proposes to create 15 new jobs with a minimum hourly wage of$15.00. The company anticipates the creation of 30 new jobs within a 5-year period. The company currently leases 12,000 square feet in Fridley and is seeking a location within the northwest metro area to relocate and expand in time for lease expiration in spring 2006. Quality Label proposes to construct a 25,000 square foot light industrial building on a 4.12- acre lot in Elk River Business Park, occupying 80% of the space and leasing out the 5,000sf balance. In the past year the company has experienced tremendous growth in the industry • and therefore intends to expand the building up to a total of approximately 58,000 square feet in the future. Consider Tax Rebate Financing Assistance for Quality Label,Inc. November 14,2005 EDA Meeting Page 2 of 2 Proposed Tax Rebate Financing Assistance • Quality Label has requested Tax Rebate Financing assistance from the City in the amount of $133,947. A matching amount is being requested from Sherburne County as well. In total the $267,894 requested financing assistance accounts for 75% of the land cost and is equal to $17,860 of assistance per new job to be created. Quality Label has submitted a complete application to the City for Tax Rebate Financing. Staff has evaluated the application based on the City's TRF Proposal Review Worksheet, which indicates that the project scored 36 out of 45 possible points,which equates to a "moderately desirable" project. In addition Ehlers and Associates has reviewed the but-for analysis for the project and recommends that while the return is not what the developer requested,it is sufficient to provide but-for motivation for the company to move forward with the project. Requested Action Staff requests that the EDA recommend to the City Council approval of providing Tax Rebate Financing assistance to Quality Label, Inc. in the form of a pay-as-you-go Tax Rebate Financing (TRF) note in the amount of$133,947 with the company receiving 100% of the annual TRF for a maximum period of up to 10 years. A requirement of the financing assistance will include a commitment from the company for the creation of 15 new full-time positions at a minimum hourly wage, exclusive of benefits required by law, of$15.00 within two years. • A City Council public hearing has been scheduled for November 21, 2005 to consider providing Tax Rebate Financing and business subsidy to the Quality Label project. • • S . , ..............,,....,„.....:.„.„..,...„.......„,....i ::_...4....„.„:,;;., :,;.„,,,,,,t. ..„"....:t....„..:7.7.,,,, ,,,,.:.,.::,...,..,......., • „:",•, • • ..... •• .. ... ......., „........,...........,:. . ..•:.,.„,..........••••.:......•• . . , ....... .,.. .... .... . .. ...., . ,,, . .. .. . . . . „ . . , ..... . .. .. ,_....,... .. .,... „....... .. .. ... . , ., .......... . . . ... ..., ...... , , . . . . ,. . ... ... . . . .. . . ••• ••• • •,.. . , :•• •. •, ••••....: •, .. .... „,, • ••••.,„...... . •.... .. ... . ... . : . .•...... :.•• ••.....,........,.. .. ......„.... , •:............... „..:. ,.•, ...,.:....,...„,.. .... ,.•. • ...„,... „.... ..... ,...... .._..,. .. ,....... .,. . . _ . .,. . . .... ... .. . , .... . .... . . - .. . . . .• ., . •• . ..... . . . . ... ., . . .• .. .. •.• •:. .. . .... • .... : . • ... ., ... . .. ... .... . . • . . . . . . .. , .. . . . . . . . . . . . .• . . . .. ... ... . . ... . . . .. ... . •• . . . . • .• . . .. • . . • •. . .. . ... ., .. . . ,. . ... .. ..____1.,..L.. • ‘„F-7-77.7-7T.7."-- - ...-.. .. . .. ... *. -2-,..,„. ,.. : . , .. .. • • . .... . . . . „ . . • • _•_."...• • . . •. • • ••. . _ • . . . . . • . _ •. . . . . . , . . .. . _ • 1 . 4„, . ‘ . . . • • , . z . 0 . , f- 1-- 1 g 43 0=. =•_- co _ •T3 • Fo ?4 13 c 0 I— Ca S3 c -i=• co -$ OCD •- - 1-1 -------11-1 — 0 = 0 co -___—} L — — — J • • i • o ... — M i 0 ._. _. co ,,,.. 8 ' ..„, ,.„. . 4111 , ._,. 1÷.. • \omit #0 City of Elk River • Economic Development Tax Rebate Financing Policy & Application Amended:August 2002 Adopted: April 10,2000 City of Elk River,Minnesota Table of Contents • I. Policy Purpose 3 II. Difference Between TRF & TIF 3 III. Objectives of Tax Rebate Financing 3 - 4 IV. Policies for the Use of TRF 4 - 5 V. Project Qualifications 5 - 6 VI. Subsidy Agreement & Reporting Requirements 6 VII.' Application Process 7 City of Elk River 7 Application to Other Political Subdivisions 7 VIII. Application 8 Applicant Information 8 Project Information 9 Public Purpose 9 Sources &Uses 10 Checklist&Additional Information 11 IX. Application Review Worksheet 12 X. Exhibits 14 A Corporation/Partnership Description B Project Description C Shareholders D But for Analysis E Prospective Lessees F Legal Description and PID Number XI. Sample But-For Analysis 15 • City of Elk River Tax Rebate Financing Policy,Amended August 2002 -2- • I. POLICY PURPOSE For the purposes of this document, the term "City"shall include the Elk River City Council,Economic DevelopmentAuthority,and Housing and Redevelopment Authority. 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 limitations 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 financing in Elk River is to encourage desirable development or redevelopment that would not otherwise occur but 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 wages 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. City of Elk River Tax Rebate Financing Policy,Amended August 2002 - 3 - • 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. IV. POLICIES FOR THE USE OF TRF a. TRF assistance will be provided to the developer upon receipt of taxes by the City, otherwise referred to as the pay-asyougo method. Requests for up front financing will be considered on a case-by-case basis. b. Any developer receiving TRF assistance shall provide a minimum of twenty percent (20%) cash equity investment in the project. Projects utilizing the SBA504 program will be required to provide a minimum of ten percent (10%) cash equity investment. c. TRF will not be used in circumstances where land and/or property price is in excess of fair market value. • d. Developer shall be able to demonstrate a market demand for a proposed project. e. TRF will not be utilized in cases where it would create an unfair and significant competitive financial advantage over other projects in the area. f. TRF shall not be used for projects that would place extraordinary demands on city services or for projects that would generate significant environmental impacts. g. The developer must provide adequate financial guarantees to ensure completion of the project,including,but not limited to: assessment agreements,letters of credit,personal guaranties, and etcetera. h. 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. i. 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. j. TRF proposals shall not be used to support speculative office projects. • Speculative projects are defined as those projects which have pre-leasing agreements or letters of intent for less than 50% of the available space. City of Elk River Tax Rebate Financing Policy,Amended August 2002 - 4- In addition,leasible office projects must meet the following guidelines: • 1. Evidence of the 50% occupancy must be reported to the Director of Economic Development six months following an issued certificate of occupancy. 2. 50% of the jobs within the leasible office building space must be considered"new" jobs to the City of Elk River,meaning jobs not located in the City at any time prior to occupying space in the project. 3. Business retention jobs will be considered on a one-for-one match to job creation only in cases where job loss is specific and demonstrable in accordance with the MN Business Subsidy Law. Evidence may include documentation that the company will have to close involuntarily,or the company has received an attractive offer to move to another state or community. k. All TRF proposals shall optimize the private development potential of a site. V. PROJECT QUALIFICATIONS All TRF projects considered by the City of Elk River must meet each of the following requirements: a. The project shall meet at least one of the objectives set forth in Section III of this document. • b. The use of TRF will be limited to: • Industrial development, expansion,redevelopment,or rehabilitation; or • Commercial redevelopment or rehabilitation; or • Research and development facilities that satisfy Business Park zoning requirements; or • Office facilities with a minimum new construction of 25,000 square feet and minimum market value of$1,000,000 upon project completion; or • Residential development and redevelopment may be eligible for TRF under a separate set of policies and only with the recommendation of the HRA. c. The developer shall demonstrate that the project is not financially feasible but for the use of TRF. Evaluation of the project's financial feasibility without TRF shall be provided by the City's financial advisor on requests of over $25,000 total. d. The project shall comply with all provisions set forth in the state's Tax Abatement Law, statues 469.1812 to 469.1815, as amended. • City of Elk River Tax Rebate Financing Policy,Amended August 2002 - 5 - e. The project must be consistent with the City's Comprehensive Plan,Land Use Plan,and Zoning Ordinances. • f. The project shall serve at least two of the following public purposes: • Job creation or job retention. • 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. VI. SUBSIDY AGREEMENT & REPORTING REQUIRMENTS All developers/businesses receiving Tax Rebate Financing assistance from the City of Elk River shall be subject to the provisions and requirements set forth by the City's Business Subsidy Criteria as adopted,and State Statute 116J.993 as summarized below. All developers/businesses receiving TRF assistance shall enter into a Subsidy Agreement with the City of Elk River that identifies: the reason for the subsidy,the public purpose served by the subsidy,and the goals for the subsidy,as well as other subsidy agreement criteria set forth by Statute 116J.993. The developer/business shall file a report annually for two years after the date the benefit is received or until all goals set forth in the application and Subsidy Agreement have been met,whichever is later. Reports shall be completed using the format drafted by the State of Minnesota and shall be filed 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 Agreement, 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 fines,repayment requirements, termination of the assistance,and be deemed ineligible by the State to receive any loans or grants from public entities for a period of five years. • City of Elk River Tax Rebate Financing Policy,Amended August 2002 - 6 - • VII. APPLICATION PROCESS FOR TRF A. CITY OF ELK RIVER 1. Applicant submits the completed application along with a$5,000 application fee. The application fee will be used toward the cost of services provided in the evaluation of financial feasibility and preparation of legal documents. The balance of the application fee will be returned to the applicant. 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,all necessary notices,resolutions and agreements 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. • B. APPLICATIONS TO OTHER POLITICAL SUBDIVISIONS It is recommended that applicants intending to seek TRF from Sherburne County and/or School District 728 make their applications to those bodies concurrent with their application to the City of Elk River. For more information on applying for TRF through Sherburne County and/or School District 728,contact: Brian Benson Sherburne County Administrator 763-241-2701 Dr.Alan Jensen Superintendent- School District 728 763-241-3400 • City of Elk River Tax Rebate Financing Policy,Amended August 2002 - 7 - . VIII. APPLICATION FOR TAX REBATE FINANCING A. APPLICANT INFORMATION 4 Name of Corporation/Partnership 0 U e..\ �'-\e-ta Gi i ®r- `" Sip (3 L"t-G Address -7-18c 1`0`4•64.k.i5 Q;�..c)1/4 -GI 8i , 014 S5"y3L Primary Contact Jav^ ✓0,606 Address ICU 1 AN 1 6...1- 1--Q.Nt. Lorc t0 . $i 5:53,51 Phone-Ws-3G,C5-Z61a Fax 763- b2-113‘ Email sso-uobs e Q L.,t\,coM 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. ii • A but for analysis and narrative. Attach as Exhibit D. Attorney Name C...--rtJ .f5a.n AoSow I fO;nnSoA . /N k 14-n Address t(.,00 Pa..r' Qaitd,ti� 65b i r Apt. S S . �Mpkk tM, 55kct- 6‘2,Phone 6� 335E 015. Fax 60-f3N5-6118 Email Ali AA c 6.K-fici m.,, Accountant Name 14A;\Ce-- CchU-t-fr bra.Utf Address 11 ' Ohms LA '-L- Cc r , PAn 554/39 Phone 151 1110- Fax Fax 95 2-520-5'1 V6 Email rI a $ e..Wyk„a-6.14,, •tatt") Contractor Name Amc.on,) Address Phone Fax Email Engineer Name Address , Phone Fax Email Architect Name Address Phone Fax Email i City of Elk River Tax Rebate Financing Policy,Amended August 2002 -8 - B. PROJECT INFORMATION -,4 1. The roject will be: Industrial: -A New Construction Expansion Redevelopment/ Rehab. Office/research facility that conforms to business park standards Commercial Redevelopment/Rehabilitation Other 2. In addition to the City of Elk River,applicant is requesting TRF funds from: '\°ems ,0Cz- X Sherburne County School District 728 (,d*1 z ,� 1/ 3. Theproject will be: Owner Occupied Leased Space ® t �`•Tv /`,/ Ct..,‘ • 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 7X .-V na til\-Y\ 41 C f c C. • Include Legal Descriptio tnd PID umber. Attach Ex obit F 75--Co 5 9'— O Z/0 k t t t r c , rke sj pct., K_ L 2, X14 2 5. Site Plan Attached: X. Yes No 6. Total Amount of TRF Requested: 0 7 over years. City Portion of TRF: Annual$ Total$ County Portion of TRF: Annual$ Total$ ISD 728 Portion of TRF: Annual$ Total$ ill 7. Current Real Estate Taxes on Project Site: $ ` l v ? A <;50� Estimated Real Estate Taxes upon Completion: Phase I $ Sy, 9 9 6 Phase II $ 8. Construction Start Date: act 4 • 1 ;:)-0bConstruction Completion Date: �L L.) c)-,00 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 this project will serve a public purpose. YJob Creation/Retention Number of existing jobs 13 /5-- 2 1 Number of jobs created by project 30 — /z4 Average hourly wage of jobs created/retaine4a 1.00 X New industrial development which will result in additional private investment in the area. XEnhancement and/or diversification of the city's economic base. 5(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. i _Other: City of Elk River Tax Rebate Financing Policy,Amended August 2002 9 - D. SOURCES & USES SOURCES NAME AMOUNT Bank Loan Nar-fi�t A\Q- $ 1i6/V)/ 000 ) 75 Z Other Private Funds TAS^-Szts $ Equity ac4 be/43 I C huna4,. $ 89 't�"'l 8 /S� Fed Grant/Loan tJ $ State Grant/Loan $ EDA Micro Loan $ —/ ii � Tax Rebate Financing $ ? C7/ ©j f Si ) /aZ ID Bonds $ TOTAL $ at (0'07 ( /J. USES AMOUNT 7( Land Acquisition $ 357( (1(), ) / 9?/5`' Site Development $ Oo S� /45-.a"9� Construction $ 1("Tr? , u0 Machinery&Equipment $ Architectural&Engineering Fees $ 0 l d Legal Fees $ s 8 Interest During Construction $ el S Q 40 Debt Service Reserve 411 Contingencies f'o1 $ �d O TOTAL $ dr L�a r 1 I X- • City of Elk River Tax Rebate Financing Policy,Amended August 2002 - 10- E. ADDITIONAL DOCUMENTATION AND CHECKLIST Applicants will also be required to provide the following documentation. 4 4A) Written business P lan,includinga description of the business, ownership/management, date established,products and services,and future plans 4) Fina ial Statements for Past Two Years rofit&Loss Statement , ✓ Balance Sheet Z/C) Curr Financial Statements �/ /Profit&Loss Statement to Date Balance Sheet to Date ZDvzTwo Year Financial Projections ✓N') Pers Financial Statements of all Major Shareholders /Profit&Loss V Current Tax Return V G) Letter of Commitment from Applicant Pledging to Complete uring the Proposed Project Duration 141) Letter of Commitment from the Other Sources of Financing, Stating Terms and Conditions of their Participation in the Project 00 I) Application fee of$5000 ‘Z"---;) Itemized Project Construction Statement K) Attach the following documentation as Exhibits xhibit A-Corporation/Partnership Description vExhibit B—Description of Project ✓/Exhibit C—List of Shareholders/Partners •/ iExhibit D—But-For Analysis V Exhibit E—List of Prospective Lessees /Exhibit 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 the City of Elk River to check credit references,verify financial and other information,and share this information with other political subdivisions as needed. The undersigned also agrees to provide any additional•0 ormation .: , be requested by the City after the filing of this application. Applicant Name _ DateC III City of Elk River Tax Rebate Financing Policy,Amended August 2002 - 11 - • TAX REBATE FINANCING PROPOSAL REVIEW WORKSHEET Tn RF C(1MPI FTFfl RV CITY STAFF 1. The project meets the criteria set forth in Section V of the Tax Rebate Financing policy. L a) Meets at least one of the objectives in Section III. ,V b) Demonstrates need for TRF with the but for analysis. t' c) Consistent with all city plans and ordinances. // d) Serves at least two public purposes as defined in Section V. 2. Ratio of Private to Public Investment in Project: Points: $2 33 2rivate investment �;1-- $ 7 89y Public Investment 4:1 4 E. 7 Ratio Private : Public Financing 3:1 3 2:1 2 Less than 2:1 1 3.Job Creation in the City of Elk River: Points: 3 /S Number of new jobs as a result of the project. 25+ 5 23 Number of existing/retained jobs 20+ 4 3 S Total 10+ 2 • Less than 10 1 4. Ratio of TRF to new jobs created/retained: Points: / $14 7 9y TRF request $8,000 or less 5 /5– Number of new jobs created/retained $10,000 or less 4 $ /7j 260 of TRF per new job created /retained $12,000 or less 3 $15,000 or less 2 veP' 15,000 i- 5.Wage Level of jobs created: Points: Average hourly wage Over$21/ hour 5 of jobs created/retained: • 00 2i18-21 / hour $14-17 / hour 3 $10-13 /hour 2 Under$10 / hour 1 6. Project size: Points: 3 The project will result in the construction 40,000+ 5 of square feet 2S,4Dcp0 30 000+ 4 <-20,000+ 3�� 10,000+ 2 10,000 or less 1 S City of Elk River Tax Rebate Financing Policy,Amended August 2002 - 12- • 7. Type of Project: Points: 9 100% Owner Occupied it Mix Owner Occupied&Investment 4 Investment Property 3 8. Use: Points: S- 1/ 1 Industrial or Business Park Project Commercial Rehabilitation/Redevelopment 4 9.The project will pay annual Points: 6— property property taxes in the first fully assessed year of$ J' y 9p/C, 25,000+ 4 15,000+ 3 10,000+ 2 Under$10,000 1 10. Likelihood that the project will result in Points: 3 unsubsidized, spin-off development. High 5 1," Moderate 3 Low 1 Sub -Total Points: 33 of a possible 45 points. • 9. Bonus Points Bonus Points: 3 V The project will be 100%Pay-asyougo TRF. 3 points 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: 3� Overall project analysis: Hih45-38 oints rate 37-29 pninr� Low 28-20 points Not Eligible 19-0 points • City of Elk River Tax Rebate Financing Policy,Amended August 2002 - 13 - REJournals.com- Surging demand for industrial space highlights 3rd quarter Page 1 of 2 IN` FORMATIO • e� _ iii , S�zaf%sl2rd.....,..L,sSb�£-�'� u.,�.���'.t.�..'�.s�/ �£.����.m. 'o-�.aSx_���M� ,.. ,,,„,„:„. /,.,, MINNESUTA '1 t.,,,l,,',kl.:, IIIG�� * i du dal Re 1 E tateMOINESOTRa REAL ESTATE JOUR December 7,200 �n Logistics«� � I ARCHIVES% ; * y .,.., , , CONFER/NOM( , Oct. 28, Friday October 28 2005 Surging demand for industrial space highlights 3rd Clic quarter ti CTMT report also finds office vacancies are down 0 pa oStaff Writer REJournals.com pr Surging demand for industrial space in the northwest and southwest sectors of COW the Twin Cities highlighted the commercial real estate picture in the third quarter, according to a report from Colliers Turley Martin Tucker (CTMT). 3 I Meanwhile, the office market continued a slower but steady improvement with vacancy rates in the seven-county metro area dropping half a percentage point to 18.5 percent. `M" il In the northwest sector, an impressive 410,000 square feet of industrial space absorption was posted in the third quarter, closely followed by 340,000 square • feet in the southwest. Office warehouse space accounted for the lion's share of the improvement. 4004 Overall in the Twin Cities, industrial vacancy rates plunged from 15.3 percent to 13.8 percent in the third quarter, with continued vacancy declines predicted. On the office side, the CTMT report found declining vacancy rates for the fourth ,i?Da x hVe*- straight quarter. Absorption, however, at 89,000 square feet represented a musts significant slackening of the pace posted in the previous quarter, when 290,000 square feet were absorbed. I Mf Class A and B space fared well, but Class C space suffered. The latter showed a distressing 451,000 square feet of negative absorption. It wasn't enough, E. ''. however, to offset the 1 million square feet of positive absorption posted by classes A and B. Ad CTMT cites a strengthening local economy, with the biggest job gains in the professional and business services, health and education services and leisure and hospitality sectors. It also notes that nearly 129,000 new residents were added to the metro area between 2000 and 2004, the equivalent of the combined populations of Bloomington and St. Louis Park. RE4 H To i 1111 Our http://www.mrej.com/story.cfm?Market=MN&StoryID=13777 10/28/2005 Due north: Promise of commuter rail, diminishing open space contribute to rising land val... Page 1 of 3 The Minneapolis/St.Paul Business Journal-October 17,2005 http://twincities.bizjournals.com/twincities/stories/2005/10/17/focusl.html • I'•:. ATIC I rrifE Wilk KAMA*V,PArt,S b t 7 Web exclusive Main Street Hotspots We find the best job markets among the nation's small towns and cities. C ' » Find out more » Best towns with up to 50,000 jobs I » Best towns with up to 100,000 jobs f : M " e Best towns with up to 250,000 jobs IN DEPTH: COMMERCIAL REAL ESTATE: NORTHWEST From the October 14,2005 print edition Due north: Promise of commuter rail, diminishing open space contribute to rising land values in northwest 'burbs Elizabeth Millard Contributing writer Tim Yantos still remembers the cornfields. There used to be acres of them in the northwest suburbs, even though the farms were just a short drive from the metro area. But with a proposed Northstar Commuter Rail to snake from St. Cloud to Minneapolis, shrinking land availability throughout the Twin Cities, and a retail and industrial development boom, it looks like the corn will • have to come from somewhere else. "Even before the commuter rail stations are built,we're seeing huge developments all along the corridor," said Yantos,Northstar Corridor Project director for Anoka County. "The northwest area is one of the fastest- growing in the state, and even in the country. The desire to live and work in that corridor is driving up the land value." Others in real estate agreed. "Part of the reason there are escalating land prices in the northwest is simply because there isn't much land left in the other suburbs," said Chris Little, land specialist at Colliers Turley Martin Tucker in Minneapolis. Contributing factors The 82-mile corridor most affected by these rising land values runs along Highway 10 and Interstate 94, from downtown Minneapolis to the St. Cloud area. Now in its initial phase, a commuter rail will run within this corridor on a 40-mile line, with six stations, including Fridley, Coon Rapids,Anoka and Big Lake. In some ways,the proposed Northstar line and the northwest building boom have fed off each other, rather than one spurring the other's growth. As the northwest corner of the Twin Cities began to develop,proponents of the commuter rail identified future stations based on where the most development was occurring. Once station locations were proposed, developers began planning new residential and commercial projects based on the fiapromise of those sites. There are a number of reasons that development has been so active in the area,however. A major driver, according to developers and business owners, is the existence of major roadways such as I-94 and Interstate http://twincities.bizjournals.com/twincities/stories/2005/10/17/focusl.html?t=printable 10/18/2005 Due north: Promise of commuter rail, diminishing open space contribute to rising land val... Page 2 of 3 694,which provide the infrastructure necessary for large-scale developments. II) "Because of I-94 and the interchanges off that,the northwest quadrant will probably see a higher proportion of growth than other sectors," said Collin Barr,vice president of development at Ryan Cos.US Inc. in Minneapolis. "The southwest is trying to grow at the same pace,but it doesn't have something like 94 in place yet. So,the northwest will be the quadrant that attracts the most commercial development in the next few decades." Another contributing factor to the rising prices is the rebounding industrial marl{e,t, Little said. "It's coming back, and that's driving up the land values. Although there's a big retail push, the industrial market is turning out to be the most active right now." Spurring development As developers turn their attention to the northwest suburbs, city planners in the area have been quick to respond. In November, Elk River officials announced they would open about 100 acres of city-owned land for industrial development. Other cities, such as Rogers and Maple Grove, eagerly welcomed retail, industrial and residential projects,bringing in developers who found Anoka and Ramsey were running short on land. Although companies have the option of developing industrial parks and commercial space farther outside the metro, Little said second- and third-ringsuburbs are provingmore attractive because sewer and water services are generally already provided by the Metropolitan Council. Undeveloped communities would require greater expense and effort to install such systems; so although land costs might be lower than those in the northwest suburbs, overall development costs might turn out much higher. • Glimpse of the future Rogers, in particular,has become a model for the type of growth that's likely to spread throughout the northwest suburbs, Little said. Several new industrial developments have sprouted up within the past few years as land has become scarce in other areas. Thorpe Distributing Co., a distributor of Anheuser-Busch products, was formerly located in Medina. When it needed to expand its facilities two years ago, company officials discovered the city didn't have enough room for the additional warehouse space it needed. "We would have preferred to stay where we were,but there was too little land available," said Jack Stevenson, Thorpe's vice president of sales and marketing. The company chose to build in Rogers because the city had the highway system nearby and large tracts of space. Stevenson said rising land values and the boom in development within just the past year have made company officials glad they moved when they did. "What we bought even two years ago would be much more expensive now," he said. "And I don't even know that we'd get it. There's hardly any land left in Rogers to buy." The city is likely to see another building boom now that Cabela's has opened its vast$50 million store, featuring an aquarium stocked with sport fish, an indoor archery range and shooting gallery and a 28-foot-tall mountain. The 188,000-square-foot facility is more than four times the size of an average Best Buy store. • Although retail endeavors traditionally don't drive land-value increases,the enormity of Cabela's undertaking is expected to draw more commercial and retail interest, raising already climbing land costs. http://twincities.bizjournals.com/twincities/stories/2005/10/17/focus l.html?t=printable 10/18/2005 Due north: Promise of commuter rail, diminishing open space contribute to rising land val... Page 3 of 3 Unlike Thorpe,however, Cabela's didn't choose the location based on land availability. • "Anyone who's ever been on 694 or 94 on a Friday afternoon will know why we put the store where we did," laughed John Castillo, Cabela's spokesman. "If you're not behind someone pulling a boat,you've probably got one hitched up yourself." The store is hoping to attract those who are on their way "up north"to cabins, along with other visitors. Castillo estimated that nearly 4 million people will visit the store each year. "When you have that many people going through an area, it's going to attract more development, especially in terms of retail and hotels," Little said. "And when people are interested in developing, land prices go up." Elizabeth Millard is based in St. Louis Park. ©2005 American City Business Journals Inc. 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