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6.0. EDSR 02-12-2001 Li``2 ELK RIVER ECONOMIC DEVELOPMENT : TJZITY 0 MEMORANDUM TO: Economic Development Authority FROM: Lori Johnson, Finance Director DATE: February 12, 2001 SUBJECT: Consider TIF 19 Contract for Private Redevelopment Initial Improvements BACKGROUND The EDA entered into a Contract for Private Redevelopment between the EDA and Associated Investors of Elk River,Fisher Sand & Aggregate, LLP, and Elk River Business Park, LLC(Redeveloper) on July 30, 1999. The Contract requires the Redeveloper to meet certain building construction requirements (Improvements) in order to be eligible for Tax Increment Financing(TIF) assistance from TIF 19. Because the • Redeveloper did not meet the requirements of the"Initial Improvements" which were to have been completed by December 31, 2000, staff is requesting that the EDA take action on this default. It is important that the Contract is followed in all respects in order to meet the stringent requirements placed on the administration of TIF districts and to ensure that all TIF payments and uses are clearly authorized by and made in strict accordance with the TIF documents. Therefore, EDA action is required on this default to determine the TIF assistance allowable under the Contract. Staff has reviewed this issue in detail with the City Attorney. It was our conclusion that a letter of default should be send to the Redeveloper. Attached is a draft letter prepared by Peter Beck to the Redeveloper that outlines in detail the requirements of the Contract and the remedies available to the EDA to address this default. If the EDA approves, this letter will be sent to the Redeveloper. Please refer to the letter for the details of the Contract that relate to this default. It is important to know that, although the Redeveloper is in default,this default does not negatively affect the tax increment that will be received from TIF 19. In fact,the Initial Improvements required that 140,000 square feet of retail/commercial space be constructed by December 31, 2000, and, as of that date, there were 120,327 square feet already occupied (Home Depot) and another 140,991 square feet very near completion (Wal-Mart). The Initial Improvements lso required construction of 50,000 square feet of industrial space. A 50,687 square foot i dustrial building is currently under construction Sand may be completed in the next few' eeks; obviously, it was not completed by December 31, 2000,as required by the greement. This building does not affect TIF 19 13065 Orono Parkway • P. O. Box 490 • Elk Riv r, MN 5.5330-1743 • (612) 441-7420 • Fax (612) 441-7425 Equal Opportunity Housin and Equal Opportunity Employment • tax increment revenue although the construction of industrial building space is the major objective of this Contract so it is imperative that industrial space be constructed pursuant to the Contract. Finally, the remedies available to the EDA to address this default are listed on the second page of the attached letter. Peter Beck and staff will be present at the EDA meeting to discuss these options and current action required by the EDA. Redeveloper representatives may also be present, as they have received verbal notice of default. ACTION REQUESTED The EDA is asked to consider putting the Redeveloper on formal notice of the Event of Default by mailing the attached letter. • 02/08/01 17:33 FAX LC8500 Lj002 3400 CITY CENTER CONSULTING OFFICE,BEIJING CHINA , 4_ A. 33 SOUTH SIXTH STREET MINNEAPOLIS,MN 55402-3796 • I t I 1612 343-2800 ?ILO,; "k FAX:612 333-0066 WEB SITE: www.gpmlaw.com • Peter K.Beck 612 343-5374 February 8, 2001 Associated Investors of Elk River, Inc. do Fischer Sand&Aggregate Co. 14698 Galaxie Avenue Apple Valley,MN 55124 Anthony Gleekel Siegel, Brill, Greupner, Duffy&Foster,P.A. 1300 Washington Square 100 Washington Avenue South • Minneapolis,MN 55401 Re: Contract for Private Redevelopment by and between the Economic Development Authority in and for the City of Elk River and Associated Investors of Elk River, Inc., Fisher Sand and Aggregate,LLP, and Elk River Business Park,LLC Dear Sirs: Section 3.2(i)(1)of the Contract for Private Redevelopment ("Redevelopment Agreement")by and between the Economic Development Authority in and for the City of Elk River("Authority") and Associated Investors of Elk River,Inc.,Fisher Sand &Aggregate, LLP, and Elk River Business Park,LLC (collectively"Redeveloper")requires that the Redeveloper obtain a certificate of occupancy for all"Initial Improvements"no later than December 31, 2000. Pursuant to the agreement,"Initial Improvements"means construction by redeveloper of a minimum of 140,000 square feet of building space for retaillcommercial purposes on the Shopping Center Property,and 50,000 square feet of building space for light industrial purposes on the Business Park Property. It has come to the Authority's attention that, as of December 31, 2000,the Redeveloper had obtained a certificate of occupancy for approximately 120,000 square feet of building space for retail/commercial purposes on the Shopping Center Property, and had not received a certificate of occupancy for any building space on the Business Park Property. Since December 31, 2000, a certificate of occupancy has been issued for an additional 140,000 square feet of • building space for retail/commercial purposes on the Shopping Center Property, but no certificate of occupancy has yet been issued for any building space on the Business Park Property. GRAY, PLANT, MOOTY, MOOTY & BENNETT, P.A. ATTORNEYS AT LAW 02/08/01 17:33 FAX LC8500 003 • Page 2 February 8, 2001 Failure to obtain the certificates of occupancy as required by the Redevelopment Agreement is a serious matter. There were many reasons for the development schedule set forth in the Redevelopment Agreement, including: • To ensure that adequate tax increment is available to fund City and Authority costs; and • To ensure that development of the business park, a primary objective of Tax Increment Financing District No. 19,proceeds in a timely manner. The development to date on the Shopping Center Property ensures that adequate tax increment will be generated from the Shopping Center Property,to meet the projections set forth in the Tax Increment Financing Plan for Tax Increment Financing District No. 19. However, it is still imperative that the primary goal of TIF District No. 19 and the Redevelopment Agreement, timely development of the business park,be realized. Pursuant to the Redevelopment Agreement, the Authority has a number of remedies for default available to it, including: • Suspension of payments due on the notes issued pursuant to the Redevelopment • Agreement (Section 3.5(a)); • Return of the initial payment made to Redeveloper(Section 4.4(a)); and • Termination of the Redevelopment Agreement(Section 8.2). This letter is to put Redeveloper on notice that an Event of Default has occurred and that Authority will suspend its performance under the Redevelopment Agreement and the Note until it receives assurances from Redeveloper, deemed reasonably adequate by the Authority, that Redeveloper will cure its default and continue its performance under the Redevelopment Agreement. Pursuant to Section 8.2 of the Redevelopment Agreement, these assurances should be received within thirty days of this notice to ensure that Authority does not enforce any of its remedies under the Redevelopment Agreement. If the Authority does not receive assurances within thirty days that Redeveloper will cure its default, Authority will determine at that time what remedies it will exercise. The Authority anticipates that the default which has occurred will be remedied and looks forward to hearing from you that: • The defaults identified in this letter will be remedied and a certificate of occupancy will be obtained for a minimum of 50,000 square feet of building space on the Business Park Property; and • Development of the Minimum Improvements will proceed as required by Section 3.2(i) of the Redevelopment Agreement and there will be no further defaults in the • development of the Minimum Improvements. 02/08/01 17:34 FAX LC8500 x]004 Page 3 February8, 2001 • Very truly yours, GRAY, PLANT, MOOTY, MOOTY&BENNETT,P.A. By Peter K.Beck PKB:sea cc: Richard Martens GP:770455 vl • 0 .