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EDSR MEMORANDUM 04-13-2000 \;,4 ityof Jlk River MEMORANDUM TO: Economic Development Authority FROM: Marc Nevinski, Acting Director of Economic Development DATE: April 10, 2000 SUBJECT: EDA Meeting Agenda 5. Discuss the Appointment of Larry Koenig to the EDA Mayor Klinzing is considering the appointment of Larry Koenig to the EDA to fill the vacancy left by Tom Bender. However, the Mayor requests that the EDA provide input on the matter before the recommendation is presented to the City Council. 6. Update of Strategic Industrial Marketing Plan —Anita S. Duckor Anita S. Duckor, of Duckor & Associates, will discuss the progress to date • of the Strategic Industrial Marketing Plan and highlight several key pieces of information that have been produced thus far. Attachments • Phase I — Informational Analysis • Phase II —Assessment 7. Public Hearing— Consider Adoption of Tax Rebate Financing (Tax Abatement) Policy Issue As you will recall, the EDA reviewed the proposed Tax Rebate Financing policies at its March 13, 2000 meeting and provided staff with feedback. Several modifications have been made and are presented for your review. Background The EDA's primary issue of concern related to the use of TRF for residential projects (Section V, Subdivision b) that served a public purpose. Staff has amended the provision to allow residential projects to utilize TRF under a separate set of housing guidelines and only with the recommendation of the HRA. Although additional research is needed before a set of housing guidelines can be drafted, TRF would only be • provided to residential projects that would fill a need not met by the market. 13065 Orono Parkway • P.O. Box 490 • Elk River, MN 55330 • TDD &Phone: (612)441-7420 • Fax: (612) 441-7425 • No other significant changes have been made to the policy since the last EDA meeting; The only other changes have been minor clarifications of the document's provisions and appearance. Action Requested State law requires that a public hearing be held on the Tax Rebate Financing policy before it is adopted. Staff recommends that the EDA consider any input provided at the public hearing and then adopt the TRF policies. Attachments • Tax Rebate Financing Policy 8. Consider Tax Rebate Financing Application—John Weicht, R&W Enterprises Issue The issue before the EDA tonight is to consider a request by John Weicht to use tax rebate financing in the construction an 18,000 s.f. multi-tenant industrial building in the McChesney Industrial Park. Specifically, Mr. Weicht is requesting that taxes on the proposed project be rebated for a period of four years, starting with taxes payable in 2002 and ending with • taxes payable in 2006. 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), 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 four years is estimated to be about $50,000. • Upon receipt of Mr. Weicht's tax rebate financing 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 yet, committed to the space, it is likely that the building will lease quickly. Action Requested Staff recommends that the EDA consider Mr. Weicht's request for a four year tax rebate period beginning with taxes payable in 2002. If the EDA approves the project, its recommendation will be sent to the City Council for final approval on April 17, 2000. Attachments • Tax Rebate Financing Application i. But-For analysis — Exhibit D ii. Site Plan iii. Project and Company Narratives — Exhibit B • Staff's Tax Rebate Financing Projection Worksheet • Letter of Commitment from The Bank of Elk River • 9. Consider Request by Ed Palmer of SolarAttic for Incubator Sub- Lease Extension Issue Solar Attic's lease at the Elk River Business Incubator will expire on April 14, 2000. Ed Palmer, CEO of Solar Attic, is requesting that the EDA grant a second extension of the lease for up to a year. Background SolarAttic was one of the first tenants in the incubator program and entered into its initial sub-lease with the EDA on March 31, 1997. In December of 1998, the EDA extended the sub-lease agreement with SolarAttic for one year, with the understanding that the lease would not be extend a second time. SolarAttic is presently the only company in the incubator. In light of the incubator's current vacancy rate, the EDA may wish to consider renegotiating a lease with SolarAttic at a market rate of$4.50/sf for up to one year and require that the entire rent be paid in cash, not stock. Currently, SolarAttic is paying $4.00/sf in rent, with $2.25/sf being paid in cash and $1.75/sf paid in stock. At $4.50/sf, SolarAttic's would pay $1330 per month to lease its current space of 3546 sf. One option to • reduce costs would be for SolarAttic to move its entire operations into one 2505 sf suite, which would lease at $939 per month. • Such a lease could be established on a month-to-month basis until SolarAttic either finds a new location or until prospective incubator tenant expresses interest in leasing the suites SolarAttic currently occupies. Such an arrangement would also mean that SolarAttic would no longer be part of the incubator program. Action Requested Staff recommends that the EDA consider renegotiate SolarAttic's sub- lease for one year at a market rate of$4.50 per square foot. Attachments • SolarAttic Lease Agreement 10. Consider Renewal of Business Incubator Lease Issue The lease of the Business Incubator with Larry Hickman will expire on April 14, 2001. Staff is requesting that the EDA consider renewing the lease with Mr. Hickman so that prospective tenants may consider sub- leasing space in the building for a period of at least one year. Background In 1997, the EDA established a two-year lease with Larry Hickman for 13,186 sf of the former Furniture and Things building at $1.65/sf for use as a business incubator. That lease was renewed in April of 1998 at the same rate for the period of April 15,1999 to April 14, 2001. The EDA has an option to extend the lease a third time for the period of April 15, 2001 to April 2002 at a rate not to exceed $3.00/sf. Currently, SolarAttic is the incubator's only tenant. Two companies have recently ceased operations and a third, Protector Care, has its product manufactured by a local firm. Over the past several months, staff has met with five companies who have an interest in the incubator. Additionally, a number of these prospective companies have experienced further development in the last few month, such as an influx of venture capital, that increase the likelihood they will locate in the incubator. Action Requested Staff recommends that the EDA consider renewing the lease with Larry Hickman for 13,186 sf of the former Furniture and Things building at the current lease rate. Attachments • 1998 Lease Extension • 11. Other Business • Update of the Economic Development Director Search