7.0. EDSR 02-09-1998 FEB-03-98 09 :20 AM PELSTRING01 5509221 P. 02
Item 7.
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PELSTRING CAPITAL CORPORATION
4205 Lancaster Lane North*Suite I I(X) +Minneapolk. MN 55441
To: Paul Steinman, City of Elk River
From: Patrick Pelstring,
Peistring Capital Corporation
Subject: Redevelopment Analysis
Date: January 30, 1998
INTRODUCTION
As we reviewed Iast month, I have conducted a preliminary review of the
proposed Associated Development site to determine appropriate
• qualifications to establish the site as a redevelopment tax increment district.
This analysis presumes only the inclusion of the Hohlen property and the 40-
acre proposed industrial property immediately to the south of the Hohlen
property. The adjacent right of way for Highway 169 and County Road 12
are also included as a part of the TIF district.
The redevelopment analysis consists of two statutory "tests" summarized as
follows:
1. Buildings, roadways, public improvements or other improvements
must occupy 70% of the parcels (by area). A parcel is considered
"occupied" if the improvements cover at least 15% of the parcels area.
AND
2. At least 50% of the buildings (not including "outbuildings") must be
determined to be structurally "substandard". A building is determined
to be substandard if the cost of improvements to repair the building
111 would exceed 15% of the cost to replace the structure.
(61.2)550-79x08(}(l-n42-6258uda(612) 550-9221 Faxofr pclxtringla'carthlink,nct
FES-03-98 09 :20 AM PELSTRING01 5509221 P. 03
REDEVELOPMENT ANALYSIS
The current configuration of the property would not appear to qualify, based
upon the way the parcels are laid out. However, our review suggests that the
property would qualify if the Hohlen parcels (#'s 1-5) were combined into
one larger lot. The current size of the Mobile Home Park and adjacent
housing appears to encompass more than 15% of all of this property. The
current 12.23 acres of the mobile home park represent approximately 18% of
the total of 67.86 acres owned by Mr. Hohlen.
As such, we would recommend that these parcels be combined into one
larger parcel, as identified in the attachments. On this basis, the TIF district
would consist of 6 parcels, representing an estimated 93.5 "occupied"
parcels and 40 "unoccupied" parcels.
• The redevelopment analysis as to "substandard" buildings appears to
strongly meet the state statutory requirements. Based upon our review, there
appear to be approximately 23 buildings, and 18-20 of these buildings
(including the mobile homes) would appear to qualify. This review,
however, should be confirmed by physical inspection by the City's building
inspector.
SUMMARY
Based upon the properties identified, the property would appear to qualify as
a redevelopment tax increment district, subject to verification of the
following assumptions:
1. The five parcels currently owned by Mr. Hohlen be combined into one
large 67.83 parcel and at least 15% of the new parcel is deemed to be
"occupied".
2. The right of way for Highway 169 and county Road 12 constitute
19.25 acres or more.
• 3. The inspection by the City inspector confirms the condition of at least
50% of the buildings to qualify as "substandard".
FEB-03-98 09 :21 AM PELSTRING01 5509221 P. 04
i
This analysis represents only the property that is included in the proposed
development. The City, at its option, could seek to add additional property
adjacent to the site.
0
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5509221 P. 05
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PELSTRING CAPITAL CORPORATION
7205 L neat.r Lane North Suite I I(X)ak Minncape,li%. MN 55441
February 4, 1998
Mr. Paul Steinman
Economic Development Authority
City of Elk River
720 Dodge Avenue
Elk River, MN 55330
Re: Associated Developers of the Twin Cities
Dear Mr. Steinman:
•
Our firm has been retained to assist with the potential development of the 108•acre parcel at
the intersection of Highway 10 and Highway 169. On behalf of Associated Developers of the
Twin Cities, Inc., we would like to request consideration by the Elk River Economic
Development Authority to consider establishment of the development site as a
Redevelopment Tax Increment Financing District.
Attached for your review is a completed TIF application and supporting documentation, which
justifies the developer's request for $2,863,000 (net present value) of TIF assistance. An
integral part of this application is the ability of the Elk River Economic Development Authority
to utilize funds from this district to control and develop a 40-acre industrial/business park
immediately adjacent to the site.
BACKGROUND
Associated Developers gained control of the 68-acre parcel of property with the intention of
developing a major commercial center. The site is particularly difficult to develop as the City
will need to extend utilities to the site, there are significant wetlands which must be
reconfigured and mitigated, there are numerous utility/pipeline easements which inhibit the
• development, and there is a sizable mobile home park which will require additional
acquisition costs.
(tiI2)550-7980 Om 800-642-6258 altz(612)550-9211 Fax*pclstringWearthlink.net
FEB-04-98 04 :03 PM PELSTRING01 5509221 P. 03
• After our initial assessment, we are havinggreat
difficulty in establishing the financial viability
of the project, given the extraordinary costs associated with the project's infrastructure and
site development. In our recent discussions, it has also become clear that the City would
encourage the development of additional industrial and/or office showroom space in the City
of Elk River. For this reason, we are exploring the opportunity to acquire the 40 acres
immediately south of the site, which could serve as office/showroom development as a part of
the overall development.
TAX INCREMENT FINANCING DISTRICT
Our analysis of estimated development cost suggests that the project does not provide the
potential investment returns to justify the development costs to complete the project. For
this reason we would request consideration of the site as a "redevelopment" tax increment
financing district.
Our analysis suggests that the site would qualify as a redevelopment tax increment district,
with a statutory term of twenty-five years. The preliminary analysis of the redevelopment
district was forwarded to you under separate cover.
TiF FINANCING REQUEST ISSUES
We have identified a prospect of initiating the acquisition and site development costs at an
estimated overall development cost of $12,604,700. After adjustments for wetlands and
road rights-of-way, we anticipate the ability to develop approximately 40 acres of the site. As
a result, our developed cost per square foot totals an estimated $6,58. This exceeds the
prospective average sale price and site development reimbursement of $6.44/sf, based upon
the prospective sales in the attachments.
As a result, we have determined that the developer would require assistance totaling
$2,863,000 to justify implementation of the project. This amount represents a small
percentage of the prospective increment as the city could retire this obligation on a pay-as-
you-go basis within 9 years, utilizing 75% of the increment.
In addition to the developer's assistance, we would work directly with the EDA to facilitate the
acquisition and development of the adjacent 40 acre industrial parcel. Also, as you are
aware, Amcon Construction has expressed a direct Interest in working with Associated
Developers and the EDA to begin development of the industrial site.
•
Within the attachments, the financial analysis of the district suggests that, in addition to the
developer's assistance, the City/EDA could issue bonds with net proceeds of $750,000 for
FEB-04-98 04 :03 PM PELSTRING01 5509221 P. 04
•
the development of the industrial property. As such, the EDA could control this site with all
costs paid by the commercial development.
SUMMARY
The estimated development costs, future sales prices, and development schedule are
preliminary at this stage. It is clear, however, that the costs do not justify the investment and
prospective return. This proposal provides the opportunity for the EDA to assure the viability
of this commercial development and to promote the development of the adjacent industrial
property.
Sincerely,
E ING CA' 9 ' "•RATION
CE9 ii
Patrick W. Pelstring, Partner
• cc: Tony Gleekel, Siegel, Brill, Gruepner, Duffy & Foster
Mathias Fischer, Associated Developers of the Twin Cities
Kaare Birkeland, Centres Group, ltd.
0
FEB-04-98 04 :04 PM PELSTRING01 5509221 P. 05
• ASSOCIATED DEVELOPERS,INC.
HIGHWAY t0 6 HIGHWAY 101
EX RIVER,MINNESOTA
ESTIMATED DEVELOPMENT COSTS
ACQUISITION
Purchase Price 53,600,000
Closing/transaction fees 5250.000
Subtotal 53,850,000
DEVELOPER COSTS
Mobile home park relocation costs $425,000
Engineering $72,400
Legal $112,000
Development fees $250,000
Permits b local fees 5135,000
Environmental 6 site surveys 595,000
Closing/contingency $30,000
Subtotal 51,119,400
110
SITE DEVELOPMENT COSTS
SsII corrections/overall grading $250,000
Site grading and pad preparation $4,756,793
Pipeline Relocation SO
Wetlands Mitigation $260,000
Trunk sanitary sewer 6 water $434,160
Lateral Sanitary Sewer&water 5207,500
Sheet Assessment $753,104
Storm Drainage 5192,550
Main Street improvements 5213,232
Subtotal $7,067,339
SALES 6 HOLDING COSTS
Sales costs $336,000
Financial/Holding Costs 5140,000
Real Estate Tues $67,000
Accounting/Administration 525.000
S568,000
TOTAL PROJECT COSTS
512,604,739739
PER ACRE (TOTAL) $185,364
ST-PER SQUARE FOOT(TOTAL) $4.26
COST-PER ACRE(USABLE) 5286,471
COST-PER SQUARE FOOT (USABLE) $6.58
FEB-04-98 04 :04 PM PELSTRING01 5509221 P. 06
• ASSOCIATED DEVELOPERS,INC.
HIGHWAY 10 6 HIGHWAY 101
ELK RIVER.MINNESOTA
PROPERTY DEVELOPMENT/SALES PRICES
LAND REIMBURSED TOTAL
LOT.R USE ACREAGE it FT. SALES/SF SUS PRICE SITE DEVELOPMENT SALES PRICE
1 Large commerdal user 15.00 653,400 52.50 81,633,500 52,000,010 83,633.510
2 Large commercial user 14,00 609,840 53.00 51,829,520 $1,973,000 $3,802,520
3 Mid site user 1,72 75,000 53.50 5262,500 $249,793 5512,293
4 Pad site•accesssory user 1.38 60,000 53.50 5210,000 5210,200 5420,200
S Pad she•accesssory user 1.38 60.000 53,50 5210,000 5210200 5420,200
6 Pad site-'caisson/user 1.61 70,000 53.50 5245,000 5270,000 5515,000
7 Pad site-accesssory user 1.00 43,560 53.50 5152,460 5261.000 5413.460
8 Pad she•accessory user 1,00 43,560 53.50 5152.460 5261,000 5413.460
9 Pad site-accessory user 1.00 43,560 53.50 $152,460 5261,000 5413,460
10 Convenience Store 2.00 87,1.20 $3.50 5304,920 $392,500 5697,420
Total sales 40.08 1,746,040.00 5,152,820.00 6.088,703.00 11,241,523.00
DEVELOPMENT RECAP
Total Sales $11,241,523
Less:Acquisition (53,850,000)
Developer costs (51.119,400)
Site development Costs ($7,067,339)
IIISales and Holding Costs (556(000).
Profit before Investment return (51,363,216)
Developer Profit 6 Overbead 1,500.000
City TIF request-Net Present Value 2,863,216
•
FEB-04-98 04 :04 PM PELSTRING01 5509221 P. 07
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1119 12.000 42.000 0 110.0001i 0 0 0 0 0 0
1991 62.000 62,000 0 110.000% 0 0 0 0 0 0
2000 602,119 64,000 340.133 110.0005 297,470 42,000 223,103 1674,47 12,361 27.23)
2006 102,115 62.000 540,059 110.000% 297.470 62,000 773.103 !6/.301 32.361 51,514
2001 619,154 62,000 117,114 110.000% 331,111 41.000 234,665 560.662 62,933 07,344
1001 679.414 61,000 617,134 110.000% 331,111 42,000 254.165 761,009 42,933 111,166
1002 670,114 12,000 617.154 110000% 331,619 42.000 754,165 110.211 42,155 131,414
1002 679.034 62,000 613,114 110.000% 10.613 42,000 264.146 1,130.190 42,955 161,339
2003 679.694 62,000 617,154 110.000% 339.113 42,000 254.649 1,345,451 42,141 211,157
1001 419,154 62,000 117.134 110.00011 339.119 42,000 214,165 1.474,121 42,353 239,114
1004 079,354 62,000 617,604 110,000% 339.119 42.000 214,101 1,037.015 42,999 207,249
1004 677,354 61,000 617,034 110.000% 119,119 42,000 214.4/1 1,794,333 42055 211.716
2001 671,614 02,000 417,134 110.000% 333,119 42,000 254,145 1,144,662 62,915 319,421
1005 479,094 62.000 417,156 110.000% 339.119 42.00 204.063 2,013.444 42,153 344,100
1001 671.154 62.000 617,114 110.000% 137.019 42.000 214.601 2.239.653 42,155 14,032
2000 479.054 42,000 117,314 110.000% 339,010 41,000 294.469 2,372,164 41.133 131,217
2007 670,074 12.000 617,134 110,000% 313,119 42.000 214.645 2.901,434 42.135 413,601
0007 473.114 62,000 617,154 110.000% 339.111 42,000 234,60! 2,433,520 42,153 411.161
2006 677.014 47.000 611,154 130.000% 331,010 42,000 214,115 2.757.275 42.363 434,046
2001 679,154 61,000 611,364 110.000% 3)1,611 41,000 223,600 2.663.203 70,019 419,130
2009 179,156 42.300 417.166 110.004% 319,619 42,000 0 2,043,209 207,610 014,111
2001 671134 62000 417,136 110.000% 331,111 42,000 0 2,163.201 237411 759.261
1010 411354 12,000 617,654 110.000% 00.110 0 0 2.043.201 319.419 099.057
1010 479,034 12.000 617,554 110.000% 333.113 0 0 2163,209 339.219 1,037.311
00 679,054 42,000 617,654 110.000% 339,117 0 0 2,043,209' 339,319 1.112,221
2011 079.454 62.000 417114 110.000% 319,319 0 0 2,143,209 339,/19 1,301,914
2012 671./54 62,000 117,414 110.003% 331,110 0 0 2,061209 339,019 1,427,227
2012 671.614 12,000 617.114 330.003% 333113 0 0 2,00)209 339,119 3,141,293
2013 473.154 62.000 617.654 110.000% 339,419 0 0 2,143206 133,113 1,111,241
2413 670.614 62,000 417,154 110.000% 111.110 0 0 2,813.209 339.115 1.771119
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•