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EDSR MEMORANDUM 03-09-1998 ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY 6 MEMORANDUM TO: Economic Development Authority FROM: Paul T. Steinman, Director of Economic rr, Development DATE: March 4, 1998 SUBJECT: Agenda Memo for March 9, 1998, Meeting 5. Consider David Decker Development Agreement Issue Consideration of the Decker Development Agreement is the final step in the process of agreeing to provide a tax increment subsidy to this • project. As you may recall, the Tax Increment Plan for this District was approved by the City Council on February 17. Background The Decker project is a 25,000 square foot multi tenant industrial project located on east Highway 10. Mr. Decker has requested $160,000 in TIF assistance. The form of Development Agreement which is attached to this memo has been reviewed by the city attorney's office. This Development Agreement form, although lengthy, is being used by various municipalities across the state. It is a form which the state auditor can view, if requested, and become immediately familiar with due to its common use. Staff feels this familiarity is an advantage to using this form due to the significant scrutiny which TIF documents have had over the past several years by the state auditor's office. For this reason staff intends to use this identical form, with modifications, to meet the circumstances and issues of future tax increment projects. In instances where tax increment is provided on a pay-as-you-go basis, • there is minimal risk to the city/EDA to participate in the project. With this in mind the various issues within the attached Development 13065 Orono Parkway • P. O. Box 490 • Elk River, MN 55330-1743 • (612)441-7420 • Fax (612) 441-7425 Equal Opportunity Housing and Equal Opportunity Employment EDA Agenda Memo March 4, 1998 Page 2 Agreement are of most significance to the developer. There is one key issue however, which the EDA is aware of as it enters into this Development Agreement: • The EDA is agreeing to provide a maximum $160,000 of tax increment to the developer to pay qualified project costs for site improvements to the property. The developer is agreeing to the following significant issues within the Development Agreement: • Developer agrees it will pay for all the costs up front and show evidence of having paid such costs to the EDA prior to any reimbursement of tax increment. • Developer agrees that if costs of qualified site improvements are less than $160,000, the amount of tax increment assistance will be adjusted accordingly. • Developer agrees that it will enter into a Job Performance Agreement indicating the number of jobs which will be created as a result of this project within the next two years. • Developer agrees that it will lease space in the project in a • manner which qualifies under the tax increment state statutes which generally limits the amount of retail space to 15 percent of the overall project on a square footage basis. (I-1 zoning also will limit or exclude such uses.) • Developer agrees thatit will construct the project and make the necessary site improvements in a manner as approved through the city planning process and that if such plans change the EDA has the ability to agree to such changes or deny the provision of any tax increment assistance to the project. • Developer agrees that it will be able to receive no more tax increment than the project generates in a given year minus a 10 percent administration fee. • Developer agrees that the Note, as attached to the Development Agreement, upon execution by the EDA at completion of the project, does not obligate either the city or the EDA to provide any tax increment subsidy over and above what is generated in a given year minus 10 percent administration fees and in no case will such assistance be more than $160,000. EDA Agenda Memo March 4, 1998 Page 3 Recommendation Staff recommends the EDA authorize execution of the Contract for Private Redevelopment by and between the Economic Development Authority in and for the City of Elk River and David P. Decker. Attachments • Contract for Private Redevelopment with David Decker 6. Consider David Decker$50,000 Micro Loan Request Issue Mr. David Decker has also submitted a request for a $50,000 micro loan as part of the overall financing package for his project. It is appropriate to consider this request at this time due to the fact that other necessary city and EDA actions regarding the tax increment request have already been considered. IPBackground The EDA Finance Committee met on Tuesday, March 3, to discuss the issues of the $50,000 loan request from Mr. Decker. Both David and Jeanette Decker were available at,this meeting in addition to Gary Santwire, representing the Deckers on this project. As explained by the Decker's and Mr. Santwire, the EDA micro loan will be used to cover part of the gap between what the bank has agreed to finance of the project and the equity to be invested by the Deckers. Total project costs are anticipated to be approximately $899,000. The Finance Committee supported a recommendation to the EDA that the $50,000 micro loan request by David Decker be approved with the following details: • 20 year amortization with a 5 year balloon • prime interest rate- currently 8.5% fixed for the 5 year balloon period • personal guarantees • collateral to be a second mortgage position on land and • buildings. EDA Agenda Memo March 4, 1998 Page 4 • Recommendation Staff recommends the EDA approve the $50,000 micro loan to David Decker as part of the overall project financing for the Decker 25,000 square foot industrial project. Attachments • Micro Loan Application 7. Consider Business Incubator Sublease - Watermark. LLC Issue The issue being proposed before the EDA at this meeting is to consider authorizing execution of the necessary documents for Watermark, LLC, to become a business incubator tenant. Attached to this memo is a Business Incubator Sublease and Memorandum of Understanding. • Background Watermark, LLC and staff have been working together for approximately a six month period. Watermark came to the city through Harlan Jacobs, EDA business incubator consultant. A variety of activities have been completed with this company over the past several months including: • approval of a $25,000 investment by the Anoka/Sherburne County Capital Fund • approval of a $25,000 investment by the Central Minnesota Initiative Fund Seed Fund Program • recommendation by the Incubator;Advisory Board that the EDA approve Watermark as a businessincubator tenant. Watermark currently is a manufacturer of products in the underwater camera industry which are marketed to schools and used as training devices for the swimming industry. Watermark's intention is to continue and significantly expand the manufacturing and sales of this product as an incubator tenant. They also are expanding/diversifying their product line to introduce an underwater video fish finder. Both Michael and Maureen Gill will be available at the EDA meeting to Illpresent information about their company. EDA Agenda Memo March 4, 1998 Page The draft Sublease and Memorandum of Understanding include the following components: • Watermark will occupy a second floor incubator space of approximately 1,606 square feet. The proposed lease will have a term of one year and one month beginning March 15, 1998. 0 Negotiated subleases cannot supercede the EDA's prime lease with Larry Hickman which is scheduled to end on April 15, 1999 (thus the proposed term of one year and one month with Watermark). The EDA has the ability to extend its prime lease three times at a term of two years each. Staff will be bringing this issue back before the EDA at an upcoming meeting regarding whether to renew our prime lease for an additional two years - to April 15, 2001. • Upon extension of the EDA's prime lease, should the EDA decide to extend,the Sublease with Watermarkis proposed to be extended and would represent a total two year term. • Year 1 cash rent $1.50/square foot Year 2 cash rent $2.00/square foot • Stock in the amount of$10.00/square foot shall be divided among the EDA, Larry Hickman, and Harlan Jacobs. Recommendation Staff recommends the EDA authorize execution of a Sublease and Memorandum of Understanding with Watermark, LLC. Attachments • Statement of Purpose Watermark, LLC • Sublease • Memorandum of Understanding 8. Other Business MAS Technologies Staff would like to take this opportunity to update the EDA on 411 activities associated with this company. Several discussions have been EDA Agenda Memo March 4, 1998 Page 6 held with MAS Technologies and city staff and Roger Jenson, president of the Anoka/Sherburne County Capital Fund. It appears as though this company has again taken a significant interest in becoming a possible Elk River incubator tenant. The new CEO of MAS Technologies has informed staff that after further review and analysis it appears that a full consolidation of their operations in our incubator facility may be the best opportunity for them. At the time the new CEO, Mike Troedel, came on board with this company it had already entered into an agreement to come to the business incubator and accepted the $50,000 equity investment from the Anoka/Sherburne County Capital Fund. Mike Troedel put a hold on the company's move so that further research into the issue of splitting up their operations could be done. As it was initially planned, MAS Technologies would keep half its operation in Zumbrota and move half its operations to Elk River. It now may the intention of the company to move the entire manufacturing, administration, and marketing components of the company to the Elk River business incubator. After a good deal of consultation, review, and discussion among staff, Harlan Jacobs, and Roger Jenson, it is apparent that MAS Technologies still provides a significant positive opportunity as an di incubator company. They have made great strides in the sales of their product and have received large commitments for equity funding from the Food Fund and other private investors. Staff recommends to the EDA that we continue to pursue an arrangement for MAS Technologies to become incubator tenant number four and occupy the last ground floor space in the facility. If the EDA concurs with staffs recommendation and MAS Technologies moves forward, staff will likely bring the agreements back to the EDA at its regular meeting in April for final approval.