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EDSR MEMORANDUM 04-13-1998 ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY MEMORANDUM TO: Economic Development Authority ; FROM: Paul T. Steinman, Director of Economic E"\---, Development DATE: April 9, 1998 SUBJECT: Agenda Memo for April 13, 1998, Meeting : e TheEDAf orkses tinxs hedledlfor40pmonM nayApril 13: .: . .: . . ..u3 d , h sbeen otpone loalaterettbedicusseatthere l4vo ..... : : .... .s . .EDAmeetn eu oda ....The pro0f. e . r .s.. . w a ::..:.:::::::.. ::::: .... .::::...::::.:::. . :. 0 i u i uererd n :: 1mo 110ih m � 4 .* a . development ani t lincrement:pro osa;1«::::: .: :: :im: : 5. Business Park Zoning And Light Industrial Zoning- Steve Ach The Economic Development Strategic Plan identified several areas along the new eastern transportation corridor for rezoning to allow business park or industrial uses. The Strategic Planning Committee did not specifically define its intended zoning for this area, therefore, the question has arisen regarding business park(BP) or light industrial (LI). Staff feels it is appropriate that the EDA discuss this issue and provide its comments to the City Council as they make the final decision on May 18, 1998. City Planner Steve Ach will be available at this EDA meeting to provide a comparison between the two zoning districts, and further information regarding this issue. - III - _ 13065 Orono Parkway • P. 0. Box 490 • Elk River, MN 55330-1743 • (612) 441-7420 •Fax (612) 441-7425 Equal Opportunity Housing and Equal Opportunity Employment EDA Agenda Memo April 9, 1998 Page 2 6. Consider$50,000 Micro Loan - The Ink Wizards Jim and Wanda Storie, of The Ink Wizards, met with the EDA Finance Committee on Tuesday, March 17, 1998. The Ink Wizards is currently located in downtown Elk River at 554 Third Street. They are a contract screen printing, embroidery, and embroidery digitizing company with sales in 1997 of just under $500,000. They currently lease approximately 2500 square feet of space and employ five full time and seven part time people. Their request for EDA participation in the amount of$50,000 is to help facilitate the purchase of one acre of land from David Decker in east Elk River and construction of a 4,000 to 5,000 square foot light manufacturing facility on the site. The building would consist of steel framing and skin with a decorative front elevation including a mixture of brick, stucco,and/or cedar. It is estimated the new facility will generate property taxes in the amount of approximately$7,000 to $10,000. The Ink Wizards total cost in this project are $392,000, broken down as follows: • Land $ 50,000 • Buildings $175,000 • Equipment/Machinery/Fixtures $132,000 • • Site Development/Parking/Landscaping $ 10,000 • Inventory/Working Capital $ 25.000 $392,000 In addition to EDA micro loan financing, First National Bank of Elk River is considering participation in the amount of approximately $172,500 in the overall project. The remaining $169,500 will be financed through the equipment manufacturing company and approximately $37,000 of applicant contribution to the project. The one acre lot which is intended to be purchased by The Ink' Wizards lies to the north of the David Decker multi tenant industrial project in which the EDA is participating. This one acre lot is oddly shaped, allowing for construction of a total of 5,000 to 8,000 square feet. Tom McNair and Jeff Gongoll, EDA Finance Committee members mentioned two issues in support of this application: • The facility will be owner occupied • This is a local business which is being relocated and expanded a win/win situation. EDA Agenda Memo April 9, 1998 Page 3 410 The EDA Finance Committeesupported unanimously a recommendation to the EDA to approve a $50,000 micro loan to The Ink Wizards with the following terms: • 8.5% interest rate, 5 year balloon, 20 year amortization • Second mortgage position on the land and building • Personal Guarantees • Promissory Note Recommendation Staff recommends support of the EDA Finance Committee recommendation to the approve the $50,000 micro loan to The Ink Wizards for relocation and expansion of their business operations. 7. Olde Main Micro Loan The EDA Finance Committee met on Tuesday, April 7, 1998, to consider a request by The Olde Main Eatery and Sweet Shoppe for modification of the $50,000 EDA micro loan. As explained by Char Barder and Margo Foster, The Olde Main is experiencing approximately $36,000 in cost overages,on their move into the former Dynamics Sports building. Due to this they have examined various other opportunities to come up with funds to cover these cost overruns. First National Bank of Elk River has tentatively agreed to provide a loan to The Olde Main in this amount if the EDA will consider subordinating its mortgage position on the land and building to allow the banks additional loan to precede the EDA micro loan. The structure of the loan under this scenario would be as follows: • $144,000 - first mortgage, First National Bank of Elk River • $ 36,000 - second mortgage, First National Bank of Elk River • $ 36,000 third mortgage position, EDA • $ 14,000 collateralized with furniture, fixtures, and equipment, EDA The Finance Committee discussed the issue of moving the EDA into a potentially riskier situation by subordinating their current mortgage position. Staff indicated a desire to see a new appraisal done on the building and First National Bank indicated that it is in process. EDA Agenda Memo April 9, 1998 Page 4 • The Finance Committee unanimously supported a recommendation to the EDA that the request to subordinate its loan to an additional First National Bank loan of$36,000 be approved by the EDA. Recommendation Staffs recommendation concurs with that of the Finance Committee's to approve a subordination of the EDA micro loan to an additional $36,000 loan from First National Bank of Elk River. 8. Consider Renewal of Business Incubator Lease with Larry Hickman On April 15, 1997, the EDA entered into a two year lease with Larry Hickman for approximately 13,186 square feet of space in the former Furniture and Things building. As of this date there is approximately one year left of this initial term. It is appropriate at this time to discuss the EDA's option of renewing this lease for an additionaltwo years which will be from April 15, 1999, through April 14, 2001. This discussion is timely due to the fact that staff is currently • negotiating a lease arrangement with the fourth business incubator company- MAS Technologies. In negotiations with this company, they have made very specific their request for a minimum two year lease. On the advice of the city attorney, it is not appropriate for the EDA to negotiate subleases with incubator companies which supercede our prime lease with Larry Hickman. In the case of the other two tenants which recently joined the incubator program (Watermark and Protectorcare), their subleases end on,April 14, 1999, -: coinciding with the end of the EDA's prime lease with Larry Hickman. We have the option to extend the sublease with Watermark and Protectorcare should the EDA elect to extend its term of the lease for an additional two years. The initial parameters of the lease deal with Larry Hickman are as follows: • Initial two year term, 3 options to extend term @ 2 yrs. each • $1.50 per square foot • 13,186 square feet leased • Larry Hickman to pay lease hold improvements approximately $75,000 - and amortize such lease hold • improvements over the initial two year term of the lease at 8.5% interest EDA Agenda Memo April 9, 1998 Page 5 • • Larry Hickman to repay approximately $58,000(percent of lease hold improvements) to the EDA if the term is not extended for an additional two years. This repayment is for the EDA's payment of lease hold improvements. Should the EDA elect to renew the lease for an additional two year term, the following costs are anticipated: • No cost for lease hold improvements - all costs were paid in the initial two year term • Cost per square foot goes from $1.50 to $1.65 • Repayment from Larry Hickman to EDA at the end of the first renewal term, or April 14, 2001, is approximately $35,000. An analysis of the first year of incubator operation is as follows: • Rents received - approximately $6,000 • One space leased to Watermark-upstairs • One space leased to Protectorcare • Two spaces leased to SolarAttic • Two spaces remaining to be leased • $29,200 paid to Larry Hickman for lease hold improvements • $19,770 paid to Larry Hickman for building rent. Other expenses incurred in the first year of incubator operation: • Signage improvements - approx. $1,000 • Supplies- approx. $500 • Cleaning service - approx. $400 Of the 13,186 square feet leased from Larry Hickman, only 11,418 square feet can be subleased. The remainder being common area, bathroom facilities, and common conference room. In order to break even in year two, the EDA needs to lease all spaces available at an average per square foot rent charged of$1.90. The current breakdown is as follows: • SolarAttic - $2 per square foot • Protectorcare, Inc. - $2 per square foot • Watermark, LLC $1.50 per square foot • EDA Agenda Memo April 9, 1998 Page 6 • Subleases currently being negotiated are as follows: • MAS Technologies, Inc. $3 per square foot • Bio-energy, Inc. - $3 per square foot As is indicated in the above scenario, the remaining year of the initial term should show that the EDA is breaking even on its costs associated with the facility.`It also has been significantly easier to negotiate a somewhat higher cash rent when there is only a couple spacesremaining and a fairly significant demand for those spaces. Staff anticipated at the beginning of this project that it would take approximately two years to have 90 percent lease up of the facility. If things go as planned over the next couple of months, it appears the facility may be 100 percent leased at that time. This is far ahead of schedule and has come as quite a surprise to Harlan Jacobs, EDA Business Incubator Consultant,and Roger Jensen, President of the Anoka/Sherburne County Capital Fund (ASCCF). ASCCF has made a $25,000 investment in Watermark and a $25,000 investment in Protectorcare, Inc. Each of ASCCF's investments have been matched • by the Central Minnesota Initiative Fund Seed Fund Program. Staff feels that the incubator program has been very successful to date, and to this point forward will become a higher profile project beginning with the planning of an open house in the first or second week of June 1998. Recommendation Staff recommends that the EDA extend its lease with Larry Hickman for an additional two years, which is the term of April. 15, 1999, to April 14, 2001, at a base lease cost of$1.65 per square foot for 13,186 square feet of space in the former Furniture and Things building. 9. School to Work Partnership, Update- Jeff Gongoll Jeff Gongoll will present information on the School to Work Partnership. Enclosed in this packet are four brochures relating to this issue. EDA Agenda Memo April 9, 1998 Page 7 • 10. Consider Appointments to the EDA Finance Committee The following individuals have indicated an interest in volunteering on the EDA Finance Committee: • Cliff Lundberg • Dan Tveite Current membership of the EDA Finance Committee is as follows: • Tom Bender • Jeff,Gongoll • Lloyd Brutlag • Jim Simpson • Tom McNair Recommendation Staff recommends appointment of Cliff Lundberg and Dan Tveite to the EDA Finance Committee. 411, 11. Other Business • Community Venture Network Meeting The next Community Venture Network Meeting will be held on Thursday, April 16, from 10 a.m. to 2:30 p.m. at Edinburgh Country Club in Brooklyn Park. Staff encourages EDA members to attend these meetings which are held on a quarterly basis. • SuperMats, Inc. Industrial Park Lot SuperMats has indicated an interest in pursuing a project on the vacant industrial park lot which the EDA currently owns. The last prospect which staff has worked with for approximately six months has not been willing to provide the necessary commitment to move forward on the project. SuperMats would like to construct a building of approximately 30,000 square feet on the lot and occupy approximately 20,000 and lease the remaining space. SuperMats is currently located in a rental space behind E&O Tool. Their lease is ending in • February 1999.