6.0. EDSR 10-14-1996 ITEM 6
ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY
• MEMORANDUM
TO: Economic Development Authority
Vr'
FROM: Paul T. Steinman, Director of Economic
Development
DATE: October 9, 1996
SUBJECT: Business Incubator Project
I. PURPOSE OF MEMO
The purpose of this memo is to discuss the next steps in the business
incubator project,and the progress which has taken place on this
project over the past month.
Oil.
OVERVIEW
Staff has been proceeding over the past several months to pursue a
business incubator project in the former county administration
building or with a private individual. Staff has had additional
meetings with county economic development staff and county
commissioners, and also the private property owner to continue
conceptual discussions of the use of their buildings for this purpose,
and their participation in the project.
It appears at this time that both parties are in a position to discuss a
preliminary lease proposal from the EDA.
III. PRIMARY ISSUES TO CONSIDER
0 What major points should be included in both preliminary
lease,proposals?
Staff proposes the following major parameters be included in either
lease proposal:
0 A lease rate which would be equal to the operating costs,
• including taxes, on the space which would be rented.
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
0 To manage and assume responsibility for leasing the space.
• 0 To request a two year lease commitment from either party.
0 What specific issues does the county wish to see in a lease
proposal?
At its last meeting with the county commissioners, they indicated a
desire to discuss a more formal lease proposal at an upcoming
meeting. The commissioners specifically suggested that they would
view the proposal more positively if it included a purchase provision.
Staff indicated to the commissioners as this issue was being
discussed that there may be the possibility of a future purchase if
the business incubator program is successful and provides a cash
flow which could cover a portion of such a purchase. Staff feels it
would be difficult to discuss the specifics of a potential future
purchase in this preliminary lease proposal.
IV. CONCLUSION
In conclusion, staff will be putting together a formal proposal to the
county commissioners and the private individual for their further
• consideration over the next several weeks. This proposal will basically
include the parameters which were discussed earlier in this memo.
The timing of this project has not significantly changed since our last
discussion in that staff still anticipates securing a building for
availability by either the beginning of January or February, 1997.
V. ATTACHMENTS
0 Business Incubator Model
e da\meetings\businc 10.doc
ELK RIVER
BUSINESS INCUBATOR MODEL
4 %1
Scenario A: Former Administration Building
City/Economic Development Authority commitments
• To guarantee payment of operating costs, including taxes, on the facility throughout
the period of the lease.
• To lease up and manage the facility.
• To immediately create 15 -25 jobs and provide an opportunity for future growth of
these companies in Elk River and Sherburne County.
County Board commitments
• To provide the building for use as a business incubator for the period of two full
years.
• To provide grounds, and building maintenance services for the same period including
lawnmowing, snow removal, general bldg. maintenance.
• To remain open to an ongoing relationship with the City if the program is deemed
successful.
Former Administration building - 16,000 sf:
• EXPENSES:
• Annual operating costs, including taxes, electricity, gas, sewer/water:
$2.00 psf- 2.25 psf $32,000 - 36,000
Total $32,000 - 36,000
INCOME:
• Rental income $2.00 psf-2.25 psf $32,000 - 36,000
• Genesis $ ??
• EDA $ ??
Total $32,000 - 36,000
Scenario B: Private property (10 - 15,000 square feet)
City/Economic Development Authority commitments
• To guarantee payment of operating costs, including taxes, on the space throughout the
lease period.
• To lease up and manage the space.
• • To immediately create 15 - 25 jobs and provide an opportunity for future growth of
these companies in Elk River.
Private property owner commitments
• To provide 10,000 to 15,000 s.f. for use as a business incubator for the period of at
least two full years.
• To provide other building maintenance services for the same period including
lawnmowing, snow removal, general bldg. maintenance.
• To remain open to a ongoing relationship with the City if the project is deemed
successful.
Example below based on 10,000 square feet:
Landlord asking price - $5 psf X 10,000 square feet= $50,000
EXPENSES:
• Annual operating costs, including taxes, electricity, gas, sewer/water:
$1.22 psf- 1.75 psf $12,200 - 17,500
• Landlord profit $3.25 psf- 3.78 psf $32,500 - 37,800
Total $4.47 psf- 5.53 psf Total $44,700 - 55,300
INCOME:
• Rental income $2.00 psf-2.25 psf $20,000 - 22,500
• Genesis $ . 82 psf- 1.09 psf?? $ 8,200 - 10,900
• • EDA $ . 82 psf- 1.09 psf?? $ 8,200 - 10,900
• Landlord $. 82 psf- 1.09 psf $ 8,200 - 10,900
Total $4.47 psf- 5.53 psf Total $44,700 - 55,300
ISSUES
• Master Lease between EDA and Property owner
Standard master lease with following parameters -
♦ two year term, options to extend for additional years??
• EDA to cover operating costs
• Property owner to provide general maintenance, snow removal, etc.
• Sub-lease between EDA and Tenants
Provide a guarantee, as much as possible, that the business would grow and
expand in Elk River/Sherburne County
Tenants to provide leasehold improvements -minimal
• Management contract between EDA and Genesis
Discussing $ amt.
•