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11-24-2020 JOINT FINANCE COMMITTEE PACKET Meeting of the Joint Finance Committee AGENDA Tuesday, November 24, 2020 7:30 a.m. Elk River City Hall Upper Town Conference Room 1. CALL MEETING TO ORDER 2. CONSIDER AGENDA 3. CONSENT AGENDA Considered to be routine and noncontroversial by the Economic Development Finance Committee and will be approved by one motion. There will be no separate discussion of these items unless a Committee member, staff member, or citizen so requests, in which case the item will be removed from the consent agenda and considered under the regular agenda. 3.1 September 29, 2020 Meeting Minutes 3.2 Revolving Loan Fund Balance Report 4. GENERAL BUSINESS 4.1 Morrell Companies Microloan Extension 5. ANNOUNCEMENTS 6. ADJOURNMENT Meeting Protocol No sidebar discussions No interruptions State your concern Ensure you understand Don’t take things personally Adhere to time limits Come prepared Ensure all are heard Meeting of the Elk River Joint Finance Committee Held at Elk River City Hall Held in person Tuesday, September 29, 2020 Members Present: Dan Tveite, Ryan Hardin, Nate Ovall (7:53 a.m. via phone), Charlie Blesener, Chad Vitzthum (via phone), and Larry Toth Members Absent: Rhonda Magnussen and Michelle Eder Staff Present: Amanda Othoudt, Economic Development and Colleen Eddy, Economic Development Specialist Others Present: Mikaela Huot, Baker Tilly and applicant Patrick Briggs, Sun Rae Apartments, LLC 1. Call Meeting to Order Pursuant to due call and notice thereof, the meeting of the Elk River Joint Finance Committee was called to order by Dan Tveite at 7:35 a.m. 2. Consider Agenda Motion by Toth and seconded by Hardin to approve the September 29, 2020, Joint Finance Committee agenda. Motion carried 5-0. 3. Consent Agenda Motion by Blesener and seconded by Toth to approve the September 16, 2020 Joint Finance Committee meeting minutes. Motion carried 5-0. 4.1 Riverwalk Apartments Redevelopment TIF Application Ms. Othoudt presented the staff report and policy. The group discussed the staff report and application: Mr. Toth asked if the job creation was going to be in Phase 2component; Applicant Briggs stated that there would be two full time employees during Phase1 which would be shared with the Jackson Hills Apartment Complex and that all jobs would be created once Phase II is completed. Ms. Othoudt stated the job creation was not a requirement as this is a Redevelopment project. Mr. Toth asked who owns the land; Applicant Briggs stated that Sun Rae Apartment, LLC. owns the land. Ms. Huot presented the but for analysis. The group discussed the “but for” analysis. Mr. Tveite asked if both phases are in the application and what happens if Phase II does not happen? Does it cut the TIF in half? Ms. Huot analyzed both Phases. Ms. Huot stated based on the number it would be in the best interest for the developer to try to absorb the upfront costs throughout the entire development. The other scenario of absorbing all land and site development costs it looks worse if it was only absorbed in Phase 1 and not over the entire development. Ms. Othoudt indicated that the policy states the maximum term is 15 years. Mr. Briggs asked the commission to explain #5 in the policy where it states “TIF District’s shall be limited to the minimum term necessary to meet the project needs. Only projects exceeding the objectives identified in this policy will be considered to exceed the following general thresholds: Redevelopment District 15 years (Max is 26)”. Ms. Othoudt further explained the reference to the 26 years, is the maximum term allowed under state statue for a redevelopment district. The JFC must find that the project exceeds the objectives identified in the policy to deviate from the 15 year maximum allowed. Mr. Briggs stated his lender is stating that 26 years is needed to get the banks funding and questioned if the interest rates go up in 2026 or costs go thru the roof, or there is a change, and we can’t get this to pencil out, in this type of situation the developer would come back and request a TIF amendment to allow more time to put together a list of investors so complete the Phase II. So a TIF amendment would be another instrument in his toolbox in order to complete the project. Mr. Briggs also stated that the policy would need to be amended in order for the commission to accept the 26 years TIF request. Mr. Hardin provided a clarifying statement, unless the city approves the 26 years the applicant’s lender would not support the funding for the project. Mr. Blesener asked about redevelopment vs. green field. Ms. Huot explained when she referenced a green field site, what she was referring to is this being a redevelopment district what they are looking in extra ordinary costs associated with this vs. if the developer purchased a green field site the infrastructure would go vertical instead of paying for costs associated with getting it ready to be a green field site. Mr. Hardin asked if there were any environmental studies completed. Mr. Briggs stated that there were contingencies in place and that the MPCA reviewed the Phase I and Phase II Environmental studies. Ms. Othoudt stated that a Phase I or a Phase II report was not provided to staff. Mr. Toth asked about the number of units that the Maxfield Study reflected as a need and if Phase II of the redevelopment project was completed that the number of units needed would be achieved. Ms. Othoudt stated it would be roughly over 30 units. Applicant Briggs projected Phase II would be completed in 2028 and not 2027 as the application stated. Mr. Ovall needed clarification of the housing study if it segregates affordable housing from apartments. Ms. Othoudt stated that there is a demand for 864 new units thru 2025 – 20% of that is for senior housing and 80% is for general occupancy, 395 units of for sale housing, 172 market rate units and 93 affordable units to total the 864 needed units. ousing. Mr. Vitzhum asked about the timing of the TIF as it relates to the Phases of the project. He asked how does this work as far as property value goes; So Phase I is completed is there a certain property value increase – is the TIF based on that property value increase and then the TIF doesn’t increase until Phase II is complete….he asked if somebody could walk him through this process…Ms. Huot explained this scenario; if Phase 1 of the project is completed in 2021 assume completed by 2021 with taxes payable in 2023 we would realize $170,000 of tax increment for 2023. If Phase 2 is completed in 2025 taxes payable 2027 $170,000 of increment totally $350,000 of increment 4 years later. Question is – what is 15 years….2036 which would be 15 years after Phase 1 is complete or is it 15 years from when Phase II is complete or subject to policy – can’t go beyond 25 years of aggregate for this district. This being a redevelopment project it is limited to enter into contract within five year of when the district is certified. The contact would be between city and the developer. Mr. Tveite further clarified that if Phase II was not developed, it would not be eligible for TIF. Phase I would go towards 75% of revenues and Phase II go towards the remaining 25%. Mr. Hardin asked about the applicant’s financials – they were sent to Baker Tilly not to the city. Ms. Huot clarified its typical at this point that we would receive a letter of interest from the lender with conditions of TIF and as this is in a preliminary stage we would look for receiving more information like the loan to value , bank requirements and their coverage requirements which would support the need for TIF. And the banks specific terms and debt as they proceed on their path as well. Mr. Tveite stated that an appraisal would be needed to determine land value. Mr. Ovall asked if staff had a recommendation. Ms. Othoudt stated the policy states TIF will not be used in circumstances where land and/or property price is in excess of fair market value – so it is important for the city to receive an appraisal. Mr. Vitzhum stated that he is not at a point to comfortably approve this redevelopment project/application without further information. Hardin and Tveite agreed. Motion was made by Toth and seconded by Vitzhum to table action until more information can be obtained by the applicant which includes; an appraisal of the property, further defined redevelopment costs, impact for spin off development and an environmental study. Motion carried 6-0. 5.1 Announcements 6. Adjournment There being no further business, Mr. Tveite adjourned the meeting at 8:50 a.m. Minutes prepared by Colleen Eddy. _____________________ Tina Allard City Clerk ___________________ Amanda Othoudt Economic Development Director ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY MICRO LOANS Current Current 11/13/20 Loan Loan Interest Term Monthly Principal Borrower Date Amount Rate (Months)Payment Outstanding Current Die Concepts 6/3/2016 $185,200 2.00%60 $936.90 $150,388.18 Y Heritage Millwork 12/22/2016 $100,000 3.00%60 $965.61 $65,235.56 Y Ralphies#1 9/10/2013 $74,999 3.00%120 $724.20 $23,768.87 Y Ralphies#2 8/28/2018 $19,175 3.00%60 $343.65 $11,532.94 Y TOTAL MICRO LOANS $250,925.55 Micro Loan Fund 240 Distinctive Iron 10/1/2019 $126,000 2.03%60 $1,050.07 182,321.61$ Y Scott Morrell LLC 8/6/2015 $200,000 2.00%60 $1,011.77 154,924.19 Y 5-Year Balloon is up Orluck 7/17/2018 $200,000 3.00%84 $2,642.66 140,228.23 Y $477,474.03 DEED Jobs Incentive Loan Fund 242 COVID-19 Small Business Emergency Loans Current 10/13/20 Loan Loan Interest Term 6-month Monthly Principal Forgivable Date Amount Rate (Months)Deferment Payment Outstanding Chow Mixed Grill and BBQ 7/6/2020 $20,000.00 0%60 1/1/2021 166.67 $20,000.00 $5,000.00 $15,000.00 Daddy-O's Café, Inc.7/6/2020 $5,000.00 0%60 1/1/2021 41.67 $5,000.00 $5,000.00 $0.00 Inspire Studio, LLC 7/6/2020 $20,000.00 0%60 1/1/2021 166.67 $20,000.00 $0.00 $20,000.00 Pinnacle Foods, LP 7/6/2020 $5,000.00 0%60 1/1/2021 41.67 $5,000.00 $5,000.00 $5,000.00 Pyramid Fitness Group 7/6/2020 $20,000.00 0%60 1/1/2021 166.67 $20,000.00 $5,000.00 $15,000.00 Snap Fitness 8/3/2020 $20,000.00 0%60 2/1/2022 166.67 $20,000.00 $0.00 $20,000.00 Elk River Country Club 8/3/2020 $5,000.00 0%60 2/1/2020 41.67 $5,000.00 $5,000.00 $0.00 Eagles Club 8/3/2020 $2,374.00 0%60 2/1/2020 19.78 $2,374.00 $2,374.00 $0.00 $97,374.00 $27,374.00 $75,000.00 Fund Cash Balances 11/13/20: Micro Loan Fund - 240 $825,345.88 State DEED Jobs Incentive - 242 $148,777.48 Final Principle Loan Balance 4.5. The Elk River Vision A welcoming community with revolutionary and spirited resourcefulness, exceptional service, and community engagement that encourages and inspires prosperity Request for Action To Joint Finance Committee Item Number 4.1 Agenda Section General Business Meeting Date November 24, 2020 Prepared by Colleen Eddy, Economic Development Specialist Item Description Morrell Companies Microloan Extension Reviewed by Cal Portner, City Administrator Reviewed by Action Requested Consider and provide recommendation to the EDA on the Scott Morrell, LLC/Morrell Oversize (Morrell Companies Jobs Incentive Microloan two-year extension request. The Joint Finance Committee may recommend approval, approval with conditions, or denial of the request. Background/Discussion On July 20, 2015, the city approved a $200,000 Jobs Incentive Microloan as a short term loan with a 5-year repayment term to Scott Morrell/Morrell Oversize (Morrell Companies). They have been paying the loan pursuant to city policy over the past 5 years with a 2% interest rate. Final payment was due August 1, 2020. The city received a request to extend the terms of the loan repayment by 2 years. Loan extensions are authorized under the terms of the policy, subject to EDA and City Council approval. To justify the extension, Mr. Morrell provided a letter from the Bank of Elk River stating the bank was unable to match the current terms. Staff requested additional details from the bank to better understand the request. Financial Impact The request does not include additional funding from the city. If the extension is approved, it would provide additional interest at 2% into the fund until the loan is paid in full. The extension would also reduce available funds that could be used for other projects until the loan is paid in full. Mission/Policy/Goal The Joint EDA/HRA Finance Committee shall consist of two HRA Commissioners, two EDA Commissioners, five members of the Elk River community consisting of two members of the banking profession, one member of the legal profession, one member of the real estate profession and one member of the community at large and acts in an advisory capacity to the Authority. Attachments  Baker Tilly Analysis  Letter of Denial from Bank of Elk River  Request for extension Memo To: Colleen Eddy, Economic Development Specialist, City of Elk River From: Mikaela Huot, Director Date: November 20, 2020 Subject: Scott Morrell, LLC Request for Microloan Extension Background The City of Elk River provided a jobs incentive microloan to Morrell Trucking in 2015. The company utilized the funds to aid in the acquisition and construction of an expansion to their existing facility. The company also received tax abatement assistance in the incentive package. The project was completed as anticipated following award of both the microloan and tax abatement. The company has been paying the loan pursuant to the terms of the City’s policy over the past 5 years with a 2% interest rate. Final payment on the loan was to be made August 1, 2020. The City received a request to extend the terms of the loan repayment by 2 years. This request and subsequent consideration for granting, is authorized under the terms of the policy, subject to EDA and City Council approval. The company provided a letter from the Bank of Elk River dated September 17, 2020 requesting that the EDA consider a 2-year extension of the loan to Scott Morrell, LLC as the bank was unable to match the terms. Following receipt of that letter, we requested additional details from the bank to better understand the request. The bank followed up with a letter dated November 18, 2020 providing more details on the request to extend the loan for 2 years. The interest rate the bank could offer for this type of loan is expected to be greater than 4%, and higher than the current microloan rate of 2%. It would also require additional evaluation steps that takes time and money. The bank has indicated the loan would continue to be paid down over the next 2 years, consistent with the past 5 years, and a balloon payment using company assets will be made when the final payment is due. Continued payments on the existing loan structure would provide additional capital and cash flow for the owner to invest in its employees and company during the extended period. Monthly Annual Rent from MO Inc 12,000 144,000 Bank Loan Payments 10,860 130,320 City Loan Payments 1,012 12,141 Total Loan Payments 11,872 142,461 Debt Coverage 1.01 1.01 Thank you for the opportunity to be of assistance to the City of Elk River. Please contact me at 651-368-2533 or mikaela.huot@bakertilly.com with any questions or to discuss.