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09-29-2020 JFC MIN 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