Loading...
5.1. SR 02-05-2007 City of Elk River REQUEST FOR COUNCIL ACTION Agenda Section Meeting Date Community Development February 5, 2007 Item Number 5.1. Prepared by Scott Clark, Community Development Director Reviewed by Item Description Dominium Corporation Request for Housing Revenue Bond for Birchwood Court A artments 1227 School Street Introduction The Dominium Corporation, under the ownership of Elk River Leased Housing Associates II, LP (Elk River Housing), is seeking authorization for the City of Elk River to issue a 30-year tax exempt housing revenue bond in an amount up to $2.5 million. These funds will be used as proceeds for the purchase of the 51-unit Birchwood Court Apartments (formerly Park Pointe) located at the southwest corner of School Street and Proctor Avenue. The City's issuance of these housing revenue bond will also enable the new owner to receive housing tax credits which will be converted to project equity. The bond and credits place a cap on income and rent for the project which is illustrated on page 2 of the attached Dominium letter dated January 16, 2007. It should be noted that this apartment complex was originally financed with tax credits, and as such, had similar limitations. The applicant is requesting that the Council consider an inducement resolution which indicates a preliminary intention to start the process (and allows the applicant to start the tax credit process). In addition, the resolution establishes March 5, 2007 as the date for a statutorily required public hearing. Also included for Council consideration is a "Program for Financing a Multifamily Rental Housing Development", which essentially is a summary of how proceeds will be used, rent standards, and where authorization of the bonds are derived from. Discussion Staff is recommending this issuance base on the following: Elk River Housing will infuse a minimum of $671,000 into rehabilitation efforts including boilers, interior and common area improvements. This is in addition to approximately $300,000 of recent improvements for steel siding, roof and new decks. The combined total of $971,000 equates to almost $16,000 per unit of rehabilitation, which is substantial for a complex of this age (built in approximately 1990). Rent "restrictions" on this property is not a concern as the maximum allowable rent is substantially higher than Elk River's normal rental market value. Page 2 of the previously cited letter illustrates that current rents will be increased, depending on the type of unit, and more important to the point of rental rates, proposed rents will be $250 to $300 under the maximum allowed by the restrictions placed on the property because of the bond sale. S:\Community Development \Scott Clark \Dominium Project \Request Council Action dominium.doc The City's Fire Department, which conducts apartment inspections, has stated that the Dominium COlporation, v:hich ~wns the Dove Tree Apartments in the City, has been excellent to work with from a management Vlewpomt. Financial Impact There will be no impact to the City since this request is for a revenue bond (conduit financing) with the City not having to pledge any considerations towards debt payment. In addition, Dominium has paid an initial $5,000 application fee, the City will require a 1% of issuance fee and all out of pocket expenses for legal fees to underwrite the bond will be paid for by the applicant. Attachments . Dominium letter dated January 16, 2007 . Elk River Conduit Bonding Application . Program for Financing a Multifamily Rental Housing Development . Resolution No. 07- -' Action Requested Staff recommends approval of the following: 1. Resolution No. 07-_, A Resolution Reciting a Proposal for a Multifamily Housing Development Project, Indicating Preliminary Intent, Subject to Certain Conditions, to Assist the Financing of the Project Pursuant to Minnesota Statutes, Chapter 462C (Birchwood Court Apartments Project) in an amount up to $2.5 million; and 2. The Program for Financing a Multifamily Rental Housing Development These recommendations are based on: . Approximately $671,000 of rehabilitation funds be dedicated to the project . Issuance and other fees to be paid for by the applicant Council Action Motion by _ Second by _ Vote Follow Up S:\Community Development\Scott Oark\Dominium Project\Request Council Action dominium.doc .'t... . DOMINIUM Development & Acquisition, LLC January 16, 2007 Mr. Scott M. Clark Community Development Director City of Elk River 13065 Orono Parkway Elk River, MN 55330 Minneapolis, MN 55402-4115 Re: Birchwood Court Apartments 1227 School Street Elk River, MN Dear Mr. Clark: By this letter, Elk River Leased Housing Associates II, LP is formally requesting that the City of Elk River City Council pass a resolution authorizing issuance of tax-exempt bonds in an amount not to exceed $2,350,000 to aid funding the acquisition/rehabilitation ofthe Birchwood Court apartments located at 1227 School Street NW in Elk River. We are requesting a 30-year bond term. The Buyer is proposing to: 1) preserve the existing affordable housing by executing a 30- year affordable housing deed restriction; 2) substantially rehabilitate the property; and 3) provide a high-quality, crime-free environment for our residents. The general partner is comprised of four members who are the four principals of Dominium Development & Acquisition, LLC based in Plymouth, MN. The four members of the general partner own another apartment project in Elk River, i.e. Dove Tree Apartments located at 1105 Lions Park Drive. We strongly support the Elk River Coalition for Crime-Free and Drug-Free Housing as demonstrated by our involvement with this program at Dove Tree Apartments. It is our intention to strongly enforce the same tenant selection criteria at Birchwood Court Apartments that we have successfully implemented at Dove Tree Apartments. As Minnesota's largest privately-held owner of apartments, we have consistently found that providing safe, crime-free housing units to good tenants is a win-win scenario for the owners, our tenants and the City. 2355 Polaris Lane North Suite 100 MinneapoliS, MN 55447 Phone 763/354-5500 Fax 763/354-5650 Acquisition. Development. Construction. Management Mr. Clark January 16, 2007 Page ii The current owner recently replaced the siding and roofing shingles. The Buyer's scope of rehabilitation includes: 1) converting one unit into a leasing office / clubroom resulting in 51 rental units; 2) new kitchen cabinets and countertops; 3) new bathroom vanities and cultured marble vanity tops; 4) replacing the boilers; 5) replacing appliances over 7 years old; and 6) updating the common areas with new carpet, paint and light fixtures. We anticipate that the rehabilitation budget will be between $10,000 and $12,000 per unit plus a 10% contingency. In addition to tax-exempt bonds, the Buyer is applying for $900,000 in HOME funds from Central Minnesota Housing Partnership. Also, the Buyer expects to raise $1,025,000 in tax credit equity. The property is currently encumbered by a Land Use Restrictive Agreement (LURA) that was executed December 24, 1990. The LURA specifies 100% of the units are rent and income restricted at or below 60% of Area Median Income (AMI). The Buyer is proposing to preserve 100% of this affordable housing under the same rent and income restrictions, i.e. at or below 60% AMI. The 60% AMI income restrictions are as follows: 2006 LmTC INCOME LIMITS (60% of AREA MEDIAN INCOME) 1 Person I 2 Persons 3 Persons 4 Persons I 5 Persons I 6 Persons $33,000 $37,680 $42,420 $47,100 I $50,880 I $54,660 The following table outlines current rents, proposed rents after rehabilitation and maximum allowable rents per the Section 42 guidelines for the metro area: 2006 LIHTC RENT LIMITS 160% of AREA MEDIAN INCOME) Unit Type # of Size Current Rent Proposed Max. LIHTC Units (SF) Rent Rent One Bedroom 3 683 $555 $625 $883 Two Bedroom 22 871 $665 $715 $1,060 2BR/TwoBath 2 1,113 $675 $750 $1,060 3 BR / One Bath* 12 995 $725 $735 $1,060 3 BR / Two Bath 12 1,066 $775 $850 $1,224 * We are considering converting the twelve three bedroom / one bath units into two bedroom / one bath units. 2355 Polaris Lane North Suite 100 Minneapolis, MN 55447 Phone 763/354-5500 Fax 763/354-5650 Acquisition' Development. Construction' Management Mr. Clark January 16, 2007 Pageiii Please call with any more questions or comments. My direct phone number is 763/354- 5609. DOMINIUM DEVELOPMENT & ACQUISITION, LLC .~ Paul Sween 2355 Polaris Lane North Suite 100 Minneapolis, MN 55447 Phone 763/354-5500 Fax 763/354-5650 Acquisition. Development. Construction. Management CITY OF ELK RIVER ~OJfPt Conduit Bonding Application I. CONTACT INFORMATION Company: Elk River Leased Housing Associates II, LP Address: 2355 Polaris Lane North, Ste. 100 City / State / Zip Plymouth, MN 55447 Contact Person(s) David Dye Business Phone 763/354-5609 Fax 763/354-5626 Email ddve@daniniuminc.com Federal ill # State ill # Proposed Bond Council Proposed Underwriters CGuncil II. PROJECT INFORMATION x Industrial Development/Expansion Medical Facility Multi-Family Residential Housing Mixed Use Redevelopment Other What type of project is proposed? What will funds be used for? x X Land Acquisition Construction/Renovation Capital Equipment Other Bond Amount Requested: $ not to exceed $2,300,000 Total Project Cost: $ 4,253,783 . Please provide a summary of the proposed project: Please see attached letter requesting bond resolution Has the applicant ever defaulted on a bond or mortgage commitment or ever declared bankruptcy? If so, please explain. No Please list the communities where the applicant has applied for conduit bonding within the past five years. City of Minneapolis St. Paul Champlin Eden Prairie New Brighton 2 ~ August 2001 III. FINANCING Sources of Funds SOURCE Bank Loan Bank Loan NAME Other Private Funds CharterMac Other Private Funds Applicant Contribution Fed Grant/Loan Ham State Grant/Loan City Financing Conduit Bonding Total Financing Uses of Funds Land ConstructionlRenovation (attach plans & costs) Capital Equipment Other Professional Services Legal Financing COsts T ota! Costs Comments: 3 .. TERMS AMOUNT $ $ Equity $1,025,512 $ $ 195,272 0%; 30 yrs $ 764,000 $ $ $ 2,269,000 $ 4,253,783 $ 2,346,000 $ 673,200 (plans not available) $ $ 1,234,583 $ 4,253,783 August 2001 IV. PROJECT GOALS Directions . IndustrialIMedical Facilities Applicants to complete Section 1 only. . Housing applicants to complete Section 2 only. . Mixed use applicant to complete both Sections 1 & 2 SECTION I: Industrial/Medical Facilities Present # of Employees Total Payroll \ Job Creation Average Are the Jobs Expected Number Hourly Annual Permanent or Hiring Job Title ofJobs Wage Salary Temporary? . Date - Current Market Value of Property $ Estimated Market Value upon Completion $ SECTION 2: Housing Developments Housing Unit Data Type of Unit Number of Units Rent Range Percent Available to lMI -L 1 bedroom $625- 100% @ 60% AM .jt) 2 bedroom $715 - $750 100%@ 60% AMI ~ 3 bedroom $850 100% @ 60% AMI - 1 bedroom 100% 2 bedroom 3 bedroom 1 bedroom 2 bedroom 3 bedroom 4 August 2001 . IV. PROJECT CONTACTS Attorney Name Erin Jones / Winthrop & Weinstine Address 225 South Sixth Street, Ste. 3500, Minneapolis MN 55402 Phone 612 / 604-6730 Email eJones@Wrnthrop.com Accou ntant Name Alex Hunt / Hesley Hunt & Associates, Ltd., Address 2607 White Bear Avenue, Maplewood MN 55109 Phone 651/770-8505 Email ahunt@hesleyhunt.com Developer/Builder Name Elk RiyerLeased Housing Associates II. LP Address 2355 Polaris Lane North, Ste. 100 ' Plymouth, MN 55447 Phone 763 I 354-5609 Email ddye@daniniumino.com Financing Sources (lenders. partners. etc... ) Name Trmg,'hpr+y.& C"nmp:my / D;:",,; n.T"r;:m Address 90 South Street, Ste. 4400 Minneapolis MN SS40? Phone 612 / 376-4075 Name Address Phone Deanna Herrmesch /Central Minnesota Housing Partnership R10 West St. C,f>YTYl<'lin S+rppr, Ste. 101 Sr. c:lnnn MN Shinl 320 / 259-0393 Name Address Phone Eric Trucksess / Charter Mac Capital 625 Mad:i son Avenue. New York NY 100?? 212 / 521-6392 Name Address Phone Parent Company Name DorniniumDevelop:nent & Acquisition, LLC Address 2355 Polaris Lane North. Ste. 100 Plymcmt:h. MN SS447 5 August 2001 " V. ATTACHMENTS CHECK LIST Please attach the following: X A) Non-Refundable Deposit of $5,000 The City is to be reimbursed and held harmless for any out-of-pocket expenses related to the conduit bonding including, but not limited to the City's issuer counsel and other legal fees, financial analyst fees, bond counsel fees, and the City's administrative expenses in connection with the application. The applicant must execute a letter to the City undertaking to pay all such expenses even if they exceed the $5,000 deposit. B) Administrative Fee of one percent (1 %) of the bond request. (fo be paid at time of bond closing) VI. AGREEMENT I / We certify that all information provided in this application is true and correct to the best of my/our knowledge. I / We authorize the City of Elk River to check credit references and verify fInancial and other information. I / We agree to provide any additional information as may be requested by the City. DAIlE 1 / 22 / 07 6 August 2001 .. PROGRAM FOR FINANCING A MULTIFAMILY RENTAL HOUSING DEVELOPMENT Proposal Authority, Pursuant to Minnesota Statutes, Chapter 462C (the "Act") the City of Elk River (the "City") is authorized to develop and administer programs of multifamily housing developments under the circumstances and within the limitations set forth in the Act. Minnesota Statutes, Section 462C.07 provides that such programs for Minnesota family housing developments may be financed by revenue bonds issued by the City. This housing finance program (this "Program") is undertaken by the City to finance a Project (as hereafter described) to be developed and owned by Elk River Leased Housing Associates II, LP, a Minnesota limited partnership (the "Company"). The City expects to issue multifamily housing development revenue bonds (the "Bonds") pursuant to Minnesota Statutes, Chapter 462C, to assist in financing the Project. General Description of the Program and Location. The City anticipates loaning the proceeds of the Bonds to the Company to finance the acquisition and renovation of an approximately 51 unit multifamily rental housing facility located in the City at 1227 School Street NW (the "Project"). When the renovation is completed there will be the following units at the following estimated rents: 12 three-bedroom, 1,066 square foot units ($850); 36 two- bedroom, 871-1,113 square foot units ($715-750); and 3 one-bedroom, 683 square foot units ($625). Operation of Proiect. The Project will be operated in accordance with applicable development restrictions, and all rehabilitation will be subject to applicable state and local building codes. The affordability standards and set-aside requirements of Section 462C.05, Subdivision 2 of the Act, and the requirements of Minnesota Statutes 474A and Section 142(d) of the Internal Revenue Code of 1986, as amended (the "Code"), will be met. The Company will be required to operate the Project in accordance with state and local anti-discrimination laws and ordinances. Revenue Bonds. The Company has indicated that the amount of Bonds required to finance the Project is approximately $2,500,000 which will mature in approximately 35 years. The proceeds will finance the acquisition and renovation of the Project and pay certain costs of issuing the Bonds, and may be used to establish a reserve. Tax credit equity is also expected to provide financing for the Project. 1 990325v 1 Issuance Authority. The Bonds will be issued pursuant to Section 462C.07 Subdivision 1 of the Act and shall be payable primarily from revenues of the Program. Issuance of the Bonds is anticipated to be in early 2007. Up to $2,500,000 of the state volume cap for private activity bonds, pursuant to Section 146 of the Code and Chapter 474A of Minnesota Statutes, will be allocated to the Bonds. Monitoring. The Company expects to enter into suitable agreements with necessary parties to ensure consistent compliance with the objectives of this Program, as well as with the requirements of applicable law. Use of Bond Proceeds. The proceeds of the Bonds will be loaned to the Company pursuant to a revenue agreement (the "Loan Agreement") by and between the City and the Company. The Company will be required, pursuant to the Loan Agreement, to make payments sufficient to pay when due the principal of, premium, if any, and interest on the Bonds. 1990325vl 2 RESOLUTION 07- A RESOLUTION OF THE CITY OF ELK RIVER RECITING A PROPOSAL FOR A MULTIFAMILY HOUSING DEVELOPMENT PROJECT, INDICATING PRELIMINARY INTENT, SUBJECT TO CERTAIN CONDITIONS, TO ASSIST THE FINANCING OF THE PROJECT PURSUANT TO MINNESOTA STA TOTES, CHAPTER 462C (BIRCHWOOD COURT APARTMENTS PROJECT) WHEREAS, (a) The City is authorized pursuant to Minnesota Statutes, Chapter 462C, as amended (the "Act") to finance the making or purchasing of loans with respect to multifamily housing developments within the boundaries of the City of Elk River (the "City") through the issuance of revenue bonds; (b) Pursuant to the Act, the full faith and credit of the City will not be pledged to the payment of the principal of, premium, if any, and interest on the revenue bonds; (c) The City has received a proposal from Elk River Leased Housing Associates II, LP, a Minnesota limited partnership (the "Company"), that the City assist in financing a Project hereinafter described, through the issuance of revenue bonds in the maximum aggregate principal amount of approximately $2,500,000 (the "Revenue Bonds") pursuant to the Act and in accordance with a housing finance program prepared with respect to the Project; (d) The undertaking of the proposed Project and the issuance of the Revenue Bonds to finance the cost thereof will further promote the public purposes and legislative objectives of the Act by expanding and assisting the multifamily housing facilities available in the City; (e) The Project to be financed by the Revenue Bonds is the acquisition and renovation of an existing 51-unit multifamily rental housing facility at 1227 School Street NW in the City currently known as Birchwood Courts Apartments (the "Project"). The Project will be owned and operated by the Company; (f) The City has been advised by representatives of the Company that conventional, commercial financing to pay the capital cost of the Project is available only on a limited basis and at such high costs of borrowing that the economic feasibility of operating the Project would be significantly reduced; (g) No public official of the City has either a direct or indirect financial interest in the Project nor will any public official either directly or indirectly benefit financially from the Project. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Elk River, Minnesota, as follows: 1. The Council hereby indicates its preliminary intent to undertake the Project pursuant to the Act and to issue the Revenue Bonds in the maximum aggregate principal amount of $2,500,000 pursuant to the Act to finance the Project. 2. On the basis of information available to the City it appears, and the City hereby finds, that the Project constitutes a multifamily housing development within the meaning of Section 462C.05 of the Act; that the availability of financing under the Act and the willingness of the City to furnish such financing will be a substantial inducement to the Company to undertake the Project, and that the effect of the Project, if undertaken, will be to encourage the provision of multifamily rental housing opportunities to residents of the City at a reasonable cost. 3. The City staff is authorized to publish notice of a public hearing with respect to the Project and issuance of the Revenue Bonds on March 5, 2007. 4. The issuance of the Revenue Bonds by the City is subject to, among other things, (a) holding a public hearing with and consideration of any public comments at such hearing, (b) receipt of federal bond allocation for the Revenue Bonds and (c) final approval by this Council, the Company and the purchaser of the Revenue Bonds as to the ultimate details of the financing of the Project. 5. The Company has agreed and it is hereby determined that any and all costs incurred by the City in connection with the financing of the Project whether or not the Project is carried to completion and whether or not approved by the City will be paid by Company. 6. Nothing in this resolution or in the documents prepared pursuant hereto shall authorize the expenditure of any municipal funds on the Project other than the revenues derived from the Project or otherwise granted to the City for this purpose. The Revenue Bonds shall not constitute a charge, lien or encumbrance, legal or equitable, upon any property or funds of the City except the revenue and proceeds pledged to the payment thereof, nor shall the City be subject to any liability thereon. The holder of the Revenue Bonds shall never have the right to compel any exercise of the taxing power of the City to pay the outstanding principal on the Revenue Bonds or the interest thereon, or to enforce payment thereof against any property of the City. The Revenue Bonds shall recite in substance that the Revenue Bonds, including interest thereon, is payable solely from the revenue and proceeds pledged to the payment thereof. The Revenue Bonds shall not constitute a debt of the City within the meaning of any constitutional or statutory limitation. 7. It is the purpose of this resolution to evidence the commitment of the parties and their intentions with respect to the proposed Project in order that the Company may proceed without delay with the commencement of the acquisition and renovation of the Project with the assurance that there has been sufficient "official intent" within the meaning of Treasury Regulations Section 1.150-2(d) to permit Project costs incurred within sixty (60) days prior to the date of adoption of this Resolution to be financed by the issuance of multifamily revenue bonds to finance the entire cost of the Project upon agreement being reached as to the ultimate details of the Project and its financing. S:\Community Development-Scott Clark\Dominium Project\Resolution.doc 2 Adopted by the City Council of the City of Elk River, Minnesota, this 5th day of February, 2007. Stephanie Klinzing, Mayor ATTEST: Tina Allard, City Clerk STATE OF MINNESOTA COUNTY OF SHERBURNE CITY OF ELK RIVER I, the undersigned, being the duly qualified and acting City Clerk of the City of Elk River, Minnesota, DO HEREBY CERTIFY that I have compared the attached and foregoing extract of minutes with the original thereof on file in my office, and that the same is a full, true and complete transcript of the minutes of a meeting of the City Council of said City duly called and held on the date therein indicated, insofar as such minutes relate to giving preliminary approval on the City's Birchwood Court Apartments Project. WITNESS my hand and the seal of said City this _ day of ,2007. City Clerk (SEAL)