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5.3. PCSR 05-08-2007REQUEST FOR ACTION To Item Number Plannin Commission 5.3 Agenda Section Meeting Date Prepared by Plannin Items Ma 8, 2007 erem Barnhart, AICP Item Description Reviewed by Hearing by City of Elk River for Ordinance Amendment Scott Clark, Community Development Regarding Recreational Facilities in the Business Park Zoning Director District, Public Hearing -Case No. OA 07-06 Reviewed by Action Requested Direction on proposed Zoning Ordinance text amendment regarding commercial recreation facilities in the Business Park zoning district. Backctround/Discussion This application is made in response to a building permit request to finish a tenant space for a commercial recreation business in the BP zoning district. The Planning Commission and City Council axe asked to provide direction on a possible text amendment to the Business Park Zoning Districts permitted or conditional uses. Financial Impact No direct budget impact, potential impacts to employment base and tax structures. Attachments Staff Memo to City Council dated May 8, 2006. Letter to Briggs dated March 27, 2007 Action Motion by Second by Vote Follow Up Overview/ Analysis Staff has received a building permit application from a property owner to desiring to construct a dance studio/ gymnastics facility in the Business Park (BP) zoning district. This use is most closely classified as Commercial Recreation, defined as "a building structure, or open space designed, constructed and operated by a private enterprise for recreational purposes and open to the general public. Such facilities may include bowling alleys, tennis courts, and other leisure uses. " Commercial Recreation is permitted as a conditional use in the C-1 and C-3 zoning districts. It is allowed in the I-1 zoning district as a conditional use, provided the property is not platted. Because the use was defined and expressly anticipated fox other zoning districts within the City, it is improper to interpret into another zone. The question is: should the additional zoning districts permit this type of use as a permitted or conditional use, specifically the BP district. In researching a possible amendment, the City has four main options, including: 1. Make no amendment 2. Make Commercial Recreation a permitted use in the BP zoning district 3. Make Commercial Recreation a conditional use within the BP district 4. Classify Commercial Recreation as a retail use in the BP zoning district, allowing it as a accessory use, but constraining it to a relatively small portion of the business park, thereby in some way preserving the intent of the district. Within this option, the City could follow one of three tracts: a. 15% or a maximum of 5,000 square feet b. Retails sales incidental to the products manufactured, maximum of 10% of the floor area c. A maximum 20,000 square foot freestanding facility. The Zoning Ordinance allows, as a permitted accessory use, a limited amount of retail, recognizing that there are two different styles of retail that are beneficial to the principle warehouse business or the park in general, provided the area retains its business park character. The purpose statement of the Business Park zoning district: 1. The business park district is established to encourage a planned, integrated environment for certain industrial office and commercial uses, which are compatible with and complement each other as well as the surrounding land uses. The underlying land use designation within the district may vary and may be either light industrial or highway business. Development within the business park district will correspond with the land use designation. Industrial and office uses are allowed where the land use designation is light industrial, and commercial uses are allowed where the land use designation is highway business. 2. It is the intent of this section that development reflect common themes using compatible architectural design and consistency in signage, landscaping, and lighting. It is also the intent to encourage businesses which generate a hi~~h number of jobs per ~uare foot rather than predominantly warehouse type uses. -Sec. 30-1294. Emphasis added. There is some question regarding the benefits of permitting commercial recreation in the business park environment, especially those with underlying industrial land uses (roughly 65% of all business park zoning properties). The Challenge lies in addressing question: what does the commercial recreation facility bring as a benefit to the park and the city in general when a identifiable goal is the generation of jobs (employment), or the generation of property value. A 20,000 sq ft go cart track or bowling alley likely would not generate the same or greater value of employment options as the same size manufacturing or office buildings. With as limited amount of available land desirable and suitable for industrial and true business park style uses, there is a concern that the city's benefit and may not be maximized or realized. Further, more comprehensive analysis regarding the inventory and economic issues can be found in the attached Memo to City Council, dated May 8, 2006. Recommendation Staff recommends Commercial Recreation not be permitted within the Business Park Zoning District. Should the Planning Commission and City Council feel the use is appropriate, Staff would recommend a Commercial Recreation use be classified as an accessory retail use, for the purposes of space allocation, and preservation of business park character, with no more than 15% (5,000 sq ft) of the occupied quarters being used for the Commercial Recreation. With direction, staff will develop a formal text amendment for review and incorporation at a future meeting, likely in June. Respectfully Submitted ~~~' Jeremy Barnhart Planning Manager March 27, 2007 Mr. Pat Briggs Briggs Properties 11110 Industrial Circle NW Elk River, MN 55330 RE: Building permit- tenant space 121 Mr. Briggs, The City has received a building permit to finish space within the Elk River Business Park. On the building permit, the space to be improved is identified as space H. Based on our understanding of your use, and the permitted zoning for the subject property (currently zoned BP), it does not appear that your proposed use is permitted within the BP zoning district as a permitted or conditional use. The City allows "Private Recreational Facilities' as an accessory use; however, your proposed use does not fit within that category. Because of this, Staff is unable,to process and issue the permit. However, in 2002, a similar use successfully argued for an interim use based on a vocational, technical, or trade school. Please note that Staff does not support this use as a vocational school and that the majority of the Council has changed, and similar approval is not guaranteed. Please feel free to contact me should you have any questions, or would like the necessary applications forms forwarded to you. I can be reached at 763/ 635-1034. Sincerely, -~ Jeremy Barnhart, AICP Planning Manager CC: Bob Ruprecht, Building Official Scott Clark, Community Development Director 13065 Omno Pazkway Elk Rivet, MN 55330 ~~~ ~~ .ver MEMORANDUM TO: Mayor & City Council FROM: Scott Clark, Community Development Director Catherine Mehelich, Director of Economic Development DATE: May 8, 2006 SUBJECT: Discussion on Briggs Proposal Introduction At the April 10, 2006 City Council work session direction was given to staff to review options regarding what was called the "Briggs Proposal." There were a number of issues that were discussed: 1) A concern that certain types of businesses (in this case "educational venues" such as dance, gynuiastics, music, etc) have a difficult time in finding commercial space that have low enough lease rates to make their businesses profitable. There was an assumption during the discussion that converting some industrial property to commercial was a method to create the necessary economics in order for the aforementioned types of uses to be profitable. 2) The second discussion centered on concerns of converting scarce industrial property into commercial space. One idea that was brought forward was creating a "Tier 1" type of zoning where both commercial and industrial land uses could be elected. This report is written in two parts; the first section discusses the "economic policy" considerations regarding the City's ability to affect lease rates to a point of making businesses profitable and as part of this review, a look at the City's commercial and industrial inventory. The second part discusses zoning, and if the Council wants to create acommercial/industrial zone, and the policy issues that need to be discussed and agreed upon. Inventory and Economic Issues The proposed "educational venues" are currently allowed to locate within the commercially zoned areas. The attached table indicates that there appears to be sufficient inventory of commercial land sites and building lease space, with varying lease rates, in which these types of uses would be allowed. At the same time there is an extremely limited availability of land sites for light industrial/manufacturing uses. Discussion on Briggs Proposal May 8, 2006 City Council Worksession Page 2 of 5 Commercial Land & Lease Hartman Commercial C4 1.5 acres West Highway 10 $7.00/square foot Guardian Angels Commercial C4 2.56 acres West Hwy 10 Accepting offers Elk Path Business Center C3 1.5 acre lots West Highway 10 $7.00/square foot Mississippi Ridge PUD 1-3 acre lots East Hwy 10 $8-12.00/square foot Carson Business Park C3 2.5 acres SW corner Main St & Hwy 169 $12.50/square foot Lease rate: $20-25.00/sf Elk Ridge Center PUD 1-5 acres pads North Hwy 169 $12.00/square foot Lease rate: $13-22.00/sf Hillside Crossing Mall C3 1,800 - 10,000 square feet North H 169 Lease rate: $14-15.00/sf Elk Park Center PL1D 3,500-3,900 square feet Freeport Street Lease rate: $12-14.00/sf Country Crossing Mall C3 1,100-2,100 square feet West Hwy 10 Lease rate: $13.00/sf Houlton Commercial DD 3,400 square feet Main Street Lease rate: $9.00/sf+ CAM Industrial Land & Lease Northstar Business Park BP 4 to 9 acre lots Twin Lakes Road approx. $2.50/square foot Elk River Business Park BP 6 acre and 4.46 acre lot Twin Lakes Road $1.90-2.50/s uare foot Industrial Lease Space BP/I1 3,500 - 10,000 square feet $4.75/sf -warehouse $9.50/sf -office $1.75/sf -CAM Even with the lower cost of entry (land price) to locate in a Business Park/Light Industrial zone rather than Commercial zone, it is questionable whether any "savings" will ultimately be passed on to the end business tenant of a multi-tenant building. While the land cost has some affect on the end lease rate, the majority of cost to lease is attributed to the expense for constructing the building and interior build-out, in addition to the common area maintenance expenses (taxes & insurance). Even if the "savings" can be passed onto the end tenant the City does not have the ability to control or enforce lease rates into the future for these types of situations. It also seems that other commercial retail/service businesses Discussion on Briggs Proposal May 8, 2006 City Council Worksession Page 3 of 5 could seek similar requests in the future based on affordability (e.g. daycare, hair salon, etc.) so a key concerns should be what retail/service uses are compatible with an industrial park. Second, from a policy standpoint a key consideration is whether or not the City wants to convert industrial areas to more commercial uses due to the limited availability of industrial land. In 2005 the City experienced a great surge in the development of light industrial land; six different sites with a combined total of 45.78 acres were developed with a total of 273,000 square feet and creation of 184 new jobs at minimum hourly wages of $15. Currently there exists 31 acres of Business Park property (including the specific lot in request) that is available for new industrial development in 2006. Finally, specific to this request to locate in the Elk River Business Park, it should be noted that allowing such use could affect the Redevelopment Agreement between the City and Associated Investors of Elk River, Inc., Fischer Sand & Aggregate, LLP and Elk River Business Park, LLC (the "Redeveloper") dated July 21, 2000 which outlines a Development Schedule for the build out of specifically "light industrial building space". Zoning Issues From a zoning standpoint, the City already has a zone that allows (with some qualifications) commercial and industrial uses. Zoning Ordinance Section 30-1294 establishes a "BP business park district" with the purpose of the district being industrial, office and commercial. (Use sections attached. It should also be noted that the current zoning of the City's Northstar Business Park is "BP." Commercial uses are only allowed in the "BP" zone if the land use designation on the City's Comprehensive Plan is Highway Business. There are a number of issues associated with the current wording of the "BP" district: 1) Since no current "BP" zoned property exists along a highway, and in turn no underlying highway business land use exists on these types of zoned properties, the City elected to remove from the district (summer of 2005) a whole series of retail uses (including health athletic clubs ), both permitted and conditional. 2) Although the retail uses were eliminated no amendments were made to the purpose statement that still references commercial uses, albeit with the proper underlying land uses. 3) Again, with the idea of eliminating retail uses, no amendments were made to the accessory uses which still allow retail sales for a portion of any industrial space. Under the accessory uses, there are two separate provisions for subordinated space, one section for retail space (allows for ten percent of the building) that is incidental to the products being manufactured on site (Section 30-1294 (c) 4 f.) and a separate section that allows any type of retail activity based on the space not occupying more than 15% of the gross floor area and capped at 5,000 sq ft. (Section 30-1294 (c) 4 b.). 4) Another inconsistency in the "BP" zoning district is that under the accessory use section a complementary freestanding retail facility can be constructed up to 20,000 sq.ft. (Section 30-1294 (c.) 4 e.). Since the purpose section was not amended, which Discussion on Briggs Proposal May 8, 2006 City Council Worksession Page 4 of 5 dictates the need for a correct underlying zoning, it is a debatable issue as to whether this type of use could be constructed within the definitions of the Ordinance. It is also an interesting note that this section is listed under "accessory uses" as a freestanding retail of 20,000 sq ft, does not meet the definition of accessory use. 5) Another interesting note for these aforementioned uses is that no outside retail signage is allowed (Section 30-1294 (c) 4 d.) which seems counter productive since the intent is to allow some type of retail, and in turn, there needs to be a way to convey to the public, that a product (s) is for sale. 6) The last note is that although the "BP" district was changed to ninir,,;~P, if not eliminate commercial uses, motor vehicle repair is allowed as a conditional use permit (Section 30-1294 (d) (1) f.). In reviewing the "BP" district staff would conclude the following: 1) Based on the number of inconsistencies within the district a rewrite of this section should be undertaken. The key planning policy question is should retail uses be allowed, regardless of the underlying land use designation. A strong argument can be made that, at a minimum, provisions should be made to allow some complimentary retail and service uses with an established business park. The entire concept of a business park is that of an integrated land area where industrial and offices employees can obtain services and other benefits as part of the park itself. 2) The second staff conclusion is that "education uses," as described in the introduction of this report, could be interpreted to be allowed under the "BP" zoning district that allow retail sales activity up to 15% of the buildings gross floor with a cap of 5,000 sq.ft. As an example, if an industrial user had a 30,000 sq.ft. building 4,500 sq.ft. could be allocated to retail. This interpretation of "retail sales" concludes a broad definition of retail including retail, personnel services, food shops, etc. as the term retail is not defined within the Ordinance and carries with it a common usage of definition that includes the aforementioned uses. 3) As discussed in the first part of this report, the allowance of subordinated commercial space into an industrial building may still not achieve the desired economics. Conclusions and Recommendations The question of whether or not "educational venue" type of uses can afford lease rates appears to be a market derived question that is extremely complex. The issue of whether or not sufficient commercial space exists in the City, and at a lease rate structure that can make a business viable, is only part of the equation. The operation of any business including the rates charged, marketing, general operations, etc, all are considerations that have to be matched with the operating costs attributed to lease rates. Discussion on Briggs Proposal May 8, 2006 City Council Worksession Page 5 of 5 Staff has included in this report various lease rates in the community and it appears that there is significant space available and at, or slightly below, market rates. Staff views that the rates that would be charged for commercial space, as part of any industrial space or on industrial zoned property, would not be significantly lower (and for new construction could be significantly higher) than what could be found in the City's commercial market. The other concern is eliminating scarce industrially zoned property for commercial activities. If the Council desires to pursue this issue, and views that the solution is conversion of industrial space to commercial, it appears that this option is currently available in the "Business Park" zoning as previously discussed. Staff is recommending that the Planning Commission review this situation regardless of the outcome of this specific item as there appears to be many wording and intent inconsistencies in the Business Park District ordinance. Mr. Jeremy Barnhart, This letter is in reference to tonights planning commission meeting concerning the request by the City of Elk River for an ordinance amendment to allow physical recreation/training facilities as an interim use in Business Park Zoning. Our group is in the process of building a 22 unit 53,000 square foot flex use condominium development in the Elk River Business Park www.elkrivercondos.com . We selected this location for several reasons, location, access, price, visibility, flexible use, and proximity to retail establishments. We have begun construction and expect occupancy in December, 2007. Our intent is to attract the small business owner, with flexible use needs, and provide them a location at an affordable price. We currently have two clients that fit within the Recreational Use category, express an interest in locating their Business's in our project on a long term basis only. I have included a letter from one of the clients for your review. We understand the Planning Commission's concern of allowing use's that are not in keeping with the light industrial aspect of the underlying land use that affects these properties. We also understand the current need for affordable property, with good access and proximity to retail, for recreational service type business's that have expressed a desire to locate within the Elk River Business Park. The Council's decision to allow these types of Business's on an interim basis only, makes it very difficult for any business to succeed. The buildout expense, cost of moving, location recognition, and advertising new locations every three to five years seems unreasonable. We have had many discussions with area residents and business owners regarding this issue. We believe that a more reasonable solution would be to limit these recreational uses on a percentage of total building space within the Business Park. By allowing a percentage of use formula (20-30%) on a per building basis, the City of Elk River would be .preserving the intent of the underlying land use and at the same time would provide these affordable spaces to the recreational service business owner. We would like to work with the City of Elk River in finding a solution to this situation. We would appreciate any input you have on this matter. Sincerely, Troy L Tufto Dan P Murphy The Commercial Condos at EIk River Business Park. Troy: It is my understanding that your group will be meeting once again with the City of Elk River to discuss the possibility of obtaining some type of permit or use of The Commercial Condos for at:~letic training. As we have discussed my group is very interested in two units at The Commercial Condos, a total of 6864 sgft. As a local resident of Elk River and a business owner here in town I would ask that your group request on my behalf the ability to use this facility for Athletic training. Without the clearance from the City on this we will half to pass on the property and look outside the Eik River area to satisfy our needs.. To explain our situation, we are in negotiations with a company located in the Minneapolis area. They currently have training facilities all over the states including three or four locations here in Minnesota. At the present time there are many Elk River residents traveling over an hour away to have their kids participate and train with this company, this would include my family as well. By having this company in the Elk River area it will open the docrs and expand the opportunities for our young athlete in football, baseball, basketball, soccer and hockey. As the investor in this project I am not only looking at making a profit on my large investment but also looking at brining a quality facility to the Elk River area for our young athletes. As an entrepreneur I fully understand the issues that the City has, but with this quality company that would be coming into town it would open so many doors for our local athletes young and old. I would ask that the City permit the use on a percentage basis per building in the commercial park in Elk River, with no limitation on time. As an investor it would be very difficult to justify putting a time limit on a lease especially if the company that is leasing the property is successful. By permitting this use, it will not only bring a new business to the area but offer a quality service to the residents of Elk River and the surrounding areas. Please express my gratitude to the City for their time and I look forward to hearing back from you on their decision. If you have any questions please feel free to contact me at my office at 763-441-6412. Sincerely, Richard M. Murphy Sincerely, Richard M. Murphy President & CEO (763) 441-6412