6. HRSR 05-01-2006ITEM # 6.
fiver
MEMORANDUM
TO: Housing and Redevelopment Authority
FROM: Heidi Steinmetz, Assistant Director of Economic Development
DATE: May I, 2006
SUBJECT: Downtown North of Highway 10 Redevelopment Plan Update
Staff will provide a verbal update at the HRA meeting.
Ehlers Advisor March 2006
INFER
~~`' Take a look at some of
_~ -;~ ~ our clients "on the move"
.~-~ - CLIENTS ON THE MOVE with new projects!
The Crosby-Ironton School District has completed construction of new additions
and renovations to the Crosby-Ironton High School to replace their aging
facilities and accommodate growing enrollment. The project included 83,500
square feet of new construction and 129,414 feet of remodeling on the
existing school site. Built for 700 students, the current building houses 644
students and serves grades K-12. District voters approved the $20,525,000
project in December 2002. The school opened for the start of the 2005-06
school year. The architects for the project are ATSB~R Architects located in
Minneapolis. The construction manager is Donlar Construction of
St. Cl
The Northfield Riverfront Redevelopment will n grace the Cannon River with
~ a public park, thanks to a redevelopment
project by Mendota Homes called The Crossing.
This project will include 110 residential condominiums in two buildings, along In 2005 83,500 sq. ft. of new construction and 129,414 ft. of
with office condominiums, a restaurant, and commercial space on the site. It remodeling was completed at Crosby-Ironton High School.
will provide much needed housing options that will complement the beauty of Northfield's downtown, restore the riverfront to
public use, and provide office, commercial and restaurant space on a main thoroughfare.
Mendota Homes will be restoring the river bank, re-grading the area, installing sidewalks and landscaping, and adding a canoe
launch area. Tlus will make new connections to the City's existing sidewalks and trails
allowing for much greater public usage of this valuable comm>_uuty asset. The property - - - - - - - ~ ----------- - -.
value will increase from $1.9 million to over $ 51 million after redevelopment. ~ _ I _ ~.
"he City Council did a great job of articulating the overall vision for the
.development, and Mendota Homes did an equally great job of incorporating
this vision into the end result of the redevelopment project," said Brian
O'Comiell, Northfield Economic Development Director.
This was not Northfield's first attempt to redevelop the area. Previous efforts
at redevelopment had failed, and the City was eager to fmd a quality reuse
of the 6.5 acre site which serves as a gateway to its historic downtown.
The City and Economic Development Authority (EDA) had acgtured a
substantial part of the site over the past 15 years, which contained 17
parcels, many with dIlapidated buildings. Some of the remaining owners
were in the process of having their property condemned by the Minnesota
Department of Transportation (MnDOT) for widening and reconstnicting a
stretch of Highway 3. The Ciry was able to purchase of the remnant portion
of each parcel that was not necessary for road reconstruction.
The City moved quickly to inspect the properties. Many of the buildings
were determined to be substandard prior to MnDOT acquiring and
demolishing the structures. The blight~fmdings allowed for a redevelopment
tax increment fmancing (TIF) district with a 25-year life. Even though there
was no developer actively pursuing the site, the City undertook this process
to preserve its options in redeveloping this area.
After various proposals failed since 2001, the City entered into negotiations
with Mendota Homes in January, 2005. The Ciry Council created a series of
nine redevelopment goals which were used to guide the overall
redevelopment. These goals addressed issues such as providing public open
space, encouraging visual and aesthetic compatibility with the downtown,
improving the environmental corridor of the Cannon River, providing
lequate structured parking, and providing a mixture of residential and
_ommercial uses.
(NDRTHFIELD RIIIERFRONT continued on page 5)
Elevation and
concept plan
for the
Northfield
Riverfront
Redevelopment
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Ehlers Advisor March 2006
(NDRTHFIELD RIVERFRONT continued from page 4)
"The Council's willingness to use tax increment financing served
as the lynch pin that enabled this partnership between the Ciry
and Mendota Homes to redevelop this important entry into the
listoric downtown of Northfield," O'Connell said. For nearly a
year, Ehlers assisted the City staff in negotiating a development
agreement and establisling a TIF district for the site. The
agreement sets out how City assistance will cover the costs
necessary to eliminate contaminated soil, correct substandard
soils, and assist with extraordinary land acquisition costs.
Throughout the process, the City was determined not to
provide a level of assistance which would reduce the
developer's cost for the land below other comparable parcels
elsewhere in the community. The T1F revenue was to be used
only to place this site on a competitive basis with other
TAX I N C R E M E N T
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By Sid Inman, Financial Advisor
While we normally hate to use this term, we have
had a paradigm (pair-a-dime) shift in the way
we finance TIF redevelopment projects.
In the 1980s and 1990s, most of our redevelopment projects
consisted of commercial or rental housing or a combination of
both. In these projects cities issued pay-as-you-go notes and the
developers normally turned them into cash (monetized the
notes) by including them in the permanent loan with their
primary lender. The notes were then assigned to the lender,
and the new building was used as collateral for the notes.
With the new "urban village" concept and the change in
housing lifestyles, most of our new,redevelopment projects are
driven primarily by "for sale" housing. The problem created by
this change in real estate is that when the developer is done,
the housing is all .sold and all the loans are paid off. The
developer cannot monetize the notes because there is no
"asset left" to serve as collateral for the notes.
So what is the solution?... "Take-out financing" using tax
increment revenue bonds. (Whether you call the financing
notes or obligations, they are all, under state law, bonds).
So here is how it works. When the project starts, the city
issues a typical pay-as-you-go note to the developer. But, in the
redevelopment agreement, the city agrees that at the time the
project is complete, it will consider (very important to use
consider) issuing tax increment revenue bonds to refund the
pay-as-you-go note that was initially issued to the redeveloper.
The redeveloper then takes the agreement to their primary
("short-term") lender. Because the pay-as-you-go note will likely
be refunded at the end of the project, the short-term lender
will monetize the note for two to three years.
When monetizing the pay-as-you-go notes, the short-term
lender will require promises and other forms of credit from the
redeveloper such as presale requirements, market studies,
personnel guarantees and other pledges.
Once the buildings are up, an investment banker can then sell
the tax increment revenue bonds as take-out financing in the
market. These revenue bonds are much easier to sell because
the buyer knows the actual market value of the homes and can
very accurately determine the future TIF generation. Further,
the people paying the taxes are homeowners, and the chances
of them or their lender not paying the taxes is small.
Remember, in Minnesota the property tax is a lien that is prior
to the mortgage.
We have even had versions of the take-out financing that have
been done with tax-exempt interest rates. This provides a
wider market, often lower interest rates than apay--as-you-go
note, which would then reduce the need for TIF and reduce
the term of the district.
There are many parts of this process that require significant
due diligence. Specifically, who is the investment banker
issuing the tax increment revenue bonds; who will pay any
additional costs associated with the financing; should inflation
be included; and what happens if the development is not
completed in a timely fashion? Be sure you involve your TIF
or bond attorney and your financial advisor.
property in town so as not to undercut other developments
that had not requested CitS> financial assistance.
As part of the agreement, Mendota Homes is deeding the
riverfront back to the Cite. Since the property will not be
owned by the developer upon completion, financing was very
complicated. Working with Mendota Homes, Piper Jaffray,
Ehlers, and Kennedy & Graven, the City approved a taxable
TIF revenue note for construction financing. This note is
expected to be refunded, using tax-exempt TIF revenue bonds,
when all three phases of the project are complete.
The Ciry is pleased about the end result of the redevelopment
planning efforts. Most of the City's goals for this property have
been met through the team efforts of Brian O'Connell,
Northfield's Commtuiry Development Director, other City
staff, the developer, and Ehlers & Associates.
REVENUE BONDS
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