The URL can be used to link to this page

Home My WebLink About9E - Lakefront Plaza Financing MEETING DATE: AGENDA #: PREPARED BY: AGENDA ITEM: DISCUSSION: CITY COUNCIL AGENDA REPORT February 27,2001 9E Frank Boyles, City Manager CONSIDER APPROVAL OF A RESOLUTION APPROVING IN CONCEPT THE USE OF TAX INCREMENT FINANCING TO FUND A SENIOR HOUSING PROJECT AS PART OF THE DOWNTOWN REDEVELOPMENT EFFORT History: The City Council has conducted work sessions to become familiar with and discuss the implementation of the Downtown Redevelopment Guide. The City Council has proceeded in the downtown redevelopment effort on several fronts, including (1) the old library building has been refurbished and rented to a retail floral shop; (2) the City has purchased a property downtown; (3) the staff has been directed to prepare an ordinance which will allow for the enforcement of many of the downtown redevelopment guide principles; and (4) the Council has received materials about the potential development of a 78-unit multi-family market rate, owner-occupied building with 12,000 square feet of retail. Current Circumstances: The focus of this report is the fourth item listed above which is known as the Lakefront Plaza project. The staff has been working with the developer to explore a means by which the proposed project can become reality. The developer has provided a detailed proforma for the project which shows that $950,000 of public assistance is needed to allow this $10 million project to become a reality. It is recommended that the City Council provide pay-as-you-go tax increment financing to support this project. The funds would be used for eligible TIF expenses such as purchase of land, building demotion, site improvements, utilities, city utility fees, park fees and other development related fees. The City will be the final determiner of the scope, cost and funding plan for public improvements serving the project. The pay-as-you-go TIF will also reimburse the City for a portion of the public improvements needed to renew street, sewer and water infrastructure and convert this area of the City to the new downtown redevelopment plan theme. The developer must demonstrate the capacity to complete the project through his project team. The developer will submit the TIF application and fee and reimburse the City for legal, financial and staff costs associated with the project. The developer will make an equity showing in the project of at least 25% of the total project costs. The developer will design the development in accordance with the City's Downtown Redevelopment Guide and complete the project consisting of 78 market-rate owner-occupied senior housing units and 12,000 square feet of 16200 Eagle Creek Ave. S.E., Prior Lake, Minnesota 55372-1714 / Ph. (952) 447-4230 / Fax (952) 447-4245 R:\MINUTES\LAKEFRONT PLAZA.DOC AN EQUAL OPPORTUNITY EMPLOYER yo- ~ T 1r . 1 'on;- retail on first floor with underground parking for all units. The developer will also be responsible for assuring site suitability with respect to fill, hazardous materials, etc. Conclusion: The City Council should determine if it wishes to adopt the attached resolution which conceptionally supports Tax Increment Financing for this project. If the Council adopts the Resolution the staff will proceed to prepare the documents required for Tax Increment assistance. ISSUES: Does the proposal provide too much public assistance? When the developer first approached the staff with this project, he asked for almost $2 million in public assistance. After examining his assumptions and discussing the entire project scope, he reduced his request to $1.4 million. We have proposed to further limit the City's contribution to $950,000. Based upon Rusty Fifield's analysis of the project costs, he believes that $950,000 is defensible. The TIF will generate $135,000f: per year. Including interest, this will generate enough increment to reimburse the $950,000 expense and approximately $300,000 of City public improvement expenses within 22 years, not the maximum 25 years allowed by the redevelopment statutes. In short, the increment will not support a larger amount of assistance while concurrently reimbursing the City for a portion of the infrastructure costs. Finally, the amount of assistance provided is less than 10% of the total project cost. Will the Developer have a significant showing of equity in the project? The conceptual development agreement will require the developer to have a significant financial showing of 25% in the project. Has the staff attempted to minimize the number of years of increment? The projection of 22 years is based upon a 0% growth rate in the increment. It is expected that the actual number of years will be less. To reduce the number of increments only three things are possible: (1) Increase the size of the annual increment generated; (2) decrease the amount of assistance; or (3) reduce or eliminate the reimbursement to the City for public improvements. It does not appear that any of these options are attainable. What are the public benefits provided by this project which justify public assistance? This project accomplishes a number of desirable public policy goals. Housing is provided downtown. This creates a market of consumers for the downtown area. The project will add business to downtown. It may promote the improvement of existing businesses (i.e. the Conoco gas station). By providing housing downtown, Prior Lake seniors will be able to sell thE;!ir single family homes which would provide modestly-priced housing for first-time homebuyers and young families. A portion of the public assistance will reimburse City funds for public improvements which will create a better cash position for the City for future downtown projects. The project will complete the link of downtown to Lakefront Park which has been viewed as a desirable objective. Finally, unlike non-profit projects which are permanently non-taxable, this project will create a tax base in the long term to help maintain City infrastructure and services. Is the City taxpayer protected if the project fails? Pay-as-you-go TIF places all of the risk on the developer. The City sells no bonds and therefore is not R:\MINUTES\LAKEFRONT PLAZA.OOC responsible for repayment. If the state modifies TIF or the property tax system, the developer bears the risk. The worst case for the City is that if this project fails either before, during or after construction, the City would have no financial risk but would probably desire to find a new owner to promote a successful project. ALTERNATIVES: (1) Adopt the attached Resolution. (2) Adopt a modified Resolution. (3) Take no action. RECOMMENDED MOTION: Alternative (1). If the Resolution is approved, we will proceed with the appropriate steps to implement tax increment financing for this project subject to City Council approval. R:\MINUTES\LAKEFRONT PLAZA.DOC . T[ U'" r fi '. III RESOLUTION 01-XX A RESOLUTION APPROVING IN CONCEPT THE USE OF TAX INCREMENT FINANCING TO FUND A SENIOR CITIZEN HOUSING PROJECT AS PART OF THE DOWNTOWN REDEVELOPMENT EFFORT RECITALS WHEREAS, the City has undertaken a comprehensive study of the downtown area of the City of Prior Lake ("City"); and WHEREAS, pursuant to this study the City has developed and adopted a Downtown Redevelopment Guide; and WHEREAS, qualified senior housing is an integral part of the City's vision for the redevelopment of its downtown; and WHEREAS, the City has been approached by Messrs. Randy Simson and Ken Beske (collectively "Developer") with a project to construct 78 market-rate owner-occupied senior housing units and 12,000 square feet of retail space (hereinafter "Project"); and WHEREAS, the aforementioned Project is known as LAKE FRONT PLAZA; and WHEREAS, the Developer maintains that the Project is not economically viable without the assistance of public financing; and WHEREAS, to encourage and facilitate the redevelopment of downtown the City is eager to work with responsible developers on qualifying projects; and WHEREAS, where appropriate and permissible the City is prepared to use available tax increment financing tools, as provided by Minnesota statutes to facilitate development of qualifying projects; and WHEREAS, the City and Developer understand that the City's ability to establish a tax increment financing district, the ability to collect tax increments and the operation of the property tax system are controlled by the State Legislature and that the use and lor availability of tax increment financing is subject to changes by the State Legislature during the 2001 legislative session, which changes are beyond the power or purview of the City Council; and WHEREAS, the Developer agrees to bear all risks associated with legislative changes or resulting from statutory requirements which the Developer is unable to meet; and WHEREAS, both the City and Developer understand that both time and costs are associated with the preparation and evaluation of plans and related documents necessary to develop and analyze the proposed Project and determine whether the Project meets the statutory requirements and City criteria for the issuance of tax increment financing; and 1629Rrrfffi~2Creek Ave. S.E., Prior Lake, Minnesota 55372-1714 / Ph. (952) 447-4230 / Fax (952) 447-4245 AN EQUAL OPPORTUNITY EMPLOYER WHEREAS, both the City and Developer wish to avoid the unnecessary expenditure of time and money on projects that are not of interest to the City. NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, MINNESOTA THAT: 1. The Recitals set forth above are incorporated herein as if fully set forth. 2. The Developer is encouraged to submit to the City an application for Tax Increment Financing for the Project referred to as Lakefront Plaza. Along with the application the Developer will deposit with the City the amount of $12,000 which monies shall be used by the City solely to pay for legal, financial and staff costs associated with the analysis, review and facilitation of the Project. 3. The Developer will design the Project to be compatible with the City's Downtown Redevelopment Plan. The City Council shall be the final arbiter of whether the Project, as designed, is compatible with the City's Downtown Redevelopment Plan. The Project shall also be designed to comply with all applicable zoning, subdivision and other land use regulations of the City and other governmental entities having jurisdiction. 4. The Developer will provide the City with a plan for financing the Project which includes a minimum equity contribution by the Developer of 25% of the total Project costs. 5. The Developer must demonstrate to the City that it has the capacity to successfully complete the Project and that the City's financial assistance is necessary for the proposed Project to occur. 6. All determinations regarding the suitability of the site for the proposed Project are the sole responsibility of the Developer to determine for itself. The City makes no representations or warranties that the site under consideration by the Developer is suitable or will sustain the proposed Project. 7. The City will analyze the documents, plans, materials and data supplied by the Developer (the "Application") and determine if the Project qualifies for TIF. 8. If the Project meets all the criteria discussed herein the City will negotiate a Tax Increment Financing Agreement with the Developer. The City Council will act reasonably in determining whether the Project meets applicable criteria, including but not limited to financing, TIF statutory requirements and zoning requirements. 9. Notwithstanding Paragraphs 1 through 8 above, nothing in this Resolution is intended to bind the Council to provide the Developer with tax increment financing. This Resolution is intended to demonstrate the City's interest in moving forward with the Developer. Passed this 27th day of February, 2001. YES NO Mader Mader Ericson Ericson Gundlach Gundlach DN: 111382 I .r II . I fll