HomeMy WebLinkAbout9A Repay Developer Agreement - CJF Holdings O .� PRIp
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CITY COUNCIL AGENDA REPORT
MEETING DATE: APRIL 22, 2013
AGENDA #: 9A
PREPARED BY: KATY GEHLER, PUBLIC WORKS 8� NATURAL RESOURCES DIRECTOR
PRESENTED BY: KATY GEHLER
AGENDA ITEM: CONSIDER APPROVAL OF A RESOLUTION AUTHORIZING THE REPAY-
MENT OF CJF HOLDINGS FOR A DEVELOPER AGREEMENT
DISCUSSION: Introduction
The purpose of this agenda item is to ask the City Council to consider approval
of a resolution authorizing the Mayor and City Manager to execute an amend-
ment to a developer's agreement with CJF Holdings for the repayment of funds
related to the installation of water and sanitary sewer between Industrial Circle
and Welcome Avenue.
Histo
In 2007 the City completed a feasibility study of the extension of water and sew-
er to all properties within the Welcome Industrial Park along with improvement of
the gravel road surfaces. The cost of the total improvements was estimated at
$3.0 million. The study found the improvements to be feasible from an engineer-
ing standpoint but noted economic challenges for the project.
In 2008, CJF Holdings, LLC, completed construction of a new building on its
property located on Welcome Avenue, north of CSAH 21, east of Industrial
Circle, west of Rainbow Parkway, and south of Markley Lake. In order to
construct the building, the Developer extended sewer and water services from
the existing utilities located near the City's lower maintenance shop northwest of
Industrial Circle to its property on Welcome Avenue.
The project included two segments for reimbursement 1) extension of utilities
from the City's lower maintenance shop to Industrial Circle and 2) extension from
Industrial Circle to Welcome Avenue.
CJF Holdings entered into a Development Contract with the City for the comple-
tion of the utilities. Because of time constraints the project did not go through
the Chapter 429 process that would have allowed the City to specially assess
the project to the benefitted properties. The City and Developer, working togeth-
er, came up with a bifurcated mechanism to reimburse the Developer.
The City has reimbursed the Developer $175,950 from the Trunk Fund for seg-
ment 1, the extension and over-depth of the utilities from the maintenance shop
to Industrial Circle. As a part of the Development Contract, the Developer
agreed to postpone payment of Segment 2, Industrial Circle to Welcome Ave-
nue, until such time as other properties are developed and/or connected and the
City collects connection fees.
The City created agreements with abutting property owners for the connection
fees that would pay for most of the improvement and collected as the connec-
tions were made. Two connection fees are left to be collected as the properties
are subdivided in the future. A table showing a summary of the agreements is
attached along with a figure noting the impacted properties. $115,000 is left to
be reimbursed as part of the string of agreements, with $95,000 being accounted
for in future connection fees.
Since the agreements were put in p►ace, the economy has significantly changed
affecting the rate of development in general. It was the belief of the Developer
and very likely the city that redevelopment would occur in the Industrial Park at a
faster pace than what has occurred. Due to the slowed economy, CJF Holdings
has requested that the City consider the final reimbursement for the work com-
pleted in 2008.
Current Circumstances
The Assessment Committee (then councilors Hedberg and Keeney) met on De-
cember 3, 2012 to review the request. The Committee recommended that this
item be considered as a separate item from the current Welcome Industrial Im-
provement project and that options for repayment be explored with the develop-
er. The committee's rationale included:
1. Although the developer took a risk, the improvements were completed
with the expectation of a reasonable payback horizon.
2. Although CJF Holdings is considered the developer, this area is unique in
that it has multiple property owners with a variety of existing uses. CJF
Holdings does not have control over the redevelopment of the lots need-
ed to connect for repayment to take place.
3. CJF Holdings completed a project that will now serve the remaining Wel-
come Industrial Park with respect to extension of sewer and water.
The Committee ultimately recommended that reimbursement be considered at a
discounted rate since it was outside of the original terms of the agreement. The
method for calculating the discounted amount was based on determining the
present value of the connection fee collected during an estimated ten year de-
velopment horizon. Based on this guidance, An early payoff amount of
$104,100 was determined for a discount of $10,900. See the attached scenarios
that were considered.
Conclusion
Staff met with a representative of the developer to present the repayment option.
The developer has agreed to accept the discounted rate of Scenario 3 in ex-
change for early reimbursement.
ISSUES: 1. The Developer, CJF Holdings, LLC, took the risk of extending water and
sewer from Industrial Circle to Welcome Avenue for the benefit of timely
access to City services. Without the utilities, the development of this site
was not possible due to the limits the County has placed on new individ-
ual well and septic systems in this area.
2. As noted by the Assessment Committee, the Welcome Industrial Park is
unique as it needs new infrastructure to support development and rede-
velopment, but does not have a single developer to lead and support the
improvements.
2
3. The cost for this project cannot be specially assessed with the current
Welcome Industrial Park project as the original timeline did not allow for
the 429 process. In lieu of assessment, the connection fee reimburse-
ment mechanism was created.
4. The project will serve the remaining Welcome Industrial Park allowing for
development and redevelopment of this area.
FINANCIAL As noted earlier, the method for calculating the discounted amount was based
IMPACT: on determining the present value of the connection fees collected during an es-
timated ten year development horizon. The initial calculation reflected the pre-
sent value of the outstanding amount of $115,000 discounted at 2%, assuming
that development occurred at the end of ten years. This resulted in a PV of
$94, 340.
Staff then considered three additional possible development scenarios for pur-
poses of calculating the present value. In all scenarios, the $20,000 difference
between the total $115,000 due and the $95,000 anticipated from connection
charges was assumed in Year 1 because the City would ultimately be paying
this amount.
Scenarios:
1) Development of the remaining two parcels doesn't occur until year 10;
PV = $97,541
2) Development of Pavek property occurs in year 5 and Scott Rice property
in year 10; PV = $101,810
3) Remaining development is not directly correlated to the two properties
but, rather for calculation purposes, is divided evenly over the ten years;
PV = $104,075
The developer has agreed to accept the discounted rate of Scenario 3 in ex-
change for early reimbursement. Payment of $104,100 (rounded) would be
made to the developer upon approval and execution of the amendment to the
developer's agreement.
Funding for this early repayment would be made from the Water Fund. When
the Pavek and Scott Rice properties develop in the future, the corresponding
connection fees would be deposited in the Water Fund to replenish the funds
used for this early repayment.
ALTERNATIVES: 1) Approve Resolution 13-XX authorizing the Mayor and City Manager to exe-
cute an amendment to the Development Contract with CJF Holdings allowing
for repayment of the water and sanitary sewer in 2013.
2) Deny this item for a specific reason and provide staff with direction.
1. Defer this item until a future date.
RECOMMENDED No.1
MOTION:
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4646 Dakota Street SE
`�INIVESO� Prior Lake, MN 55372
RESOLUTION 13-x�cx
A RESOLUTION AUTHORIZING THE MAYOR AND CITY MANAGER TO EXECUTE AMENDMENT N0.2
TO THE DEVELOPER'S AGREEMENT WITH CJF HOLDINGS LLC
Motion By: Second By:
WHEREAS, On May 19, 2008, the Prior Lake City Council approved a Development Contract with CJF
Holdings; and
WHEREAS, On Oct. 19�, 2009, the Prior Lake City Council approved Amendment No. 1 to the
Development Contract with CJF Holdings; and
WHEREAS, CJF Holdings has completed the improvements in accordance with the Development
Contract; and
WHEREAS, As part of the project the Developer completed certain improvements to be reimbursed by
the City as connection fees are collected in accordance to the Development Contract with
a balance of $115,000
WHEREAS, The Developer is requesting early reimbursement for those improvements at a discounted
rate in the amount of $104,100.00; and
NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE,
MINNESOTA as follows:
1. The recitals set forth above are incorporated herein.
2. The Mayor and City Manager are authorized to execute on the City's behalf Amendment No. 2 to
the Development Contract with CJF Holdings, LLC.
3. The City is authorized to reimburse $104,100.00 to CJF Holdings LLC for the sanitary sewer and
watermain from Industrial Circle to Welcome Avenue.
4. The reimbursement shall be paid from the Water Fund Account #601-49400-530.
PASSED AND ADOPTED THIS 22�d DAY OF April 2013.
YES NO
Hedber Hedber
Keene Keene
McGuire McGuire
Morton Morton
Souku Souku
Frank Boyles, City Manager
http:/lsplash/teams/am/October4 2010/April 22, 2013JCJF Holdings RES.docx.doc
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