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HomeMy WebLinkAbout9A - Becker Arena Products TIF STAFF AGENDA REPORT AGENDA #: PREPARED BY: SUBJECT: DATE: 9A FRANK BOYLES, CITY MANAGER ESTABLISH HEARING DATE TO CREATE TAX INCREMENT FINANCING DISTRICT FOR BECKER ARENA PRODUCTS FEBRUARY 22, 1994 BACKGROUND: DISCUSSION: Over the last month Roger Guenette has been working closely with Becker Ice Arena Products in an effort to negotiate a tentative agreement whereby Becker would construct a 6000 square foot facility in the Business Office Park with the assistance of tax increment financing. A tentative agreement has been reached. The next step in the process is to establish a public hearing date to create a tax increment financing district for the Becker Ice Arena Products project. Becker Ice Arena Products would like to construct a 6000 square foot facility at the business office park to accommodate the company's needs in the near term. They expect that within the next one to three years they will expand this space by four to six thousand square feet. The company is growing steadily. It is in the business of marketing and distributing equipment, accessories and services for ice hockey rinks, including resurfacers, protective flooring, dasher board systems, ice rink supplies and energy saving equipment. The company currently has a customer base of 600. The majority of the customers are municipalities. Becker has secured the contract to develop and service the ice rink to be incorporated into the Dakota Recreation Center. Additional information about the company and the project is contained in the attached "Proposal to Assist Expansion of Becker Arena Products, Inc." prepared by Roger Guenette. Mr. Guenette states that the Becker project would generate $9600 per year in taxes, add eleven new jobs in the community and would be the second development undertaken in the business office park. Advance Resources has recommended that the Becker Project take place on Lot 3, Block 1 of the business office park which is immediately adjacent to County Road 21 (See attached map). Becker would pay $40,000 (77¢ per square foot) for the property. An allowance of up to $15,000 would be granted for soil correction and utility connection costs although our belief is that this site would not require substantial soil correction. Becker would be required to guarantee a minimum $9,600 annual tax increment. This revenue will reimburse the City for all expenses associated with the office park and provide additional revenue for future -1- 4629 Dakota St. S.E., Prior Lake, Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245 AN EQUAL OPPORTUNITY EMPLOYER ALTERNATIVES: RECOMMENDATION: ACTION REQUIRED: development. If the project generates morethan $9600 per year beCaUse of the 4000 to 5000 square foot expansion, the City would reimburse the developer up to $15,000 over the life of the tax Increment project. According to Advance's calculations, the $9600 per year guarantee will cover all City costs related to the business office park, and any additional increment generated could be dedicated by the City to future business development. If the Council would like to proceed with this project, it is necessary to adopt the attached Resolution 94-10 calling for a public hearing to consider the creation of a tax increment financing district for this project. State law requires that notification must be made in the City's legal newspaper no less than ten (10) days prior to the meeting. Since the earliest publication could take place is Saturday, February 26, the public hearing could not be established for earlier than March 8. The City Council meets on March 7 and March 21. Because Becker Arena Products has a deadline for building occupancy by August 1 of this year, it is necessary for a special meeting to be called to consider this issue. The alternative is to change the Council's March 7 meeting date to March 8. I would suggest that the Council schedule a special meeting for March 8. The Council could then conduct the tax increment finance hearing and, before or after that time, discuss various issues which have arisen with respect to Economic Development. Some of those issues include: 1. Outside storage. 2. Annexation. 3. Office park standards. 4. Confirm financial objectives for Business Park. 5. Outside financial assistance for development. Council has the following alternatives: 1. Defer any action on this matter pending receipt of additional information. 2. Establish a public hearing date to consider the creation of a tax increment financing district for Becker Arena Products. Adopt the attached Resolution 94-10 establishing a a public hearing date to consider a new tax increment financing district. If possible, I suggest that the public hearing take place on Tuesday, March 8, in order that this issue and other economic development related issues can be discussed with the City Council. Adopt the attached Resolution 94-10 establishing a a public hearing datefor Tuesday, March 8, 1994. -2- FEB-18-1994 14:39 FROM ADVANCE INC. TO PRIOR LI~E-CITY P.03 RESOLUTION ON THE PROPOSAL TO FORM TAX INCREMENT FINANCING DISTRICT NO. 2-2 WITHIN DEVELOPMENT DISTRICT NO. 2 AND ADOPT TAX INCREMENT FINANCING PLAN AND CALL FOR CONSULTATION WITH OTHER AFFECTED JURISDICTIONS AND PUBLIC HEARING WHEREAS, a proposal to form Tax Increment Financing District No. 2-2 within Development District No. 2 under the provisions of Minnesota Statutes, Chapter 469 (the "Act"), and to adopt a tax increment financing plan has been reeeived by the City Council; and WHEREAS, the Act requires that prior to formation of a tex increment financing district the City Council shall provide a reasonable opportunity to members of the County Board of Commissioners of the County of Scott and the members of the School Board of Independent School District No. 719 to meet with the City Council and that the City Council shall fully inform the members of the County Board and School Board of the fiscal and economic implications of the proposed tax increment financing district; and WHEREAS, the Act further requires that prior to the formation of a tax increment financing district and the adoption of a tax increment financing plan a public hearing shall be held thereon. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Prior Lake, Minnesota, as follows: 1. The City Clerk is authorized and directed to make available to the County Board of Commissioners of Scott County and of the School Board of Independent School District No. 719 a copy of this resolution, together with a copy of the proposed tax increment financing plan, and to invite board members to meet with the City Council to discuss said proposal on the m day of March, 1994, at ~ p.m. at the City Hall. 2. A public hearing on said plan will be held at the time and place set forth in the Notice of Hearing hereto attached and incorporated herein by reference. The City Clerk is authorized and directed to cause said Notice of Hearing to be published in the official newspaper and, if the official newspaper does not have general circulation, in a newspaper of general circulation in the City at least once not less than 10 days nor more than 30 days prior to the date of hearing and to cause a copy of said notice to be mailed to Scott County and the School Board of Independent School District No. 719. Adopted this 22nd day of February, 1994. ATTEST: Lydia Andren Mayor Frank Boyles City Manager FEB-10-1994 14:39 FROM ADVANCE INC. TO PRIOR LAKE-CITY P.04 NOTICE OF PUBUC HEARING ON TAX INCREMENT FINANCING DISTRICT NO. 2-2 TO WHOM IT MAY CONCERN: Notice is hereby given that the City Council of the City of Prior Lake, Minnesota, will meet at the City Hall in Prior Lake, Minnesota, at ~ p.m. on Monday, March _, 1994, to consider the formation of Tax Increment Financing District No. 2-2, and the adoption of a tax increment financing plan pursuant to Minnesota Statutes, Chapter 469. Such persons as desire to be heard with reference to the above proposals will be heard at this meeting. Tax Increment Financing District No. 2-2 is to be located on Lot 3, Block 1 In the Waterfront Passage Business Park, south of County Road 21 on the east side of Prior Lake. The map accompanying this notice shows the location of the proposed District. Copies of the proposed Tax Increment Plan are on file in the office of the City Clerk and are available for public examination. Writlen or oral statements will be considered. Dated: This 22nd day Of February, 1994. BY ORDER OF THE PRIOR LAKE CITY COUNCIL By Frank Boyles City Manager FEB-18-1994 14:40 FROM ADUANCE INC. TO PRIOR LAKE-CITY P, 05 /I / ///// / / / / / / / / / / / / / / / / / / / / / , ~ / FEB-l?-1994 18:05 FROM ADVANCE INC. TO PRIOR LAKE-CITY P.02 PROPOSAL TO ASSIST EXPANSION OF BECKER ARENA PRODUCTS, INC. INTRODUCTION Recently, a request has been received from Backer Arena Products, Inc. regarding their interest in developing a permanent production facility within the WaterFront Passage Business Park. The company is investigating several options for development within the southwest Metro area. Initial discussions have occurred w~th Pr;or Lake State Bank regarding primary f~nancing for the construction of a 6,000 sq.ff. facility to be sited on Lot 3. Block I (1.2 acres site) of the Business Park. This facility would accommodate the company's needs for approximately 1-3 years after which time it is anticipated that the facility would be expanded by an additional 4,000-6,O00 sq.ft. Greystone Construction Company of Shakopee has provided the company with preliminary site oocts and building construction estimates; Greystone is familiar with the code and de~[gn requirements f~r WaterFront Passage. In addition, the City Engineer's office has provided an estimate of soil correction and utility connection costs for development of the site. Following is an overview of the company, estimated project costs and proposed financing structure, a summary of the credit history and projected financial feasibility and anticipated benefits relating to the proj~. COMPANY HISTORY Becker Arena Products, Inc. was founded in December, 1988 under the name of B~cke~ ~nd Ac~ociates, Inc. Sports Equipment. The company changed its name to Backer Arena Products, Inc. (BAP) on February 20, 1990 and is organized as an "S" Corpo~tion with 100% ownership by James Backer. The company is currently located at 2982 North Cleveland Ave., Roseville, MN 55113 '~th a mailing address of P.O. Box 416, Chanhassen, MN 55317. The company is in the business of maH(et;ng and distribution of equipment, accessories a~d services for ice/hockey rinks. They currently have eight separate profit centers including: Olympia Ice Resurfaces Olympia Ice Resurfaces Par~s Protective Flooring Dasher Board Systems Dasher Board Hardware & Components Dasher Board Cleaning Service Ice Rink Supplies and Accessories Bassai Energy Saving Equipment The oompany currently has a customer base of 600+ with new accounts being added each week. The majority of the customer base are municipalities and over 90% of the accounts invc~lve government owned /actlities. BAP estimates that they service approximately one third of the ice rink facilities in the U.S. They have recently secured a contract to develop and service the ice rink 'which will be incorporated into the Mdewakanton Community Recreation Center to be built in Prior Lake. The competition and market for ice rink supplies and equipment has undergone a ~ignificant change_ in the past year. In May, 1993 Holmsten Rinkmaster, Inc. of St. Paul and Albert Lea filed Chapte~ 7 bankruptcy; this firm had been a major force within the industry since the 1960'$. The demise of Holmsten resulted in the spin off of two new firms both situated in Minnesota. Additional competitom include three east ooast companies (Burley Rink Supply, C.W. Davis and Ice Systems of America) that concentrate on refrigeration and dasher board systems, a Canadian and Massachusetts companies (Cryst.~plex Plastics and Murray Sandler Skate & Rink Supply) which focus on rink an skating supplies and Zamboni Co. of California which is the sole competitor of ice resurfacing equipment. FEB-II-1994 11:56 FROM ADUANCE INC. TO PRIOR LAKE-CITY P.O~ The void created by Holmsten combined with burgeoning interest and development of new ioe rink facilities in both the U.S, and world market have created signflicant growth opportunities for BAP. To meet these opportunities and related challenges BAP is proposing the development of a permanent rac;lity in Prior Lake. PROPOSED USES AND SOURCES OF FUNDS Based upon discussions with the company, representatives of Greystone Construction Co. and the City Engineers office the following project costs or uses of funds have been estimated: IT.EM COST Land (1.2 acres @ 1.1S/sq.ff.) Building Construction and Site Improvements Soil Con'ection and Utility Connection Soft Costs (financing/legal fees) TOTAL $ 60,000 245,000 15,000 $330.000 To finanoe the estimated project costs the following sources of funds are proposed: Lender Amount Rate _'l'_e_r~m Collateral Debt.SRrvice Bank $150,000 8.5% 10 yr/20 yr 1st Mortgage $15,620 SBA 115,000 8% 20 years 2nd Mortgage 11,540 TIF 35,000 - Development Agreement Equity _3_0,000 - $330,000 $27,160 MARKETING APPROACH The ice rink industry has developed into a worldwide business with the continual growth of hockey, figure skating and other ice related sports. BAP has directed a majority of it's marketing of their products to the ice rink facilities and parks & recreation departments in the United States. BAP has developed a direct marketing technique, using continual (monthly or quarterly) mailing featuring different products on each mailing. This mailing is sent to their 2000 potential ice rink customers throughout the United States. BAP has also utilized such publications as Athletic Business magazine, Let's Play Hockey Magazine and other publications directed to the end user's of the featured products. These publications forward leads to BAP for further follow-up. BAP uses a computer network with a database software package that allows the sales pemonnel to constantly contact potential customers. This software package is designed to remind the sales department to follow-up on quotes sent or to keep track of conversation with customers. BAP also utilizes a complete order entry system to better service our existing customers. It is company policy to ship orders Within 24 hours whenever possible. Satisfied customers and word of mouth has become an inexpensive marketing tool and will continue as a large part of the promotion of BAP. BAP has developed a catalog (presently updating) describing most of the products available from BAP. This catalog is mailed to their complete database once per year and is mailed to all potential customers that request information throughout the year. In addition BAP utilizes brochure~, supplied by the manufacturers of the products they represent. Olympia ice resurfaoers, Strut Specialties dasher systems, 2 FEB-Ii-1994 11:56 FROM ADVANCE INC. TO PRIOR LAKE-CITY P.04 Bassai energy saving systems all have supplied full color brochures for use in promoting their products. BAP also uses skate sharpening equipment, flooring and polishing products to send to potential customers. Resurface Corporation has also supplied a short video tape promoting the Olympia ice resurfacing equipment. A toll free 8(X) telephone number allows outstate customers to order products easily. BAP has also developed an excellent working relationship with ice rink retrigeration equipment manufacturers such as Cimco Refrigeration of Toronto Canada, Rink Tec International and Gartner Refrigeration of Minneapolis. These contractors work exclusively on the refrigeration systems for ice rinks and work wi~h BAP to supply their customers with the products supplied by BAP. 8AP also has excellent working relationships with ice rink consultants and builders such as Arena Consulting and Construction (ACC), Independent Consulting Engineers (I.C.E.), Bonestroo, Rosene and Anderlik Architects and V$C Sports Consultants These consultants and builders recommend BAP products in many of the projects they are associated with. BAP also works with other architects and consultants on projects nationally. CREDIT AND REPAYMENT ABILITY The company is reasonably well positioned to leverage and undertake the proposed development project. Alliances that they have formed with manufacturers of ice rink equipment and related accessories combined with overall growth in the industry and elimination of a primary competitor have resulted in dramatic increases in sales and profits over the past three years. Since 1991. sales have risen from $825,000 to $1,543,000; percentage increases have risen by 31% in 1992 and 43% in 1993. Projections for 1994 anticipate $2,120,000 in sales or a 37% gain. The company has documented open orders of $627,000 as of January 24, 1994, which lend credence to the projected revenues. Net earnings for the company reflect the historical sales increases. Earnings for the past three years are as foUows: 1991 - $13,200; 1992 - $50,900; and, 1993 - $144,000. Over this same period the company has demonstrated a capacity to successfully manage their growth. They have increased the gross profit margin by 2% per year over the past three years and exhibit a gross margin of 27% for lg93. They have also succe.esfully managed cash flow and liquidity as evidenced by the December 31, 1993 balance sheet which depicts $118,000 in working capital, a current ratio of 1.34:1 and a quick ratio of 1.21:1. The operating cycle reflects a negative 21 day period, which infers that the company is receiving payments at a greater rate than they are expending proceeds. After conversing with compar~y President, James Backer, I believe that this situation exists due to the extended terms offered by major suppliers and a substantial increase in sales and collections during the fourth quarter of 1993. Regarding the company's existing debt Icad the debt:equity ratio is reasonable but slightly above industry norms. Based upon liabilities of $377.000 and an adjusted worth of $129,000 the debt:equity ratio is 2.92:1. This ratio should improve as the company maintains profitable operations. In analyzing repayment ability of the debt for the proposed project the following factors were considered: Cash Required Cash Available Debt Service $27,160 Rent Savings $14,200 Real Estate Taxes _9,60~)_ Depreciation/Amortization 5,500 TOTAL $36,760 Net Income 1,0~, ,, ,000 TOTAL $119,700 FEB-i~.--1994 14:38 FROM RDURNCE INC. TO PRIOR LAKE-CITY P.02 Given these factors the debt =overage ratio would be 3.26:1. This cash flow c~verage is ve~/substantial and should enable approval of the proposed bank and SBA financing. BENEFITS/R ECOM MENDATION$ If BAP expands and develops in Prior Lake the following benefits are likely to occur: Tax base increased by $9,600/yr. Up to 11 new jobs will be created or located in the community. A second development will be undertaken in the Business Park and the propo.~ed financing structure (initial land payment and t~x increment revenue stream) will provide the reimbursement necessary to meet the targets identified in the Business Park Pro Forma Cash Flow prepared by James R. Hill, Inc. Given this information it is the recommendation of ADVANCE Resources for Development, Inc. that the following offer by extended to BAP: Sale of Lot 3, Block I (1.2 acre site), WaterFront Passage Business Park for $40,000 ($.77/sq.ff.). Authorized allowance of up to $15,000 for soil correction and utility connection costs. To the extent that the project generates in excess of $9,600 of tax increment the City will reimburse the developer the overage up to a cumulative amount of $15,000. This payment is most likely to occur if the company constructs a proposed 4,000-5,00o sq. ff. addition. This recommendation is contingent upon the execution of a Development Agreement with BAP calling for construction of a 6,000 scI. ff. facility with completion prior to December 31, 1994 and a guarantee payment of $9,600/yr. in increment revenues between 1996-2004. 4 FEB-l?-1994 18:14 FROM ADUANCE INC. TO PRIOR LAKE-CITY