HomeMy WebLinkAbout03 23 2015 Dominium Council Work Session Report
4646 Dakota Street SE
Prior Lake, MN 55372
CITY COUNCIL WORK SESSION REPORT
MEETING DATE: MARCH 23, 2015
AGENDA #: 1A
PREPARED BY: DAN ROGNESS, COMMUNITY & ECONOMIC DEVELOPMENT DIRECTOR
PRESENTED BY: DAN ROGNESS
AGENDA ITEM: GATEWAY REDEVELOPMENT FINANCING PROPOSAL
DISCUSSION:
Introduction
The purpose of this Work Session item is to allow the City Council to discuss the
establishment of a Tax Increment Financing (TIF) District and the City’s issuance of
Multifamily Housing Revenue Bonds. The purpose of tax increment and bond fi-
nancing is to assist the redevelopment of the Gateway Center property located at
5119 Gateway Street SE from a commercial use to a multi-family housing use.
History
Dominium Development has submitted a request to develop a Planned Unit Devel-
opment (PUD) project consisting of 165 senior rental units on a 2.5-acre site located
easterly of Trunk Highway 13 on Gateway Street SE and Jordan Avenue SE.
On February 2, 2015 the Planning Commission adopted a resolution authorizing city
staff to accept and process an application from Dominium for a Preliminary PUD
Plan for a project less than 10 acres. On February 17, 2015 the Planning Commis-
sion held a public hearing and further recommended an amendment to the Compre-
hensive Plan, approval of the Preliminary PUD Plan, and a rezoning to PUD. On
March 9, 2015 the City Council approved the actions recommended by the Planning
Commission.
Current Circumstances
Dominium has entered into a purchase agreement for the Gateway Commercial site
currently owned by Wells Fargo Bank N.A, which has a 23,650 square foot 1-story
building that has been largely half-vacant for a number of years. Existing business
in the Gateway Center include McGeez Closet, Pizza & Pasta and Prior Lake Shoe
Service. The city’s intent is to assist these businesses if at all possible.
Dominium Development is proposing to construct a 4-story, 165-unit senior (55+)
independent-living rental apartment building with associated underground and sur-
face parking. The unit mix includes 124 one-bedroom, 8 two-bedroom, and 33
three-bedroom units, all as affordable to households at/below 60% of area median
household income. Rent levels are approximately $933/month for a one-bedroom,
$1,120/month for a two-bedroom, and $1,293 for a three-bedroom unit.
In addition to the Gateway Center property, Dominium is proposing to purchase ap-
proximately 0.1 acres of property from the adjacent lot to the east which would bring
the total development site up to 2.5 acres. Dominium is also in negotiations for the
purchase of the car wash property on the corner of Jordan Avenue SE and 160 th
Street SE. If successful, Dominium may dedicate the car wash property as parkland
in order to meet the City’s 10% park dedication requirement. Staff would work with
Dominium on a plan to demolish the building and develop that space into a small
park with trails and landscaping.
Conclusion
The city’s financial consultant, Northland Securities, Inc., has completed a review of
the project and has deemed it eligible for TIF. Dominium Development submitted a
request to the City for $2,171,000 in TIF assistance. Based on the Scott County
estimated market valuation upon completion ($16,500,000), the city’s financial con-
sultant has preliminarily estimated the life of the pay-as-you-go TIF district would
need to be 26 years to capture the requested tax increment to support the amount
of financing requested.
The Housing TIF District would be decertified at the earlier of: i) 26 years of incre-
ment collection; or ii) reimbursement of financial obligations due to the developer. If
Dominium dedicates the car wash site as park, then the removal of the parkland
dedication fee of up to $618,750 would result in less TIF assistance (i.e., $2,171,000
- $618,750 = $1,552,250). Based on this level of TIF assistance and other assump-
tions, the city’s financial consultant estimates repayment to Dominium within 18
years, allowing for early decertification of the TIF District.
As the council may recall, the developer initially requested a waiver of parkland ded-
ication and sewer/water development fees totaling $1,031,000. The developer is no
longer pursuing a waiver of these development fees. In lieu of the fee waiver, the
developer has proposed to pay all development fees up-front and has identified ad-
ditional eligible TIF expenses that assist with the project’s total development cost of
$32.15 million. Conduit housing revenue bonds in the maximum amount of $21.0
million is being proposed. The remaining project cost is being financed with housing
tax credits, and developer equity.
ISSUES:
The City Council should determine if it desires to consider using tax increment and
bond financing in the amounts and for the time period required to assist this project.
Dominium is proposing to start construction in the summer of 2015, contingent upon
City Council approval of the TIF and conduit bond requests. The developer must
invest a significant amount of additional funding in order to meet the aggressive
development schedule.
TIF assistance with a Housing District ultimately achieves more affordable rents for
a minimum of 20% of the housing units; tax credits assure the affordability of all
units for the 15-year credit period. Once the TIF District is decertified, those rents
for 20% of the units revert to market rates. In addition, conduit bond financing does
not place the city at any risk.
Should the Council choose to schedule the public hearings at Monday night’s meet-
ing, a TIF Plan containing detailed information about the project together with an
analysis of how the project complies with State Statute and City policies will be pre-
pared by Northland. Dominium has paid the $12,000 TIF application fee, and they
will be asked to pay the $50,000 conduit bond fee and all associated legal fees
pending the council’s affirmative action tonight.
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If the Council has concerns about whether or not TIF is suitable for this project based
upon the information provided, or if the Council has concerns over the 26-year TIF
term, it would be appropriate to provide further direction and/or request additional
information from staff or the developer.
FINANCIAL The use of TIF does have a financial impact. In this case, if the Housing TIF District
IMPACT:
is approved, a portion of tax increment, per year, will be used to reimburse the de-
veloper (on a pay-as-you-go semi-annual basis) for an agreed to amount of project
costs presently estimated to not exceed $2,171,000. The City will not realize the
full benefit of the additional tax base until the decertification of the TIF District. On
the other hand, the proposed project will not move forward without approval of Tax
Increment Financing based on the required “but for” test for TIF.
ALTERNATIVES: Discussion Only
RECOMMENDED N/A
MOTION:
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