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HomeMy WebLinkAbout7B Multifamily Housing Development Project Report Ot PRI0+t t" 4646 Dakota Street SE Prior Lake, MN 55372 CITY COUNCIL AGENDA REPORT MEETING DATE: OCTOBER 26, 2015 AGENDA#: 7B PREPARED BY: DAN ROGNESS, COMMUNITY & ECONOMIC DEVELOPMENT DIRECTOR PRESENTED BY: DAN ROGNESS AGENDA ITEM: PUBLIC HEARING TO CONSIDER APPROVAL OF A RESOLUTION AMENDING RESOLUTION ON PROPOSAL FOR A MULTIFAMILY HOUSING DEVELOPMENT PROJECT (PRIOR LAKE SENIOR APARTMENTS PRO- JECT) DISCUSSION: Introduction The purpose of this agenda item is to consider amending the City Council's prior approval of revenue bond (conduit bond) financing for the proposed Dominium affordable senior housing redevelopment project at the Gateway Center site. The amendment relates to: (1) increasing the bond issue from $21 to$28 million; and (2) changing the housing unit count from 170 to 168. History This action follows the City Council's earlier public financing approvals of: (1) modifying the existing Municipal Development District No. 1; (2) establishing TIF District No. 1-5; (3) approving a TIF Plan; and (4) approving its preliminary intent in financing the project with conduit revenue bonds. Dominium has received city approvals to develop a unit senior affordable hous- ing rental project on the existing Gateway Center commercial site of approxi- mately 2.5 acres. Previously, the City Council approved the following land use actions in support of this redevelopment project: (1) amend the comprehensive plan to Urban High Density Residential; (2) rezone the property to PUD; and (3) approve a Final PUD Plan. Current Circumstances On May 11, 2015, Prior Lake Leased Housing Associates I, LLP, a Minnesota Limited Liability Limited Partnership (the "Borrower") which is related to Domin- ium, received preliminary approval to issue tax exempt bonds ("Bonds") through the City of Prior Lake in an amount not to exceed $21.0 million dollars. Bond proceeds will be used to acquire the existing facilities and land at 5119 Gateway Street and to construct and equip a 170-unit (now 168 units) independent senior living apartment complex (the "Project"). The City will be a conduit with regard to issuance and payment of the Bonds, and the money and obligations will flow only between the Borrower and a trustee on behalf of the owners of the Bonds. This financing is separate and apart from the proposed TIF financing which will also provide funds for the Project. Dougherty & Company will serve as the un- derwriter for the issuance of the Bonds. Dominium intends to develop a project with a current Total Development Cost of nearly $32.9 million with the following revenue sources as permanent financing: 1. 1st Mortgage (Freddie Mac) = $21.350 million (TIF of$1.637 million will be pledged against this mortgage with 18 years of annual payments) 2. Housing tax credits = $9.591 million 3. Equity = $1.730 million 4. Other = $0.177 million 5. TOTAL = $32.848 million Construction financing of$27.766 million is needed at the start of the project, which will be replaced by the permanent financing sources shown above upon completion. Previously, the project's construction loan did not need to be struc- tured as tax exempt financing. However, Dominium's financing is now based upon a new structure using Freddie Mac with a lower interest rate. Freddie Mac does not provide construction financing, and therefore, the City's bond financing will be used to provide the necessary construction financing (up to $28 million). An updated Source and Use Summary is provided in Attachment 1. The actual construction cost has gone up nearly $500,000 ($3,000 per unit) from previous estimates based on recent bids received for the project by Dominium. In order to process the higher bond amount, a notice calling for the Public Hear- ing for the October 26, 2015 City Council meeting was published in the Prior Lake American on October 10, 2015. Pursuant to Minnesota Statutes, Chapter 462C (the "Act"), the City is authorized to develop and administer programs of multifamily senior housing developments such as the Project under the circumstances and within the limitations set forth in the Act. Minnesota Statutes Section 462C.07 provides that such programs for Minnesota family housing may be financed by revenue bonds issued by the City. The City expects to issue revenue bonds pursuant to the Act to assist in financing the Project. The Bonds and the resolution to be adopted by the City will recite that the Bonds, if and when issued, will not be payable from or charged upon any of the City's funds, other than the revenues received under a loan agreement which will be assigned to the trustee under a trust indenture and pledged to the pay- ment of the Bonds, and the City is not subject to any liability on the Bonds. No holder of the Bonds will ever have the right to compel any exercise by the City of its taxing powers to pay any of the principal of the Bonds or the interest or premium thereon, or to enforce payment of the Bonds against any property of the City except the interests of the City in payments to be made by the Borrower under the loan agreement. The Bonds will not constitute a charge, lien or en- cumbrance, legal or equitable, upon any property of the City except the inter- ests of the City in payments to be made by the Borrower under the loan agree- ment. The Bonds will not be a moral obligation on the part of the State of Min- nesota or its political subdivisions, including the City, and the Bonds will not constitute a debt of the City within the meaning of any constitutional or statutory limitations. 2 Conclusion Staff and the City's consultants, including Northland Securities (financial) and Briggs& Morgan (legal) have evaluated this proposed bond increase based upon what is beneficial to the City and to Dominium. All financial and legal consulting costs associated with this agreement are being paid by Dominium. The descrip- tion of the housing program related to the proposed revenue bond financing is found in Attachment 1, "Multifamily Rental Housing Program of the City of Prior Lake, Minnesota, Prior Lake Senior Apartments Project". ISSUES: Staff was concerned with an increase in public financing costs, especially adding $7 million to the bond issue. However, Dominium's overall financing structure, as revised, will help assure that its annual debt-related costs are minimized in order to provide affordable senior housing options in Prior Lake. The city will not have any liability whatsoever for repayment of the conduit bonds. Generally, the benefit which the developer receives from the use of conduit bonds is a lower interest rate which can be significant given the amount of money being financed and the time period for repayment. Dominium has been in the business of developing active senior projects such as this for dozens of projects for almost a half century, and they have never forfeited on such financing. Dominium intends to close on the property by the end of 2015 with construction to begin in December or January. ALTERNATIVES: 1. Open and close the public hearing and unless new information is forth- coming; make a motion and a second to approve a resolution amending resolution on proposal for a multifamily housing development project (Prior Lake Senior Apartments Project). 2. Motion and a second to deny a resolution amending resolution on pro- posal for a multifamily housing development project (Prior Lake Senior Apartments Project). 3. Motion and a second to table action and ask City staff to provide additional information as requested by the Council. RECOMMENDED Alternative#1 MOTION: ATTACHMENTS: 1. Source and Use Summary, October 2015 2. Amended Multifamily Rental Housing Program of the City of Prior Lake for the Senior Apartments Project 3 The Grainwood 5131 Gateway St.SE,Prior Lake,MN 55372 SOURCE AND USE SUMMARY Construction Permaneritr -, Sources of Funds: maa! Per Unit Taal Per Unit 1st Mortgage $ - $ - $ 21,350,000 $ 127,083 Construction Mortgage 26,807,233 159,567 - - Low Income Tax Credit Equity 959,146 5,709 9,591,458 57,092 Imputed Expenses - - 176,480 1,050 Borrower Cash(Credit) - - 1,729,865 10,297 Total Source of Funds $ 27,766,379 $ 165,276 $ 32,847,803 $ 195,523 Uses of Funds: Taal Per Unit Total Per Unit Acquisition Costs $ 1,500,000 $ 8,929 $ 1,500,000 $ 8,929 Construction Costs 22,514,480 134,015 22,514,480 134,015 Imputed Expenses - 176,480 1,050 Cash Accounts 1,608,141 9,572 2,620,555 15,599 Professional Services 1,027,995 6,119 1,027,995 6,119 Construction Financing Costs 286,054 1,703 286,054 1,703 Permanent Financing Costs 469,150 2,793 469,150 2,793 Closing Costs 116,603 694 116,603 694 Tax Credit Fees 93,956 559 93,956 559 Developer Fee 3,008,769 17,909 Contractor Fee 150,000 893 - 1,033,761 6,153 Total Use of Funds $ 27,766,379 $ 165,276 $ 32,847,803 $ort-iVICe-t .2015' I I 1 I 1 I 1 1 1 1 1 1 1 1 1 AMENDED MULTI-FAMILY RENTAL HOUSING PROGRAM OF THE CITY OF PRIOR LAKE, MINNESOTA PRIOR LAKE SENIOR APARTMENTS PROJECT Proposal; Authority. The City of Prior Lake, Minnesota(the "City"), at the request of the Borrower (defined below), proposes to issue revenue bonds to assist in financing the acquisition, construction and equipping of a senior rental housing project described herein (this "Program") pursuant to applicable authority conferred upon the City by the laws of the State of Minnesota, including without limitation Minnesota Statutes,Chapter 462C,as the same may be amended from time to time (collectively, the "Act"). Purposes. In creating this Program,the City is acting in furtherance of its findings that the preservation of the quality of life in the City is in part dependent upon the maintenance and provision of adequate, decent, safe, sanitary, and affordable housing stock for seniors; that accomplishing the goals of this Program is a public purpose and will benefit the residents of the City;that the need exists within the City to provide in a timely fashion additional affordable rental housing to and for the benefit of seniors of low and moderate income and their families residing and expected to reside within the City;that there exist or are expected to exist persons and families within the City who are and will be able to benefit from and are in need of the Program; that the Program is necessary in view of the limited resources that may be available to such persons relative to the expenses involved in accomplishing the type of objectives outlined in this Program in the absence of one or more of the forms of assistance described herein or otherwise available pursuant to the Act; and that the City hereby finds that such forms of assistance are often necessary for the benefit of such persons, families, and goals and that, furthermore, the successful implementation of the objectives of the kind described in this Program has been found to provide impetus for the development of other housing in the City, as well as the general development of the City, by other persons who are not the beneficiaries of such governmentally sponsored or assisted activities. Rental Housing Purposes. More particularly, the City finds that there exists a need for affordable senior rental housing for qualifying individuals and families, which need is not being filled by private enterprise alone due to a variety of factors, including that the cost of new construction of senior rental units may in many cases prove economically unfeasible, given the high costs of construction and prevailing area rental levels, and that therefore appropriate levels of public assistance may be helpful and necessary in bridging that gap. General Description of the Program. This Program consists of financing the acquisition, construction and equipping of a 168 unit senior multifamily rental housing development, comprised of 112 one bedroom one bath units, 21 two bedroom two bath units, and 35 three bedroom two bath units within one contiguous approximately 287,000 square foot four story building (the "Project"). The one bedroom units will rent for approximately $975 per month, the two bedroom units will rent for approximately$1,170 per month,and the three bedroom units will rent for approximately $1,350 per month. The initial owner and operator of the Project, pursuant to the financing, will be Prior Lake Leased Housing Associates I, LLLP, a Minnesota limited liability limited partnership (the "Borrower"). 6971175v1 Location. This Program is limited to the Project. The Project will be located at 5119 Gateway Street SE in the City. Revenue Bonds. The amount of revenue bonds required to finance this Program will not exceed a maximum principal amount of $28,000,000. The City preliminarily intends to finance the Program by issuing bonds. The proceeds will finance the acquisition, construction and equipping of the Project and pay costs of issuing the bonds,and may be used to establish a reserve. The revenue bonds are expected to be issued in 2015, subject to final City Council approval in its sole and absolute discretion. Monitoring. The City expects to enter into suitable agreements with the Borrower, the trustee for the bonds and/or others respecting the monitoring or implementation by participants to ensure that the Project will be consistent with this housing Program and its objectives, which for this purpose means providing affordable rental housing. Meeting Needs; Methods. The Program will meet the need for rental housing for seniors of low and moderate incomes by providing units at an affordable rent. The City believes that this Program will help meet the identified needs under this Program. The specific methods anticipated to be used include the issuance of revenue bonds under the Act to provide feasible financing for various aspects of the Program so undertaken. Authorization. The Program is undertaken pursuant to Minnesota Statutes, Section 462C.05, Subdivision 4, for rental primarily to elderly persons. Limits on Gross Income. In connection with the issuance of the Bonds,the Borrower will be required to agree to limit the gross income of occupants of the Project in accordance with the requirements of Minnesota Statutes, Chapters 462C and 474A, and with the requirements relating to tax-exempt bonds for qualified residential rental projects. Adopted and approved on October 26,2015, by the City Council of the City of Prior Lake, Minnesota. 2 6971175v1 RESOLUTION 15-xx A RESOLUTION AMENDING RESOLUTION ON PROPOSAL FOR A MULTIFAMILY HOUSING DEVELOPMENT PROJECT (PRIOR LAKE SENIOR APARTMENTS PROJECT) Motion By: Second By: WHEREAS, The City Council of the City of Prior Lake, Minnesota(the"City")adopted the following resolution on May 11, 2015: "Resolution Reciting A Proposal For A Multifamily Housing Development Project, Approving A Housing Program And Indicating Preliminary Intent To Assist In The Financing Of The Project Pursuant To Minnesota Statutes, Chapter 462C (Prior Lake Senior Apartments Project)" (the "Original Resolution"); and WHEREAS, Whereas Clause (c) of the Original Resolution reads as follows: "The City has received a proposal from Prior Lake Leased Housing Associates I, LLLP,a Minnesota limited liability limited partnership (the "Borrower"), that the City assist in financing a Project hereinafter described, through the issuance of revenue bonds or a single note, in the principal amount not to exceed $21,000,000 (the"Note") pursuant to the Act and in accordance with a housing finance program prepared with respect to the Project;"; and WHEREAS, Whereas Clause (e)of the Original Resolution reads as follows: "The Project to be financed by the Note is the acquisition,construction and equipping of an approximately 170-unit independent multifamily senior housing development, to be located at 5119 Gateway Street SE in the City (the "Project"). The Project will be owned and operated by the Borrower,"; and WHEREAS, Paragraph 1 of the Original Resolution reads as follows: "The Council hereby approves the housing program and gives preliminary approval to the Project and the financing thereof, pursuant to the Act and to issue the Note in the principal amount not to exceed $21,000,000. The issuance of the Note by the City is subject to, among other things, final approval by this Council, the Borrower and the purchaser of the Note as to the ultimate details of the financing of the Project."; and WHEREAS, Due to increased construction costs of the Project as bids became available, the type of mortgage financing available to the Borrower and refining the number of units within the Project, the Borrower has requested that approval for the principal amount of the Note be increased from $21,000,000 to$28,000,000 and that the Project description for the number of units to be revised from 170 units to 168 units; and WHEREAS, An Amended Notice of Public Hearing was duly published in the official newspaper of the City not less than 15 days in advance of said public hearing, and the City on this date held a public hearing at which all persons who desired to present their views on said proposals, either orally or in writing, were afforded an opportunity to do so; and WHEREAS, No public official of the City has either a direct or indirect financial interest in the Project nor will any public official either directly or indirectly benefit financially from the Project. NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, MINNESOTA as follows: 1. The Council hereby amends and restates the following clauses and paragraphs of the Original Resolution as follows: (a) Whereas Clause (c) shall be amended to read as follows: "The City has received a proposal from Prior Lake Leased Housing Associates I, LLLP, a Minnesota limited liability limited partnership (the "Borrower"), that the City assist in financing a Project hereinafter described, through the issuance of revenue bonds or a single note, in the principal amount not to exceed $28,000,000 (the"Note") pursuant to the Act and in accordance with a housing finance program prepared with respect to the Project;" (b) Whereas Clause (e) shall be amended to read as follows: "The Project to be financed by the Note is the acquisition, construction and equipping of an approximately 168-unit independent multifamily senior housing development, to be located at 5119 Gateway Street SE in the City (the"Project"). The Project will be owned and operated by the Borrower;" (c) Paragraph 1 shall be amended to read as follows: "The Council approves the amended housing program available to the Council and gives preliminary approval to the Project and the financing thereof, pursuant to the Act and to issue the Note in the principal amount not to exceed $28,000,000. The issuance of the Note by the City is subject to, among other things, final approval by this Council, the Borrower and the purchaser of the Note as to the ultimate details of the financing of the Project." 2. Except as herein amended, all terms and provisions of the Original Resolution shall remain in full force and effect. PASSED AND ADOPTED THIS 26th DAY OF OCTOBER, 2015. VOTE Hedberg Keeney McGuire Morton Thompson Aye ❑ ❑ ❑ 0 ❑ Nay 0 0 0 0 ❑ Absent 0 0 0 ❑ 0 Abstain ❑ ❑ ❑ ❑ ❑ Frank Boyles, City Manager