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HomeMy WebLinkAbout5L Property Acquisition Report Phone 952.447.9800 / Fax 952.447.4245 / www.cityofpriorlake.com 4646 Dakota Street SE Prior Lake, MN 55372 CITY COUNCIL AGENDA REPORT MEETING DATE: JANUARY 23, 2017 AGENDA #: 5L PREPARED BY: DAN ROGNESS, COMMUNITY & ECONOMIC DEV. DIRECTOR PRESENTED BY: DAN ROGNESS AGENDA ITEM: CONSIDER APPROVAL OF A REPORT FROM CITY STAFF RELATED TO THE POTENTIAL ACQUISITION OF PROPERTY LOCATED AT 16268 EAGLE CREEK AVENUE SE DISCUSSION: Introduction The purpose of this agenda item is to receive a report from city staff related to the potential acquisition of property located at 16268 Eagle Creek Avenue SE. History During the January 9, 2017 meeting, the City Council directed staff to prepare a report on the potential acquisition of property located at 16268 Eagle Creek Avenue for consideration at the January 23, 2017 City Council meeting. Current Circumstances City staff identified potential benefits associated with city ownership of this property, including: 1) control of the property which would provide design flexibility and allow the city to dedicate additional right-of-way, if necessary, for the CH21 / Highway 13 reconstruction project; 2) potential for the city to provide additional parking on a key block within the downtown which experiences high peak parking demand; 3) the ability for the city to guide future redevelopment and encourage a high-quality building design, following reconstruction of the intersection, at a key Prior Lake intersection; and 4) assist a Prior Lake business owner who was having difficulty selling his property due to current setback requirements and the uncertainty of potential property impacts related to future intersection improvements. Staff has met with the property owner to discuss a potential purchase of the property. The property owner offered the City of Prior Lake a purchase price of $530,000. He also informed staff that he has a tenant with an executed five-year lease/purchase agreement for the property. The City of Prior Lake could still pursue a purchase of the property and assume the lease agreement; however, the Council should be aware that the lease agreement provides the tenant with an option to purchase the property at any time during the five-year lease term. City staff has significant concerns with the tenant’s option to purchase. If the tenant chose to purchase this property as outlined in the lease agreement, the City of Prior Lake may not receive the potential benefits of acquisition as outlined above. 2 City staff discussed the option to purchase language in the lease agreement with the property owner who indicated he believes the tenant has the intention of purchasing the property. The property owner informed staff that the tenant will be making a significant investment to update the interior of the property. Due to the tenant’s investment in the property and previous negotiations between the property owner and tenant, the property owner indicated he would not sign any purchase agreement with the City of Prior Lake that did not provide his tenant with the option to purchase. Conclusion Due to the uncertainty of the option to purchase language in the lease agreement, which would prevent the city from controlling the site and receiving the potential benefits outlined above, city staff is recommending the City Council not move forward with a purchase of the property at 16268 Eagle Creek Avenue SE. ISSUES: The property owner has indicated he would not enter into a purchase agreement unless his tenant retained an option to purchase the property. The city may have the option to amend the lease agreement and provide an option for the tenant to purchase the property after reconstruction of the intersection; however, without knowing if additional right-of-way will be necessary and the uncertainty of future land values and other risks, staff is recommending the City Council not pursue a purchase of this property. As the council will recall, the property owner has an application in process for an ordinance amendment which, if approved, would reduce the setback along CH 21 from 30 feet to 10 feet. The City Council will consider the ordinance amendment request at a future meeting following a meeting between city and county staff on this topic. There are some desirable outcomes. The property will stay in private ownership and generating property taxes. The building will be occupied by a well-regarded business which will provide needed services to our community. The owner is relieved of his concern that he cannot sell the property in its present state as he desired in the first place. The principal disadvantage is that the county will likely have to acquire a portion of the property sometime in the future to accomplish the TH13/CR21 intersection improvements. Given that no design plans exist at this time it is not possible to determine the extent to which the acquisition may affect the property. FINANCIAL IMPACT: Potential financial impact if the City Council pursued a purchase of the property. ALTERNATIVES: 1. Motion and a second, as part of the consent agenda, to accept the staff report and direct city staff not to pursue any further property acquisition negotiations. 2. Remove this item from the consent agenda for additional discussion. RECOMMENDED MOTION: Alternative #1