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HRA 09/12/1991 - 29624�"� CITY OF FRIDLEY HOIISING & REDEVELOPMENT AIITHORITY MEETING, SEPTEMBER 12, 1991 ��_�����_�������_�������_�_����_������_�_�_��_���_���__���_������ CALL TO ORDER• Chairperson Commers called the September 12, 1991, Housing & Redevelopment Authority meeting to order at 7:30 p.m. ROLL CALL• Members Present: Larry Commers, Virginia Schnabel, John Meyer, Jim McFarland Members Absent: Duane Prairie Others Present: Barbara Dacy, Community Development Director Paul Hansen, Accountant Don Fitch, Fridley Dairy Queen Dave Newman, Attorney for Bob's Produce Michael Schroer, Bob's Produce, 7620 University Dennis Rens, Fridley School District #14 APPROVAL OF AUGUST 8, 1991, HOUSING & REDEVELOPMENT AUTHORITY ^ MINUTES• MOTION by Mr. Meyer, seconded by Ms. Schnabel, to approve the August 8, 1991, Housing & Redevelopment Authority minutes as written. IIPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMER3 DECLARED THE MOTION CARRIED IINANIMOII3LY. ° l. CONSIDER APPROVAL OF SECOND MORTGAGE SATISFACTION FOR FRIDLEY P�AZA OFFICE BUILDING: Mr. Commers stated the HRA has received a memo from Mr. Burns relative to negotiations that have been ongoing with respect to the amount of the second mortgage that currently exists with the Fridley Plaza Office Building. It is staff's recommendation that, although neither the staff or the HRA are too happy about this under these circumstances, the HRA approve the satisfaction of the second mortgage for the Fridley Plaza Office building. Mr. McFarland asked if there are any personal guarantees on this property. Mr. Hoeft stated that in checking the files, he did not believe there are any notes or personal guarantees. � �'� HOIISING & REDEVELOPMENT AUTHORITY MTG., SEPT. 12, 1991 PAGE 2 Mr. Commers stated that Mr. McFarland brings up a good point. If they approve the second mortqage satisfaction now before knowing for sure if there are any guarantees, will there be any problem? Mr. Hoeft stated, no, the HRA would not be compromising any guarantee rights by approving the second mortgage satisfaction. Mr. Commers stated that legal counsel will be able to find that out within a couple of days, and maybe the HRA should approve the second mortgage satisfaction contingent upon being satisfied that either there are no personal guarantees; or, if there are, this does not foreclose or cause any problems in pursuing the original managers on any guarantees that might exist. Mr. Hoeft stated he should know this for certain by September 17 or 18. Ms. Dacy stated the City will not record the mortgage satis- faction until the check is received. Mr. Meyer asked what kind of precedent this sets for any other second mortgage positions that the HRA has. Mr. Hoeft stated he thought that the circumstances in this case, ^ the way the mortgagee's interest was bought out in that transaction and in relation to the rest of the HRA's ongoing projects, is something that will probably not happen again. Regarding any other second mortgage position, when the HRA goes into that position, the HRA has to know that it is either taking that secondary position or re-enforcing that position through some outside guarantees of individuals or partnerships or corporations. Mr. Commers stated that just because they do something, does not mean they have to do it again. Each decision made by the HRA is independent, and by doing this they are not intending to set a precedent for anyone else. MOTION by Mr. Meyer, seconded by Mr. McFarland, to approve the satisfaction of the second mortgage for the Fridley Plaza Office building upon receipt of a check in the amount of $17,500, and contingent upon being satisfied that either there are no personal guarantees; or, if there are, this does not foreclose or cause any problems in pursuing the original managers on any guarantees that might exist. Ms. Schnabel stated she is very unhappy about this situation. It is very unfortunate that the HRA has to face this kind of situation, and she is very unhappy that these next door neighbors expect the HRA to capitulate on the second mortgage. It bothers �'1 her because of the HRA's position and because of the HRA's help ;� HOIIBING & REDEVELOPMENT AIITHORITY MTG., BEPT. 12, 1991 PAGE 3 initially in the construction of the building. She stated she will vote against this motion. Mr. Commers stated there is truth to Ms. Schnabel's statements, and this is something the HRA should keep in mind as they are approached about taking second mortgage positions in other projects. IIPON A VOICE VOTE� COMMERS, MEYER, AND�MCFARLAND VOTING AYE, SCHNABEL VOTING NAY� CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED ON A 3-1 VOTE. 2. CONSIDER APPROVAL OF SETTLEMENT AGREEMENT AND LEASE AGREEMENT WITH DON FITCH, FRIDLEY DAIRY 4UEEN: Mr. Commers stated that a memo from Barbara Dacy dated September 6, 1991, outlines some suggested changes to the lease. At the meeting, the HRA received an updated list of changes. Mr. Dacy stated that in the hand-out at the meeting, items 1, 2, 3, 4, and 6 are suggested changes that staff recommends the HRA consider approving. The items of most concern are items 5, 7, and 8. ^ Mr. Commers stated that regarding the heating, ventilation, and air conditioning, does the HRA have the right to elect not to - replace them if they quit working and then terminate the lease? Ms. Dacy stated that has been discussed at length with Mr. Fitch. Staff is proposing that he would be responsible for any or all repairs. However, as far as any replacement of items, the only items the HRA would be replacing would be the furnace or air conditioner. Mr. Commers stated the rent the HRA is charging would not make it feasible to replace a furnace or air conditioner. If one of these items malfunctions and the HRA is not in an economic position to replace that furnace or air conditioner, the HRA should be able to elect to either continue the lease or terminate the lease. Ms. Dacy stated the HRA'can do that if they choose. Because the Dairy Queen is a seasonable business, the furnace has not been used too much; and she understood from Mr. Fitch that the air conditioner is in good condition. During the course of the negotiations, it was agreed that Mr. Fitch will be responsible for rent, utilities, taxes, ground maintenance, equipment repair, but he has requested that he not be responsible for the furnace or air conditioner. ^ Mr. Commers asked if someone can inspect the furnace and air _ conditioner to see what condition they are in. If they are in ,� HOIISING & REDEVELOPMENT AIITHORITY MTG., SEPT. 12. 1991 PAGE 4 good condition, then he would assume there shouldn't be any big problems and they can take the risk for the next 1 1/2 years. Mr. Fitch stated the air conditioner is only 10 years old and the furnace is 15 years old, so both are relatively new. He stated he is not opposed to having someone from the City inspect the air conditioner and furnace. Mr. Fitch stated he can delete item 5. In Paragraph 11 of the lease, he was requesting that the phrase beginning with the word "caused" be deleted. He believed that if, in the extreme case, one of his employees is killed as a result of the HRA's action to repair, he should not sign away his right to sue the HRA. He stated that in talking with the HRA's legal counsel, his concerns have been satisfied. Ms. Dacy stated the item that needs to be discussed is item 7, regarding insurance coverage on the building. When the HRA took title to the property at the end of July, the Dairy Queen property was added as a temporary binder on the current policy the HRA has with Rice Plaza. However, the insurance agent notified staff that because the Dairy Queen is a seasonal operation, they will not carry that particular building. An annual policy will cost the HRA about $800, with a$5,000 ^ deductible. Mr. Fitch wants to continue his current building policy, but his policy would be amended to name both the HRA and himself as insured. The deductible on the policy would be $250. That leaves an extra cost of $500 for the insurance, and Mr. Fitch is proposing that the HRA split that cost on a 50/50 basis. Ms. Dacy stated the temporary binder expires at midnight on Friday, September 13, 1991, so they would have to proceed with a pro-rated cost for the remainder of this year plus 1992. It is significantly cheaper to go along with Mr. Fitch's suggestion. Mr. Commers asked Mr. Hoeft if he had looked at Mr. Fitch's policy. Mr. Hoeft stated he had not yet had a chance to look at the policy. He will review the policy and make sure the HRA is named as the ensured on the policy. Mr. Commers stated this appeared to be a logical thing to do as long as the policy is reviewed by legal counsel and it gives the HRA the necessary coverage. Ms. Dacy stated the HRA's consultant, Conway Olson, also recommended this approach. Ms. Dacy stated that in item 9(Paragraph 7 of the lease), the /�1 lease should be amended to read that there be a 30 day notice of HOIISING & REDEVELOPMENT AIITHORITY MTG., SEPT. 12, 1991 PAGE 5 % '� cancellation instead of the 10 day notice. Mr. Burns also recommended approval. Ms. Dacy stated that leaves item 8. Mr. Fitch wants the HRA not to re-lease the building to another soft-serve operation after he leaves. Mr. Fitch stated item 8 has one primary purpose. He stated he is hoping he will be able to move across the street to the Fridley Town Square so he did not think they are looking at the lease with the Dairy Queen as a long term lease. He stated it was never his intention to leave his present location. He has been there 25+ years and has built up a superb reputation for distributing soft-serve items. He would like to have a non- competing clause in both the lease and the settlement when they come to terms on the sale from the Dairy Queen. He did not think it is in his best interest for the City to use the reputation of that location as a purveyor of soft-serve treats to put a competing business in there when he is just moving across the street. He and his wife do not care what type of business goes into that location, but they prefer that the business not be mistaken as a Dairy Queen. They would like this incorporated as part of the lease and settlement. ^ Mr. Commers stated that if the HRA does this and the HRA terminates the lease, then it not going to be an issue; however, if Mr. Fitch terminates the lease, the HRA has essentially a one- use building and he did not know how adaptable the building is for other uses. Mr. Meyer stated he understood Mr. Fitch's feelings about this issue; but from a realistic standpoint, does the HRA as a public body have any right to write in such a clause? Mr. Hoeft stated that, yes, the HRA can limit the type of business for that building. Regarding the question, is the building adaptable to any other use or are they cutting off any other use for that property, that is a policy situation. Mr. Commers stated it is a take and reduces the value worth as much if they have bearing on the fair market stuck with a building they rent or lease it, it might value. He stated this is risk that the HRA does not need to of the building. The building is to assume that risk. That has a value of the building. They could cannot rent or lease, or, if they be at a rent less than fair market difficult issue. not be can Ms. Dacy stated that some of this might be solved if the northeast quadrant is redeveloped and Mr. Fitch can relocate there. It is even possible that the HRA would not be able to re- �'"1 lease the building to another soft-serve business because the Dairy Queen would be in the general vicinity. It is staff's HOIISING & REDEVELOPMENT AIITHORITY MTG.� SEPT. 12, 1991 PAGE 6 r"1 recommendation that it would not be prudent for the HRA to tie its hands by putting that kind of clause in the lease at this time. Mr. Meyer stated he can understand this concern, but he did not think it has a lot of validity and logic. It is his feeling that they would be pursuing a very fine point, and he would be willing to go ahead and put the clause in the lease. Mr. Fitch stated his request is only for the building as it exists now. If the building is torn down and there is new development, then anything can be developed. His request only surfaces around the aspect of identification, especially with the red roof being maintained on the building. Mr. Commers asked Mr. Fitch if he would have any objection if the roof was painted a different color. Mr. Fitch stated he would not have as big a concern if the roof was a different color. However, he still has some concerns because of the way this whole process has taken place, and that it was not he and his wife's choice to relocate. He still has some reservations about another soft-serve operation locating in the building, but not as many if the roof is painted a different ^ color. Ms. Schnabel stated that virtually every major fast-food business is now serving some type of soft-serve ice cream and yogurt. What concerns her is that because of the "soft-serve" definition, would the HRA be locking themselves into something they cannot manage once Mr. Fitch and his business moves? That is the problem she sees with Mr. Fitch's request. Mr. Fitch stated it has been brought up that there is a different fair market value for the property because it cannot be used for the potential soft-serve type businesses it was designed for. By the same token so far, the market valuation on this property was set not as a Dairy Queen but what it would be as something else. The purchase price was ultimately set on the basis of it being a Dairy Queen and the marketability of it being a soft-serve and the reputation it has. They can eliminate any problems with the lease if the purchase price of the property is substantially larger than currently proposed. If he is paid for the value of the property being a soft-serve Dairy Queen location, then he has no problem with the HRA leasing it to another soft-serve business. But, as currently proposed, the property is not being valued on that specific type of use. It is being valued as a general piece of property with a little building on it. Mr. Commers stated the property is valued at its highest and best �1 use. It may be even valued higher than the use as a Dairy Queen. � � � HOIISING & REDEVELOPMENT AUTHORITY MTG., SEPT. 12, 1991 PAGE 7 Mr. McFarland stated the lease expires in November 1992. Can the terms of the lease be binding after the expiration of the lease? If the northeast quadrant development proceeds, the soonest the Dairy Queen would move would probably be May 1992, and then they would only have about six months left on the lease. Mr. Commers stated if they would only have the restriction for approximately six months until November 1992, then he did not have any major objection, because that would give the HRA a few months to test the market and see what is out there. If the HRA is able to re-lease the building before November 1992, they would agree not to lease to a soft-serve type business. However, he agreed with Ms. Schnabel that they don't want to restrict themselves so they cannot lease to a business where soft-serve is not the primary part of the business. Mr. McFarland stated that if Mr. Fitch believes there is any real threat or risk to his business, another alternative would be for him to continue to make the lease payments, and the HRA would not be able to acquire the property back for purposes of re-leasing it. If there is no risk, then Mr. Fitch can let the lease expire in November 1992. Mr. Fitch stated that it is true that the non-complete clause would only be until the lease expires in November 1992. He stated he did not anticipate vacating the building until July, August, or September 1992 at the earliest. The HRA is potentially looking at only about 2-3 months, but he would like that protection for that period of time. Mr. Meyer stated he is in favor of granting Mr. Fitch's request and adding a non-compete clause to the lease until the expiration of the lease that would limit the HRA to lease the building to any business where the predominant use is soft-serve. Ms. Schnabel stated that as long as the words "predominant use" is included in the lease, then she would agree to Mr. Fitch's request. Mr. Fitch stated that is agreeable to him. Mr. Commers and Mr. McFarland were also both in agreement. Mr. Commers directed the attorney to make the necessary amendments to the lease. Mr. Fitch stated that paragraph 10 of the lease addresses certain items that staff and he have agreed that he would be able to remove from the building upon expiration or termination of the lease. One thing that was not mentioned is a walk-in freezer that is part of the Dairy Queen equipment that actually sits outside the exterior of the building. The lease talks about all � HOOSING & REDEVELOPMENT AIITHORITY MTG.� SEPT. 12, 1991 PAGE 8 interior equipment and does not address the freezer that sits outside. He would like the freezer incorporated with the equipment he can take with him. Mr. Commers stated he presumed the HRA is the pylon sign, the fencing, storage shed, He stated Mr. Fitch should be able to take however, if he takes the freezer, then the for it. The same is true for the removal fencing, interior cupboards, etc. If Mr. them, then the HRA will not pay for them. Mr. Fitch stated that is agreeable to him. paying Mr. Fitch for and walk-in freezer. the freezer with him; HRA will not pay him of the sign, deck Fitch wants to take Mr. Hoeft stated he will work on this with Mr. Fitch. Chairperson Commers stated it is the consensus of the HRA to authorize staff to negotiate with Mr. Fitch the discussed amendments to the lease between the Fridley HRA and the Fridley Dairy Queen. 3. CONSIDER APPROVAL OF AGREEMENTS TO RETURN TAX INCREMENT TO SCHOOL DISTRICTS: �..� Mr. Hansen stated that in the agenda is a memo dated September 6, 1991, from Rick Pribyl and himself explaining the 1992 school district referendum levy return agreements and the 1992 estimated amounts based on projections given to the City by the County. Mr. Commers stated that with the class rates being lowered, the 1992 monies could be less than these numbers. What happens if the HRA commits to these numbers now and they change? Mr. Hansen stated the estimated 1992 figures are based on the class rate changes. Ms. Dacy stated these numbers are the worst case scenario and the market values could be reduced by tax delinquencies, court cases, or other means. Dr. Dennis Rens, Superintendent of School District #14, stated he certainly appreciates the timeliness of the HRA's discussion. These monies will affect their 1992-93 budget and will provide the School District with an opportunity to plan. The School District is also highly appreciative of the HRA's actions in the past. MOTION by Ms. Schnabel, seconded by Mr. McFarland, to approve the School District Referendum Levy Return Agreements for the school fiscal year 1992-93. ��1 HOII3ING & REDEVELOPMENT AUTHORITY MTG.. 3EPT. 12, 1991 PAGE 9 � � IIPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED IINANIMOIISLY. Ms. Schnabel stated she would like to compliment Mr. Pribyl and Mr. Hansen on all the work they have done and to express the HRA's appreciation in having the work done so quickly. Mr. Commers stated he agreed. The information is certainly in a more understandable mode this time, and the HRA appreciates that. 4. CLAIMS AND EXPENSES: Ms. Dacy stated that she is requesting the HRA's concurrence on her request to attend the American Economic Development Council's Basic Economic Development course in Tampa, Florida, on November 3-8, 1991. Mr. Commers stated he certainly believed it is worthwhile for Ms. Dacy to attend this Economic Development course. MOTION by Ms. Schnabel, seconded by Mr. Meyer, to approve the request by Barbara Dacy to attend the American Economic Develop- ment Council's Basic Economic Development course in Tampa, Florida, on November 3-8, 1991. MOTION by Mr. Meyer, seconded by Ms. Schnabel, approve the check register (2155-2161) dated September 6, 1991. IIPON A VOICE VOTE� ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED IINANIMOII3LY. 5. COPY OF LETTER TO CITY COUNCIL REGARDING DECERTIFYING TIF DISTRICTS• Mr. Commers stated this is an informational item with respect to the issue discussed at the August HRA meeting relating to the termination of TIF districts that are not needed for financing economic development or redevelopment improvements. The HRA had asked Mr. Burns to write a memo to the Council expressing the HRA's understanding of the Council's position, but also expressing some of the HRA's concerns. This memo was included in the agenda. Mr. Commers stated there is another issue regarding the decertification, and that is the obligation the HRA has under the existing bond indentures and the ability to transfer funds from one district to another. He stated he would like to talk to Jim Casserly and have Mr. Casserly let the HRA know what the restrictions are on which districts in terms of using funds from one district and refunding another district. � H_OIISING & REDEVELOPMENT AIITHORITY MTG., SEPT. 12, 1991 PAGE 10 � 6. COPY OF CONTRACT WITH MAXFIELD RESEARCH GROUP: Mr. Commers stated this is an informational item. 7. UPDATE ON RICE PLAZA: Mr. Commers stated that if more tenants are going to be leaving Rice Plaza, it might be a good idea for staff to ask Jim Kordiak if he has some suggestions for a more aggressive program to get more tenants into the building. Without a developer at this time, the building could be vacant for quite some time. 8. INFORMATION ON BOB SCHROER PROJECT: Ms. Dacy stated that Mr. Schroer and Mr. Newman are at the meeting to introduce the HRA to the project, to talk about financing, and to request some assistance from the HRA. Mr. Schroer hopes to have a redevelopment contract for the HRA's consideration at the October meeting. Mr. Newman stated Mr. Schroer has been exploring a possible redevelopment for some time with construction to start next spring. Then he was approached by a prospective tenant about one month ago, Lyndale Garden Center, who would be a joint user of ^ the property. Lyndale Garden Center has been around for about 60 years at 66th and Lyndale Avenue South and is the largest independent garden center in the Twin Cities area. Lyndale Garden Center recently opened up a new store in Burnsville. Mr. Schroer is very comfortable with Lyndale Garden Center' expertise and quality of business. Some years ago, Mr. Schroer operated a garden center, then came Frank's Nursery and Malmborg's Garden Center, so they feel there is a strong potential with the two businesses. Mr. Newman stated that due to the nature of the garden center business which is so seasonal, it is important to proceed as quickly as possible as Lyndale Garden Center needs to be in and open next spring. So, they are operating under a rather short time frame. Mr. Newman showed the updated preliminary site plan. He stated Mr. Schroer is proposing a new 18,000 sq. ft. building. Lyndale Garden Center would have an enclosed area of 15,000 sq. ft., a greenhouse of 5,000 sq. ft., and an outside sell center of approximately 40,000 sq. ft. Mr. Newman stated they hope to have the final numbers and cost in place within a few days. They have had some discussions with First Star Bank for financing. ,� HOII3ING & REDEVELOPMENT AIITHORITY MTG., SEPT. 12, 1991 PAGE 11 � Mr. Newman stated they will also be requesting some assistance from the HRA. It is his understanding that the HRA prefers the "pay-as-you-go" approach. Mr. Commers stated that this project originally only qualified under the rehab portion so that funds, if any, would only be available for a short period of time. It was only if the project joined in with the project across the street that a time period could even be talked about. What Mr. Newman is proposing is that any additional taxes that are generated by this specific project would be refunded to the property owners over a period of time. Mr. Commers stated the HRA has only recently done one "pay-as- you-go" project. The HRA's preference has always been that to some extent they get something back from the developer as far as the assistance they give to the developer. So, Mr. Newman and Mr. Schroer should keep in mind that there may be different alternatives. The HRA is very concerned about setting a precedent with the "pay-as-you-go" approach. ADJOURNMENT• MOTION by Ms. Schnabel, seconded by Mr. McFarland, to adjourn the meeting. Upon a voice vote, all voting aye, Chairperson Commers ^ declared the motion carried unanimously and the September 12, 1991, Housing and Redevelopment Authority adjourned at 9:05 p.m. Resp ctfully su mitted, � f�` /�.�^� Lynn Saba Reco ding Secretary n �