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HRA 07/17/1995 - 29584�^� � ,� CITY OF FItIDLEY JOINT � CITY COUNCIL WORR SEBBION AND HOIIBING & REDEVELOPMENT AIITHORITY MEETINa JIILY 17, 1995 Chairperson Commers convened the meeting at 6:34 p.m. ROLL CALL: Members Present: Mayor William Nee, Councilmembers Steve Billings, Ann Bolkcom, Nancy Jorgenson, and Dennis Schneider, Chairperson Larry Commers, and Commissioners Virginia Schnabel, Jim McFarland, John Meyer, Duane Prairie Others Present: William Burns, Executive Director Barbara Dacy, Community Development Director Jim Casserly, Financial Consultant Jim Hoeft, HRA Attorney Grant Fernelius, Housing Coordinator Craig Ellestad, Accountant Merrill Busch, Busch and Partners Fridley Focus News 1. PRESENTATION BY POTENTIAL DEVELOPERS Mr. Burns stated the purpose of the meeting was to reach a consensus on a developer for the Lake Pointe property and to resolve the issues of density and access for the Southwest Quadrant. Mr. Burns stated included in the agenda packet was an evaluation criteria worksheet that could be used to help in identifying the first choice for the Lake Pointe developer. He had talked with Mr. Merrill Busch, who will be speaking about the process, the market, and the proposals received. Mr. Busch stated he was retained about 18 months ago to bring Lake Pointe to the business community and the real estate development community. The property had not been marketed for a time and perhaps people had forgotten it existed. When he began marketing, it seemed early in the cycle. At the time 18 months ago, there was still a surplus of office space. There was not a tremendous enthusiasm about the direction of the market and the economy. Things have changed and have changed in favor of the City. His company packaged the site by creating a market brochure, direct mail campaign, and magazine advertising to begin the process of reintroducing the site to a wide audience. Targeted were major real estate development companies and real estate brokerage firms in the metro area who specialize in JOINT CITY COIINCIL AORR BESSION AND 80II8INa & �i REDEVELOPMENT AIITHORITY MEETINQ -- JIILY 17. 1995 PA�E 2 marketing office/commercial space. They started an aggressive program with those elements primarily targeting brokers and firms with.a strong corporate relationship with a major corporation, emerginq companies, people who had continuing need for headquarter space, research space and/or high tech space that also needed a siqnature site if appropriate. They have characterized Lake Pointe as the last great corporate site. He thought the market has come around to recognize that this is a highly desirable site. It is ready to go, which is rare in this market. A number of factors have come into service in the last 18 months including the market has strengthened, the economy has improved, and there is a demand for office space. In addition, rental rates are rising. If you are a landowner or have land for development, you are in a good position. Mr. Busch stated, during this period, a lot of development organizations that have cooled on development have come back to the table and are now willing to begin to develop again. Financing is available again. There are a lot of things working that are favorable to Lake Pointe. Mr. Busch stated, out of the process of re-exposing Lake Pointe '�� on a broad basis, the other group they contacted were other - corporate users. These would include major corporations with headquarters needs as well as emerging companies. Other factors that have changed, in addition to the shortaqe of space, is that there is increasing interest in the north metro area. Business pays attention to the bottom line. They pay attention to coat which must be affordable. This area has a labor supply. All these things are coming to together simultaneously. Out of this process, some of the firms contacted did not feel this location was an appropriate office location. They view the site as a retail site or an office showroom but did feel they could do an office development. Others are committed to existing commitments. There were others who found the prospect of developing this site exciting. Three are here tonight. These three are the most interested and well qualified, meet the criteria, are strong firms financially, have the required market skills and have a wide number of corporate contacts. The City has an unusually fine selection to choose from all with a good reputation both locally and nationally. He thought each could do an excellent job. A. United Properties Mr. Glowa, Senior Vice President of Development, stated he oversees the development activities. He provided an overview of � United Properties, which owns and manages 14+ million square feet of office, industrial and retail space, most of which is in the - '�win Cities and approximately 1.5 million square feet in the JOINT CITY COIINCIL WORR BESSION AND HOIISINa & �� REDEVELOPMSNT AIITHORITY MEETIN(3 -- JIILY 17. 1995 PA�3E 3 Milwaukee market. Their parent company is The Northland Company which is made up of three sister companies - an insurance company called Northland Insurance Company, a mortgage banking company called Northland Financial Corporation, and United Properties which is the real estate division. United Properties is mainly a developer, marketer, and manager of commercial real estate. The company favors a team approach to marketing assignments. Mr. Glowa stated the team for this project would include Lloyd Stouffer, president of the organization and a developer, who could not attend the meeting; Rick Martens, who is new to this company but with 20 years experience, who did the Edinborough project in Edina which is a large mixed use development and would assume the lead role in this project; Mr. Glowa himself would help in any way he can and has 19 years experience with 11 years at United Properties; and Mike Ohmes and Tom Stella would be the marketing team and are active in the northern suburbs. Mr. Ohmes and Mr. Stella have collectively leased 1.5 million square feet of office space mostly in the northern suburbs. Also a part of the team is George Burkhardt, a land sales specialist, who has been with United Properties for 17 years. Not here are the others in the company who will supplement this team and who will '^� take ownership in the project. They take pride in our assignments and want to make sure it is successful. Mr. Glowa stated United Properties is a locally based company, has extensive development experience, has the financial strength for the project, will take a flexible approach, and has the in- house resources with the people in-house capable of doing the job. The company has land sales capability. United Properties is experienced in mixed use development and is one of the leading build-to-suit developers in the Twin Cities. The company has an in-house real estate market service. Mr. Ohmes stated they are aware of nearly everything that is taking place in the area. They have an active data base. He and Mr. Stella are responsible for the northern suburbs and they track the market continuously. They publish a quarterly listing of all properties they have for sale or lease which goes to all brokers in the Twin Cities. They also publish semi-annually a market/ office study which tracks the office properties available in the area. Mr. Martens stated he felt this was an excellent opportunity. Lake Pointe is a critical mass of land with a prime location. They would work with the City to understand their goals and objectives and then create a master development plan. They ,�� recommend the creation of a public/private group to direct the planning and approval process for this development. They would - develop some master plans and establish a development schedule. � JOINT CITY COIINCIL AORK 8E88ION AND HOOBING & REDEVELOPMENT AIIT80RITY ME�TING -- JIILY 17. 1995 PAGE 4 A mixed use development must have uses that are synergistic. It is better to market space with a master plan that includes other uses that must work together. They would implement a comprehensive marketing plan including land sales, built-to- suits, and users as multi-tenant developers. They would initially focus on the phase 1 office development. Mr. Martens stated they would create a community integrated project, create a public/private body, and work hard to meet the financial goals and objectives. They suggest an informal agreement that, if they do not perform, the City is not obligated to a long term. They will undertake the marketing, the master planning, and create new marketing materials to make this happen. Mr. Schneider stated Mr. Martens had mentioned a public/private group. Does that extend to the community around the development? There are homes in that area and it would seem that the developer would have to work with the neighborhood. Do you have experience in doing that? Mr. Martens stated they did a project in Edina with a condominium association beside it. They worked to design the building to �` work with the community. To the extent that this makes sense and you feel is necessary, they would be open to doing that. Mr. Schneider asked what they thought the time frame wou�d be for this project. Mr. Martens stated they would work toward a 1996 implementation for phase 1. The market is coming to us in terms of this site and things are happening in the northern suburbs. Beyond that, it would depend on the market. Projects like this can take five years or longer to complete. Having a mixed use will help that. Ms. Jorgenson asked what they envisioned for Highway 65. Mr. Martens stated they did not have enough knowledge. The traffic issues are something to address. Mixing uses will help the traffic. From a parking point of view, you can combine other parking with the office buildings. It would depend upon how this is planned. Ms. Schnabel asked what they envisioned on the property besides office space. Mr. Martens stated the possibilities could include various types of office space - corporate, professional, medical; specialty � retail space - restaurants, banks, cinemas, etc. There may be a potential for hotel use which is gaining market. There might be a high density residential component. There might also be public JOINT CITY COIINCIL WORR SESSION AND HOIIBING & REDEVELOPMENT AIITHORITY MEETINa -- JIILY 17, 1995 PAaB 5 uses and public spaces. You will see more public spaces inteqrated into private facilities. Mayor Nee stated they had received, as part of the RFP, something that indicates the compensation requested. The land sale commission would be 8�. Is this split with the brokers and how much of our basic expenses would be covered? Mr. Martens stated, if the commission is 8�a, he would budget another 1/2� to i�s for the closing transactions. The commission should cover 85�-90� of the total costs for closing a transa�tion. United Properties would pay all the brokers. They would market aggressively to the outside brokerage community. If someone else brings in a prospective client, they would fully cooperate and split the commission with them. Mayor Nee asked if there were any other front end costs for marketing materials, etc. Mr. Martens stated United Properties would absorb those costs. They would incur the expense of the marketing materials and the master plan. The only other expense incurred should be staff !�'` time . Mr. Schneider asked if United Properties would actually acquire the property. Mr. Martens stated no. If United Properties elects to build an office building, they would design the office building to fit into this marketplace. As they get lease agreements, they would then start construction of the building. Prior to that happening, they would buy the land. Mr. Schneider asked if the land price would then be negotiated. Mr. Burns stated they have not yet worked out those details. Mr. Schneider asked what United Properties considered as their weak point. Mr. Glowa stated he was sure there are things as every organization has problems. He firmly believes United Properties is right for this assignment. This one hits on all of the resources this company provides. Mr. Burns stated he had asked the City Manager from Mendota Heights for a reference for United Properties. He recommended ,r-� them very highly. They have built quality projects in Mendota Heights and they have been easy to work with. Mr. Gordon Hughes ` from Mendota Heights also had good things to say. ��\ ,,"� � JOINT CITY COIINCIL pORK SESSION AND HOIISINa � REDEVELOPMENT AIITHORITY MEETING -- JIILY 17. 1995 PAGE 6 Mr. Schneider stated one concern is that there be continuity in staff. Would there be some assurance of continuity? Mr. Martens stated he has made a commitment to get back into development with United Properties. He sees them as a quality, professional group that he wants to be a part of and feels committed to the project. B. MEPC Mr. Jellison introduced the following staff: Dave Sullivan, attorney; Jim Fant, Vice President in charge of Investments from the Dallas office; Bill Dressen, Regional Vice President in charge of Property Management for Ndinncapolis/St. Paul regional office; Leslie Jowich, Leasing Manager; and Norma Jaeger, Leasing Specialist. Mr. Jellison stated MEPC is a London stock company with offices in many parts of the world. MEPC American Properties headquartered in Minneapolis until 1980 when they moved to Dallas with a regional office in Minneapolis. They run all of their properties out of the Minneapolis West Business Center. They have two office parks in the Twin Cities - the Normandale Center and Minneapolis West Business Center. At Minneapolis West, MEPC basically owns everything in the southwest quadrant except the bank and tennis club. They envision Lake Points as being similar to Minneapolis West with a full service office park with different buildings and a variety of services. They presented a video showing the Minneapolis West Business Center. Mr. Jellison stated they had experienced road construction in that area for a number of years. MnDOT was good at workinq through the details with MEPC. Mr.- Rick Wygren, in charge of development in the eastern half of the U.S., worked with MnDOT to limit the problems during construction. Mr. Jellison stated MEPC does not lease or manage for anyone . else's property. Their goal is to take their developments and spend all their time with it. They work with tenants, visit with them to find out what they can do to get more of their business in their parks. MEPC is probably one of the hardest landlords to get tenants away from. Mr. Fant is here to discuss how projects are funded. Mr. Fant stated, in the mid-1980's, the company took a different direction in their financing programs. MEPC looked to the corporate structure for financing. They looked to Wall Street and created some public forums for them to fund projects. They are now using a commercial paper program. MEPC is a rated company. As an owner, they have never defaulted on a loan and � JOINT CITY COIINCIL WORR SESSION AND HOIISINa & REDEVELOPMENT AIITHORITY MEETINa -- JIILY 17. 1995 PAaE 7 have never handed the keys back on any building they have owned. Mr. Jellison stated they work as a team. Once they lease a building, they must take care of their tenants. Mr. Dressen takes care of the tenants and parks. Dairy Queen was in the same location for 25 years. They left because we did not have room for them to grow. Mr. Dressen stated he has been in the business for over 20 years. He had previously worked downtown and then came to MEPC. They have about 25 full-time and 10 part-time employees with probably a cumulative total of 400 years of experience. Many of the engineers have 15-25 years of experience. The staff is a long- term group of people. They also keep their staff up on their jobs and hit heavily on the service side. They work as a group to get the job done. On a development, they work with the team from the plans on up to make sure they have the input they need to make sure the building can be properly run after it is built. If you come to an MEPC property, you will see a plaque which in essence states that the tenants come first, that they will maintain the highest standards in property management and ,� maintain the highest quality construction. Mr. Schneider asked what MEPC was proposing to do. Mr. Jellison stated MEPC would be the developer of record to develop an office park and amenities such as they have at Minneapolis West Business Center. They would envision putting services on the outlots. Their goal is to find out what the market needs. They know the City wants to have office space. They would look at what kind of office space to build and then find the tenants. They envision owning and developing the park and putting in the amenities. Mr. Fant stated they would not turn someone away if a tenant wanted to o�m their own project. Mr. Schneider stated the video suggested that MEPC would own and control of the bulk of the property for consistency. Mr. Jellison stated the advantage of continuity of ownership is the ability to move tenants around to suit their needs. Mr. Schneider asked what they saw as the time frame. Mr. Jellison stated the real market has been on its knees. There are not many real estate developers left. It has been a � difficult time. The time frame will be driven by demand. You must first find the users and then make the project work. They � hope by 1996 to have an office building underway. If the economy � ,� JOINT CITY COIINCIL WORR BESSION AND HOIIBINa & REDEVELOPMENT AIITHORITY MEETINa -- JIILY 17. 1995 PAaE 8 goes into a recession, it could slow that down. Before building, they would put together a focus group of users of real estate to find out what they are looking for. Mr. Burns asked who would be the "point man" for marketing the site. Mr. Jellison stated he would work with Ms. Jowich and Ms. Jaegar. Ms. Jowich would be the main contact person. Mr. Meyer asked the methods used to look for tenants and their contacts in the community to attract tenants. Mr. Jellison stated they advertise in the Monday section of the newspaper and take testimonial ads, copies of which were provided. Their job is to call on real estate users to see what their needs are and to let them know what we have going on. MEPC has had Norman Center for 22 years and it has always been full. At one time they lost two large tenants. They put together an advertising campaign. They found every user in the marketplace that was 10,000 square feet and larger and did a four-part series mailing. After 18 months, they had leased the space. They sponsor a legislative breakfast and give out promotional items. MEPC sponsors a golf outing for the tenants. The tenants are asked to invite their friends which provides an opportunity to discuss their real estate needs. They try to see all of their major accounts in their home town once per year. They want to solve any problems directly. Mr. Burns asked who would be providing the development experience. Mr. Jellison stated Mr. Rick Lieble would oversee the development. Mr. Lieble is in Dallas but he would be in charge. He would spent a lot of time here when they get to that point. Mr. Schneider asked if MEPC envisioned cominq up with a master plan. Wou1d.MEPC be willing to work with the neighborhood that is in that area? Mr. Jellison stated they would have a master plan. In Golden Valley, across the street from a development, is an extensive condominium development. They made a presentation to the residents. They try to make the residents feel comfortable. Mr. Schneider asked what they thought was their weak point. Mr. Jellison stated he would like to do more. They are a ,� conservative company for which he is thankful. The company is run by CPA's but they are very conservative and very careful with `` the numbers. He would like to take more risks, but in the long JOINT CITY COIINCIL AORR SE88ION AND HOIISINa & � REDEVELOPMENT AIITHORITY MEETIN6 -- JIILY 17. 1995 PAaE 9 run they have never defaulted on a mortgage. Mr. Burns stated he contacted Mr. Grimes from Golden Valley who had favorable remarks and who said the staff had been very cooperative. Mr. Burns was impressed by the trip to Denver. Mr. Jellison stated they have mentioned the site to two restaurant operators who have expressed an interest. He distributed copies of brochures, a magazine about the company, financial reports, a brochure on Minneapolis west Business Center, the presentation and samples of promotional items. C. Galbreath Mr. William Hoeg introduced his associates - Mr. Mike Denney, Vice President of Griffin Companies; Larry Franzine, Chairman, and Steve Cheerhart. Mr. Hoeg distributed copies of a booklet outlining their presentation and a brochure on the Galbreath Company. He also passed around pictures of their projects in the Twin Cities area. Mr. Hoeg stated their goals are very basic. The first project ^ would be a minimum of a three-story Class A office buildinge That will enhance the ongoing credibility of Lake Pointe. The goals underlying that is to maximize the density. They have no plan to compromise the master plan as it is now. As time goes on, everyone may concur to make changes. They plan to break ground for a construction project during the next construction season. They want to minimize the City's exposure to risk. Mr. Hoeg stated Galbreath Company is one of four of the largest real estate companies in the world. In the Z°win Cities, Galbreath is just now getting into the marketplace. Galbreath being a developer and financial company were able to align with the local expertise Griffin. Galbreath works with more than 300 of the Fortune 500 companies. Within the company, staff has construction, engineering, and legal expertise. Mr. Denney stated he viewed this as a partnership with the City. They have been able to bring some qualified deals to the City without a formal relationship. They want to get a project going on this site. The market is good. The planning and platting has already been done. Once they get a company willing to commit to the site, they can use that as a first step and then figure out how the rest of the project should develop. That will create synergy for companies to see activity and want to come to the site. Their job will be to bring the City to decision points. They will canvas the market, bring opportunities to a team they would put together, and decide on the best approach. They have been actively working on this project bringing in opportunities JOINT CITY CODNCIL WORR 8E88ION AND 80IISINa � � REDEVELOPMENT AIITHORITY A3EETING -- JIILY 17. 1995 PAGE 10 and company representatives to see the site. Mr. Hoeg emphasized the importance of the first project for Galbreath when entering the market. All of the offices they have opened in the last ten years have been successful. They bring the vice president and chairman to visit the site. They try to pinpoint where they see opportunities and focus on them. They focus on one site and go with it. That is a different type of approach. Mr. Denney stated he and Mr. Hoag will be the people involved to qet that first project off the ground in 1996. Mr. Denney stated financing was available. Some companies think their owr� financing is a benefit, but it can be a hindrance. They have a wide variety of sources throughout the country. They can qualify a broader range of prospects for the site. Mr. Denney stated Griffin is a marketing company. There is a radius of about 20-30 miles of users that need to be targeted for this site. That is what they would do. Galbreath has a national data base. Griffin brings in more local users. The people here '�'� tonight have had experience in all areas. Mr. Meyer asked what the relationship was between Galbreath and Griffin. Mr. Hoag stated Galbreath and Griffin are affiliated on several projects. Griffin has the local marketing expertise. Galbreath has the financing, background and national base. Mr. Meyer asked what assurances they would have that the company will stay together. Mr. Hoag stated they have a healthy long-term working relationship. They have known each other for a long time. Mr. Schneider stated they had stressed the importance of getting something going. What will it take to get the first part going? What is the next step? Mr. Denney stated, as soon as they have a formal agreement, they would immediately target a select group of users. For example, they would call on Medtronic, talk to them about this being good campus, find out their requirements, and discuss the options. Mayor Nee stated their RFP was somewhat different on the �, compensation issues. He asked them to describe this and why it � is good for the City. JOINT CITY COIINCIL AORR 8E88ION AND HOIISINa & � REDEVELOPMENT AIIT80RITY MEETINa -- JIILY 17. 1995 PA6S 11 Mr. Hoag stated one strategy is that, as a real estate broker, you tie up land and show properties. With that strategy, the broker does not care where the user ends up. They do not charge for their services. They are willing to focus in, make a commitment, and assign principles to the project. Any fees they incur will be paid by the project. Overall, they are proposing an 18-month contract with an $8,000 a month retainer of which $4,000 would be paid in cash and $4,000 would accrue. Upon success of a project, they would fund back those monies and be paid a $1/foot brokerage fee. Mayor Nee asked wha pays for the marketing. Mr.�Hoag stated their company would pay for the marketing. Mr. Billings asked if there was a way to relate that $1.00 to an 8� or a 6� commission. Mr. Hoag stated he did not know how to relate it. Mr. Billings stated, if someone builds a 60,000 square foot building, we would o�e them $60,000. How much space does it take �` to build a 60,000 square foot building? Mr. Hoag stated it would take about 240,000 square foot of land at approximately $3.00 per foot. Mr. Billings stated they have to look at what it will cost to get this expertise. Mr. Burns stated Galbreath has signed purchase agreements for two 12-acre parcels and have an office building there. How does this project compete with the Lake Pointe project? Mr. Hoag stated they will close on this project on Thursday so they will no longer have an interest after that time. Mr. Burns stated they have focused primarily on marketing skills and marketing plan. Another piece is the development. Who would be doing the development portion? Mr. Hoag stated he would be doing that. That is his background. Mr. Schneider asked if they would be willing to work with the neighbors. Mr. Hoag stated this is a must. There must be neighborhood ,°"'� meetings. If you do not do that, you will have problems. � �^, JOINT CITY COIINCIL WORR SESSION AND HOIIBINa � REDEVELOPMENT AIITHORITY MEETING -- JIILY 17, 1995 PAGE__12 Mr. Schnabel asked if they had talked about other public services or other kinds of things other than office buildings. Mr. Hoag stated they had talked to staff less about a medical building. They have not done anything further than that. This would tend more toward support services. The focus is to get the first office product going. After that, they have potential for a day care center, perhaps a convenience store. It depends on what the neighborhood wants. Mr. Denney stated they would target quality users to define the park. They are trying to think for the long term. The larger buildings will be a determining factor in what would go into the other parts of the development. Mr. Meyer asked, if we would enter into a development agreement with you and then in the process you bring in a prospect we decided we did not want, do you then go back and find someone else. Mr. Hoag stated yes. Their job is to bring decisions to the City to evaluate. They will call in real estate brokers and developers. Their policy is full disclosure. Mr. Schneider asked what they would consider their weak point. Mr. Franzine stated they are human and that is why they partner. The.biggest mistake they could make is to think they have all the answers. Mr. Burns stated Mr. Hoag and Mr. Denney have shown an intense interest in the Lake Pointe site. Their contacts have been constant and their interest has been there for sometime. He looked at their references which have been positive. He gave them credit for bringing in three projects. 2. EVALUATION OF DEVELOPERS AND SELECTION OF SUCCESSFUL COMPANY Mr. Burns stated he would like to reach a consensus on the developer. He has provided information to make a decision. ATo matter which of the three is chosen, you will have a good developer. A lot of screening has gone into this. He is very concerned about the market. The office market goes in cycles and is now on the upswing. He thought it important to get someone in soon to get the work started. Mr. Schneider stated he did not disagree, but they spend three or �°'�� four meetings on the budget or 20-25 hours discussing that. Here we are making a multi-million dollar decision with 40 minutes of ` presentation with three developers. JOINT CITY COIINCIL AORR BESSION AND HOIIBING & �� REDEVELOPNiENT AIIT80RITY MEETINa -- JIILY 17. 1995 PAQE 13 Mr. Burns stated he would like to try to try to get to a decision. If not, staff can come back. He did not think the information would be any fresher than now. He has asked Mr. Casserly and Mr. Busch to answer questions and offer their insight. Ms. Bolkcom asked who had investigated these companies other than the references. What more do we know about them? Mr. Burns stated they know United Properties has been a player in the Twin Cities market for a long time and one of the largeat developers and brokers for real estate in the entire metro area. MEPC has a worldwide presence. They have a good track record on maintaining and keeping full what they have. They have a good relationship with Golden Valley and St. Louis Park. Galbreath is a relatively new entity but we know that Mr. Hoag and Mr. Denney enjoy good reputations in the development community. Mr. Commers stated he thought all were capable. All are major holders but they have different philosophies. Mr. Schneider stated the thing he noted was that the MEPC � proposal has one developer to develop the property and maintain. If they would do what they say, we would have a planned development with one source of maintenance. The other two seem to have a piecemeal approach where they would get something going and then re-evaluate the plan. Mr. Burns stated MEPC makes their money primarily from building, leasing, and managing properties. United Propertiea and Galbreath make their money from development of property. Mr. Schneider asked, if they can all do what they say are going to do, are we better off with one entity to deal with or are we likely to do better going piecemeal. Mr. Burns stated he would put MEPC on one end with the primary interest in owning, managing and operatinq property. United Properties has property that they own and manage and they are willing to do that. They will also build-to-suit. Galbreath is probably more into build-to-suit. They are likely more interested in providing a project for the market and then getting out. � Ms. Dacy refer�ed to the comment regarding references and track records. Staff could have brought iri ten companies. She thought these were the best companies based on the focus of the corporate r� campus. MEPC and United Properties are local. As far as their track records, staff has not been able to detect anything Y negative. They know a bit less about Galbreath because they are JOINT CITY COIINCIL AORR SE88ION AND 80II8INa & '� RED�VELOPMENT AIITHORITY MEETING -- JIILY 17, 1995 PAaE 14 based out of town. In terms of track record, she did not think there was a need for concerne Mr. Busch stated the kind of developer the City first dealt with no longer exists. The ones who survived have deep pockets, long standing reputations, and strong corporate relationships that they continue to serve. These three companies have qood reputations, are very strong, have wide corporate contacts, and strong corporate relationships. Ms. Schnabel stated she had a concern. It appears to her that their ability to finance is solid. What are they expecting from the City and the HRA in terms of dollars? That to her is the bottom line. What is it going to cost us? How speculative are those figures? Mr. Burns stated he thought the proposals are subject to negotiation. MEPC indicates there is no charge. United Properties is charging an 8a real estate commission plus the costs for the marketing plan. Galbreath is asking $4,000 per month plus $4,000 accrued at the end of 12 months plus $1 per square foot of space. Ms. Schnabel stated she understood that. Where are we making or not making money? Mr. Burns stated we are making money on the tax increment that is created from this project. B�cause of the density requirements, he would expect the City to write the land down to practically nothing for any developer. For the density, we would need to build parking ramps which greatly increases the cost of development. In order to make the price acceptable to the marketplace, the land must be written down. We need the tax increment that would be generated through 2009 to replenish what was spent. Ms. Schnabel stated we have spent $7.5 million. MEPC would require no further money from us. The other two developers have proposals that we will pay out more understanding that money will come back to us. Mr. Burns stated yes. Ms. Jorgenson stated MEPC wants the City to furnish unencumbered land and/or subsidize ramps due to final density requirements and provide any necessary infrastructure changes due to final site plans. Are they talking about the intersection? n Mr. Burns stated he thought they were. Staff have pretty much '" said that the City would be responsible for intersection ^ JOINT CITY COIINCIL WORR BESSION AND 80IISIN�_& � REDEVELOPMENT AIITHORITY ME�TINa -- JIILY 17. 1995 PAa� 15 improvements. Ms. Schnabel stated, until she can get see what the costs will be for each of the developers, she is not comfortable with making a decision at this time. Mr. Casserly stated we are not goinq to know what the costs will be until we start to develop the property. The original concept is still valid today. That idea was to provide assistance to help with a parking ramp in order to increase the density. It is very difficult in suburban areas to charge for parking. The greater the density on the site, the greater the parking costs. If we cannot get the density we want, we will not have the parking costs, and we will probably be able to sell the land for more. If we could get 750,000 square feet, we may have to give the land away but we will generate a couple million dollars per year in tax increments. It is difficult to figure out the compensation, not based on the property sold, but based on the number of square feet. This has to progress far enough to figure all those elements. Mr. Burns stated we don't know any more about ^ is shown. If a developer is selected, staff development agreement to define those costs. negotiate until someone is selected. � .1 the costs than what can then negotiate a Staff cannot Ms. Schnabel asked if they could take a figure of so many square feet and apply that to what each developer has proposed. Mr. Burns stated Mr. Billings was working on something similar to that and he thought the numbers from Galbreath were similar to those from United Properties. The numbers they are talking about are not a major part. We need to look at and decide on the approach. Then identify a developer. Staff will then work through a negotiating process to get the best financial arrangement. He did not think the financial basis should be driving the choice. He would look for the best team that matches the goals. Mr. Schneider stated, if finances were not an issue, we could develop the site as a park. There is an expectation of a minimum amount of value to generate a certain amount of tax increment. Mr. Burns stated with any of the developers the City would get a minimum amount of value. They would not accept anything less than Class A office space, a three-story development, and tier parking. As a rule of thumb, we would not accept any development of less than 500,000 square feet of office space. � � �"'� � JOINT CITY COIINCIL AORR 8E88ION AND 80IISINa & REDEVELOPMENT AIITHORITY MEETING -- JIILY 17. 1995 PAGE ib Mr. Schneider, if using a phased approach, we may have to wait 20 years. Mr. Burns stated we probably cannot expect everything to happen in this cycle. The office market runs in cycles and we may only get some in the first cycle. Ms. Jorgenson asked if they can hit those cycles while they are still in the increment district. Mr. Burns stated they may not be able to get all of it. He did not know. Ms. Jorgenson stated two of the presenters said they would be talking to Medtronics and some of the others that we at the City have already spoken with. What is going to make them more successful then we were? Mr. Burns stated he did not think they would be any more successful with Medtronics other than the timing. Mr. Prairie stated he thought this company was just a good example. Mr. Burns thought where the developers will be successful is with contacts that the City does not know. Mr. Schneider asked what the pros and�cons were of the different approaches and why not choose to go with a MEPC-type proposal where one group, one company will do the development, manage and anaintain it. Mr. Billings stated, with that approach, you run the risk that another company will want their own space. MEPC will want to hold onto as much of the land as possible because they make their money by leasing. On the other hand, someone interested in selling all of the property may not be able to move it as fast because they are not going to build unless they have a buyer. There are two distinct concepts, each with advantages and disadvantages. Mr. Meyer stated it seems that the key thing to a successful development is the first tenant. The quality of that first tenant will dr�.ve everything else that happens on that site. Galbreath's idea was interesting in that they say they would focus. If United Properties or MEPC put their sign on a number of properties, they are offering sites around the area. Galbreath stated they focus because they do not have competing sites. No matter what their reason, the net result is that, if they do as they say, they focus and we have veto power. This � JOINT CITY COIINCIL WORR SE88ION AND HOIIBINm 6 REDEVBLOPMENT AIITHORITY MEETINa -- JIILY 17. 1995 PAGE 17 seems to indicated that they may have more success bringinq in that first quality person into the site. Mr. Burns stated staff assessment seemed to be that Galbreath may be the first to get a building in there. Mr. Schneider asked if any had committed to a schedule. Mr. Burns stated no. Mayor Nee stated that is the reason the compensation may become a dynamic. He talked to these peop2e and they all were impressive. United Properties impressed him the most. They have creativity in their approach and the strength. Compensation of 8� for the total project is a fairly conventional number. Any of the three have a lot to recommend. In going to their developments, MEPC is very competent but quite pedestrian. We would however be proud to have them here. Galbreath representatives did not inspire confidence. If you look at United Properties° products, they are very inventive and very.nice. � Mr. Burns stated the references for United Properties are very strong. One concern was that they would delegate the project to the two young gentlemen and the project leadership would fall to Rick Martens. Mr. Casserly knows Mr. Martens well and speaks highly of him. He was not sure with United Properties how much of Dale Doyle's attention and expertise that we would get. If he is who we would have, we will have a good deal. United Properties has the best strength in the development market and have more know how in putting together a project. Mr. Billings stated the numbers for Galbreath as provided are only for a phase 1 and nothing for a phase 2. There was no discussion about compensation for anything beyond that first building. This could be just a one building plan and that could be the end of the relationship. Mr. Casserly stated he thought they were trying to show that it was important that they bring in something that you could accept on the first round. They are gambling that they can come up with a product that we will accept and, as a result, go on with a multi-year arrangement. Mr. Burns stated downside is that are also spread personally leans �'�, strong. � United Properties is the strongest player. The they are likely to delegate some tasks, and they out a bit with their competing projects. He toward Galbreath but felt all three were very � �^� ry � �� JOINT CITY COIINCIL WORR 8E88ION AND HOIISINa & RED�VELOPlalENT AIITSORITY MEETIN� -- JIILY 17. 1995 PAGE 18 Ms. Bolkcom asked if this would be the one and only project if Galbreath were chosen. Mr. Burns stated the danger with Galbreath is that there is more than just office development and Galbreath is trying to create a presence and make money. They will be looking at retail and industrial use. The concern there would be the amount of time diverted to do the�industrial and retail. Last week, Galbreath assured us that, when the retail and industrial component takes off for them, they would bring in more people. Mayor Nee stated the competitive issue applies to all three. Griffin has land all over the Twin Cities as do the others. He did not know what property United Properties had in this area. Mr. Busch stated they represent 80 acres at Northland Park. Mr. Burns stated, regarding MEPC, Mr. Jellison is a very class individual, a good marketer, a good salesman. Mr. Burns was impressed �ith the way Mr. Jellison markets property and thought he would be a strong salesman for the Lake Pointe site. Mr. Meyer stated MEPC would take over the property, build and maintain. That is a very important approach to consider. He was impressed by them and by the fact that maintenance is very important to them and they brought their maintenance person to speak to us. Mr. McFarland stated the fact that MEPC has tenants for years also says something. Ms. Schnabel stated the fact that have a well maintained piece of property and long term tenants says something. Ms. Bolkcom stated the property at I-394 and Hwy. 100 has not been there long enough to speak to their level of maintenance. Mayor Nee stated he did not think MEPC had the dynamics to move the property. If you want a good image, he thought they would want United�Properties. Mr. Billings stated, not having the opportunity to visit the projects and based on the infornaation presented, he felt that Galbreath probably presents the greatest risk from the standpoint that they do not have a track record as a conglomerate. The individual players have good track records. At the same time, they represent the greatest possibility of having a building on that site within a year because they don't have as many pieces of property that they are dealing with and we will be dealing with the principals rather than someone delegated. �„� JOINT CITY COIINCIL WORR 8E88ION AND HOIIBINa & RIyDEVELOPMENT AIITHORITY MEETIN�3 -- JIILY 17, 1995 PAaE 19 Ms. Bolkcom asked if they would have the contacts to do that. Mr. Schneider stated this is a cut throat business and staff may change jobs. How dependent are we on those staff? Mr. Busch stated Galbreath has a good range of contacts. They have been in the market a long time. The organization that Mr. Hoag and Mr. Denney came from was a model for every other real estate company in the Z°win Cities. Their style is iconoclastic. United Properties is very similar. MEPC is conservative, professional, and perhaps a bit slower to move. 6dhat they do is deliberate. Galbreath is more free wheeling, inventive approach is indicated through their enthusiasm and imagination. That is the style of that company. Ms. Jorgenson asked who would be the strongest financially to put a project together. Mr. Casserly stated MEPC has the ability to proceed immediately. They may be in the strongest financial position. He would suspect that Galbreath and United Properties would not proceed unless they can get financing. MEPC is building for themselves. �� When they decide they have enough commitment to build, they can finance and build quickly. Given the amount of investment capital that appears to be in the market, it should not be a problem getting financing if the tenants are there. He did not think that financing in the next few years would be much of a factor and he thought any of these developers would be able to do xeasonably well. Mr. Busch stated the window in the market also applies to financing. It may last one year or perhaps 18 months. N'ow financing is not a problem. There are now companies looking around to see what they can do. Most of them are credit quality tenants. Ms. Jorgenson stated, when speaking of the window of opportunity, of the three presenters MEPC is the most conservative and would probably be the slowest to move. They want a 70o pre-lease commitment before building. Is it going to take weeks to get a project through their office? Mr. Busch stated, when they have a deal, it all happens very quickly. Mr. Commers stated none would develop until they have the first building 70� pre-leased. He did not see a difference. �� Mr. McFarland asked if a performance bond or letter of credit was � out of the question. �� , ---.,, � JOINT CITY COIINCIL WORR SEBSION AND HOIIBING � REDEVELOPMENT AIITSORITY MEETINa -- JIILY 17. 1995 PAaE 2Q Mr. Busch stated he would say so. The approach to development has changed. Much is now driven by the financial institutions. Most developers would build with a 50� commitment. Banks don�t want to go through what they did before and they now want 70� pre-leasing. The cost of money is virtually the same for everyone. The plans are similar for everyone. Very few developers today will commit themselves to buying land to hold. Those who did previously suffered in the last five or six years. Mr. McFarland stated, on the criteria for the developers, United Properties lists the cost as reimbursement for the land and marketing plus 8� sales commission on land sales. If the land will be going for nothing, how can there be a commission? Mr. Burns stated this should be reimbursement for land marketing. They want some reimbursement for their marketing plus a commission. Mr. Burns asked if inembers felt they were ready to make a decision. Mr. Billings stated he thought the first question was whether this was the direction they wanted to go and if we wanted to work with one of these developers. Mr. Commers stated the issue is which one addresses the most factors that we think are favorable. All are capable and can do the job. Mr. Schneider asked if the splitting of the property into parcels would have benefits as opposed to having one owner/developer/ maintainer of the property. Ms. Dacy stated, if evaluating the three under that particular item, she personally would tend toward MEPC or United Properties. They take a master plan concept and go to the user. Someone else may think it important to get a building in as soon as possible. Mr. Schneider stated he was not keen on throwing out the plan they have to the first one who comes along with plans for an office building. Ms. Bolkcom stated she was impressed with United Properties in that they were interested in what the public and private sector had to say. Mr. Schneider stated, if he were to rate the developers based on his impressions, he would rate United Properties first, MEPC second, and Galbreath third. ^ JOINT CITY COIINCIL WORK 8E88ION AND HOIISINa � ` 1�EDEVELOPMENT AIITHORITY MEETING -- JIILY 17. 1995 PAaB 21 Mr. Burns stated he would not hesitate to recommend United Properties. Mr. Casserly knows Mr. Martens and Mr. Burns asked for his insight. Mr. Casserly stated Mr. Martens had his own development company for some time. Mr. Martens did a very nice project in New Brighton some years ago which worked out favorably. Mr. Casserly worked with him on a project in Edina and found Mr. Martens to be extremely careful. He was not aware of any project on which he has lost money. He ended up getting involved with another person who needed some watching and Mr. Martens ended up pulling out of several deals. He does have a high level of integrity and knows financing extremely well. Development is picking up. Mr. Casserly would suspect United Properties and Mr. Martens sought each other out. If Mr. Martens is told that there is a certain plan that you want designed, he will study that and get all the nuances. He is detail oriented, steady, and a very honorable person. That speaks well for United Properties. Ms. Schnabel thought it interesting that United Properties touched on including residents in the development where she did ,� not get that impression from the others. Mr. Commers stated United Properties turned back some projects. Mr. Busch stated he thought they, like other developers, had some projects that they deeded back during the recession. They were heavily into development during the 1980's and, he believed, they are still part owners in half of the properties they represent. They play a fairly significant role as owners. I�iany good developers had to give some things back that were not profitable. There was a time when values dropped very rapidly. Mr. Billing stated he would cast his vote for MEPC. Ms. Jorgenson stated it is a difficult decision. She liked United Properties° willingness to work with the neighborhood, but it scared her when they said cinemas. The neighbors have said they want something that operates from 9 a.m. to 5 p.m. She kind of liked MEPC also. She liked the idea of one company having control over what is going to happen there and they will be maintaining the property. She is concerned with the amount of retail space at Minneapolis West because there is a lot of restaurant space. They have catered to people coming off I-394 in the area. She does not want to see many restaurants at Lake Pointe. ,'"� Ms. Bolkcom stated she liked United Properties. � JOINT CITY COONCIL �ORR SESBION AND 80IISING & REDEVELOPMENT AIITHORITY MEETINd -- JIILY 17. 1995 PA�E 2$ Mayor Nee preferred United Properties. He did not think the structure of MEPC would make it move quickly. There is no reason why they should make it move. Mr. Meyer preferred United Properties. They have a strong presence in the Twin Cities including properties they manage in Minneapolis and St. Paul. They know the territory. He knows of several buildings they have done and they are A-1 operators on those properties. Regarding MEPC, he is not opposed to them, but thought they should have more discussion on their mode of operation. MEPC has a different operation. He did not feel that strongly about it. For those that favor MEPC, are you looking at the personality of the company or the method of controlling the property as more important. Mr. Prairie and Mr. McFarland preferred MEPC. Mr. Schneider stated his first preference was United Properties. Ms. Schnabel preferred MEPC. „_,� Mr. Commers stated, while anyone could do the project, he would support MEPC. Mr. Burns stated, in response to Mr. Meyer, MEPC is more focused on leasing and owning. They are more interested in building and operating which is a slower approach. United Properties is more flexible with owning or building to suit. MEPC has a relatively small staff here and have a commitment to building a tower in the St. Louis Park area. This may be something to consider. Mr. Commers stated the answer seems to be to put them on a short time frame. If they don't have anything done in nine months or a year, we walk away. We run the risk that the market may change. It just depends on what happens in the next year. We know that the market is under-developed at this time and will continue to be under-developed because there are no big projects on the board. Nothing will be built until 1996. He was not sure what the risk would be if nothing can be built until 1997. The solution is to put everybody on a short leash and, if they don't produce, you have to move on. Mayor Nee stated the problem is what drives them and how it shuts out 80� of the deals that are going to be made. United Properties and Griffin have access to just about every deal that is going to be cut. While MEPC may have contacts, they do not have the kind of contacts that brokerage firms have. With that '"'� kind of structure, you are cutting access to a large part of what y might happen. iie is uncomfortable with having one board of directors calling the shots on this project. � JOINT CITY COIINCIL WORR BESSION AND H008INa & REDEVELOPMENT AIITHORITY MEETING -- JDLY 17. 1995 PAt3E__23 Ms. Bolkcom asked if they would accept a shorter agreement. Mr. Burns stated he was not sure they would. They have said, if they are going to invest what they say they will, they want two years. Mr. Commers felt it was all a matter of negotiations. Ms. Jorgenson stated the City needed some type of escape clause in the development contract so we can get out if the developer is not performing. Mr. Burns stated he was hearing the group stating a preference for MEPC. He suggested staff put together a rough outline of a counter proposal which includes performance incentives and an escape clause. We can come back and look at this at a separate meeting. Mr. Casserly stated there are many different ways to approach. Everyone has hit on the fundamental issue which is whether you are comfortable with having one company to build for tenants or are you going to have someone who has multiple options and '�� multiple users. Ms. Bolkcom asked how long MEPC had been marketing the other tower. Mr. Busch stated he thought they had come to the market in the last eight months. Mr. Burns stated he would come back with a plan before negotiatinq. Mr. Casserly stated they would put together a concept for approval and draft an agreement around those concepts. 3. CONSIDERATION OF DENSITY AND STREET LOCATION ISSUES AND IMPACT ON COST OF SOUTHWEST OUADRANT Ms. Dacy stated the first issue is to look at three options for the northeast corner of the development site. These options are: 1. Maintain the 48 units of senior condominiums at an additional cost to the HRA of $885,839. 2. Eliminate the senior housing and add 24 additional townhome units. There would be no additional cost to the HRA. 3. Substitute an 80-unit market rate senior apartment building '� in place of the 48 condominiums. There is an additional � $277,073 required for this option. � JOINT CITY COIINCIL WORR BESBION AND HOIIBINa & r�' REDEVELOPMENT AIITHORITY MEETIN(� -- J�LY 17. 1995 PAaL 24 Ms. Dacy stated she tried to identify important criteria to consider including the total number of units, project density, total amount of taxes to be generated, the taxes per unit, the project value, and the net cost to the HRA. Option #1 with a density of 146 is consistent with the original plan for owner occupied units. Because of the construction costs of the condominiums, it will add to the costs for the HRA. Option #2 produces the lowest density, the highest taxes per unit, and is also the cheapest alternative. The units proposed would be two- story. Ms. Jorgenson asked the cost of a one-story unit compared to the two-story townhome. Ms. Dacy stated the one-story would cost approximately $90,000 to $110,000 compared to $120,000 to $130,000 for the two-story. Mr. Commers asked why there was such a difference in the costs for the rental apartments versus the condominiums. Ms. Dacy stated there are several factors in the cost. The design of the condominium building is such that there are six '^` units per floor accessing off of one hallway as opposed to an apartment building where there are double the number of units accessing off of one hallway. With apartments, you can amortize the construction costs over a greater number of units. Also, the size of the condominiums are bigger than what you would find in the marketplace. The costs came back such that, if they were to market these at $80,000 to $100,000, this price would be the same as the cost to build the units. In order to get the usual mark up, they would have to sell each unit for $110,000 to $120,000. In order to write down the cost, the land would end up being conveyed to them for no cost. Ms. Bolkcom asked why this had not been checked before. Ms. Dacy stated, because of the design and size of the units and havinq two separate building, she thought Rottlund simply did not anticipate those costs. This is a new housing type for them. She thought Rottlund still believed in the condominium market but that they under estimated the costs. Mr. Meyer asked if the City had requested some amenities that increased the cost. Ms. Dacy stated the only additional element beyond the original design guidelines was for more brick in the facade. She did not � think the design elements were the issue. JOINT CITY COIINCIL RORR BESSION AND 80II8INa & �� REDEVELOPMENT AIITHORITY MEETINd -- JIILY 17. 1995 PAaE 25 Mr. Commers asked if Rottlund could reduce the size to a smaller condominium. Ms. Dacy stated the other option Rottlund looked at was having one 32-unit building which, in terms of economics, would fall between option 1 and 2. There still will be additional costs. Staff has presented the above three options because they express continutun of the original concept which is the direction rec�uested in discussion with the City Council. Mr. Meyer stated one key question to him is what to do about seniors in the development. Option 2 eliminates them. Option 1 does one thing and option 3 does something a bit differently. What do we want for our seniors? If we want them included, do we want rentals or condominiums? Ms. Dacy stated staff recommended the senior element is important and the market demand was there for either condominiums or rentals. The interest has been in the empty nester townhomes and the senior elemente Ms. Bolkcom asked if staff had checked to see if seniors were '� willing to pay rents of $500 to $600 per month. Several elderly people stated to her that they were not interested in renting. Mr. Schneider asked why the townhomes could not be single level for seniors. Ms. Jorgenson stated that would also get into the size of the units as well. Ms. Dacy stated one issue is density and another is to address the housing issue. The one-story need has been addressed. If there are to be additional one-story in the northeast corner, it drives the economics and the figures may go up. Single story townhomes may mean a lower density. Ms. Schnabel asked who would own the senior rental building. Ms. Dacy stated Rottlund would still be the main player in the development agreement but the building would probably be sold eventually to another company. Mr. Casserly stated Rottlund would be the overall developer. Common Bond is a non-profit entity would be the owner/operator/ manager. "� Ms. Jorgenson stated the Maxfield study identified some additional senior housing that was needed. Was that fair market y or subsidized housing? JOINT CITY COIINCIL AORR SESSION AND HOIIBINa � REDEVELOPMENT AIITHORITY MEETIN(3 -- JIILY 17. 1995 PAaL 26 Mr. Dacy stated, as she recalled, there was an overall unit demand of 200-400 in the immediate five years. The study was written in 1991. There was no differentiation between subsidized or market rate. We could build subsidized low income housing and there will be a market. Ms. Jorgenson stated she thought there was a market for senior housing that is market rate. Mr. Commers stated there is a big market there, and he did not see how they could not do a senior housing project of some kind. Mr. Prairie stated that, instead of 76 rental units, 48 would be the same as option l. Would that work? Ms. Dacy stated they could build a smaller number of rental units but staff were trying to maximize the density on the site. Mr. Prairie asked, if the density was 146, what would be the additional cost. ^ Ms. Dacy stated � to maximize the still $277,000. up. it would be wise to maximize the density in order taxes. At 76 rental units, the net deficit is With fewer rental units, this number would go Mr. Meyer stated the density in the detached townhome area will still be less. Option 1 may be desirable. The original plan has two four-story buildings. A four-story building drives up the cost but we get some lower density in the rest of the development. He is concerned that, if you try to pack this° corner with units, you may be creating a modern slum down the line. Something that gives more graciousness will enhance this project in the long run. Construction requirements for four story buildings are different that for three story buildings. Mr. Billings stated one reason for the additional cost for the condominiums is the size of the units as they were designed. What would happen if these units were redesigned to be a bit smaller? Mr. Casserly stated there is the issue of the underground parking space required to maintain the units. There was some logic behind the size of the units. Ms. Schnabel asked what would happen if, instead of 48 condominium units, they went to 36. Basically, this is taking ^, off one floor. Going to four floors boosts the cost of �, construction. What would this do the project financially? ,.,� JOINT CITY COIINCIL WORR 8E88ION AND HOIIBINa & REDEVELOPMENT AIITHORITY MEETINa -- JIILY 17, 1995 PA�E 27 Ms. Dacy stated there are an infinitive number of options. If you want to keep the condominiums but want something less than what was in the original plan, staff would have to go back to them. Mr. Commers asked if the proposal under option #3 could not be done as a condominium approach. Mr. Casserly stated the numbers were arrived at by trying to work with the sales prices and the amount of tax increment generated for the life of that district. In order to build rental units, they wanted $78,000 per year in tax increment assistance. For us to compare that with options 1 and 2, they took the present value of $78,000 for the life of the district and brought it back into 1996 dollars. Under option 3, one of the additional uses of funds is about $530,000 for tax increment assistance. That represents the amount of money they said they needed over a period of time so they could build the rental units. That is how they arrived at $277,073. That cost may not exist at the beginning, It would come out of the taxes generated on the site. Each option is trying to compare the cost at some moment in time. ��` Mr. Casserly stated apartment financing is a complex mechanism. These are apartments that will rent from $525 to $625 with a per unit cost of over $60,000 per unit. This will not work so subsidies are built in to bring down the rents to that level. Assuming you can get all that financing put together, it is certainly a doable project. It works for seniors because many will qualify for the low to moderate guidelines which must be met to qualify for financing. On this particular site, we will be looking at seniors only. Ms. Jorgenson asked if there was a law that you could not strictly limit this to seniors. Mr. Casserly stated you can limit to 55 and older and there is a mechanism where it can be opened up. There is enough demand where this is not an issue. Ms. Dacy referred to the question of looking at 36 units and what that would do. Staff can take a look at that. Staff are trying to present options. She is hearing a preference to look at what it would take to keep the original plan. The price tag to do that is $885,000+. If this is not acceptable, then you must look at options. There was also comments about increasing the density which is the rental option. If you want to look at an option in between, staff can do that. It just comes down to the cost. ,r� .� Mr. Meyer stated he personally wants a lower density. � JOINT CITY COONCIL WORR 8E88ION AND 80II8INa � REDEVELOPMENT AIITHORITY MEETING -- JIILY 17. 1995 PAaE 28 Mr. McFarland stated there is a difference of approximately $500,000. How long would it take to repay the HRA? Ms. Casserly stated the HRA would not recover this. Part of the package worked because the City Council suggested making a low interest loan to the HRA for some of the costs. Adjusting that interest rate will adjust some of the option costs. Mr. Casserly stated there may be an element of a windfall. If you pursue option 1 or a variation, there will be people who will be buying condominiums for $90,000 whose costs are $115,000 to $120,000. What happens over a period of time if the market improves? There should be an opportunity for the HRA to recover some of the investment. He thought Rottlund had a grand idea and wanted to do what they said, but he did not know if they had ever built a condominium building. That is the crux of the problem. Ms. Dacy stated where the money comes from may be a policy issue. There are park fees that could be evaluated by the City Council and SAC fees that could also be evaluated. There are savings that could be wrapped back into the development costs. �� Ms. Jorgenson asked if the City Council had ever waved these fees for any other development? She did not want to set a precedent. �� Ms. Dacy stated she thought this was a policy issue that the City Council needed to establish. Mr. Commers asked, if Rottlund does not have a lot of experience on this, did they think the City should consider someone else. Mr. Casserly stated Rottlund is acting as a master developer. They are doing all the site preparations, installing the public improvements, and putting in the amenities. They are responsible for the entire site development. He would like to keep them responsible to insure the development on this site. Ms. Schnabel asked if they could try something to reduce the dollar amount. Ms. Dacy stated they can do that. Another factor is the timing and how fast you want to market. Rottlund has indicated, if the cost issue is not there, they can go with the 48 condominium units. They felt the size of the unit at the $80,000 range fit the market, but they felt uncomfortable marketing the unit at a higher price. They feel the design of the one-story units will drive a higher cost and a different type of market. Mr. Burns suggested staff go back and look at a three-story, 36 unit building and try to stay within a$500,000 deficit. The JOINT CITY COIINCIL WORK SESSION AND HOIISINa & �' REDEVELOPMENT AIIT80RITY MEETINa -- JIILY 17. 1995 PAaE 29 buildings can still be condominiums. It is reasonable to try to work in that direction. Mr. Commers stated, if you do that, it will cut down on the taxes. What would 12 less units do? It seems that cutting units will keep the deficit high. Ms. Dacy stated what you are gaining by reducing the units is that you are getting some of the land sales back. The deficit may not go up. Mr. Casserly stated they need to have made clear what the cost savings would be for a three-story structure. Mr. Burns stated it seems clear that this group does not want a senior highrise rental. He is hearing objections to addition single family townhomes. It seems like we are back trying to make the condominiums work. We do not have all the information we need on 36-units. He thought, for lack of something better, that is a reasonable parameter for•staff to work within. � Ms. Schnabel stated she did not think they really knew whether the senior preferred rental units or to buy. Mr. Prairie stated he thought there were both. He did not think that was a probleme Mr. Burns stated staff will try to obtain as many units between 32 to 48 with a$500,000 limit and see what that will do for us. Mr. Casserly stated it would be good to go back to Rottlund to maximize the units with the lowest subsidy. Ms. Jorgenson stated the City Council has a public hearing next week and we don't know what we are doing yet. Ms. Dacy stated it sounds you know what you are not doing. You are not doing the single townhome units or the senior rental. You want a senior housing element and an owner-occupied element. Mr. Casserly stated that portion of the site can be reserved for senior condominiums. The question is how many can be put there. Whatever the number, we can work to the best advantage. Ms. Dacy stated the next issue is the design of the 3rd Street intersection on Mississippi. These costs have been included in the options previously discussed. She will identify the pros and -'"'�, cons of the keeping the existing intersection or to shift the intersection 35 feet to the east and shift the Holly Center ' driveway 35 feet to the east as the developer has proposed. In ,� JOINT CITY COIINCIL WORR 8E88ION AND HOIIBINa & ' REDEVELOPMENT AIITHORITY MEETINC� -- JIILY 17. 1995 PAC3L_ 3Q order to do what the developer wants, Anoka County will require a number of improvements to the Mississippi Street right-of-way costing approximately $162,000. Ms. Dacy stated, if you eliminate costs as an issue, the proposed alignment does meet as many safety and design criteria as possible. It also aligns the intersection for the long term. It aligns the intersection for a possible future traffic signal. Despite the costs, staff feels the proposed alignment will be the safest in the long run. Mr. Meyer asked how one would make a left turn into the development travelling west on Mississippi. Ms. Dacy stated the developer would have to create a protected left turn lane and would have to construct a protected left turn lane into the Holly Center as well. The County is saying this area is a wide area of pavement and, with no protected improvements, there is the potential of an unsafe intersection. However, the County does not feel improvements are necessary at 2nd Street. If the road into the development shifted to 2nd , Street, there would be no need for improvements. ; � Mr. Commers asked what the difference would be in cost. Ms. Dacy stated the costs would be none at 2nd Street versus $162,000 for the proposed alignment of 3rd Street and Holly Center. In the budget, $115,000 had been allocated for the construction of 3rd Street, but Rottlund is proposing to construct 3rd Street and then the street would then be dedicatec� as a public streete • Mr. Meyer asked why the City is being charged for the protected turn lane. He felt the County should have done this when the street improvements were made. Ms. Dacy stated, when the reconstruction took place in 1991-92, the City showed 3rd Street coming out further west. The County also had gotten comments from residents living to the north of that intersection. From the County's perspective, they saw the long term street to the west and the current 3rd Street as temporary to service the liquor store in its current location. Mayor Nee asked if there was any documentation on the quid pro quo when the City gave the County the land. He understood the City had a written agreement that the County would pay for a signal there when the City was ready to install a traffic light. n Ms. Dacy stated she was not aware of that. The County is saying � they will not pay for a stop light unless the warrants are there. � JOINT CITY COIINCIL pORR SESSION AND HOIISING & REDEVELOPMENT AIITHORITY MEETING -- JIILY 17. 1995 PAC,iE 31 She will check further on that. There is on file a joint powers agreement and there was no commitment on the County's part. Ms. Schnabel asked if Holly Center would pay for some of the costs. Ms. Dacy stated yes. She also thought that Rottlund and Holly Center would share some of the costs. Mr. Burns stated staff is asking to agree with the design. If we go with the realignment requiring the County improvements, we will try to get Holly Center, Rottlund and the County to share the costs. Ms. Jorgenson asked how the neighbors felt about the realignment. Ms. Dacy stated residents attending the Planning Commission public hearing expressed preferences for the intersection at both the 2nd Street and the proposed locations. The Planning Commission reviewed a number of options along with the comments and decided on the realignment as is being presented. Both � neighborhoods have been notified. Ms. Dacy stated the next issue is the concern expressed by the City Council that persons approaching this intersection would perceive this street as a short cut rather than a connection to the neighborhood to the south. Staff looked some options with the developer. They talked about cutting the street in half, calling the streets private streets. The simplest solution seems to be creating an elevated barrier at Satellite Lane and 3rd Street to force traffic to make several turns in order to go through the development. The other suggestions would bring traffic through other housing areas. Therefore, staff looked further at this design keeping in mind access for fire and emergency vehicles. The City could post a sign that says "ATot a Through Street"e Ms. Jorgenson stated that one of the things talked about at the NLC conference was similar to this fire lane option where other communities put a up a gate where emergency vehicles can tap it and it opens. Unfortunately, when people become aware af this, they will also tap it and the gate will open anyway. They had a number of options of how to handle fire lane options. Staff may want to look at some of those materials. Mr. Burns stated there are pavers they can use which are blocks with holes in it where the grass can grow through. � � Ms. Schnabel asked, if using pavers, would there be a noise from driving over it that would be irritating to adjacent homeowners. ^ JOINT CITY COIINCIL AORR SESSION AND HOIISING � ' REDEVELOPMENT AIITHORITY MEETING -- JIILY 17, 1995 PAaE 32 Mr. Billings stated this should only be emergency vehicles driving across that area. Another option would be to make 3rd Street a one way street north bound only from Satellite to Kasota Court . Mr. Commers asked if the object was to keep people from going through there. Ms. Dacy stated yes, and also to reduce speed. Staff is asking for authorization to look at this as an option to create some type of a dead end at 3rd Street and Satellite and still maintain emergency access. Ms. Bolkcom stated she thought they should listen to what the public has to say at the public hearing before making a decision. This is impacting others besides this development. Ms. Dacy stated she agreed. This would be fully discussed during the public hearing. It is on the agenda to get input from both the City Council and HRA in terms of costs of the intersection and because this is an item of concern. � Mr. Meyer asked what options were there to get people in an out. If the intersection is moved to the west, then the houses toward the west are isolated from the others and you have a thoroughfare coming through the development. He did not see a lot of choice. Ms. Jorgenson agreed that they needed to talk with the residents before going further. Mr. Billings stated, if it was up to the developer, there would be no access to Sylvan Hills. The reason there is an access to Sylvan Hills is that the residents have said they need to get out of their neighborhood to go north. The people on the south end of Sylvan Hills are not happy because trucks now use Sylvan Hills as a short cut to get to Main Street. We are trying to find a way for the people who live on the north edge of Sylvan Hills to be able to get in and out of the neighborhood to the north. It will have to be circuitous in order to appease the people to the south to reduce traffic. Ms. Dacy stated there is also the option of shutting off the southbound rampo Ms. Dacy stated the options would be presented at the public hearing along with the recommendations of the Planning Commission. The City Council can then provide feedback and make � a final decision. � JOINT CITY COIINCIL WORR 8E88ION AND HOOSINa & �� REDEVELOPMENT AIITHORITY MEETINa -- JIILY 17. 1995 PAt3E 33 Mr. Meyer stated he thought a left turn lane was needed for people coming in to the development and there should be a left turn lane into Holly Center for traffic coming from the west. Who pay for it is secondary. Mississippi Street collects a lot of traffic east of University. Mississippi is a main east/west road. Ms. Schnabel stated it seems that people living in the development will access Holly and will want to get back and forth across the intersection. She thought the alignment was safest for that access. She would like to see a signal there. Mr. Commers asked if there was any objection to leaving the decision up to the City Council after the public hearing. To him, the worse scenario with this is the cost. Ms. Dacy stated the difficult part is the fact that this development will generate less traffic than the traffic that is there today. In spite of the fact that the traffic would be decreasing, the City is beinq required to add improvements. Mr. Commers stated the consensus of the HRA is to give the City �� Council authority to spend up to $167,000 for the intersection improvements if necessary. 4. CONSIDER ACOUISITION OF 380 - 57TH PLACE FOR TRANSITIONAL HOUSING SERVICES. AND CONSIDER MANAGEMENT AGREEMENT WITH ACCAP TO MANAGE AND OPERATE TRANSITIONAL HOUSING SERVICES Mr. Commers stated the issue with this item is the ownership. Mr. Burns stated they have eliminated any costs associated with ownership. We are a vehicle allowing this source of funding to take place without any cost or obligation. Mr. Commers stated there is a liability, unless ACCAP wants happens on property. legal obligation and there could be to indemnify the HRA if something Ms. Dacy stated the agreement include indemnification and the insurance requirements. Mr. Hoeft has reviewed the agreement. Mr. Casserly stated ACCAP has agreed to indemnify the HRA. This is a very broad indemnification statement. The limits of their coverage can be investigated. Mr. Billings stated the County is not interested in owning this �� building, but they will do it. At the June meeting of the County HRA Advisory Committee, he brought up the fact that the City was " not keen on having the County own because of the possibility of JOINT CITY COIINCIL WORR BEBSION AND HOIIBINa & �' REDEVELOPMENT AIITHORITY MEETING -- JIILY 17. 1995 PAGB 34 being subject to a special levy that the County ffi2A might do. He was told the County had no intention of doing a levy. At the next meeting, the subject of the levy was on the agenda. This is one of the concerns of the City Council. If the County HRA is active in the City, then the City would be subject to a levy. Ms. Dacy stated staff recommended the County own the building. ACCAP has now taken away some of the financial risks. They are willing to pay the real estate taxes, provide insurance, and be responsible for filling the gap if we had to sell the property in the future between MHFA approval and the sale price. This also adds affordable housing units. Mr. Commers stated the HRA is not responsible for ad valorem real estate taxes. HRA property is not subject to tax. They are supposed to collect taxes from the user of the property as personal property tax. Mr. Billings stated ACCAP will pay the City the City's portion of the taxes. The County and the school district will not get their taxes because it is tax exempt property. ��, Mr. Commers requested approval subject to ACCAP increasing their � insurance limits and subject to City Attorney approval. MOTION by Ms. Schnabel, seconded by Mr. McFarland, to approve the acquisition of 380 - 57th Place for transitional housing services, and approve the Property Management Agreement with ACCAP to manage and operate transitional housing services, subject to ACCAP increasing their insurance limits and subject to City Attorney approval. ,� � IIPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMER3 DECLARED THE MOTION CARRIED IINANIMODSLY. CONBENT AC�iENDA • 1. 2. 3. Approval of Minutes: June 8, 1995 Authorize Acquisition of 5924 - 2nd Street N.E. Establish Public Hearing for Disposition of Lot 4, Block 1, Scherer Addition 4. Consider Amendment to Contract with Whitney Homes 5. Service Contract with ACCAP for Administration of HOME Rehabilitation Program JOINT CITY COIINCIL �ORR SESSION AND HOIIBINa & REDEVELOPMENT AIIT80RITY MEETING -- JIILY 17. 1995 PAa$ 35 Mr. Fernelius stated this item would approved by resolution. 6. Monthly Housing Report 7. Revenue and Expenses Mr. Ellestad provided copies of additional expenses. MOTION by Mr. McFarland, seconded by Mr. Prairie, to approve the HRA minutes of June 8, 1995; to authorize acquisition of 5924 - 2nd Street N.E.; to establish a public hearing for disposition of Lot 4, Block 1, Scherer Addition; to approve an amendment to the contract with Whitney Homes, to approve a Resolution Authorizing a Service Contract with ACCAP for Administration of the Home Improvement Grant Program; to receive the Monthly Housing Report; and to approve check register #25577 through #25633 plus additional expenses as contained in the July 17, 1995, memo from Mr. Ellestad for a total of $3,689.02. IIPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED T8E MOTION CARRIED IINANIMOIISLY. ^� ADJOURNMENT: OM TION by Ms. Schnabel, seconded by Mr. McFarland, to adjourn the meeting. IIPON A VOICE VOTE� ALL VOTING AYE, CBAIRPERBON COMMERB DECLARED THE MOTION CARRIED AND THE JIILY 17, 1995, 80II8INO AND REDEVELOPMENT AIITHORITY MEETING ADJOIIRNED AT 12s26 A.M. Respectfully submitted, .�lli" % � /�� Lavonn Cooper Recording Secretary ,� �