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HRA 10/10/1996 - 29791CITY OF FRIDLEY HOU3ING � REDEVELOPMENT AUTHORITY MEETING OCTOBER 10, 1996 CALL TO ORDER: Chairperson Commers called the October 10, 1996, Housing and Redevelopment Authority meeting to order at 7:35 p.m. ROLL CALL: Members Present: Members Absent: Larry Commers, Virginia Schnabel, John Meyer Jim McFarland, Duane Prairie Others Present: William Burns, Executive Director Barbara Dacy, Community Development Director Jim Casserly, Financial Consultant Grant Fernelius, Housing Coordinator Craig Ellestad, Accountant Richard Erickson, Appraisal Eng. Bureau APPROVAL OF SEPTEMBER 12, 1996, HOUSING AND REDEVELOPMENT AUTHORITY MEETING: MOTION by Ms. Schnabel, seconded by Mr. Meyer, to approve the September 12, 1996, Housing and Redevelopment Authority minutes as written. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON CONIlr�RS DECLARED THE MOTION CARRIED UNANIMOU3LY. CONSENT AGENDA: 1. REVENUE AND EXPENSES Mr. Ellestad distributed copies of his memo of October 10, 1996, listing additional expenses to be approved and the revised check register. 2. 3. CONSIDER APPROVAL OF AGREEMENT FOR ADMINISTRATIVE SERVICES FOR HOME PROGRAM, CEE APPROVE RESOLUTION TO DECERTIFY PORTION OF PROPERTY LOCATED AT 533 JANESVILLE STREET N.E. MOTION by Mr. Meyer, seconded by Ms. Schnabel, to approve the Consent Agenda. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COI�RS DECLAFiED THE n MOTION CARRIED UNANIMOUSLY. � � HOUSING_b REDEVELOPMENT AUTHORITY MEETING, OCTOBER 10, 1996 PAGE 2 Mr. Commers stated the Financial Statement for 12/31/95 was � included in the agenda. He asked if there was a way to get this statement prepared sooner. Mr. Ellestad stated the review process is long. The statement was returned from the auditor on June 5. ACTION ITEMS: 4. CONSIDER PROPOSAL FOR PAYMENT OF TAX INCREMENT NOTE; RYLUND PROPERTIES Ms. Dacy stated the valuation of the tax increment district had gone down. When the district was created, it was producing increment. Based on Mr. Casserly's research with Anoka County, the HRA accumulated approximately $21,000 in 1991 and 1992. Subsequently, there was a downward trend in the value of property in the district; consequently, the increment fell below the original tax capacity. Because the pay-as-you-go financing is a small amount and because the developer has completed the improvements, staff recommends the HRA go ahead and start paying on the note using the revenue accumulated in 1991 and 1992. In the year 2000, staff hopes the district will be producing increment. Because of the small amount involved, it will be easy for the HRA to use revenues from other districts that are in place. Ms. Dacy stated staff's recommendation is for the HRA to authorize staff to initiate payment on the note as agreed in the pre- development contract up to $21,000. In the year 2000, staff will revisit the status of the district and report back to the HRA. Then, the HRA can draw on other funds if you so wish. Mr. Commers stated the payments would be $6,000 per year so the HRA could pay for three years based on the $21,000 collected in 1991 and 1992. Ms. Dacy stated this was correct. Ms. 5chnabel asked what happens when said payment is to begin August 1, 1996. Ms. Dacy stated staff did not pay. The way the district is written the HRA does not legally have to pay unless the district produces income. If approved, the payment would be in place of the August payment. Mr. Casserly stated the payment should be made as soon as possible. Technically, there is no tax increment. The HRA needs to authorize � the payments. This resolution would authorize the HRA to make payments on the note from other sources and from already existing HWSING 6 REDEVELOPMENT AUTHORITY MEETING, OCTOBER 10, 1996 PAGE 3 � income already generated. The issue is not the ability to make payments. The issue is whether the HRA wishes to make the payment. This fits into one of the peccadilloes of tax increment. It has nothing to do with the project or with Mr. Lund. They built what was agreed to and more. If the property were in its own tax increment district, it would actually generate $12,000 to $16,000 per year. Our payments on the note are $6,000 per year. Mr. Casserly stated what actually happened is very curious. After certifying the di�trict, Anoka County was concerned about the Onan property and hazardous materials. In order to pre-empt the County, they created parcels which they assessed at "0" market value to prevent forfeit. If the property is forfeited, it goes to the County and they have concerns about who is responsible. The County took the initiative to create a"0" market value and reduced the value of adjacent parcels. In doing this, the valuation of the district decreased by $15 million. The district has less market value now than when it was certified in 1988, Now the value is coming back up. Mr. Casserly stated this is a very unusual situation. There is no conceivable way that you could explain it to a user or participant with a revenue note. While you are legally correct to not pay it, ^ it is very clear that it is the function of very unusual circumstances. That is why he and staff are recommending it be paid. If the value continues to climb, the district will generate increment in the future. Mr. Commers stated he would imagine it is a necessary provision to protect the development agency. In the event the HRA did not have any other funds, the HRA would not be in a position to pay it. Mr. Casserly stated the other agreements have the same language. The reason the issue does not come up very often is because, if you create very small districts, the user is in their own district. If no increment is generated, it is because they are not paying taxes. That is not the case here. The user put substantial value on the parcel. It is the rest of the district that has weighted it down. Given the fact that the district generated increment in the past and will in the future, he would advise the HRA to make payments on the note. Ms. Dacy stated the major argument that led staff to recommend approval is that the builder did do as agreed. If other parcels had retained their value, it would be generating income. Mr. Commers asked if the builder had asked for this. Ms. Dacy stated yes. Staff recommends the HRA pay $3,089 now with �""� the next payment in February 1997. HOUSING � REDEVELOPMENT AUTHORITY MEETING, OCTOBER 10, 1996 PAGE 4 � Mr. Commers stated this recommendation is not to say that, if the district is not producing tax increment in the year 2000, we are not committed to borrowing funds at that time. Ms. Dacy stated the HRA can revisit the issue at that time. If the HRA wants to dispose of the whole item, you could use funds from other districts. If you want to revisit the issue in the year 2000, you can do so. It may be a non-issue by that time. Mr. Commers stated the HRA should review the issue again before borrowing from other districts. MOTION by Mr. Meyer, seconded by Ms. Schnabel, to authorize staff to iitiate payment on the tax increment note as agreed to in the 1994 redevelopment contract up to $21,000 or three years; and then the item is to be reviewed to see if the payments should be continue and if the HRA decides if they wish to borrow from another source. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON CONIl��RS DECLARED THE MOTION CARRIED UNANIlKOUSLY. INFORMP,TION ITEMS • � 5. DISCUSS SCATTERED SITE ACQUISITION APPRAISAL PROCESS Mr. Fernelius stated, at the last meeting, several issues were raised about the appraisal process. In reviewing the minutes, the principle issues appeared to be 1) the appraisal process, 2) what is going on in the Fridley housing market, and 3) whether code enforcement could be used to address the problem. Mr. Fernelius reviewed the objectives of the scattered site program which include removing slum and blight; revitalizing neighborhoods and promoting safe, healthy, and attractive housing; stimulating private activity and investment; encouraging a balance of the housing stock; and stabilizing and improving the tax base. Mr. Fernelius stated, in terms of code enforcement, the City has used the hazardous building act in some instances. It has been applied primarily to vacant or abandoned properties. If the hazardous building act is used, the owner still has the ability to repair the property. Using the hazardous building act and condemnation does not get at the issues of functional obsolescence, or issues of design and marketability, etc. Mr. Fernelius stated he and Ms. Dacy met with the HRA's contract appraiser and the City Assessor. They provided some information on what has been happening in the Fridley market. The data they � provided is a comparison of the first 6 months of 1995 and 1996. � HOU3ING b REDEVELOPMENT AUTHORITY MEETING OCTOBER 10, 1996 PAGE 5 � There were 88 units sold last year with an average list price of $98,495. In 1996, 123 units were sold at an average list price of $106,000. The sales price has gone up from $95,000 to $104,000 in one year. The median price in 1995 was $92,750 and in 1996 is $94,500. There was a slight decrease in the average number of days that a property is on the market. Mr. Fernelius stated there are very few home sales in the price range below $70,000. Since January 1, 1996, only 10 sales out of 169 that were below $70,000 and only 5 of those were below $55,000. Mr. Fernelius stated there was a question raised about how the value for tax purposes relates to the market value. The assessor indicated that, based on sales data, the market values are in excess of actual tax values by about 15�. Mr. Fernelius stated, in the scattered site program, we have acquired 16 homes in the last three years. The range in price has been from $18,000 to $61,000. The average appraised value has been $43,000. We are looking at small homes - 718 square feet in size. Many of the homes are one or two bedrooms. There has been about a 50/50 split between buildable and non-buildable lots. ^ Mr. Erickson provided some handouts on sales activity in the City of Fridley, the appraisal process, and a completed appraisal. They subscribe to a sold listing service which provides information on all sales in the area. The vast majority of sales are single family. Townhomes, farm properties, lots, etc. are also included in the listing. Mr. Erickson stated his company has done appraisals in Anoka County for 30 years. The firm is located on Central Avenue. They also do work for various cities in the County. Generally, he works with Mr. Fernelius on two-bedroom and smaller properties. Mr. Erickson reviewed the appraisal process. First, they define the problem. They look to the type of value (market value, insurance value, salvage value, etc.) they are going to be searching for and what type of approach would be appropriate to value a piece of property. The approaches they use are the cost approach and the market or sales approach. Market value is defined by the court and, as interpreted by the appraisal industry, as any sale by a willing buyer and a willing seller. The property must be exposed for sale on the open market. Both the buyer and seller must know what the potential uses of the property are, and define that in terms of U.S, currency. Mr. Erickson stated, second, they list data sources or what approaches they will be using to value a property. The cost �'� approach uses the data source of the Marshall and Swift valuation ' service. They look at the replacement cost per square foot for the HOUSING � REDEVELOPMENT AUTHORITY MEETING, OCTOBER 10, 199'6 PAGE 6 � same size home. They refer to the MLS to define the comparable sales that have happened in the neighborhood of the subject property. Mr. Erickson stated the third step is to gather data on the city and the neighborhood. Much of this information is already in the file. Fourth, they go out to the property and gather information on the subject property. They will obtain a description of the property, do measurements, list the features such as electrical, plumbing, heating, etc., and list the condition of the property. Mr. Erickson stated, fifth, they then gather and verify the data and verify the costs through the most recent edition of Marshall & Swift evaluation service, calls to builders, and information in the MLS. The data report is verified for a sale. They work through each of the approaches they are using. Mr. Erickson stated, sixth, they look at each approach, analyze it, reconcile it, and interpret what that information is for reporting a value for each of the two approaches. Finally, they take two or three approaches and reconcile the final value in the appraisal report. n Mr. Erickson stated appraisal reports can come in many forms - a telephone call, a letter, an appraisal report as provided, or it could be a long narrative. In talking to staff, they wanted a Uniform Residential Appraisal Report. This was developed by lenders in order to have a uniform method to review. The first page provides information on the neighborhood, the market conditions, the lot size, a list of improvements, interior description, room sizes and descriptions, and the condition of the property. The second page is the valuation part of the approach. The cost approach is to estimate the site value, add the replacement cost of the property, estimate the depreciation, and add back in the land and site improvements which gives the value by cost. He reviewed the estimates of three properties provided for comparison purposes. Mr. Erickson stated, using the market approach, they compared three sales in the Hyde Park neighborhood. Of the 10 homes sold below $70,000, only 2 were in the Hyde Park area. In the comparison, they review the site size, design of the structure, construction quality, age of the building, heating, cooling, garage type, other amenities, etc. All properties were similar and all had selling prices in the mid-$60,000. The final value estimate reflects the sale of the property without the aid of a realtor and with no payment of a sales commission which is approximately 5�a. The seller will net the same amount of cash by selling at a lower price as with a real estate agent. That is how he reported the final /"1 value of the subject property and how he certified the value for the HRA. HOUSING_6 REDEVELOPMENT AUTHORITY MEETING OCTOHER 10, 1996 PAC:E 7 � Mr. Meyer stated what he was concerned a.bout at the last meeting was that they had three properties to be taken over by the HRA for which the HRA paid about $55,000. These properties were so bad as to be deemed unlivable. To him, that sounded like the appraised prices were pretty dear for properties in such condition to be removed. He understands what Mr. Erickson is saying about the appraisal process, but it seems to him that one of these three houses has slipped through the crack for a fair and objective price for their worth. He is appalled at the price for a house in this condition. Mr. Erickson stated, in relation to the specific property in question, the property was located on Main Street and was on a bigger size lot. It was two 40-foot lots put together. That would make it more valuable. He looked at and analyzed that property. Mr. Meyer stated the three comparables are all near the main railroad line. To what extent is such a detriment factored in to the value of the property? Despite all the other calculations, can you pinpoint some obvious or potential defect to a buyer and weight that negative aspect? Mr. Erickson stated, in relating to the first question about the �, proximity to the railroad tracks and industrial area, the property looks onto the industrial area. He made a negative adjustment of $2,000 to the selling price. He found that the third comparable had the same view. That was also a negative impact and that property sold for $55,000. He made adjustments for other negative features as he went through and placed a dollar amount. The figure is based on his experience. He tries to determine how much a person is willing to give up for the lower price of the house. Mr. Commers asked if a house is considered a two-bedroom home if one of the bedrooms does not have proper egress. Mr. Erickson stated no. The home would be considered to have one bedroom. He uses standards based upon those of the FHA and VA programs. They have standards for what they would approve and that is what he would use for a standard. The FHA and VA standard is that a bedroom needs only be 8 feet by 10 feet, with a closet, on the main floor in order to qualify for a loan. As witnessed by the MLS, there are one and two bedroom homes in the City that are selling and which are affordable entry level houses for people to buy. Others need a place where they can afford the payments. Mr. Meyer asked why they, as the HRA, are concerned about a property for $50,000 that someone is willing to buy when the HRA would want to tear it down. �'� Mr. Erickson stated they are looking at it from what you can do as a City and based upon your go�ls for the scattered site program. �1 � HOUSING �_REDEVEIAPMENT AVTHORITY MEETING, OCTOBER 10, 1996 PAGE S He was asked to put a value on the property of what a willing buyer and willing seller would likely agree on as a price. Mr. Meyer stated Mr. Erickson included negative features and then put a negative value on the adjustment. Mr. Erickson stated yes. It could be either a plus or a minus. They are then added up and the sales �rice adjusted to come up with a value. This is then compared to other home sales in the area. 6. FRIDLEY EXECUTIVE CENTER UPDATE Mr. Burns stated three meetings were held on one day. They met with Roger McCombs of Medtronic separately. The first three meetings were aimed at trying to assess the difficulty local corporate headquarters were having in recruiting personnel. Mr. Burns stated, in general, the problems related to recruiting personnel which seems to be occurring appears to be more related to the specialty rather than to the geographic area. .An executive from Medtronic ma.de a comment that he thought the highest professional talent was more attracted to headquarters in the southwest suburbs. In general, this person did not feel it was a geographic problem. Mr. Commers stated this was contrary to what a realtor had said. Mr. Burns stated someone was talking to the downtown financial community and that is where we got the comments about the ability to recruit talent in Fridley. Those he talked to said they would rather work in Fridley than downtown. Mr. Commers asked if the HRA would be getting a draft of the brochure from Merrill Busch in the near future. Ms. Dacy stated yes. Mr. Commers stated a related issue has to do with Mr. John Flora's success in getting MnDOT to agree to use Federal funds on the East Moore Lake intersection. Ms. Dacy stated Mr. Flora had asked her to request the HRA to make a motion since MnDOT has agreed to take the lead on the construction project and to include the ramp modifications. They have agreed to tell the City that our share will be up to $380,000. Mr. Flora is requesting the HRA authorize SEH to continue their progress in working with MnDOT to go to the preliminary design phase. In May, the HRA authorized phase 1 of a 3 phase approach for SEH to do some of these analyses. Because MnDOT has agreed to this, that original contract from May is not required. Mr. Flora has asked that the HRA pass a motion to authorize SEH to continue HOUSING 6 REDEVEIAPMENT AUTHORI�'Y MEETING, OCTOBER 10, 1996 PAGE 9 �, to work with MnDOT on preparation of the preliminary design and project memorandum subject to the completion of a contract for approval by the HRA at its November 14, 1996, meeting. Ms. Dacy stated an initial amount given to her was approximately $65,000. That number probably equates to what we would have paid under the first two phases originally evaluated in May. Now that MnDOT agreed to the project it has sped up the entire process. If the HRA starts the design process now, we can keep things going through MnDOT by sending them the preliminary plans this winter. MnDOT does all the Federal environmental reviews so it is saving on the construction lead time. Mr. Commers asked if those funds were included in the $380,000 that would be the HRA's share of the project. Ms. Dacy stated yes. The $380,000 would be applied to the design plan. $62,000 will pay for the preliminary design. Unless that is approved, the HRA will then get another proposal to pay for the final design, plans, specifications, etc. That would probably take up the rest of the HRA's share. Ms. Schnabel stated she thought the original intent of the HRA's ,� participation was to provide a better flow of traffic in and out of the Lake Pointe site. When she looked at the letter from MnDOT and the drawings, they talked more about helping to reduce the accident rate on Highway 65, 53rd and East Moore Lake Drive. Her concern is the accident problems that are occurring in and around I-694. How does that relate to the initial problem of trying to get traffic flow in and out of the Lake Pointe site? If there are defects in the existing roadway and the design that is causing people to have excessive numbers of accidents, is it the HRA's responsibility to cure that or is it the City's responsibility to cure that or is it MnDOT's responsibility to cure that? Ms. Dacy stated there was something of a domino effect which led to the discussion of accident rates. In order to get traffic from I- 694 into the left turn lane to Lake Pointe, it is such a short distance and the way the ramp is configured now requires the drivers to go across two or three lanes of traffic to get to that left turn lane. With the additional traffic from the development, that becomes worse. There was concern about increased accidents from that movement. In order to solve that problem, two signals are to be installed to control traffic flow. With two signals, that then affects the signal progression from 53rd Avenue up Highway 65. The engineers need to do their operations analysis back to 53rd and move north further than the borders of the City. Ms. Dacy stated, regarding what is our responsibility, these modifications were not originally contemplated in 1986. His point �'� in asking MnDOT to take this on is that this is a metro system highway which is something MnDOT should do. His argument was HOUSING � REDEVELOPMENT AVTHORITY MEETING OCTOBER 10, 1996 PAGE 10 �� , convincing because it does help the overall system. Originally, without the ISTEA funds, we would have to pay for the whole thing. Now we are down to less than $400,000 for the design and plans. Mr. Commers stated the HRA was going to pay originally because they wanted it done at their timing. The State was not going to be able to do it for a couple of years. The State would pay on their time schedule. Ms. Dacy stated, out of a$2 million project, the HRA's commitment is less than $400,000. Ms. Schnabel asked if the City was participating financially. Ms. Dacy stated no. Technically, the HRA could not apply for the ISTEA funds. The City applied on behalf of the HRA. Mr. Commers stated there is still major work to do on the West Moore Lake area where it meets south bound Highway 65. As he recalled, a right turn lane was to be added at that intersection. Ms. Dacy stated the right turn lane would be a part of this project. /"',, Mr. Commers asked if this whole project would be done to the HRA's reasonable satisfaction. Does this involve the Union 76 station? Ms. Dacy stated it would affect that station. The original plan on the east side has been changed somewhat and will affect the station. The County is evaluating the connection as proposed. They are not happy about the plan because it is close to Highway 65. They want to move it up two or three houses but that would increase project costs. Central Avenue is a County roadway. She thought the County wanted to defer to the City as to whether or not the City Council will want to push for this alternative. From a traffic perspective, it works but it has other implications. Mr. Burns stated staff would be discussing this with the City Council. If the City Council wants to do this, the cost of the three properties would be state aid reimbursable. The City Council did not previously want to take those properties. MOTION by Ms. Schnabel, seconded by Mr. Meyer, to authorize SEH to continue to work with MnDOT on preparation of the preliminary design and project memorandum subject to the completion of a contract for approval by the HRA at its November 14, 1996, meeting. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON CO1�RS DECLARED Ti� ,-�. MOTIOAT CARRIED UNANIMOUSLY. � Ms. Schnabel left the meeting at 9:00 p.m. HOUSING � REDEVELOPMENT AVTHORITY MEETING, OCTOBER 10, 1996 PAGE 11 ADJOURI�Il�NT • CHAIRPERSON CO1�H�RS DECLARED THE OCTOBER 10, 1996, HOUSING AND REDEVELOPN�NT AUTHORITY MEETING ADJOURNED AT 9:05 P.M. Respectfully submitted, � , �, Lavonn Cooper Recording Secretary i°'`� .�