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HRA 01/08/1998 - 29821,� �� � CITY OF FRIDLEY HOUSING & REDEVELOPMENT AUTHORITY MEETING JANUARY 8,1998 CALL TO ORDER: Chairperson Commers called the January 8� 1998, Housing and Redevelopment Authority meeting to order at 7:30 p.m. ROLL CALL: Members Present: Members Absent: Larry Commers, Jim McFa�and, John Meyer Virginia Schnabel, Duane Prairie Others Present: William Bums, Executive Director Barbara Dacy, Communiiy Development Director Jim Casserly, Financial Consultant Grant Femelius, Housing Coordinator Rick Pribyl, Finance Director Robert Rosholt, Fridley School Board Dan Mehleis, Fridley Schools APPROVAL OF DECEMBER 11. 1997. HOUSING AND REDEVELOPMENT AUTHORITY MEETING: MOTION by Mr. McFa�and, seconded by Mr. Meyer, to approve the December 11, 1997, Housing and Redevelopment Authority minutes as written. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. CONSENT AGENDA: 1. 2. � . ... ... _ , . . �. CONSIDER RESOLUTION AUTHORIZING ACCESS AND USE OF HRA PROPERTY FOR RIGHT-OF-WAY PURPOSES . . � . Mr. Pribyl stated Mr. Ellestad had outlined additional expenses for approval in his memo dated January 8, 1998. MOTION by Mr. Meyer, seconded by Mr. McFa�and, to approve the Consent Agenda and the additional expenses as outlined in Mr. Ellestad's memo of January 8, 1998. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. ^ HOUSING & REDEVELOPMENT AUTHORITY MTG., JANUARY 8,1998 PAGE 2 Mr. Commers stated page 3A lists a number of entries under 094 called November settlements and asked what those represented. Mr. Pribyl stated those are tax increment revenues coming in and are listed by the district number. ACTION ITEMS: 4. rONSIDER AGREEMENTS AUTHORIZING SCHOOL DISTRICT TIF RETURNS Ms. Dacy stated the HRA and City Council initiated this policy in 1988 where the HRA has been reimbursing the four school districts within the City some of the tax increment funds as a result of the levies that have been passed since that timeframe. This is a discretionary policy by the City. She stated a spreadsheet listing the payments to the school districts was included in the agenda. Staff recommends that for 1997 the HRA agree to reimburse the school districts #11, #13, #14 and #16 based on the amounts identified on page 4A of the agenda packet. Mr. Pribyl stated this agreement is for taxes payable in 1998. In the past, this item was before the HRA ea�ier. Mr. Commers stated a listing of the various tax increment projects is attached to the agreement. He asked what changes there had been. For example, it looks as if there ^ are a significant number of projects in school district #16, less active projects in #14, and #13 has been greatly diminished until Lake Point comes on. How were the calculations made to determine the district amounts? Mr. Pribyl stated these are estimates. They are based on the 1997 estimates with some increases that they know to be taking place in some of the districts. The majority of the value is in district #14. District #16 increased approximately 9/10 of a percent. They do not have the tax capacity available at this time. Ms. Dacy stated the Paschke district is very small in TIF district #5 which has since expired. TIF district #10 is not producing any type of increment at this time. While there seems to be more tax increment districts in school district #16, they are smaller. Mr. Pribyl stated the majority of the value of the projects is in school district #14. The school district #16 projects are much smaller in scope although there are more of them. Ms. Dacy stated that in the future� the Industrial Equities and the Minnesota Commercial Railway projects may change that picture to some degree as will Lake Pointe. Mr. Pribyl stated the HRA would not be seeing those dollars passing through there because they are mandated levies which are automatically passed on to the school districts by the County. Recent legislation has caused the referendum levies to be passed directly to the school districts themselves. This is for the new districts. The only discretionary levies the HRA has pertain to older levies and older districts. This probably dates back into the 1985-86 era. The newer districts are controlled by the newer �"', legislation that forces the County to pass those levies directly to the schools. � HOUSING & REDEVELOPMENT AUTHORITY MTG.. JANUARY 8.1998 PAGE 3 Mr. Commers stated a number of the tax increment districts listed were dated after that date. Mr. Pribyl stated it depends on the date of the bond issue, the date of the levy, and the date of the district itself. There is a section of the statute which outlines three different criteria that have to be evaluated in and by themselves. These criteria must be evaluated in each and every circumstance. Mr. Commers asked who makes the calculations. Mr. Pribyl stated he and Mr. Ellestad make that calculation. The bond counsel goes through and develops which levies are those that they can use to calculate these discretionary levies. It is a combination of the bond counsel and staff going through these. Mr. Casserly stated they are taking current law and applying it retroactively to determine what could have been paid in those districts if the current laws would apply. Because these are discretionary, staff is coming back to the HRA and saying these can be transferred under the current standards. Mr. Commers stated the HRA has been retuming these moneys before the law was changed. ^ Mr. Pribyl stated he thought 1988 was the first year. He thought that was the first year an agreement was developed and then the law came into play. Mr. Casserly stated that with the changes coming into play, the HRA probably would not want to be including any amounts because the legislature imposed penalties on tax increment resources. At some point, you have to look at class rate reduction impact because you will be receiving less increment. Mr. Commers stated that as he understands it, at this point the HRA is assured there is no offset for the amount of refund of tax increment against any educational credits that the State would otherwise have paid the school district. Mr. Casse�y stated this is correct. Mr. Commers stated he thought at one point he understood that for each dollar retumed there was some kind of offset against the credits from the state. Mr. Casse�y stated the legislature was threatening to do that but did not carry this forward. Mr. Dan Mehleis stated he was the director of administration for school district #14. Mr. Rosholt stated he was a member of the District #14 School Board. At a recent Southem Anoka County Community Consortium meeting, they talked about housing. The School Board went to the communiiy in 1995 asking for a bond referendum. One of !'` the things they said to the community was that, if they pass the referendum, this would HOUSING & REDEVELOPMENT AUTHORITY MTG., JANUARY 8� 1998 PAGE 4 positively affect the housing and community of the Fridley area. His question at this meeting was if they had told them the truth. He received an overwhelming response that the answer was yes. The work that is done at the schools has a significant effect on the area. This is a terrific school district. The partnership developed with the City and other organizations in Fridley has made the schools effective and efficient. People are working together. They are thrilled with the cooperation they have seen with the City and the HRA. Is the tax increment financing important to them? Yes, it is. The financing is very important. The School Board looks at how they can make the school district something the City and community can be proud of. The School Board appreciates the support. MOTION by Mr. Meyer, seconded by Mr. McFarland, to approve the 1998 school referendum levy TIF retum agreements. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. 5. CONSIDER RESOLUTION AUTHORIZING EXECUTION OF REDEVELOPMENT CONTRACT WITH MEPC AMERICAN PROPERTIES Mr. Commers stated a copy of the agreement has been provided. They had talked about, if there is a tax deficiency and the developer falls short, they have the right to reacquire the property or right of reverter. Mr. Casserly stated that would be accurate the way the contract now reads. He received � a call on that issue. MEPC has three problems to discuss. Normally, you would not secure a tax deficiency by right of reverter. It allows you to go after the developer as you would go after any kind of debt. The procedure for a deficiency is to notify the developer of the shortfall. If they do not pay it, you would have the right to bring action against them for the shortfall. They have not secured a shortfall with mortgages or any other kind of security. This is secured with the contract itself. Mr. Commers stated that in Mr. Casserly's memo dated January 2� at the end of the first paragraph where you talk about the right of reverter and non-performance, it seems to talk about the right to protect the redevelopment. Mr. Casserly stated this is correct. One of the issues MEPC called about was the length of time the right of reverter would be effective. Generally, the right of reverter is effective until a certificate of completion is issued. By the time a certificate of completion is issued, the building is constructed and the HRA would not have the right of reverter for the fully improved property. Mr. Casserly stated the provision is supposed to be structured so that after the property has been conveyed to the redeveloper, there is a series of things that allow the HRA to exercise the right of reverter. The reasoning for that provision is that the HRA has conveyed the property and has received consideration for it. The reason for conveying the property is that the HRA wants the property improved, and MEPC has agreed to put up a building of a certain value. If they do not do that, the HRA has the right to go back and recovery the property. � Mr. Commers stated that if there are unreasonable delays in perFormance, the HRA could ^ HOUSING & REDEVELOPMENT AUTHORITY MTG JANUARY 8,1998 PAGE 5 also stand to lose payments at the time of assessment. Mr. Casse�y stated the assessment agreement will have this as one of the conditions for closing. That will be effective January 2 of the year following completion or 1/2/2000 whichever occurs first. MEPC is assuming it will take 9 to 12 months to complete construction. If they start this spring, they hope to have the building completed by the end of the year. It may go into the year 1999. If that is the case, there would not be full valuation until 1/2/2000. There would be some increase for 1999. Mr. Commers asked Mr. Casse�y about the tax increment financing he put together, when he started accumulating taxes. He thought it was a year earlier. Mr. Casserly stated this may have been a year earlier. They did these based on a series of scenarios based on different construction assumptions. On that particular one, they may have assumed construction in 1999, assessment valuation in 2000, and taxes payable in 2001. Mr. Commers stated that as it stands now� an assessment agreement of a minimum value of $6 million would go into effect the year following issuance of a certificate of completion which we would anticipate to be 1/1/2000. Mr. Casserly stated that would be the latest. If the building is finished in 1998, they issue the certificate of completion. This would then be effective 1/2/1999. ,-. Mr. Commers asked Mr. Casserly to explain the change in the eamest money. \ Mr. Casserly stated this was the second issue MEPC had called him about. MEPC has used a format on a number of their projects which they wanted the City to follow. He tried to incorporate as many provisions of MEPC's format as he could. One of the provisions in their approach is a senes of things that are contingencies. One of their contingencies is approval by their board of directors. When he flnished review of MEPC's documents and tried to integrate various documents, he came to the conclusion that on most of these transactions the developer should have a given period of time in which to do their due diligence and MEPC should then agree to buy or not. Because of the mechanics of how MEPC is doing this and because of the structure of their organization, they need to do an extensive due diligence and then bring it to their board of directors to get a final approval. In effect, MEPC's purchase agreement is really nothing more than an option to purchase. He thought they might as well play reasonably straight forward. If it takes another 3 or 4 months to complete the survey, the title, the environmental, the preliminary planning, and whatever else must be done, then Ithey should draft it that way. If they do not close by May 1, then they no longer have a deal. Mr. Casse�y stated MEPC called him back and asked that for the $15.000 of estimated costs for the various kinds of expenses that the city and HRA may incur, they wanted to know if we would return to them the unused portion of the $15,000. He thought this was reasonable and stated he would bring this up to the HRA. Most of the work has been done previously; however, there will be issues. Mr. Commers asked what costs would be included in the $15�000. �"� Mr. Casserly stated this would include his costs after the execution of the redevelopment HOUSING & REDEVELOPMENT AUTHORITY MTG.� JANUARY 8,1998 PAGE 6 contract. They have a lot of work to do in anticipation of closing. In other cities, costs that are incurred after the redevelopment contract are costs that are included. They will also need to talk with staff to see if any other expenses will be incurred. Mr. Commers asked why MEPC would wait until May 1. This seems like a long time assuming they must have been doing work up until now. Ms. Dacy stated the due diligence process means getting approvals. MEPC must go through the plat process by the city, and there are minor applications for special use permits for which they will be applymg to the Planning Commission in February and to the Ciiy Council in March. That is an aggressive schedule. The closing is actually set for April 1. Mr. Commers stated he thought that the rezoning had already been taken care of. Ms. Dacy stated the master plan was approved in 1996� but the property has not been officially platted. The roads are there; but because the Weir development did not go through, the final plat was not created. The plat process will create a legal description for the 9.18 acres for the tech-flex space. The remainder of the property will be platted as outlots. It will plat the right-of-way for the roads and plat the correct nght-of-way for the Lake Point Drive intersection. A boundary survey is completed which the City has transmitted to MEPC. MEPC is incumng expenses to plat the entire property even though they are only developing 9 acres. �'"'� Mr. Casserly stated the City does not have a lot sunrey which MEPC must have. That would have to be surveyed. Mr. Commers asked if there are any remaining environmental issues. Ms. Dacy stated, no. The City has completed the required assessment worksheets and has a pending indirect source permit with the MPCA. She did not anticipate any additional expenses. Staff has transmitted everything to MEPC's attomeys office. Mr. Commers asked where the provision was that relates to the HRA's issue regarding the control of materials used in the development. Mr. Casserly stated this is an issue that needs further clarification. They can do this indirectly by the approval of construction plans and preliminary plans, and they can do this more directly by simply including an attachment with the quality and type of materials. They have not had that discussion yet. Mr. Commers stated one thing that bothers him is that they are tying the rest of the development to whatever is done on this property. Therefore, it is crucial that they understand what kind of quality is going to go into the first building if the rest of the buildings will be bound by it. Ms. Dacy stated page 14 of the development contract outlines the process about the preliminary and final construction plans. She understands that this agreement applies to the tech-flex building on the 9 acres. It does not establish standards for the buildings on �""� the remainder of the property. MEPC wanted the HRA to work with them on establishing � HOUSING � REDEVELOPMENT AUTHORITY MTG , JANUARY 8,1998 PAGE 7 minimum standards or restrictive covenants so that additional buildings are at minimum equai to or better than the tech-flex space they propose to construct. The preliminary plans for the building would be before the HRA at their February meeting. Mr. Commers stated this is what bothers him. When they go to the ongoing agreement with them for the marketing of the property, the restated contract contains a provision, 6.1 E, which would provide that any excluded party shall not be in the business of developing sites for lease or sale unless they conformed to the revised master plan, the architectural standards or controls, and any agreements between the redeveloper and the authority regarding the site development issues. He believed this means that whatever standards are set on this first building, even excluded parties would have to conform to those standards. Ms. Dacy stated at this point there is nothing that is saying that the tech-flex space and how it is designed is the standard. MEPC wants some type of restrictive covenant or document that says these are the standards. The goal is to get a quality, attractive development on the tech-flex space and then on the remainder of the property that is cohesive. If they have a excluded party coming in or if MEPC comes in, this must tie together. Staff would support that request to clearly idenfifjr what those standards are, what the expectations are for the remamder of the property, and to do that this year. Mr. Commers stated he agreed theoretically. When he read this, if party B decides to develop 250,000 square feet of space, whose standards are they going to be bound by - MEPC's, the HRA's, or their own? � Ms. Dacy stated she thought MEPC wants to coordinate with the HRA such that a document is recorded agamst the property so that if party B comes in, they have to abide by what is on the title. Mr. Commers asked if they thought they should give up that flexibiliiy. He thought they wanted everything to be conforming and/or somewhat similar, but he was not sure they wanted to give up the flexibility of determining that. Mr. Casserly stated he thought everyone is going in the same direction. They need to design a set of restrictive covenants. From MEPC's perspective, their fear is that, if there is a downtum in the economy, then the HRA would allow a development that is of lesser quality than theirs. They want some kind of commitment that future developments will be of the same or higher quality. They have not sorted out whether they want an architectural control committee or have the HRA review. He has not sorted out what the structure should be. He thought they could arrive at standards that will not be less than a certain level. The HRA will have flnal approval. MEPC is as worried about it as the Cifiy is.. It would be difficult to have standards in place by the time they start construction. They could comment to entering into standards that are acceptable to both parties with the understanding that the standards will not be less than what they are constructing. Mr. Meyer stated the wording states: "... shall submit to the Authority preliminary plans." The architects and engineers must draw up plans. The typical three phases of drawing preparation are the schematic design, design development, and construction documents. Under these circumstances, it would be ideal to define them as design development �"'� drawings where the drawings show some detail but also go into the materials. In the � HOUSING & REDEVELOPMENT AUTHORITY MTG �JANUARY 8,1998 PAGE 8 design development phase, the architects must submit drawings and specifications. That is an ideal time to review the plans. It would be interesting to pin it to the design development element. That would define pretty well what they could expect to see. He would suggest the wording, °design development phase drawings as defined by the America Institute of Architecture (AIA) documents". Ms. Dacy stated she thought MEPC was very close to that with the drawings that the HRA will see plans at the February meeting. Mr. Casserly stated he will define preliminary plans and make that reference. He also thought they should put in a schedule of what they think will be a part of the minimum improvements. Mr. Commers stated this is important when they will be developing the other two or three pieces of property. The improvements made to the property must meet a minimum standard, but they want the flexibility so they do not have disagreements between this developer and an excluded party that may want to come in and develop a parcel. Mr. Casserly stated he thought that was more than reasonable. That is contemplated in the redevelopment contract. He thought they need to be more explicit in the restated contract. Mr. Commers stated this also raises another issue that this has to conform with the revised master plan. What does that mean? � Ms. Dacy stated the original master plan proposed four multi-story buildings. The zoning district requires that they file a site plan prior to construction and to get approval by the HRA, Planning Commission and City Council. They need to revise the master plan to eliminate two of the four multi-story buildings and submit a revised master plan showing the changes. Mr. Commers asked if that means that, once the plan is revised, this is the official plan that needs to be followed unless all parties agree. Ms. Dacy stated, yes. The HRA and City Council have to approve the revised plan prior to initiation of construction. Once that is approved, then it becomes the revised master plan. Mr. Commers asked if they could just approve it with the revision as it relates to the tech- flex building without being specfic as to the rest of the property. Ms. Dacy stated that would be fine. If someone else comes in and wants to construct something other than what was approved on the revised master plan, they would have to go through the same process to revise the plans. Mr. Casserly stated he would add a statement in the restated contract that the master plan can be revised if approved by the HRA and the City and that revised master plan must still meet the standards. ^ Mr. Meyer stated that in that agreement, they should be sure to state an "outline of HOUSING & REDEVELOPMENT AUTHORITY MTG., JANUARY 8,1998 PAGE 9 specification of materials". Another thing that he is interested in is that the site was developed with pods in which we improved land in certain areas only. Now MEPC is coming in and developing in a certain area that suits the situation. Do they know that this is the status of the land? Ms. Dacy stated yes. MEPC has received all the information pertaining to the site. They will be doing some additional testing. They feel the pads are in rough conformance with the outline of the building and they feel there are no significant problems but they have to do additional test holes. Mr. Casserfy stated the third issue is the assessment agreement. The agreement is clear about what the minimum valuation is to be. This is divided befin►een the land and the building. The land is valued at $2.50/square foot. On a 100,000 square foot building, it needs approximately 400,000 square feet of land so that is $1 million for the land. The issue comes down to the market value of the building. We put in $50/square foot plus the land value would give us a$6 million project for tax purposes. Mr. Casseriy stated MEPC did some sole searching about what they thought they could guarantee. They know and are willing to warrant that their costs for the building will be in excess of $50/square foot. Their building in Golden Valley which is similar was completed 18 months ago with a value of $42/square foot. The issue became could they then commit to a minimum value of $50/square foot on the building only. MEPC is not comfortable with that number. �"� Mr. Casse�y stated that last summer when doing the analysis and comparing uses of the property, they spent some time with the folks to figure out a reasonable value to use for comparison. They came up with $60/square foot for this type of project, $75/square foot for an operation center of some kind, and $90/square foot for a multi-level office building. Everyone reviewed this information. When it comes down to a guarantee for this minimum level, it is different from a suggestion of the valuation for the purposes of comparison. MEPC is telling us that the assessor in fact may come in with a value that may be less than $60/square feet, but that they would not be prudent to guarantee that as a floor. The reason is that if the economy has a down tum, it places them at a serious competitive disadvantage if the taxes for others are less because of minimum market value agreements. This is not unusual. They may have valuations that will drop as they did five years ago. They would prefer to guarantee that they will have construction costs of a certain number. As far as they are concemed, they are looking to a minimum valuation as a way to recovery some of the investment in the property. Mr. Casserly stated MEPC also appreciates that the minimum valuation suggests a very high quality. He suggested to MEPC's legal counsel that this is not a number that the City asked for but were given. He stated he would talk to the HRA and staff. He can understand the HRA's argument. They are depending on this level. He would suggest that for the building portion which they have at $50/square foot that they go to $45/square foot. If the assessor goes below that, they have a deficiency portion of the agreement. The developer stated they did not have the authority to commit to that number but they understand the Cit�r's position. Mr. Commers stated the issue is that they do not do these projects without a minimum -^ assessment agreement. Isn't it important from the HRA's point of view in terms of any I�C��.ISING � REDEVELOPMENT AUTHORITY MTG , JANUARY 8, 9998 PAGE 10 kind of refunding or rebonding that whoever is going to take that new debt will look at what they have to support it? If their unde�ying assessments to support it are not there, he would expect that this will make it very difficult for the HRA to refund or whatever they do down the line, or, at a minimum, cost the HRA more in terms of interest rates. Mr. Casserly stated that under normal circumstances� this is correct. Under this set of circumstances, they have already issued the debt. Mr. Commers asked if the HRA goes back to refund or if there is a change in debt, will the HRA want to refinance? When that time comes, that is when the security will be looked at. Mr. Casseriy stated the HRA is not issuing new debt based on the security provided by this agreement. They have a large margin of error to deal with. A one year delay would have a more significant effect than a$5/square foot change in valuation. This is hard to answer direc�y because there are a number of components. Mr. Meyer asked if they are talking about $45/square foot or $50/square foot on the shell or the finished structure. Mr. Casserly stated this is on the finished structure. Mr. Meyer stated $45/square foot on a finished structure will be pretty bare bones inside and out. When a contractor constructs a shell structure, they put in walls, basic plumbing, ,%"�, air conditioning tap-ins, heat, etc. Forty-five dollars/square foot is not bad for a shell. If they have to live with a$45/square foot finished structure, they will be getting a pretty shabby structure. In order to bring a$45/square foot shell structure up to standard for someone to rent, one could put in another $20/square foot. Mr. Casserly stated these costs are not construction costs. This is the market value or the assessor's minimum market value. In any kind of construction arrangement, you will have construction costs, tenant costs, financing costs, etc. He would not be surprised if the total costs er square foot are $55. He would be surprised if the assessor came in at anything over �50/square foot for the building alone. He did not know of any one level buildings in the City with a$50/square foot valuation. The total value is a comparison of the sale price of comparable products and the income generated by the tenants. Mr. Commers stated it could cost more to build than what one could sell the building for. Mr. Meyer stated that could happen but it could also sell much higher. It depends on a number of issues. It sounds like the value is not based on a formula but on a nebulous figure. � Mr. Commers stated it means something from the point of view of the guarantee. The assessor could put the value higher. Ms. Dacy stated that when she and Mr. Casserly were discussing this and at the joint meeting in July, they videotaped the building in Golden Valley which MEPC constructed. The building is of brick construction, 18 feet tall, with colored glass and amenities and � small dock areas in the back. Golden Valley has that building assessed at $42/square � HOUSING & REDEVELOPMENT AUTHORITY MTG , JANUARY 8,1998 PAGE 11 foot for the building only. Those architectural features were discussed at the joint meeting and that this would attract high qualiiy, high tech tenants. The interior space is to be completed at 50% for office. She thought MEPC was designing this for 75% office so there would be a good portion of interior space completed. Ms. Dacy stated that regarding how the $60/square foot was established, Mr. Casserly broke out the land versus the building giving a land cost and adding minimum improvements that would require construction costs of at least $50/square foot and a valuation at $45/square foot. In that way, they would get very close to the $6 million mark. That seemed to be a good solution. The assessment time frame for this agreement is running from the year 2002 to 2010. Not knowing what the economy is going to be like in the future, they did not want to set up the project at a competitive disadvantage as opposed to another site. If the economy does tum bad, the developer can pay the taxes and the lease rates remain within reason. They don't want an empty building. Staff is suggesting that they make those changes to the agreement keeping the land per square foot and construction the same. Mr. Meyer stated that is different from the tax assessor's operation. If they are saying that they have $5 million allocated for a 100,000 square foot building, that is $50/square foot. Is MEPC obligated to put in a$5 million building? What does a$5 million building mean? Mr. Casserly stated this means MEPC has to spend $5 million. Mr. Meyer stated $50/square foot is very low for a finished building. This is supposed to /"'� be our flag ship. Who is to decide whether they are getting a$5 million building? Ms. Dacy stated MEPC has to document their construction costs which is required by the state auditor. If they would like to require that as part of the minimum improvements, they can have MEPC come in and submit information on what will be constructed for $50/square feet. Mr. Casserly stated they should provide the HRA with a pro forma. He will find out. Sometime they will include construction costs plus additional soft costs. It can also include planning expenses. Mr. Meyer stated that if money is paid out of that $5 million for expenses such as planning, etc., then the value is less than $5 million. Mr. Casserly stated they will have to isolate this in some fashion. They must determine what the minimum improvements are and the quality of those improvements. They will have preliminary plans for HRA review. They will also have the pro forma. Mr. Meyer asked if they wanted to get a$5 million building on that site or are they satisfied with $4 million? What do they want knowing that $50/square foot of actual building is minimal? Mr. Commers stated the assessor may value the building at $3.5 million. Mr. Meyer asked if they are fooling themselves by saying they are getting a$5 million ^ building. Five million dollars for a 100,000 square foot buildmg is a barebones minimum HOUSING & REDEVELOPMENT AUTHORITY MTG., JANUARY 8,1998 PAGE 12 structure. Mr. Commers stated he thought they were saying the developer would spend $5 million putting up the building of which only $3.5 million actually goes into bricks and mortar. Mr. Casserly stated he thought the building will be $5 million of hard construction costs and additional tenant improvement costs. They get to that goal in several different ways. If they are working on lease rates, they have to put together a preliminary pro forma. He will get that and share that information. MEPC cannot lease something for $10/square foot if it costs $75/square foot. There has to be a balance between the total costs and what they can lease for. Mr. Commers stated that at the time the City Council suggested going forward with this, was there discussion as to the actual direct construction costs of the building to be developed? Mr. Bums stated he did not recall getting into that level of detail at the joint meeting. Ms. Dacy stated what was seen on the videotape from Golden Valley represented the level of the qualiiy that MEPC would construct on this site. She would be happy to go back to those developments and get additional information on the construction costs, etc. Mr. Commers asked if they could find out the directs costs for the development of those buildings. Mr. Casserly stated he could ask but many developers are very sensitive about disclosure about this. MEPC has an advantage because of its size. Mr. Commers stated that at the meeting, it sounds as though there was a concept to move forward. Now that they are getting closer to putting some speciflcity to that concept to make sure it is consistent to what people are thinking. He asked staff to get more information in order to make a more informed decision. Mr. Casserly stated they did not get into detail. There was a sense of outward appearance that was very attractive. This agreement is trying to make what they have at a level that is commensurate with what was shown to them, but they also want a minimum level of taxation. While those iwo are related, they are not exactly the same. Mr. Commers asked where that leaves the HRA with respect to the agreements. Mr. Casserly stated the agreement currently has $50/square foot. As it relates to the guarantee, they wrould have a very difficult time with that level of guarantee. He said he would discuss $45/ square foot as a guarantee. Mr. Commers asked if Mr. Casse�y thought the HRA should approve the agreement at the $50 level with the understanding that the HRA would reconsider $45 on the guarantee after reviewing the costs. Mr. Meyer asked where the actual costs of the structure come in. If it is important to them at the design development phase and the outlined specifications, hire a construction �`� estimator who will take the drawings and put together a budget price. Then they would ,,� HOUSING & REDEVELOPMEN'� AUTHORITY MTG., JANUARY 8,1998 PAGE 13 know pretty well the costs. Ms. Dacy stated staff will address the concems. On page 14 under the construction plan requirements, Mr. Meyer wants to have the development design review. The construction plans come in two phases, the preliminary plans being first. They need the development contract first to get the project going. Once the contract is approved, then they get the preliminary plans. If this is approved, then the preliminary plans will be here on February 5. Staff will make sure MEPC would present the plans, have the development design drawing, materials, and costs. Then, MEPC has to submit the flnal construction plans. MEPC is proposing to initiate construction on May 1, 1998, so that the HRA can see the final plans at the March or April meeting. For a$50/square foot construction costs, they are suggesting to establish that minimum, and the HRA can review the plans to be sure it meets the HRA's criteria and/or standards for the site. Mr. Meyer asked if they wanted brick and mortar costs or assessor's value. If the brick and mortar is important, then they should have an estimator look at the plans at the design phase. Mr. Commers stated he understood that this project would have a value upon completion of $6 million. They have agreed that $1 million of that is going to be land, and $5 million will be on the building. To him, this means on the building. They may have a lot more money into this project because of the architects time, etc. The assessor will be assessing the land and building, not the soft costs. The assessor could come in and say the building is only $3.5 million. They can say then that the taxes will be paid on $5 million, but they want to make sure that that the building is worth $5 million. Mr. Meyer ,�"� thinks they do not get a quality building at that level. That should probably be considered. What are they going to get for $50/square foot which should be all hard costs? Mr. Bums stated the HRA has additional quality control through the preliminary plan and construction plan review process. The HRA could veto the entire thing. Mr. Commers stated they are saying they want to make sure that the building has $50/square foot of hard costs. Mr. Casserly stated, what he typically sees for market valuation is that the costs are greater than the assessor's valuation. He cannot say the last time he saw a one level building valued at $60/square foot. There are all kinds at $35/square foot and some at $50. $60 square foot assessor's value is unusual. Construction costs are getting more expensive. He thought that suggests a level of qualit�r that is fairly high. Mr. McFariand stated the contract says they need a minimum of $50 assessment. That is a different subject than what materials are going to be put in the building. The HRA will have a chance to veto it. He does not care what it costs as long as they see the materials and know that is going to be a sound building when it is completed. If MEPC can do it for less, he does not care. Mr. Commers stated he is right in that the HRA does not care if MEPC can get by with constructing the building for $35/square foot as long as it has an assessed value of $50/square foot. �"1 Mr. McFarland stated they are talking about the assessed value. He can see their point ,� k�OUSING & REDEVELOPMENT AUTHORITY MTG.�JANUARY 8,1998 PAGE 14 that if they do have a bad market and the building loses value by 20%, it will be an economic problem. That does not mean the assessed value will drop. If that happens, the tax increment financing does not work. If they do not generate enough TIF to cover the costs, they are putting the costs back on the HRA. Mr. Casserly stated that is true, except in this instance the HRA does not have a direct relationship between costs for this project and what we are constructing. The HRA can never recover their overall costs for the project. Mr. Commers stated the HRA can consider the resolution as presented and approve that and indicate that the HRA is willing to negotiate but to get a comfort zone� the HRA would like to know the kind of hard costs that are going into the building. Mr. Meyer asked who would review the plans and specifications as they come in order to know that they are getting the quality that they would like to have. Ms. Dacy stated there would not be any one person to review them. The chief building inspector, public works director, and she can review the plans. They could hire an independent person to review the plans, but staff would need direction to do that. Mr. Meyer stated he is raising the issue because they have gone beyond the hard and soft costs. He is hearing that the HRA has the final right to dictate quality of materials. It takes the expertise of knowledgeable people to know how to judge these things. � Mr. Commers asked when the HRA would have plans. Ms. Dacy stated the preliminary plans will hopefully come in February because MEPC is moving through the Planning Commission and City Council process. Once that is concluded in March, MEPC will then go through the construction plan preparation phase with those plans available for review in March or April. Mr. Commers stated that as they go along, they should see what kind of information they are provided, what kind of recommendations the City Council and/or the HRA has, and if there is a problem, then they can look to someone else. MOTION by Mr. Meyer, seconded by Mr. McFarland, to authorize execution of the redevelopment agreement with MEPC with amendments regarding the characterization of the plans, the schedule, and to add a processing fee to allow a rebate. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. 6. CONSIDER RESOLUTION AUTHORIZING EXECUTION OF RESTATED CONTRACT FOR EXCLUSIVE NEGOTIATIONS Mr. Commers stated the restated contract is a one-year contract between the City of Fridley and MEPC with the clariflcation as indicated in paragraph 6.1 E relating to excluded parties. '� MOTION by Mr. McFarland, seconded by Mr. Meyer, to approve a resolution authorizing �--1 HOUSING � REDEVELOPMENT AUTHORIiY MTG., JANUARY 8,1998 PAGE 15 execution of restated contract for exclusive negotiations as amended. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. 7. CONSIDER RESOLUTION APPROVING FINAL PLANS FOR TH65/CENTRAL AVENUE/LAKE POINT DRIVE INTERSECTION Ms. Dacy stated the plans for the intersection were included in the agenda packet. The improvements include, going southbound on Highway 65, the addition of a right tum lane to tum into Lake Point Drnre. Going north, two left tum lanes will be added to provide stacking and capacity for vehicles tuming into the Lake Point development. Lake Pointe Drive itself will be realigned. The HRA acquired two homes that were originally located at the immediate vicinity of the intersection. The roadway must be elevated somewhat because it is slightly below the grade of Highway 65 and the road will also have a more sweeping curve on the approach to Highway 65. On the east side of the intersection, the connection from Hackman Avenue will be moved further east. Ms. Dacy stated MnDOT has expanded the project to the south to eliminate some of the weave movements from west bound I-694 traffic. The ramp off I-694 will form a"T" and a signal will be installed at the exit. MnDOT will add a high occupancy vehicle lane at the entrance to westbound I-694. The cloverleaf loop will be removed from the northwest and southeast parts of the interchange. Another signal will be added at the south side of I- 694 to match what will be done on the north side. This channels and directs the traffic to � a stop or green condition on Highway 65 to provide safe movement back onto the highway. Ms. Dacy stated the original project costs were approximately $1.9 million. Because of the MnDOT additions, the project costs have doubled primarily because of the improvements on Highway 65 and the staging of the project. MnDOT has agreed to pay for the extra costs; however� the city is petitioning that they assume the responsibility for the additional design piece. Ms. Dacy stated the HRA is asked to approve a resolution which states the HRA has reviewed the plans, agree they are consistent with the preliminary plans, and recommend that the City Council move to the next step of approving the final plans and specifications. The Ciiy Council will evaluate the final plans on January 26. The city is trying to go for a letting date in May in order to initiate construction in June. Staff anticipate that some of the construction work will spill over into the following year. Mr. Commers asked if the resolution means that the HRA is committed on the match for more than $190,000. Ms. Dacy stat�d the HRA committed to the original $380,200 back in 1996. There is nothing in the action tonight that would authorize any more expenditures than what has already been agreed to. Mr. Commers asked there would be additional design costs. ^ Ms. Dacy stated, yes. SEH is estimating additional design costs of $300,000. The City has yet to hear from MnDOT on their proposal. If MnDOT does not agree, the City � HOUSING & REDEVELOPMENT AUTHORITY MTG JANUARY 8 1998 PAGE 16 Council and HRA will have to discuss that. MOTION by Mr. McFarland, seconded by Mr. Meyer, to approve the final plans for the redevelopment of the Central Avenue/Lake Point Drive intersection. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. 8. CONSIDER ACQUISITION OF 611 BUFFALO STREET AND 5297 L�INCOLN TERR.ACE Mr. Femelius stated the owner of 5297 Lincoln Terrace is no longer interested in selling that property. The HRA will only be considering the acquisition of 611 Buffalo Street. Mr. Commers asked what the owner of the Lincoln Terrace property plans to do with the property. Mr. Femelius stated the owner has indicated he wants to move back into the property. Mr. Commers stated there is no occupancy permit for the property. Mr. Femelius stated this is correct. He felt there would not be an occupancy permit without substantial improvements. There are other issues that staff will have to look at on this property in terms of code enforcement. However, the owner is not interested in a � voluntary sale. Mr. Meyer stated he was satisfied with the acquisition of the Buffalo Street property. He thought it was a good move. It will give the HRA more opportunity to make a larger lot or to bank it for the future. He thought the price was manageable. Mr. Commers stated the reality of it is, with the mortgage, there is not much else that they can do. Mr. McFarland asked if the owner of the Lincoln Terrace property changed his mind because of the price. Mr. Femelius stated, no, even though the amount was his counter offer. He must have had some second thoughts. The property was appraised at $31,000. He counter offered at $35,000 which staff accepted. MOTION by Mr. McFarland, seconded by Mr. Meyer, to approve the acquisition of 611 Buffalo Street. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. INFORMATION ITEMS: 9. PROPOSED CHANGE IN TIF FEE POLICY i"� Mr. Commers stated he did not see a significant difference other than that requests under HOUSING � REDEVELOPMENT AUTHORITY MTG., JANUARY 8,1998 PAGE 17 $1.5 million get a break. He asked if something had come up to dictate this change. Ms. Dacy stated that in the last three or four months, staff has gotten requests from previous development contract redevelopers to execute additional contracts and to provide legal documentation. Those costs have not been recovered by the HRA. Other communities are beginning to do this. As expenses continue, the HRAs are changing their policies to retain these fees despite the fact that the project may not proceed. Mr. Commers asked why they did not charge the cost that it takes to do the work. Mr. Casserly stated that whenever you initiate something like this� it is dif�icult to have someone redevelop and then charge them for doing it. However, when they initiate the request, he suggests they charge a fee and the HRA will keep the fee whether the project proceeds or not. Because of the age of the districts, he finds himself reviewing unusual agreements. This was to facilitate refinancing. Ms. Dacy stated this in an information item. This will be placed on the consent agenda for February or March for approval. � -�; • •� •- 1 • --• -. Mr. Femelius stated the loan origination report covers loans issued through December 18, 1997. For that time period, 80 loans and grants have been issued with a combined value of $758,410. He will provide a year-end report in February. � Mr. Femelius stated the loan service report is a summary from the Community Reinvestment Fund (CRF) of the installment loans and deferred loans that the HRA has issued. This does not include the non-HRA funding sources. That shows an outstanding principle balance of $1,869,000. The bulk of that is the installment loans which are paid back monthly. Mr. Commers stated the report does not indicate delinquencies. He asked if there are any delinquencies. Mr. Femelius stated CRF does provide a delinquency report. The most recent report shows about 10 delinquencies. The total principle amount of those loans is approximately $110,000. The actual amount owed is approximately $1.000. Most of these are 30 days late. One loan was outstanding for over a year, but that borrower has now started making payments. Mr. Meyer stated that on the loan program, this is evidence that the criteria is too low in terms of eligibiliiy for loans. He thought the income limits should be lower. He thought they should be more restrictive on the purpose for the loans. He knows of one house on the list and he sees others which are on fine residential streets. In no way did the $25,000 loan have anything to do with improving the housing stock in the City of Fridley. This has nothing to do with the stated purpose of the loan. The philosophy is to improve the housing stock. He sees a number of streets with $22,000 to $25�000 loans in good residential areas. In contrast, the loans in Hyde Park are smaller loans in an area which is considered a problem area in terms of housing stock. The program is not reaching those houses. The total loans in Hyde Park are $16,000 to $17,000. Any one of the � $25,000 loans is equal to all of the loans in Hyde Park. We have a program that is not ^ HOUSING � REDEVELOPMENT AUTHORITY MTG , JANUARY 8,1998 PAGE 18 addressing the reason for the program. Mr. Meyer stated they have an eligibility situation for money, income, and categories of improvement which are excluding the very people and areas that they are interested in improving. There is something there that should be changed. He thought they should address themselves to look at what else can be devised to change that picture so that the areas that need it are given more attention or more inducement to get into the program. Mr. Femelius stated the 5% loan program offers loans up to $25�000 at 5% interest. To qualify, a family's income cannot exceed $58,650 per year, must have good credit, and meet the limitations on what kinds of improvements can be made such as roofs, windows, doors, etc. It gets at the nuts and bolts issues and the needs for upgrading. Mr. Commers asked what the median income was for a family of four. Mr. Femelius stated the median income is about $54,000 for the metro area. The income guidelines are tied in with the MHFA program which is a statewide program. Mr. Commers stated it is disappointing that they are not able to get into Hyde Park. Staff has done a lot. There must be some kind of innovation that would allow them to penetrate that market. Mr. Meyer stated he thought they just do not have the money. By necessity, they cannot spend anything more. Can they do something to liberalize the program where the incomes are low? He thought a family with an income of $58,650 who needs a 5% n interest loan is ridiculous. There is no reason why anyone eaming $58.650 a year needs a low interest loan. Mr. McFarland stated it does not cost the HRA anything. Mr. Femelius stated they are providing below market rate to fix homes. The median income of a typical borrower is $43,000, and many of these are dual income families that are struggling to make it. He thought it was decept�ve to suggest that $58,650 is the income of a typical borrower. That is the maximum income, but not the income of a typical borrower. Mr. McFarland stated the Hyde Park area may have income problems. Is there a surplus? Could they give grants to these people to give greater enticement to flx up their homes? Mr. Femelius stated they have a lot of flexibility in how they design the program. It has been set up to be essentially self-supporting. Housing programs in general lose money. At a minimum, they are probably breaking even. Mr. Commers stated that to the extent staff can provide information about the programs, the more the better. Mr. McFarland stated in any program you will have people who will take advantage of the program. As long as they qualify and the improvements are made, there is nothing we can do. n ^ HOUSING & REDEVELOPMENT AUTHORITY MTG.. JANUARY 8.1998 PAGE 19 11. REGIONAL REMODELING PLANBOOK Ms. Dacy stated, on the December agenda, the HRA agreed to pay $5,000 as their share of the planbook and this has been included in the 1998 budget. Ms. Dacy stated at this time she is asking for permission to proceed to have the Fridley HRA act as the contract holder for the architectural firm to produce the contents of the plan book. With 15 communities, it is a Iogistical nightmare to contemplate 15 joint powers agreements and to execute the documents with the architect. They are suggesting that the City of Fridley HRA send out a letter of understanding to the participating cities stating each city would have to pay the Fridley HRA $5.000, would agree to hold the Fridley HRA harmless, and would have the right to use the planbook. The c'ity would receive the money first and then pay on the contract to the architectural firm. If this is agreeable to the HRA, Ms. Dacy will draft a letter of understanding and get a copy of the contract for the next meeting. The HRA is not obligated to do this. While it is extra work for staff, she thought it is a worthwhile project in which to participate. Mr. Commers stated there was a little risk but he thought they could support the request. He asked Ms. Dacy to get the information prepared and bring it to the next meeting. ,ADJOURNMENT: � MOTION by Mr. Meyer� seconded by Mr. McFarland, to adjoum the meeting. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED AND THE JANUARY 8,1998, HOUSING AND REDEVELOPMENT AUTHORITY MEETING ADJOURNED AT 9:58 P.M. Res ectFully submitted, � Lavonn Cooper � Recording Secretary �