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HRA 05/02/2002 - 00025072CITY OF FRIDLEY HOUSING & REDEVELOPMENT AUTHORITY MEETING MAY 2, 2002 CALL TO ORDER: Chairperson Commers called the May 2, 2002, Housing and Redevelopment Authority meeting to order at 9:08 p.m. ROLL CALL: Members Present: Larry Commers, Virginia Schnabel, Jay Bajwa, John Meyer, Pat Gabel Members Absent: None Others Present: Grant Fernelius, Assistant HRA Director Scott Hickok, Community Development Director Paul Eisenmenger, HRA Accountant Dave King, Center for Energy & Environment (CEE) APPROVAL OF THE APRIL 4, 2002, HOUSING AND REDEVELOPMENT AUTHORITY MEETING MINUTES: MOTION by Mr. Meyer, seconded by Ms. Schnabel, to approve the April 4, 2002, Housing and Redevelopment Authority meeting minutes. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. CONSENT AGENDA: CLAIMS AND EXPENSES: MOTION by Mr. Meyer, seconded by Mr. Bajwa, to approve the Consent Agenda as presented. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. ACTION ITEMS: 2. PUBLIC HEARING ON SALE OF LOT AT 6175 EAST RIVER ROAD TO CENTER FOR ENERGY & ENVIRONMENT (CEE): MOTION by Ms. Schnabel, seconded by Ms. Gabel, to open the public hearing. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED AND THE PUBLIC HEARING WAS OPENED AT 9:10 P.M. Mr. Fernelius stated that this parcel was acquired in 1999. The structure was torn down, and the lot was put up for sale last year. It was in the bid packet last year; however, no bids were received and the lot has remained for sale since then. The proposal now is to sell the land to CEE using the same arrangement that used for the Main Street property. In essence, the land HOUSING & REDEVELOPMENT AUTHORITY MEETING, MAY 2, 2002 PAGE 2 would be sold and the purchase price deferred until the home is sold. In this case, the entire amount of the purchase price ($33,500) would be deferred and CEE would execute a loan note secured by a mortgage against the property. CEE would then take title to the property and start construction. The goal would be to sell the home to moderate-income buyer whose income is at or below 80% of inedian. This is the HUD standard for low income. The mortgage would be assigned from CEE to the new buyer and this would be approved as part of the package. Mr. Fernelius stated this would make the property more affordable for a buyer and help the HRA recover its cost in the future. The buyer would only have to qualify for a first mortgage equal to the home and not both the land and building. The HRA would put this site into the Housing Replacement Program in order to help recoup some of the development costs. This approach is similar to the land trust concept, but allows the Authority to recover the cost somewhere down the road. Mr. Fernelius stated staff has included copies of the building elevations. The home would be 1,126 square feet in size with two bedrooms, full bath, unfinished basement, and two car attached garage with access from East River Road. Staff requested that CEE add some larger columns to the front of the house and install double hung windows, some trim detail, and cedar shake material to the front gable. Architecturally, this home would fit into the neighborhood nicely. The price tag is not to exceed $150,000. Ms. Gabel asked what the approximate cost per square foot is. Dave King, CEE Manager, stated the cost is approximately $113 -$120 per square foot. That includes actual construction cost, contingency fees, and contract fees. The average is between $85 -$110 per square foot. This is a very high efficiency property with amenities not usually found in a starter home. It has the full appliance package. Mr. Meyer stated that it is hard to pin the square foot assessment because it has a full basement. Mr. King stated that the square footage is a little higher with a rambler, but this style would fit into this area. Mr. Meyer stated that the square footage price is based on the first level only. Mr. King stated that is correct. Mr. Meyer stated that the depth of the garage is only about 20 feet. Mr. King stated that he believes that is due to the setbacks. Mr. Meyer asked if that was enough room to get two cars in and get to the door. Mr. King stated they will have to look at that again. He thought the garage was 22 feet long by 20 feet wide, but it is only 20 feet long and 22 feet wide. Mr. Fernelius stated that the lot confirms to the minimum lot area requirement of 7,500 square feet for a lot platted prior to 1955. This site is slightly more than 7,610 square feet. Mr. King stated that the dimensions for this house were six inches from the setbacks. HOUSING & REDEVELOPMENT AUTHORITY MEETING. MAY 2. 2002 PAGE 3 Mr. Commers stated the HRA mortgage would be subordinate to the $150,000 building mortgage. Mr. Fernelius stated that is correct. Ms. Schnabel stated there will be a mortgage of $150,000 for the house and the HRA's note is a second mortgage. Mr. Fernelius stated that is correct. Ms. Schnabel asked if that would get paid off when the property is sold to the first buyer. Mr. Fernelius stated that when the buyer resells the house, that will trigger repayment of the HRA's note. Ms. Schnabel asked if there would be interest on that. Mr. Fernelius stated staff is not recommending interest; however, they could discuss that and incorporate some kind of a rate. One of the reasons for avoiding interest is that the balance on the loan would go up over time, rather than down like a typical mortgage. Mr. Commers asked Mr. Bajwa if a lending institution would look at this with a separate price for the land and the house. Mr. Bajwa stated that he has never experienced any situation of a mortgage without the land. This is a unique situation. Ms. Schnabel asked if he saw this as workable. Mr. Bajwa stated he did. What would be the market value of this property inclusive of the land upon completion? Mr. King stated that a realtor stated that the property was worth around $180,000-$185,000. They are trying to keep this affordable so someone with an income under the 80% median around $42,000 could afford it. Mr. Bajwa asked how the second mortgage would work if the house depreciates in value. Mr. Commers stated there would be a problem if there was default or if the house was really run down. MOTION by Ms. Schnabel, seconded by Mr. Bajwa, to close the public hearing. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED AND THE PUBLIC HEARING CLOSED AT 9:27 P.M. MOTION by Ms. Schnabel, seconded by Ms. Gabel, to award the sale of the lot at 6175 East River Road to CEE. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. HOUSING & REDEVELOPMENT AUTHORITY MEETING, MAY 2, 2002 PAGE 4 3. CONSIDER CONTRACT FOR PRIVATE REDEVELOPMENT WITH CEE FOR 6175 EAST RIVER ROAD: Mr. Commers asked Mr. King how he goes about this. Is it subcontracted out to a contractor? Mr. King stated that CEE would be serving as the general contractor, and all the subcontractors are ready to go. Mr. Commers asked how many projects they have done like this. Mr. King stated this will be the third one. Ms. Schnabel stated that the purchase price on Item C on page 3 states on the Memorandum $33,5,000. That typo should be changed to $33,500. Mr. Fernelius stated the correct purchase price is listed on page 3 of the development contract. Ms. Gabel asked if the garage length should be changed. That may be a problem when the house is for sale. Mr. Meyer stated that the approval is not necessarily for that change. Mr. King stated that he can see if they can get that increased. Mr. Meyer stated that it would have to be 2 to 3 feet more because you have to give people room to carry things from the car. Mr. Fernelius stated he believed the standard depth is 22 feet. Mr. Meyer asked about the length of an SUV. Mr. King stated that SUVs can be over 20 feet. Mr. Fernelius stated that the only other option is to reduce the size of the house. Ms. Gabel stated that a variance may be the answer. Mr. Fernelius stated that in the past, they have talked about trying to avoid variance applications. Mr. Hickok stated applying for a variance would be counter to staff's practice when they are involved in a project. The City must demonstrate that these projects can be done with the practical setback standards, and they can do this with a creative solution. Ms. Gabel stated that she understood Mr. Hickok's point; however, when there is a substandard lot, a variance could avoid a tiny garage. Mr. Hickok stated that the only problem is that it is the City asking for the variance, and they hope to avoid that. Mr. Commers asked Mr. Hickok if he could demonstrate how a variance could be avoided. HOUSING & REDEVELOPMENT AUTHORITY MEETING, MAY 2, 2002 PAGE 5 Mr. Hickok stated the front yard setback has been reduced from 35 feet to 25 feet. They can go six feet plus or minus the average of the house on either side of this. That gives enough of the lineal dimension to move the house forward to give the garage the added space and not need a variance. MOTION by Ms. Gabel, seconded by Mr. Meyer, to approve the Contract for Private Redevelopment with CEE for 6175 East River Road. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. 4. CONSIDER MODIFICATION TO INCOME LIMIT FOR DISCOUNT LOAN PROGRAM: Mr. Fernelius stated that this is a different program from the Revolving Loan Program. This is a joint effort started by the Metropolitan Council and the MHFA in October, 2000. It is a pilot program the HRA got involved in to help buy down the interest rate on loans that are made by CEE and sold by the MHFA at a 6% rate. They are assisting properties that meet a number of criteria. The homes have to be built by 1970 and be rambler or cape cod style homes. A few years ago, the HRA participated in a joint remodeling book with other cities, and this loan program helps people do the improvements that were presented in the book. A total of approximately $215,000 has been made with a total of 18 loans. The HRA's expenditure of $11,000 has leveraged a total of $215,000. The cap on the income level requirement is $63,000. The cap under the MHFA program is $88,000. Staff is recommending the cap of $63,000 be increased to $88,000. Staff feels they are excluding dual income families who otherwise might apply for this program but cannot because their income exceeds the $63,000 cap. Mr. Fernelius stated that they are talking about trying to serve those households with incomes between $63,000 and $88,000. This would be consistent with what other cities have done. One option is to keep the cap where it is, the second option is to raise it to $88,000, and the third option is to raise the median income limit to $74,000. Mr. Commers stated that $88,000 is getting pretty high for income. Mr. Fernelius stated that is 115% of the median income. That is how MHFA established $88,000. Ms. Gabel stated that sounds like a lot of money to her too, but she knows a family that is paying $15,000 per year on child care. Mr. Bajwa asked what the maximum amount of the discount loan program was. Mr. Fernelius stated he believes it is $35,000. Mr. Bajwa stated he has a lot of properties in his work that qualify for remodeling, and he is wondering how people would really utilize this. Mr. King stated there has been quite a lot of activity with 350 loans here at this City. A total of $4,000,000 has originated with improvement loans. They are seeing more maintenance projects being done and a few additions specific to ramblers. This program is directed to two- income households that either want to put on an addition or move to a bigger home. HOUSING & REDEVELOPMENT AUTHORITY MEETING, MAY 2, 2002 PAGE 6 Mr. Meyer stated that most of the loans are not for the full $35,000 and are toward pedestrian repairs. Mr. King stated that when the program first started, there was a$25,000 cap. The money was used mainly for systems that really needed the repairs. Mr. Meyer stated the loan money should be directed to the more pragmatic aspects. He does not like the raising of the limits, but he realizes people are not voting to add the pool or fancy items. They are not staying up with the $35,000 request. Mr. King stated this particular program is a joint effort with Coon Rapids, Blaine, St. Louis Park, Fridley, and Columbia Heights. They had similar demographics and housing stock. People participating in the Revolving Loan Program had higher incomes. This is a little different take. The Metropolitan Council funded $25,000 last year, and the HRA funded $25,000. They have until the end of this year, and the contract with Metropolitan Council expires at the end of May. MOTION by Ms. Gabel, seconded by Mr. Bajwa, to modify the income limit for the Discount Loan Program to $88,000. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. UPDATE: 5. MISCELLANEOUS PROJECT UPDATES: Mr. Fernelius stated they are not much farther than the last time they discussed the Penk Peterson project. There was a question in terms of how the assistance level was determined. The memo points out that it really was not related to tax income projection; it was related to the actual cost of the soil correction. The HRA is committed to help the project with 2/3 of the soil analysis. They are under the assumption that there are not going to be a whole lot of years left in this district in terms of generating tax increment. Those dollars are in escrow; and if this project does happen by the end of the year, there really are not going to be any new dollars the HRA will have to provide. If it does happen the funds would go back into the tax increment program. Mr. Commers asked in what district this project was located. Mr. Fernelius stated that it was TIF District #3. Mr. Commers asked for the update on Target and the parking ramp. Mr. Fernelius stated that the buyer backed out. He was not sure why but suspected that the tenant for the building had lost interest and did not sign the lease. There were some questions about an easement, and there was some impression that an easement affected the ability to utilize the lot. Ms. Schnabel stated that the amount of money in the lease agreement received from Target was the $17,000 that was coming out of the bond. Mr. Fernelius stated that is correct. The rent payment is fixed at $15,000. If the interest income was more than $15,000, the HRA would keep it. HOUSING & REDEVELOPMENT AUTHORITY MEETING. MAY 2. 2002 PAGE 7 Mr. Commers stated that the last item for discussion was the Loan Grant Origination Report and the recent properties closed on in March. Mr. Fernelius stated there has been a flurry of activity related to CDBG dollars they are trying to spend down or risk losing. A number of different homeowners have benefited from that. A loan servicing report was attached to the agenda and an update on the Operation Insulation Program showing the number of appointments and those that resulted in actual projects. Mr. Commers asked if the number is 22 out of 64. Mr. Fernelius stated that is correct. The program is going quite well. The Building Inspection staff promote it as they see the problems people have such as poor ventilation and lack of insulation. Ms. Schnabel asked if the page showing delinquencies was included. Mr. Fernelius stated that was not included because the loan servicing company does not structure it that way. The report shows delinquencies at the end of the month. The HRA's loan payments are scattered all throughout the month. The report skews the delinquencies, and staff needs to find a better system. Ms. Schnabel stated that she likes the form used. ADJOURNMENT MOTION by Ms. Schnabel, seconded by Ms. Gabel, to adjourn the meeting. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED AND THE MAY 2, 2002, MEETING OF THE HOUSING AND REDEVELOPMENT AUTHORITY ADJOURNED AT 10:04 P.M. Respectfully submitted, Signe L. Johnson Recording Secretary