Loading...
HRA 08/08/1991 - 29623CITY OF FRIDLEY HOIISING & REDEVELOPMENT AIIT80RITY MEETING� AIIGQST 8, 1991 �_������_�������������_����_�_�_»���������_��__����___�_���__���� CALL TO ORDER• Vice-Chairperson Schnabel called the August 8, 1991, Housing and Redevelopment Authority meeting to order at 7:38 p.m. ROLL CALL: Members Present: Members Absent: Others Present: �, Virginia Schnabel, Duane Prairie, John Meyer, Jim McFarland Larry Commers William Burns, Executive Director of HRA Barbara Dacy, Community Development Director Paul Hansen, Accountant Jim Casserly, Consultant Mike Hurley, Barna, Guzy & Steffen Spencer Johnson, 6401 University Avenue Curt Glaser, 2550 University West, St. Paul Harry Yaffe, 7841 Wayzata Blvd. Sherrill Oman, 2000 Piper Jaffray Tower Don and Judy Fitch, Fridley Dairy Queen Lee Maxfield, Maxfield Research Group, Inc. Mary Bujold, Maxfield Research Group, Inc. APPROVAL OF_JUNE 27, 1991 HOUSING & REDEVELOPMENT AUTHORITY MINUTES• MOTION by Mr. Prairie, seconded by Mr. Meyer, to approve the June 27, 1991, Housing & Redevelopment Authority minutes as written. IIPON A VOICE VOTE, ALL VOTING AYE, VICE-CHAIRPERSON SCHNABEL DECLARED THS MOTION CARRIED ONANIMOII3LY. 1. CONSIDERATION OF RESOLUTION APPROVING REDEVELOPMENT AGREEMENT WITH THE CHARLES SMITH ESTATE: Ms. Dacy stated that staff would like the HRA to consider the approval of a resolution which would authorize execution of the development contract with the Charles Smith Estate to redevelop the former Cub Foods site at 250 Osborne Road. At this time, the heirs to the Charles Smith Estate are in the process of remodeling the building into three tenant spaces and are proceeding with the required outside improvements. �. , � HOIISING & REDEVELOPMENT AIITHORITY MTG., AIIG. 8, 1991 PAGE 2 Ms. Dacy stated that at the June 27, 1991, meeting, the HRA conceptually approved a pay-as-you-go approach for tax increment financing for this particular project. The concept approval stipulated that it was not to exceed $65,000, or the tax increment, which is payable over seven tax payable years. In order to accomplish the pay-as-you-go approach, the petitioners had to secure an additional $65,000 or the first mortgage. Since the June meeting, Northeast State Bank has approved the additional $65,000. The development contract at the meeting prepared by Jim Casserly matches the direction and concept approval given by the HRP, on June 27, 1991. Ms. Dacy stated that also included in the development contract are a couple of new restrictions the HRA has not seen in the past. One is the restriction on a sexually oriented business. The purpose of this restriction is to make sure that tenant spaces in a publicly assisted project are not leased to a sexually oriented business as defined in the Code. Secondly, the property has had an ongoing problem with overnight parking of semi-truck trailers, so they have included language in the development contract to prohibit that activity. Mr. Casserly stated the development contract is best summed up on page 25, which is a copy of what amounts to the promissory note. i"� It is the limited revenue tax increment note in the amount of $65,000. The $65,000 is to reimburse for tax increment eligible expenses. The note lays out very clearly that this is not the general obligation of the HRA; it is a revenue obligation and it is payable only from the revenues that come from tax increment that are paid on these particular parcels. Mr. Casserly stated legal counsel for the developer had a couple of language changes that were legitimate and were incorporated into the contract. He stated two pages, pages 12 and 14, were handed out at the meeting. If the HRA is comfortable with the underlined changes, staff recommends these be included in the development contract. In Section 6.1 (c) on page 12, they made it clear that they are talking about semi-truck trailers and that they cannot occupy a space for over a 24-hour period on any part of the Redevelopment Property facing University and Osborne Road or there could be a default under the contract. Page 14 is the section that contains the various kinds of defaults that could occur in this contract, and Section 7.1 (c) states that: "Failure by the Redeveloper to remove semi-truck trailers within the time period required by Section 6.2 (c)...." Mr. Meyer questioned the language, "any part of the Redevelopment Property facing University and Osborne Road". They have to be explicit in telling the property owner under what circumstances � they are violating the development contract and be explicit about where trucks cannot be parked because of the severe penalty that accompanies this violation. � HOIISING � REDEVELOPMENT AUTHORITY MTG. AIIG. 8, 1991 PAGE 3 Mr. Casserly stated that the rear of the property is for loading and unloading trailers. The concern has not been with the trailers parked in the rear overnight or for a certain time period during the regular course of business, but with the whole front of the property facing University and Osborne Road. He agreed that "facing University and Osborne Road" is not the best language. Mr. Mike Hurley suggested they refer to the "customer parking" facing University and Osborne Road. Mr. Casserly suggested the following amendment: "...any part of the Redevelopment Property used for customer parking fronting University and Osborne Road..." If the HRA is agreeable, he will incorporate that into the agreement. The HRA was in agreement with that amendment. Mr. Hurley stated they do not like the default procedures, but understand what the HRA is looking for. They are working at correcting the problem with the semi-truck trailers in the parking lot. If there are any complaints, he would ask that staff contact him right away and they will tow away any violators. MOTION by Mr. Meyer, seconded by Mr. Prairie, to approve Resolution � HRA 5-1991, "A Resolution Authorizing Execution and Delivery of a Contract for Private Redevelopment By and Between the Housing and Redevelopment Authority in and for the City of Fridley and Steven Hardy, Leanne Hardy, Kent Smith, Spring Smith,m Kent Gardner, and Jerrill Lynn Gardner". IIPON A VOICE VOTE, ALL VOTING AYE, VICE-CHAIRPERBON SCHNABEL DECLARED THE MOTION CARRIED IINANIMOIISLY. 2. CONSIDERATION OF CONCEPTS OF SETTLEMENT AGREEMENT AND LEASE WITH DON FITCH REGARDING DAIRY 4UEEN SITE: Ms. Dacy stated that since the agenda was delivered the previous Friday, some events have caused staff to recommend different actions for the HRA to take. Ms. Dacy stated that on the settlement agreement, Mr. Fitch received word that Scott Ericson did not receive final approval on the financing for the redevelopment of the northeast corner (Fridley Town Square project). Mr. Fitch had signed a lease with Mr. Ericson to relocate the Dairy Queen business to that location. However, Mr. Fitch has indicated that he does not want to conclude an agreement on the acquisition of the property at this time. Ms. Dacy stated the second item is the lease agreement. Mr. Fitch has identified 14 items in the lease that he wants to discuss ''� further. At this time, staff is recommending the HRA not take any action on the lease. Staff would like more time to discuss the , ,�.� HOIISING & REDEVELOPMENT AIIT$ORITY MTG.� AIIG. 8, 1991 PAGE 4 issues with legal counsel and then finalize a recommendation to the HRA. Staff will bring back the lease to the September HRA meeting. Ms. Dacy stated that on July 25, 1991, the HRA took possession of the Dairy Queen property. Staff sent Mr. Fitch a letter dated July 24, 1991, indicating that until a written lease agreement is executed, he is responsible for all costs that are incurred as a direct or indirect result of the operation of the Dairy Queen. Mr. Don Fitch stated he was sorry if he had inconvenienced the HRA by not having the lease ready for approval. He and his wife are no less concerned than the HRA to come to a resolution. Mr. Fitch stated that on Tuesday, Mr. Ericson did inform him that his last chance to get construction financing was turned down. At this time, they are not sure of the status of the Fridley Town Square project, and he might not have a place to relocate. Therefore, his attorney advised him that without a place to relocate at this time, he should not settle on the land and the building. At this point, it has nothing to do with the terms or City staff. Mr. Fitch stated that regarding the lease, he agrees in principal to some of the price terms, but there are a few legalities in the r"� lease about who will be responsible for what improvements that needs to be discussed. He is confident that they will be able to come to terms on the lease. Mr. Fitch stated that he definitely would like to relocate in the northeast corner of University/Mississippi. If Mr. Ericson continues to be unsuccessful in securing financing, Mr. Fitch stated he would like the HRA to consider the potential of he and some other individuals acquiring the property and redeveloping the area for a Dairy Queen and some other businesses. He will start putting together a proposal. Mr. Fitch thanked the HRA for their time and patience. Ms. Schnabel asked if the Fitches are paying a monthly lease fee. Ms. Dacy stated the Fitches are continuing on a day-to-day operation cost. They have not issued a rent check per se. When the lease is signed, it will be written such that the Fitches will have to pay the rent due since July 25, 1991. Ms. Schnabel stated that in the lease agreement, it referred to months of operation. She would like to see the months of operation more defined so the HRA knows how many months the HRA will be collecting lease fees. � Ms. Dacy stated this can be included in the lease. � HOII3ING & REDEVELOPMENT AIITHORITY MTG., AIIG. 8, 1991 PAGE 5 Mr. Hoeft stated the way the lease is termed right now, the Dairy Queen will pay $500 per month, and if they are in operation during any portion of any month, they shall pay a per diem prorated amount of said $500. Mr. Fitch stated he did not have a problem with putting in the lease a minimum number of months of operation. He would suggest a minimum of eight out of twelve months of operation. He is generally open at least 9-10 months depending upon the weather in the spring and the fall. Ms. Schnabel stated she is not suggesting this to cause the Dairy Queen a hardship, but she did think the HRA should be protecting themselves. 3. CONSIDER PROPOSAL BY UNIVERSITY AVENUE ASSOCIATES REGARDING RESTRUCTURING SECOND MORTGAGE FOR SPRINGBROOK APARTMENTS: Ms. Dacy stated that in 1986 and 1987, the HRA approved a development contract for the Springbrook Apartments, and part of that development contract authorized the HRA to issue a$850,000 second mortgage to the developer and owner of the site, University Avenue Associates. Under the mortgage agreement signed by the HRA and developer, the first payment on that mortgage is due on July ^ 11, 1993 and totals approximately $110,000. A like amount is due each year until the year 2002 when the entire principal and interest is due and payable. Last year this month, the HRA agreed to a one year extension on the second mortgage to run concurrently with the first mortgage the developer had on the property. Ms. Dacy stated University Avenue Associates has now notified staff that they would like to refinance the first mortgage and utilize an FHA-Insured mortgage. The Department of Housing & Urban Development administers this type of loan and has a lot of stipulations about the amount of subordinated debt. Ms. Dacy stated two items are being requested for conceptual discussion and some type of direction from the HRA: 1. If University Avenue Associates refinances its first mortgage, a new second mortgage would have to be issued by the HRA. 2. Because of the type of HUD requirements, the second mortgage may be in a lesser amount, and the difference between the original and new amount secured. Ms. Dacy stated she wanted to make it clear that University Avenue Associates is not requesting a reduction in the amount of payment � or a forgiveness. The $850,000 is still intact; it is just a matter of being restructured. � HOIISING & REDEVELOPI�ENT AIITHORITY MTG., AIIG. 8, 1991 PAGE 6 Ms. Dacy stated that in the agenda is a letter dated August 1, 1991, from Jim Casserly who has reviewed the restructuring issue. Staff's charge to Mr. Casserly was that they wanted to protect the current security the HRA now has with the current second mortgage and how that will be affected with the new restructuring. Ms. Dacy stated Sherrill Oman, attorney for University Avenue Associates, and representatives for Springbrook Apartments are in the audience. Mr. Casserly stated Springbrook Apartments is asking the HRA to assist them so they can get some permanent financing on the project. As he understands it, they are still operating with their construction loan, and they need to have take-out financing. The program being looked at is a HUD-guaranteed mortgage which would give them a very competitive interest rate amortized over a 35 year period. Unfortunately, some of the requirements of that HUD mortgage affect the HRA. One of the requirements is that any secondary financing has to have some limitations to it. They do not wish to make a deposit, pay a processing fee which, in this instance, is approximately $40,000, unless they have some preliminary direction from the HRA. The goal for the HRA is to be no worse off than they are now. Staff believes they would like to assist Springbrook Apartments. It would make for a more stable project if they can place permanent financing. In fact, the HRA may be in a better position than it is now for a number of reasons. Some have to do with maintaining various kinds of repair and replacement funds and having the project's debt being amortized over a long term at a competitive rate. Mr. Casserly stated the HUD procedure is fairly convoluted. There have not been many of these financings done, and it will take some time and patience on the part of Springbrook Apartments. Mr. Casserly stated that in his August 1, 1991, memo, he has suggested that the HRA consider a new subordination under the following four circumstances: 1. That the project pro forma demonstrates an ability to pay the HRA note. 2. That an appraisal of the project shows that net sale proceeds would be adequate to pay the HUD guaranteed debt and the Note (not just the HRA debt secured b the second mortgage). 3. That at least 75% of the Note be secured by assets (this may include assets other than the Springbrook Apartments). � � HOIISING & REDEVELOPMENT AIITHORITY MTG.� AIIG. 8, 1991 PAGE 7 4. That the cumulative financial net worth of the guarantors exceeds $10 million. (This amount is contained in Article 4 of the Mortgage Guaranty presently in effect), Ms. Schnabel stated that regarding #4, how can the HRA control this type of situation should the ownership change? Mr. Casserly stated he is not sure that it makes any difference to their guarantee if the ownership changes. Ms. Sherrill Oman, attorney with Larkin, Hoffman, stated that also with her was Harry Yaffe, one of the partners of University Avenue Associates, and Curt Glaser, a principal advisor of the Glaser Financial Group. Ms . Oman stated Mr. Casserly did a very good j ob in introducing the project. They are in the process of refinancing their project. This has been going on for some time. The mortgage with Citicorp Real Estate, Inc., actually matured on May l, 1991. It was intended to be a loan to stay in place only to cover the construction period and lease-up, and that has occurred. They have explored other methods of financing, and this appears to be the most attractive and the most feasible method. ^ Ms. Oman stated that Citicorp understands that in the process of refinancing, they are giving the partnership the latitude on a month-to-month basis to proceed with financing. There is no threat of foreclosure or anything of that nature. They just want to get this accomplished as quickly as possible. Ms. Oman stated HUD does have restrictions on the amount of subordinate debt that can be incurred by the project itself. In her letter dated July 19, 1991, to the HRA, she had outlined the methods HUD uses in determining that amount. Ms. Oman stated that because of the cash flow projections, the project occupancy has increased and the vacancy rate has gone down. The apartments have only been in operation for a little over three years. They do not know how much smaller the second mortgage is going to be, and it may not be smaller at all. But, because it could be smaller, they thought they should come before the HRA at this stage to make sure it is something that can be worked out with the HRA. There are other ways for providing for a promise of payment other than a direct mortgage from the partnership. Ms. Oman stated they do not think a real source of security is the project, in the sense of it being collateral. They think the real security for the HRA is the assurance that they will be paid back and will be paid back in terms of the executed documents. They � believe the refinancing will benefit the HRA because it will provide 30 years of financing. The rates are favorable. The debt � 80II8ING & REDEVELOPMENT AIITHORITY MTG. AIIG. 8, 1991 PAGE 8 would be fully amortized over a 35 year period and would have a significant impact on the cash flow of the project. Ms. Oman stated HUD requires an initial deposit to a replacement reserve fund for the purpose of maintaining the project and replacing capital items as they wear out. This replacement fund deposit will likely be $450-$750 per unit. In addition, HUD will require a monthly deposit to be made to the replacement reserve fund so that at all times sufficient funds will be necessary, as determined by HUD, to properly maintain the project. That will: (1) ensure an attractive and well maintained project in the City of Fridley; and (2) ensure the project is attractive to people who live there. That will keep the vacancy rates down and improve the cash flow. Mr. Oman stated the partners are contributing $700,000-800,000 in additional equity to the project. That demonstrates a very significant commitment by the partners of the owner to this project to keeping it and repaying the debt. Ms. Oman stated she wanted to emphasize that they are asking for concept approval only, prior to making the actual application to HLTD . ,^ Mr. Curt Glaser, Glaser Financial Group, discussed the financing details. Mr. Glaser stated they are mainly property mortgage arrangers and they specialize primarily in multi-family residential housing placement and structuring loans for that type of real estate. They have explored other financing opportunities for this project, but they were not feasible. He stated HUD is very impressed with this real estate and are welcoming an application. HUD's under-writing criteria is probably easier than conventional criteria, but their underwriting decisions and business decisions are going to be as conservative as conventional. HUD's process will probably involve 4-5 months. Mr. Glaser stated HUD will carefully review the development, because HUD's obligations, in the event of a foreclosure, are to pay a claim to the lenders. The HRA can be assured that if HUD commits to finance that the project has received the closest scrutiny in terms of its performance and ability. Ms. Schnabel stated her only concern (and she believed it has been addressed) is that if the HUD application goes through, they require that the subordinated debt be paid only out of surplus cash. As long as that is going to directly affect the HRA, they should be assured their position is going to be solid. ^ Mr. Casserly stated that right now in the current development contract, they look to the personal guarantees, and that is not � HOIISING & REDEVELOPMENT AIITHORITY MTG.. AIIG. 8, 1991 PAGE 9 � going to change. The owner has not suggested any other guarantee. That is really the basis for the HRA's security. The HRA would like the project demonstrating consistently more cash flow. They are only as secure as the guarantee is secure, and that guarantee is not secured by anything at all other than net worth of the guarantors. In his judgement, the HRA should be in better shape if this financing is accomplished. MOTION by Mr. Prairie, seconded by Mr. Meyer, to continue to work with University Avenue Associates regarding the restructuring of a second mortgage for Springbrook Apartments subject to the four criteria suggested by Mr. Casserly in his August 1, 1991, memo: 1. That the project pro forma demonstrates an ability to pay the HRA note. 2. That an appraisal of the project shows that net sale proceeds would be adequate to pay the HUD guaranteed debt and the Note (not just the HRA debt secured b the second mortgage). 3. That at least 75% of the Note be secured by assets (this may include assets other than the Springbrook Apartments). 4. That the cumulative financial net worth of the guarantors exceeds $10 million. (This amount is contained in Article 4 of the Mortgage Guaranty presently in effect), IIPON A VOICE VOTE� ALL VOTING AYE, VICE-CHAIRPERSON BCHNABEL DECLARED THE MOTION CARRIED UNANIM003LY. 4. CONSIDER APPROVAL OF MORTGAGE SATISFACTION AGREEMENT. JOHN AND KAREN EARLEY• MOTION by Mr. McFarland, seconded by Mr. Prairie, to approve the Mortgage Satisfaction Agreement for John and Karen Earley at 6041 - 3rd Street N.E. IIPON A VOICE VOTE, ALL VOTING AYE, VICE-CHAIRPERBON SCHNABEL DECLARED THE MOTION CARRIED UNANIMOIISLY. 5. CONSIDERATION OF HOUSING STUDY OUTLINE: Ms. Dacy stated the HRA last discussed this in April 1991. In January 1991, she and Mr. Burns interviewed a number of other staff members in first ring suburbs to see what they do to create successful housing redevelopment programs, etc. One suburb interviewed was the City of Brooklyn Center. The City of Brooklyn ^ Center had a housing study done by Maxfield Research Group that was very useful to the City of Brooklyn Center. The following are reasons why staff recommended the HRA look at a housing study: , � HOIISING & REDEVELOPMENT AIITHORITY MTG.. AIIG. 8, 1991 PAGE 10 (1) Staff thought they needed a study to help the City identify areas for successful housing development and redevelopment projects. (2) An HRA member stated that the City needs more than just a demographic study. So, she has changed the outline to create a neighborhood-focused approach. (3) The Association of Metropolitan Municipalities, of which Fridley is member, has adopted a policy recommending that "...cities carefully look at the impacts of these trends on their housing stock and become involved with all local and regional governments to successfully address the potential problems. It is important to recognize the market forces that will require cities to address the metropolitan nature of these issues." (4) Metropolitan Council is also requiring cities to make sure their comprehensive plan for housing is consistent with its plan. (5) To help the City initiate a process where the City adopts goals and policies in maintaining and improving the housing � stock and livability of the community. (6) The housing study would be a good tool to provide data for developers and as a resource for the citizens of Fridley. Ms. Dacy stated that in April 1991, the HRA told staff they wanted the housing study more focused. There were a lot of questions about existing neighborhoods, homes, removal, etc. She has tried to answer these questions in the outline. Ms. Dacy stated this is a very extensive study. In order to minimize the costs, staff has worked with Maxfield Research Group to identify certain tasks the Community Development Department would be responsible for. Mr. Maxfield has verbally indicated that the maximum cost of the study will be $25,000. Ms. Dacy stated staff is recommending that the HRA approve the housing study outline and authorize the Executive Director to sign a contract with Maxfield Research Group. They could start work as soon as next week. Mr. Maxfield stated they are very pleased that the HRA has considered them to do the study. They can provide some very useful information and tools for the HRA and City for use in identifying some of the concerns and issues regarding each of the neighborhoods and looking for opportunities for development over the short term ^ and long term. ,� i"1 HOUSING & REDEVELOPMENT AIITHORITY MTG., AIIG. 8, 1991 PAGE 11 Mr. Maxfield stated this is not just a housing issue; it is also the issue of the people themselves and looking at parks, schools, transportation, shopping, social programs, etc. As the population changes, the needs of the community also change. Mr. Meyer stated that in a very simplistic way, he is concerned about first ring suburbs. First ring suburbs such as Fridley are probably up to their maximum in housing in terms of acreage. They have a large number of people who are either empty nesters or soon to be empty nesters. They have situations where it is less and less possible for young people to afford the houses that are going to be vacated by the empty nesters. At the same time, they have the phenomenon of those people who do have more money of opening up suburbs into the second ring, which could be leaving the first ring suburbs behind and vacated, much as has been done with the inner cities. To him, this is a major concern, and how is Mr. Maxfield going to address that concern? Mr. Maxfield stated that is a very important part of the study. He shares the same concerns about what is happening to first ring suburbs. Looking at housing and communities from marketing standpoints, there are going to be fewer entry level buyers. There are going to be more entry level homes on the market than there are buyers. One of the opportunities in the study is to identify the strengths Fridley has to offer in the marketplace. On the other hand, because there is still growth in the Twin Cities, that growth is going to create more demand for various types of housing. So, they have to look at it from two standpoints: (1) How can they position the City to be competitive to try and attract people? (2) Given the housing product, there might be another market that can attract the group that is shrinking. Mr. Meyer stated what Mr. Maxfield is saying sounds good. He hoped that the Maxfield Research Group will be as realistic as possible and not dwell on "pie in the sky" hopeful scenarios that have no major basis in reality. Mr. Maxfield stated they pride their reports on honesty and practicality. Ms. Schnabel stated this study is a real starting point on a whole series of decisions the HRA and City Council will have to address in the future. MOTION by Mr. McFarland, seconded by Mr. Meyer, to authorize the Executive Director to enter into a contract with Maxfield Research Group to conduct a housing study at a suggested contract cost of $25,000. Mr. Meyer stated this is a tremendously ambitious survey of the Fridley community for even $25,000. He expressed some concern at the April meeting that he hoped they are spending enough money to � HOIIBING & REDEVELOPMENT AIITHORITY MTG., AIIG. 8, 1991 PAGE 12 , -- give themselves a meaningful tool and not just a"boilerplate" report. Ms. Schnabel stated the HRA has discussed in the past that the City's housing stock needs to be addressed. If they are truly in the business of being a"Housing and Redevelopment" Authority, this housing study is a step in the right direction. IIPON A VOICE VOTE, ALL VOTING AYE, VICE-CHAIRPERSON SCHNAHEL DECLARED THE MOTION CARRIED IINANIMOIISLY. 6. CLAIMS AND EXPENSES: Mr. Hansen stated the invoice for Noble Nur.sery for irrigation system repair at East Moore Lake Drive is a City expense, not the HRA's. MOTION by Mr. Prairie, seconded by Mr. Meyer, to approve the check registers dated July 19 and August 2, 1991. IIPON A VOICE VOTE, ALL VOTING AYE, VICE-CBAIRPER30N SCHNABEL DECLARED THE MOTION CARRIED UNANIMOIISLY. 7. CONSIDERATION OF INFORMATION ON TIF TURNBACK TO SCHOOLS: � Mr. Burns stated he will be talking about the 1992 TIF return to the four school districts, the estimated 1991 amounts compared to estimated 1992 amounts, and the percentage increase/decrease that would be available to the districts. Mr. Burns stated that in order to evaluate whether they want to use their discretion as allowed by state law to turn TIF money back to the school districts, he asked the question: How much of an impact is this money going to put on the City's plans for future development? He looked at different major project areas: Southwest Quadrant, Lake Pointe, Mochinski project, University Avenue Gateway. He is assuming that the HRA will need to subsidize these projects. Mr. Burns stated that in order to address future project costs and their impact, he developed three different scenarios: Best Case, Worst Case, and Most Likely case. In all three instances, using the numbers provided by the Finance Department, it seemed clear to him that the TIF turnback to the schools is not going to stop the HRA from doing these projects. He is also assuming that the only projects that they are going to subsidize are the four major projects. He is assuming that other projects, Cub Foods project, Bob' s Produce proj ect, etc. , will continue to be pay-as-you-go type projects. ^ Mr. Burns stated he has talked to Superintendent Dennis Rens and the Director of Finance, David Shapley. It is his understanding � HOIISING & REDEVELOPMENT AOTHORITY MTG.� AIIG. 8, 1991 PAGE 13 , � that School District #14 will be operating at a projected annual operating deficit over the next three school calendar years. Additionally, this year's legislative session mandated that there will be no school district referendum levies in 1991. They had planned to address the deficit by going to the voters. In the event a levy is put on a ballot in 1992, it will not be until the 1993-1994 school year that the school will realize revenue from the new levies. Based on that kind of need, perhaps the HRA's need for the TIF turnback is not as great as the schools. Mr. Burns stated he is recommending that the HRA once again return to the school districts 100% of the revenues generated by referendum levies approved between 1979 and 1988. Mr. Burns stated no action is needed by the HRA at this meeting. This will be brought back to the HRA for action at the September meeting. Mr. David Shapley, Director of Finance for School District #14, stated he is representing Superintendent Rens. He would like to convey to the HRA their thanks for the HRA's full support of School District #14 over the years. It is a real leadership role in a City where four school districts exist, and it is good to see this kind of community blend. Ms. Schnabel stated she would like Chairperson Commers' input before making any final decisions on the TIF turnback. 8. CONSIDERATION OF CITY COUNCIL RESOLUTION REGARDING DECERTIFYING TIF DISTRICTS: Mr. Burns stated that on July 22, 1991, the City Council passed a resolution encouraging the HRA to decertify TIF districts as long as the revenue from the districts is no longer needed to fund our various financial obligations. This resolution was suggested after a discussion regarding the Cub Foods/Bob's Produce Tax Increment District No. 11 (July 1, 1991.) The Council wanted him to make it clear to the HRA that this is not a hostile resolution, and they meant no ill will toward the HRA by passing this resolution. Ms. Schnabel asked if they have an analysis of those districts that fall into this category, or if the Council had any specific districts in mind. Mr. Burns stated they talked about the Skywood district and the Johnson Printing district. Ms.Schnabel asked if the Council is recommending that the HRA retire some of these districts earlier than the anticipated date. ^ Mr. Burns stated he believed the Council is saying that if the HRA feels they do not need the revenue to cover redevelopment costs, r� ,� HOIISING & REDEVELOPMENT AIITHORITY MTG. AIIG. 8, 1991 PAGE 14 then they are recommending the HRA retire the districts early. That might be difficult to do as the HRA moves its focus on commercial/industrial redevelopment to housing redevelopment. Ms. Schnabel stated but if the HRA is introduce some real they are doing. the resolution is probably a point well taken, now embarking on a housing study that may needs, the HRA needs to be cautious about what Mr. Casserly stated he wanted to make it very clear that the HRA really does not have surplus increment. They have a nice balance right now because some of the projects they are looking at trying to accomplish have not come to fruition, but the law is very clear that in any year in which the tax increment exceeds the amount necessary to pay the costs authorized by the plans, they can only do one of four things: (1) They can prepay any outstanding bonds; (2) discharge the pledge of the tax increment and decertify the district; (3) pay into an escrow account the amount dedicated to pay a bond; (4) return the excess amount to the County Auditor who will then distribute it to the other taxing jurisdictions in proportion to their levies. The caution here is that if they do not have any plan for utilizing what they have available, then they have no option. They return it to the County Auditor and decertify. That is very important legally, as well as financially. Ms. Schnabel stated that maybe the HRA should respond to the Council using the presentation just made by Mr. Casserly. Mr. Meyer agreed with Ms. Schnabel. Mr. Casserly stated it does seem like a simple proposition that if you are creating a new district, it would be nice to get rid of an old one. The problem is that anything they are looking at creating now is very narrowly defined. The kind of districts they are looking at today in no way compare to some of the districts established previously. Mr. Meyer agreed with Ms. Schnabel's suggestion. The HRA should write a letter to the Council thanking them for their observation, that the HRA will make every effort to do as the Council suggests; but that there are some obstacles in the way that might make that difficult at this time. Mr. Burns stated another obstacle might be that decertifying the district would be in contradiction with some of the provisions of the HRA bond issues. Mr. Jim O'Meara, HRA bond counsel, has responded to this as well. Ms. Schnabel stated she certainly did not want to imply that they have any philosophical difference with the Council, because she !� did not think they do. She just wanted to be sure that the Council is reassured that the HRA is with the Council all the way, but they � HOUSING & REDEVELOPMENT AIITHORITY MTG.. AIIG. 8, 1991 PAGE 15 , -- do have some limitations set by state law, they do have some obligation, and they are trying to be conservative in defining these districts very narrowly. Mr. Burns stated he also thought a letter to the Council is appropriate. He understood the intent of the HRA. He would be happy to write a letter on the HRA's behalf to the Council and will include a copy of that letter in the next meeting agenda. 9. UPDATE ON INFORMATIONAL MEETING FOR MISSISSIPPI STREET PROJECT• Ms . Dacy stated the City received word as of last week that the Mississippi Street widening project will not occur this fall, but will be put out for bid next spring. Staff will be notifying the people who attended the information meeting on July 8, 1991, and will notify the people again in the spring before construction begins. 10. UPDATE ON RICE PLAZA: Ms. Dacy stated a copy of the Rice Plaza 1991 rent through July is included in the agenda. The HRA should be aware that Metz Bakery will be vacating its tenant space. 11. OTHER BUSINESS: a. Fridley Plaza Office Building Mr. Burns stated that at the last meeting, the HRA had a letter from Tony Krecji, Dr. Michael Park's real estate representative, asking that the HRA forgive about three- fourths of the second mortgage which is almost $40,000 and accept a settlement for $10,000. Mr. Burns stated he has discussed this with City Attorney Virgil Herrick, who has also discussed this with the prospective owners of the building. As a result of those negotiations and conversations, the $10,000 is now up to $17,500. Mr. Herrick recommends the HRA accept the $17,500. Mr. Burns stated that of the remaining life of the second mortgage (1/2/99), the HRA would receive $64,199.99. If they accept the $17,500 and realize an 8o return on that amount, they would accumulate $28,592.95 in January 1999, for a loss of $35,607.04. Mr. Burns stated he is very disappointed in this situation, as is the City council. However, the HRA � seems to be stuck and there does not appear to be a practical alternative. � HODSING & REDEVELOPMENT AIITHORITY MTG.. AIIG. 8, 1991 PAGE 16 � - Mr. Mike Hurley stated he is representing Columbia Park Properties. With him is Dr. Spencer Johnson, Manager of Columbia Park Properties. Mr. Hurley stated the partnership is not the owner of the property. He stated that Dr. Michael Park is no longer the managing partner; Dr. Johnson is. Dr. Park negotiated the purchase of the mortgagee's interest for the property. He did not buy it outright. Since that time, the partnership has expended a substantial amount of money for tenant improvements and improvements to the building. They do not have the deed from the fee owner, and they are having a problem with getting any deeds. They are proposing to give some kind of compensation to get that deed. It appears they might have to foreclose on the property. If they do that, then the slate is wiped clean; and the HRA, as the second mortgage holder will have the ability to take out the first mortgage which is not too feasible because of the old partnerships. Mr. Hurley stated the partnership does not want to foreclose. They want to be good neighbors and are � proposing this way to solve the situation. Mr. Spencer Johnson stated Columbia Park Medical Group is a corporation and a subset of that corporation is the partnership that owns the building. They need the building for administrative offices, and that was the impetus for buying the building. He stated he is now the Executive Manager of the Partnership. He is a family doctor who has been with the medical group since 1977, actively involved in the corporate board for 7-8 years. This is a mess and they are hoping they can get out of it without going to foreclosure. Ms. Schnabel stated she would like to have more information from the HRA's legal counsel before they make any decision. What is the HRA's legal position, what precedent would they be setting, and can the Partnership foreclose when they don't have a deed to the property? Mr. Jim Hoeft stated the legal position is simple and clear cut. The Partnership has the option to foreclose on the property if they cannot get a deed from the present owner. If a foreclosure does occur, the position of the HRA as the second mortgage holder would be eliminated, if not exercise right of redemption and n "purchase" building. Mr. Hoeft stated that as far as setting a precedent, they have to look back to the origin of why they are in this position and the history of this property. The property is somewhat unique in the troubles it has had. At the HOIISING & REDEVELOPMENT AUTHORITY MTG., AIIG. 8, 1991 PAGE 17 time the present owner bought the property, the only feasible way to finance that purchase was for the HRA to subordinate its mortgage. The HRA made the decision that they wanted the project to proceed and be successful. Unfortunately, that owner of the property, for whatever reason, did not succeed. Now the Partnership has come in with this proposal, and the HRA has to deal with it. It is either negotiate a settlement with them to assist them or to have them take whatever means they have to take the property. Dr. Johnson stated he is not sure they can wait until the next meeting for a decision by the HRA. Mr. Meyer stated he would opt to settle and get out of it. Mr. McFarland stated that $17,500 is better than nothing if the Partnership forecloses on the property. Ms. Schnabel stated it does appear the HRA has little choice. The HRA certainly wishes to maintain a good relationship with its neighbors, but she wished there was some room for negotiation and that they could make r-1 this decision without leaving a bad taste in their mouth. MOTION by Mr. Meyer, seconded by Mr. Prairie, to direct staff to bring back legislation that authorizes a negotiation settlement of $17,500 that will dissolve any differences with the prospective owners of the Fridley Plaza Office building on the payment of the second mortgage. IIPON A VOICE VOTE, ALL VOTING AYE, VICE-CHAIRPERSON SCHNABEL DECLARED THE MOTION CARRIED UNANIMOIISLY. ADJOURNMENT• MOTION by Mr. Meyer, seconded by Mr. Prairie, to adjourn the meeting. Upon a voice vote, all voting aye, Vice-Chairperson Schnabel declared the motion carried and the August 8, 1991, Housing and Redevelopment Authority meeting adjourned at 10:35 p.m. Res ectfully s mitted, Ly e Saba Recording Secretary n