HRA 12/12/1991 - 29627�"�
CITY OF FRIDLEY
HOIISING & REDEVELOPMENT AIITHORITY MLETING, DECEMHER 12, 1991
�_������������..��_�....�..������_..�..����_..��_������������������..������
CALL TO ORDER•
Chairperson Commers called the December 12, 1991, Housing &
Redevelopment Authority minutes to order at 7:30 p.m.
ROLL CALL:
Members Present: Larry Commers, Duane Prairie, John Meyer,
Jim McFarland
Members Absent: Virginia Schnabel
Others Present: William Burns, Executive Director of HRA
Barbara Dacy, Community Development Director
Rick Pribyl, Finance Director
Paul Hansen, Accountant
Jim Hoeft, HRA Attorney
Sherrill Oman, Larkin, Hoffman, Daly & Lindgren
Harry Yaffee, University Avenue Associates
APPROVAL OF NOVEMBER 14. 1991. HOUSING & REDEVELOPMENT AUTHORITY
MINUTES•
^ MOTION by Mr. Prairie, seconded by Mr. Meyer, to approve the
November 14, 1991, Housing & Redevelopment Authority minutes as
written.
IIPON A VOICTs VOTE, AI.L VOTING AYE, CHAIRPERSON COMMER3 DECLARED
THE MOTION CARRIED IINANIMOIISLY.
1. CONSIDER AMENDMENT TO DAIRY OUEEN LEASE:
Ms. Dacy stated that in September 1991, the HRA approved the Lease
Agreement with Mr. and Mrs. Don Fitch for lease of the Dairy Queen,
subject to a number of items being worked out between staff and Mr.
and Mrs. Fitch. Staff did that, but Mr. Fitch wanted to make some
clarifications in paragraph 8 which pertains to the realignment of
his drive-through once the Mississippi Street improvement project
takes place.
Ms. Dacy stated that when Mississippi Street is widened, there will
be a median constructed that will block the frontage road
intersection. That median will not allow people entering the Dairy
Queen drive-through traffic to go westbound onto Mississippi
Street. When HRA asked staff to initiate the acquisition process
for this particular parcel 1 1/2 years ago, the proposed plan to
handle this alteration was one of the first discussions with Mr.
and Mrs. Fitch. The details have now been more finalized. What
�
,�
i�1
�
HOIISING � REDEVELOPMENT AIITHORITY MEETING, DEC. 12, 1991 - PAGE 2
will happen is that the Dairy Queen order board will be moved to
the west and the driveway between Rice Plaza and the Dairy Queen
will be closed because of the improvement project. The entrance
to the Dairy Queen site will now be handled in two ways: Traffic
going westbound on Mississippi can turn into the new 3rd Street;
or traffic going eastbound can turn into 3rd Street or come to the
other driveway for Rice Plaza. Traffic can come through the Rice
Plaza property (the new order board will be located where the
driveway used to be), cross down into the Dairy Queen property,
pick up products, and go to the frontage road to go eastbound only.
Otherwise, traffic can go on a new paved driveway behind Rice Plaza
to 3rd Street and then north or south.
Ms. Dacy stated that Mr. Fitch is willing to assume the cost for
moving the order board, moving the timbers and rock, installing
directional signage at entrances, and moving the accessory barn,
dumpster, and fence at the rear of the property, as well as the
striping needed on the pavement. The only thing the HRA will be
responsible for is the pavement costs from the rear of the property
to the new 3rd Street.
Ms. Dacy stated Mr. Fitch has proposed an amendment to paragraph
#8 of the Lease Agreement. She and Mr. Hoeft have worked on
another version which identifies what each party is responsible
for.
Ms. Dacy stated the latest information is that Anoka County will
let this contract in March or April for beginning construction in
May. Mr. Fitch is saying that if the project is not initiated
prior to July 1, 1992, he does not need the access drive to the
rear of Rice Plaza, because the lease term is until the end of
November 1992 and he wants to be able to move to another site.
Mr. Hoeft read the revised language to the amendment for paragraph
8: "As a consequence of the improvement project proposed for the
intersection of University Avenue N.E. and Mississippi Street N.E.,
certain alterations may be necessary to set property in order for
lessee to continue to operate his drive-through business. Said
alterations may include the redesign of the drive-through lane and
lessor agrees to be responsible for the pavement costs related to
said redesign. Lessee shall be responsible for the relocation of
a microphone menu sign, installation of directional signage,
pavement striping, and relocation of the fence and accessory
buildings at the rear of the property. Notwithstanding anything
to the contrary above, if the improvement project proposed for the
intersection of University Avenue N.E. and Mississippi Street N.E.
does not commence prior to July 1, 1992, the lessee releases the
lessor of any obligation to install a new driveway and any new
pavement as referenced above. This does not preclude lessee from
making alterations at his own expense to modify said drivethrough."
��
HOIISING & REDEVEI,OPMENT AIITHORITY MEETING, DEC. 12, 1991 - PAGE 3
Mr. Meyer asked why the County could not put a cut in the median
at the service road.
Ms . Dacy stated the County' s traf f ic design criteria plus the MnDOT
design criteria stipulate that the median go back a certain amount
of feet from the intersection. There needs to be a certain amount
of stacking for the left turn lanes turning northbound, so they
will not allow a cut in the median at that location.
MOTION by Mr. McFarland, seconded by Mr. Prairie, to approve the
proposed amendment to paragraph #8 of the Dairy Queen Lease
Agreement as outlined by legal counsel.
IIPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERBON COMMERS DECLARED
THE MOTION CARRIED IINANIMOIISLY.
2. CONSIDERATION PROPOSED AMENDMENT TO SECOND MORTGAGE FOR
SPRINGBROOK APARTMENTS:
Mr. Burns stated there have been some late breaking developments
on this proposed amendment to the second mortgage, and staff has
not had much time to work on it. University Avenue Associates, on
behalf of Springbrook Apartments, is requesting that the HRA
resubordinate the $850,000 loan the HRA provided them several years
,..� ago. Currently, the loan is secured by a second mortgage, and
� there are personal guarantees from the owners. The proposed new
second mortgage is being drafted for a smaller amount with the
residuals being personally guaranteed by the owners.
Mr. Burns stated staff has looked at the advantages and
disadvantages of doing this.
Advantages:
The HRA would benefit from the restructuring of the loan.
Currently, there is a balloon payment at the end of the loan
in the year 2002 that amounts to about $632,000, so the HRA
is getting its money pretty late in the game under the current
second mortgage agreement.
Under the �proposal Springbrook Apartments has tentatively
agreed to, the HRA would have a$100,000 payment payable by
the end of 1991. After 1991, there would be level billing for
the remainder of the loan term.
It will assist the Springbrook Apartment project to remain
financially viable. As staff understands it, the owners of
the project, other than with the help of the Federal Housing
Administration, have been unable to receive permanent
financing.
�
��
�'1
r"1
HOIIBING � REDEVELOPMENT AIIT80RITY MLETING DEC. 12, 1991 - PAGE 4
In reality, it is staff's opinion that the loan, under the
proposed agreement, would actually be more secure than it
currently is. Also, under the Federal Housing Administration
refinancing program, HUD will require the owners to set aside
funding in a replacement fund for the maintenance of
Springbrook Apartments. That is also to the City's advantage.
Disadvantages•
The Federal Loan Program will allow the
a class rate reduction on taxes that are
the property from 3.5� in 1992 to 2.3%.
an estimated $100,000 in taxes per year.
a reduced class rate, there is also some
could petition for a revision in value.
not sure whether this applies to rental
if it applies to any property that is
Federal Housing Administration program.
Recommendation:
owners to apply for
due and payable on
The City will lose
If the owners get
potential that they
However, staff is
subsidy property or
financed through a
Mr. Burns stated staff is recommending approval of this
resubordination subject to some stipulations:
1. Formal restructuring of the loan in a manner that allows
the HRA to maintain its financial position.
2.
3.
4.
Revision of minimum assessment agreement from current $9
million to the current tax value of the property which
is $13,250,000.
Assurance of adequate personal guarantees.
The HRA consider appointing a"committee" composed of 1-
2 of its members to finish negotiation and execute
docwanents before the end of December 1991.
Mr. Commers asked if there is going to be a difference in the
amount under the first mortgage.
Mr. Casserly stated it is his understanding there will be a larger
first mortgage. The difference is about $1.1 million more.
Mr. Commers asked why the HRA couldn't get paid off.
Mr. Casserly stated it is his understanding that there will be no
surplus funds at the end of this transaction.
Mr. Commers asked what has convinced staff that the second mortgage
is the way to go.
r"1
HOIIBING & REDEVELOPMENT AIIT80RITY MEETING, DEC. 12, 1991 - PAGE b
Mr. Casserly stated it is the mechanics of the financing. It is
driven by the amount of net operating revenues the project
generates. In order to do it, the owners have to pay a whole
series of fees to originate the loan, and they have to escrow a
number of items which would come out of the mortgage proceeds. The
existing mortgage is $14,000,000. He has not seen a settlement
statement that HUD will be reviewing.
Mr. Commers asked what is the proposed new subordinated mortgage
amount?
Mr. Casserly stated the HUD regulations would only allow a
subordinated mortgage amount of about $340,000.
Mr. Commers stated that means approximately $500,000 would be
unsecured.
Mr. Casserly stated that is correct.
Mr. Commers asked the interest rate being proposed for the new
subordinated mortgage. What is the HUD rate?
Mr. Casserly stated the interest rate is 8�, the same as the
current rate. The HUD interest rate is 90.
�� Mr. Casserly stated the subordinated mortgage the HRA presently
has, has a payment of $110,000 a year starting in June 1993. That
payment runs from June 1993 to the year 2002. Right now the
development agreement reads that $110,937 is payable on June 11 of
each year starting in 1993 and running to 2002, whereupon $459,250
is paid. That would make total payments on the note under the
development agreement of $1,457,000.
Mr. Casserly stated that when the note was drafted, the note does
not follow or conform to the exact terms of the development
agreement. It gets involved in an arcane issue of having interest
on interest, accruing interest. The way staff calculated the note
was that the final payment would be $632,537, so there would be
total payments of $1,630,000. There is at least a$150,000
discrepancy that one could very legitimately discuss. The new note
that is being discussed has a$100,000 payment how at the time of
closing, and then semi-annual installments starting one year from
now. Those semi-annual installments could range anywhere from
$68,000-72,000. Under the revised note, staff would also propose
that there would be no balloon. This would then have an even
amortization and the note would be paid one year earlier.
Mr. Casserly stated the end result of all these adjustments is that
the HRA, while it is getting approximately the same amount of gross
dollars, is getting them substantially earlier. As.a result, the
,�"'� value to the HRA of getting the dollars earlier could well be in
the range of an additional $100,000-125,000 in current value. In
i"1
HOIIBINa & REDEVELOPMENT AIIT80RITY MELTING� DEC. 12, 1991 - PAGE 6
other words, the present value of the payments under the revised
note would be in the range of $100,000-130,000 more than the
present value of the payments under the current note. It is more
to the HRA to get the money earlier and to get it in larger
installments, with the chief effect being getting the first
$100, 000 immediately and then clearing once and for all what is
accrued interest and whether it is included in principle. A new
note would actually be in the amount of $852,000 after the owners
paid $100,000.
Mr. Commers stated the original development agreement was based
upon the HRA's computation of what was going to be produced by the
tax increment financing. That was the basis and the reason why the
HRA entered into the original development agreement. Now that is
in jeopardy.
Mr. Casserly stated that is true. He knows in the assessment
agreements that the market valuations that were inserted were $9
million at completion, and it is presently at $13,250,000 market
valuation. The $9 million at the regular class rate is probably
roughly equivalent to the $13,000,000 at the reduced rate.
Actually, even with the reduced rate of $13,000,000, they would be
generating more taxes than they would be at $9 million at the full
rate. There is no question that the HRA's wishes to have a minimum
,� $9 million evaluation, and the HRA did an analysis at the time of
the original development agreement of what $9 million generated in
taxes. It is about 50% more in valuation.
Mr. Meyer stated the $100,000 less per year in taxes than what the
City is currently is receiving is a lot of money.
Mr. Commers stated he was surprised that the HRA did not provide
something in their original agreement that would deal with
refinancing.
Mr. Casserly stated they honestly did not know at that time that
they would need to do that.
Mr. Burns stated University Avenue Associates is saying this deal
has to close by the end of the year. He did not understand why it
has to close by the end of the year. He is also concerned about
the lack of information that the City Council has had. Because of
the suddenness of this development, he has not had an opportunity
to have any communication with the Mayor or Council.
Ms. Sherrill Oman, attorney for University Avenue Associates,
apologized for the suddenness of this appearance. They came to the
HRA with the concept request in August 1991. Unfortunately, they
submitted a HUD application right after that on the basis of
concept approval by HUD, and it has taken HUD this long to get back
�'`� with some numbers. It has been out of their control, and they
still do not have a commitment from HUD.
�
HOIIBING & REDEVELOPMENT AIIT80RITY MEETING� DEC. 12, 1991 - PAGE 7
Ms. Oman stated that the question raised by Mr. Burns about why
this deal has to close by the end of the year is a valid question.
This project is underwritten by HUD with a Title 2 tax
classification. The result of that is that the project qualifies
for a mortgage in excess of $1 million more than it would otherwise
qualify for. She stated the lending situation today is the worst
she has ever seen. They are caught in a situation where they have
to qualify for Title 2 as of January 2, 1992, which will be
effective for real estate taxes payable 1993, or they have to start
the underwriting process all over again and take a real risk of not
getting a mortgage large enough to pay off the City's existing
mortgage. In addition, they have an investor who wants to close
by the end of the year. Otherwise, there will be extensive
penalties and interest rate risks.
Ms. Oman stated Mr. Madsen, City Assessor, raised a question about
a reduced revision in valuation. The state statute that has been
existence has always directed the assessor to value multi-family
housing projects at full market rents regardless of whether there
is any Title 2 classification. This year that statute was amended
by the Legislature to create one exception. Basically, that
exception applies to non-profit owners of multi-family housing
projects with rent restrictions, and there is no way they can
,.� qualify for reduced market valuation under this statute.
Ms. Oman stated that regarding how the numbers were reached, it
was a matter of negotiation with Nasim Qureshi, former City
Manager, and City attorneys, Herrick and Newman.
Mr. Meyer asked the ramifications if the HRA does not approve the
second mortgage.
Ms. Oman stated she did not believe there are any other sources of
financing available. This cannot be delayed any longer because
they would lose their Title 2 classification and would lose in
excess of $1 million in mortgage.
Mr. Meyer stated he thought they should spend a little more time
looking at the worst case scenario if the HRA does not give its
approval.
Mr. McFarland stated he did not see where the HRA had any choice.
The HRA took a risk several years ago, and now the risk is back.
MOTION by Mr. McFarland, seconded by Mr. Meyer, to authorize the
Chairperson and Executive Director of the HRA to execute all
documents necessary to allow the refinancing of the University
Avenue Apartment project and the securing of the HRA loan, with
the following stipulations:
��1
;�
^
��
HOIIBING & REDEVELOPMENT AIITHORITY MEETING, DEC. 12, 1991 - PAGE 8
1.
2.
3.
Formal restructuring of the loan in a manner that allows
the HRA to maintain its financial position.
Revision of minimum assessment agreement from current $9
million to the current tax value of the property which
is $13,250,000.
Assurance of adequate personal guarantees.
4. The HRA appoint a"committee" of its members to finish
negotiation and execute documents before the end of
December 1991.
iJPON A VOICE VOTE� ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED
THE MOTION CARRIED IINANIMOIISLY.
Mr. Burns stated he will, at the very least, be reviewing the
details with the HRA members over the telephone.
3. CLAIMS AND EXPENSES: •
MOTION by Mr. Prairie, seconded by Mr. Meyer, to approve the check
register (2179-2185) dated December 5, 1991.
IIPON A VOICE VOTE� ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED
T8E MOTION CARRIED UNANIMOIISLY.
4. DISCUSSION OF TIF POLICIES:
Ms. Dacy stated that at the special HRA meeting in October 1991
when the HRA reviewed its past projects and past assistance
policies, she and Mr. Burns advised the HRA that the Council did
ask staff to put together some TIF policies. Staff used that as
an opportunity to make sure that the HRA, Council, and staff are
using the same terms. Staff put together some definitions, key
terms, and then put into writing some things the HRA and Council
have done in the past and tried to set some overall directions.
Ms. Dacy stated the Council seemed to agree with the statements
put together by staff. The Council did raise some issues, and
staff will be addressing those issues at the January 13, 1992,
Council conference meeting. Staff first wanted to make sure that
the HRA concurred with the policies staff has recommended to the
Council.
Mr. Burns stated one of the big issues raised by the Council is
the cap put on captured tax capacity. Staff suggested 15%, and
one of the Council members suggested staff do some projections
regarding the major projects in determining how much tax capacity
is going to be needed to accommodate those projects.
�
HOIIBINa & REDEVELOPMENT AIITHORITY MLETING, DEC. 12, 1991 - PAGE 9
Mr. Commers stated he would be concerned about why there is a need
for a specific number.
Ms. Dacy stated that the Council has received a lot of telephone
calls about the number of tax increment districts being created,
and how much of the community is tied up in tax increment? The
Council does not want the percentage to limit what may have to be
done with the University Avenue Gateway project, housing projects,
or any other redevelopments projects. She sensed the Council feels
a political responsibility to at least establish some type of
informal policy, and it was the consensus of the Council that they
wanted staff to come back with more information to use as a guide.
She believed Council's concern is they do not want to pick a number
that would constrain their flexibility to implement the goals they
feel are important.
Mr. Commers stated he did not necessarily quarrel with the 150,
1250, and 150% caps, but he still did not know why they are needed
in the first place.
Mr. Casserly suggested a change in wording: "If the captured tax
capacity would exceed 15% by the approval of any district, then
the Council and the HRA should review their tax increment program. "
^ Mr. Burns stated he believed the Council would welcome the HRA's
participation and input to the TIF policies. The HRA's next
meeting is January 9, 1992, so the HRA does have another
opportunity to provide some feedback before the Council conference
meeting on January 13, 1992.
Mr. Commers asked the Commission members to review the TIF policies
for comments at the January 9, 1992, meeting.
5. STATUS REPORT ON HOUSING STUDY:
Ms. Dacy stated the final draft of the Housing Study will be
distributed to the HRA members before their January 9, 1992,
meeting.
6. STATUS REPORT ON 1992 BUDGET PREPARATION: _
Ms. Dacy stated a draft 1992 budget will be prepared for the
January HRA meeting.
7. STATUS REPORT ON NORTHEAST OUADRANT:
Mr. Don Fiteh stated that since Scott Ericson has been unable to
put the proj ect together for the northeast quadrant, he, along with
some other experienced people, is in the process of putting a
project together that would involve Walgreen's, the Dairy Queen,
^ and potentially some smaller shops.
i�
80II8ING & REDEVELOPMENT AIITHORITY MEETING� DEC. 12, 1991 - PAGE 10
Mr. Fitch stated they believe that with the equity he would have
in the project and the strength of the developer who will be
working with him, they will not need any outside financing.
Mr. Fitch stated he and the developer he is working with are
wondering what the perspective is of the HRA having some type of
control over all three properties (10,000 Auto Parts building and
two houses) so they do not have to negotiate with all three
landholders. What would the HRA's position be in terms of somehow
gaining control of the two houses?
Mr. Burns stated Mr. Ericson did have options on the two houses,
but he believed those options have run out and that Mr. Ericson no
longer has any site control over any of those properties.
Mr. Commers stated the HRA cannot get involved in taking any houses
at this time.
Mr. Fitch stated he hopes to get this project together as quickly
as possible.
8. REPORT ON ECOATOMIC DEVELOPMEIVT CONFERENCE :
Mr. Commers stated this report was for informational purposes.
� Ms. Dac stated she wanted a ain thank the HRA for
Y g giving her the
opportunity to attend this conference. She really learned a lot,
and she will be getting additional information on the costs of
completing additional course work in order to achieve
certification.
9. STATUS REPORT ON WAL-MART DEVELOPMENT:
Ms. Dacy stated that on January 9, 1992, the HRA will need to
evaluate the Wal-Mart architectural plans in order to be consistent
with the .development agreement executed in 1986. The Planning
Commission recommended approval of the plat requests on December
11, 1991. Staff is recommending the HRA approve the exterior
architectural plans.
10. UPDATE ON RICE PLAZA:
Mr. Commers asked staff to provide the HRA with a brief profit and
los statement on the Rice Plaza property; that is, the gross
revenues less e�enses of operations.
Mr. Pribyl stated that he will ask Jim Kordiak to provide that
information for the next meeting.
�
HOIIBING & REDEVELOPMENT AIITHORITY MEETING, DEC. 12, 1991 - PAGE 11
�"�
ADJOURNMENT:
MOTION by Mr. Prairie, seconded by Mr. Meyer, to adjourn the
meeting. Upon a voice vote, all voting aye, Chairperson Commers
declared the motion carried and the December 12, 1991, Housing &
Redevelopment Authority meeting adjourned at 9:55 p.m.
Re pectfully submitted,
Ly e Saba
Recording Secretary
,�
/`1