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HRA 08/17/2000 - 29554n � !'1 CITY OF FRIDLEY HOUSING & REDEVELOPMENT AUTHORITY MEETING AUGUST 17, 2000 CALL TO ORDER: Chairperson Commers called the August 17, 2000, Housing and Redevelopment Authority meeting to order at 7:30 p.m. ROLL CALL: Members Present: Larry Commers, Virginia Schnabel, John Meyer, Jim McFarland Members Absent: Pat Gabel Others Present: William Bums, Executive Director of HRA Barbara Dacy, Community Development Director Grant Fernelius, Housing Coordinator Julie Vogel, Accountant Jim Casserly, Development Consultant Jay Roos, Hokanson Development APPROVAL OF THE JULY 13. 2000. HOUSING AND REDEVELOPMENT AUTHORITY MEETING MINUTES: MOTION by Ms. Schnabel, seconded by Mr. McFarland, to approve the July 13, 2000, Housing and Redevelopment Authority meeting minutes. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. CONSENT AGENDA: 1. REQUEST TO SUPPORT ADDITIONAL LANE PROJECT: 2. CLAIMS AND EXPENSES: MOTION by Mr. Meyer, seconded by Ms. Schnabel, to approve the consent agenda with the additional expenses presented by Ms. Vogel. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. Mr. Commers asked Ms. Vogel what bond they are paying back. HOUSING & REDEVELOPMENT AUTHORITY MEETING, AUGUST 17, 2000 PAGE 2 Ms. Vogel stated that there are two bonds that the City has to pay and HRA reimburses the City because they are HRA bonds. � Mr. Commers asked which ones they were. Ms. Vogel stated that it is 1997A and 1998B. ACTION ITEMS: 3. CONSIDER RESOLUTION AMENDING DEVELOPMENT CONTRACT WITH FRIDLEY MAIN L.L.C: Ms. Dacy stated that in October 1999, the HRA approved the development contract with Fridley Main L.L.C. providing up to $250,000 of soil correction assistance for the project. The HRA approved entering into an escrow agreement for these funds. The funds are coming from the TIF #3 which is one of the "gap year" districts. The project is a 6 acre parcel on the west side of Main Street. The proposed size of the office/warehouse building is 50,000 square feet. A significant amount of poor soil and material needs to be removed from this site. The HRA has considered a couple of requests for this property, but it has not been developed yet. Ms. Dacy stated that the original contract terms require the developer to complete the project by the end of this year. The assistance was to be provided in both grant and loan up to a maximum amount of $250,000 or finro-thirds of the soil cost. The assistance was to be provided at the certificate of completion. ^ Ms. Dacy stated the property owners are requesting the HRA to initiate the soil correction now. The owners are attempting to market the site even with the development contact in hand. What would change in the contract is how the assistance would be delivered, not the amount. The contract could be revised so the mortgage and the loan up to a maximum of $250,000 would be provided. The mortgage and the note require a personal guarantee on the part of the owners so that amount is secured. The contract would be revised so the completion dates would be extended to the year 2002. The original contract had an assessment agreement and that would still be maintained and kept in place. There is no change in the amount of assistance. Ms. Dacy staff is recommending that the HRA approve the resolution. This is a difficult site to develop, and the soil correction problem is well known. The approval is conditioned on the fact that the petitioner should reimburse the HRA for its expenses to draft the modified agreement and the appropriate documents for the escrow agreement. Mr. Commers asked what the timing would be amended to for the construction. Ms. Dacy stated that they will have until the end of 2002. Mr. Commers asked if any soil testing was done for some idea of the cost. Will Penk, property owner, stated that over the last couple of years, they have discovered ^ approximately 50,000 yards of peat that had to be removed. The peat was removed by a landscaping business. Once you remove it you still have to replace it with suitable soils. � HOUSING & REDEVELOPMENT AUTHORITY MEE'TIl�TG, AUGUST 17, 2000 PAGE 3 ,._,\ The problem is that you do not have to correct the entire parcel to an absolutely perFect parcel. This depends on the use. If you have a ponding area that would be different. They would like to correct the most likely area for a building. They would do that with the supervision of a soils engineer and with a reputable soils contractor. They have one potential purchaser looking at the property right now. Mr. Commers asked how this worked with the two-thirds cap. Ms. Dacy stated they have to provide documentation with their invoices, lien waivers, and all the costs. They will have to pay for the remaining third. Mr. Commers asked how they would do that as the invoices come in. Mr. Casserly stated that the HRA reimburses initially when they have incurred the cost. They pay one-third of the cost, and the HRA will reimburse them for two-thirds at the end. The money is currently in escrow. The escrow agreement provides for a single payout at the end after the appropriate documentation is received. Mr. Commers asked why they wanted their cost up front. Mr. Casserly stated it means prior to the time that the building is constructed. ^ Ms. Dacy stated that it also means the completion of the soil work. Mr. Casserly stated that the reimbursement would not occur until the improvements have been made. Mr. Commers stated that it means a little bit of exposure and that postpones the real estate taxes on the loan. Mr. Casserly stated that is correct, but the property owners have a lot of motivation to construct because they are personally liable on that. Mr. Peterson stated that they have a lot of motivation even before that. Mr. Commers stated that he understood that. Mr. Meyer asked why they would make the soil correction before having a finite exact plan? Mr. Peterson stated that they have never been able to get a prospective buyer interested enough to go through and make their decisions to where the building should do. They have had estimates to $900,000 to correct the soil. Developers usually say they can probably do it for $375,000 if they know where they are going to put the building. He stated if he takes the north side of the property and uses some fill for the south side of the property, that gives people something to work with. � Mr. Meyer stated that he is used to having correction work done and it has always been done with a building in mind and where the drives are going to be, the parking, footings, HOUSING & REDEVELOPMENT AUTHORITY MEETING, AUGUST 17, 2000 PAGE 4 and all the things that go with it. Otherwise the money is poured down the drain if you develop an area of the site that has no merit for some unknown developer. The HRA has �� had an experience with the Lake Pointe development in which they thought the developer knew exactly where he was going to improve the site and now with Medtronic on board, they are disregarding anything that was conceived years before. A site improvement usually does not take more than a couple of months to do once you have a developer or client. Mr. Peterson stated that they would have a purchaser or a developer who is ready to go. If that could happen, it would be wonderful. They are working with a potential developer right now. They would like to bring that contract forward, but their experience with this property has been that they never quite get to the end point. They think they can make it a much better piece of property and take out a lot of the unknowns so the correction will be done in an area of the property that almost certainly would be used by anyone who would build on that. Mr. Bill Penk, property owner, stated that a 50,000 - 60,000 square foot building would need about 1 1/2 acres improved. They have a pretty good idea of where that has to be. The north end of the site is in good condition and the south end is not. They think the middle third of the site is where the building has to fit. If they can clean up that part of the site, it will be much more inviting than it is now. Mr. Meyer stated that if the property owners have best intentions in spending many dollars in improving the land for a subsequent buyer; but then the buyer comes in with different ^ plans for the land, where is the HRA's risk in this? Ms. Dacy stated that the contract is being amended to provide the assistance in its entirety in the loan. When the building is completed, half is converted to a grant. The mortgage is guaranteed and it is a lien against the property so the HRA has the ability to foreclose on land. Those are the HRA's options. You could keep the contract in its current form. It would expire and then the funds in escrow would have to be retumed. If there would be any new development proposed, a new tax increment district would have to be created. The proposed revision would be the most expedient way to use the resources already available to the HRA. Mr. Penk stated that they do take into account what Mr. Meyer said, and they do not want to make that mistake. If they can find a user, the time extension gives them some help there. That property now scares people so they need to do something to make it more presentable. Towle has exposed this to hundreds of actual users and buyers, but they have not had a great response. People drive by and keep on going. They will be very careful who they choose as a user. Mr. Meyer asked what happens to all the money if they go ahead with the soil correction and there is still no building in site. Ms. Dacy stated they have a note and the property owners are obligated to repay the loan. � If they do not make the payments on the loan, the HRA can foreclose the amount. HOUSING & REDEVELOPMENT AUTHORITY MEETIlVG, AUGUST 17, 2000 PAGE 5 � Mr. Meyer asked Mr. Penk if he was willing to face that. Mr. Penk stated, yes. They will do everything in their power to make sure that the money spent is going to increase the value of that property. This is a pretty nice location and actually used to have buildable soils. Mr. Meyer stated that if the HRA is protected and the property owners know the risk, he has no further objection. MOTION by Mr. Meyer, seconded by Mr. McFarland, to approve Resolution No. HRA 8- 2000, "Resolution Determining the Necessity for Modifications to the Contract for Private Development and the Escrow Agreement, Both Relating to Lot 2, Block 1,Mar Len Addition, City of Fridley, Minnesota, and Authorizing Execution and Delivery of Amendments to Said Agreements". UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. 4. REQUEST AUTHORIZATION TO NEGOTIATION WITH REAL ESTATE EQUITIES FOR GATEWAY EAST PROJECT: Mr. Fernelius stated that they received two proposals for the Gateway East project. Hokanson Development of Blaine and Real Estate Equities of St. Paul were the two ^ developers. Staff spent a considerable amount of time looking at these proposals and analyzing them. Staff also spent time interviewing the developers and believe they have a lot of the information necessary to make a solid recommendation to the HRA. Mr. Fernelius stated that Real Estate Equities was identified as the developer of choice, but he still wanted to review the Hokanson proposal. Hokanson proposed a forty unit project, 16 units per acre, with a projected sales price of $99,000-$128,500. Hokanson would have a two- story design which would be a double loaded unit. The square footage would average from 1,400-1,725 square feet with attached one and two car garages. Hokanson is proposing a ten-unit cluster, finro 12-unit clusters, and a six-unit building at the corner of 57�' and 4�' Street. Mr. Fernelius stated that both developers utilized the desired site plan referenced in the RFP which involves closing off the frontage road and rerouting 4�' Street. Mr. Femelius stated the Hokanson site plan provides for little guest parking. Any parking would have to occur in the front of the unit. It does not provide much for landscaping and open space. The units would be marketed to young couples without children and working singles. The unit would not be attractive to seniors because of the multiple levels. The in- house review team felt that the types of materials were fairly typical for a townhome development. Buyers have very few options in terms of upgrades. The density on this size parcel does not fit very well in the project area. The total sales revenues are ^ projected at $4,453,600 equating to about an average price of $111,340. The development costs are $4,815,000. They are willing to pay something for the land HOUSING & REDEVELOPMENT AUTHORITY MEETING, AUGUST 17, 2000 PAGE 6 equating to about $1.00 per square foot. They would request additional public assistance of about $275,000. � Mr. Femelius stated that the Real Estate Equities proposal is significantly smaller. It is a 28-unit project with a slightly higher sales price of $126,000 -$142,000. It would be a three story single unit design with two car garages for all the units. There would be five three-unit buildings with a street servicing the southem part and a private drive serving the north side. There is a significant amount of landscaping materials as well as some guest parking. Staff would like to see more brick and a provision for a porch. Staff will discuss the windows with them, because the end units do not include them. It is marketed toward young couples and professional individuals. It is a good value for the price and they are using a little higher end materials particularly on the finishes, flooring, carpets, and interior products. They do offer the buyers more options in terms of upgrades. Mr. Femelius stated that total sales revenues are $3,678,100. Their development costs would be $4,326,000. They are not willing to pay anything for the land. They have a project shortfall of about $545,000. The value of these units on average is ten to finrenty thousand dollars higher than what Hokanson is proposing. These are still considered affordable units. Twelve of these units would sell for $129,000 or less. Fridley's average sales price in 2000 for an existing single family home is $140,000. Eighteen of these units would sell for $137,000 which would be less than the average sales price. The other issue is design. Staff likes the single loaded design, the traditional front entry, and that the garage doors do not dominate the fa�ade of the buildings. There is a significant amount of open space and landscaping that is also provided. The density is less with 11.2 units per acre as opposed to 16 units per acre for the Hokanson development. It is more compatible with the neighborhood, because there are a number of apartments as well as some commercial businesses. Mr. Femelius stated staff acknowledges that the Hokanson development is a good development and they are good and successful at what they do, but they do not think that it is the right product for this location. What happens in the future if they look at redevelopment on the west side of University Avenue? They have done some very preliminary analysis that this would fit much better on the west side to have a cohesive development along that stretch of University Avenue. Mr. Femelius stated that the HRA has to question whether this is the vision for University Avenue, whether moderate priced housing is appropriate for this location, and whether the HRA's financial contribution is worth the product they are going to get in the end. Staff feels that the proposal is consistent with the redevelopment vision identified in the comprehensive plan. They think there is a strong demand for this type of product which is similar to the Christianson Crossing development. They are already hearing the impact of the Medtronic project with people wanting to move into Fridley. They feel that the HRA is going to have to make a contribution to this project whether or not they select this developer or a different proposal. There is a fairly substantial amount of funding that needs to go into making this site ready for development. Whatever they do, it will cost additional money to the HRA. Staff recommends pursuit of the Real Estate Equities ^ proposal. Staff would like to proceed with negotiations on the terms for a redevelopment contract and come back to the HRA in October. HOUSING & REDEVELOPMENT AUTHORITY MEETING, AUGUST 17, 2000 PAGE 7 ^ Mr. Meyer stated that he liked the latter proposal also, but the three story units bother him. There is less density and higher stacked units which seems to be different in the planning. How can they stack units up three stories high and have less units on the land? Is there more green space? Mr. Ferr�elius stated that it is based on the square footage and you do not have units back to back. Ms. Dacy stated that with the Hokanson development, there is a ten-story unit, and in this proposal there is a six-story unit. Mr. Meyer asked how the three-story units are being received at Christenson Crossing. Ms. Dacy stated that they are all sold. The three story will dictate a certain type of buyer and some buyers will not buy that for a variety of reasons. Christenson Crossing has 64 three-story units, and this proposal is for 28 three-story units. Ms. Schnabel asked how the people will get to the front by University Avenue. Ms. Dacy stated that there will be an entry from the garage into the back of the unit. They are proposing sidewalk connections from the front and then a continuation of the sidewalk � that exists along the frontage road right now. It is going to look like a sidewalk up to the front of a single family home, only they are attached to three in front. Ms. Schnabel asked if visitors will be allowed to park on University Avenue Service Road. Ms. Dacy stated that she does not believe that it is signed "no parking" at this time. It is true that a guest could park there. There are guest spaces in the back and, in addition to the garage, there are driveways that would hold two additional cars. Mr. Femelius suggested a front porch may be possible to be carried across the front to take away that blind space. The other option is to add additional landscaping in the area or wainscot brick or banding around the building. Those are issues to pursue with the developer as well as some of the other issues with windows and interior trim. Ms. Schnabel stated that she would agree that the Real Estate Equities proposal is perhaps a higher quality that they would like to see. Have there been any neighborhood meetings? Mr. Femelius stated there has not been any neighborhood meetings. The developer would meet with the neighborhood sometime this fall to talk about the proposal. Ms. Dacy stated they did have a neighborhood meeting a few months ago to talk about the traffic issues. ^ Mr. Commers stated that they wanted to get a pro forma showing what they have got into this project. They still have one parcel up in the air, but they would like to know all the possible costs. HOUSING & REDEVELOPMENT AUTHORITY MEETING, AUGUST 17, 2000 PAGE 8 Ms. Dacy stated that staff is also investigating the Department of Trade and Economic !'� Development redevelopment grant fund. They made an application for that about a year ago, and it may be worthwhile to reapply by October 2 for an additional source of funding. Ms. Schnabel asked what the sales figures were on some of the other developments that started in 1993. Mr. Femelius stated that was the Hokanson proposal, and a representative from Hokanson who is at the meeting could answer that. He talked with Roger Hokanson and some of the figures they had in their proposal that needed to be updated. All their projects have been completed, and it was not an issue that they had trouble selling units. Ms. Schnabel stated that it was her understanding that the projects had been completed, but the units were not all sold. We wondered if there was something in the market that precluded the sales. Mr. Femelius stated that it is his understanding that all the units have been sold. Ms. Schnabel asked if Staff was satisfied with their sales performance record in terms of how many units have been developed and what the sales figures are. Mr. Femelius stated that the Lake Phalen project has all sofd out according to the build out scheduled that they had estimated. Ms. Schnabel asked if those were also three story units. Mr. Femelius stated that was correct. Mr. Jay Roos, Hokanson Development, stated that there was some confusion in the start of the project. The original submittal had two projects and there was also a single family development. For some reason, the start dates were noted as 1993. The purchase agreements were signed in 1997 with construction starting in 1998. They started with the platting and zoning process in early 1998. The site plan did not show individual separate parking locations other than the locations in front of the garage, and there are spots for that. Mr. Casserly stated that both presentations were excellent and very thorough. The HRA is looking at a different type of project. It is not a commentary on the ability of one developer over the other. Clearly they can both do the project. It is a question of the type of product that the HRA is looking for. Mr. Commers asked the reason for the comparison to apartments. Mr. Casserly stated that apartments frequently generate more taxes. The issue became what would happen if they put out a rental project instead of owner-occupied. It shows that in this instance, there was very little difference in the amount of taxes generated. � Regardless of what is put on this site, you just do not generate a lot of tax. It is the way HOUSING & REDEVELOPMENT AUTHORITY MEETII�TG, AUGUST 17, 2000 PAGE 9 ,� the class rates work. Office/commercial would generate substantially more, but the site is � not suitable for that. The funds are already mostly spent, and the HRA would have to advance funds from the general fund to this district to be repaid over a period of time. The acquisitions have been made from other funds available. This project already has $6,000 - $7,000 invested and the issue is whether they can break even on what future investment is needed to make it work. Mr. Commers stated that with what they have put into this project and what they would have in the future adds considerably to the cost. Mr. Casserly stated that the HRA already has incurred approximately $600,000 plus to make the site avaitable. It will take all of the future increment to get they product they want on the site, and the goal is to break even. Mr. Meyer asked what is meant by prevailing wage experience. Mr. Femelius stated that Real Estate Equities has worked on projects in the past where the City had a prevailing wage ordinance similar to what Fridley has. This means that workers have to be paid a minimum amount in wages. There is a financial implication but also the process to comply with the various wage scales. There is a substantial amount of work involved and they are trying to find out if the developer has experience doing that. Real Estate Equities does and Hokanson development acknowledged that they did not have � any experience with that. Mr. Meyer asked if they both would be obligated to do that. Mr. Fernelius stated that is correct. MOTION by Mr. McFarland, seconded by Ms. Schanbel, to accept the proposal submitted by Real Estate Equities and to authorize staff to begin negotiations with Real Estate Equities for the Gateway East Project. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. INFORMATION ITEM: 5. SALVAGE YARD UPDATE: Ms. Dacy stated that Paul Hyde and Scott Hickok have met with the salvage yard owners. They are beginning to arrange for appraisals and environmental testing and what the potential costs could be. Staff will be meeting with the Department of Trade and Economic Development, and she will have a better update at the October meeting. Mr. Commers stated that they need to compare where we are with the financial projections r� given before. HOUSING & REDEVELOPMENT AUTHORITY MEETING, AUGUST 17, 2000 PAGE 10 6. JOINT TASK FORCE FUNDING UPDATE: n Ms. Dacy stated that Mr. Meyer attended the Task Force meeting on August 10. The HRA approved the consultant contract with Demographic Technologies, Inc., for the GIS analysis. Since the last meeting, the Task Force received one proposal for the land use and the marketing work. The responder was Hoisington Koegler Group, Inc. and Bonz/REA The Staff committee interviewed them and made a positive recommendation to the Task Force. The proposal amount was $54,500. The Task Force suggested that the original budget amount was approximately $45,000. They contacted Medtronic to see if they are willing to contribute to the project, but they do not yet have an answer. The County is about to take official action on a contribution of $20,000. The school districts each contributed. The remaining amount is to be contributed by Fridley and Columbia Heights. The Fridley HRA would be the contract holder with the land use and the marketing consultant and would collect the funds from the other jurisdictions. That will be an action item on the September agenda. Mr. Commers stated that he has raised the issue of the appropriateness of the HRA paying the money and why is that not more appropriate for the City? Mr. Bums stated that a lot of the reason for doing the studies has to do with capitalizing on development and redevelopment opportunities presented by the Medtronic project which tends to put it more in the HRA's camp than the City's. Mr. Commers stated that when they start talking about mapping and other things, he is not ^, sure that it has much to do with Medtronic's development. Mr. Bums stated it has a lot to do with attracting development related to Medtronic. They are also talking about population projections and showing potential developers the market available. Ms. Schnabel asked who is paying Columbia Heights portion. Ms. Dacy stated that they have identified a funding source from the City. Mr. Commers asked if they were doing the mapping too. Ms. Dacy stated that Columbia Heights is also doing the mapping. OTHER BUSINESS Mr. Femelius stated that he distributed a memo with the subject of Change Order to Demolition Projects. He would ask the HRA to approve that. Five properties were included in the demolition contract with Kevitt. One scattered site project was messed up on Lafayette Street. The crew was out there and indicated that it would be easiest for them to proceed with the demolition. Staff instructed them to do that, and it is an additional expense to be added to the contract. The Change Order is for $7,650. � HOUSING & REDEVELOPMENT AUTHORITY MEETII�TG, AUGUST 17, 2000 PAGE 11 � MOTION by Ms. Schnabel, seconded by Mr. Meyer, to approve Change Order to Demolition Projects. Seconded by Mr. Meyer. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. Mr. Commers asked if the house was down at 5297 Lincoln. Mr. Fernelius stated it was. ADJOURNMENT MOTION by Ms. Schnabel, seconded by Mr. McFarland, to adjourn the meeting. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED AND THE AUGUST 17, 2000, MEETING OF THE HOUSING AND REDEVELOPMENT AUTHORITY WAS ADJOURNED AT 8:55 P.M. Respectfully submitted, � � �� Signe L. John on �, � Recording Secretary n