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HRA 12/12/2002 - 00025132CITY OF FRIDLEY HOUSING AND REDEVELOPMENT AUTHORITY MEETING DECEMBER 12, 2002 CALL TO ORDER: Vice-Chairperson Schnabel called the December 12, 2002, Housing and Redevelopment Authority meeting to order at 7:31 p.m. ROLL CALL: Members Present: Pat Gabel, Virginia Schnabel, and Jay Bajwa Members Absent: Larry Commers, John Meyer Others Present: Grant Fernelius, Assistant HRA Director William Burns, HRA Executive Director Scott Hickok, Community Development Director Richard D. Pribyl, Finance Director Paul Eisenmenger, HRA Accountant Jim Casserly, Development Consultant Councilmember Bob Barnette Dick Snyder, 5901 2nd Street NE APPROVE THE NOVEMBER 14, 2002, HOUSING AND REDEVELOPMENT AUTHORITY MEETING MINUTES: Vice-Chairperson Schnabel asked to take out the word "acting" on the first page before "Chairperson Commers." Also, on page 4, paragraph 1, on the next to last line, where it says "she thinks there could be other things that" should read "thinks there could be other reasons why the HRA couldn't and shouldn't be involved." MOTION BY Ms. Gabel, seconded by Mr. Bajwa, to approve the minutes as amended. UPON A VOICE VOTE, ALL VOTING AYE, VICE-CHAIRPERSON SCHNABEL DECLARED THE MOTION CARRIED UNANIMOUSLY. CONSENT AGENDA 1. CLAIMS AND EXPENSES MOTION by Mr. Bajwa, seconded by Ms. Gabel, to approve the consent agenda, UPON A VOICE VOTE, ALL VOTING AYE, VICE-CHAIRPERSON SCHNABEL DECLARED THE MOTION CARRIED UNANIMOUSLY. ACTION AGENDA CONSIDER MODIFICATION TO LOAN SUBORDINATION POLICY HOUSING & REDEVELOPMENT AUTHORITY MEETING, DECEMBER 12, 2002 PAGE 2 Mr. Fernelius stated the Authority discussed this item at the November 14 meeting, and there was considerable discussion about this policy which was originally adopted in 1997. The proposed language discussed would involve a change to the policy which would allow a"cash-out" refinance transaction, and that was not previously covered under the HRA's policy. The policy then would establish the conditions when the HRA would agree to subordinate its mortgage lien to that of a new first mortgage. Mr. Fernelius stated as background information, this situation exists when an HRA loan recipient wants to refinance the first mortgage and then take cash or equity out of his/her property. Staff has prepared several options for the HRA's consideration this evening. Staff is recommending some general direction from one of the policy options; then staff would come back at the January meeting with an actual formal resolution for the Authority to approve. There are three options: Option One: Do nothing. Basically leave the policy in place as it is right now which essentially stated the HRA subordinate the HRA lien only when the borrower is refinancing a first mortgage to a lower rate or shorten the loan term. But a cash- out refinance transaction would not be eligible. The options for the borrower in this case would really be either they don't go through with their refinance transaction or they would have to pay off their HRA loan. That would essentially be their option in the case if HRA left the policy in tact. Option Two: Modify the policy and allow a cash-out refinance transaction. This would be in addition to the rate-term refinance that he just described, and there are a couple of conditions that they would recommend with this option. For example, if a homeowner is using equity for more improvements to the property, the maximum combined loan-to-value ratio would be 100 percent. That is essentially the new first mortgage and the HRA loan along with any other liens that may be in a junior position to the HRA loan. In that case, none of those loans can exceed 100 percent of the property's value. Under this option, for borrowers who would like to use their equity for something other than additional improvements to the property, the HRA would lower that threshold to a 90 percent combined loan-to-value ratio. And if they are using it for a combination of both improvements and other types of things, staff would recommend again the lower threshold of 90 percent. The rationale here is that if they are going to be taking equity out of the property, they want to have a little bit of protection that the HRA loan is going to continue to be secured. If they are going to be taking the equity and making more improvements to the property, the rationale is that in theory the value of the property should go up, so we would be adequately covered at 100 percent. So that is the reason for the distinction between the two. Option Three: This would essentially have no restriction on how they would use their loan funds. In that case, if the third option would be approved, they would recommend again a 90 percent threshold. Mr. Fernelius stated staff tried to craft these three options around the discussion that took place at the December meeting. Staff's recommendation, basically, is to pursue the second option. There is no legal obligation on the part of the Authority to change the policy but, as they have talked about in the past, there have been a number of people who have come forward with requests to do a cash-out refinance transaction, and the HRA has been unable to assist them. So, changing the policy now provides people with HOUSING & REDEVELOPMENT AUTHORITY MEETING, DECEMBER 12, 2002 PAGE 3 some flexibility and some options at this point. So, staff's recommendation would be to adopt the second option, if that is acceptable to the HRA. Then, staff would come back with a resolution at the next meeting. Mr. Bajwa stated he thought Option No. 2 does seem like the most likely option. That would serve all the purposes for the homeowner and also for the HRA. It has been well- crafted. As a result of the discussion they had at the last meeting, it does address a lot of the issues they talked about. Ms. Gabel stated Mr. Fernelius did a good job of pulling out all the discussion from last time into a consensus, and she believed Option No. 2 is the best option because it doesn't put the HRA into any worse of a position and protects them. Ms. Schnabel stated she had given this a lot of thought and appreciates all that Mr. Fernelius has done to sift through all of the things they discussed the last time. She asked, if a party were to take out a home equity loan but not with the holder of the first mortgage. In other words, maybe they belong to a credit union or something where they are going to get a home equity loan, would the first mortgage company be notified of this? How does all of this work? Mr. Bajwa replied there are several modes of doing it and, she is right, the first mortgage company would be notified. But not necessarily, and not all the time. It all depends upon the lenders and how they want to make everybody else feel comfortable about what is going on. Ms. Schnabel stated so there could be an instance where the HRA would not be aware that the homeowner is taking on additional debt. She realizes that she doesn't think their position would change, or least she doesn't think they should subordinate. Mr. Fernelius stated it would only be for a first mortgage. It would not be for another home equity loan. Mr. Bajwa stated that plus the overall loan-to-value ratios would keep them within guidelines. Ms. Schnabel asked if a homeowner has an HRA loan and does want to refinance for a lower interest rate of some type, would the HRA's position remain the same as well as the mortgage lender, they would be second in line? Mr. Bajwa replied that is correct. If it is a refinance, the original lender will be taken out by the second lender anyway, and the other bank will get notification by payoff. Ms. Schnabel asked about the language concerning the relationship of their note and what would happen in the event of any refinancing or anything. Does that language go into a contract that is signed by the HRA borrower, or is there some paperwork so they know what is happening up front? Mr. Fernelius replied that, yes, when they close an HRA loan, the borrower signs an affidavit that asks him/her to attest to a number of things. One of the sections in that affidavit (and they will probably modify it as a result of this policy change) is it addresses the fact that the HRA does have a loan subordination policy. He thought the language HOUSING & REDEVELOPMENT AUTHORITY MEETING, DECEMBER 12, 2002 PAGE 4 stated something to the effect that this may affect the borrower's ability to refinance his/her current mortgage. If they want a copy of it, they can contact them and they can provide that to them. So, there is language in there. They are made aware of it and hopefully that will be another way of addressing the issue up front so people are aware of it. And they would sign that so they would acknowledge reading it. Ms. Schnabel stated she thinks it would be fair to have the borrowers know what their position is so if it came up in the future, they would know where they would stand with regard to subordination at least. Ms. Schnabel stated that regarding one of the things that John Meyer was concerned about, should the HRA loan be paid off in certain circumstances? She believed that was if there was going to be maybe a loan taken out for purposes other than doing remodeling or improving the house, and she knew that Mr. Meyer felt strongly that, under those circumstances, the HRA loan should be paid off if they are using the money for something other than putting it back into the loan. Mr. Fernelius stated that, yes, he believed that was Mr. Meyer's concern. This policy doesn't really directly address that. How to accomplish that, to some extent. is by lowering the combined loan-to-value ratios. They can't take out all their equity to use it for some other purpose than additional improvements to the property. So, it doesn't accomplish directly what Mr. Meyer was concerned about; but he would hope the compromised language would satisfy him that, number one, the HRA is adequately protected from a security standpoint and, hopefully from a philosophical standpoint, they are furthering their programs with this language. He didn't have the chance to talk to Mr. Meyer about this. Ms. Schnabel commented it will be brought back in January so it can be addressed then. Mr. Bajwa stated Mr. Fernelius is right in saying that even though the HRA loan doesn't get paid off, the overall loan-to-value ratios do keep the individuals from taking all the equity out and not putting the HRA at risk. They really don't put the HRA at risk by doing this. He thinks it is well-crafted the way it has been done. The 90 percent loan-to-value is probably an appropriate loan-to-value ratio. He would have liked to see it perhaps a little bit lower, but he thinks they are well within the guideline of being protected at 90. Ms. Schnabel stated she knows Mr. Fernelius wanted them to approve Option 2. She asked if Mr. Fernelius wanted that by formal vote or just go with this and bring back something in January. Mr. Fernelius stated this is enough direction, and staff will come back with a resolution for the HRA to approve. Mr. Bajwa asked if it was possible to approve it today and not have it come back. Mr. Fernelius stated that is certainly an option if they are comfortable with the language, but he thinks typically what they would like to do is bring the actual resolution back to the HRA for approval. Ms. Schnabel stated that, in view of the fact that it will be a policy, they probably should see final language. HOUSING & REDEVELOPMENT AUTHORITY MEETING, DECEMBER 12, 2002 PAGE 5 2. CONSIDER ADOPTION OF THE 2003 HRA BUDGET Mr. Fernelius stated he is really updating the discussion at the November meeting. Tonight's action is to consider formal approval of the 2003 HRA budget. The Bylaws require that they adopt a budget by December 31St for the following year, and they talked about this at the November meeting. Most of the discussion at that meeting concerned fund balance, and the Mr. Pribyl has prepared a memo on fund balance history so, hopefully, that addressed some questions about the history of the fund balance. Mr. Fernelius stated staff included in the packet the analysis that was done by Krass & Monroe in March of their overall HRA financial program or system looking at their taxing increment financing program, their general fund balances, and going forward. So those look at kind of the projections, looking ahead at what resources they, hopefully, will have going out through 2015. So, again it is a snapshot in time right now trying to protect what will happen with our fund balances going forward. That is a pretty good analysis that they will try and address that topic of fund balances. He really doesn't have any additional information beyond that. He is recommending adoption of the 2003 budget. Ms. Gabel asked about Satellite Apartments (regarding the memo on page 2, Item No. 4) regarding the significant fund balance which the HRA may not be able to utilize. What is going to happen to that money? Mr. Casserly stated this is a technical issue which deals with managing the funds in the various tax increment districts; and because they believe the Satellite Lane Apartments had a very substantial amount of expenses, what he is recalling is that money was transferred into that district to cover those expenses and all they are suggesting here is there will be increment that will be generated — that is part of the Rottlund Project now. There will be an increment that will be generated that could come back in to pay some of the expenses that were paid from other funds. All this is saying is that they should look to figure out where they borrow the money from in the first place so that when future increment comes back in, they can repay it. Otherwise, that increment will be captured there, and they may not be able to utilize it. Clearly they know they had to borrow money in the first place in order to do the acquisitions and have some of the expenses. This is clearly an internal accounting issue, and they just want to make sure they are able to use the increment that is being generated. Ms. Schnabel stated she had a question on the same page, Item No. 1. The HRA general fund cash will be needed for payment of their acquired G.O. debt payments in 2008 to 2012. It says that $2.9 million be reserved at 12/31/01. Has that been done, or is it a typo? Mr. Casserly replied this memo is dated in March 2002, and he did not think that the books have been closed on 2001 yet. So all the suggestion was that you could simply earmark it for that purpose. This isn't as though you have to take the money and put it somewhere. You just know that you don't want your balances to go below that, and you can assess every year whether you are reserving enough money. Ms. Schnabel stated that since Mr. Commers asked specifically about the fund balances, would he be receiving a copy of that either by mail or some way since he was unable to appear tonight? HOUSING & REDEVELOPMENT AUTHORITY MEETING, DECEMBER 12, 2002 PAGE 6 Mr. Fernelius asked if it had been mailed out. Mr. Eisenmenger replied it was not, but he can do that. Mr. Fernelius asked if they could back up to the issue of the debt service reserve. The $3 million was set aside, and he believed that was reflected in the annual financial statement for 2001. Mr. Casserly stated that is correct. Mr. Fernelius stated there is $3 million out of the general fund that is essentially reserved or set aside for that future bond service payment. So the recommendation — they did follow through on that. MOTION by Ms. Gabel, seconded by Mr. Bajwa, to approve the 2003 HRA budget, UPON A VOICE VOTE, ALL VOTING AYE, VICE-CHAIRPERSON SCHNABEL DECLARED THE MOTION CARRIED UNANIMOUSLY. Ms. Schnabel thanked the staff for all their hard work. She knows that is a lot of work, and the HRA appreciates staff's time and their ability to answer all of their questions. 3. APPROVE AN 18-MONTH SALARY INCREASE FOR GRANT FERNELIUS. Ms. Schnabel stated she had received a memo at the meeting from Mr. Hickok regarding an 18-month salary increase for Grant Fernelius. If the HRA members have any questions, they should ask Mr. Hickok. MOTION by Mr. Bajwa, seconded by Ms. Gabel, to approve the salary increase for 18 months for Grant Fernelius. UPON A VOICE VOTE, ALL VOTING AYE, VICE-CHAIRPERSON SCHNABEL DECLARED THE MOTION CARRIED UNANIMOUSLY. INFORMATION ITEMS 4. REVIEW GATEWAY WEST OPTIONS Mr. Fernelius and Mr. Hickok provided a presentation regarding the options for the Gateway West project. Mr. Fernelius stated staff is not making any recommendations this evening on a specific action. They are more or less seeking feedback and general direction or guidance from the HRA on the options staff presented. Clearly, there needs to be additional discussion with the City Council, and that they have tentatively scheduled that for the January 9. Regardless of what option they pursue, they will need to contact property owners. The HRA owns one of the sites on the Gateway West development area, but they aren't going to specifically get into the details of each site. Regarding the additional parcels, they have not talked to those owners. They need to do that obviously if they pursue any of the development options. And in addition to that, he wanted to emphasize the HOUSING & REDEVELOPMENT AUTHORITY MEETING, DECEMBER 12, 2002 PAGE 7 importance of neighborhood input. If they pursue one of these development options, there will be ample opportunities for the neighborhood to provide input. This is really just a first step in the Gateway West development plans. Mr. Fernelius stated Gateway West is located at the northeast corner of 57th and University Avenue. It has been labeled "Gateway", because it is an important entrance into Fridley, and it continues to be a high redevelopment priority. It was identified on our Council/Commission surveys three years in a row from 2000 to 2002. It also was identified during the community vision meetings in 1998 and 1999. Mr. Fernelius stated that in the 1990's, the HRA acquired the Frank's Used Car property. They had redevelopment plans at that point, but essentially stopped that process pending completion of other projects. They started work on the Gateway East project directly across the street. Medtronic also was being redeveloped so they were extremely busy with other projects. Mr. Fernelius stated the City and the HRA have invested substantial resources in this area; not only Gateway East across the street but the reconstruction of 57th Avenue. The HRA has continued to provide its housing rehab programs in that neighborhood, along with our scattered site redevelopment program. At least half a dozen new homes have gone into that neighborhood and, of any single neighborhood in the city, has seen the largest investment through the scattered site program. So, he thinks that a number of good things have happened in general Hyde Park area. Gateway West is now the next step. Taking on the Gateway West project accomplishes a number of redevelopment objectives that have been identified as priorities by both the Council and the HRA-- removing blight, improving image, and maintaining property values. They looked at several different redevelopment options that ranged from redevelopment of the Frank's Used Car site only to a much larger area that encompasses a total of about 7%2 acres and nearly 20 parcels in size. Mr. Fernelius stated staff also looked at other first-string suburbs. There is a lot of redevelopment activity going on in other communities that are similar to Fridley. They used those as a model to generate a list of ideas of things that might work in Fridley. Taking all of that information, they proceeded with a number of redevelopment options. He is going to go through each one of the scenarios and then talk a little bit about the area in question, some of the basic financial information about that parcel, and then ask Mr. Hickok to talk about the site plan that they have sort of modeled for the particular scenario. There are seven scenarios, and staff will address each scenario separately. Scenario 1: Mr. Fernelius stated Scenario 1 is the redevelopment of the Frank's Used Car site only. This lot is a little over an acre in size. This particular scenario would involve construction of single-family homes, and the redevelopment plan would actually entail creating six new single family lots. These would be owner-occupied single-family homes with an estimated sales price of around $225,000. The lot price would average around $50,000; and they would be looking at a density of roughly 4%2 units per acre. This project could generate a new market value of $1,350,000. In terms of financial implications, this one is fairly straightforward. There are expenses of about $329,000 compared to revenues of $437,000. Most of the expenses have already been incurred. The HRA already owns the site. That constitutes about half of the expense related to the project. So, the HOUSING & REDEVELOPMENT AUTHORITY MEETING, DECEMBER 12, 2002 PAGE 8 balance would be related to other kinds of site preparation, activities like demolition, surveying, etc. So the net impact of this particular scenario would actually be a positive number. It would pretty much pay for itself, at least from a financial perspective. Mr. Hickok outlined the planning-related issues. He stated there are no infrastructure improvements of any sort. In other words, the roads would remain the same. They would use the existing 3�d Street. Five homes would take access from Third. And a home would take access from the south. Currently there are two homes that face south. A right-of-way goes out to, but does not connect with, University Avenue; and that right- of-way would serve as access to the sixth single-family home located down along the southern edge. It is a 6 single-family home layout that seems to work quite well in the neighborhood. Ms. Gabel asked if that is a buildable lot? Mr. Hickok replied, yes, it is according to Hyde Park standards. It is narrower than the typical single-family lot in Fridley, but Hyde Park has a special zoning that allows a narrower lot dimension. Scenario 2A: Mr. Fernelius stated that Scenario 2A includes both the Frank's site along with the two homes that were adjacent to the lot at the south end of that property. This plan is consistent with the original concept plan for Gateway West which was developed in the 1990's. Those two homes were included in that original site plan. This particular scenario would involve the construction of owner-occupied townhomes. From a practical view, it wouldn't really make any sense to build single family. They would simply be removing single family to do that. There really wouldn't be any net gain. So that is why they have gone from single family only on the Frank's site to an expanded area that would include townhomes. They really didn't see a practical option in between that would involve single family on this particular scenario. Mr. Fernelius stated this particular site plan would have 18 townhomes with an estimated sales price of $215,000 and approximately a value of $20,000 per unit for the land, a density of 10.2 units per acre, and a new market value of $3.8 million. Looking at it again in a financial perspective, there is more cost involved. They would be acquiring two additional homes, there would be additional expenses related to demolition, relocation, those kinds of things. So they are looking at slightly over $1 million in expenses. On the revenue side, there would be additional land sale income as well as tax increment that would be generated by this project for a total of about $750,000. So this would have a net impact, and this is where they get into the discussion of how much additional investment the HRA/City wants to make. This one clearly would have a deficit so they would have to find a source for that, either their own general fund revenues or seek another funding source in order to cover that. Mr. Hickok stated this is a site plan that suggests a row-townhouse configuration in order to put 18 units on the site; the units would be in 6-unit clusters, with a total of three buildings. Again, in this case, it would be using existing infrastructure so they are not reworking roadways, and it seems to give a nice layout of the developments. HOUSING & REDEVELOPMENT AUTHORITY MEETING, DECEMBER 12, 2002 PAGE 9 Mr. Fernelius referred to three photographs that gave the HRA a sense of some of the architectural elements that they could potentially see in this type of product. Two photos are from the same development in Golden Valley and the other is from a development down along north of downtown Minneapolis. Mr. Hickok stated that the site plan shows that the footprints look purposely bland and generic. Although they are bland and generic, they are there to represent the footprint size of similar type of units. So in cases where they have given examples, they have also sought out the footprint dimensions so they could give an idea about how that would fit. Ms. Gabel commented that they have nice curb appeal. Scenario 2B: Mr. Fernelius stated this is essentially the same site area previously talked about. It includes the Frank's site and the 2 homes to the south. The difference between this scenario and the last one is that this one has slightly higher density. They are looking at 28 units instead of 18--10 additional units with an estimated sales price of around $200,000. Again, these are all projections on their part. It is quite possible that the average sales price on a 28-unit development wouldn't be all that different than an 18- unit development. But, again, for financial projection purposes, they adjusted the sales price down slightly from the previous scenario, and they are estimating a sales price of around $200,000. In terms of what the developer would probably pay for the land value, it probably wouldn't be that much different. So they are looking at $20,000 a unit. Obviously the density is higher; they went from 10.2 units per acre to 15.8 units per acre. They are also creating slightly more than one-half million dollars in new market value created by the housing. Mr. Fernelius stated that like Scenario 2A, the expenses on this object are only slightly more. They are at about $1.1, almost $1.2 million. But they see on the revenue side where there is additional income, both in terms of land sale income and tax increment that would be generated by this project. They would have more units which would equate to more revenue for this particular development and the result is a slightly smaller deficit of around $116,000. So this deficit looks a little bit better from a financial perspective than 2A. Scenario 2A also has a slightly different configuration in terms of the site plan. Mr. Hickok stated he wanted to talk about this scenario and some of the interesting features about it. What they did is take the footprint of the units to get an understanding of how big those footprints are, how many units could work, and then all sorts of architectural design tricks again can be utilized to make a long block of units not feel so bland and overpowering. A benefit any time you can add several stories and a larger building like this, it really psychologically sets up a separation from the roadway beyond it. They want to keep re-emphasizing the infrastructure, the roadways, so it is understood there isn't change at this point for when they get into some of the other scenarios. But again they are not changing as a cost to this development, the roadway around 3�d Street remains as it is today. And the existing street south of the development, 57th Place, remains as it is today. HOUSING & REDEVELOPMENT AUTHORITY MEETING, DECEMBER 12, 2002 PAGE 10 Mr. Fernelius stated an interesting and important feature to this development is putting the garages below the units. The Gateway West site does have a relatively narrow site dimension. It doesn't have a lot of opportunity for parking in front, parking in back, etc. As we know, one of the things that we really what to get at here is image. They would like to as much green space as possible, so parking underneath the building becomes a real opportunity. Mr. Hickok stated they would hope to also integrate some landscape-type features for preserving the open space. He showed a photo where an arbor served as a nice focal point. He can see that being very nice with landscaping around it, giving people an opportunity to get out and meet their neighbors and just enjoy the outside. Sometimes that is a piece overlooked in a development. People need to have a space to go out and enjoy the outdoors. Mr. Fernelius stated the other point, too, that is worth making about this particular site plan and green space is that it provides some buffering from the adjoining properties to the west. There are single-family homes to the west of this site along 3rd Street, and this landscaping green space provides opportunities for amenities but also for some buffering between the development and existing single-family homes. Ms. Schnabel asked if all the owner parking would be underground beneath the units? Mr. Hickok replied, yes. They do anticipate there will be some guest parking. They do want to make certain that if this becomes the type of development that the HRA and the neighborhood/people are interested in, then they will talk about how much guest parking would be necessary on the surface and where to put that exactly. Mr. Fernelius stated the next scenarios (total of 4) looked at additional parcels both to the south and the west of the area that they just looked at. The reason why they went through this exercise looking at an expansion of the Gateway West site, is to look at whether or not they could create some opportunities to mix some land uses and that is things like retail, shopping, restaurants, along with residential. Not each of these scenarios includes a mix of land uses, but they are working in that direction and that is what they can accomplish. And it also provides more options to include things like amenities, open space, underground parking, and the opportunity to realign some streets and address some traffic issues that have been addressed by people in the past. Scenario 3: Mr. Fernelius stated this particular development includes the Franks site and the 2 homes to the south (in the previous scenarios) plus the fast food restaurant at the corner of 57th Avenue and University. That total area in total encompasses almost 3 acres (2.89 acres in total). This scenario they would envision owner-occupied townhomes, 48 units, but they would be constructed in multiple buildings. The interesting thing here is the density really doesn't change much from Scenario 2A. That was almost 16 units per acre, this is slightly over 16 units per acre. An increase, almost $9 million ($8.8 million) of new value is created. There are also additional costs to this project. They are envisioning expenses of about $2.6 million to acquire, demolish, take down the restaurant. There are also additional revenues--more land area. This project does have a fairly substantial net impact. They are looking at about $1 million of potential deficit. Again, it is a conservative estimate. If their expenses go up, this deficit could increase. HOUSING & REDEVELOPMENT AUTHORITY MEETING, DECEMBER 12, 2002 PAGE 11 On the flip side of that coin, if the sales figures for the properties increase, they could see this deficit shrink. But, again, the important point is that this project would involve a larger investment on the part of the HRA. Mr. Hickok stated as they can see by acquiring that additional site, this does start a very different image from 57th Avenue. It brings the development down to the corner and provides an opportunity to really start residential right at the corner of the development. Again, they are not looking at any real infrastructure changes. They would be utilizing 3�d Street as it comes off from 57th Avenue. There is very little real hard surface above ground in this development as well. Parking stalls would be below the units, and there would be guest parking which would have to be analyzed to make it work into this site, keeping as much green space and amenity above ground as possible. Mr. Hickok showed photos of this development concept. Ms. Schnabel asked if staff is not envisioning a long, flat roofed building. The photo appeared to have peaks and looked like individual units. She believed people were concerned about a long, flat roofed building that is uninteresting. Mr. Hickok that when they have an opportunity to do an image project, they want to make certain that a developer would come back with something that really screams image and the right kind of stuff. Not only would it have a great appearance from University Avenue, but it really needs to somehow interact with the architecture in the neighborhood. It needs to feel residential, it needs to feel like its got a tie-in to an existing neighborhood so it doesn't feel really out of place there. So that is definitely what they would be looking for. Scenario 4: Mr. Fernelius stated this expands on the area they just talked about and goes west. It would include the site they just talked about plus there is an 8-unit apartment building directly across 3rd Street which would be included in this next scenario and the fast food restaurant that is west of that building. This site is just a little over 4 acres in size. It would likely involve a mix of both owner-occupied townhomes and owner-occupied condominiums. There would be more units, 64 units in multiple buildings. Again, as they get bigger and have more units, they are going to need underground parking. That is a must in any of these development scenarios in order to accomplish the type of density that they are talking about. This scenario would also involve realignment of 3rd Street. He did not want to make too much of the density issue, but the point he is trying to make is the density in these scenarios are fairly consistent from roughly Scenario 2A to Scenario 5B. The new market value created is approximately $11.2 million. The financial implications are fairly significant. The HRA expenses are projected at slightly more than $4 million with revenues of about $1.8 million and a net impact or deficit of $2.1 million. As they expand the project area, the expenses go up and the net impact on the HRA also increases as well. Mr. Bajwa stated he can understand the expenses going up because it is a bigger area and the acquisition costs are higher. The revenues, however, seem quite puny in comparison to the expenses. Why is that? Do they not cover the same? How long a period of time do the revenues cover? Is it one year or is it more than one year? The HOUSING & REDEVELOPMENT AUTHORITY MEETING, DECEMBER 12, 2002 PAGE 12 expenses seem like those would be front-ended so those would be one-time expenses, but the revenue goes on for several years. Mr. Fernelius replied that what he didn't explain is that this would be looking at the project at the end of the development and how they would look at that in terms of revenue. The revenues include land sale income, what we would sell the land to the developer, and tax increment. Now the tax increment, which is essentially the increased taxes generated by the project, that is really reflected in our present value. In other words, what that stream of tax increment over 25 years is worth in today's dollars. So the revenue figure includes present value of the tax increment and essentially the current value of the land sale with revenue that they would generate. So, over the course of 25 years, the actual amount of tax increment would be more than that. But in terms of what it is worth in today's dollars if we were use to it as a revenue stream to pay debt service, he has not broken that out here in this analysis. He is just trying to include the main revenue number in this analysis. Mr. Bajwa stated that he didn't know if that really adequately provides a benefit of the developer. If they were to look at the revenue stream over 25 years and look at the inflation and it's over 25 years, the revenue stream he would presume would be substantial. They can compare the dollars of a present day figure or they can compare the dollars in the future. So, if the revenue stream has been capitalized to occur in today's scenario so they mask expenses and it can show a negative in this case, it can easily be done in a future value mode where you take the future value of the expenses versus the future value of the revenues and see what the benefit might be. I think that is truly the real benefit to the City over a period of time for doing these types of projects. Mr. Fernelius stated he was looking at the cash flow analysis that they prepared, and it doesn't show the gross amount of tax increment that each of these scenarios would generate. But, Mr. Bajwa does raise a good point that the benefit in dollars is much larger than that, but typically when they do redevelopment analysis they are looking at tax increment from a present value perspective because very often that is used to pay debt services for the issue bonds. They are not talking about doing that; but if they were to do that, they would use that revenue stream as a source of payment. They need to look at that for what it would be worth in today's dollars and essentially what the borrowing power would be in that revenue stream. So the present value is what they look at. But, it is true, it doesn't leave them with a reflection of the total amount of tax increment or revenue that a project would generate over 25 years. Scenario 4: Mr. Hickok stated that now it becomes clear why in the earlier scenarios he was talking about infrastructure. This really does not only add land area, 4.08 acres, but it also takes access from 57th Avenue and rearranges it a little bit. This would be a preferred scenario for them to pull access far away from University Avenue as possible. So cars are not entering 57th while other cars are stacking on 57th and trying to get out. They see some cost in taking out the infrastructure, taking out Third Street in its original location, and putting in a new street that lines up neatly across from the main access into Holiday on the south side of 57th. This would be a very short street that would take people up to 57th Place and then the streets would remain pretty much uninterrupted in their original alignment. This would be the access to the neighborhood for people who would HOUSING & REDEVELOPMENT AUTHORITY MEETING, DECEMBER 12, 2002 PAGE 13 normally take an access at Third Street behind Burger King. Now they would be going midblock and taking access to the neighborhood there. Mr. Hickok stated that in terms of types of units, they are looking at a kind of row-house unit here that would put four blocks of 16-units on a very nice south configuration on that portion of the site and then east/west along 57th. Again he thinks architecturally and landscaped-wise this project could be developed in a way that really has a nice architectural presence. It leaves kind of an open space amenity at the corner that could be neatly landscaped and be a bit like the Christianson Development across the street. Again, there would probably be an opportunity for something like an arbor or nice gazebo feature that gives people the opportunity to get out, enjoy their neighborhood, and bring amenity back to the neighborhood. Mr. Hickok showed photos of the row-house design. It again has the sidewalk in front, it has individual character about the units, but they are in a larger block. These are 16-unit blocks and it has a residential-style look, and the units are kind of juxtapose and have some features that stick out so you are never really looking at one long plane, one long wall, but instead you are looking at some features that tie it into the neighborhood maybe across the street and provides the neat amenity like bay windows, and he thinks a real nice sale feature for the development. Emphasis again on underground parking, landscaping, and de-emphasizing the hard surface that does have to be out there in making it far less prominent than the other nice things that you see on the site. Ms. Gabel asked if some highway dollars could be available for moving the street. Mr. Hickok stated that is a good question and certainly one they would ask. Mr. Fernelius stated that with each of these development scenarios, they are going to aggressively pursue outside dollars. Metropolitan Council has a Livable Communities Program. He is not certain of the funding status at this point, but that certainly could be one option for them to pursue. The Department of Trade and Economic Development did have a redevelopment grant program, but that was not used last year. Its future is uncertain. But if redevelopment does become a priority at the state level and that program is funded, they would pursue that as well. Dr. Burns stated that, realistically, he did not think any highway dollars would be available. It is not a county highway. It may be eligible for use of state aid money, there are two categories of that. A lot of that, though, is used for street reconstruction programs. So, being very candid, that would be a stretch to find highway dollars. The best opportunity would be to get some outside funding from other sources that could possibly be used such as the political communities money, maybe even some community development fund. Mr. Fernelius stated the last two scenarios are very similar to one another. This is sort of the grand scheme and there is just a slight distinction between what they have labeled as Scenario 5A and 5B. Scenario 5A: Mr. Fernelius stated this involves the area that they just talked about and then a number of neighborhood properties from the north and the west. This would include 11 HOUSING & REDEVELOPMENT AUTHORITY MEETING, DECEMBER 12, 2002 PAGE 14 additional parcels of property so they would have a total of approximately 20 parcels, 19 if the Frank's Used Car lot is excluded. It would be about 7 3/4 acres in size. It would include a mix of residential, approximately 90 condominium-type units and 9 single- family units plus about 56,000 square feet of office retail space. Again, like in the previous scenarios, they will be looking at underground parking, realigning 3rd Street, and the density actually drops because they are spreading the units out over a larger area. In this scenario it is almost 13 units per acre. A relatively substantial amount of new market value is created, almost $20 million in new investment through this scenario. Mr. Fernelius stated Scenarios 5A and 5B both have rather substantial expenses. Over $7 million in costs related to this project, including everything from acquisition to relocation, demolition, and some of the infrastructure improvements that would be required in order to make this site ready for development. Revenue streams are also larger than the previous scenarios. They are looking at $3.6 million in tax increment and land sale revenue with this scenario with a net impact of $3.5 million. Again a fairly substantial investment on the part of the HRA. Mr. Hickok reminded the HRA of the key points discussed by Commissioners, Council members, and citizens in the community about what things interested them in the City's future redevelopment. Image was a very big. This site plan is one that starts with image right at the corner, as you would be driving up University Avenue and stopping at that stoplight, what you would be seeing potentially would be a multi-story building, ground floor office retail opportunities, and second and third floor condominium opportunities with an elevator. This becomes more of a heavy construction-type project with probably steel framing and so forth, but again very much a residential character with opportunities for underground parking for the residents, elevators for the residents, and then some ground floor surface parking for the commercial office space on the ground floor. Mr. Hickok stated the building is purposely moved up to the corner to provide a number of different benefits. One is that, done right, architecturally it starts to have a downtown street-front presence that really feels like it belongs on that intersection. It has some image characteristics that really let you see the building. It kind of minimizes the roadway. Oftentimes when you move a building closer to a wide roadway in a heavy intersection what it does is it downplays the heaviness of that roadway, the heaviness of that intersection, and starts pulling it in as a downtown street. The multi-story feature about this has an effect to maybe have a residential area behind it and it feels like it is a bit removed from a busy intersection. If done properly, they could have a nice benefit of having lower density as this particular development has single-family residential inward to the development. Scenario 5B: Mr. Fernelius stated with the last plan there really isn't that much difference with the exception of the townhomes. It still includes the condominium or the three-story residential structure on the corner and the townhomes as well. He believed they have a total of 18 townhomes under this scenario which would essentially be located roughly in the same area of the previous scenario of the single-family homes. So, this is a slightly higher density than the last scenario. In reality, the net impact between the two financially is fairly nominal. HOUSING & REDEVELOPMENT AUTHORITY MEETING, DECEMBER 12, 2002 PAGE 15 Dr. Burns asked if they had a chance to do any market analysis in the building of mix use to capture the market to make it go. Mr. Fernelius replied, no, they haven't and that is a good point. In fact, he has outlined the next steps in the process and that is a good transaction to that comment. Market analysis, market ability and feasibility of the development is something they need to do. They haven't spoken to any developers about this. Whether or not any one of these scenarios is feasible or attractive to developers is something they need to find out. Obviously, they need to start with developing some kind of consensus with the policymakers on which one of the options is attractive if any. Obviously they need to do some additional replying to some of the numbers. One thing that he didn't mention, they have not pinned down all of the infrastructure cost; but they used some estimates per unit basis from the Gateway East project and that was the basis of their numbers here. What they really need to do is sit down with the engineers and have them calculate the numbers. Mr. Fernelius stated the other issue that they have not really explored is whether they can create a tax increment district. There are certain standards/thresholds that have to be met in order to create a tax increment district. They need to do that analysis, but the first step is to see what peaks interest and then they can do the additional analysis that is required. Dr. Burns asked whether it would be worthwhile to do at least some preliminary market analysis before they even choose which of the scenarios is most attractive to help them make a decision. The mixed use approach has some merit because there is an awful cost of it; but certainly before they even consider it, he thinks they need to know whether there would be enough market for retail in that area. Ms. Gabel replied that it doesn't hurt to find out. Ms. Schnabel stated there was an article in the Minneapolis paper the past weekend concerning the redevelopment that has taken place out in St. Louis Park along Excelsior Boulevard. It has taken a long time to accomplish, but it's a nice improvement to Excelsior Boulevard. She wanted to caution people that these are just scenarios being presented, there are many options, maybe none of these would happen, and there could be a whole different concept in the end. However, she believed these scenarios are worth exploring. Mr. Dick Snyder, 5901 2nd Street, stated he was very interested in seeing the scenarios of the Gateway West project and stated that staff had done a very good job. Mr. Bajwa stated he recalled at the last meeting they had with the City Council that this has to be an image project. He thinks all of the scenarios here that go all the way from somewhat the same single-family home scenario to a typical urban downtown approach, a full spectrum, it would be interesting to have even more than one, perhaps several, joint meetings. He inquired about a public hearing. Dr. Burns stated that at some point there would be a neighborhood meeting and public hearing. HOUSING & REDEVELOPMENT AUTHORITY MEETING, DECEMBER 12, 2002 PAGE 16 Mr. Bajwa stated that also in addition to this, he knows the Northstar Rail has been discussed and is on the horizon; but in looking towards the future, it would be interesting to know if they put a station in Fridley, what would be the proximity of the station to the development. Ms. Gabel commented it would be close, within four blocks. Mr. Hickok stated it would be within a nice walking distance. That also makes it really attractive from a livable community standpoint as they go seek outside funds. These types of things, i.e., is it close to transit opportunities other than just getting in a car, is it close to shopping, can people shop without having to use a car, become very important as to whether they get any money. Mr. Hickok stated the anticipated station site would be at the intersection of Main and 61 St Avenue. Ms. Schnabel asked if the station is going to be on the east or west side of the tracks? Mr. Hickok stated the City's plan was really to have it be on both sides and have people go through a pedestrian tunnel up to a platform in between the tracks. Ms. Schnabel stated she would like to thank all the members of the staff for putting together these scenarios. Not only Mr. Hickok and Mr. Fernelius, but Stacy Stromberg, and Stephanie Hanson also participated in putting all of this together. All the members of the HRA thanked them for all of their work and all future work to be done. 5. FOLLOW-UP ON HRA LIABILITY COVERAGE Mr. Pribyl stated the liability coverage the HRA actually has is identical to what the City and the City Council have, and the liability coverage that the HRA has is $1 million, prime coverage is $100,000, and faithful performance-type coverage is $50,000. Faithful performance is more or less errors and omissions Ms. Schnabel asked what the faithful performance coverage is? Mr. Pribyl stated that is similar to errors and omissions. That is your performance-type responsibility that if someone were to find fault with the performance of one of the HRA members and would try and attack in that particular fashion, that is where that coverage would come in. Ms. Schnabel stated that in today's world, are these dollar amounts reasonable? Mr. Pribyl replied that, yes, they are. There are statutory limits that also come into play here. And actually these coverages were just reviewed by staff and the agency that handles the City's insurance coverages. These are actually reviewed annually. Ms. Gable asked if the $1 million is the statutory limit? Mr. Pribyl stated he didn't exactly know what the statutory limit is. The $1 million is in excess of what liability coverage is needed. He thinks the statutory limit is $650,000 HOUSING & REDEVELOPMENT AUTHORITY MEETING, DECEMBER 12, 2002 PAGE 17 when it comes to damages that are incurred. But as far as the actual faithful performance, $350,000 is the max that is needed. Ms. Gabel stated that she had bought some liability coverage on her homeowners insurance and it wasn't very expensive; and she asked whether there is statutory coverage. Mr. Pribyl replied there are statutory requirements for government officials, not individuals. Ms. Gabel stated you can buy an addendum kind of policy and it is not expensive. Ms. Schnabel asked if the HRA members were technically called government employees although they receive no salary? Mr. Pribyl replied that, yes, they are covered under that position and in fact the City clarifies that. 6. EPA BROWNFIELD CLEAN-UP PROGRAM Mr. Fernelius stated Mr. Commers had inquired about this program wondering if staff was aware of the program and if there was a fit in Fridley to access that program. It is a program funded by the Environmental Protection Agency. Approximately $200 million in funds are available to do things like environmental assessments, create a loan fund, or provide some cleanup grants. The applications for this program, the preliminary round of applications, are due December 16, which is a relatively tight time table; and he thinks the question was whether or not this might be something they could have used on their salvage yard project. Staff did evaluate that. The notice for this came out in October, and they didn't really have an opportunity to analyze it much to see if it would fit. Mr. Fernelius stated regarding the salvage yard discussion, there was a rather substantial gap in that project which more or less they had to cover. One of the areas they had already identified as a funding source as far as a cleanup related fund was in the area of cleanup. So he didn't know if this EPA program would essentially be new money in addition to what was needed for the salvage yard project. The other piece that is important is that with the EPA program, the agency that applies for the funds actually has to be titled to the property, they have to own it, and that is obviously not the case with the salvage yards. So while it is a good program, he didn't know if it had a lot of possibility at least on the south charter project. He understands that it is a new program, a sort of pilot program, they will monitor it, and see what happens with it and see if there is funding they can take advantage of in the future. 7. HOUSING PROGRAM SUMMARY Ms. Schnabel acknowledged receipt of the Housing Program Summary. Dr. Burns asked what is the date of the Commission Appreciation evening. Mr. Fernelius stated it will be held in February, and he will get that information for the HRA members. HOUSING & REDEVELOPMENT AUTHORITY MEETING, DECEMBER 12, 2002 PAGE 18 ADJOURNMENT: Ms. Schnabel wished everyone Happy Holidays. MOTION by Ms. Gabel, seconded by Mr. Bajwa, to adjourn the meeting. UPON A VOICE VOTE, ALL VOTING AYE, VICE-CHAIRPERSON SCHNABEL DECLARED THE MOTION CARRIED AND THE DECEMBER 12, 2002, MEETING OF THE HOUSING AND REDEVELOPMENT AUTHORITY ADJOURNED AT 9:21 P.M. Respectfully submitted, Denise M. Letendre, Recording Secretary