HRA 01/05/2012 - 31315CITY OF FRIDLEY
HOUSING AND REDEVELOPMENT AUTHORITY COMMISSION
January 5, 2012
CALL TO ORDER:
Chairperson Commers called the HRA Meeting to order at 7:05 p.m.
ROLL CALL:
MEMBERS PRESENT: Larry Commers, Chair
William Holm
Stephen Eggert
Pat Gabel
John Meyer
NONMEMBERS PRESENT: Paul Bolin, HRA Assistant Executive Director
Scott Hickok, Community Development Director
Becky Kiernan, Accountant
William Burns, City Manager
Greg Johnson, CPA
Paul Hyde, Real Estate Recycling
ACTION ITEMS:
1. Approval of Expenditures
MOTION by Commissioner Holm to approve the expenditures as presented. Seconded by
Commissioner Eggert.
UPON VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED
THE MOTION CARRIED UNANIMOUSLY
2. Approval of December 3, 20ll Meeting Minutes
MOTION by Commissioner Holm to approve the minutes as submitted. Seconded by
Commissioner Eggert.
UPON VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED
THE MOTION CARRIED UNANIMOUSLY
3. Approval of Resolution Designating Official Depositories
Becky Kiernan, Accountant, said that Wells Fargo has been the official bank for the both the
City and HRA for a number of years. They are very responsive, easy to work with and flexible
Housing Redevelopment Authority Meeting of January 5, 2012 2
with investment management. Staff recommends approval of the resolution designating Wells
Fargo as the official depository for the Authority.
MOTION by Commissioner Holm to approve the Resolution Designating Official Depositories
to Wells Fargo. Seconded by Commissioner Gabel.
UPON VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED
THE MOTION CARRIED UNANIMOUSLY
4. Approval of the 2012 Mowing Contract
Paul Bolin, HRA Assistant Executive Director, said that last year staff ran a formal process, in
conjunction with CD code enforcement. Seven proposals were received and the Authority
awarded the contract to Passau Inc. to mow Authority properties in 2011. City and Authority
Staff were pleased with the work done by Passau. Passau is willing to e�tend the current
contract for one year at last summer's rate. Staff recommends approval of the e�tension of the
mowing contract with Passau Inc.
Chairperson Commers asked if Passau was required to hold a certain amount of liability
insurance.
Mr. Bolin answered yes.
Commissioner Gabel asked who was responsible for mowing the sidewalk area at the rail
station.
Mr. Bolin answered Metro Transit.
Commissioner Gabel said they are not mowing the south end of the sidewalk area.
MOTION by Commissioner Gabel to approve the 2012 Mowing Contract with Passau Inc.
Seconded by Commissioner Meyer.
UPON VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED
THE MOTION CARRIED UNANIMOUSLY
INFORMATIONAL ITEMS:
1. Update on Potential Redevelopment of 4800 East River Road/Preliminary Review of
Tax Increment Analysis
Paul Bolin, HRA Assistant Executive Director, said that in November, HRA signed an Interim
Agreement with Real Estate Recycling (RER). In late November, RER signed a purchase
agreement and they have 120 days for "due diligence". In December, the blight analysis was
initiated and preliminary review indicates that the buildings meet the statutory requirements for
Housing Redevelopment Authority Meeting of January 5, 2012 3
"substandard". In late December/January, RER is scheduled to meet with the tenants and then
the TI Analysis will be updated.
Greg Johnson, CPA, reviewed the five page analysis that showed what kind of TI could be
generated from this site and how much it would cost.
Pa�e one — Assumptions
There is 250,000 square feet of development projected to occur each year for seven years.
Using the pay 2012 Truth-in-Taxation rates, annual taxes upon completion would be $3.2M.
Annual tax increment would be about half this amount at $1.6M A Hazardous Substance
Subdistrict would add an additional $338,000 of tax increment each year to help pay for
clean-up costs.
Pa�e two — Cash Flow and Present Value Analysis
Column e shows the semi-annual tax increment generated by this development. Over a 26
year period $37M of tax increment is generated. Assuming 10% admin fees (column �,
$33.3M is available for project expenses (column g). the present value of this amount at a
6% present value rate is $13.4M (column i). no inflation has been assumed.
Pa�e three — Hazardous Substance Subdistrict (HSS�
Because of the substantial remediation costs involved with this Site, RER is requesting that
the Authority and the City establish a HSS. The tax increment results from reducing the base
of the HSS to zero and then using its current market value for calculating the tax increment.
The revenues generated by an HSS are not tax increment in the traditional sense because the
Authority is capturing the existing tax capacity of the Site. An HSS is the only example in
general law in which tax increment actually reduces tax capacity available to other taxing
jurisdictions. Because the revenues from an HSS may only be spend on remediation and the
district can last only as long as is necessary to pay for the remediation, the legislature has
continuously supported the use of HSS revenues to assist in the redevelopment of polluted
properties.
As the Cash Flow demonstrates the potential amount of tax increment that may be collected
over the life of the HSS should be approximately $8.8M This amount is circled on the
bottom of the column (e). After the HRA's administrative fees are deducted the total of the
available tax increment, as shown in column (g), is $7.9M which has a present value of
$3. SM as shown in column (i).
Pa�e four — Sources and Uses
There is $54.2M in redevelopment costs identified by the developer. These include
relocation of existing tenants, demolition of existing structure, environmental remediation of
the site, and public infrastructure costs. Under the sources, we have calculated that $16.9M
would be available from all tax increment, including HSS. The developer is projecting the
$33.1M could be obtained as grants from various government agencies, including DEED,
Met Council and Anoka County. A developer match of $2. SM is also assumed, which is a
requirement of the grant funding. A deficit of $1.6M is currently shown, which is less than
3% of estimated costs.
Housing Redevelopment Authority Meeting of January 5, 2012 4
Pa�e five — Pie Chart — Distribution of Taxes Upon Completion
Available tax increment generated from this development for project expenses represents
46% of each tax dollar paid by this development for project expenses represents 46% of each
tax dollar paid by this development. The HSS contributes another 9%. The HRA is
estimated to retain about 6% or $197,000 annually. The State represents a significant portion
of each tax dollar. The State's annual share is $910,000, or 28% of the total taxes. The
school district, in the form of Market Value Referendums, will receive $154,000 annually.
Commissioner Meyer asked what would happen if the first development took place and then it
was another 10 years before the ne�t development started. Unfortunately, there is a development
history in Fridley for taking 10 years between phases. He asked what would happen if that type
of situation transpired with this development.
Mr. Johnson said there would not be enough funds to clean up everything and we would have to
encapsulate it; nothing would happen on that site. In a TIF district you can delay receipt of the
first increment and we can elect this to not come in for four years. This would help stretch out
the funds.
Commissioner Meyer asked if there were any risks; like were we obligated to clean up the area
if he ran into problems.
Mr. Johnson said that the developer has taken the responsibility to clean up this area with his
funds.
Chairperson Commers asked what happens if we don't keep up with the schedule and the
phases are not completed. He asked if the area would be cleaned up as they go.
Mr. Johnson answered yes; they will clean up as they go.
Chairperson Commers asked how the discount rate was built in.
Mr. Johnson said they used 6%. Developers are looking for a number higher than that but with
the city involved a lower percentage was used. Right now he is not sure how this will be
financed. This is a preliminary estimate and is not set at 6%.
Chairperson Commers said that this is a different type of tax financing. He asked how much
money the city/schools would be losing for full tax capacity.
Mr. Johnson answered about $340,000 per year. He did not have the percentage breakdown.
William Burns, City Manager, said that city is around 20-25%.
Mr. Johnson thought the city was 40%, county 40%, and the schoo120%.
Dr. Burns said that the school has the largest percent, then the county, and then the city.
Housing Redevelopment Authority Meeting of January 5, 2012 5
Mr. Johnson said that the school district, in regards to the tax capacity, is smaller plus the
school gets the tax referendum.
Chairperson Commers said then the $300,000 tax capacity loss is 40/40/20.
Mr. Johnson answered yes, with the school receiving the smallest portion.
Commissioner Holm asked if it were truly a loss as the gain wasn't that much.
Chairperson Commers answered no; we are going back to zero.
Mr. Johnson said that there are restrictions as to what that money can be used for. Once
financing is established the hope is that you can decertify this hazardous district.
Chairperson Commers noted that on page two, the regular tax increment, HRA doesn't take
any capacity off that in column b correct? Also on page three there is no floor on the capacity,
we start at zero.
Paul Hyde, Real Estate Recycling, said that the idea at this point is that there will be some
e�traordinary costs to be encountered up front and other costs as we roll out a building. The
environmental costs start immediately. We have had several conversations with staff and there
will be upfront money there to start the project. As areas are built we may find different hot
spots or even buried drums. That is how we will go through large costs with each phase of the
development. If it takes us longer because the market is not there, the costs will not incur until
the building is built. Grants and increment funds will be there when we are ready to start the
building. Although we will need to work on some areas right away, the entire site doesn't have
to reach the environmental condition on day one. That is the reason for the multiple phases as it
could be tough financially.
Chairperson Commers said that there will be funds available in 2015, $169,000 for the
hazardous district and $74,000 in the TIF district.
Mr. Johnson answered yes; semi annually.
Mr. Hyde said that the ne�t step will be to figure out the timing as to what needs to be done up
front and what needs to be done over time. The site survey is complete and now an architect will
lay out a site plan followed by developing the phases. Once this is done we will have a better
sense of the cash flow that Mr. Johnson was talking about. We have to plan accordingly and be
flexible in terms of the cash flow for the project. Ne�t week we plan to start the site planning
process and will get a better sense of how much we can build. We have to factor in storm water
ponds and roads which will change the site coverage.
Mr. Hyde said that two weeks ago he met with the US Navy who is in charge of the majority of
the clean up and BAE systems. He is also in a cooperative partnership with the seller and they
are aware it is difficult to clean up this site. Lastly we have had good early progress with talking
Housing Redevelopment Authority Meeting of January 5, 2012 6
to the tenants about the plans for the project. We plan to further our conversations with the
tenants, develop the site plan, meet with the environmental person on board and then work with
the cash flow.
Mr. Hyde said that regarding the capital structure, you basically need two buckets; one is buying
the site which includes 50% land loan from a bank with a 4/5 year term paid down and our own
capital for other 50% which pays for the dirt. Then there is the construction loan for each
building; which includes borrowing 75% and 25% from land equity. Each bank loan will finance
each building. Lastly there is the permanent mortgage which will have a nonrecourse debt for
stabilized buildings. Banks are coming back to us and we have found there is a lender appetite
for this project. Lenders are very eager and they have seen the benefits of a new development
and how it has weathered in this economy.
Commissioner Eggert asked how many lenders talking to RER.
Mr. Hyde answered up to 10 including US Bank and Wells Fargo.
Commissioner Eggert asked from past experience, how much leverage is put in.
Mr. Hyde said that on the land loan you typically borrow 50% of the land value. This site will
have tenants on site for four years with leases so that will create cash flow. Stabilized buildings
with cash flow will allow us to pay the loan off and when we have the new loan for the buildings
we can borrow 75% with the other 25% land value.
Commissioner Meyer said that we have had experience in the past with large acreages like
where Medtronic is now and there were pre-designated types of buildings constructed to the
amount of $S.OM None of that was utilized and the $S.OM was wasted. With this large site, we
talk about clean up or site improvement; what are going to do to prevent putting heavy amounts
of money in parcels and not have that money wasted? What is the process to curtail activity until
we have clients to avoid unfortunate expenditure?
Mr. Hyde said that the plan is to not spend time trying to figure out each lot site and roads based
on a speculation of what may end up there. We need to be careful and break down construction
into phases so that the phase one building will be on the south side. There will be a thoughtful
thinking process moving forward and we will build one building at a time.
Commissioner Meyer asked what architect firm they were working with.
Mr. Hyde said they are working with architects from OPUS. They have a skill set in knowing
how to minimize upfront costs and are good at working with environmental engineers at
marrying building and clean up environmental issues.
Commissioner Gabel asked what percentage of the cleanup is the user's responsibility.
Mr. Hyde said that RER will clean up the north part of site and the southern end of the site will
be the responsibility of the Navy. The second clean up on the southern part of the lot will be
Housing Redevelopment Authority Meeting of January 5, 2012 7
paid by BAE. The stuff under the building will be a conversation with the Navy. The Navy is
spending $350-400,000 on underground water systems. This project will lower ongoing future
costs to the Navy and RER will work with the Navy to handle some of those expenses. The
Navy sees value if the building is torn down.
Commissioner Gabel asked what potential grants were in line for this project.
Mr. Hyde said that there are currently two programs in line with a potential for a third. The first
grant would be from DEED for the contamination cleanup program in the amount of $350 -
$400,000 every six months. Met Council also has a grant for "green building" or reuse of
existing infrastructure but there is less funding available there; $1-2.OM every six months. Some
of this funding has been allocated to projects that are not got off the ground yet. Both programs
have had success in Fridley. These are competitive grants and we need to do a good job at
drafting up the application. The third grant Anoka County modeled after Hennepin and Ramsey
County; making the project greener. We will go back to the legislature and get Hennepin County
renewed and ask for a new grant for Anoka County. We will see what happens this year; if it
doesn't happen this year maybe it will happen in the ne�t year or two.
Commissioner Holm asked if these grants are needed for the start up of the development.
Mr. Hyde answered yes; they need to figure out how much is needed upfront through grants and
TIF and then roll out the funds throughout the project. If we divide the project into smaller
pieces we will be successful. This will be an enormous return on public investment.
Commissioner Holm asked if they were committed to the four month window for due diligence.
Mr. Hyde said that there is no opportunity like it to even improve water quality. He spoke to the
seller today and if we need more time they will work with us. They know we have spent a lot of
money already.
Chairperson Commers said we are not bound because this is not government casing.
Mr. Bolin said that this is a concern as we moved along on this. Last week we met with Dan
Wilson who has worked on our behalf in the past. He is going though all of the existing leases
and when Mr. Casserly is back, the two of them will figure out if we do have any exposure there.
Chairperson Commers asked if we needed a legal opinion on that.
Dr. Burns said that BAE is moving from production so the heavy equipment is no longer in use;
they are moving back to research and development on that site.
Chairperson Commers agreed that would be good but we don't know if that excludes the
equipment that is on site.
Commissioner Meyer asked what control HRA had regarding the type of building, size, and
usage that is built.
Housing Redevelopment Authority Meeting of January 5, 2012 8
Mr. Hyde said that they have been working with staff and once the site plan is developed they
will let them know what percentage is office/retail etc. The zoning and planning staff will guide
us for planning use and types of construction. Whatever is built will be better than what is there
now. There will be a mix of buildings and the game plan is to save the space upfront for
something good like a Target.
2. Housing Replacement Program Update
Paul Bolin, HRA Assistant Executive Director, reviewed the following:
HRA Loans Total Loans (CEE)
2006 8 22
2007 8 17
2008 15 18
2009 16 18
2010 14 21
2011 9 13
# of Remodel Visits
2006 33
2007 26
2008 16
2009 18
2010 17
2011 12
Mr. Bolin said that there is a home remodeling fair the end of February which may inspire
people to reinvest in their homes.
Chairperson Commers asked how the foreclosure numbers were comparing 2011 to 2010.
William Burns, City Manager, said he did not have those numbers but would email the
Authority when they are available.
Chairperson Commers asked how many vacant residential properties were in inventory.
Mr. Bolin answered 32; he will email the list to the Authority.
Dr. Burns said that foreclosures had dramatic reduction over 2010. There has been a federal
freeze on foreclosures that is due to end very shortly so within the ne�t few weeks or months we
will see an increase as people go into the foreclosure process.
Commissioner Gabel had questions on the minutes from the December 3, 2011 meeting that
needed further clarification. Page 3 the PERA contribution went from $6,300 to $12,000. Becky
Housing Redevelopment Authority Meeting of January 5,2012 9
said the correct amount should be $6,500. On page 4 the total expenses for Mr. Casserly; Becky
sent an email to Chairperson Commers changing the total amount.
ADJOURNMENT:
MOTION by Commissioner Eggert to adjourn. Seconded by Commissioner Gabel.
UPON VOICE VOTE,ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED
THE MOTION CARRIED AND THE MEETING ADJOURNED AT 8:10 P.M.
Respectfully Submitted,
Krista Monsrud, Recording Secretary
CITY OF FRIDLEY
SIGN-IN SHEET
HOUSING & REDEVELOPMENT AUTHORITY MEETING
1 -.5- is
Name and Address Agenda Item of Interest