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HomeMy WebLinkAbout2009 12-14 City Council Manager Workshop PacketAGENDA MAPLEWOOD CITY COUNCIL MANAGER WORKSHOP 5:00 P.M. Monday, December 14, 2409 Council Chambers, City Hall A. CALL TO ORDER B. ROLL CALL C. APPROVAL OF AGENDA D. UNFINISHED BUSINESS 1. Discussion Of Financial Options For The Shores /Tourist Cabins Project E. NEW BUSINESS F. ADJOURNMENT THIS PAGE IS INTENTIONALLY LEFT BLAND Work Session Agenda Item D1 AGENDA REPORT TO: City Manager, Jim Antonen FROM: Charles Ahl, Assistant City Manager /Public Works Director SUBJECT: Discussion of Financial Options for The Shores/Tourist Cabins Project within Gladstone Redevelopment Area DATE: December 9, 2009 INTRODUCTION Over the past six months, the City Council has been notified of possible developers interested in the Tourist Cabins property and implementing The Shores development concept approved by the City Council in 2007. A developer represented by a partnership of Albert Miller of the Rand Corporation [who controls ownership of the property through Highland Bank], Lance Lemieux of Southview Senior Living, and Jack Rajenbach explored building 110 units of the original 180 unit complex during 2010. Additionally, Welsh Companies reviewed a purchase of the property and proceeding with a phased development of the original senior housing plan. Both development groups explored possible financing plans, but indicated that once the senior housing component of The Regent project was approved and began construction, they were unable to secure the necessary private financing to proceed with this project. At this point, that project does not appear viable for the next 5 -10 years. This item has been placed on the work session agenda for a discussion of interest from the Council on pursuing other options for the property. A number of options are being explored that would allow the City to use the Metropolitan Council's Livable Communities Development Act grant. That grant expires at the end of 2010, however, there are provisions within the grant that require a development agreement to be secured in 2009. Discussions with possible developers who are willing to submit a development agreement for consideration within the next 2 -3 weeks are on- going. DISC USSIONIBACKGROUND The Gladstone — Phase I improvements were approved without TIF involvement in the project. In 2007, the City Council reviewed a request from Bart Montaneri for TIF funding and Mr. Montaneri paid for a Springsted, Inc. [the City's financial advisor] analysis of his project. Springsted provided an analysis of the internal rate of return for potential investors on that 2007 project and the City Council did not take a vote on the use of TIF funds to be provided for that project and that developer; however, a vote to call a public hearing to discuss the TIF plan failed on a 2 -2 vote. The developer [Mr. Montaneri] was unable to secure financing with that plan and the developer has been foreclosed on his purchase. Rand Corporation, working through Highland Bank, foreclosed on Mr. Montaneri and his corporation and now control the property. At the May 28 Council Meeting the Council was provided a letter from the Metropolitan Council that indicates that our grant is tied to a potential development and that if we cannot secure that development such that our grants funds can be expended by the end of 2009, Maplewood will need to forfeit those grant funds of $1.8 million. The staff was successful in securing a one -year extension on that grant; however, no grant funds can be reimbursed to the City until the construction of the building is started. The Metropolitan Council has requested that a draft development agreement and site cleanup begin by the end of 2009 to indicate progress on this development. packet page number 3 of 5 GLADSTONE — FINANCIAL OPTIONS PAGE TWO Options Option 1: the most likely option is that a development cannot be assembled and the City will need to indicate to the Metropolitan Council that the $1.8 million LCDA grant is being returned. Under this scenario, the City obviously does not begin improvements to the Gladstone area until a developer begins work in the area. It has been previously indicated that a first developer is needed to allow the entire redevelopment area to proceed. Without the grant, it does not appear likely that any development activity will occur within Gladstone for a period of 5 -10 years, or longer, based upon discussions with some of the developers that have reviewed this plan and area. The likelihood of future grants from the LCDA program are not very good, as the State of Minnesota and Metropolitan Council financial problems have greatly reduced the amount of funds available over the next 5+ years for this program. In addition, developers are indicating that without significant financial support for projects, that other areas will likely be pursued before interest in Gladstone returns. One developer has indicated that they would not likely be interested in discussions about projects in this area for at least 10 -15 years. Staff acknowledges that we are down to the last few weeks in attempting to retain the grant, but given the likelihood of the entire Gladstone plan becoming dormant for many years, we believe that further effort is warranted. The following options are developed as possible scenarios for putting a draft development agreement together in the next 2 -3 weeks: Option 2: a development group represented by Shelter Corp. has proposed an affordable housing development for the site. This group proposes to develop 16 townhomes along with 46 multi - family units [apartments] that would require Minnesota Finance and Housing Agency [MFHA] support and assistance. Shelter Corp. originally explored this plan prior to Mr. Montaneri in 2006. This plan would be difficult for the City to finance, as the property tax payments would be reduced due to the affordable housing component. While affordable housing is an admirable goal and necessary within our community, this proposal will likely meet with resistance from the neighborhood and does not meet the higher end vision for the property that was established during the Gladstone visioning process. In addition, due to the reduced property taxes under this scenario, the use of TIF financing would be very limited for the public improvements within the Gladstone corridor and the Savanna. While this development group could likely meet the grant requirements of a development agreement, they would be contingent upon successfully receiving MFHA financing credits for their project. This option would not meet the overall Gladstone goals and would require some final arrangements with Metropolitan Council on the grant, plus, if Shelter Corp. were not successful with the MFHA credits, the project could fail in June — September 2010, which would expose the City if the grant work proceeded. This option has numerous down side options and is not recommended to be pursued further by staff. Option 3: Under this scenario, the developer would receive City support through the use of TIF funds, in exchange for the developer agreeing to assessments for the public improvements. The proposed project would be a phased, higher end multi - family [apartment] complex. It would likely involve 70 -80 units of market rate [no affordable components, except to meet a housing TIF district] housing. The City would need to provide some of the TIF in the range of $1.0 million to $1.5 million to the developer to secure the land financing arrangements. There would also be assistance from the project with the developer receiving pay -as- you -go TIF to pay assessments to make the project viable. It is very likely that some bonding of the TIF would be necessary. This scenario would provide that the developer would be assessed for up to $1.0 million of public improvements necessary for the Gladstone Phase I project and the LCDA grant would be provided for the area. For this project to be viable, the City will need to authorize the TIF funds to be used to secure a developer. Two possible developers [both wish to remain anonymous at this time] are reviewing a proposal and may be willing to sign a draft development agreement in the next 2 weeks. A special Council meeting may be needed in the last week of the month to approve the agreement. packet page number 4 of 5 GLADSTONE — FINANCIAL OPTIONS PAGE THREE The developer could receive up to $2.5 - $3.0 million in TIF reimbursement under this scenario. These funds would help the City to achieve its goals to start the Gladstone redevelopment. In exchange for this agreement, the developer would receive an additional $1.0 -$1.5 million to use for land improvements for the development project. The staff continues to discuss this proposal with the potential developers and the financial incentives necessary to meet the Metropolitan Council's grant requirements for the development. The TIF is being considered as incentive funds to the developer to allow the grant funds to be received. A final analysis by Springsted will determine the actual amount of funding available for Council consideration, although the developer has indicated that without TIF funding, they cannot secure financing for their project and they would not proceed. Option 4: under this scenario, the City would enter the development business through the EDA. It is likely that a high end, multi - family development could be secured if the property was owned by the City and the property was cleared of debris. This scenario would involve the City purchasing the property from Highland Bank through the EDA. The EDA would then market the property at a reduced rate to the developer. The EDA would take a loan from the internal Public Improvement Project (PIP) Fund for the purchase [in the range of $1.5 million to $2.0 million] and would be paid back through a project development agreement and TIF funds from the site. This would achieve the same goals as Option #3, but would require the City involvement in property ownership and certainly increase the risk for the City. If the development did not proceed, the city could end up being a landowner of a property without a secured development contract. While similar goals of development as Option #3 are achieved with this scenario, it may be necessary to use this procedure to secure a developer within the short time period that we have remaining and also allow us to secure our grant for usage in 2010. It appears from discussions with potential developers that the issues with the property remain as a major hurdle to proceeding with a development plan. This option inserts the City into the process and removes that hurdle. With a development, the City/EDA would be repaid with interest, using TIF funds over the next 5 -8 years; however, it also puts the City directly into land ownership and assumes a much larger risk that a development does not proceed and the payment timeframe extends well beyond the 5 -8 year period. Given that the grant requirements are looming, this risk could be considered. It is very reasonable to consider that in the worst case scenario under this approach that the City purchases the land, a developer is not prepared to proceed within the next year and the City needs to hold the land. A development would be likely within a 3 -5 year timeframe given the City offering of the property, and such, the EDA would be re -paid in a 13 -15 year period. In no circumstances, would the City be out the investment, it is the timeframe for re- payment that would be an unknown. While this option may not be preferable, the staff is requesting input from the Council as to whether this approach should be on the table in the next 2 -3 weeks for consideration. It will be a last resort approach; however, if it becomes a "deal breaker" or more importantly a tool to be used as a "deal maker" the Council should indicate to staff that the consideration should or should not be offered. TIMING As noted previously, this is the last attempt to salvage the LCDA grant funds. Should a development proposal be presented, a special meeting of the City Council will be necessary during the last week of December 2009 to consider that agreement. The agreement would obviously be contingent upon Planning Commission and City Council approvals of the development plan. i i� • It is recommended that the City Council review the status of the LCDA grant and development potential, along with the possible development options for The Shores/Tourist Cabins project area. Guidance and input on the options presented is requested. packet page number 5 of 5