4.1.
Economic Development Authority (EDA)
- Meeting Date:
- 01/12/2023
- By:
- Sean Sullivan, Community Development
Title:
Consider Business Assistance Application and First Amendment to Purchase Agreement for Ramsey Properties, LLC
(A portion of this meeting may be closed to public)
(A portion of this meeting may be closed to public)
Purpose/Background:
The EDA may choose to go into closed session pursuant to Minnesota Statutes section 13D.05, subdivision 3(c)(3) to consider offers or counteroffers for the purchase or sale of real or personal property. If the EDA chooses to enter into to closed session the statute and reason above needs to be referenced along with legal description (Part of Outlot A, COR TWO) and the Anoka County Tax ID number 28-32-25-22-0058.
The purpose of this case is to consider a Business Assistance request that involves the sale of Outlot A, COR TWO to Ramsey Properties, LLC (the "Developer"). The EDA and City Council have previously approved a Purchase Agreement to build an 60 unit hotel and a proposed deal structure involving a TIF land cost write-down of $311,454. The EDA reviewed the Business Subsidy Application for this project at the December 9, 2022 meeting and recommended approval of a land cost write down of $311,454 and Pay-Go Site Development Reimbursement of $306,000 totaling $617,454 in TIF Assistance. As mentioned at the previous EDA meeting the Developer was having some concerns relating to the site size (too small to accommodate 82 unit hotel) and the operational efficiency of the hotel at 82 units.
Staff has been working with the developed to address the site and has put together a new project on a + / - 2.85 acre site across Sunwood Drive NW. The new project has increased the number of units from 82 to 98. This site is not pad ready like the previous site, so it is estimated that $350,000 of fill will be needed to bring it up to a buildable site. Estimated project costs have increased from 15.7M to 18.7M due to the additional site work, increased cost of land and the larger building footprint. It is possible that the site acreage could be reduced during the site plan process. If so, the Land valuation and Land Cost write-down will need to be adjusted. Staff has been working with the Developer and Ehlers to complete the revised Business Assistance application and review. Project costs still are coming in higher than the Developer has originally anticipated. The Developer has also adjusted the hotel floor plan/design to add an entrance to Sunwood Drive NW as requested by City planning staff to encourage activity and a connection along Sunwood Drive which have also added to the cost. Based on these additional costs have triggered the request by the Developer for additional TIF assistance which is shown in the attached Business Assistance Application. The assistance consists of $434,511 in TIF Land Cost Write down and $550,000 in Site Development and improvements.
Due to the change in site cost, project description and the one-month delay, the Developer has asked the City to enter into a First Amendment to the Development Agreement. City Attorney Knaak has reviewed the first amendment and has approved it as to form. The Developer has also created a new business entity called Ramsey Properties, LLC and has filled it with the Minnesota Secretary of State, so this will be the entity name moving forward. As with any Business Assistance project, both Staff and Ehler's have completed analysis determined if the amount of assistance provided is appropriate. A summary of this analysis is below and attached in a Memo put together by Jason Aarsvold from Ehlers:
The purpose of this case is to consider a Business Assistance request that involves the sale of Outlot A, COR TWO to Ramsey Properties, LLC (the "Developer"). The EDA and City Council have previously approved a Purchase Agreement to build an 60 unit hotel and a proposed deal structure involving a TIF land cost write-down of $311,454. The EDA reviewed the Business Subsidy Application for this project at the December 9, 2022 meeting and recommended approval of a land cost write down of $311,454 and Pay-Go Site Development Reimbursement of $306,000 totaling $617,454 in TIF Assistance. As mentioned at the previous EDA meeting the Developer was having some concerns relating to the site size (too small to accommodate 82 unit hotel) and the operational efficiency of the hotel at 82 units.
Staff has been working with the developed to address the site and has put together a new project on a + / - 2.85 acre site across Sunwood Drive NW. The new project has increased the number of units from 82 to 98. This site is not pad ready like the previous site, so it is estimated that $350,000 of fill will be needed to bring it up to a buildable site. Estimated project costs have increased from 15.7M to 18.7M due to the additional site work, increased cost of land and the larger building footprint. It is possible that the site acreage could be reduced during the site plan process. If so, the Land valuation and Land Cost write-down will need to be adjusted. Staff has been working with the Developer and Ehlers to complete the revised Business Assistance application and review. Project costs still are coming in higher than the Developer has originally anticipated. The Developer has also adjusted the hotel floor plan/design to add an entrance to Sunwood Drive NW as requested by City planning staff to encourage activity and a connection along Sunwood Drive which have also added to the cost. Based on these additional costs have triggered the request by the Developer for additional TIF assistance which is shown in the attached Business Assistance Application. The assistance consists of $434,511 in TIF Land Cost Write down and $550,000 in Site Development and improvements.
Due to the change in site cost, project description and the one-month delay, the Developer has asked the City to enter into a First Amendment to the Development Agreement. City Attorney Knaak has reviewed the first amendment and has approved it as to form. The Developer has also created a new business entity called Ramsey Properties, LLC and has filled it with the Minnesota Secretary of State, so this will be the entity name moving forward. As with any Business Assistance project, both Staff and Ehler's have completed analysis determined if the amount of assistance provided is appropriate. A summary of this analysis is below and attached in a Memo put together by Jason Aarsvold from Ehlers:
In summary, the lower than average projected return on investment means the project does demonstrate a need for assistance. Providing the requested land write-down and PAYGO note will help facilitate development of the hotel without unduly enriching the developer.
We estimate the project will generate approximately $129,435 annually (at full build-out) in tax increment within the COR TIF district. Some of that increment can be directed to repay the City’s land write-down through an inter-fund loan, and some can be used to repay the PAYGO TIF note. We propose using 40% of the increment generated to repay the City’s inter-fund loan with the remaining 60% directed to the PAYGO note payments.
Based on this structure, we estimate the PAYGO note could be repaid with 10 years of payments, assuming an interest rate on the note of 5%. This, coupled with the land write-down, would push the project’s average cash on cash return to 9.9% by year 11 (at which point the TIF payments would stop). Repayment of the City’s land though an interfund loan would take an estimated 12.5 years assuming the City charges the maximum interfund land interest rate of 5%.
We estimate the project will generate approximately $129,435 annually (at full build-out) in tax increment within the COR TIF district. Some of that increment can be directed to repay the City’s land write-down through an inter-fund loan, and some can be used to repay the PAYGO TIF note. We propose using 40% of the increment generated to repay the City’s inter-fund loan with the remaining 60% directed to the PAYGO note payments.
Based on this structure, we estimate the PAYGO note could be repaid with 10 years of payments, assuming an interest rate on the note of 5%. This, coupled with the land write-down, would push the project’s average cash on cash return to 9.9% by year 11 (at which point the TIF payments would stop). Repayment of the City’s land though an interfund loan would take an estimated 12.5 years assuming the City charges the maximum interfund land interest rate of 5%.
Staff is looking for EDA to provide a recommendation to the City Council in support of the proposed business assistance amount and structure and the First Amendment to Purchase Agreement.
Notification:
Notification is not required.
Observations/Alternatives:
General Project Description
Review and analysis of the Business Assistance Package has been completed by City Staff and Ehler's. The project scores a 29.65 which is a moderate to high score for our project rating system. Analysis by Ehlers supports the need for assistance for this project, its supports the TIF "But-For" test and does not unduly enrich the developer.
Staff believes that this Hotel project is a potential catalyst to draw in investment from restaurants, It is clear that TIF is needed to bring this project to fruition. The City only has the ability to provide TIF assistance for projects in the COR until November 2023.
Next Steps (Future Meetings)
In the event that the Developer is comfortable with the assistance package recommended, staff will begin to work with Ehlers and Taft Law to put together a TIF Agreement outlining the terms and conditions of the financial assistance and business subsidy. A public hearing will be held at a later date for the City Council to consider approval of the business subsidy. The Developer will submit a site plan /plat application for review and approval by the Planning Commission and City Council. The site plan and TIF Assistance process will run concurrently.
Alternatives:
1) EDA Recommendation to the City Council to approve the First Amendment to Purchase Agreement, Business Assistance and a TIF Agreement in the form of $434,511 in TIF Land Cost Write Down and $550,000 in Pay-Go TIF for Site Development/Improvements (as presented); subject to City Attorney Review (Staff recommendation).
2) EDA Recommendation to the City Council to approve the First Amendment to Purchase Agreement, Business Assistance and a TIF Agreement in the form of $434,511 in TIF Land Cost Write Down and $550,000 in Pay-Go TIF for Site Development/Improvements (with changes); subject to City Attorney Review
3) Something else.
- 98 unit (up from 82), Four Story Hilton Home 2 Hotel with hot breakfast and indoor pool; a Certificate of Occupancy 16 months after Closing. If this is not done, the City may exercise the Right of Re-Entry.
- Tax Assessed Value 7.14M (up from 5.9M)
- Estimated Taxes - $218,000 annually (up from $180,000)
- 22 (up from 21) new jobs to be created paying at least $18.22 / hr
- Catalyst project (provides more trips to COR and encourages investment in restaurants/retail)
- Parcel: Changed to Part of Outlot A, COR TWO (previously Outlot A, Gigi Addition - +/- 1.43 acres)
- Purchase Price and Valuation: The purchase price for the Property is $1.00 on +/- 2.85 acres (124,146 square feet) as outlined in Exhibit A (the “Purchase Price”). The property valuation is $434,511 (increase of $123,057). ($3.50/SF)
- $550,000 (increase of $244,000) in Pay-Go TIF Note for Site Development / Improvements (NEW REQUEST)
- Inspection Period: Inspection Period ends May 26, 2023 (Extended two months)
- Right of Re-Entry Required
- Act of God language was added to the CONSTRUCTION DEALINE Section.
- Reimbursement of Platting costs up to $3,500 if project proceeds.
Review and analysis of the Business Assistance Package has been completed by City Staff and Ehler's. The project scores a 29.65 which is a moderate to high score for our project rating system. Analysis by Ehlers supports the need for assistance for this project, its supports the TIF "But-For" test and does not unduly enrich the developer.
Staff believes that this Hotel project is a potential catalyst to draw in investment from restaurants, It is clear that TIF is needed to bring this project to fruition. The City only has the ability to provide TIF assistance for projects in the COR until November 2023.
Next Steps (Future Meetings)
In the event that the Developer is comfortable with the assistance package recommended, staff will begin to work with Ehlers and Taft Law to put together a TIF Agreement outlining the terms and conditions of the financial assistance and business subsidy. A public hearing will be held at a later date for the City Council to consider approval of the business subsidy. The Developer will submit a site plan /plat application for review and approval by the Planning Commission and City Council. The site plan and TIF Assistance process will run concurrently.
Alternatives:
1) EDA Recommendation to the City Council to approve the First Amendment to Purchase Agreement, Business Assistance and a TIF Agreement in the form of $434,511 in TIF Land Cost Write Down and $550,000 in Pay-Go TIF for Site Development/Improvements (as presented); subject to City Attorney Review (Staff recommendation).
2) EDA Recommendation to the City Council to approve the First Amendment to Purchase Agreement, Business Assistance and a TIF Agreement in the form of $434,511 in TIF Land Cost Write Down and $550,000 in Pay-Go TIF for Site Development/Improvements (with changes); subject to City Attorney Review
3) Something else.
Funding Source:
This case is being handled as part of normal Staff duties. If financial assistance is provided, TIF District 14 will be the funding source and an interfund loan will need to be established.
Recommendation:
Staff recommends an EDA Recommendation to the City Council to approve the First Amendment to Purchase Agreement, Business Assistance and a TIF Agreement in the form of $434,511 in TIF Land Cost Write Down and $550,000 if Pay-Go TIF for Site Development/Improvements (as presented); subject to City Attorney Review.
Action:
Motion to recommend to the City Council to approve the First Amendment to Purchase Agreement, Business Assistance and a TIF Agreement in the form of $434,511 in TIF Land Cost Write Down and $550,000 if Pay-Go TIF for Site Development/Improvements (as presented); subject to City Attorney Review.
Attachments
- Site Location Map
- Business Assistance Application
- Ehlers Analysis Memo
- TIF Run - 40% Admin
- ACTION - First Amendment to PA
- REFERENCE - Executed Purchase Agreement Schiebout
Form Review
| Inbox | Reviewed By | Date |
|---|---|---|
| Sean Sullivan (Originator) | Sean Sullivan | 01/05/2023 05:14 PM |
| Brian Hagen | Sean Sullivan | 01/06/2023 11:42 AM |
| Sean Sullivan (Originator) | Sean Sullivan | 01/06/2023 12:07 PM |
| Brian Hagen | Brian Hagen | 01/06/2023 02:06 PM |
- Form Started By:
- Sean Sullivan
- Started On:
- 01/03/2023 09:06 AM
- Final Approval Date:
- 01/06/2023