Adopt Resolution #23-034 Approving First Amendment to Purchase Agreement for Ramsey Properties, LLC (A portion of this meeting may be closed to public)
 

The City Council 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 City Council 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 approval of the First Amendment to Purchase Agreement 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 a 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 and this has led to moving to another site. 

Change in Development Site and Assistance Request
Staff has been working with the developer to address the shortcomings of the small site previously agreed to and has put together a new project proposal on a + / - 2.85 acre site across Sunwood Drive NW.  The new Hilton Home 2 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 and compaction will be needed to bring it up to a buildable site. Total site improvement and TIF eligible site development costs (utilities/foundation,parking) are estimated to be nearly $840,000.  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 still be reduced during the site plan process. If so, the Land valuation and Land Cost write-down would need to be adjusted downward.  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 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.  These additional costs have triggered the request by the Developer for additional TIF assistance which is shown in the attached Business Assistance Application. The proposed 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 Ehlers 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:
 

Notification is not required.

General Project Description 

• 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)

General Terms of First Amendment to Purchase Agreement (and Business Assistance Package)

• 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 DEADLINE Section.
• Reimbursement of Platting costs up to $3,500 if project proceeds.

Business Assistance Application Review

Review and analysis of the Business Assistance Package has been completed by City Staff and Ehlers. The project scores a 29.65 which is a moderate to high score for our project rating system.  Analysis by Ehlers above supports the need for assistance for this project, 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 retail/restaurants. It is clear that TIF is needed to bring this project to fruition.  Under current legislation, the City only has the ability to provide TIF assistance for projects in the COR until November 2023. 

Additional Non-Binding Action being asked of the City Council
In addition to approving the First Amendment to Purchase Agreement, Staff is asking the City Council to provide feedback to the Developer in support for project, deal structure and assistance level.  The Developer has indicated that it will not move forward unless the City generally supports the financial assistance requested.  Developers are responsible for the costs incurred to process the TIF application.  As part of the application, the Developer would incur costs on their end as well to further prepare plans on their project to provide greater detail.

Next Steps (Future Meetings)

TIF Agreement and awarding Business Subsidy (Public Hearing)
In the event that the Developer is comfortable with the assistance package recommended by the EDA and is confident it has the general support of the City Council, 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.  As part of the Business Assistance Application the Developer has provided the City $10,000 in funds. These funds can be used for further financial analysis and to begin drafting of the TIF Agreement outlining the structure and amount of the TIF business assistance package.  A public hearing will be held at a later date for the City Council to formally consider approval of the business subsidy. 

*It should be noted that approval of the First Amendment to Purchase Agreement does not bind the City Council to grant the business subsidy package of the land cost write down and Pay-Go TIF for Site Improvements and Site Development Reimbursement.  This can only be granted after the Public Hearing and by Council vote.  However, Staff is asking the City Council to provide feedback, in good faith, to the Developer in support for project, deal structure and assistance level outlined in this case.  The Developer has indicated that it will not move forward unless the City provides the financial assistance requested. 

Site Plan and Plat Approval
If the Developer is comfortable moving forward with the project and support is shown by the City Council for the proposed assistance amounts, a formal Site Plan and Plat Applications will be submitted.    The site plan and TIF Assistance approval processes will run concurrently.

Alternatives:
1) Adopt Resolution #23-034 Approving First Amendment to Purchase Agreement for Ramsey Properties, LLC (as presented); subject to City Attorney Review (Staff recommendation).
2) Adopt Resolution #23-034 Approving First Amendment to Purchase Agreement for Ramsey Properties, LLC (with changes); subject to City Attorney Review 
3) Something else.

Additional Non-Binding Action Being asked of the City Council:
In addition to considering approval of the First Amendment to Purchase Agreement, Staff is asking the City Council to provide feedback to the Developer in support for project, proposed deal structure and assistance level recommended by the EDA.  The Developer has indicated that it will not move forward unless the City supports the financial assistance amount requested and recommended by the EDA.

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.

At the January 12, 2023 meeting the EDA adopted a 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 in Pay-Go TIF for Site Development/Improvements,  
 

Motion to Adopt Resolution #23-034 Approving First Amendment to Purchase Agreement for Ramsey Properties, LLC (as presented); subject to City Attorney Review.