15153 Nowthen Blvd: Review Cost Benefit Analysis of Former Municipal Center Site

The EDA and City Council have expressed interest in developing theformer municipal center site, 15153 Nowthen Boulevard ("Subject Property") for a data center user(s). The City is partnering with Connexus Energy to pursue this development opportunity.

As part of this effort, Staff was directed to pursue a "Shovel Ready" development certification through the State of Minnesota.  Additionally, both the EDA and the City Council have requested Staff develop a cost/benefit analysis on potential development scenarios for the Subject Property. 

PURPOSE OF CASE:
1) Provide Council with an update on the Shovel Ready certification program application.
2) Review the attached cost/benefit analysis; and consider moving forward with marketing and positioning the Subject Property for a data center user(s).

CASE HISTORY:
This case was discussed by the EDA on February 14, 2013.  The EDA directed Staff to move forward with:

Shovel Ready Certification Progress:
Staff has submitted an application, including all required information to the State of Minnesota.  Connexus Energy will be paying the program application fee (see attached invoice).  It is expected the State of Minnesota will certify the Subject Property this spring; exact timing is to-be-determined.

Cost/Benefit Analysis:
The EDA and City Council have expressed interest in developing the Subject Property for a data center user.  However, before committing additional resources and directing Staff to pursue a data center user(s), both the EDA and City Council have requested Staff to develop a cost/benefit analysis.  The intention of the analysis is to compare a data center development to a residential development, from a financial prospective.

     Three scenarios were considered by Staff:
    (1) Data Center, Single User, 250,000 square feet
    (2) Data Center, Two Users, 200,000 square feet
    (3) Residential Development, 47 single family homes

Attached to this case are sketch plans of the proposed development scenarios.  Said sketch plans were used to develop input information for the referenced cost/benefit analysis.  Please note, the three scenarios provided are considered "best-case-scenarios" for full build out.  Every option carries risk.   For example, a homebuilder may only take down ten homes a year; or, a data center development happens in phases over a number of years.  Meaning, the City would not yield a full built out potential for several years.

In order to insure proposed scenarios were realistic for the market, Staff reviewed with builders (Mortenson and Kraus Anderson), real estate agents (CBRE), Greater MSP (regional economic development agency), the State of Minnesota (Department of Employment and Economic Development), the City's economic development consultant (Mike Mulrooney) and the City's planning consultant (Stantec).

With the information above in mind, Staff developed the attached cost/benefit analysis.  Said analysis renders a number of conclusions.  Staff reviewed this information in detail at the February EDA meeting and intends to provide the City Council with a brief overview. Below is a summary of conclusions:

(1) From an annual cash flow prospective (City of Ramsey only), data center developments scenarios result in a significantly higher general tax revenue stream than does a residential development.  1 Data Center = $276,742, 2 Data Center = $223,714, Residential = $28,263

(2) From a one time land transaction scenario perspective, a residential development scenario results in a higher return for the City.  Data Centers = 0-$500,000, Residential $1,000,000.

(3) Considering the City's strategic plan of using revenues from the Subject Property to pay for a new fire station, Staff would conclude data center scenarios provide a stronger and more complete financial solution than does a residential development.  See fire station attachment (updated).

NOTE: Staff updated fire station analysis.  The original fire stati analysis was an in house draft estimate.  The new updated analysis includes market input data from the City's financial consultant, Northland Securities.

Moving Forward:

Zoning
If the EDA and City Council decide they would like to move forward with pursuit of a data center development, the next step in this process is zoning.  As it stands today, the Subject Property is located within the Public/Quasi Public Zoning District. A Comprehensive Plan and Zoning Amendment would need to be approved to allow for a data center user.  Staff would ask the EDA and City Council for direction to begin this process by engaging surrounding property owners via an open house.  Then, Staff will report findings from said open house; and, develop a proposed zoning and long range planning solution for consideration by the EDA and City Council.

Recognized Environmental Conditions
As a result of the Shovel Ready certification process, three "recognized environmental conditions" were identified on the Subject Property by Braun Inertec (environmental services contractor).  In order to clear said "recognized environmental conditions" from the property, they would need to be tested.  Meaning, additional soil borings would need to be attained and reviewed.  Staff will bring back a request for proposals (RFP) for said service at the April EDA meeting. 

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A number of options exist as the EDA considers the development of the Subject Property: