Consider Purchase Agreement with PSD LLC (portions may be closed to the public)

PURPOSE
Consider purchase agreement (PA) from PSD, LLC. for 13.97 acres of City owned land located within The COR.
NOTE: if the Council wishes, the case may be discussed in closed session.

BACKGROUND (pervious case, Original PA, zoning amendment)
The Ramsey HRA entered into a Purchase Agreement (PA) with PSD for 13.97 acres of City owned land located within The COR on August 06, 2014 (referred to as the "Original PA"). The proposed closing date for the Original PA was no later than September 15, 2014 (termination date). Attached to this case is a copy of the Original PA .

On September 11, 2014 Staff received a formal request from PSD, LLC to extend the September 15, 2014 closing date of the Original PA to December 25, 2014. The purpose said request was to provide sufficient time for the City to amend COR-1 Zoning Code; which would allow PSD to construct their proposed project. The amendment included a change in minimum floor area ratio (FAR) from .75 to .65.

The City Council reviewed PSD's request to extend the Original PA on September 23, 2014. The Council decided to allow the Original PA to expire and requested staff bring forward a new/updated PA after the proposed COR-1 Zoning Amendment was adopted (and made effective). On October 28, 2014, the City Council adopted an ordinance to amend the COR-1 Zoning Code. This amendment became effective in late December 2014.

BACKGROUND (PSD LLC)
PSD, LLC. is development company headquartered in Ramsey. PSD LLC is managed by Jim Deal and Matt Kuker. This company is in "good-standing" with the State of Minnesota (Secretary of State Business Registration). PSD owns a several acres of land within the City of Ramsey; which is geographically concentrated within, and just south of, The COR. PSD has a history of completing quality development projects within the City of Ramsey and The COR (Allina, VA, Ramsey Office Plaza, NorthGate, etc.).

BACKGROUND (New Purchase Agreement)
The Terms and Conditions included in the New PA (purpose of this case) are nearly identical to the Original PA. Below is a general breakdown of major terms. *Identical term as previous PA.
 

• 13.97 acres of land located in The COR*
• $1,897,089.60*
• $50,000 earnest money*
• Government approvals required before closing*
• May 01, 2015 closing date

What's new? Attached to this case is the New PA. Below is an outline of changes made to the Original PA:

1. Termination/closing dates were changed to May 01, 2015.
These changes were made to reflect the actual project timeline and allow sufficient time for Buyer due-diligence; and, to add consistency with other contingencies outlined in this PA (e.g. F. Government Approvals).

2. City versus HRA
With the recent dissolution of the Ramsey HRA, this agreement has been updated to include the "City of Ramsey" as the seller (rather than the Ramsey HRA).

3. Government Approvals Contingency Updated
Previously, this contingency was vague and provided reference to no specific government approvals. As a result, it was unclear what the Buyer's expectations were; and, what specific government approvals would trigger completion of this contingency. This amendment provides clarity within the PA; and allows for a realistic timeline to be established for this contingency to be executed (subsequently, for the PA to close).

4. Project Assistance Notification Section.
The Buyer has indicated they would like a clause added to this agreement notifying the City of their position on potential project assistance. The PA currently under consideration by the HRA is a market-rate land transaction requiring no government subsidies or financial assistance. However, the Buyer has indicated, in the future (i.e. outside of this PA) a request for project assistance is a possibility. A potential future project assistance request would be made based off of existing market conditions and project pro forma; which, are unknown today. The Buyer has requested this clause to be added to the PA to provide transparency to their position on developing the subject property.

In 2013, the City adopted a Housing Assistance Policy. If/when a request for project assistance from the Buyer comes forward, staff would recommend it be reviewed in context of the Housing Assistance Policy, along with other applicable City policies and standards, at the time of the request. Staff would like to note, this clause does not require, bind or obligate the City to provide any project assistance to the Buyer.

5. Earnest Money May Become Hard.
See Section 2, item D of the attached purchase agreement.  Per EDA request, language was added to this agreement requiring earnest money to become "hard" if buyer chooses to extend this agreement past the original closing date (25% for each month extension).  Previously, no such provision existed.

NA

OBSERVATIONS
 

• The Original PA and New PA contain very similar terms and conditions. PSD's proposed use for the subject property also remains the same (two phases of apartments and a hotel).
• Generally, the proposed development concept fits within the City's existing zoning regulations (will require official site plan review and approval).
• The asking price for the subject property is $4.00 per square foot. The PSD offer price is $3.12 per square foot (note: PSD has agreed to constructing the required public roadway). The Council has previously reviewed this offer in closed session and accepted said price.
• The first phase of this development is a 120-unit market-rate apartment complex. This apartment complex is anticipated to generate $161,500 in total local property taxes (about $53,750 City). This apartment complex is anticipated to begin construction in the summer of 2015. PSD has indicated executing a PA in January 2015 is important to their project timeline. PSD has estimated this phase will cost about $20M to design and construct.
• The second phase of this development is another apartment complex. The size of this apartment complex will depend on several factors (market demand, parking, etc.).
• The third phase of this development is a two-phased hotel. The first phase would be 70 rooms. The second phase would include an unknown number of rooms. PSD is currently negotiating with prospect hotel operators.
• Staff has received feedback from CBRE (prospect businesses) and existing retailers that additional rooftops are needed to attract new retailers and restaurants to The COR.

ALTERNATIVES

1. Approve proposed PA (staff recommendation)
The New PA is very similar to a previously executed PA. The proposed deal provides several benefits to the City: (1) TIF-14 tax base which will help pay City obligations within The COR, (2) land-sale proceeds which will help payoff outstanding debt for original purchase of The COR, (3) additional rooftops located within The COR, (4) quality project, (5) positive momentum in The COR continues; and the development community can see it!, (6) the Council's general goal of selling tax-exempt surplus City owned land will be realized.

Generally, staff would recommend moving forward with the New PA as presented. However, it should be noted, the Council may wish to discuss/ negotiate any term/ condition/ contingency.

2. Deny proposed PA
Unless a specific hardship or concern regarding the New PA can be identified by the Council, staff would not recommend moving forward with this alterative. If the proposed agreement is terminated, the Staff would restart marketing the subject property with CBRE.

3. Amend and approve proposed PA
The Council may wish to tweak or adjust provisions included in the proposed amendment. Staff would be happy to make adjustments as requested by the Council. PSD, LLC will be present at the January 13 Council meeting to discuss any proposed amendments.

NA

The EDA reviewed this case on January 08, 2015.  The EDA did pass a motion to recommend the City Council approve this purchase agreement.  If available, staff will forward minutes from the January EDA meeting to the City Council before this discussion.   The three major discussion items for the EDA included:

How did the construction of 145th Ave NW affect the purchase offer?
Staff indicated the cost to construct a connection from Sapphire Street to Center Street (i.e. 145th Ave) was originally negotiated to be funded by the developer.  The developer agreed to funding this road, and amended their original offer to compensate for said cost.  Therefore, PSD LLC's original offer was closer to the asking price of $4.00 per square foot (currently at $3.12 per square foot).

How will the City address the viewshed of the proposed apartment detached garages?
Staff indicated, this item will be discussed in detail during the City's standard site plan review process.  At that time, visual/ architectural rendering will be available.  This item will be reviewed in detail by the Planning Commission and City Council at a later date.  Staff did also note, that said detached garages will be screened by future development along Sunwood Drive.

Will earnest money become hard?
Please see background section of this case (differences).  In summary, the EDA requested a provision be negotiated to make earnest money become hard within this purchase agreement.  The buyer agreed to the EDA request, and the attached purchase agreement includes said language.

Note:  The draft EDA Meeting minutes have been attached o this case as of 1/13/15.