Public Hearing: PSD LLC Business Park: Consider Establishing TIF District 16 and Approving a TIF Agreement

 

Note: This case is 1 of 3 cases related to the new PSD business park.

PURPOSE
Consider multiple actions regarding the PSD LLC TIF Assistance Application which was accepted by the EDA and City Council in April.  This request is specifically related to PSD's proposed 60,000 square foot speculative Industrial (Building #1).
BACKGROUND (project)
Please PSD LLC Case #2 for detailed background information (background, maps, and renderings).  Regarding this project specifically, PSD LLC plans to immediately construct a 60,000 square foot speculative industrial building.  PSD LLC is proposing a high-quality, highly functional, and market relevant building; which will include: 24’ clear ceilings, both drive-in garages and sub-grade docks for every tenant, and glass facades along Highway 10.  The estimated total cost for PSD LLC’s first building is $5.49M.


BACKGROUND (subsidy request)
PSD LLC has asked the City for financial incentives related to this 60,000 square foot speculative building (building #1). Specifically, PSD LLC is requesting the City provide 9-years of pay-go TIF ($234,595 PV @ 4%).  Based on their modeling and project pro-forma, PSD LLC believes this assistance is needed, in order to make this project work.  PSD has indicated there will be a multi-year tenant buildup period (i.e. there will be high vacancy rates for the first 2-3 years) which makes this project very risky.  To see PSD's original request letter, please reference the April EDA case.

PSD LLC has competed and submitted a business subsidy application to staff, including a $10,000 non-refundable fee.  Ehlers has formally underwritten PSD's request (underwriting the pro-froma, sources and uses, etc.).  Ehlers has also teed-up the establishment of a new TIF district (#16), and worked with staff to draft a TIF agreement. 

REMINDER: the PSD LLC request will not meet the job creation requirements outlined in the City’s official business subsidy policy, due to the fact this project is a speculative building.  Guaranteeing job creation on a speculative building is very challenging.  The PSD LLC subsidy request will require an wavier to the City’s policy, in order to be approved.  A similar exception was provided to Platinum Properties, for their speculative construction building proposal, in 2016.


BACKGROUND (TIF)
More information on TIF?  Please review the March EDA case, or see the following video https://youtu.be/U9KxGjIHFvc.










 

Both the School District and County have been notified of this action, as required by Statute.

Project Benefits

• Supporting a speculative construction building puts the City of Ramsey in a very competitive position to attract new economic development projects.  Often times, communities that win economic development projects are the "most-ready-to-go-now."
• The proposed building is high-quality and market relevant.  It will be one of the nicest industrial buildings in Ramsey.  It will be prominent on Highway 10, and will set a positive image, and create a big splash for the City's new business park.
• PSD LLC is jump-starting the City's new business park with this project.  This is important, as staff commonly receives feedback from prospects interested in the new business park--that don't want to be the first-one-in.  There is a fear associated with that perspective, as it is considered to be high-risk.  Momentum matters in the development industry.
• The proposed funding sources for the subsidy request is a new TIF district.  Meaning, this subsidy will not have a direct impact on the general tax levy and Ramsey taxpayers (the existing tax base will remain in place, only the new increment will be used).
• The proposed 60,000 sf project will create annual total property tax revenues of $116K.
• This project will pay significant development fees, about: $21K Park, $6K trail, $33K Water, $18K Sewer, $25K Storm. 
• A 60,000 square foot commercial/ industrial building will create jobs, it's simply a matter of time, and how many jobs.  Staff estimates, based on past projects in Ramsey, a 60,000 sf building will produce 30-200 jobs, depending on the end user(s).
• The City of Ramsey is seeking retail and restaurant users.  Common feedback from the development community and prospects is--Ramsey needs to improve their demographics, in order attract these users.  Ramsey can do that by increasing both population (rooftops) and increasing trip generation (i.e. destination users).  This PSD LLC business park will help generate demographics needed by prospect retail and restaurant users (via new vehicle trip generation).

Project Considerations

• This project must be underwritten and must meet Ramsey's business subsidy policies.  The PSD LLC request must be justified and must meet State Statute for Business Subsidies.  PSD LLC must demonstrate that "but-for" this assistance, they cannot move forward with this project. 
• The City verifies PSDs subsidy request by reviewing their project pro-forma, to determine if the developer is receiving a reasonable rate of return on their investment.  If the developer is making a return greater than market (rate), staff would recommend against the subsidy.  If the developer is making a  return at or below market (rate), staff could support a project.  Additionally, part of the underwriting process is to "verify" the numbers provided by the developer are market relevant (not inflated or understated).  Please see attached Ehlers' memo for details.
• The City does not need to take on this project (i.e. provide a business subsidy).  This is an elective initiative.  The City could wait for the market to naturally develop the new business park.   By taking on this project, we are associating the City with a speculative development.  In the event the PSD LLC project isn't successful (i.e. and/or the economy takes a bad turn), it would look unfavorable for the City, and will likely result in opposition from tax payers. 
• By dedicating TIF funding to this project, one could take the perspective that the City is losing the opportunity to use said funding (i.e. the incremental tax base).  However, a counter to that argument is, but for this subsidy, the project would not happen at all (and that increment would not exist).

New 9-year TIF District (TIF #16) and $10,000 fee from PSD LLC.

STAFF
Staff recommends moving forward with this proposed project and supports the motions outlined in this case.  Staff believes this project meets several goals outlined within the City's Adopted Strategic Action Plan and EDA Workplan.  Please see observations section for benefits and considerations regarding this request.  Reminder: this PSD LLC business subsidy request will require the City make an exception to our business subsidy policy, related to the creation of new jobs.

EHLERS
Ehler's completed the underwriting for this project.  Please see the attached Ehlers MEMO.  In summary, Ehlers' findings can support moving forward with approving this request.

EDA
The EDA reviewed this case on June 8.  Little discussion occurred.  The EDA was generally supportive of Ehlers' findings and staff's recommendation.  The EDA felt this case was generally consistent with previous discussion/ action by the EDA and City Council (April).  By consensus, the EDA passed a motion to approve the attached three resolutions.  Attached to this case are draft EDA minutes.


 

Motion to approve:
Adopt Resolution #17-06-131 to Modify Development District 1, Establish TIF District 16, and Adopt a Plan for TIF District 16; ; subject to changes by the City Attorney.

 --and--

Adopt Resolution #17-06-132 Authorizing Execution of a TIF Agreement; subject to changes by the City Attorney.

 --and--

Adopt Resolution #17-06-133 Authorizing the Establishment of an Inter fund Loan for TIF District 16.