Adopt Resolution 17-07-177 Awarding a Business Subsidy to PSD LLC Business Park, Building B, Adrenaline Sports Center, Public Financing Agreement
 

PURPOSE
Consider support of the attached Resolution #17-07-177 authorizing the execution of a Public Financing Agreement ($250,000 to be paid back to the developer, 3 years Pay-GO). 

BACKGROUND (Project)
Please see attached background document for greater context.  Regarding this project specifically, PSD LLC plans to immediately construct a 64,000 square foot industrial building.  Adrenaline Sports Center would be the anchor tenant (occupy 90%).  PSD LLC is proposing a high-quality, highly functional, and market relevant building; which will include: 24’ clear ceilings, and glass facades along Highway 10.  The EDA and City Council reviewed this case in July and showed general comfort with accepting an application from PSD LLC and further considering this request.


BACKGROUND (Subsidy Request)
PSD LLC has asked the City for financial incentives related to this 64,000 square foot speculative building ($250,000). 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 community sports tenants are very risky, and have very thin margins, thus requiring some assistance from the City. PSD LLC has competed and submitted a business subsidy application to staff, including a $7,500 non-refundable fee.

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 community sports centers create very few high-paying jobs.  Guaranteeing job creation on this project 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 (Anchor Tenant, Adrenaline Sports Center)
Adrenaline Sports Center began operations in Coon Rapids about eight years ago, under the name Gold Kick Soccer.  Four years ago, it was converted to Adrenaline Sports Center.  Today, Adrenaline leases 25,000 square feet of space.  The primary use of space is soccer training/ practice.  Secondary users of the Adrenaline Sports Center include cross-fit and baseball training/ batting practice.  Lastly, on occasion, Adrenaline is used for various events.  Today, Adrenaline attracts an estimated 4,000-5,000 families to their facility on an annual basis.

Moving forward, Adrenaline Sports Center needs to expand.  They would like to move to a location that provides 56,000 square feet of space, has room for future expansion, and can be ready by January 01, 2018.  Staff began working with Adrenaline in June 2016.  Since then, staff was working with several developers interested in developing a site, constructing a building, and leasing back to Adrenaline.  After several attempts at getting a developer behind the project, PSD has now indicated a commitment to Adrenaline.

Project Benefits

• The proposed funding sources for the subsidy request are 1x dollars (EDA Fund, ACHRA Fund, or TIF #1).  As a result, 100% of new taxes created from this project will have an immediate positive impact on Ramsey tax payers.
• The proposed 64,000 sf project will create estimated annual total property tax revenues of $100K-125K.  
• This project will pay significant development fees, about: $17K Park, $5K trail, $27K Water, $15K Sewer, $20K Storm. 
• 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 user will create significant new traffic to Ramsey, and The COR.  This is considered a destination user.
• The City of Ramsey is seeking to improve our image, brand, and to serve as a regional destination.  Staff believes this project can play a positive role in making progress for each said goal.
• 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.

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.  PSD LLC must demonstrate that "but-for" this assistance, they cannot move forward with this project.  Staff will be working will Ehlers to underwrite PSD LLC financials/ project pro-forma.  The outcome of underwriting this project will determine if, and how much, city subsidy is justified.
• The City does not need to take on this project (i.e. provide a business subsidy).  The City could wait for the market to naturally develop the new business park.  If this project is unsuccessful, it would look unfavorable for the City, and will likely result in opposition from tax payers.
• Community sports facilities have a reputation for operating on narrow margins and being risky investments.  This should be noted.  The positive here is, PSD is taking on the risk for this project.  If Adrenaline doesn't succeed, the City still has a nice industrial building, paying taxes, ready for the next user.
• By dedicating funding to this project, the City is losing the opportunity to use said funding on other projects.  However, but for this subsidy, the project would likely not happen at all.

EDA Fund, ACHRA Fund, or TIF #1.  If this project moves forward, staff will need to sort out the details on this item.

EHLERS
Please see attached Ehlers MEMO.  In summary, Ehlers believes the pro-forma and sources/ uses provided by PSD can be substantiated unduly enriching the developer (meets industry standards).  Ehlers believes this project meets the but-for test.

STAFF
Staff believes this project helps accomplish several City Council Strategic Goals, EDA Workplan Goals, and will result in several ancillary benefits for the community (see observations section).  Staff would also note, this project is not using TIF.  Therefore, there will be an immediate positive impact to Ramsey's tax capacity.

 

Motion to:
Approve the attached resolution 17-07-177 awarding a business subsidy to PSD LLC.