Consider Early Closing for Part of Outlot A, COR Stone Brook Academy to Ramsey Hotel Group, LLC

Ramsey Hotel Group, LLC has requested that the City close prior to site plan approval in order to guarantee financing of its project.  Due to COVID-19 most lenders have become tighter with the issuance of loans in business sectors relating to retail and hospitality.  Ramsey Hotel Group, does not want to proceed with formal submittal of its site plan and the purchasing of the architectural drawing plan set without signed loan documents from its lender.  Typically a commitment letter is sufficient for borrowers as to the their comfort level moving forward.  The Lender is requiring that the Ramsey Hotel Group, LLC own the land (additional equity) in order to close on the financing.  Due to the uncertainty in the lending environment Ramsey Hotel Partners wants its financing guaranteed and requesting that it close simultaneously on the city land and its financing prior to site plan approval.

A reminder that the Purchase Agreement spells out an initial transaction of $1, with the City recouping the sales price through Tax Increment Financing (TIF). Protection from the scenario where a project does not occur, meaning tax increment is not generated, is key in this instance. Additionally, the City's standard policy to wait until Site Plan Approval before closing retains leverage to experience the desired design. Staff does not want to lose this leverage. A compromise scenario is outlined below. 

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The request to close on the land prior to site plan approval requires the City to put in place agreements that guarantee that the City interest in the land and quality of the project are protected.  The City typically uses a Right of Re-Entry Agreement and Purchase Agreement to assure that the Developer obtains required City approvals, constructs the project to city standards and completes the project on time. This also reserves the City's right to take back the land if the developer does not perform.  City Attorney Langel and Staff have worked together to draft a more restrictive Right of Re-Entry Agreement that protects the City's interest in the event that the Developer does not deliver on the project.  The Developer and Lender have reviewed to th attached Right of Re-Entry Agreement and are comfortable executing and filing it at the simultaneous closing of the land and financing.  In addition, there will likely be additional documents from Community Development that outline processes moving forward relating to the platting and associated development fees, and sureties.

Key terms of the Right of Re-Entry Agreement include the following:

• Seller shall have the right, but not the obligation, to either impose a penalty against the Property pursuant to Paragraph 3 of the Purchase Agreement, or to re-enter and take possession of the Property pursuant to Paragraph 4 of the Purchase Agreement, in the event that any of the following Conditions are not satisfied by Buyer
  • Buyer must obtain site plan approval and a certificate of occupancy for the construction of a minimum 60-unit 4-story hotel with restaurant compliant with COR zoning requirements prior to January 1, 2022.
  • Buyer must maintain proof of sufficient financing from the date of closing until issuance of a certificate of occupancy.  Said proof shall be in the form a letter of credit in an amount equal to 110% of the value of construction remaining to be completed, or a sworn statement from the bank(s) financing the development indicating that Buyer has cash accounts and/or loan proceeds sufficient to cover 110% of the value of construction remaining to be completed.  The form for the proof of financing is subject to approval by the City.  If Buyer utilizes a sworn statement in lieu of a letter of credit, the City reserves the right to periodically request updated statements throughout the construction period of the project until a certificate of substantial completion is issued.
• Seller may impose a separate penalty of $311,020 against the Property if site plan is not approved and the certificate of occupancy is not obtained pursuant to the deadline set forth above.  The penalty is due upon written notice to Buyer from Seller of the failure to satisfy a contingency.  In the event the penalty is not paid within 30 days of receipt of the notice, Seller may, but is not required to, certify the penalty to Anoka County as an assessment against the Property.
  • Buyer waives any and all rights under Minnesota Statutes, chapter 429, and any other applicable law, including any right to notice of hearing and hearing, the right to object, and the right to appeal the assessment.  Buyer further waives any requirements of the City Charter that may apply to said assessment.
• As an alternative to imposition of a financial penalty and not in addition thereto, Seller may re-enter and take physical possession of the Property.  Title to the Property shall be restored in Seller, and Buyer shall execute whatever documents and undertake whatever steps are necessary to establish and confirm Seller’s fee simple interest in the Property free of any claims or encumbrances, including mechanic’s liens.

Costs associated with legal and administration can be covered with TIF District 14 through an interfund loan.

Staff recommends approval of the early closing and associated protections to the City. In recent projects, the land would have been paid up front and the Developer would have recouped cost through Tax Increment Financing. In this project, the City is selling the land for $1 and the City is recouping the cost through Tax Increment Financing. We still have protections through an enhanced Right of Re-Entry Agreement. The EDA and City Council explicitly allowed a deviation from current policies to encourage this development proposal to move forward. 

Motion to recommend that the City Council allow Cobblestone Hotel to close on the property prior to Site Plan Approval and Approve a Right of Re-Entry Agreement.