4.1.
Economic Development Authority (EDA)
- Meeting Date:
- 05/11/2023
- Submitted For:
- Sean Sullivan
- By:
- Sean Sullivan, Community Development
Title:
Consider Recommendation for approval of TIF Agreement and Use Restriction with Ramsey Properties, LLC
(A portion of this meeting may be closed to public)
(A portion of this meeting may be closed to public)
Purpose/Background:
The EDA may choose to go into closed session pursuant to Minnesota Statutes section 13D.05, subdivision 3(c)(3) to consider offers or counteroffers for the purchase or sale of real or personal property. If the EDA chooses to enter into closed session the statute and reason above needs to be referenced along with legal description (Part of Outlot A, COR TWO to be platted as Lot 1, Block 1, Ramsey Properties Addition) and the Anoka County Tax ID number 28-32-25-22-0058.
The purpose of this case is to review the TIF agreement based on the Business Assistance request that involves the sale of a portion of Outlot A, COR TWO (to be platted as Lot 1, Block 1, Ramsey Properties Addition) to Ramsey Properties, LLC (the "Developer"). The EDA and City Council have previously approved a Purchase Agreement and a First Amendment to Purchase Agreement to build a 98 unit Hilton Home 2 hotel including a proposed deal structure involving a TIF land cost write-down of $434,511 and $550,000 in Pay-GO TIF Assistance for Site Improvement (referenced in Resolution #23-034). Staff and Ehler's have completed analysis determined if the amount of assistance provided is appropriate. A summary of this previous analysis is below and attached in a Memo put together by Jason Aarsvold from Ehlers:
The next step in the process is to review the TIF Agreement to ensure it encapsulates the terms previously discussed by the EDA and City Council. Once the document is acceptable by both parties, a Public Hearing will be held at the City Council Meeting to consider approval of the TIF Agreement and awarding of the business subsidy. Taft Law has worked with City Staff and Ehlers to put together a draft TIF Agreement for review.
In addition to the TIF Agreement the Developer has asked the City to consider a Deed Use Restriction/Agreement on the remnant Outlot A, Ramsey Properties Addition to help with the establishment and successful operation of the new Hotel. The heart of the restriction request is as follows and is included in the attached draft agreement:
The purpose of this case is to review the TIF agreement based on the Business Assistance request that involves the sale of a portion of Outlot A, COR TWO (to be platted as Lot 1, Block 1, Ramsey Properties Addition) to Ramsey Properties, LLC (the "Developer"). The EDA and City Council have previously approved a Purchase Agreement and a First Amendment to Purchase Agreement to build a 98 unit Hilton Home 2 hotel including a proposed deal structure involving a TIF land cost write-down of $434,511 and $550,000 in Pay-GO TIF Assistance for Site Improvement (referenced in Resolution #23-034). Staff and Ehler's have completed analysis determined if the amount of assistance provided is appropriate. A summary of this previous analysis is below and attached in a Memo put together by Jason Aarsvold from Ehlers:
In summary, the lower than average projected return on investment means the project does demonstrate a need for assistance. Providing the requested land write-down and PAYGO note will help facilitate development of the hotel without unduly enriching the developer.
We estimate the project will generate approximately $129,435 annually (at full build-out) in tax increment within the COR TIF district. Some of that increment can be directed to repay the City’s land write-down through an inter-fund loan, and some can be used to repay the PAYGO TIF note. We propose using 40% of the increment generated to repay the City’s inter-fund loan with the remaining 60% directed to the PAYGO note payments.
Based on this structure, we estimate the PAYGO note could be repaid with 10 years of payments, assuming an interest rate on the note of 5%. This, coupled with the land write-down, would push the project’s average cash on cash return to 9.9% by year 11 (at which point the TIF payments would stop). Repayment of the City’s land though an interfund loan would take an estimated 12.5 years assuming the City charges the maximum interfund land interest rate of 5%.
We estimate the project will generate approximately $129,435 annually (at full build-out) in tax increment within the COR TIF district. Some of that increment can be directed to repay the City’s land write-down through an inter-fund loan, and some can be used to repay the PAYGO TIF note. We propose using 40% of the increment generated to repay the City’s inter-fund loan with the remaining 60% directed to the PAYGO note payments.
Based on this structure, we estimate the PAYGO note could be repaid with 10 years of payments, assuming an interest rate on the note of 5%. This, coupled with the land write-down, would push the project’s average cash on cash return to 9.9% by year 11 (at which point the TIF payments would stop). Repayment of the City’s land though an interfund loan would take an estimated 12.5 years assuming the City charges the maximum interfund land interest rate of 5%.
The next step in the process is to review the TIF Agreement to ensure it encapsulates the terms previously discussed by the EDA and City Council. Once the document is acceptable by both parties, a Public Hearing will be held at the City Council Meeting to consider approval of the TIF Agreement and awarding of the business subsidy. Taft Law has worked with City Staff and Ehlers to put together a draft TIF Agreement for review.
In addition to the TIF Agreement the Developer has asked the City to consider a Deed Use Restriction/Agreement on the remnant Outlot A, Ramsey Properties Addition to help with the establishment and successful operation of the new Hotel. The heart of the restriction request is as follows and is included in the attached draft agreement:
- Imposition of Restrictions; Term. The Restricted Property may not be used for hotel, lodging or similar uses, and no multi-family apartment uses for rent terms of less than six months are permitted on the Restricted Property (the “Restrictions”). The Restrictions shall be in effect for a period of ten (10) years from the date the Restricted Property is conveyed by the City to a third party for development (the “Term”).
Staff is asking the EDA for comments and a recommendation on the willingness to enter into temporary use restrictions for Outlot A, Ramsey Properties Addition. There is still some work to be done in terms of the Agreement or to memorialize as a deed restriction, but the request is straight-forward and the EDA should provide a recommendation to the City Council. It should be noted that the City Attorney has not been able to review the draft Agreement at the time of this memo but could possible have some feedback by the date of the EDA meeting. Use Restrictions are not uncommon in commercial developments and the city has also agreed to some in the purchase agreement with Aldi.
Notification:
Notification is not required.
Observations/Alternatives:
General Project Description
Review and analysis of the Business Assistance Package has been completed by City Staff and Ehler's. The project scores a 28.65 (one point lower due to job commitment) which is still a moderate to high score for our project rating system. Analysis by Ehlers supports the need for assistance for this project, its supports the TIF "But-For" test and does not unduly enrich the developer.
Staff believes that this Hotel project is a potential catalyst to draw in investment from restaurants and other retailers, It is clear that TIF is needed to bring this project to fruition. The City only has the ability to provide TIF assistance for projects in the COR until November 2023.
TIF Agreement and Subsequent Public Hearing
The EDA is charged with review of the TIF Agreement to ensure that it reflects the correct terms and conditions of the deal structure and assistance and to make a formal recommendation to the City Council. Once a recommendation has been made by the EDA, a Public Hearing date will need to be scheduled for the June 14, 2023 City Council Meeting.
Alternatives for TIF Agreement:
1) EDA Recommendation to the City Council to approve the TIF Agreement and Business Subsidy in the form of $434,511 in TIF Land Cost Write Down and $550,000 in Pay-Go TIF for Site Development/Improvements (as presented); subject to TIF Attorney Review (Staff recommendation).
2) EDA Recommendation to the City Council to approve the TIF Agreement and Business Subsidy and a TIF Agreement in the form of $434,511 in TIF Land Cost Write Down and $550,000 in Pay-Go TIF for Site Development/Improvements (with changes); subject to TIF Attorney Review
3) Something else.
Alternatives for Use Restriction on Land to be Platted as Outlot A, Ramsey Properties Addition:
1) EDA Recommendation to the City Council to approve a 10 year Use Restriction for other hotels and short-term rental (under 6 months) for apartments on land to be platted as Outlot A, Ramsey Properties Addition; subject to City Attorney review
2) Something else
- 98 unit, Four Story Hilton Home 2 Hotel with hot breakfast and indoor pool; a Certificate of Occupancy 16 months after Closing. If this is not done, the City may exercise the Right of Re-Entry.
- Tax Assessed Value 7.14M
- Estimated Taxes - $218,000 annually
- 11 new jobs created with a starting minimum wage of $14.75
22 new jobs to be created paying at least $18.22 / hr(more anticipated to be created but only willing to commit to 11) - $14.75 minimum wage is lower than our Business Subsidy Policy ($18.22/hr) but is allowed as long as it is communicated to DEED.
- Average hourly wage for Jobs Created: $22.97
$18.22 - Catalyst project (provides more trips to COR and encourages investment in restaurants/retail)
- Parcel: Part of Outlot A, COR TWO to be platted as Lot 1, Block 1, Ramsey Properties Addition +/- 2.813 acres)
- Purchase Price and Valuation: The purchase price for the Property is $1.00 on
+/- 2.85 acres (124,146 square feet)2.813 acres (122,543 SF) as outlined in Preliminary Plat Document (the “Purchase Price”). The property valuation is $434,511 .($3.50/SF)($3,55/SF) - $550,000 in Pay-Go TIF Note for Site Development / Improvements
- Inspection Period: Inspection Period ends May 26, 2023
- Right of Re-Entry Required
- Reimbursement of Platting costs up to $3,500 if project proceeds.
Review and analysis of the Business Assistance Package has been completed by City Staff and Ehler's. The project scores a 28.65 (one point lower due to job commitment) which is still a moderate to high score for our project rating system. Analysis by Ehlers supports the need for assistance for this project, its supports the TIF "But-For" test and does not unduly enrich the developer.
Staff believes that this Hotel project is a potential catalyst to draw in investment from restaurants and other retailers, It is clear that TIF is needed to bring this project to fruition. The City only has the ability to provide TIF assistance for projects in the COR until November 2023.
TIF Agreement and Subsequent Public Hearing
The EDA is charged with review of the TIF Agreement to ensure that it reflects the correct terms and conditions of the deal structure and assistance and to make a formal recommendation to the City Council. Once a recommendation has been made by the EDA, a Public Hearing date will need to be scheduled for the June 14, 2023 City Council Meeting.
Alternatives for TIF Agreement:
1) EDA Recommendation to the City Council to approve the TIF Agreement and Business Subsidy in the form of $434,511 in TIF Land Cost Write Down and $550,000 in Pay-Go TIF for Site Development/Improvements (as presented); subject to TIF Attorney Review (Staff recommendation).
2) EDA Recommendation to the City Council to approve the TIF Agreement and Business Subsidy and a TIF Agreement in the form of $434,511 in TIF Land Cost Write Down and $550,000 in Pay-Go TIF for Site Development/Improvements (with changes); subject to TIF Attorney Review
3) Something else.
Alternatives for Use Restriction on Land to be Platted as Outlot A, Ramsey Properties Addition:
1) EDA Recommendation to the City Council to approve a 10 year Use Restriction for other hotels and short-term rental (under 6 months) for apartments on land to be platted as Outlot A, Ramsey Properties Addition; subject to City Attorney review
2) Something else
Funding Source:
This case is being handled as part of normal Staff duties. If financial assistance is provided, TIF District 14 will be the funding source and an interfund loan will need to be established.
Recommendation:
Staff recommends an EDA Recommendation to the City Council to approve the TIF Agreement and Business Subsidy in the form of $434,511 in TIF Land Cost Write Down and $550,000 if Pay-Go TIF for Site Development/Improvements (as presented); subject to TIF Attorney review.
Staff is supportive of an EDA Recommendation to the City Council to approve a temporary Use Restriction for other hotels and short-term rental (under 6 months) for apartments on land to be platted as Outlot A, Ramsey Properties Addition; subject to City Attorney review.
Staff is supportive of an EDA Recommendation to the City Council to approve a temporary Use Restriction for other hotels and short-term rental (under 6 months) for apartments on land to be platted as Outlot A, Ramsey Properties Addition; subject to City Attorney review.
Action:
Motion to recommend to the City Council to approve the TIF Agreement and Business Subsidy in the form of $434,511 in TIF Land Cost Write Down and $550,000 if Pay-Go TIF for Site Development/Improvements (as presented); subject to TIF Attorney Review.
Motion to EDA Recommendation to the City Council to approve a temporary( 5, 7 or 10 year) Use Restriction for other hotels and short-term rental (under 6 months) for apartments on land to be platted as Outlot A, Ramsey Properties Addition; subject to City Attorney review
Motion to EDA Recommendation to the City Council to approve a temporary( 5, 7 or 10 year) Use Restriction for other hotels and short-term rental (under 6 months) for apartments on land to be platted as Outlot A, Ramsey Properties Addition; subject to City Attorney review
Attachments
- Site Location Map
- ACTION - Draft TIF Agreement
- Draft Final Plat
- Sample Use Restriction Agreement
- Ehlers Analysis Memo
- REFERENCE - Executed Purchase Agreement Schiebout
- REFERENCE - 1st Amendment to PA
- REFERENCE - Resolution #23-034 1st Amendment
- TIF Run - 40% Admin
Form Review
| Inbox | Reviewed By | Date |
|---|---|---|
| Sean Sullivan (Originator) | Sean Sullivan | 05/03/2023 04:24 PM |
| Brian Hagen | Brian Hagen | 05/04/2023 11:39 AM |
- Form Started By:
- Sean Sullivan
- Started On:
- 05/01/2023 10:30 AM
- Final Approval Date:
- 05/04/2023