Adopt Resolution #24-224 Authorizing Execution of Right of Re-Entry Agreement and Approval of Partial Refund of Purchase Price for Outlot B, Stone Brook Academy; Case of Stories Foundation

The purpose of this case is consider execution of the Right of Re-Entry Agreement on Outlot B, COR Stone Brook Academy with Stories Foundation and to refund a portion the purchase price to Stories Foundation.

The City Council 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 City Council chooses to enter into closed session the statute and reason above needs to be referenced along with legal description (Outlot B, COR Stone Brook Academy) and the Anoka County Tax ID number 28-32-25-31-0023.

History / Background

On December 29, 2021, The City of Ramsey sold Outlot B, COR Stone Brook Academy, to Stories Foundation for $67,953.60 to construct a 12,000 SF Cafe'/Store with apartments above.  The proposed project also included a rooftop patio. The original Right of Re-Entry Agreement called for the project to be completed with issuance of a Certificate of Occupancy on or before December 31, 2023.  Stories Foundation, a non-profit asked the City to extend the Certificate of Occupancy date to December 31, 2024 so it could have more time to resubmit for an updated site plan and to raise more funds for the project.  On June 27, 2023 the City Council Agreed to the extension of the Certificate of Occupancy date be extended if Stories Foundation met site plan submittal / Development Agreement / Final Plat conditions noted in Resolution #23-145.  Stories Foundation did obtain the necessary site plan/Development Agreement/Final Plat approvals, as agreed to in Resolution #23-145, but unfortunately has not been able to meet fundraising goals and solve for project cost inflation and financing cost.  The project costs have increased from 1.8M in 2022-3 to 2.2M in 2024.

The Stories Foundation Board of Directors met in July 2024 and made a tough decision to terminate the project in Ramsey based on the above challenges.  As part of this hard decision, Stories Foundation reached out to the City to see if it would be willing to refund the full purchase price.  Stories Foundation, as a non-profit hopes that the refunds could be used for their mission to end human trafficking.   Per the Right of Re-Entry Agreement, the City has the option to take back the land at no cost to the city or to impose a $50,000 penalty against the property if the Buyer does not obtain the Certificate of Occupancy by December 31, 2024. 

None required

The proposed Storyteller Cafe' is a perfect project for a challenging site in the COR in Ramsey.  Unfortunately, economics related to building costs, inflation and financing have led to the decision of Stories Foundation to terminate the project in Ramsey.  Per the terms of the approved Right of Re-Entry Agreement, the City has the right to re-enter the property at no cost to the City and have Stories Foundation deliver a deed of conveyance back to the City if a Certificate of Occupancy is not obtained by December 31, 2024. Stories Foundation is looking to bring resolution to this matter sooner than December 31, 2024.

Staff understands the challenges of a non-profit and the value of cash to move forward the mission of the organization.  Based on this, Staff is supportive of a partial refund based on the non-profit nature of this business and Stories Foundation acting in "good faith" with the recent actions related to Site plan approvals. Staff does not recommend a full refund of the purchase price as Stories Foundation has had site control since October 29, 2020 as documented in the original Purchase Agreement and the City has incurred costs and foregone potential tax revenue.  Site control does come with a cost and the duration of approximately 3.5 years that Stories Foundation has had site control (property off the market, no property tax generation) should involve some compensation to the City if a partial refund is to be considered.  Staff has consulted with a local relator and a reasonable Option cost for a $67,953.60 land purchase for a 3.5 year duration would be $10,000 to $15,000. The City also paid CBRE $2,038.60 in commission and $1,619.25 in closing costs (total of $3,657.85) for the land transaction.  These costs (Settlement Statement attached) incurred by the City should also be considered. 

Another option would be to allow Stories Foundation to keep the land for a future project, the City to impose a $50,000 assessment to the property, or to sell it or develop it at a later date.  However, Staff is not supportive of this option as the City would run the risk of the property never being developed or being sold to a project/owner/use that the City does not support.  In the past, the City has taken the position that it will not sell land for speculative purposes.

Staff has worked with Stories Foundation for nearly four years and believe that they have done everything humanly possible to bring the project to market in Ramsey.  Unfortunately, the project has not materialized in Ramsey and Stories Foundation has decided to search for another more cost-effective solution elsewhere.  Below are some alternatives the City Council could consider for action:

1) Exercise Right of Re-Entry Agreement and request deed of conveyance from Stories Foundation to the City of Ramsey at no cost to the City (No refund per Right of Re-Entry Agreement)
2) Exercise Right of Re-Entry Agreement and request deed of convenance from Stories Foundation to the City of Ramsey and to refund entire purchase price of $67,953.60 (Stories Foundation Request)
3) Exercise Right of Re-Entry Agreement and request deed of conveyance from Stories Foundation to the City of Ramsey and to refund $49,295.75 - $54,295.75, or another amount (Select) to Stories Foundation (Hypothetical Option /  closing costs / CBRE commission / Opportunity Cost) (EDA / STAFF Recommendation)
4) Execute Right of Re-Entry Agreement and choose the option to impose a $50,000 Special Assessment on the property and allow Stories Foundation to keep the property
5) Something Else

If a refund were to be issued to Stories Foundation, it would come from 9295.1420 - Land held for resale account.

The EDA met on August 8th, 2024 and unanimously passed a motion to recommend to City Council to exercise Right of Re-Entry Agreement and request deed of conveyance for Outlot B, Stone Brook Academy from Stories Foundation to the City of Ramsey and to refund $49,295.75 to Stories Foundation.  A copy of the draft minutes are attached to this case.

Staff recommends that this recommendation be contingent on proof of clear title (no liens or encumbrances)