Consider Purchase Agreement with WESTCO Properties LLC (portions may be closed to the public)

PURPOSE
Consider purchase agreement (PA) from WESTCO, Properties LLC. for .95 acres of City owned land located within the City's original business park.
 
BACKGROUND (Subject Property)
The subject property is located at 6590 141st Avenue NW in one of the City's original business parks.  This .95 site is located off Basalt Street and Bunker Lake Boulevard and is currently zoned E-1 Employment District.  This property was purchased by the City in 2006 for redevelopment purposes for a price of $211,200; at which time, existing improvements were removed.  This site has sat vacant, tax exempt, and available for sale since 2006.  This property is currently being listed by CBRE, the City's real estate broker for $105,000.  Attached to this case is the property listing.

BACKGROUND (24 Restore & WESTCO Properties LLC)
WESTCO Properties LLC is a holding company based out of Elk River and Managed by Derek West.  WESTCO Properties would purchase the subject property.  24 Restore, a business owned by Derek West, would operate from the subject property.  Both entities are in good standing with State of Minnesota (business and lien system).

24 Restore was established by Derek West in 1994.  Mr. West originally operated from Blaine; and eventually moved his business to Ramsey in 1998 (his hometown).  Mr. West began in Ramsey by leasing a 5,000 square foot space, which eventually turned into ownership of said space, which eventually turned into a 10,000 square foot space (his current location at 6615 141st Ave NW). 

Mr. West is now out of space at his current location and needs to secure additional space for the growth of 24 Restore.  He is proposing a new 10,000 square foot facility to be constructed on the Subject Property (City owned property).  Mr. West is proposing to both (a) keep his existing facility and (b) construct/operate from the new facility.  24 Restore currently has 29 full time employees.  Mr. West expects 10-20 new employees to be added over the next two years.  Here is a link to the 24 Restore website: http://24restore.com/

BACKGROUND (Purchase Agreement)
Attached to this case is the latest DRAFT version of the purchase offer (Purchase Agreement, PA) from WESTCO Properties LLC.  The buyer is represented by Marty Fisher of Premier Commercial Realty.

BACKGROUND (Case)
This case was originally reviewed by the EDA and City Council in February; at which time the original purchase agreement was approved.  After this case was approved, WESTCO was unable to move forward with executing the original purchase agreement because the cost of the project was higher than originally anticipated.  On March 30, City staff sent a formal cancelation of the original purchase agreement. 

Since March 30, WESTCO has reduced their project costs by slightly redesigning their new building (took out office space, mezzanine, and multi-tenant functionality), reducing the size of their new building (12,500 square feet to 10,000), and by reducing the price in which they have offered the City to purchase the subject property.  With these reductions in mind, WESTCO has indicated they are now comfortable with moving forward with their proposed project.  WESTCO is willing to increase earnest money within this PA (in comparison to the original deal) and make a portion of earnest hard upfront.

NA

OBSERVATIONS

• Zoning/Use: Generally, the proposed development concept fits within the City's existing zoning regulations (will require official site plan review and approval).
• Sale Price: The asking price for the subject property is $2.50 per square foot ($105,000). The original offer price was $2.29 per square foot ($95,000).  The new offer price is $1.33 per square foot ($55,000).  The new offer price is on the "low-end" of the City's adopted "deal-range" for the subject property.  Staff will recommend either this offer price be accepted, or a small counter be made (due to the number of jobs and tax base to be created).  NOTE: Market rate for industrial land in the local region is about $2.00 per square foot.
• Property Taxes: The proposed development is approximately 10,000 square feet.  This property will generate about $27,000 in total property taxes (about 25% would be received by the City).
• Earnest Money: This PA does include earnest money ($5,000, 9%).  $2,000 will become hard immediately.  The remaining will become hard after the original termination date expires.  The original agreement included $3,000 earnest money that became hard after the original termination date expired; with no earnest money upfront.
• Broker Commission: Commission will be paid to both the buyer's real estate agent and the seller's real estate agent via the seller's (City) land sale proceeds (split 7%, or $5,793.48).  NOTE: based on the City's contract with CBRE, commission is paid on a minimum $2.00 per square foot for industrial properties.
• Net Proceeds: includes deductions of commissions, closing fees, title commitment, State DEED tax, and payback to Anoka County for CDBG funding to purchase the property, $32,961.50.  Please see attached.  This is consistent with the City's Policy for the Sale of City Owned Land.
• Closing Date: Closing is set for September 29, 2015.  Attached to this case is a mock project timeline.
• Buyer: The buyer (Derek West of 24 Restore) has a history of providing business services to the City of Ramsey.  City staff has been impressed with the professionalism and reliability of Mr. West's company.

ALTERNATIVES
Staff would recommend option 1 or 3 (to counter offer).
 

NA

Please see observations section.

This case was reviewed by the EDA on June 04.  The EDA did not take a formal action on this case.  The EDA did provide the following general direction:
 

(1) The proposed project is a good fit for the subject property.  24 Restore is a valued/ respected local business and the EDA would like to seem them stay in Ramsey.  The proposed project does benefit the City by creating jobs and tax base.

(2) The EDA recommends the City Council discuss this case in closed session to develop a counter offer strategy.  The EDA did not develop a specific counter offer and did not go into closed session.  However, the EDA feels the standing offer of $1.31 per square foot ($55,000) is too low.
 

Motion to:
Approve the attached purchase agreement with WESTCO Properties LLC. for .95 acres of City owned land located at 6590 141st Ave NW; contingent upon final review and amendments from the City Attorney.

-or-

Table this case.
(provide Staff direction on a strategy for a counter offer in closed session)