2.3.
CC Work Session
- Meeting Date:
- 11/07/2016
- Submitted For:
- Patrick Brama
- By:
- Patrick Brama, Administrative Services
Information
Title:
Future Business Park: Right of First Refusal
Purpose/Background:
PURPOSE
The purpose of this case is to consider acting on the attached "Right of First Refusal to Purchase Real Estate." Per the attached agreement, the City has the ability to purchase roughly 48 acres of land owned by Pearson Properties, by November 16, 2016, for $1 more than offered by a third party (Capstone Homes offer: $1,465,500, $30,000 per acre, October 1, 2106).
BACKGROUND, FUTURE BUSINESS PARK
The city is considering a roughly 93-acre business park located off Bunker Lake Boulevard and Puma Street. The business park is comprised of land owned by two private parties: Hageman Holdings (about 45 acres) and Pearson Properties (about 48 acres). The business park is projected to develop over the course of 16-20 years. For a number of reasons, development is anticipated to start in the east (Hageman) and push west (Pearson) over time.
As originally visioned, this business park was to be a public-private partnership with the two major property owners (Hageman Holdings and Pearson Properties). The private property owners would act as land holding companies. The city was to aid the property owners by participating in funding the cost of arterial infrastructure, aid in marketing efforts, and help close deals (and consider providing incentives such as TIF if needed).
BACKGROUND, PROCESS
From late 2013 through early 2016, the city completed the following steps:
BACKGROUND, RECENT UPDATES
(A) Enter into a first-right-of refusal agreement with Pearson Properties. This will buy the City time to make a decision. This was important because Pearson has indicated they want to sell their property as residential, and that they were receiving interest from buyers.
(B) Offer up Pearson parcel to private industrial developers, wait and see if we can replace Pearson Properties with a different private sector investor.
(C) Wait to see what happens with PACT Charter School—if PACT ended up buying a portion of the former Legacy Christian Academy property owned by Hageman Holdings. PACT Charter only needs a portion of the former Legacy Christian Academy site (about half). If the PACT Charter purchase took place, the City could pick up about 35-50 acres of the remaining land for a business park.
(D) If developers are not interested, and PACT Charter doesn’t get their deal done, staff should bring back a future discussion about potentially considering a City purchase. Originally, this option was attractive because it was believed the Pearson Property may be available for a very low price (i.e. $700-800K, or $15-18K per acre). Based on this original pricing, it could be argued, the City would have be in a strong position to invest in the Pearson Business Park property now, and would be able to wait for the property to be developed.
The purpose of this case is to consider acting on the attached "Right of First Refusal to Purchase Real Estate." Per the attached agreement, the City has the ability to purchase roughly 48 acres of land owned by Pearson Properties, by November 16, 2016, for $1 more than offered by a third party (Capstone Homes offer: $1,465,500, $30,000 per acre, October 1, 2106).
BACKGROUND, FUTURE BUSINESS PARK
The city is considering a roughly 93-acre business park located off Bunker Lake Boulevard and Puma Street. The business park is comprised of land owned by two private parties: Hageman Holdings (about 45 acres) and Pearson Properties (about 48 acres). The business park is projected to develop over the course of 16-20 years. For a number of reasons, development is anticipated to start in the east (Hageman) and push west (Pearson) over time.
As originally visioned, this business park was to be a public-private partnership with the two major property owners (Hageman Holdings and Pearson Properties). The private property owners would act as land holding companies. The city was to aid the property owners by participating in funding the cost of arterial infrastructure, aid in marketing efforts, and help close deals (and consider providing incentives such as TIF if needed).
BACKGROUND, PROCESS
From late 2013 through early 2016, the city completed the following steps:
(Step #1) 2013-2014: Review of potential business park locations.The city reviewed six potential business park locations; and the Hageman-Pearson site was ultimately selected.
(Step #2) 2014: Public engagement process related to the proposed change in land use.The proposed business park is currently zoned for a mix of residential and retail uses. In order to allow for a new business park, the zoning would need to be amended.
(Step #3) 2015-2016: Arterial infrastructure analysis.The city studied what the needs are for future arterial infrastructure (Bunker/ Puma). Additionally, the City discovered what said improvements would cost, how they could be paid for (i.e. alternatives), and when they need to be physically constructed (i.e. timing).
(Step #4) 2016: Economic development analysis. The city identified all forecasted costs and benefits related to the proposed future business park.
(Ste p #5) Implement Plan. The next step in the process for the EDA/ City Council to make the business park project a reality was to adopt an official City policy/ position, memorandum of understanding with property owners (who will be paying for what, and when), process a zoning amendment, and begin a marketing campaign. The EDA provided direction on this step in March of 2016 (to move ahead and execute). The Council was set to complete this step in April of 2016 (to move ahead and execute).
Days before the Council meeting in April, the City received the update below.
(Step #2) 2014: Public engagement process related to the proposed change in land use.The proposed business park is currently zoned for a mix of residential and retail uses. In order to allow for a new business park, the zoning would need to be amended.
(Step #3) 2015-2016: Arterial infrastructure analysis.The city studied what the needs are for future arterial infrastructure (Bunker/ Puma). Additionally, the City discovered what said improvements would cost, how they could be paid for (i.e. alternatives), and when they need to be physically constructed (i.e. timing).
(Step #4) 2016: Economic development analysis. The city identified all forecasted costs and benefits related to the proposed future business park.
(Ste p #5) Implement Plan. The next step in the process for the EDA/ City Council to make the business park project a reality was to adopt an official City policy/ position, memorandum of understanding with property owners (who will be paying for what, and when), process a zoning amendment, and begin a marketing campaign. The EDA provided direction on this step in March of 2016 (to move ahead and execute). The Council was set to complete this step in April of 2016 (to move ahead and execute).
Days before the Council meeting in April, the City received the update below.
UPDATE: Pearson Properties is no longer able to commit to the new business park land use. The highest priority for Pearson Properties is to close a transaction on a substantial portion of their land in the next 12 months. Pearson Properties has a preference to pursue residential land uses on their property, as the market demand for residential is currently stronger than industrial (i.e. business park).
Because Pearson Properties no longer supports the proposed zoning change, it would be challenging for the City to implement a business park on their privately owned property (48 acres). The update from Pearson Properties effectively reduces the size of the City’s future business park by roughly 50% (from 93 acres to 45). Additionally, this major shift in proposed future land use may warrant discussing the big picture land use plan for this area, and reconsider the location of Ramsey's future business park.
It should be noted, the Pearson Properties parcel was particularly attractive from a business park perspective due to its setback from the adjacent BNSF rail (i.e. a substantial portion of that property is sufficiently setback). Pearson Properties has indicated they are okay with someone else purchasing their property for the purpose of implementing the City’s vision of a business park, so long as a transaction can close within the next 12 months (by March of 2017).
Because Pearson Properties no longer supports the proposed zoning change, it would be challenging for the City to implement a business park on their privately owned property (48 acres). The update from Pearson Properties effectively reduces the size of the City’s future business park by roughly 50% (from 93 acres to 45). Additionally, this major shift in proposed future land use may warrant discussing the big picture land use plan for this area, and reconsider the location of Ramsey's future business park.
It should be noted, the Pearson Properties parcel was particularly attractive from a business park perspective due to its setback from the adjacent BNSF rail (i.e. a substantial portion of that property is sufficiently setback). Pearson Properties has indicated they are okay with someone else purchasing their property for the purpose of implementing the City’s vision of a business park, so long as a transaction can close within the next 12 months (by March of 2017).
BACKGROUND, RECENT UPDATES
As a result of the update provided in step 5 above, the City Council provide staff the following direction on June 14, 2016:
(A) Enter into a first-right-of refusal agreement with Pearson Properties. This will buy the City time to make a decision. This was important because Pearson has indicated they want to sell their property as residential, and that they were receiving interest from buyers.
UPDATE: a formal purchase agreement (offer) was made on the Pearson Property on October 01, 2016 for a residential development. The City will now need to decide how to act on their “Right-of-First-Refusal”—the City has 45 days (November 16) to offer $1 more than the Buyer’s offer price of $1,465,500 ($30,000 per acre).
The purchase offer comes from Capstone Homes—a respected local builder—currently working on the Brookfield development. Capstone would like to develop the Pearson property into a mix of residential offerings. It should be noted, the buyer is not only purchasing the proposed Pearson business park parcels (48 acres), this purchase includes another Person Property (38.9 acres). See reference map for details.
Capstone has indicated their offer on the Pearson property assumes the City will be willing to discuss a cost-share on the arterial infrastructure required for their development (remainder of Bunker & Puma). That discussion is expected to come back to the City in coming months. Capstone has received clear feedback from City staff that--if the Pearson Property is not developed as a business park, the City is not committed to any level of cost-share on arterial infrastructure. If Capstone would like to discuss a cost-share on arterial infrastructure, for a residential development, the City will consider that discussion (i.e. request) starting from scratch, and will consider it a new/open negotiation.
The purchase offer comes from Capstone Homes—a respected local builder—currently working on the Brookfield development. Capstone would like to develop the Pearson property into a mix of residential offerings. It should be noted, the buyer is not only purchasing the proposed Pearson business park parcels (48 acres), this purchase includes another Person Property (38.9 acres). See reference map for details.
Capstone has indicated their offer on the Pearson property assumes the City will be willing to discuss a cost-share on the arterial infrastructure required for their development (remainder of Bunker & Puma). That discussion is expected to come back to the City in coming months. Capstone has received clear feedback from City staff that--if the Pearson Property is not developed as a business park, the City is not committed to any level of cost-share on arterial infrastructure. If Capstone would like to discuss a cost-share on arterial infrastructure, for a residential development, the City will consider that discussion (i.e. request) starting from scratch, and will consider it a new/open negotiation.
Capstone has indicated, they are generally interested in working with the City RE the future business park discussion—and would be interested in finding a mutually beneficial solution. It is staff’s understanding, Capstone would be willing to allow a small portion of their proposed development, located against the BNSF train tracks, become a business park (south side of Pearson site). Staff is concerned about only gaining a portion of the Pearson property (say 15-25 acres) for the future business park—for reasons previously discussion (all business property would be adjacent to rail). The original plan was to pick up nearly 50 acres of the Person property, much of which was to be set-back from rail.
(B) Offer up Pearson parcel to private industrial developers, wait and see if we can replace Pearson Properties with a different private sector investor.
UPDATE: Staff contacted 18 developers. Four people responded with general interest initially (PSD, Ryan, RJM, and Mortenson). Only PSD followed up with the city, and had follow up discussions/ meetings/ requests for more information. Ultimately, PSD indicated they are not interested in pursuing purchase of the business park at this time. PSD is working on several other projects at this time that are consuming their resources.
It is staff’s perspective, that the larger regional developers didn’t have interest in this site due to the location of Ramsey, and the condition of US Highway 10. RE land, they feel that Brooklyn Park, Blaine, and Rogers are better locations for industrial parks. They were not turned off by land price, the city itself, access, development fees, etc. etc. Developers were interested in knowing if the City was willing to provide incentives to end-users.
It is staff’s perspective, that the larger regional developers didn’t have interest in this site due to the location of Ramsey, and the condition of US Highway 10. RE land, they feel that Brooklyn Park, Blaine, and Rogers are better locations for industrial parks. They were not turned off by land price, the city itself, access, development fees, etc. etc. Developers were interested in knowing if the City was willing to provide incentives to end-users.
(C) Wait to see what happens with PACT Charter School—if PACT ended up buying a portion of the former Legacy Christian Academy property owned by Hageman Holdings. PACT Charter only needs a portion of the former Legacy Christian Academy site (about half). If the PACT Charter purchase took place, the City could pick up about 35-50 acres of the remaining land for a business park.
UPDATE: PACT Charter School has indicated they have made a site selection for their new school campus—that being the Legacy Christian Academy site. For a number of reasons, they are unable to make that decision final, and enter into a formal purchase agreement, until at least fall of 2017. Likely, closing would occur sometime in 2018. This is the best-case scenario for PACT from a timing perspective. As a result, counting on this action to occur is speculative at this point.
***NEW UPDATE***, 10/31/2016: Hageman Holdings has indicated they currently don’t have a specific timeline RE their school site. They are willing to wait for their vision to come to fruition. However, Hageman Holdings IS willing to discuss rezoning their school site NOW for a business park (about 62 acres). Then, allow the market to dictate how their land is developed. If a school comes first, and needs all or a portion of the Hageman Holdings School site, so be it. If industrial development comes first, that is acceptable as well. Hagemen Holdings indicated they would be willing to enter into an agreement with the City accordingly. Staff believes this is a promising alternative that should be further investigated.
***NEW UPDATE***, 10/31/2016: Hageman Holdings has indicated they currently don’t have a specific timeline RE their school site. They are willing to wait for their vision to come to fruition. However, Hageman Holdings IS willing to discuss rezoning their school site NOW for a business park (about 62 acres). Then, allow the market to dictate how their land is developed. If a school comes first, and needs all or a portion of the Hageman Holdings School site, so be it. If industrial development comes first, that is acceptable as well. Hagemen Holdings indicated they would be willing to enter into an agreement with the City accordingly. Staff believes this is a promising alternative that should be further investigated.
(D) If developers are not interested, and PACT Charter doesn’t get their deal done, staff should bring back a future discussion about potentially considering a City purchase. Originally, this option was attractive because it was believed the Pearson Property may be available for a very low price (i.e. $700-800K, or $15-18K per acre). Based on this original pricing, it could be argued, the City would have be in a strong position to invest in the Pearson Business Park property now, and would be able to wait for the property to be developed.
UPDATE: Considering the City would now need to purchase the Pearson at $1,465,500 or $30,000 per acre, Staff is concerned. The upfront cost-benefit of a city purchase of the Pearson property is diminishing. In order to get arterial infrastructure completed, the City estimated a $31,000 cost per acre (about $.075 psf or $1,393,000 for the Pearson 48 acres).
Therefore, if the City were to purchase the Person property now (48 acres), and install arterial infrastructure, the City would be looking at an investment of about $2,858,000, $63,600 per acre, or $1.46 psf. That price does not include holding costs, time-value of money, internal site infrastructure, and addressing public perception items related to the City purchasing land, etc. Staff believes the asking price for industrial land is roughly $2.00-$2.50 psf. However, it is very common for the City to sell property at the low end of the market, or even with a subsidy (i.e. $1.00-$1.75 psf).
The EDA has about $2.1M available (between the County EDA fund, City EDA fund, and City EDA RLF). If the City were to purchase the Pearson Property, and install arterial infrastructure, the City would likely fully deplete all EDA dollars. In that scenario, the City would still come up short on funding, and would also need to consider obtaining dollars from other sources. This is important to note, because this funding strategy is a departure from the original discussion/ vision—which assumed the EDA would have enough dollars to cover any City costs associated with the future business park.
Therefore, if the City were to purchase the Person property now (48 acres), and install arterial infrastructure, the City would be looking at an investment of about $2,858,000, $63,600 per acre, or $1.46 psf. That price does not include holding costs, time-value of money, internal site infrastructure, and addressing public perception items related to the City purchasing land, etc. Staff believes the asking price for industrial land is roughly $2.00-$2.50 psf. However, it is very common for the City to sell property at the low end of the market, or even with a subsidy (i.e. $1.00-$1.75 psf).
The EDA has about $2.1M available (between the County EDA fund, City EDA fund, and City EDA RLF). If the City were to purchase the Pearson Property, and install arterial infrastructure, the City would likely fully deplete all EDA dollars. In that scenario, the City would still come up short on funding, and would also need to consider obtaining dollars from other sources. This is important to note, because this funding strategy is a departure from the original discussion/ vision—which assumed the EDA would have enough dollars to cover any City costs associated with the future business park.
Notification:
NA
Observations/Alternatives:
ALTERNATIVES
STEP 1: PURPOSE OF THIS CASE
Based on the attached Right of First Refusal Agreement, the City must act by November 16. Both Pearson Properties and Capstone Homes are waiting to see how the City moves forward.
STEP 1: PURPOSE OF THIS CASE
Based on the attached Right of First Refusal Agreement, the City must act by November 16. Both Pearson Properties and Capstone Homes are waiting to see how the City moves forward.
Alternative #1: Purchase Pearson Property
Purchase the Person Property (48 acres) for $1,465,500. Provide Pearson Properties with a notification of intent to exercise a purchase. Direct staff to draft a purchase agreement and obtain title work. City would have approximately 30 days to close on a purchase.
Purchase the Person Property (48 acres) for $1,465,500. Provide Pearson Properties with a notification of intent to exercise a purchase. Direct staff to draft a purchase agreement and obtain title work. City would have approximately 30 days to close on a purchase.
This alternative would allow the City to maintain control over the Pearson Property, and the original vision for the future business park. If the City took this step, staff would subsequently request the business park be rezoned accordingly. For the reasons outlined in the Background Section of this case, Item D, staff does not recommend the Council move forward with this alternative.
Alternative #2: Don't Purchase Pearson Property
Do not purchase the Pearson Property (48 acres), and allow the attached Right of First Refusal Agreement to terminate on November 16.
This alternative does not provide a definitive solution to the City's need/ desire for a new business park. However, staff believes there are several worthwhile alternatives to consider, different scenarios to unfold, and questions to be answered. Staff would like to bring back a case(s) to the EDA/ Council/ Planning Commission to discuss said items, before the City makes another decision RE the future business park. Please see below.
STEP 2: FUTURE CASE(S)
Staff is recommending the City not act on the attached Right of First Refusal agreement, and not purchase the Pearson Property today. Staff would recommend the EDA/ Council discuss the items below, at future meetings.
Future Alternative #1: Rezone Pearson Property
Rezone the Pearson Property (48 acres) for a business park as originally planned, without the consent of the property owner. This option will likely come with opposition from Pearson Properties; and may require counseling from the City Attorney.
Future Alternative #2: Wait out Capstone PA
Wait to see what happens with the Pearson Property--Capstone Homes purchase agreement. It would not be unrealistic for that purchase agreement to NOT close. Subsequently, the Pearson Property could come back to the City at a competitive price, again. Or, the discussion of a third party industrial park investor could resurface.
Future Alternative #3: Hageman Holdings School Site for Business Park
Work with Hageman Holdings on their School Site. Attempt to rezone for a business park, and put agreements in place to allow for both parties to move forward with comfort. Please see Background Section of this case, Item C, for details.
Future Alternative #4: Add Connexus Energy Site to Industrial Land Inventory
Continue to work with Connexus Eneregy on their 17.55 acre industrial site. Staff would like to see this site added to the City's inventory of ready-to-go industrial park land. Thus, pressure on an immediate solution for a new business park would be temporary relieved. This site is located off Sunwood Drive and Bunker Lake Boulevard, just south of Connexus Energy. Attached is a reference map.
Future Alternative #5: Wait out Platinum Properties PA
Continue to work with Platinum Properties to close on a purchase agreement for a 123,000 square foot spec industrial project located on 9.3 acres of City owned land, just south of Vision Ease Lens. If said purchase agreement does not close, this land will remain available. Thus, pressure on an immediate solution for a new business park would be temporary relieved.
Future Alternative #6: Reconsider Big Picture Land Use Plan
Depending on what happens over the next six months (i.e. does the Pearson property sale close, can we get the Hageman Holdings School site rezoned for business park, etc.), the City may want to take a step back and reconsider the big-picture land use plan for the several hundred acres of land available for development, located west of the new Armstrong Interchange, on both the north and south side of U.S. Highway 10. Perhaps, the City should consider moving the business park to the south side of U.S. Highway 10.
Funding Source:
NA
Recommendation:
EDA discussed this case on 11/03/2016. Minutes are not available yet. By consensus, the EDA agreed with staff's recommendation to NOT move forward with purchasing the Pearson Property at this time--and to further investigate the additional alternatives outlined in this case.
Action:
Motion to:
Direct staff to begin the process of purchasing the Pearson Property.
--or--
Notify Pearson Properties the City does not intend to act on the attached Right of First Refusal Agreement, and that the City is not interested in purchasing the Pearson Property at this time, and to direct staff to bring this case back in the future to discuss additional alternatives.
Direct staff to begin the process of purchasing the Pearson Property.
--or--
Notify Pearson Properties the City does not intend to act on the attached Right of First Refusal Agreement, and that the City is not interested in purchasing the Pearson Property at this time, and to direct staff to bring this case back in the future to discuss additional alternatives.
Attachments
- Ref Maps
- Right of First Refusal to Purchase Real Estate Agreement
- Economic Development Analysis
- Infrastructure Analysis
Form Review
| Inbox | Reviewed By | Date |
|---|---|---|
| Kurt Ulrich | Kurt Ulrich | 11/03/2016 04:36 PM |
- Form Started By:
- Patrick Brama
- Started On:
- 11/02/2016 07:48 AM
- Final Approval Date:
- 11/03/2016