Affinity Apartment Project: Public Infrastructure Memorandum of Understanding

PURPOSE
The purpose of this case is to consider approving the attached Public Infrastructure Memorandum of Understanding (MOU) for the proposed Affinity Living apartment project located in The COR.


BACKGROUND, Project
CAP Acquisitions LLC entered into a purchase agreement with the City of Ramsey for a roughly 4.2 acre piece of city-owned land located in The COR on September 26, 2017.  CAP Acquisitions is proposing a new 172-unit, senior, independent living, market rate, high amenity, apartment complex called Affinity Living.  Attached is the purchase agreement.  Please reference the 01/09/2018 City Council Regular Session meeting for details on the proposed site layout.  Affinity Living is proposed to begin construction in July 2018.


BACKGROUND, Infrastructure Improvements
The proposed Affinity Living project will trigger the construction of new public infrastructure.  Please see attached Bolton & Menk Infrastructure Study for details on public infrastructure located near the proposed Affinity project (reference page 8 and Figure 2).  NOTE: not all of the infrastructure shown in the Bolton & Menk report will be constructed as a result of this project.  It's staff's recommendation, that Road Segments A1, C1, and C2 be constructed as a result of this project.  It is also staff's recommendation that Affinity be responsible for paying a share of Road Segments C1, A1, and B--as these road segments are located adjacent to their site.


BACKGROUND, Cost Share for Infrastructure
The attached purchase agreement with CAP Acquisitions indicates that the developer will pay for 40% of all public infrastructure costs.  If the developer is only located on one side of a new road, they would pay for half of the 40% share, or 20% (see paragraph 31).  This arrangement is consistent with past practice in Ramsey and recent projects (Bunker Lake Industrial Park, Stone Brook).  The purchase agreement indicated this item would be formalized in the future between the buyer and seller--and that future arrangement could include a reimbursement agreement. 


BACKGROUND, MOU
The purpose of the attached MOU is to establish a preliminary understanding of the scope of public infrastructure work that needs to be completed, the estimated cost of said work, who is responsible for what portion of costs, how the public infrastructure will be financed, and how public infrastructure construction planning/ engineering/ and administration will occur. 

Staff is recommending Affinity pay 100% of all public infrastructure costs upfront (including the city's portion), for Affinity design/ plan the public infrastructure work, and for Affinity administer the construction of said work.  In return, staff is recommending the city pay back Affinity over time, via The COR TIF District.  It's expected the repayment period would be about eight years (i.e. the city would pay back their portion of public infrastructure costs over the course of about eight years via TIF).  This arrangement is ideal for the city as it eliminates the risk of issuing a bond or upfront financing, and is paid on performance (i.e. we only pay TIF after property taxes are collected).


BUSINESS SUBSIDY?
Based on discussions with the city's financial advisor, Ehlers, this arrangement is not considered a formal business subsidy.  This cost share arrangement is based on past practice and informal city policy (i.e. the 60/40 split).  TIF is being used to fund the city's portion of costs only--not the developers portion.  Attached is the city's business subsidy policy for reference.  As outlined in Section E on page 5, items #2, #3, and #7 apply here.  This means this project (i.e. TIF Agreement) doesn't require a formal public hearing, formal underwriting (i.e. reviewing the developers pro-forma), and no formal application from the developer (i.e. no fee).  However, Ehlers is recommending the city still complete a "But-For Test" for this project.  This will be important for public transparency and to formally document that TIF is justified.


TIF AGREEMENT, Next Step
The attached MOU is an informal agreement.  The next step in the process is to complete a formal and detailed TIF Agreement for this project.  The TIF Agreement will include a note, payable to Affinity.  This agreement will be recorded at the closing of the land transaction.

NA

TIF District #14

STAFF
The attached MOU is generally consistent with past direction provided by the City Council and the EDA via the attached purchase agreement (i.e. the 60/40 cost-share).  The MOU is also consistent with previous staff input to the Council and EDA, that TIF District #14 would be staff's targeted funding source for the city's share of infrastructure.

What's new for the City Council and EDA is this agreement identifies the specific financing arrangement: 100% developer upfront, then repayment of only city's portion of costs via TIF District #14, over the course of eight years.  Structuring TIF as a reimbursement tool, rather than requiring the city to provide upfront funding or financing (i.e. TIF Bonding) is good for the city--as it eliminates risk/ liability.

The attached MOU has been reviewed by the City Attorney and Ehlers.  Both the City Attorney and Ehlers recommended/ preferred the financing arrangement outlined in this MOU, versus other methods (i.e. using upfront funding, or bonding, inner-fund loans, etc.).


EDA
The EDA reviewed the attached agreement on 01/11, please see attached minutes.  The EDA was generally supportive of the agreement, and felt it was consistent with the purchase agreement and past direction.


UPDATES
Staff did not receive final formal review comments from the developer until after EDA review.  Listed below is a log of changes since EDA review.  The attached MOU highlights these change areas in yellow.  Most of the changes are not substantive.  These changes were also reviewed and generally approved by the City Attorney, Ehlers, and our staff development team.

1. Accepted developers request to include “and/ or assigns” in the opening statement.
2. Accepted developers request to use the “Public Infrastructure” terminology in the fourth whereas section rather than “Phase I and II Improvements.”
3. Updated Section 2 to reflect the developer’s language preference, related to receiving a “credit” rather than a “payment.”
4. RE Section 3.  Per a phone call between staff, Ehlers, and the developer -- staff reaffirmed the city's position on the 4.5% interest within the TIF run.  The developer wishes to be paid a higher rate of interest—but, it appears they will accept the 4.5%. 
5. RE Section 3.  As requested by the developer, staff adjusted the TIF admin fee rate within the TIF run from 15% to 10%.  This change doesn't effect the amount of TIF the city will receive from this project over the life of the TIF District.
6. Per the developer’s request, we added Section 4.  Staff is comfortable with this timeline.

 

Motion to:
Approve the attached public infrastructure MOU with CAP Acquisitions.