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HomeMy WebLinkAbout20190528_EDA_Minutes-Exec Sess ECONOMIC DEVELOPMENT AUTHORITY (EDA) MINUTES OF THE EXECUTIVE SESSION OF MAY 28, 2019 The Executive Session was convened at 5:05 pm Members Present: Murzyn, Schmitt, Buesgens, Novitsky, Williams, Herringer, and Szurek. Staff Present: Kelli Bourgeois (City Manager), Aaron Chirpich (Community Development Director), and Shelley Hanson (Administrative Assistant-Community Development). Szurek stated that per MN Statutes 13D.05 we are here to discuss the redevelopment, and/or purchase of 3989 Central Avenue NE. She then turned the meeting over to the Community Development Director, Aaron Chirpich. BUSINESS ITEMS 1. Redevelopment Update Chirpich told members the purpose of the meeting was to update them on the redevelopment site known as the NE Business Center located at 3989 Central Ave NE. He explained that the EDA had previously discussed two possible development options for this site. The first one was with Lupe Development for conversion into affordable housing, and the second was a complete rebuild for market rate, luxury apartments. After staff made it clear to Ned Abdul (Swervo) that the City was not interested in the Lupe proposal, Abdul began negotiating with the other interested developer for the sale of the property. Chirpich told members that negotiations between Ned Abdul (Swervo) and the second developer stalled out because of price, timing, and the process to complete the transaction. Because of this, the City has been negotiating with the present owner to possibly purchase this property in order to sell it to the second interested developer directly, thereby salvaging the project the EDA would like to see there. Chirpich told members that the second developer who proposes to do a complete tear down and rebuild for 200+ luxury units is Alatus LLC. He said he has worked with them in the past and they build high end, quality buildings. Chirpich then showed the members several of the projects they have done in downtown Minneapolis, Rochester and New Hope. Chirpich explained that it may, or may not, have commercial space on the first floor, and that they are still open to locating City Hall at the site. But, he assured members that the project is not contingent on that happening. He stated that a PUD would be required to re-zone the property specific to this site. It would provide flexibility for density, materials, design, etc. Chirpich told members that TIF would still be required and staff is working with Ehlers and the developer to limit it to the shortest timeframe possible. He said staff is aiming for a 10 year period, but the duration of the district could be as long as 25 years. Chirpich stated he has been working with Abdul to get a purchase agreement formulated that will come back to the EDA, hopefully in June for approval. He told members that they had agreed on a 2.8 million dollar purchase, plus the City paying the 2019 taxes. Chirpich said the tax assessed value is just under 2.9 million so the agreed upon price is in the ballpark, and it should work for TIF. He went on to tell members that Ehlers and Alatus are comfortable with that price. When Abdul and Alatus were negotiating, Abdul wanted somewhere between 3.5-5 million, which was too high. Alatus said the site must be TIF eligible, so it needs to be assessed to make sure it is deficient enough to qualify. Chirpich told members that the City has already ordered LBH to do that assessment. He then stated that it would require a $30,000 earnest payment and that he hopes the closing would be on or before August 16, 2019. For the sake of detailing how this could move forward, Chirpich gave members Scenario A, Scenario B, and Scenario C. EDA Executive Session-Special Meeting Page 2 May 28, 2019 Scenario A: Under this scenario, the EDA would assign the purchase agreement for the property to Alatus. This would require Alatus to cash flow the purchase rather than the EDA. However, Alatus would have to apply for Site Plan approvals and TIF prior to the closing. This scenario would limit the risk to the EDA, but it may be difficult to accomplish within a limited timeframe. Scenario B: The EDA purchases the property and then sells it back to Alatus as soon as possible. This would provide more time for all parties to get proper approvals through the PUD/site plan process. He said this scenario has the best chance of succeeding. Chirpich told members that staff is also working on a pre- development agreement to protect our interests in this scenario, to obtain a written commitment that Alatus will agree to purchase the property at a pre-determined price, so the terms cannot change after we own the building. Although, this doesn’t guarantee that Alatus can’t change their mind, it would provide some assurance of their commitment to the project. Chirpich stated he has worked with them in the past, and has no reason to believe they wouldn’t move forward with the verbal commitment they have already given. Scenario C: The EDA purchases the property and Alatus backs out of the deal. This would give the EDA site control, but the EDA have to find a new developer. Chirpich needs to know if the EDA is willing to take this risk. Buesgens was very excited about the proposal Alatus wants to do at this site. She thinks it is a great project for our City and would attract other businesses to the area. She said to scrap Scenario A, and go with Scenario B, even if it costs the City a little more. Buesgens wants to work with this developer and is afraid to jeopardize the deal by trying to do a re-assignment at the time of closing. She doesn’t want Swervo to have any reason to change his mind by involving too many things into the transaction. And if Alatus would back out for some reason, we can find another developer to build what we want. We are not subject to someone trying to put in a project we don’t really want. She feels it is a good time to take a chance since the market is good, the price is reasonable, the location to downtown is desirable, and apartment living is growing more popular. Herringer asked who the principal of Alatus is. Chirpich said the head of the Company is Bob Lux and he has worked directly with him for the New Hope project. Herringer then asked if the Lupe Development project was out of contention. Chirpich said he told Abdul that the EDA was not interested in the Lupe project and that the City would not give him any assistance, so yes, that proposal is off the table. Szurek asked if Abdul (Swervo) is willing to work with the City. Chirpich said he has had good dialogue with him during the last few weeks. He said since he is a new party coming into this situation, it has probably helped to re-establish some trust to accomplish something advantageous to both parties. Chirpich said he has agreed by email to the 2.8 million dollar purchase price, with other details to be worked out. He is cautiously optimistic that good faith negotiations will continue to meet the mid-August closing. He told members that st certain benchmark repairs were to be completed by June 1, but since we are negotiating the sale, those have st been pushed back to September 1 to allow the transaction to be finalized. If for some reason, it falls through, st then those repairs will have to be done by September 1. Murzyn stated he would like to buy the building but wants a commitment from Alatus that they will definitely purchase the property. He doesn’t want to own it long term. He is afraid it would take time to find a new developer. He would feel better about the purchase if the pre-development agreement with Alatus could be entered into. Chirpich told him that agreement is the best he can do to protect the City’s interest. He cannot guarantee the final outcome, and doesn’t want to mislead the EDA. Although, he thinks it will work out, he wants to make them aware of all the possible risks. EDA Executive Session-Special Meeting Page 3 May 28, 2019 Novitsky said he hopes it works with Alatus, but even if it doesn’t, at least we would have control over the site and we could choose which developer to work with. We wouldn’t have to settle for someone’s proposal to convert the existing building. He agreed with Buesgens to forget trying to accomplish a re-assignment of the property at the time of purchase from Abdul. Bourgeois told members that Chirpich has done a good job communicating honestly with Abdul about the City’s vision for this property and to come to a mutual agreement for both parties to achieve that. She stated that by purchasing the property we would have control over the ramp also, which would prevent Swervo from gaining ownership in 2021. It is the best way to get a development we want on the most prime corner in our City. st Schmitt asked about the repairs that have been extended to September 1. She then asked if Swervo had been fined for the crumbling wall. Chirpich said they were being assessed for that fine and that the purchase agreement states Swervo will be responsible for the payment of any special assessments. Schmitt then asked who would be responsible for the demolition costs under Scenario B. Chirpich said Alatus would pay for the demo of the structures. If Scenario C happened, it would have to be determined whether the City demolished the structures or if a new developer would do that. Williams was concerned about purchasing the property and then sitting on it for a while, or being forced to sell it for less than we paid for it. He doesn’t want to lose money on property like we did on the residential properties we purchased over the last ten years. And he is concerned that Alatus, or other developers, would try to low ball what they are willing to buy it for once we own it. Chirpich and Bourgeois explained that is the reason they are drafting up a pre-development agreement with Alatus that will be brought to the EDA for approval at the same time the purchase agreement with Swervo is considered. Williams said he would look at this more favorably if both agreements are brought to them at the same time. The Executive Session was adjourned at 6:08 pm. Respectfully submitted, Shelley Hanson Secretary