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2005-055 CITY OF HOPKINS HENNEPIN COUNTY STATE OF MINNESOTA RESOLUTION NO. 2005-055 RESOLUTION ADOPTING A MODIFICATION TO THE REDEVELOPMENT PLAN FOR REDEVELOPMENT PROJECT NO.1; AND ESTABLISHING TAX INCREMENT FINANCING DISTRICT NO. 1-3 THEREIN AND ADOPTING A TAX INCREMENT FINANCING PLAN THEREFOR. BE IT RESOLVED by the City Council (the "Council") of the City of Hopkins, Minnesota (the "City"), as follows: Section 1. Recitals 1.01. The Board of Commissioners (the "Board") of the Hopkins Housing and Redevelopment Authority (the "HRA") has heretofore established Redevelopment Project No.1 ("The Project Area") and adopted the Redevelopment Plan therefor. It has been proposed by the HRA and the City that the City adopt a Modification to the Redevelopment Plan for Redevelopment Project No.1 (the "Redevelopment Plan Modification") and establish Tax Increment Financing District No. 1-3 (the "District") therein and adopt a Tax Increment Financing Plan (the "TIF Plan") therefor (the Redevelopment Plan Modification and the TIF Plan are referred to collectively herein as the "Plans"); all pursuant to and in conformity with applicable law, including Minnesota Statutes, Sections 469.001 to 469.047 and Sections 469.174 to 469.1799, all inclusive, as amended, (the "Act") all as reflected in the Plans, and presented for the Council's consideration. 1.02. The HRA and City have investigated the facts relating to the Plans and have caused the Plans to be prepared. 1.03. The HRA and City have performed all actions required by law to be performed prior to the establishment of the District and the adoption and approval of the proposed Plans, including, but not limited to, notification of Hennepin County and Independent School District No. 270 having taxing jurisdiction over the property to be included in the District, a review of and written comment on the Plans by the City Planning Commission, approval of the Plans by the HRA, and the holding of a public hearing upon published notice as required by law. 1.04. Certain written reports including, the TIF application, the report of LHB dated May 2005, Block 64 Redevelopment Relocation Plan by Wilson Development Services dated January, 2005, Market Analysis Hopkins Main Street Residential Campus prepared for GPS Financial Group by McComb Group, Ltd. dated March 2005, (the "Reports") relating to the Plans and to the activities contemplated therein have heretofore been prepared by staff and consultants and submitted to the Council and/or made a part of the City files and proceedings on the Plans. The Reports include data, information and/or substantiation constituting or relating to the basis for the other findings and determinations made in this resolution. The Council hereby confirms, ratifies and adopts the Reports, which are hereby incorporated into and made as fully a part of this resolution to the same extent as if set forth in full herein. . RJL-265922v2 HP130-2 1.05 The City is not modifying the boundaries of the Project Area, but makes specific findings as further described in this resolution regarding the conditions of the area within the Project that are the boundaries of the proposed TIF District. Section 2. Findings for the Adoption of the Proiect Plan Modification. 2.01. The Council finds that the portion of the Project Area encompassed by the boundaries of the District constitute a "blighted area" within the meaning of Minnesota Statues, Section 469.002, subd. 11. 2.02. The Council further finds that acquisition, clearance, and related activities to redevelop the District portion of the Project Area, all in accordance with the Project Plan and the TIF Plan, constitute a "redevelopment project" within the meaning of Minnesota Statues, Section 469.002, subd. 14. 2.03. The Council further finds, declares and determines that the City made the above findings stated in this Section based on the supporting facts described in Exhibit A. Section 3. Findings for the Adoption and Approval of the Plans 3.01. The Council hereby finds that the Plans, are intended and, in the judgment of this Council, the effect of such actions will be, to provide an impetus for development in the public interest and accomplish certain objectives as specified in the Plans, which are hereby incorporated herein. Section 4. Findings for the Establishment of Tax Increment Financing District No. 1-3 4.01. The Council hereby finds that the District is in the public interest and is a "redevelopment district" under Minnesota Statutes, Section 469.174, Subd. 10 (a)( 1). 4.02. The Council further finds that the proposed redevelopment would not occur solely through private investment within the reasonably foreseeable future and that the increased market value of the site that could reasonably be expected to occur without the use of tax increment financing would be less than the increase in the market value estimated to result from the proposed development after subtracting the present value of the projected tax increments for the maximum duration of the District permitted by the Tax Increment Financing Plan, that the Plans conform to the general plan for the development or redevelopment of the City as a whole; and that the Plans will afford maximum opportunity consistent with the sound needs of the City as a whole, for the development or redevelopment of the District by private enterprise. 4.03. The Council further finds, declares and determines that the City made the above findings stated in this Section and has set forth the reasons and supporting facts for each determination in writing, attached hereto as Exhibit A. 4.04. The Hopkins Housing and Redevelopment Authority elects to calculate fiscal disparities for the District in accordance with Minnesota Statutes, Section 469.1 77, S ubd. 3, clause b, which means the fiscal disparities contribution would be taken from inside the District. Section 5. Public Purpose 5.01. The adoption of the Plans conforms in all respects to the requirements of the Act, and the assistance to be provided under the Plans serves primarily a public purpose for the reasons set forth in Exhibit A. RJL-265922v2 HP130-2 2 . . Section 6. Approval and Adoption of the Plans 6.01. The Plans, as presented to the Council on this date, including without limitation the findings and statements of objectives contained therein, are hereby approved, ratified, established, and adopted and shall be placed on file in the office of the City Clerk. 6.02. The staff of the City, the City's advisors and legal counsel are authorized and directed to proceed with the implementation of the Plans and to negotiate, draft, prepare and present to this Council for its consideration all further plans, resolutions, documents and contracts necessary for this purpose. 6.03 The Auditor of Hennepin County is requested to certify the original net tax capacity of the District, as described in the Plans, and to certify in each year thereafter the amount by which the original net tax capacity has increased or decreased; and the Hopkins Housing and Redevelopment Authority is authorized and directed to forthwith transmit this request to the County Auditor in such form and content as the Auditor may specify, together with a list of all properties within the District, for which building permits have been issued during the 18 months immediately preceding the adoption of this resolution. 6.04. The City Clerk is further authorized and directed to file a copy of the Plans with the Commissioner of the Minnesota Department of Revenue pursuant to Minnesota Statutes 469.175, Subd. 4a. The motion for the adoption of the foregoing resolution was duly seconded by Council member Brausen, and upon a vote being taken thereon, the following voted in favor thereof: Council Members Brausen, Thompson, Rowan, Johnson, and Mayor Maxwell and the following voted against the same: Dated: July 26, 2005 ~/~ (Seal) RJL-265922v2 HP130-2 3 EXHIBIT A RESOLUTION NO. 2005-055 The reasons and facts supporting the findings for the Modification of the Redevelopment Plan for Redevelopment Project No.1 (pursuant to Minnesota Statutes, Section 469.001 to 469.047) and the adoption of the Tax Increment Financing Plan (TIF Plan) for Tax Increment Financing District No. 1-3 (District), as required pursuant to Minnesota Statutes, Section 469.175, Subdivision 3 are as follows: 1. Finding that Tax Increment Financing District No. 1-3 is a redevelopment district as defined in MS., Section 469.174, Subd. 1 o (a) (1). The District consists of 23 parcels, with plans to redevelop the area for housing and commercial purposes. Parcels that make up at least 70 percent of the area of the District are occupied by buildings, streets, utilities, paved or gravel parking lots or other similar structures and more than 50 percent of the buildings in the District, not including outbuildings, are structurally substandard to a degree requiring substantial renovation or clearance. (See Appendix F of the TIF Plan.) It has further been determined that these conditions are reasonably distributed through the District. These findings and the conclusion that the District qualifies under the statutory criteria and formulas for a redevelopment tax increment financing district are further described in the "Report of Inspection Procedures and Results for Determining Qualifications of a Tax Increment Financing District As a Redevelopment District, Hopkins Block 64, Tax Increment Financing District," dated June 9, 2005, and prepared by LHB, Inc. (and appendices). 2. Finding that the proposed development, in the opinion of the City Council, would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future and that the increased market value of the site that could reasonably be expected to occur without the use of tax increment financing would be less than the increase in the market value estimated to result from the proposed development after subtracting the present value of the projected tax increments for the maximum duration of Tax Increment Financing District No. 1-3 permitted by the TIF Plan. The proposed development, in the opinion of the City, would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future: The proposed development consists of approximately 220 for sale condominiums and approximately 60 for sale condominiums and town homes and approximately 18,000 square feet of retail. City staff and consultants have reviewed the estimated redevelopment costs for Block 64 which include acquisition, demolition, relocation, infrastructure improvements, site preparation and environmental remediation and the available methods of financing. The proposed development will clean up blighted sites and remove substandard buildings in the City's downtown area and continue with the redevelopment of the area. The proposed development will also provide additional senior housing in the community and therefore allow single- family homes to be available for new residents. The developer was asked for and provided a proforma as justification that the developer would not have gone forward without tax increment assistance. (See Appendix G of the TIF Plan.) At the current time, the site has an estimated $20 million in land acquisition, demolition and relocation costs. In addition, the site requires from $3.5 million to $5 million for on-site structured parking to accommodate the buyers of the for sale housing. These two factors result in a cost per unit for land that greatly exceeds market conditions. The tax increment is needed to reduce these costs and make the project marketable. The increased market value of the site that could reasonably be expected to occur without the use of tax increment financing would be less than the increase in market value estimated to result from the proposed development after subtracting the present value of the projected tax increments for the maximum duration of the TIF District permitted by the Plan: This finding is justified on the grounds RJL-265922v2 HP130-2 A-I that redevelopment costs in this area have made redevelopment infeasible without tax increment assistance. At the current time, the site has an estimated $20 million in land acquisition, demolition and relocation costs, which would be required for any alternative development. The tax increment is expected to be needed to reduce these costs in connection with any comparable project. Therefore, the City reasonably determines that no other redevelopment of similar scope is anticipated on this site without substantially similar assistance being provided to the development, and the City further specifically finds that alternative development proposals known as Spyder Proposal A and Spyder Proposal B are not reasonably expected to occur without tax increment assistance for the following reasons: (a) (b) RJL-265922v2 HP130-2 Spyder's Proposal A is proposed to consist of 97 units of for sale condominiums, 100 units of assisted living and approximately 7,400 square feet of retail. Spyder's Proposal A would be inconsistent with the City's plan for Block 64 because the proposal includes assisted living units. Assisted living units are not consistent with the City's objectives for redevelopment of Block 64. The Hopkins market area already includes three assisted living, nursing home or other senior care facilities and the City Police Department is concerned that adding another such facility would further tax the resources of emergency first responders. In addition, the City wishes to strengthen downtown commercial through development in Block 64. Spyder Proposal A would not strengthen downtown commercial to the extent that it includes assisted living units because occupants of assisted living units typically are not likely to be shoppers or consumers of commercial services. Spyder's Proposal B is proposed to consist of 233 for sale condominiums and approximately 7,400 square feet of retail. Neither of the Spyder proposals are reasonably likely to occur solely through private investment within the reasonably foreseeable future because neither Hopkins Park Plaza (if it doesn't sell to Spyder) nor Spyder (if it does buy from Hopkins Park Plaza) own or control all of the property in Block 64 which would be required to implement the proposals. Even if Hopkins Park Plaza, LLC and Spyder were to agree to jointly redevelop the Hopkins Park Plaza, LLC property, it is unlikely that they could redevelop all of the property in Block 64 without public assistance, among other reasons because they don't have control over all of the property in Block 64. (c) Hopkins Park Plaza LLC (including its principal) has owned its property in Block 64 for a number of years without proceeding with redevelopment of Block 64, so that it is not reasonable to now expect that it will proceed with redevelopment of all of Block 64 in accordance with the GPS plan within the reasonably foreseeable future without public assistance. (d) Representatives of GPS, Hopkins Park Plaza, LLC and Spyder met to attempt to negotiate resolution of their competing plans for redevelopment of Block 64. In those negotiations, Spyder indicated that, if Spyder were to exercise its right to purchase the Hopkins Park Plaza property, it likely would continue to operate the property as-is for another three to five years, after which it would redevelop the property for assisted living and mayor may not seek City financial assistance. This would suggest that Spyder doesn't intend to proceed with redevelopment in the reasonably foreseeable future, the plan wouldn't be the GPS plan and wouldn't be consistent with the City's objectives for redevelopment in Block 64. In addition, this would suggest that Spyder also recognizes that it may need public assistance to implement its proposed development. (e) Ehlers & Associates, Inc. concluded from its review of the Spyder proposals that it could not determine that either of the Spyder proposals for redevelopment of Block 64 were financially feasible without public assistance based on the information available to it. A-2 (t) Spyder has not provided the City with a market study which demonstrates the likelihood of sufficient demand for either assisted living units or residential condominium units at the price point it proposes as is necessary to justify a conclusion that Spyder's development is financially feasible without public assistance. . (g) Spyder has not provided evidence that it has commitments from financial institutions for financing of its proposed project which is consistent with the information which it provided to the City. (h) Although one of Spyder's principals, Jan Susee, has development experience, it is not certain that Spyder will exercise its option to purchase the Hopkins Park Plaza, LLC property. There is no evidence that Hopkins Park Plaza, LLC has experience as a developer. Irrespective of experience as a developer, there is no evidence that either has a development plan for Block 64 which is likely to be acceptable to the City or the desire to proceed with redevelopment of Block 64 which would justify the conclusion that it would proceed with redevelopment of Block 64 in accordance with a plan acceptable to the City in the reasonably foreseeable future without public assistance. Therefore, the City concludes as follows: (a) The City's estimate of the amount by which the market value of the entire District will increase without the use of tax increment financing is less than $34,758,331. (b) If all development which is proposed to be assisted with tax increment were to occur in the District, the total increase in market value would be up to $53,561,555. (See Appendix G in the TIF Plan). (c) The present value of tax increments from the District for the maximum duration of the district permitted by the TIF Plan is estimated to be $18,803,224. (See Appendix G in the TIF Plan). Even if some development other than the proposed development were to occur, the Council finds that no alternative would occur that would produce a market value increase greater than $34,758,331 (the amount in clause (b) less the amount in clause (c)) without tax increment assistance. 3. Finding that the Tax Increment Financing Plan for Tax Increment Financing District No. 1-3 conforms to the general plan for the development or redevelopment of the municipality as a whole. The Planning Commission reviewed the TIF Plan and found that the TIF Plan conforms to the general development plan of the City. 4. Finding that the Tax Increment Financing Plan for Tax Increment Financing District No. 1-3 will afford maximum opportunity, consistent with the sound needs of the City as a whole, for the development or redevelopment of Redevelopment Project No. 1 by private enterprise. The project to be assisted by the TIF District will result in increased employment in the City and the State of Minnesota, the redevelopment of substandard properties, increased tax base of the State and will add a high quality development to the City. Through the implementation of the TIF Plan, the HRA and City will also increase the availability of safe and decent life-cycle housing in the City. (Also see discussion above with respect to Finding No.2.) 5. Finding that the expenditure of tax increment serves a primarily public purpose. RJL-265922v2 HP130-2 A-3 The private benefits that would be enjoyed by GPS if it is able to proceed with the GPS Project if the Council grants the various approvals necessary to enable it to proceed are (1) provision of tax increment financing in an estimated principal amount of $6,800,000 (net present value), and (2) the HRA's agreement to consider use of the power of eminent domain to acquire those properties in Block 64 if GPS is not able to acquire the property for fair market value through negotiation. However, the Council finds that these "private benefits" are necessary for the City and HRA to accept in order to achieve the many public benefits which implementation of the GPS/Comerstone Projects will provide. Those public benefits substantially outweigh any "private benefits." It is unlikely that redevelopment of Block 64 would occur without public assistance. The following are some of the public benefits which will result from redevelopment of the property in the proposed District: (a) Substantially Increase Market Value of Properties in the Proposed District. As described in the TIF Plan, Appendix D, Page 1, presently properties in the proposed district have a total estimated market value (per the County Assessor) (EMV) of $7,419,000. The proposed future EMV (with redevelopment) is estimated to be $46,036,355 as of January 2, 2007 (for taxes payable in 2008) and $91,192,710 on January 2,2008 (for taxes payable in 2009). (b) Improve the Balance Between Rental and Owner Occupied Housing Within the Community. Currently 65 percent of residential units within the City are occupied by renters or available for rent. The City has sought to reduce this percentage by increasing the number of for sale units even if it may be necessary to eliminate some rental units. The GPS/Comerstone proposed redevelopment would result in the elimination of approximately 150 rental units but would replace them with approximately 280 owner-occupied units. (See attached Memorandum dated June 27, 2005, from Jim Kerrigan to Steve Bubul ("Kerrigan Memo")). (c) Elimination of Vacant or Underutilized Property. Various of the existing properties in the proposed district are vacant or underutilized. As of June 27, 2005, approximately half of the ground floor properties in the district which fronted on Main Street were vacant. The proposed redevelopment will provide between 16,000 and 20,000 square feet of new retail space, some of which would occupy the entire Main Street frontage. (See Kerrigan Memo.) (d) Provide a Housing Option in the Community for Which There Currently is a Demand and Inadequate Supply. Presently there is only one owner-occupied, 55-and-over housing facility in the City. City staff has identified a strong demand for units in the proposed redevelopment project from seniors in the community wishing to relocate from their single family homes. This project would help address this need. (See Kerrigan Memo and study entitled "Market Analysis, Hopkins Main Street Residential Campus", prepared for GPS by McComb Group, Ltd., dated March 2005.) (e) Eliminate Substandard Buildings. LHB, Inc. inspected all of the buildings in the proposed district and concluded that 11 of 14 buildings (79%) were "structurally substandard to a degree requiring substantial renovation or clearance, because of defects in structural elements or a combination of deficiencies in essential utilities and facilities, light and ventilation, fire protection, including adequate egress, layout and condition of interior partitions, or similar factors which defects or deficiencies are of sufficient total significance to justify substantial renovation or clearance." (LHB Report, June 9, 2005, pp. 9-10). Removal of the existing substandard buildings would also eliminate buildings which do not comply with the building code (particularly the 11 of 14 which are substandard) and replace RJL-265922v2 HP 130-2 A-4 them with buildings which meet the building code applicable to new buildings. (See Kerrigan Memo.) (t) Increase Economic Support for the Arts. Businesses and Services in Order to Increase Economic Vitality of Mainstreet. Typically occupants of owner-occupied housing are more likely to be long-term financial contributors to the community and more consistent and more substantial consumers of local goods and services. City staff predict that bringing new residents (owner occupants) to the district who will support the arts, businesses and services will help to keep Mainstreet economically viable. (See Kerrigan Memo.) (g) The Proposed Redevelopment of the District is Consistent with the City's Comprehensive Plan. The City Planning Commission adopted a resolution finding the proposed modification to the Redevelopment Plan for Redevelopment District No.1 and the TIF Plan for the district to be consistent with the City's Comprehensive Plan. (h) The Proposed Redevelopment Within the District Would Partially Implement the Redevelopment Plan for Redevelopment District No.1. (i) Redevelopment of the District in Accordance with the GPS/Cornerstone Development Proposals Would Enable the City to Assemble All of the Property in the District so as to Facilitate and Control Its Redevelopment. Presently there are 23 tax parcels in the District which are owned by 8 owners. These 23 parcels range -in size from 661 square feet to 46,162 square feet, with 15 parcels containing 8,072 square feet or less. (LHB Report, Appendix A, p. 1) If the City approves the District and either GPS, by negotiation, or the HRA, by negotiation or use of eminent domain, acquires all of these properties, it will be possible for the HRA to assemble all of the properties into a single ownership, thereby eliminating separate ownership as a barrier to redevelopment in accordance with the HRA's Redevelopment Plan for Redevelopment District No.1. . In summary, the Council finds that the public expenditures to be expended pursuant to the proposed TIF District in implementing the GPS and Cornerstone redevelopments would be primarily for public benefit and that any private benefits would be merely incidental. "The mere fact that some private interest may derive an incidental benefit from the activity does not deprive the activity of its public nature if its primary purpose is public." Visina v. Freeman, 252 Minn. 177, 184, 89 N.W.2d 635,643 (Minn. 1958). 6. Finding concerning modification of the Redevelopment Planfor Project No.1. The findings described in Section 2 of the Resolution regarding blighted conditions are supported by the following analyses and studies: (a) (Original) Redevelopment Plan for Redevelopment Project No.1; (b) Report of Inspection Procedures and Results for Determining Qualifications of a Tax Increment Financing District as a Redevelopment District, Hopkins Block 64, Tax Increment Financing District, Hopkins, MN, June 9, 2005, by LHB, Inc. (including appendices). These reports conclude that 11 of 14 buildings in the TIF District are structurally substandard to a degree requiring substantial renovation or clearance, for the purposes of qualification of the area as a redevelopment tax increment financing district. The analysis in the LHB reports also supports the conclusion that most of the buildings in this portion of the Redevelopment District No. 1 Project Area are dilapidated and obsolete, which are elements of blight. Among these indications of blight which are present in Block 64 in the opinion ofLHB are the following: (a) obsolescence, (b) dilapidation, (c) overcrowding, (d) faulty arrangement, and (e) underutilized space. RJL-265922v2 HP 130-2 A-5 APPENDIX A PROJECT DESCRIPTION Tax Increment Financing District 1-3 is being established to facilitate the redevelopment of a portion of Mainstreet in the downtown area of Hopkins. The area consists of 14 buildings of which 11 have been deemed to be structurally substandard. The tax increment district will contain two separate projects. The first project is a mixed-use project proposed by The Cornerstone Group. It is a continuation of the type of project they completed across the street. The project consists of approximately 60 for sale town homes and condos and approximately 5,000 to 10,000 square feet of retail. The second project is proposed by GPS Corporation and consists of approximately 220 for sale condos and approximately 7,000 to 10,000 square feet of retail space. GPS has completed a market study, relocation plan, geotechnical analysis and has begun the phase I analysis of their site. At the current time both projects have engaged architects for design. Both projects are scheduled to begin in the Fall of2005 with final phased completion in 2008 and 2009. . RJL-265922v2 HP130-2 A-6