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Memo - SuperValu North Annex Property J . Econolnic Development MEMORANDUM TO: Honorable Mayor and City Council FROM: ~!Jim Kerrigan, Director Planning & Economic Development DA TE: January 2, 2002 SUBJECT: SUPERV ALU North Annex Property PUt'DOse of lVlemo Staff has scheduled a discussion of the SL'PERV ALU North Annex property for the January 8 City Council work session. Representatives of SUPER V ALU will be present at this meeting. The topics of this discussion are as follows: e . Update from SUPERVALU and City staff on actions/discussions that have occurred since Medica terminated their purchase agreement . The type of project for which the Council would be willing to consider providing financial assistance to help facilitate on this property . Alternatives to be considered for North Annex option agreement Overview Over the last few months both SUPERV ALU and City staff have met with developers to discuss their interests in the North Annex property. Based on these discussions, SUPER V ALU has been exploring various options available to market this property. In mid-December, staff met with representatives of SUPER V ALU to discuss the status of this property. Primary Issues To Consider . What alternatives are available within the HRA option agreement? The BRA presently has an executed option agreement that allows for the purchase of the North Annex property during a period of a year and a half at a set price established through an appraisal process. The following are two possible alternatives available concerning this option: 1. Commence the option term for purchase of the North Annex property by the HRA from . SUPERV ALD. In accordance with the executed option agreement, tlus term would begin July 12, 2002, and be in effect for a period of547 days. --- ---- - - -- ~ Memo to Honorable Mayor and City Council, January 2,2002 - Page 2 . The executed option agreement details a process for establishing a purchase price. This would require the HRA to contract for an appraisal of the subject property by no later than mid-January (SUPERV ALU would also need to secure an appraisal). Staff has secured a quote from Patchin Messner and Dodd to complete an appraisal at a cost of $8,000. 2. Approve an extension of the HRA rights under the option agreement. SUPERV ALU would also need to be agreeable to this extension. This alternative would allow for SUPERV ALU to work with a broker to continue to market the property. The agreement the BRA has with SUPERV ALU, dated July 20, 1998, for the redevelopment of the Hennepin County Public Works property details specifics concerning the option and redevelopment of the North Annex property (see Attachment A). Sec. 3. 9b states that during a two-year period the HRA will not exercise its rights under the option or will delay exercising such rights if SUPERV ALU submits a development proposal that meets certain mlnimum requirements; however, it should be noted that any obligation the HRA has relating to this requirement has now expired. If this alternative were pursued, the board should take action to amend the option . agreement in mid-January. Staffwould suggest at this time a six-month extension, which could be further extended with llLture action. Attached is a draft extension, which has been prepared by the City attorney's office. . What are the redevelopment opportunities for this property? Both SUPER V ALU and City staff have spoken with developers since Medica decided not to proceed with their project. The general consensus of these developers is that because of the slow economy, it is going to be more difficult to facilitate redevelopment of this site in the inunediate n.lture. This is especially true if there is a desire to secure a large-scale office project. SUPERV ALU did state in discussion that there seems to be some interest in a mixed- use project. This type of development would require the property to be rezoned. The Excelsior Boulevardlivlonroe Avenue improvements that will he constructed next year are designed to accommodate an intense reuse of this site, such as the Medica project (600,000 square feet office project). The Market Outlooks Report prepared by BONZ/REA, Inc., dated 12/12/01, for the East Hopkins Land Use & Market Analysis Study states that "Overall, the office market offers the greatest potential for attracting high quality development that can contribute to an improved image for the project area. Upscale office development and high-profile tenants, if supported by other improvements in the area's physical environment, would help position the project area . among a limited number of desirable development locations in the inner ring of Minneapolis's western suburbs. Such development is most likely to occur in project area parcels offering direct proximity to the Excelsior Boulevard/Highway 169 interchange. Memo to Honorable Mayor and City Council, January 2, 2002 - Page 3 . . Tax Increment Assistance The subj ect property is located within Tax Increment District 2-11. This was originally a 25- year district, and there are approximately 23 years remaining in which incI ement can be captured. Costs reimbursed with tax increment from the district must be incurred prior to April 5, 2004. The Medica project required substantial increment to make it feasible; however, because this was a $70-80 million project, adequate increment would have been generated. If a smaller proj ect were to be undertaken, the amount of increment available would be reduced. Conclusion In talking to real estate professionals, because of its size and location, the North Annex property has the potential for a high quality office development. This could possibly be another corporate headquarters project or an office complex with multiple tenants. Unfortunately, as detailed above, due to the slow economic climate there are probably no developers or businesses looking at undertaking such a project at the present time. . From the staff's perspective, the type of development that takes place on this site will help set the direction for other redevelopment efforts in East Hopkins. If City public financial assistance were going to be provided, it would make sense to have a project that generates substantial new market value and creates a significant number of higher income jobs. This is probably a large-scale office development similar to the Medica project. At this time, based on the present economic climate, staff would probably recommend approval of the six-month extension of the commencement and termination dates of the option agreement Attachments . JIM/121801 . Miller, Steiner & Curtiss, P.A. SECOND AMENDMENT TO OPTION AGREEMENT AND DECLARATION OF RESTIUCTJVE COVENANT This Second Amendment to Option Agreement and Declaration of Restrictive Covenant (this "Second Amendment"), dated as of the day of ~ , 2002, by and between the . Housing and Redevelopment Authority in and for the City of Hopkins, IVlinnesota, a public body corporate and politic under the la\vsofMimlesota (the "HRi\'") and SUPERVALU INC., a Delaware corporation ("SUPERV ALU"). RECITALS A. The HRA and SUPERV ALU are the parties to that certain Option Agreement and DecIarationofRestrictive Covenant, dated October 13,1998, and filed for record November 4, 1998, as Hennepin County Registrar of Title's Document No. 3082585, \-\Thich \vas amended by an Amendment to Option Agreement and Declaration of Restrictive Covenant, dated May 1,2001, and filed for record May 15,2001, as Hennepin County Registrar of Title's Document No. 3388166 (collectively the "Option Agreement"). B. The Option Agreement affects real property located in Hennepin County, Minnesota, . legally described in Exhibit A attached hereto and incorporated herein. c: h 0 pciv\ivnendOp Ii on2. S uperV al u . . C. The HRA and SUPERV ALU have agreed to amend the Option Agreement and are entering into this Second Amendment for that purpose. NOW, THEREFORE, in consideration ofthe foregoing Recitals, which are incorporated in this Second Amendment, the terms, covenants and conditions stated in this Second Amendment and other good and valuable consideration, the receipt and sufficiency of which is acknowledged, the BRA and SUPERV ALU agree that the Option Agreement shall be and hereby is amended, as follows: 1. Extension of Option Term. The HRA and SUPERV ALU agree that the "Option Tenn," "Commencement Date" and "Termination Date" (as those temlS are defined in Paragraph 7 of the Option Agreement) shall be extended, as follows: The "Commencement Date" shall be January 12,2003; the "Termination Date" shall be July 12,2004, and the "Option Term" shall be . the period of time commencing on the "Commencement Date" and ending on the "Termination Date. " 2. PreliminarY Appraisals, Subparagraph 4.b. ofthe Option Agreement, as modified by the Amendment to Option Agreement and Declaration of Restrictive Covenant dated May 1, 2001, is hereby further modified to provide that the preliminary appraisal process and the preliminary appraisals required by said Subparagraph shall be conducted and said appraisals shall be completed at the option of the HRt\, subject to the following terms and conditions: in the event the BRA intends to complete the preliminary appraisal process described in Subparagraph 4. b., the HRA shall notify SUPER V AL U, in the manner provided in Paragraph 12 of the Opti on Agreement on or before July 1,2002, that the HRA has elected to require completion of the preliminary appraisal process. In the event the HRA so notifies SUPERV ALU of its intention to require that the preliminary . appraisal process be completed, the HRA and SUPERV ALU shall each arrange for the completion c:hopci v\Amen dOption2. SuperValu - 2 - ..- -- ---- ---- -- -- -- . and delivery of preliminary appraisals within 60 days of delivelY of notice to SUPERV AL U and shall thereafter proceed with the preliminary appraisal process and completion of preliminary appraisals in the manner and in accordance with the procedures specified in said Subparagraph 4.b. Should the HRA fail to notify SUPERV AL U on or before July 1, 2002, of its intention to require completion of the preliminary appraisal process, Subparagraph 4.b. of the Option Agreement shall no longer be applicable and neither party shall be required to conduct the preliminary appraisal process nor complete preliminary appraisals. 3. Status of Option Agreement. The Option Agreement shall remain in effect in all of its terms, covenants and conditions as modified by this Second Amendment. All defined words and phrases contained in tbe Option Agreement, when used in this Second Amendment, shall have the same definitions and meanings stated in the Option Agreement. This Second Amendment is . incorporated in and made a part of the Option Agreement in its entirety and the Option Agreement, as amended by this Second Amendment, is hereby restated, ratified and confirmed. IN WITNESS WHEREOF, the parties have caused this Second Amendment to be executed effective as of the date and year first above written. SUPERV ALU INC. By Its . c: hopciv\AmendOplion2.S uper Valu .., - .J - . The Housing- and Redevelopment Authority in and for the City of Hopkins, Minnesota By Its By Its STATE OF ) )SS COUNTY OF ) The toregoing instrument was acknowledged before me this day of --~, 2002, by , the , of SUPERV ALU me., a corporation under the laws of . Delaware, on behalf of the corporation, Notary Public STATE OF MINNESOTA ) )SS COUNTY OF HEN'NEPIN ) The foregoing instrument was acknowledged before me this day of ~---- ---------~-~--, 2002, by and -~ ------------~-~----~ ~------ , the and ~---~~----~---~------~~-----~ -~----~----- ------ -~-- , respectively, of the Housing and Redevelopment Authority in and for the Cit}, of Hopkins, a public body corporate and politic under the laws ofMirmesota, on behalf of the corporation. Notary Public . c: ilopciv\AmendOption2 .SuperV alu - 4 - --- -- -- ,i It (j+fcrch flH~A.lt ft- . or the building located on the Redevelopment. Property or that the same is suitable for the Redeveloper's proposed development. If the Redeveloper determines to proceed with its acquisition of the Redevelopment Property neither the Authority nor the City shall have any liability to the Redeveloper on account of any conditions or defects with respect thereto. Section 3.8. Copies of Reports. The Redeveloper shall furnish to the Authority, at no cost to the Authority, copies of all reports, assessments, studies, surveys and other documentation acquired by or prepared on behalf of the Redeveloper by independent consultants in comection with its proposed acquisition of the Redevelopment Property and relating to soils, environmental, title and survey matters. Section-3.9. North. Annex Property. (a) At the time of the conveyance of the Redevelopment Property and, as a condition to the Authority's conveyance of the Redevelopment Property to the Redeveloper, the Redeveloper shall execute and deliver the Option for recording in the appropriate office for the recording of such instruments against the North Annex Property, as an encumbrance prior to all other interests in the North Annex Property, other than such interests as the Authority may in \\'TIting approve. If the Authority and the Redeveloper have been unable by July 23, 1998, to agre'e in writing on a list of interests in the North Annex Property, if any, to which the encumbrance of the Option is subject, then either the Authority or the Redeveloper may by giving notice to the other party by July 23, 1998, terminate this Agreement with the same effect as is stated in Section 3.3 with respect to the failed . satisfaction of a condition contained therein. The Redeveloper shall provide to the Authority such documentation as the Authority may reasonably require as to the nahrre and location of any interest that the Redeveloper may request be superior to the Option. Such documentation shall be provided witllln such time as will allow the Authority to complete its review of the proposed interests by July 23, 1998. The Authority's participation in the Redeveloper's development of the Minimum Improvements as described in this Agreement is predicated, in part, on the Redeveloper's granting to the Authority the rights contained in the Option. (b) Until the end of the second year follO'.ving the Redeveloper's receipt of a Celiificate of Occupancy for the Minimum Improvements, the Redeveloper shall be entitled to present to the Authority and the City for their consideration a proposal describing a plan for the development of the North Annex Property by the Redeveloper. The Authority agrees that it will not exercise its rights lUlder the Option, or will delay exercising such rights, if the following conditions are met with respect to such development proposal on or before two (2) years after the issuance of the Certificate of Occupancy by the City for the :NIinimum Improvements: (i) The proposed development complies with the Business Park Zoning Ordinance; (ii) The proposed development consists of at least 350,000 square feet of buildings; (iii) At least fifty percent (50%) of the proposed development must be office space and not more than forty-percent (4Q%) of the remaining fifty percent (50%) may be for warehouse use; provided, that if the Business Park Zoning Ordinance requires more . office or allows less warehouse space, then those use requirements of the Business Park Zoning Ordinance must be met; 10 -- -.- -- , . (iv) The Redeveloper demonstrates to the satisfaction of the Authority that the proposed development will occur within a time frame acceptable to the Authority and the City, which time frame shall include completion of the demolition of the existing improvements on the North Annex Property within one (1) year after the Commencement Date, as defmed in the Option, and the completion of constmction within two (2) years after said Commencement Date; and (v) The Authority . and the Redeveloper enter into an agreement detailing the improvements to be constructed by the Redeveloper on the North Annex Property, the timing of such construction, the rights of the Authority if such construction does not occur, including an extension of the Authority's rights under the Option, and such other terms as the Authority and the Redeveloper agree are appropriate. (c) Within the later of: (i) thirty (30) days after the completion of constmction of the Redeveloper's development approved in accordance with (b) above as evidenced by the issuance of a certificate of occupancy by the City; or (ii) thirty (30) days after request by the Redeveloper, the Authority will execute and deliver to the Redeveloper an instnunent, in recordable form, evidencing the termination of the Option. Section 3.10. Performance of the County Purchase Agreement. The Authority and the . Redeveloper acknowledge that the Authority's execution of the County Purchase Agreement occurred solely in anticipation of the execution of this Agreement and for the purpose of acquiring the Redevelopment Property for the development by the Redeveloper of the MinL.'1Jum Improvements. Further, it is the intent that under no circumstances will the Authority or the City be obligated to acquire the Redevelopment Property 'or to pay any costs under the County I Purchase Agreement except in order to secure such property for the Redeveloper's development. The AuthOlity and the Redeveloper shall cooperate with one another in the performance of all inspections, tests and approvals that are necessary to fulfill such contingencies, and the Redeveloper shall notirj thp. Authority, in '.;x/TIting prior to the expiration of the time period for exercising contingencies provided in the Calmty Purchase Agreement should the Redeveloper desire to exercise any of the conditions precedent provided in this Agreement or have the Authority exercise any ofthe contingencies stated in the County Purchase Agreement. At such time as a contingency stated in the County Purchase Agreement has been removed or \vaived, tills Agreement shall no longer be subject to or contingent upon any contingency or condition precedent relating to the same matter or issue. At such time as the Authority is unconditionally bound to perform the County Purchase Agreement, the Redeveloper shall also be unconditionally bound to perform this Agreement. Notwithstanding the previous sentence, Section 3.3 contains certain conditions which, ifnot satisfied, may be the basis for tennination oftrus Agreement at a time when the COlUlty Purchase Agreement is no longer contingent. Upon such temrination, the money provided by the Redeveloper to the Authority for payment of the Earnest Money under the County Purchase Agreement will not be refundable to the Authority by the County and, therefore, not recoverable by the Redeveloper. . 11 ---- --