Memo - Redevelopment Block 64
I Economic Development I
MEMORANDUM
TO: Honorable Mayor and City Council
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FROM~-::J1LJim Kerrigan, Director of Planning & Economic Development
I
DATE: December 28, 2004
SUBJECT: Redevelopment Project, 5th_6th Avenues, North of Mainstreet
Purpose of Memo
Discussion of this project is scheduled for a January work session. The developer has
been unable to secure purchase of certain properties and is asking the Council to
consider the possibility of utilizing eminent domain to gain title. Sid Inman of Ehlers &
Associates and Dan Wilson of Wilson Development Services will be present at the
meeting.
Overview
GPS Financial Group is proposing a possible redevelopment project for the block
bounded by 5th Avenue, 6th Avenue, Mainstreet, and First Street North. Initial
discussions have outlined a mixed-use project with approximately 10,000 square feet of
lower level retail and approximately 320 to 450 for-sale residential units.
This block has 13 tax parcels with six different owners. GPS has been undertaking a
process to secure control of the property in this block, the following being the status to
date:
· Completed purchase of 2 single family homes, one on 5th Avenue and one on 6th
Avenue
· Executed purchase agreement for apartment complex at 33 - 6th Avenue North
· Negotiating purchase agreement for 2 commercial properties on Mainstreet
The above properties encompass five of the 13 parcels on this block. The other 7
parcels are owned by 5th Avenue Partnership. This property contains Park Plaza and its
adjacent surface parking areas. GPS has stated that they have attempted to negotiate
a purchase with the owner of this property; however, the owner has stated they are not
interested in selling. As a result, the developer is asking the City to consider the use of
eminent domain to secure this property.
Memo to Mayor, et aI., December 28,2004 - Page 2
Primary Issues to Consider
No action is being requested from the Council. At this time the developer needs to
know whether the Council is willing to use eminent domain powers to acquire the
property if they are unable to negotiate a purchase. If the Council is agreeable to such
action, a preliminary development agreement would be negotiated, which would identify
the items that would need to be completed before the City would actually undertake the
eminent domain process.
What are the issues that relate to eminent domain?
Dan Wilson of Wilson Development Services has prepared a memo concerning eminent
domain. Mr. Wilson has been involved with a number of eminent domain actions
throughout the years. Also attached is an article on this subject that appeared in the
most recent issue of Minnesota Cities.
Acquisition of the Park Plaza through eminent domain would be fairly high profile. It is
anticipated it would have significant press coverage because of the displacement of low
income residents and removal of affordable housing from the marketplace.
What would be the impact of not using eminent domain?
GPS has stated that they feel they will be unable to acquire the Park Plaza property
through a negotiated process. They have stated that if the property cannot be secured
through the use of eminent domain, they will be unable to proceed with their proposed
project.
Attachments
. Memo from Dan Wilson, Wilson Development Services
. Eminent domain article, Minnesota Cities, November/December 2004
. Site map
IL)ON
DEVELOPMENT SERVICES
OFFICE 952.448.4630
800.448.4630
FAX 952.448.4676
WILSONDEV5l0@AOL.COM
510 CHESTNUT STREET f
SUITE 200
CHASKA, MINNESOTA 55318
RELOCATION & CONDEMNATION
ISSUES AND RISKS
BLOCK 64 REDEVELOPMENT, HOPKINS, MN
The City has been contacted to determine its interest in participating in the
redevelopment of this block.
Two issues above and beyond the financial feasibility surfaced that may require the City
Council's attention and discussion.
1. Condemnation
The developer, GPS Financial Group, has acquired or is in the process of
negotiating purchase of the property on the block between 5th and 6th Avenues, north
of Mainstreet (Block 64 )-except for the property owned by 5th Avenue Partnership
(Park Plaza Hotel).
The developer has stated that if a negotiated purchase cannot be completed for the
Park Plaza property they would ask the City to use its eminent domain powers
(condemnation). Condemnation settles or establishes two major points. First, is
there a "public purpose" for the acquisition. A public purpose would be established
through the adoption of a redevelopment plan, which would set forth the public
purpose due to substandard property issues, etc.
Second is the determination of property value either by the court appointed
commissioners or a district court jury upon appeal. More and more sophisticated
property owners are turning to the condemnation process to arrive at a settlement
price as a matter of course.
The request for property acquisition by condemnation is not unusual and is not
necessarily adversarial. The condemnation action does provide the seller with two
years, instead of one, in which to reinvest the proceeds before paying capital gains
tax. The "threat" of condemnation is actually sufficient to provide this tax break. I
believe that this is part of the terms being negotiated with the 5th Ave. Partnership.
The condemnation process is a legitimate way to arrive at a selling price. There is
the additional cost such as commissioner's expense, attorneys, appraisers and other
expert witness. The expenses could approach $15,000 to $20,000 and are typically
passed on to the developer and/or paid by the TIF.
Page 1 of 3
The "risk" of condemnation can be:
1. Public Opinion
Condemnation is typically not seen in a popular light by the general public.
The City of Richfield's "Best Buy" project has recently raised public
awareness of condemnation in a negative context. The City of Hopkins has
used condemnation in a very limited way. Actually, it has been about thirty
years since condemnation has been used for redevelopment.
2. Public Purpose Challenge
The seller has an opportunity to object to the public purpose at the first court
hearing. If the judge were to agree, the condemnation action would halt,
subject to appeal by the city. The reality is, the condemnation laws in
Minnesota are very strong in favor of the condemning authority. Typically,
successful appeals to the public purpose occur when the property owner
already had a private redevelopment plan of their own in motion and then it
isn't certain.
3. Price Increase
The quick take condemnation action delivers title and possession of the
property in 90 days. The final price may take several more months, to over a
year for a final price settlement.
2. Relocation
The developer is seeking TIF assistance for the project. Receipt of TIF assistance
triggers the Minnesota Uniform Relocation Act (MURA) (Section 117.12) which
means that anyone displaced by the property acquisition will be entitled to relocation
benefits and assistance.
Basic relocation assistance includes:
1. Assurance of at least one comparable unit being available before seeking their
displacement.
2. Ninety day notice to vacate.
3. Rental assistance to compensate for increased cost of housing for 42 months.
4. Move of personal property.
The developer had a significant number in his initial development cost budget for
relocation, so he is aware of the relocation responsibilities.
Relocation is technically a city or HRA responsibility. The city can move the costs, or
financial responsibility, to the developer through the development agreement (this
was done with The Oaks of Mainstreet), but the city remains the responsible party if
disputes arise.
.
Page 2 of 3
The displacement of a large number of possibly low-income persons is certain to
draw the attention of the public.
The existing residents can be dealt with directly through a relocation plan
implementing all of the rights and benefits due them under the MURA. Relocation is
one of those time-tested processes establishing a fair and reasonable way to
minimize personal hardships brought about by their displacement.
There are advocacy groups in the metro area that may choose to become involved.
They typically are concerned with 1) The loss of affordable housing, and 2)
Treatment of displacees. They may step forward during the public hearing process
the city will go through to adopt the redevelopment plan.
Prepared by Daniel Wilson
Wilson Development Se/Vices
December 28, 2004
Page 3 of 3
SESSION 2005: A PREVIEW AND
Eminent Domain
The tension between the interests of local governments and the rights of private landowners continues to
play out across the nation. Private property rights advocates have launched an aggressive effort to curtail
local governments' ability to use eminent domain for economic development and redevelopment projects,
he U.S. Supreme Court recently
agreed to review a Connecticut
case (Kelo v. City if New London)
addressing the issue of whether it
is appropriate to use the govern-
ment's power of eminent domain
to take property for economic
development purposes. The
Supreme Court's review of this case
threatens to reverse long-standing legal
precedent that affords great deference to
municipalities in carrying out cormnu-
nity and economic development plans.
In Minnesota, the Alliance for
Reasonable Municipal Regulation
(ARMR) proposed legislation during
the 2004 legislative session that would
have made sweeping changes to Minne-
sota's land acquisition process. The pro-
posal would create uncertainty in the
law that would generate expensive
litigation, increase the cost of public
projects, and impair critical development
projects. (ARMR is a coalition of
business interests that includes the Min-
nesota Automobile Dealers Association,
Builders Association of Minnesota,
Builders Association of the Twin Cities,
Minnesota Realtors Association, Min-
nesota Retailers Association, Minnesota
Petroleum Marketers Association,
Marathon AsWand Oil, Super America,
Alliance of Automotive Service Provid-
ers of Minnesota, Outdoor Advertising
Association of Minnesota, and the
Minnesota Grocers Association. The
League strongly opposes this legislation.
Constitutional and statutory requirements
Under the framework established by
federal and state constitutions, the gov-
ernment may take private property for
a public use if the owner receives just
6
By Tom Grundhoifer and Laura Offerdahl
compensation and is provided due pro-
cess. In Minnesota, the law requires a
local authOlity to develop the factual
basis for supporting a taking. The con-
demning authority must weigh the
evidence, consider local conditions,
and make difficult decisions about
whether the taking provides broad
public benefits. A comt may overturn
the local authority's decision if the
authority's action was "manifestly arbi-
trary or unreasonable." [City oj Duluth
v. State, 390 N.W. 2d 757 (Minn.
1986)] In the context of economic
development and redevelopment, the
courts have consistently found that
creation of "permanent and temporary
employment," generation of "retail
sales," and expansion of a city's "tax
base" are all valid "public purposes"
that justifY the use of eminent domain.
State law contains several protections
for property owners. Minn. Stat. ~
117.52 requires cities to pay relocation
benefits to individuals displaced by
eminent domain. Local authorities
acquiring property for transportation
purposes must provide early notification
to landowners whose property may be
the subject of an eminent domain pro-
ceeding, and negotiate in good faith with
the landowners prior to initiating the
eminent domain process. The law also
requires cities to obtain an appraisal,
make the appraisal information available
to property owners, and advise land-
owners that they may seek their own
appraisal and be reimbursed for appraisal
expenses up to $1,500. These numerous
protections exist to ensure property own-
ers are fairly and adequately
compensated.
MINNESOTA CITIES
While basic disputes about compen-
sation are inherent in any property
acquisition, Minnesota's process has
worked well for many years. It balances
the rights of individual landowners and
the general public, and is a fair and effi-
cient process for compensating property
owners.
A critical community development tool
The government uses eminent domain
to provide many public necessities-
roads and highways, water mains, sewer
lines, and other public services-on
land acquired fi'om individual, private
property owners. Eminent domain is
vital to local community and economic
development efforts. Cities have few
tools available to help them redevelop
blighted areas and facilitate renewal of
their communities. Eminent domain is
critical to local efforts to spur economic
development that increases the local tax
base and creates new jobs. Generating
more local capacity through economic
development allows cities to continue
providing the quality services citizens
expect and the infrastructure necessary
to support a thriving community. It is
imperative that cities be able to access
condemnation authOlity, when neces-
sary, to carry out a broader vision for
their communities.
ARMR proposal
Last session, ARMR proposed a broad
legislative fix to address a couple of
specific concerns related to the public
purpose and just compensation for a
taking. Specifically, the group pointed
to the City if Ridifield v. Walser case, and
problems with the light-of-way practices
of the Minnesota Department of Trans-
NOVEMBER-DECEMBER 2004
portation (Mn/DOT), as the basis for
seeking extensive changes to Minnesota
law.
In 2002, the Minnesota Supreme
Court heard a landmark case involving
a taking by the city of Richfield of the
Walser Buick Dealership in order to
make way for the new Best Buy head-
quarters. In a 3-3 split decision, the
,court upheld a court of appeals decision,
finding that the city's condemnation of
the Walser property served a public
purpose. A year later, the Senate Trans-
portation Committee held a public
hearing on Mn/DOT's land acquisition
practices in response to a two-part
series published in the Star Tribune that
criticized the depaltment's acquisition
of property for the expansion of High-
way 52 in the Rochester area.
ARMR's original bill would have
made two significant changes: it would
have required cities to prove by a pre-
ponderance of evidence that a taking
serves a primarily public purpose; and
it would have required cities to pay
property owners' attorney fees if the
final award exceeded the city's offer
by 20 percent.
A city that offers a property owner
too little would have to pay the
landowner's attorney fees. And if the
city is taking the property and later
conveying it to a private party, then the
city would have to provide more evi-
dence supporting the public purpose
for the taking. While these changes
sound modest, the impacts are dramatic.
Consequences for economic development
and redevelopment
The ARMR proposal fundamentally
changes the relationship between courts
and local government bodies by elimi-
nating the deference historically given
to a local government decision and
shifting this decision-making to the
courts. This change creates unceltainty
in the development process, and puts
judges in the position of having to decide
on a case-by-case basis whether a par-
ticular project serves primarily a public
or private benefit. Such ad hoc judicial
second-guessing, which affords no
deference to the decisions oflocal elected
leaders, undermines the authority of
city officials to make complex decisions
about the future of a community. .
The proposal also opens the question
of whether a court would ever find that
a taking serves a public purpose if the
property is eventually conveyed to a
NOVEMBER-DECEMBER 2004
private party. Minnesota courts have
long held that the public purpose test
can be met even if the property is ulti-
mately conveyed to a private entity.
In interpreting the ARMR language,
a court might well conclude that the
Legislature intended to alter that con-
clusion. The result might mean that a
taking for these pUlposes would only
be upheld in unusual circumstances.
This uncertainty in the development
process could have a chilling effect on
economic development and redevelop-
ment activities around the state. For
example, ARMR's proposed changes
to en1.inent domain could prevent the
city of New Brighton from assembling
the parcels necessary to advance its
Northwest Quadrant redevelopment
project. As a result, the city would lose
$317 million in new tax base, 750 units
of housing, and an OppOltunity to draw a
large corporate development to the area.
Lin1.iting local government's ability
to take property for economic develop-
ment and redevelopment may call into
question the appropriateness of all gov-
ernment programs designed to generate
economic development. Actions that
redefine what qualifies as a "public use,"
or that require the courts to detennine
"public purpose" when a property is
acquired through eminent domain for
economic development and redevelop-
ment, may lead to scrutiny of other
government programs that use public
funds to influence economic develop-
ment activity.
Increasing the cost of public projects
Allowing a COUlt to award attorney fees
to a landowner if the final damage award
exceeds'the condemning authority's
offer by 20 percent will encourage
litigation and result in more expensive
public projects. Since property values
tend to increase over time, it is possible
that the final award would often exceed
the acquiring authority's offer by
20 percent-not because the govern-
ment offered too little, but because
property values have increased during
the period of the negotiation. In addi-
tion, most condemnation cases involve
small strip takings for roads, water mains,
and sewer lines. In these cases, attorney
fees could easily surpass the amount of
the award.
Consequences for property owners
ARMR's proposal does not serve the
interests of all property owners. A con-
MINNESOTA CITIES
demnation petition typically includes
many parcels, so efforts by one land-
owner to challenge public purpose
ultimately affects all the landowners in
the condemnation. This leaves all prop-
erty owners-including those who
choose to sell-in limbo while the COUlt
decides the issue. While condemnation
is difficult for the affected landowners,
they ultimately want celtainty so they
can make long-term plans.
Finding common ground
The Legislature and the administration
should carefully evaluate the impacts of
the ARMR proposal on economic de-
velopment and redevelopment efforts,
and on the vast majority of landowners
who want to quickly settle or litigate a
fair price for their property and move
on. The League supports entrusting
these important decisions to those who
are elected and accountable to their
constituents. We will continue to fight
legal and legislative challenges that seek
to undermine the fundamental authority
of government to protect the public
health, safety, and welfare of citizens.
We believe legislative action during
the 2005 session on the broad issue of
public pUlpose would be premature
given the U.S. Supreme Court's impend-
ing review of the Kelo case; however,
we are willing to consider changes that
provide for a more transparent property
acquisition process. The League is
exploring several changes that would
streamline the appraisal and negotiation
process; provide more public notice and
opportunities for input; require legisla-
tive findings that clearly alticulate the
public benefits associated with a taking
for development; and provide a reason-
able tinlefi"ame for challenging a taking.
The League will continue to work
to develop legislation that improves the
land acquisition process without imped-
ing critical development tools that
reverse blight; provide opportunities for
businesses to expand and create jobs;
and create strong, vital communities. k"
Tom Grundho~fer is gmeral counsel with
the League of Minnesota Cities. E-mail:
tgrundho@lmnc.org. Phone: (651) 281-
1266. Laura Offerdahl is intergovernmental
relations representative with the League oj
Minnesota Cities, E-mail: lofferdahl@
Iml1c.org, Phone: (651) 281-1260,
7
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