Memo - Hopkins Honda Redevelopment
Planning & Economic
Development
MEMORANDUM
DATE:
Honorable Mayor Maxwell and Hopkins City Council Members
Kersten Elverum~sihg & Development Coordinator
August 29, 2005 ~V
TO:
FROM:
SUBJECT:
Hopkins Honda Redevelopment
The purpose of the discussion regarding this item at the September 6, 2005, City Council work
session is to update the Council on the status of the redevelopment of the Hopkins Honda Body
Shop and Used Car Sales Lot by The Cornerstone Group. One ofthe issues that will be
addressed is the request for public assistance as outlined in the enclosed letter.
Representatives of The Cornerstone Group will be at the meeting to discuss their plan for the
sites and the status of the proj ect.
f.,"
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THE CORNERSTONE GROUP
7300 Metro Boulevard. Suite 585' Edina. MN 55439
Direct. 952/942'6900 Fax' 952/942'6902
TheComer6 toneGroup. com
August 30, 2005
Mayor Gene Maxwell &
City Councilmembers
City of Hopkins
1010 1st St South
Hopkins, MN 55343
Dear Mr. Mayor and Councilmembers:
This letter serves to inform you of our need for public assistance for the Marketplace &
Main project that my firm intends to develop. Much has transpired in the market since
the original project plan for the property in early 2004. My hope is that this letter will
shed light on the changes that have occurred since our discussions began a year-and-a-
half ago.
Since The Cornerstone Group placed a purchase agreement on the property in early 2004,
three major issues have come up that affected our development budget. First, during
architectural design development, we began to uncover challenges as we set to design
units within the building configuration. As you know, the site is two triangular pieces of
land that are not amenable to a typical condominium development. Working a square
building onto a triangular piece of property is proving to be a challenge for design in both
the condominium and townhome units. The rail corridor to the back of the site is not
developable, so townhome configuration along the northern boundary of the site is
limited. Townhome size and shape is dictated by a number of factors, including ingress
and egress as well as parking constraints and townhome layout. Ultimately, solutions to
challenges that we typically face in a more regularly shaped parcel are being hampered
by the shape of the site along Mainstreet.
Second, during our due diligence we uncovered additional costs that were not apparent
when we first negotiated the purchase agreement eighteen months ago. The discovery of
Qwest cable lines that run the length of the site within a heretofore unidentified
telecommunications utility corridor have hampered redevelopment plans. Early estimates
placed the reconfiguration costs around $225,000 and a 6-month construction start delay.
We have since considered leaving the lines where they are and are working through city
staff and the utility company to identify alternatives. However, we expect that in either
case (relocation or construction premiums) that the cost will still remain.
We also began more detailed environmental analysis that yielded estimated remediation
and abatement costs topping $300,000. While that conservative estimate will likely be
honed over the coming months, it is still a cost to the project that must be covered
through sources not yet identified in the development budget.
The final major issue the project faces is the change in local and metro-area
condominium markets, and the concurrent increase in construction pricing. As the metro
market adds product in the pipeline, buyers have greater choices available to them.
Therefore a balance must be struck between what we can pay to build the project and
what the market can bear to purchase the condominiums. Currently, construction pricing
is high given a variety of factors, and so our final construction pricing is considerably
higher than we had originally anticipated in our preliminary proformas. In addition, the
presence of adjacent projects along Mainstreet as well as other projects going up, in and
near to Hopkins, leads to downward pressures on our pricing in order to remain
competitive. Retail competition in the market is less a factor, however we continue to
consider the market when evaluating potential revenue enhancement through increases in
retail square footage on the site.
In summary, a number of factors must be considered when evaluating the need for the
City's partnership in making this project successful. The site location, size and layout
make for difficult building placement and configuration. The environmental and utility
surprises led to unanticipated increases in the development budget. And finally, market
pressures have forced the project to "tighten the belt" in order to remain competitive. We
believe that in order for the project to proceed, public participation is necessary.
We are excited about the opportunities for us in Hopkins. Together, we proved that
downtown Hopkins is a desirable place to live, work and play through our cooperation
during development of Marketplace Lofts. Our hope is that we can continue that
cooperative spirit to add to the allure of life along Mainstreet as we make progress in
making Marketplace & Main a reality. Please feel free to contact my office with any
questions.
0ill= M C=y '-1f! ~
President/CEO
Cc: Rick Getschow, City Manager
Jim Kerrigan, Plarming and Economic Development
Kersten Elvrnm, Housing & Development Coordinator