Memo- Redevelopment Project
. I Economic Development I
MEMORANDUM
TO: Honorable Mayor and Members of the City Council
FROM: Jim Kerrigan, Director of Planning & Economic Development
DATE: June 16,2004
SUBJECT: Redevelopment Project
Purpose of Memo
. An HRA work session has been scheduled for June 22 to discuss a possible redevelopment
concept that has been presented to staff by The Beard Group. The goal of this discussion is to
provide direction to staff and The Beard Group.
Overview
Bill Beard of The Beard Group recently had a discussion with a Council member about the
possibility of redeveloping the Hopkins Arches property. In response to this conversation, he
has formulated a preliminary concept plan. This involves establishing a tax increment district,
which would include the former Rainbow Foods building, 8098 Excelsior Boulevard, possibly the
building directly to the east, the Kunz Oil Company building, 7900 Excelsior Boulevard, and the
Hopkins Arches, 1025 Second Street N.E. The Beard Group would redevelop each of these
sites with housing. The resid ual tax increment that was not needed to facilitate the
redevelopment of the Excelsior Boulevard property would then be used to assist in the
redevelopment of the Hopkins Arches property.
From the Councll's perspective there are three main issues to be considered.
. Is the redevelopment of these properties a priority for the Council?
To date, of the above-mentioned properties, the only property that has been discussed for
any possible future redevelopment is the Hopkins Arches. Neither of the two subject
properties on Excelsior Boulevard has been previously identified for redevelopment.
.
. Memo to City Council, June 16, 2004 - Page 2
. Is the City willing to use eminent domain to facilitate a project?
Bill Beard has spoken with all three owners of the above identified property and received the
following responses to a possible sale:
0 Hopkins Arches: The owner stated that they buy property and have no interest in
selling.
0 Former Rainbow Food Building: It is owned by an investment group, and they are in
the process of re-Ieasing the building, They do not have an interest in selling the
property, (It should be noted that City staff has authorized a traffic study for a
business considering leasing in this building,)
0 Kunz Oil Company has no desire to undertake any future moves of their business,
They would probably only sell with the sale of their business.
Mr. Beard feels that based on his discussion with the above owners, he would be able to
move forward with this project only if the City uses eminent domain (condemnation) to
acquire some or all of the properties.
. The City has never used its eminent domain authority in the past to facilitate a
redevelopment project. Whereas a negotiated purchase is more of a "friendly acquisition"
process, eminent domain clearly creates an adversarial position between the buyer and
seller. Such a process can result in the following:
0 Eminent domain can be very costly. Usually the buyer pays substantially more than
fair value for the property. An estimate would be 1 Y2 to 2Y2 times market value. The
present market values of the subject properties are as follows:
0 Hopkins Arches - $5.3 million
0 Rainbow building - $6.1 million
0 Kunz Oil - $900,000
Unfortunately, once the condemnation process is underway, the buyer is obligated to
purchase the property even if the court-awarded amount is substantially over what is
budgeted.
In speaking with Sid Inman of Ehlers, the best way to protect the City in a
condemnation process is to have the developer deposit funds in an escrow account
equal to the estimated court award amount and legal costs.
0 The City is exposed to legal action. Lawsuits could be filed against the City by the
owners, tenants, or both. The City needs to make a finding of public purpose to
undertake eminent domain, This has been previously challenged in the courts,
.
. Memo to City Council, June 16,2004 - Page 3
0 The use of eminent domain may require the sale of an up-front City bond to finance
acquisition costs, This would provide more financial exposure to the City (as
opposed to a pay-as-you-go-note) because it would have a City general obligation
guarantee for repayment.
. Is the use of the property appropriate and compatible for surrounding uses and
long~term plans of the City?
In the case of the Arches, the Beard project would redevelop the site from residential to
residential. The property is zoned residential. There is residential to the north and west,
with commercial to the east and south of the site. The ComprehenSive Plan has it
guided for high-density residential.
The Excelsior Boulevard properties are zoned Industrial and identified in the City's
Comprehensive Plan has Industrial. The property has residential to the west and south
and industrial to the north and east.
Conclusion
e The Beard Group proposal would take a substantial amount of staff time and public financial
resources to move forward.
The alternatives to the Councll are as follows:
1. Make a determination that the redevelopment of these properties is a high priority and
the City will use its eminent domain authority to acquire property. If this is the direction
the Council desires, Staff would recommend that the City Attorney be directed to
research in more detail the legal issues involving the use of eminent domain and report
back to the Council. It would probably also make sense to have a conversation with the
law firm of Kennedy and Graven, as they were involved in the Richfield condemnation.
The City Attorney should also have a discussion with the City's financial consultant,
Ehlers & Associates,
2, Decide that redevelopment of all or a portion of these properties is a high priority, but the
City is not willing to undertake eminent domain. The City would only consider
undertaking redevelopment of those properties that the developer can purchase through
a negotiated process.
3. Make a decision that these are not high priority redevelopment areas,
.
\ I.: '- ~ / I I 1..['!T-""'~~-------- ---,~ ~~ -
!
. . ..II, -- -~ ~
, 1/ ~/D[
Ii h ',0 _ . .~m OF .-rr._~U" = Vr.li.
- %.. . II,' -- ," ~ w .; '" c:: BE
~ . - J4t.,...) ~ O"..II! ' i-
-~ IT I .'
;;;:.., ~ . ~'.,; I -1i ,>"
C~ ('f ,/Jr , ,~ . . ,'/ ~ II', -11~\
~ ~~V/lr~,~~4' 'lD::~"l II "i~~~iJ IJI:...' .'
~ iJ 'lIlt" ..~/j f.--I - ~ 'l. ' ~...: ,/
, VI ,~, R-4 " '& ~:"'.. .~~, ~~~\ 0
~'n ~t; /.' T\~.1 ~).4t"~
III ,.... ~. l ,.., ," .-....., , R 4" , , . ~~ y;-
'w/ ,J ~ R-2' _ '~
'I L' . . )....->: -./ I
=-~AJ,j I j . ,,~, ~ - ...., PI" , :,:
~~". ' " , "/"L ~ -. ~:. ;,~.',,-j\'.",1!.~~;.r,~I,'.'~ 1-2 ~~.., ~ :
i -' ,II ~ ~ "1" ~tit~- "jijl~' ~ ~
""'" ',-; ,'.~~' ;i!!;
'"'f..... ' R" 1 ~J ~.
f::::j 't1D. . 1 :r; -,-' - - - #JJ'~.. ~"" .:. ,
~".nt~,I- ",' , '~k' :\l'l' ,./~, >,j ,
/1\" 1--::' j , ,... r ~ ".4 ' ,.'
: :1/: ".:....2' : "::<,,,-, -, ,:-cb "';',:- ';. " ,';;
,'- '-- !-- '-_~ "1' w'
-' """]
" . .. I( i%'i(cii11~""
.It c' ;J;' " . ,,- , 3 ',.' ,,' f .~:"'[-
~ - , ........-:: R- , !'!!.~.Ji!I, \",'1'~>~*.':. :
CI ~ ..6IIII!JIlJ ,".'~ ~ <: ~",.~t[$.k~~~
,,, ,: 1-2 ~~ "B-3 . : ,..:~., '"":,, '"i.?'!I;:,.~,."ii rJJ. . . t. .
. ".' _~" "'"w[ ,~",_~.,;
. oJ, '-.~.~.\'!="""":i::r;. :\..r~. ':w',~;1T"~,:: .
f . _ /'. . ~~tA):#.~'1 i~-r.-.;.. ,Ii
BU IN PARK - '. ~~j 0: .~ ~ ---"'
r' _ _. f "''a: --'r~~",,,},~~.,,,- --...
I~~ i ~,Sr." E ~n,~ ~ r .".,'.. I EITrDJJI
/\V ' . n iJI c: L--:::: a:. I- ___
J'~ ..... 10f0.! ,\ \l ~ :,,;;;; I' l'Ns FA FA
:....; ~- ,U.~' ...,- "r EE EE3
. _, ~b: ' \ - '-, , -' ';'1 . - - -- ..u. - ~r-"1 '---,--, ~~ ~
A ~ '- "--- - . - - -::::: = - - -1 -:::: ~-f- -
~ ,~f= I'NS' -- I"'" II!!Ilo -- -f--"- --
" , " , , , nr- _ _ 1--
~ f--, _I- -I-
)f ~:= ", . -- f- -I- - -- -I- ~- '-
j f ~:::: r- -' 1\.&111: -- ioao'1iicH -'-- "ii.'-- ,-- ~ ~- -
I 2..... - -..r - SCHOll\. J=' - '--- -- ~~-~~
._ 171iJ, _ _ __ ~r--
I r,' +-....- - - - -- :a::--
, - ~ -
H~~~~:; .1. - It:
SCHCeI\. = r- _ ,f-_I~_ _ r-'
,I~S' _ --, . _ - .... r- r-'
I __' _~ _ _ f--
----.-.. - -I - \: .
- ~~ ~~ ~~ ~ ~ ~~ ~~~~III~Iu=I---. ~~
_ -- -- -- r--I-- _ 1-_ - ";
f- ,PIO" - ~ - - ".
.~~ ~~ ~~'IE I~~ ~~I'I~ _ '~~l I II
- = :::: . e-- _ - I f
=: - - ,,1:;:::= - (/
- -l == = - II 1 h= 0
:::::= - ~[J' II '
= _,- ~ == -, II IT ~ (
--'- """"ii"O II lr--11 1111 J) I
,