IV.2. Business Subsidy Agreement - Ovation Apartments (HRA2022-03)September 6, 2022 HRA Report 2022-03
BUSINESS SUBSIDY AGREEMENT – OVATION APARTMENTS
Proposed Action
Staff recommends adoption of the following motion: Move to approve the Business Subsidy
Agreement between Ovation Apartments, LLC and the Housing and Redevelopment Authority
of the City of Hopkins.
With this motion, the Business Subsidy Agreement will be executed.
Overview
Ovation Apartments, also known as Enclave Companies has proposed a redevelopment of the
former Hopkins Cinema 6 into a mixed-use housing and retail development. Due to the costs
of land acquisition, demolition, site preparation and construction, the redevelopment is not
financially feasible without public assistance. City goals are met by the proposed development
and the City Council/HRA have indicated a willingness to provide financial assistance in order
to realize the project.
The Agreement commits the Housing and Redevelopment Authority (HRA) to a one-time
forgivable loan utilizing excess TIF from District 2-11 in the maximum amount of $1,250,000.
The forgivable loan will be utilized as follows: $750,000 for demolition, $350,000 for exterior
improvements to the existing retail building and $150,000 for outdoor public space. If actual
costs are less overall, the forgivable loan will be reduced dollar for dollar.
The goals for the subsidy are to secure completion of the proposed improvements. The
project is not being undertaken with goals of job creation.
Primary Issues to Consider
The project is contingent upon a successful rezoning and approvals of a PUD Agreement, loan
agreement and parking agreement.
Supporting Information
• Business Subsidy Agreement
___________________________
Kersten Elverum
Director of Planning & Development
Financial Impact: $1,250,000_______Budgeted: Y/N _Y__ Source:_TIF 2-11
Related Documents (CIP, ERP, etc.): _______________________________________
Notes: _______________________________________________________________
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BUSINESS SUBSIDY AGREEMENT
THIS AGREEMENT, made and entered into this ____ day of ___________, 2022, by
and between the Housing and Redevelopment Authority of the City of Hopkins, a public body
corporate and politic under the laws of Minnesota (the “HRA”), and Ovation Apartments, LLC,
a Minnesota limited liability company (“Ovation”).
Section 1. Business Subsidy Agreement. The provisions of this Agreement constitute
the “business subsidy agreement” for the purposes of Minnesota Statutes, Sections 116J.993
through 116J.995 (the “Business Subsidy Act” or “Act”).
(a) General Terms. The parties agree and represent to each other as follows:
(1) For the purpose of this Agreement, the terms used in this Agreement
which are defined in the PUD Agreement between the HRA and Ovation, dated as of
September ___, 2022 (the “Contract”) shall have the meanings given them in the Contract
or in the Act.
(2) Business subsidies are proposed to be granted by the HRA to Ovation
under Minnesota Statutes, Sections 116J.993 through 116J.995 (the “Business Subsidy
Act”), and Minnesota Statutes, Sections 469.174 through 469.179 (tax increment) for
certain property in the City of Hopkins located along Mainstreet between 11th Avenue
South and 12th Avenue South (PID No. 24-117-22-34-0249), in the City of Hopkins (the
“Property”). Ovation recently secured an agreement to purchase the Property (1.88 acre
site). Ovation’s development would provide a residential mix of 67 alcove, 22 studio, 47
one-bedroom, and 14 two-bedroom market rate apartments, and 5,382 square feet of
commercial space on the ground floor accessed from Mainstreet at the Property. This
Agreement, and another agreement, (the “Business Subsidy Agreement”), between Ovation
and the HRA, provides for certain benefits and business subsidies to Ovation in connection
with development of the Property, including the following assistance: a one-time forgivable
loan utilizing excess TIF from District 2-11 from the City in the maximum principal amount
of $1,250,000 or 2.9% of the project costs, apportioned for project costs as follows:
$1,250,000 for demolition and environmental remediation associated with the demolition,
for exterior improvements to the existing retail and for outdoor public space. If,
demolition and environmental remediation associated with the demolition costs, the
exterior improvement costs and the cost of the outdoor space (not including surface
parking lot construction) is less than $1,250,000, the forgivable loan would be reduced
dollar for dollar. Such business subsidy provided to Ovation consists of the assistance
provided by the HRA in the form of a forgivable loan agreement to be issued to Ovation
(the “Loan Agreement”). Each disbursement or payment thereunder represents a
forgivable loan that is repayable by Ovation in accordance with this Agreement.
(3) The public purposes of the subsidy are to promote redevelopment of an
area which contained structurally substandard buildings, establish a mixed residential and
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commercial development and to implement the HRA’s and City of Hopkins’ (the “City”)
land use goals identified in the comprehensive plan.
(4) The goals for the subsidy are to secure completion of the Minimum
Improvements and operation of the Ovation development for at least five years as
described in clause (7) below.
(5) If the goals described in clause (4) are not met, the amount of the subsidy
and forgivable loan shall be reduced and Ovation or its successors and assigns must
make the payments to the City described in Section 1(c) below.
(6) The subsidy is needed because the costs of land acquisition, demolition,
clearance and site preparation, and construction of the required public and private
infrastructure improvements, engineering, environmental consulting and correction and
geotechnical consulting and correction costs, all as described in the Contract, does not
make the development of the Minimum Improvements financially feasible without
public assistance, as determined by the HRA.
(7) Ovation and its successors and assigns must continue operation of the
Ovation development for at least five (5) years after the date of issuance of the
Certificate of Completion for the Ovation development. For the purpose of this Section,
space will be considered to be maintained in operation if it is leased, or available for
lease, to any person or entity, or occupied by Ovation, or its successors and assigns for
use in its trade or business.
(8) Ovation does not have a parent corporation.
(9) Ovation has not received, and does not expect to receive, financial
assistance from any other “grantor” as defined in the Business Subsidy Act, in
connection with Ovation’s development.
(b) Job and Wage Goals. In accordance with Section 116J.994, subdivision 4, of
the Business Subsidy Act, the HRA has determined after a public hearing held in August 16,
2022, that the creation or retention of jobs is not the goal of this redevelopment effort.
Accordingly, the wage and job goals are set at zero.
(c) Remedies. If Ovation fails to continue operation of all or a divisible portion of the
Ovation development for the five-year period as provided in Section 1(a)(7) hereof, the subsidy
and forgivable loan shall be reduced by an amount equal to the percentage the square footage of
the Ovation development which is not being operated represents of the approximately
__________ square footage of the entire Ovation development and prorated by the remaining
portion of the five-year operation period as of the date of default. If the amount of the reduction
to the subsidy and forgivable loan exceeds the balance due under the Note, then such excess shall
be paid by Ovation to the HRA as reimbursement of the balance of the amount of the business
subsidy to be paid to the HRA. Any demand for repayment must be in writing and is subject to
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the cure provisions of the Contract. Payment shall also include interest at the implicit price
deflator as defined in Minnesota Statutes, Section 275.50, subd. 2, accrued from the Benefit Date
to the date of payment.
Section 2. No Remedy Exclusive. Nothing in this Agreement shall be construed to
limit the HRA’s remedies under Article XII of the Contract in the event of a violation of any
other provision of the Contract, to the extent any such provision applies to Ovation, but the
remedy set forth in Section 1(c) hereof is the exclusive remedy for failure to comply with the
terms of this Agreement. In addition to the exclusive remedy described in this Agreement,
Ovation agrees and understands that it may not a receive a business subsidy from the HRA or
any grantor (as defined in the Act) for a period of five years from the date of the failure or until
Ovation satisfies its repayment obligation under this Agreement, whichever occurs first.
Section 3. Reports. Ovation must submit to the HRA a written report regarding
business subsidy goals and results by no later than March 1 of each year, beginning March 1 in
the year following opening of the Ovation development and continuing until the later of (i) 30
days after expiration of the five-year period described in Section 1(a)(7); or (ii) if the goals are
not met, the date the subsidy is repaid in accordance with Section 1(c). The report must
comply with Section 116J.994, subdivision 7 of the Act. The HRA will provide information to
Ovation regarding the required forms. If Ovation fails to timely file any report required under
this Section, the HRA will mail by certified mail, return receipt requested, to Ovation a
warning within one week after the required filing date. If, after 30 days after receipt of the
warning, Ovation fails to provide a report, Ovation must pay to the HRA a penalty of $100 for
each subsequent day until the report is filed. Failure by the HRA to deliver a timely warning
notice will not relieve Ovation’s obligation to pay a penalty within 30 days after receipt of a
notice to pay. The maximum aggregate penalty payable under this Section is $1,000.
[Signature pages to follow]
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IN WITNESS WHEREOF, the HRA and Ovation have caused this Agreement to be duly
executed by their duly authorized representatives as of the date first above written.
HOUSING AND REDEVELOPMENT AUTHORITY
OF THE CITY OF HOPKINS
By:
Patrick Hanlon
Its: Chair
By:
Michael Mornson
Its: Executive Director
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this ____ day of _________,
2022, by Patrick Hanlon and Michael Mornson, the Chair and Executive Director of the Housing
and Redevelopment Authority of the City of Hopkins, a public body corporate and politic under
the laws of Minnesota, on behalf of said authority.
Notary Public
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OVATION APARTMENTS, LLC
By:
____________________________________
Its:
STATE OF MINNESOTA )
) ss.
COUNTY OF __________ )
The foregoing instrument was acknowledged before me this ___ day of
_______________, 2022, by ___________________, the ___________________ of Ovation
Apartments, LLC, a Minnesota limited liability company, on behalf of said company.
_____________________________________
Notary Public