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VII.1. Update on 325 Blake RoadAlatus Development; Elverum CITY OF HOPKINS Memorandum To: Honorable Mayor and Council Members Mike Mornson, City Manager From: Kersten Elverum, Director of Planning & Development Date: January 16, 2024 Subject: Update on 325 Blake Road/Alatus Development _____________________________________________________________________ PURPOSE The purpose of the discussion is to provide an update on the status of the proposed development including an amendment to the public financing structure. INFORMATION The Alatus development at 325 Blake Road led with the Chorus apartment building, a 100% affordable building completed November 2023. The remainder of the planned buildings have stalled due to unfavorable market conditions including rising interest rates, capital markets pausing investing due to interest rates and uncertainty of where they are going, and construction costs, thereby impacting financing available for development. Despite these conditions, the project and its location have been well- received and Alatus has put together a proposed structure that will move the rest of the development forward. Overall, the plans include partnering with Ron Clark Construction to develop the 32 townhomes, Artessa to develop the senior cooperative and Alatus to construct buildings C and D (mixed-income). A key component to get the project financed is for the City of Hopkins to provide the financing for some infrastructure including public parking and the publicly owned street and utilities that run through the site. Alatus was required to build these improvements and turn them over to the City of Hopkins, as is typically done in most developments. A portion of these improvements were to be financed with a $3.75 million TIF grant from the City, with the remaining portion being privately financed. Due to the gap to finance the Chorus, the dollars were provided to that development instead so it could proceed. In order to incentivize private financing, the developer has requested that the City bond for the infrastructure improvements and assess the principal and interest payments to buildings C and D. More detail on the financing structure is included in the attached memo from Stacie Kvilvang, Ehlers, our financial advisor. Staff finds the financing request for the infrastructure improvements reasonable. Assessments are secured through the property tax system. The City of Hopkins has a long history of financing public improvements and assessing the cost to benefitting property owners including its annual street reconstruction projects and Housing Planning & Development Improvement Areas without any default on the bond payments or the need to use other City resources. Staff are also concerned that the project may be in jeopardy without this assistance and not able to move forward. It is important to note that the bonding request does not increase the amount of public subsidy going towards the development. The City Attorney, City’s Financial Advisor and the developer, Alatus, will be at the Council meeting to provide more detail and answer any questions. FUTURE ACTION If the City Council is supportive of the concept of assessing the cost of the infrastructure to the development, staff and the City Attorney will begin drafting an amendment to the Contract for Private Redevelopment that will be considered at the February 13th HRA/City Council meeting. The amendment will authorize the assessment as well as update other elements including the current timeline for the project. MEMORANDUM TO: Mike Mornson – City Manager FROM: Stacie Kvilvang - Ehlers DATE: November 15, 2023 SUBJECT: City Bonding for Public Parking and Infrastructure – 325 Blake Alatus has been working with capital equity partners and lenders to move forward construction of Building D (Mixed-income) and Building C (Mid Rise). Due to the current interest rate environment, construction costs and limited capital investors, financing multi-family projects anywhere in the metropolitan area has become increasing difficult and thus many projects have been put on hold or retracted all together. Alatus approached the City to see if they would consider issuing general obligations bonds to provide the capital needed to pay for public costs associated with the development. The bonds would be 100% assessed to the property and be the responsibility of Alatus as the property owner to repay. Specifically, the bond proceeds would be used to pay for the public parking element being constructed as part of Building D (to serve the retail planned for site E, overflow parking for any other buildings constructed and for general public use of the amenities in the area) totaling approximately $6 million and the remaining roads, utilities, sidewalks for the overall development, totaling of approximately $7 million. This would benefit the project and likely be the only way for the project to move forward in 2024 by: 1.Providing capital to the project at a rate lower than private lenders (+-5% vs. 7.75% to 8.75%) 2.Reducing the amount needed in private financing from lenders at the higher interest rate, thus reducing overall debt service payments, and 3.Reduce the capital needed from the equity investors who require a higher return In 2021, the City approved providing up to $31.7 million in pay-as-you-go (PAYGO) TIF to the overall development. In order to make the debt service on the bonds for the parking ramp tie to the annual TIF payment, this would require the bonds and the PAYGO TIF note to be issued for 20 years vs. the 15 years as originally anticipated. Infrastructure bonds for street construction would be issued with a 15-year term. Issuing the bonds and providing 20 years of TIF on Building D versus 15, will not increase the overall assistance approved to be provided to the development of up to $31.7 million (infrastructure and ramp bonds are loans vs. subsidies since they are repaid by the development). The City has in the past issued bonds for private development to pay for public infrastructure and/or public redevelopment costs including the Super Valu campus (both roads and parking ramps) and the City’s annual road reconstruction projects. We view the issuance of these bonds to be low risk since they are assessed to the property, just like annual road reconstruction projects. We have discussed these options with the City Attorney and Bond Counsel and are comfortable that if the Council is agreeable to proceed, we can structure the bonds and their repayment to be low to no risk for the City. In addition, we will continue to work with Alatus on refining the cost allocable to the various elements to assure we issue the least amount of debt. Please contact me at 651-697-8506 with any questions.