CR 95-197 Refunding Auburn Rev BondsNovember 2, 1995
Proposed Action
Staff recommends adoption of the following motion: Move to approve Resolution 95 -103,
adopting a housing program and giving preliminary approval to the issuance of multi - family
housing revenue refunding bonds for the Auburn Housing Project.
With approval of this action, the applicant will proceed forward to process the necessary
documents to facilitate this transaction. It is understood that, with approval, the applicant is
required to comply with all requirements of the City taxable /tax- exempt bond financing
application process.
Overview
O P K
REFUNDING
AUBURN NORTH/SOUTH HOUSING REVENUE BONDS
Council Report 95 -197
In 1983, the City of Hopkins approved the sale of $5.6 million in tax exempt housing bonds to
finance construction of the Auburn North and South residential projects. In 1988 and 1991, the
City Council approved action allowing the refund of the existing bond debt and authorizing the
sale of new tax exempt and taxable housing development revenue bonds for this project.
The owner of this project is now again requesting action to refund the existing debt. The purpose
of this action is to obtain a lower interest rate. The total amount of the subject issue would be
$8,119,540 ($4,940,000 tax exempt, $3,179,540 taxable).
A public hearing is required as part of the overall review process. Approval of the subject
resolution will demonstrate preliminary acceptance by the City Council of the proposed action.
The applicant will need to return to the City Council for final action at a future date.
Primary Issues to Consider
o What is the purpose of this financing?
o Does the project meet the requirements of the City policy regarding to taxable /tax - exempt
financing?
o What are the implications to the City regarding this action?
o Has legal counsel reviewed this matter?
o Other issues.
Supporting Documents
o Application from Auburn Limited Partnership
o Resolution 95 -103
o Letter from Park Avenue, dated November 27, 1995.
1114111.-/ op/
James r . Kerrigan
Director of Planning and E onomic Development
/
Council Report 95 -197 - Page 2
Primary Issues to Consider
o What is the purpose of this financing?
Local units of government are authorized to issue tax exempt and taxable revenue bonds
to facilitate projects which it is felt will be beneficial to the community. The tax exempt
portion of the issue is able to secure a lower interest rate, and, therefore, make a project
more "financially feasible."
o Does the project meet the requirements of the City policy regarding
taxable /tax- exempt financing?
The City of Hopkins adopted a policy regarding revenue bond financing in 1991. The
approval criteria within this policy, for the most part, relates to new construction projects.
At the time that the original bond was sold for the Auburn North/South Project, the City
did not have an application process nor policy regarding revenue bond financing. It is
assumed that the staff and City Council, as part of the hearing process at that time, felt
sufficiently comfortable that the project, as proposed to be undertaken, served a benefit to
the community and, therefore, approved the bond sale.
o What are the implications to the City regarding this action?
The action presently being requested is preliminary approval of the bond sale. Approval
of such action does not obligate the City to provide final action.
These bonds and all such revenue bonds are secured by a pledge of repayment strictly
from the proposed project. The City is not liable to make any payment should there be a
default. The City is acting only as a facilitator in this process.
The City has not been informed that the owner of the subject project is in a default of
payments to bond holders.
It should also be noted that a condition of the application process requires the applicant to
pay all City legal and administrative costs.
Has legal counsel reviewed this matter?
The City has reviewed the various documents as relate to this transaction. Furthermore,
the City has been represented by Stephanie Galey, Holmes & Galey, as co -bond counsel.
Other issues.
Only the tax exempt bond proceeds will be used to refund existing debt on the project.
The taxable proceeds will be taken as equity by the owner.
Council Report 95 -197 - Page 3
In the past, the City has never used the revenue bond process to finance equity. However,
staff is recommending approval of this issue based on the following:
• The project revenues are adequate to handle the additional debt. This finding is based
on a review by an independent financial consultant.
• The financing meets Fannie Mae loan criteria, which are fairly strict.
• Will assist in the estate planning process of the owner, as detailed in the letter from
Park Avenue dated November 27, 1995.
Alternatives
The City Council has the following alternatives regarding this matter:
1. Approve the action as recommended by Staff. This will allow the applicant to proceed
forward to prepare the necessary documents in conjunction with this transaction.
2. Deny the approval for the sale of the bonds.
3. Continue for additional information.
6r
,44:t -0 40
sete %At,
67.3 7 . 3r
Type of Request:
Taxable Bond Issue
Tax - Exempt Bond Issue
Refunding of Previous Bond Issue
APPLICATION FOR TAXABLE /TAX EXEMPT
BOND FINANCING OR BOND REFUNDING
(Complete as appropriate)
APPLICANT INFORMATION
1. Applicant /business name: AUBURN LIMrr ) PARTNERSHIP
Contact person: James E.
742 Twelve Oaks Center
Address: 15500 Wayzata Blvd.
City: Wayzata State:
Telephone: (work) 475 -1700
Fax: 475 -9015
Interest in property:
2. Applicant's legal counsel:
Firm:
Address: 100 So. 5th St. Suite 1100
City:
Fax:
Fax:
Parsinen Bowman Kaplan & Levy
Minneapolis
Telephone: (work)
3. Applicant's architect:
Address:
City:
Telephone: (work)
333 -2111
333 -6798
State:
N/A
State:
CITY OF HOPKINS
1010 FIRST STREET SOUTH
HOPKINS, MN 55343
OFFICE USE ONLY:
Date Received:
Received by:
x
Fier
(home)
Jack Rosberg
MN Zi
(home)
home)
Zip: 55391
Zip:
55402
1
4. Applicant's contractor: (If selected) : N/A
Firm:
Address:
City: State: Zip:
Telephone: (work) (home)
Fax:
5. Property owner(s) of record:
Addresses:
742 Twelve Oaks Center
15500 Wayzata Blvd.
City: Wayzata State: MN Z ip : 55391
Telephone: (work) 475 -1700 (home)
Fax: 475 -9015
6. Applicant's business form (corporation, partnership, sole
proprietorship, etc.) and state of incorporation or
organization:
Partnership, incorporated in Minnesota
2
AUBURN LIMtm t) PARTNERSHIP
7. If the applicant is a corporation, list the officers, directors
and stockholders holding more than 5% of the stock of the
corporation. State their name, address, telephone and
relationship to the applicant. (If a corporation is not
formed, list the potential officers, directors and
stockholders):
N/A
8. If the applicant is a partnership, list
and any limited partners with more than
partnership is not formed, give as much
concerning the potential partners):
General Partner: R. Neslund Co.
Limited Partners: Mabeth Neslund
9. List any cities to which you have previously applied for
taxable /tax exempt bond financing within the last five years:
Eden Prairie
10. Has the applicant ever been in bankruptcy? If yes, please
explain:
No
11. Has the applicant ever defaulted on any bond or mortgage
commitment? If yes, please explain:
No
Richard Neslund
the general partners
5% interest. (If the
data as possible
3
1. Project name: AUBURN
2. Legal description of the site: Lot 1, Block 1, Auburn North; and
Lots 9 to 74 and Outlot A, Block 1, Auburn South; City of Hopkins,
Hennepin County, Minnesota
3. Brief description of the nature of the business, such as
principal services or products, etc.:
Residential rental property
4. Amount of bond issue requested: $ 8,500,000.00
5. Who is lending interim financing, and in what amount: NONE
1. Number of employees in Hopkins?
A. Before this project:
PROJECT INFORMATION
BUSINESS INFORMATION
B. After this project:
2. Projected annual sales: $ 1,570,000
3. Projected annual payroll: $ 50.000
Full Time Part Time
1 2
1 2
4. Is the project associated with an existing Hopkins business?
A. Yes X
B. No
4
5. If this project is associated with an existing Hopkins
business, which of the following apply:
A. Relocation
B. Expansion
C. Rehabilitation
D. Refunding of a previous borx3 issue x
6. Will you occupy this project after completion?
A. Yes
B. No
7. If no, state name of future lessees and status of commitments
or lease agreements:
Currently 129 of the 136 units in the project are occupied by
residents under leases that generally are one year in duration.
8. Estimated date of construction: N/A Completion: N/A
9. Will any public official of the City, directly or indirectly,
to the best of your knowledge, benefit by the issuance of the
City's tax - exempt financing for this project according to
Minnesota Statutes, Section 412.87 ?
If so, please explain:
FILING REOUIREMENTS
You must provide all of the following items with your application,
unless the Director of Planning & Economic Development waives a
requirement:
1. If the project requires approval by the Zoning and Planning
Commission, you must apply for these approvals prior to or with
this application. If Zoning or Planning Commission approval is
not required, you must submit a list of property owners and
their addresses, for your property and for all properties
within 350 feet. An abstract company must certify this list.
Abstract companies are listed in the yellow pages.
2. A written opinion, with supporting justification, from an
expert acceptable to the Director of Planning & Economic
Development, to document that the development will not
adversely effect similar, existing developments. This
requirement may be waived if there are no similar developments
in the area of your project.
3. A public hearing notice and resolution of preliminary approval.
You must have these items prepared by the City's bond counsel.
4. An application fee of $5,000. Make your check out to the City
of Hopkins. This fee is not refundable and is separate from
the Bond Counsels', City Attorneys', or closing fees.
PROCEDURE
1. Return this application to the Community Development
Department.
2. The City Council will hold a public hearing and decide whether
to approve your application. City staff will notify you of the
meeting.
REOUIREMENTS FOR TAX - EXEMPT /TAXABLE BOND FINANCING
Your application must meet the following requirements for approval
of taxable /tax- exempt bond financing:
1. The project shall not require a significant amount of public
money for City improvements if the City Council determines that
the site is premature for development.
2. The notes or bonds shall be for an issue not less than
$250,000.
6
3. Construction must begin within one year of preliminary
approval. The City Council may grant a time extension if just
cause is shown.
4. Contractors doing work on projects funded in whole or in part
by tax exempt financing:
a. Shall not discriminate in the hiring and firing of
employees on the basis of race, color, creed, religion,
national origin, sex, marital status, age, disability or
the need for public assistance.
5. You must use the City's Bond Counsel.
7
b. Shall pay employees as provided under the United States
Code, Section 276A, as amended through June 23, 1986, and
under Minnesota Statutes 1985, Sections 177.41 - 177.44.
c. Shall employ Minnesota residents in at least 80% of the
jobs created by the project. In addition, at least 60% of
these employees shall be residents of the seven - county
metropolitan area. Residential status shall be determined
as of the date of the project's approval by the City
Council. However, if the contractor can show that these
quotas are not possible because of a shortage of qualified
personnel in specific skills, the contractor may request a
release from the City Council of the two residency
requirements. These requirements shall continue for the
length of the construction project.
d. Shall be active participants in a State of Minnesota
apprentice program, approved by the Department of Labor
and Industry.
e.. The above requirements shall apply to all subcontractors
working on the project.
6. The project must involve an existing business that the City
wishes to expand or a new business which the City wishes to
attract. A business is the manufacturing, distribution, sale,
storage or making of any merchandise, real estate, produce
food, housing or services which will produce income for one or
more individuals. An existing business is a commercial project
that has operated for at least one year in the City. A new
business is a commercial project which does not qualify as an
existing business.
a. Existing business criteria: The City will consider any
expansion, relocation or rehabilitation of an existing
business for approval.
b. New business criteria: The City will only consider a new
business for approval if it:
(1) Offers at least 400 hours per week of new,
year- around employment, or
(2) Involves the rehabilitation of a vacant or scheduled
to be vacated structure, or
(3) Is within a designated development or redevelopment
target area, and
(4) Has a low potential for creating pollution.
7. The project must exceed minimum code requirements by including
at least five of the following features into the project:
8
a. Brick
b. Building design should be a distinctive, non - generic
style.
c. A noticeable increase in the size and quantity of
landscape plantings over what the City normally requires.
d. Underground irrigation of all landscaping.
e. Open space, other than required setbacks.
f. At least 10% more parking than code requires.
g. Walkway along street frontages.
h. All parking stall widths at least ten feet.
i. All signs shall be at least 20% smaller or fewer than
allowed by code.
8. City staff shall review compliance with the appropriate request
for refunding of previous bond issues.
9. You must pay an administrative fee to the City of
percent of the bond issue with a maximum of $10,000 at closing.
The City will credit the application fee against the
administrative fee.
FAIL, S .00
AGREEMENT
I, by signing this application, agree to the following:
1. I have read and will abide by all the requirements of the
City for taxable /tax - exempt financing. I will also commit
all contractors, subcontractors and any other major
contributors to the project to all segments applicable to
them. I am aware that failure to comply by myself or any
of the above can result in cancellation of the resolution.
2. The above information is true and correct.
3. I agree to pay all costs involved in the legal and fiscal
review of this project. These costs include the Bond
Counsel and City Attorney, and all costs involved in the
issuance of the bonds to finance the project.
4. I understand that the City reserves the right to deny
final approval, regardless of preliminary approval or the
degree of construction completed.
AUBURN LIMITED PARTNERSHIP
by R. Neslund c9 a MN Corp., Partner
.
itit/�,/ i 1 - l 3 95
Applicant Date
by James E. Fier, Vice President
financap
CITY OF HOPKINS
Hennepin County, Minnesota
RESOLUTION NO. 95-103
RESOLUTION ADOPTING A HOUSING PROGRAM AND GIVING
PRELIMINARY APPROVAL FOR THE ISSUANCE OF MULTIFAMILY
HOUSING REVENUE; BONDS FOR THE AUBURN HOUSING PROJECT
WHEREAS, pursuant to the Minnesota Municipal Housing Act, Minnesota Statutes, Chapter
462C (the "Act "), the City of Hopkins (the "City ") is authorized to carry out housing
programs for the financing of multifamily housing developments (the "Program "),
including the payment of interest on taxable and tax - exempt bonds, the establishment of
reserves to secure such bonds and the payment of all other expenditures of the City
incident to and necessary or convenient to carry out such program; and
WHEREAS, the Act requires adoption of the Program after a public hearing held thereon after
publication of notice in a newspaper of general circulation within the City at least fifteen
(15) days in advance of the hearing; and
WHEREAS, the City on this date conducted a public hearing on the Program, after publication of
notice as required by the Act; and
WHEREAS, the Program provides for the issuance of multifamily housing revenue refunding
bonds for the Auburn Housing Project in an aggregate principal amount of approximately
$4,940,000 and taxable multifamily housing revenue bonds in an aggregate principal
amount of approximately $3,179,540 to refinance a 136 -unit multifamily rental housing
development, consisting of 102 units located at the southwest comer of Highway 7 and
VanBuren Avenue within the City and 34 units located at the southwest corner of Lake
Street and Tyler Avenue within the City (the "Project ").
NOW THEREFORE BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
HOPKINS, MINNESOTA:
1. The Program for the Project is hereby in all respects adopted.
2. The City hereby ratifies the prior publication of the notice of public hearing.
3. The City staff, its consultants and bond counsel are hereby authorized to do all
things and take all actions as may be necessary or appropriate to carry out the
Program in accordance with the Act and any other applicable laws and
regulations.
4. The issuance of approximately $4,940,000 principal amount of multifamily
housing revenue refunding bonds and approximately $3,179,540 principal amount
D:1NPK I OtN)t)ZttESLSGPRELIM.DOC
1 PRELIMINARY RESOLUTION
Adopted by the City Council of the City of Hopkins this day of December, 1995.
ATTEST:
James A. Genellie, City Clerk
of taxable multifamily housing revenue bonds pursuant to the Program to finance
the Project is hereby given preliminary approval.
D:'JiPK 1004XIMLGSISGPRELLM.DOC 2
BY:
Charles D. Redepenning, Mayor
I1171:1 ILA IIU AO DUCAT 1 l?t,
PARK AvE Nut
4)F W ZAi,'. t N c'.
742 TWELVE OAKS CENTER • 15500 WAYZATA MVO. • WAYZATA MN 55291 • PHONE 612)4754700 • FAX 6121175 -9015
Mr. Am Wigan
City of Hopes
1010 Punt Stmt South
Hopes, MN 55343
Re: Auburn Tovfnhomes
pi
November 27, 1995
Dear Mu.
This letter is mad u a follow -up to our discussion with you on
November 20, 1995 and the letter we provided to you that day regarding the above-
referenced matter. It is our understanding that the City of Hopkins has an
appropriate concern regarding the public purpose behind issuance of the proposed
Series B Bonds. We understand that this is an unusual circumstance where Mr.
Neslund and Auburn Limited Partnership ate requesting issuance of the Series B
fonds for the p rpoSe of leveraging or fmancing out a portion of the equity on the
First let me begin by reaffirming to you that it is not our intent to in any
way jeopardize the financial stability of the project by this financing. I believe that
you will find the financial information which we have provided and which your fiscal
cofsulmnt will review confirms our. position that the project can support the financing
err a conservative analysis. Our motivation is driven by date and gift tax
planate, In a manner which will assure the project's long range stability as quality
townbomu development within the City of Bopidns.
As pact of Mr. Nesiund's estate planning per, we identified that would be significant exposure for estate des based upon his net equity posit in
this project, upon his death. Mr. NosL.uod and his various investment have
bad a long term history of plovkling quality mule-family housing projects within the
City of Hopkins and other suburban commute. tt is Mr. Neslund's goal and
desire to see continuity in the maintenance of Auburn as a quality project and in the
quality of management and ownership.
otusi®.ot
Mr. Jim Kerrigan
November 27, 1995.
Page 2
Mr. Neslund is concerned that in the event of his death, his heirs might be
forced into a rapid sale of the project in order to raise money to pay estate taxes
attdbutable to belts equity thatch', This could result in the sale of the project to an
operator that would not maintain or deliver the same quality. Alternatively, it might
be poss for his hear to refinance the project at tbat time to raise cash with which
to pay such taxies. However, the teens of such financing might not be as favorable
as is presently availabk. This might result in less future stability for the project and
again jeopardize maintaining the qtr of the project to which the city has grown
accustom.
By issuing the Series 8 Bonds, Mr. mud can leverage out the equity
the project on favorable wens, without comma the financial hoot/ of the
project. By r� the net equity in the project, it then becomes possible for Mr.
Neslund to transfer substantial interest therein to the Auburn Limited Partnership
without significant gift tax consequences. Since substantial ownership will slteady
have been transferred during Mr. Nesiund's lifetline, those interests would be
excluded from his estate at death and would not be subject to estate taxes.
We believe that a real public interest is served by approving this financing,
in cider to assure the long term finanriAi stability of than project and condnuity and
the quality of its management and %etation.
Your consideration is greatly appreciated.
Sincerely,
Xfirile6 E. Fier
a Yis�cs tis