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Memo Performing Arts Center110 AO 0 CITY OF HOPKINS MEMORANDUM DATE: DECEMBER 29, 1992 TO HONORABLE MAYOR AND CITY COUNCIL FROM PAUL T. STEINMAN, COMMUNITY DEVELOPMENT SPECIALIST SUBJECT: PERFORMING ARTS CENTER /CHILD'S PLAY THEATRE I. Purpose of Discussion The purpose of this discussion will be to address nine specific questions which were raised at the City Council meeting on December 15, 1992 regarding the Performing Arts Facility and Child's Play Theatre. These questions are as follows: What is the status of the Suburban Chevrolet property? What are Child's Play Theatre's timing issues? Is the Rudy Luther property available for purchase by the City? What is the possibility of constructing a smaller "entertainment" project elsewhere in the City other than the Suburban Chevrolet site? What are the issues with regard to downsizing the Performing Arts Facility building from 13,000 sq. ft.? How would a project be structured with Child's Play Theatre as part of an "entertainment" project? What is Child's Play Theatre's ability to manage a Performing Arts Facility? How are capital replacement costs such as roofs and heating /cooling systems worked into the operating costs? o How can the City assist in Child's Play Theatre's fundraising activities? In addition to reviewing these questions, the City Council will be asked to provide a response to the original request by Child's Play Theatre. The original request was for answers to the following questions: Selection of an alternative City -owned site that could accommodate a 12,500 to 15,000 square foot, stand -alone building for Child's Play Theatre. 110 Honorable Mayor and City Council December 29, 1992 Page 2 Commitment of up to $1.5 million dollars for the construction of this building. Commitment to a date no later than June 15, 1993 when construction of this building would begin, allowing for Child's Play to prepare for a move -in date during the 1993/94 season. IL.Background The City Council, at their meeting on December 15, 1992, held a public input meeting to discuss the construction of a stand alone Performing Arts Facility with Child's Play Theatre as the major tenant. The analysis was undertaken in order to address the original request from Child's Play Theatre. At this meeting several questions were raised throughout the discussion regarding Child's Play Theatre, and the "entertainment project" concept. The Council asked staff to provide a response to these questions at the next meeting on January 5, 1993. This report will provide an explanation and analysis of each of these questions as well as provide further information on possible alternatives which could be used by the City Council. III Analysis Council asked staff to provide further information on the following questions: o What is the status of the Suburban Chevrolet property? Suburban Chevrolet has been anticipating moving their car dealership out of downtown Hopkins to Eden Prairie for the last couple years. In preparation for this move, the owners of Suburban Chevrolet have been proceeding through the Eden Prairie planning process, and just recently received final approval from the Eden Prairie City Council. In addition, Suburban Chevrolet has retained control of a site through a purchase or option agreement to accomodate their move. In recent conversations with Mr. Tom Grossman, he stated the next step is to obtain a commitment for project financing, which he feels will not be a major issue. At present he is anticipating construction to begin in Spring of 1993, with a move scheduled for the Fall of 1993. Staff will be meeting IP Honorable Mayor and City Council December 29, 1992 Page 3 with Mr. Grossman prior to the January 5th Council meeting to discuss their time schedule in more detail and Suburban's interest and willingness to sell their property in Hopkins. o What are Child's Play Theatre's timing issues? Child's Play Theatre is interested in securing a new facility as soon as possible. Their preference was to be in this facility by the Fall of 1993. However, Mr Steve Barberio has stated that he agrees this timetable is probably not practical. Mr. Barberio has stated that if the Council is not in favor of supporting a free standing Performing Arts Facility at this time, Child's Play is willing to explore the possibility of securing a lease with the School District. This was based on the understanding that an entertainment complex project would continue to be pursued by the City and that such a project would be undertaken possibly within the reasonable future. Child's Play has previously stated that remaining at Eisenhower long term was unacceptable for the following reasons: o CPT does not have enough control of the facility o Facility is in need of certain upgrades o Lack of ability to secure a long -term lease o Parking concerns School District Staff now appear to be willing to address these issues. They have stated that they are willing to examine the possibility of a "multi - year" agreement with CPT. They have has also indicated to City staff that improvements will probably be made to the theatre area based upon recommendations contained in their Facility Needs Analysis to be completed in February. It is then contemplated a bond issue would be sold in the Fall of 1993 to finance the various improvements identified in the study, provided the necessary referendum was approved. School District officials feel work on the improvements to the theater area would be undertaken in late 1993 or early 1994. During this time, it is anticipated that staff would continue to work with the School District and CPT concerning progress on development of an entertainment complex. In conclusion, it appears the School District is willing to accommodate Child's Play Theatre at the Eisenhower facility either on a short or possibly long term basis. • Honorable Mayor and City Council December 29, 1992 Page 4 o Is the Rudy Luther property available for purchase by the City? At the time the analysis of the Rudy Luther block was undertaken for the stand alone Performing Arts Facility, the Rudy Luther Body Shop and surrounding property on this block were not available for sale. Therefore, City staff undertook an analysis of the block with this consideration in mind. This is the reason the present scenario was developed which includes acquiring Vic's Red Door, the two houses north of Lot 700, and utilizing other HRA owned property in this area to accommodate a 13,000 sq. ft. Performing Arts Facility. The scenario discussed by staff at the December 15, 1992 Council meeting did not include the purchase of any Rudy Luther property on the block. Recently, City staff has been in contact with Rudy Luther about the sale of the Body. Shop and other property on this block. Rudy Luther has indicated at this time that he is possibly willing to sell the property which he owns between 7th and. 8th Avenues except for a small triangular parcel north of the alley on the west edge of this block. Rudy Luther has discussed with staff that although he is in a position to sell the property, he may not be able to vacate the Body Shop for a period of approximately 2 years. Mr. Luther has indicated he is not able to move his operation until such a time as the space he is currently examining purchasing is vacated by the present tenants. The space he is looking at relocating his body shop currently has a lease on it which runs for about 2 more years. Mr. Luther has stated that he is possibly willing to sell his property with the consideration that the City lease it back to him for a term of approximately 2 years. This would allow him time to move the body shop to the other location. Staff had an earlier appraisal completed on all the Rudy Luther property on the block, including the used car property east of 7th Avenue. The value of the property based upon this appraisal is $640,000. An option agreement for the Rudy Luther property has been provided to Mr. Luther by staff for consideration. However,' there has been no response from Mr. Luther to date. o What is the possibility of constructing a smaller • ntertainment" project elsewhere in the City? Two sites could potentially accommodate such a project other than the Suburban Chevrolet property: • • • Honorable Mayor and City Council December 29, 1992 Page 5 1) Rudy Luther Block 2) R.L. Johnson B -3 zoned property located at the Southeast corner of County Rd. 3 and llth Avenue The Rudy Luther Block, which includes all of the property North of Mainstreet, and south of the LRT corridor between 7th and 8th Avenues is approximately 74,232 sq. ft., or 1.7 acres. Staff has determined that this site could potentially accommodate a 13,000 sq. ft. Performing Arts Facility, and approximately a 7,000 - 10,000 sq. ft. restaurant. It appears with these two uses, that a majority of parking could potentially be accommodated on site. If the body shop were to be purchased from Rudy Luther, the triangular property east of 7th (15,110 sq. ft.) would also go along with this acquisition. This additional property would accommodate approximately 50 parking spaces for any project which would be completed on the Rudy Luther Block. A large movie theatre project as a single use would demand approximately between 350 to 500 parking spaces. There would not be enough-square footage in this area to allow for the construction of a stand alone movie theatre along with CPT and a restraunt with the surface parking which would be available. If all of the R.L. Johnson property on the corner of County Rd. 3 and llth Avenue (2 acres), along with the HRA property, were incorporated into one parcel, there would be sufficient square footage to accommodate construction of both a Performing Arts Facility and a restaurant. However, Mr. Johnson presently has an option agreement executed on approximately 1 acre of this site. o What are the issues with regard to downsizing the Performing Arts Facility building from 13,000 sq. ft.? The issue of downsizing the building from 13,000 sq. ft. to 10,000 - 12,000 sq. ft. came as a recommendation from Art Space based upon their analysis of CPT's operations. Art Space's recommendation to downsize the building was also based upon the fact that a smaller building would create less annual operating liability for CPT. Art Space estimated CPT would be able to pay operating costs of $96,000 per year. This would calculate to about $7.38 per square foot in a 13,000 sq. ft. building. Art Space has stated that based on other similar operations, per square foot costs will realistically be between $7 - $10. • • Honorable Mayor and City Council December 29, 1992 Page 6 Therefore, operating costs of $7.38 square foot, would be an ideal situation. However, from a more conservative standpoint, by assuming average square foot costs at somewhat the medium of $8.50, CPT could afford a building which is 11,300 square feet. CPT recently submitted a revised facility budget based on their first year of occupancy in 1995. They have estimated operating costs for this year to be $112,000, which is approximately $8,000 more than projected by the City Staff. However, they have also detailed an increase of approximately $10,000 in total revenues for the same period. The assumption is these increased revenues would off -set the increased operating costs. City staff has not had an opportunity to review this matter in any great detail with Art Space or CPT. The original size of the facility that CPT stated they required for their operation was approximately 18,000 20,000 square feet. In response to staff concerns, this was reduced by C.P.T.to 13, 000 square feet. In discussions with Mr. Barberio, he has stated it is likely that any further downsizing will result in a building which would not meet the minimum requirements of Child's Play Theatre or provide for flexibility for use by other organizations on a long . term basis. An additional concern that CPT would have with downsizing the building is that there is the possibility they may outgrow a smaller facility in the next 10 -15 years. Staff has determined that until an architect is hired to complete the design /layout phase of such a project, the appropriate building size is going to be difficult to determine. As a result of the architectural review, the size of the building may actually be able to be reduced because of a more efficient design /lay -out of the space, but at the same time still meet all the needs of Child's Play Theatre and other potential users. On the other hand, this analysis may determine the facility needs to be 13,000 square feet or perhaps . even larger in order to be a usable facility on a long term basis. o How would a project be structured with Child's Play Theatre as part of an "entertainment" project? Initial discussions with Copeland - Mithun for an entertainment type project included Child's Play Theatre, a movie theatre, and a restaurant facility. It was proposed to be entirely privately owned. There is the possibility that if CPT was part of an entertainment complex, that this portion of the facility could be publicly owned. The benefit of such an approach would be as follows: • • Honorable Mayor and City Council December 29, 1992 Page 7 City would retain better control over the C.P.T.facility Property taxes would not have to be included as part of the operating costs Very little analysis has been done on the financial structure of the entertainment complex. A pre - development agreement was signed with Copeland - Mithun, but since an option agreement could not be successfully negotiated with the owners of Suburban Chevrolet, further in -depth analysis of the entertainment complex issue did not proceed. In the initial discussion process Copeland - Mithun indicated that to make the project feasible for them they would likely ask that the City purchase Suburban Chevrolet, complete any necessary environment clean -up, and sell the property to Copeland - Mithun for $1.00. In addition to this, Copeland - Mithun has said an additional subsidy of $1 to $1.5 million would be required because of CPT's inability to pay market rent on their portion of the complex. Based upon these assumptions the City's involvement in this project would be in the range of $2 2.5 million. o What is Child's Play Theatre's ability to manage a Performing Arts Facility? Attached to this memo is a letter from Art Space which outlines the issues involved in managing a Performing Arts Facility. Art Space suggests that with the addition of two staff people, management of the facility for CPT should not be a concern. Art Space has outlined in the initial operating costs the addition of a Maintenance /Janitor at $18,000 per year, and a Management /Booking person at $21,000 per year. With these two staff people, and a small reallocation of existing CPT staff time, Art Space states that CPT will be quite capable of managing the facility. o How are capital costs such as roof replacement and heating /cooling systems worked into the operating costs? At the Council meeting on December 15, 1992, a concern was expressed that the operating pro -forma as detailed by staff and Art Space did not accurately address the issue of capital replacement expenditures. However, staff feels that this issue is addressed adequately in the operating pro forma as detailed in the initial Art Space report. • Honorable Mayor and City Council December 29, 1992 Page 8 Art Space recommended in their initial report that the City contribute $50,000, and CPT contribute $30,000 toward funding of a Replacement Reserve account with a mechanism in the Master Lease agreement to replenish /build on these reserves. Also, staff has also included in the initial report, a line item operating expense entitled "reserves ". Staff is suggesting that under this line item, $1.00 per sq. ft. per year be escrowed into a replacement and /or operating reserve account. These funds, in addition to the $80,000 Replacement Reserve account, would be used to fund repair and /or replacement of the following items: o Roof Seat replacement Lighting Major maintenance` items Staff is comfortable that these two methods of funding capital replacement accounts will be sufficient to address associated costs. Parking lot improvements o How can the City assist with Child's Play Theatre's fundraising activities? Steve Barberio has informed City staff that for CPT fundraising efforts to continue to progress, a signed Development Agreement or firm letter of commitment to fund their project from the City would be necessary. Mr. Barberio indicated that probably anything less than this would not be of any benefit in securing a successful commitment from the McKnight Foundation, or other large corporate givers. Mr. Barberio is currently in the process of discussing this issue further with McKnight and other corporate givers. • Honorable May and City Council December 29, 1992 Page 9 IV. Alternatives Various project alternatives have been discussed as part of the previous staff report on this project. The specifics of these alternatives, along with action steps, are identified as follows: 1) Construct a free standing performing arts facility. Action Steps Action Steps o Identify site. Staff is recommending a site which would utilize the western portion of the Rudy Luther block along with property which would be acquired west of 8th Avenue. o Authorize staff to secure options on selected site. Staff has already secured options for the above described property. Therefore, this action would only be required if a site other than what is recommended by staff was selected by the Council by HRA. o Direct staff to review various alternatives for constructing the facility, including utilizing a project manager, design build approach, or conventional construction utilizing an architect and general contractor. Staff would then return to the Council in the near future with the recommended approach and request authorization to proceed based upon the approach selected. o Authorize completion of phase one environmental assessment and any additional environmental analysis. o Authorize staff to begin preparing master lease agreement with Child's Play Theater. o Undertake necessary revisions to tax increment plan. Work with a private for profit developer to construct an entertainment complex which would include a facility for Child's Play Theater. The Suburban Chevrolet property had previously been identified as a priority site for this type of project. Request that staff prepare a letter responding to the September 29, 1992 letter from Child's Play Honorable Mayor and City Council December 29, 1992 Page 10 Theater Company. This letter in summary would state the following: o The City of Hopkins is not in a position t support a free standing performing arts facility at this time. However, the City will continue to work towards construction of an entertainment complex facility within the City with Child's Play Theatre as a tenant. The priority site for this project at this time being the Suburban Chevrolet property. o The City is not able to commit $1.5 million for construction of a free standing performing arts facility at this time. The City is willing to consider providing funds to facilitate the construction of an entertainment complex facility which included Child's Play Theatre as a major tenant. o The City cannot commit to the construction of a free standing performing arts facility or entertainment complex by June 15, 1993 However, it may be possible that construction could be started in the spring of 1994 of an entertainment complex with occupancy in the fall of that year. City would maintain communication with the School District as relates to the status of the School District's facility needs analysis and their proposed bond issue to finance improvements contained in the study. Direct staff continue to work with the owners of Suburban Chevrolet to secure an option agreement. Provide a letter to Copeland - Mithun that the City wishes to continue to pursue an entertainment complex project for the City and authorize staff to continue to work on the specifics of such a project. Have staff provide a monthly update at the regular scheduled HRA meeting as relates to both the status of negotiations on the Suburban Chevrolet site and the School District improvements to the theater facility at Eisenhower. • Honorable Mayor and City Council December 29, 1992 Page 11 o Direct that staff schedule on the April 6, 1993 HRA agenda a discussion of the status of undertaking an entertainment complex project on the Suburban Chevrolet property. At this time, the HRA would be requested to undertake one of the following actions: o Authorize staff to continue to pursue the Suburban Chevrolet site for an entertainment complex facility. Authorize staff to secure options on an alternative site i.e. Rudy Luther block or R.L.Johnson property for construction of a smaller entertainment complex project. Authorize staff to take the necessary steps for constructing a free standing performing arts facility. Maintain the Child's Play Theatre operation at Eisenhower School. It is assumed that this action would be done in conjunction with the above alternative and therefore the action steps would be the same. However, there is the alternative that neither a free standing facility or entertainment complex would not be undertaken. Under this senario, it would be assumed that staff would be directed to work with the School District and CPT to undertake a lease agreement and improvements to the theater which would meet CPT's needs. However, CPT has previously stated that they do not wish to remain at Eisenhower long term. December 21, 1992 Mr. Paul Steinman Community Development Specialist City of Hopkins 1010 First Street South Hopkins, MN 55343 r r Dear Paul: As per our conversation of the past week, and today, I am writing to respond to a some of your questions regarding the CPT project. As I understand it, there are two concerns which came out of the council meeting; the issue of Facilities Management, and the issue of Capital Replacement. e council's concern about CPT's ability to manage a new facility a legitimate one. There is a substantial amount of work involved in managing a facility of this type. We have addressed this to some extent in our report under the Analysis of Operating and Maintenance Section. We have suggested that two new positions be added to CPT's staff as part of the general operating expense of the new facility. These positions are defined as Maintenance /Janitor and Management /Booking, for which we have allocated $40,000. In addition to this, however, CPT will need to reallocate some staff time to deal with the inevitable issues associated with building management. The Executive Director, as well as the various theatre department heads, will need to plan for making facilities management a part of their daily activities. I think that with the addition of the above mentioned staff support, CPT will be quite capable of managing this proposed facility. As I understand it, the council's second concern was that there were sufficient capital reserves to cover replacement needs, along with a proposed schedule for capital replacement. This too is a very legitimate concern for any project. On page nine of our report, we outlined our recommendation that $50,000 be set aside as initial funding of a Replacement Reserve Account. In addition to this we recommended that CPT be obligated to continue to fund this account as part of the general operating expense of the facility. We are recommending that the annual operating budget include a 0,000 line -item for funding the replacement and operating reserve counts. The City and CPT will need to come to agreement as to at level these. Accounts should be funded to, and how they are to be used. With regard to a Replacement Schedule for Capital •-P. !c`: 40 FIRST • r, , �`rc,iis� SUITE 5;3 • MINNE4P01.1S MINNESOTA 5 411' �,4u; 5,.33" (_37 like 2 Paul Steinman December 21, 1992 Equipment, this will need to be developed as part of the overall plan when you get to that stage. It should include replacement of lighting systems, seats, and sound system, along with those items included in a standard building replacement schedule. If you think of any other questions you report, please feel free to contact me at I look forward to hearing from you soon. Sincerely; _•_ ... Thomas Nordyl Director o dminizfration may have regarding our your convenience. Have a good Holiday. Patrick J. Bradley Robert J. Deike December 22, 1992 Mr. James Kerrigan City of Hopkins 1010 - 1st Street South Hopkins, Mn 55343 Re: Child's Play Theater Project BRADLEY & DEIK.E. PA. Attorneys at Law SUITE 306. 5100 EDEN AVENUE EDINA. MINNESOTA 55436 -2337 (612) 927.4333 Fax (612) 927-7049 Qf Counsel; Stephen A. Carr Dear Jim: This is in response to your request for an opinion concerning the legal ability = of the Hopkins Housing and Redevelopment Authority ( "URA ") to undertake a development involving the construction of a performing arts facility within the City of Hopkins. You have asked whether the HRA may legally use its funds, including tax increment, to acquire and construct the facility which will be leased to a non-profit theatre company for the staging of live theatre performances. The facility may be subleased to other parties for similar types of uses, and use of the facility will be reserved by the HRA for other community activities. In my opinion, this is a permissible exercise of the HRA's powers. The proposed facility will be located within a redevelopment project created by the HRA pursuant to minna22.ta Statutes,, Sections 469.001 -.047. Under section 469.012, subd. 7, of the statutes setting forth the HRA's powers, the HRA has the authority to "... acquire... real property, and to demolish, 4emove, rehabilitate, or :.construct the buildings and improvements or construct new buildings and improvements thereon....' In addition, under section 469.002, subd. 14, the definition of "redevelopment project" includes the "...installation, construction, or reconstruction of streets, utilities, parks, playgrounds, and other improvements necessary..." to accomplish the redevelopment plan objectives. The HRA has the authority to sell or lease land acquired for uses in accordance with a redevelopment plan. . (Sections 469.002, subd. 14(3), and 469.029) Mr. James Kerrigan December 22, 1992 Page 2 With respect to financing of the proposed development, Section 469.012, subd. 7/ provides that the HRA may finance such activities "...by means of the redevelopment project fund or by means of tax increments or tax increment bonds...." Section 469.176, subd. 4, of the tax increment law provides that tax increment may be used by a housing and redevelopment authority to pay the public redevelopment costs of a project pursuant to Minnesqa Statutes, section 469.001 -.047. The public redevelopment cost of a project is defined in section 469.033, subd. 1, as all cost of a project. Finally, section 469.176, subd. 4g, prohibits the use of tax increment to finance facilities to be used primarily and regularly for conducting the business of the HRA or the city, but provides that "This provision shall not prohibit the use of revenues derived from tax increments for the construction or renovation of a... facility used for social, recreational, or conference purposes and not primarily for conducting the business of the municipality." It is my opinion that the statutory provisions cited above provide legal authority for the HRA's use of its funds, including tax increment funds, to undertake the proposed project, assuming that the HRA finds that the development is consistent with and furthers the purposes for which the redevelopment project is being undertaken (i.e. the elimination of blight and the causes of blight, the stimulation of the local economy, etc.). Please let me know if you have any questions concerning this letter or if any clarification is needed. Sincerely, Robert 3'. Deike TOTAL F.03