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Memo Entertainment Complex Project , \ CITY OF HOPKINS MEMORANDUM DATE: May 27, 1993 TO: Honorable Mayor and city council FROM:~{Jim Kerrigan, Director, Planning & Economic Development SUBJECT: ENTERTAINMENT COMPLEX PROJECT ------------------------------ Purpose of Report In conjunction with the proposed Entertainment Complex Project for the Suburban Chevrolet site city staff has been discussing with Copeland-Mithun, Child's Play Theatre and Minnetonka Dance Theater issues that will need to be identified within the various agreements that will be executed in order to facilitate this project. The purpose of scheduling this item on the June 1 agenda is to discuss these various agreements and their proposed terms and timelines established and provide direction to the staff as to how the Council desires to proceed with this project. The development agreement as currently drafted contains an aggressive schedule as related to moving on the project. Staff is interested in how the Council feels about the timelines. At this meeting the Council is not being asked to specifically undertake any action on this item. As you are aware, at the most recent meeting with the city Council on this project a variety of major issues as relates to the performing arts facility were discussed. These included the following topics: 0 Potential size of the facility 0 Cost consideration 0 Ownership - public versus private Based on this discussion there was a general understanding as relates to the following: 0 Child's Play Theatre would need a facility of between 17,000 and 18,000 square feet. If Minnetonka Dance Company is to be accommodated an additional . Honorable Mayor and city council May 27, 1993 Page 2 approximately 4,000 square feet would need to be added to the facility. The general consensUs from the Council seemed to be that staff should continue at this time to look at a large enough facility that would accommodate both Child's Play Theatre and Minnetonka Dance Company. 0 The public cost to build a performing arts facility would range between approximately $1.6 million for a 17,000 square foot facility to $1.9 million for a 22,000 square foot facility if it was publicly owned. Under private ownership the range would be between approximately $2.4 million and $2.9 million. The Council in its discussion felt that the project should continue to be pursued even though costs are higher than originally anticipated. 0 The facility could be either publicly or privately owned. However, there appears to be a strong cost benefit in having the facility publicly owned. Because of property tax payments, developer profits, and the cost for a developer to borrow money, private ownership could increase the overall project cost by at least $1 million. As a result of the recent Council discussion there seems to be a consensus that public ownership may be the most appropriate effort to pursue. Proposed Agreements Based on the assumption that the performing arts facility would be publicly owned, the following two agreements would need to be executed prior to proceeding any further with the project. 0 Development agreement between the Hopkins HRA and Copeland-Mithun 0 Agreement to lease between the Hopkins HRA and Child's Play Theatre. The timetable as detailed for completing the various tasks is very aggressive and may have to be revised as the process proceeds. However, staff feel tasks need to be completed in an expedient manner if this project is to be completed by the fall of 1994. Development Agreement - Copeland-Mithun Based on this assumption the Performing Arts Center would be publicly owned, the development agreement with Copeland-Mithun would detail the requirements they would have to meet in conjunction with construction of the restaurant/movie theater . Honorable Mayor and City Council May 27, 1993 Page 3 portion of the entertainment project. The main points that are being considered for this agreement include the following: 0 within 14 days of execution of the agreement both parties would begin to negotiate an acceptable agreement whereby Copeland-Mithun would provide architectural services for the performing arts portion of the project. The development agreement would detail basic parameters on how the fee for this service would be established and an understanding that if an acceptable contract could not be worked out with Copeland the HRA would have the ability to solicit proposals and a new contract with another firm for providing such services. 0 within 45 days of the date of the agreement the developer would be required to provide the following: - A preliminary site plan - A preliminary project pro-forma - An application for concept review - A preliminary project time table - Preliminary letters of commitment from prospective tenants 0 Within 60 days the developer would be required to provide design schematic plans of the project. 0 within 90 days from the date of execution the developer would be required to submit the following: - Application for conditional use permit and subdivision of the property - Letters of commitment from tenants for at least 50 percent of the project space - Final financial pro-forma 0 Within 180 days from the date of the agreement the developer will be required to provide the following: - Final financing commitment - Binding letters of commitment for 100% of the space - Submission of construction plans . . Honorable Mayor and City Council May 27, 1993 Page 4 0 Closing on purchase of the property would be completed at such time as the following was completed: - Submission of all of the information as required by the development agreement as detailed above - All necessary approvals by the city and other governmental agencies had been received - Developer had secured a Letter of Credit. This Letter of Credit would be based on the cost the HRA would experience for the portion of property that would be utilized by the developer for construction of the restaurant/movie theater facility proposed project. - At the time of closing the developer would take ownership of that portion of the Suburban Chevrolet properties which would be used for the theater/restaurant project. The HRA or City would take ownership of the portion of the property to be used for the performing arts facility. - The developer would be required to enter into an assessment agreement for a minimum market value for the completed project. The Council/HRA needs to be aware of the following as relates to the proposed agreement with Copeland-Mithun: 0 The option agreement with the owners of Suburban Chevrolet require that there be a closing by no later than March 15. Based on the schedule for completing the various tasks within the agreement this should be attainable provided the development agreement is executed sometime within the reasonably near future. 0 The current draft of the development agreement does not make performance under the agreement contingent upon the performing arts facility proceeding. If the agreement was executed and the developer met all of the conditions of the agreement, even if a decision was made by the HRA to not proceed with the performing arts facility, there would still be an obligation for the City/HRA to provide Copeland-Mithun with land for their portion of the overall project. Development Agreement - Child's Play Theatre Based on the premise that the performing arts facility would be publicly owned, an agreement is also proposed to be executed with . Honorable Mayor and City Council May 27, 1993 Page 5 Child's Play Theatre. This agreement basically states that if various requirements were met by both parties, the City/HRA would agree to execute a lease with child's Play Theatre Company (CPTC) for use of the performing arts facility. This agreement to lease document would basically detail the following: 0 Within 14 days from execution of the agreement the HRA would undertake the process of hiring a project manager and an architect. 0 Within 60 days from the date of the agreement the Authority would furnish to CPTC schematic design drawings for the performing arts facility. They shall then have the ability to review these documents and provide their comments. The sole discretion on revising the plans at this stage shall be with the HRA. If agreement cannot be resolved between CPTC and the Authority as relates to the design of the facility the agreement to lease could be terminated at this time. It would probably be appropriate at this time to determine, based on cost and design considerations, whether or not as part of the detailed design/ construction planning preparation stage to include space in the proposed facility for Minnetonka Dance Theater. 0 Within 180 days from the date of the agreement the Authority will furnish CPTC with construction plans for the performing arts facility. CPTC again will have the ability to review these documents to provide their comments. However, it will be the sole discretion of the HRA as to whether and how the plans are revised based on these comments and either party shall have the ability to terminate the agreement. 0 A threshold for cost of construction of this facility shall be established in this agreement. Based on all construction and soft costs (architectural, engineering, environmental, legal, etc.) this is being discussed at the following limits: - 17,000 square feet $1,630,000 - 18,000 square feet $1,680,000 - 21,000 square feet $1,860,000 - 22,000 square feet $1,920,000 If based upon bids received it is determined that the cost of the facility, exclusive of any financial Honorable Mayor and City Council May 27, 1993 Page 6 participation by CPTC or other tenants, would exceed these limits the Authority will have the ability to terminate the agreement to lease with CPTC. 0 The Authority shall have the ability to terminate the agreement with CPTC if there are events of default existing as relates to the agreement with Copeland- Mithun that prevent them from proceeding with their project or the City/HRA has not closed on the purchase of the Suburban Chevrolet property by March 15. - If there are events of default taking place by either party 0 within 90 days of the date of the agreement CPTC will have to secure $200,000 in pledges for the leasehold improvements which will be undertaken within 180 days from the date of the agreement. They will be required to have secured the total $350,000 to complete all of their leasehold improvements at the time of closing. Provided there was no default by either party as relates to the agreement to lease and all of the required information is provided and determined acceptable by both parties in accordance with the agreement, the HRA would be obligated to enter into a lease agreement with Child's Play Theatre. Presently the terms of this lease agreement which are being discussed include the following: 0 Would be a master lease with CPTC. They would be the main tenant of the facility. They would be responsible for doing any subleasing to other tenants. This would include leasing to Minnetonka Dance Theater should they be a tenant in the facility. CPTC would receive a certain percentage of the proceeds received from subleasing. 0 Term of lease would be for 20 years with a potential to renegotiate for an additional five year option in the 18th year. 0 The facility would be leased to Child's Play Theatre for $1. Child's Play Theatre would be responsible for paying all operating and maintenance costs exclusive of property taxes and debt financing. 0 The capital reserve fund would be established to provide funding for major capital and improvement items. CPTC would contribute to this fund on an annual basis and also a portion of the funds potentially received from subleasing of the facility would be ~ Honorable Mayor and City Council May 27, 1993 Page 7 placed into this account. The City/HRA would maintain control of disbursement of funds from the account. 0 CPTC and the City would meet on an annual basis to schedule community usage of the facility. It would be understood that the City would have use of the facility at certain times. Future Action Based on the input from the Council it is assumed that the staff will continue to work with Copeland-Mithun and Child's Play Theatre to finalize various agreements necessary to facilitate the entertainment complex project. As part of the overall discussion at the June 1 meeting the Council is asked to provide direction to staff as relates to how they wish staff to proceed with Council/HRA action on these agreements from a timing standpoint. Any schedule for reviewing the various agreements will be dependent upon the following: 0 Agreement by the appropriate parties as relates to the various terms of the agreement. 0 The amount of public input and review that the Council will request be undertaken. In consideration of the above, staff can attempt to try and bring one or both of the agreements to the Council in June or wait until July. JK05263E