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Memo Child's Play Theater 'oJ ^' ~ -Y <" o p ~ K \ C I T Y o F HOP KIN S MEMORANDUM DATE: January 9, 1992 TO: Honorable Mayor ands;~ty council FROM: Paul T. steinma~~mmunity Development Specialist SUBJECT: CHILD'S PLAY THEATER -------------..:.--------------------- Due to the length of this report, staff has outlined the following major topic areas in the report to assist you with analyzing this issue and to facilitate our discussion at the worksession. CONTENTS OF REPORT I. Purpose of Discussion 2 II. Summary of Findings 2 III. Background 2 IV. s'i te options 3 V. Ownership Scenarios ' 8 VI. Financial Information 9 VII. Timetable 17 VIII. Concluding Analysis 18 IX. Alternatives 19 Honorable Mayor and city council January 9, 1992 Page 2 I. PURPOSE OF DISCUSSION The purpose of this discussion is to examine various alternatives and the related costs to assist Childs Play Theater to expand and retain their operation within the City of Hopkins. Childs Play officials realize that the city is not in a position to undertake any official action at this time. For now they would like to know, based on the potential cost and available sites, if there is still an interest on the part of the city to try and facilitate this project. Based on the schedule submitted by Childs Play, by June 1992 the City council would need to provide a fairly strong commitment to proceed with the project. II. SUMMARY OF FINDINGS 1) Because of size, height and design requirements, limited existing buildings in the city are able to accommodate the needs of Childs Play. 2) Renovation of an existing building would probably require a public subsidy of $1,100,000 - $1,450,000. 3) Construction of new facility would require, a public subsidy of approximately $1,400,000 - $1,500,000 (could vary substantially depending on land cost). 4) Available sites for new construction are limited. Childs Play requires substantial parking. 5) If privately owned, facility would probably require annual public subsidy. , 6) Childs Play has the ability to raise approximately $300,000 to offset capital costs. 7) If tax increment dollars are used to finance the project, there may not be sufficient funds to undertake other projects which are presently proposed or contemplated. 8) The most viable alternative, strictly from a cost perspective, would be renovation of an existing structure, with a private developer financing and owning the project. III. BACKGROUND Child's Play Theater is currently located at Eisenhower community Center. Over the last Tew months, Child's Play has been examining the feasibility of moving into a location which better suits their space needs. Honorable Mayor and City Council January 9, 1992 Page 3 Child's Play Theater approached the City Council at their meeting on November 5, 1991 to discuss what level of support there might be in providing public financial assistance for a new facility in Hopkins. At that meeting the City Council directed staff to continue working with Child's Play Theater and report on the progress at the January workshop session. staff then undertook a process of examining the potential for this development in Hopkins. Staff has been working with Child's Play Theater's Executive Director, Mr. Steve Barberio, to generate the information necessary to make a determination as to the level of public financial assistance which would be necessary to facilitate this project. Child's Play Theater Company has the following building needs: 0 15,000 to 20,000 square feet w/minimal structural obstruction. 0 Minimum 15' ceilings. 0 Access to a fairly substantial amount of parking. Because of these constraints, there are few buildings in Hopkins which presently meet the minimum requirements of CPT. IV. SITE OPTIONS Staff has identified the following options available to CPT: A. New construction in Hopkins. B. Renovation of an existing building in Hopkins. C. Remain in present facility at Eisenhower Community Center. D. Relocate to another community. These options for CPT are summarized below. A. New Construction The following are site alternatives for new construction: site #1 - Central Park adjacent to Pavilion site #2 - Suburban Chevrolet site #3 - Rudy Luthers auto body building site #4 - SE corner of cty Rd 3 and 11th Avenue Honorable Mayor and city Council January 9, 1992 Page 4 These four sites are analyzed as follows: site #1: Central Park adjacent to Pavilion. Lee Gustafson, Public,;" Works Director has informed staff that he does not know whether there is enough land available at this site to facilitate a 15-20,000 sq. ft. building, without substantially affecting the overall usability of the park. Further study would be required to determine the overall impact of such a project on this site. Issues/Comments: 0 Would require substantial additional parking 0 Would remove open space in Central Park site #2: Suburban Chevrolet. This site is potentially going to be available near the end of 1992. This site is also currently an alternative grocery store redevelopment site. Issues/Comments: 0 There is some question as to when the site will be vacated and become available for redevelopment. 0 If this site would be chosen for this project, it would probably be appropriate to incorporate another project or projects with it, to develop the site to its maximum potential. 0 Ample parking available in ramp 0 If chosen for this project, would no lOl)ger offer an alternative as a grocery store redevelopment site. 0 Demolition of a fairly substandard building in the CBD. 0 Because of the size of the site, project would need to be incorporated with other uses on the site. Honorable Mayor and city Council January 9, 1992 Page 5 site #3: Rudy Luthers Auto Body Block. I,ssues/Comments: 0 Currently in grocery store redevelopment area. 0 Existing commercial buildings are somewhat substandard. 0 Potential inadequate parking. 0 Do not know whether this site will be available until the outcome of the grocery store project is determined. site #4: Southeast corner of County Road 3 and 11th Avenue. Issues/Comments: 0 Potentially large enough to facilitate adequate square footage and parking. 0 Require property acquisition from R.L. Johnson 0 Would utilize a portion of HRA owned property along County Road 3. 0 Provide good access and visibility for CPT. 0 There is presently a proposal to build a gas station on the site. 0 R.L. Johnson property is priced fairly high. B. Renovation Of An Existinq Building in Hopkins The following are site alternatives for renovation: site #1: Taits Super Valu site #2: Suburban Chevrolet site #3: Rudy Luthers These three sites are analyzed as follows: site #1 Taits Super Valu Issues/Comments: 0 Would utilize building if became vacant Honorable Mayor and city council January 9, 1992 Page 6 ; 0 Central downtown location 0 Adequate size and ceiling 'height 0 Potential inadequate parking 0 Presently not available 0 Rent and operating costs are mor~ than what Childs Play Theater has the ability to pay for. 0 Substantial renovation costs 0 Do not know whether this site will be available until the outcome of the grocery store project is determined. site #2: Suburban Chevrolet Issues/Comments: 0 Existing building may potentially meet the needs of this project. Childs Play has not yet reviewed the feasibility of using the existing building. 0 Central downtown location 0 Adequate off street parking available in ramp. 0 Presently not available, and some questions as to when it will become available. 0 This site is a potential alternative for the Grocery Store project. 0 In order to obtain the highest and best use for the Suburban Chevrolet property, CPT would have to be combined with another project or projects on that site. 0 Substantial renovation costs. Honorable Mayor and City Council January 9, 1992 Page 7 site #3: Rudy Luthers Auto Body Block Issues/Comments: 0 CPT representatives have not looked at this building. 0 Building may be large enough to accommodate CPT. 0 Central downtown location 0 Potential inadequate parking 0 Substantial renovation costs 0 Site presently being considered as part of the grocery store redevelopment project area. C. Remain In Present Facilitv At Eisenhower Community Center Issues/Comments: 0 Renovations to the building would meet some of CPT's space concerns 0 Major concern is sharing space with another user 0 Eisenhower presently conducting a needs assessment for space at the Community Center 0 Facility does not meet all of the space needs and requirements of CPT 0 Long term use of facility is questionable 0 CPT potentially may begin a capital improvement fund drive and undertake renovations on their own 0 CPT may choose not to do any renovation 0 Renovation costs estimated at $100,000 to meet needs of CPT. School district has no funds available to undertake these improvements. Honorable Mayor and city Council January 9, 1992 Page 8 v. OWNERSHIP SCENARIOS There are three different ownership scenarios under new construction and renovation of an existing building in Hopkins. They are: Scenario #1: city owned performing arts facility Scenario #2: Childs Play Theater owned facility Scenario #3: Private developer built/renovated and owned facility These three ownership scenarios are summarized below. All three ownership scenarios require some capital injection by City. A. Scenario #1: city owned performing arts facility 0 Childs Play Theater would be major tenant 0 Minnetonka Dance Theater and School possible secondary tenant 0 Would need to be open to the public at certain times 0 Facility would be tax exempt. Potentially would remove privately developed site from the tax rolls. 0 Require initial city investment 0 Could require ongoing City operating subsidy 0 city would be responsible for securing and sustaining tenants B. Scenario #2: Childs Play Theater owned facility 0 Childs Play Theater possibly subleases portion of the building to Minnetonka Dance Theater and School 0 Appears facility may be tax exempt 0 Require initial City investment 0 Likely require ongoing city subsidy 0 CPT responsible for securing and sustaining tenants Honorable Mayor and city Council January 9, 1992 Page 9 C. Scenario #3: Private developer built/renovated and owned facility 0 CPT to be major tenant 0 Minnetonka Dance Theater and School to be secondary tenant 0 Potential for incorporating other development projects to help provide ongoing subsidy to CPT 0 Facility would be taxable 0 Require initial city investment 0 May not require ongoing City subsidy 0 Developer responsible for sustaining major tenant VI. FINANCIAL INFORMATION A. Funding Sources The following would be potential funding sources if the City Council were interested in assisting CPT involving either a purchase or renovation: 1. Tax increment financing. If the project was developed in the downtown district, tax increments from TIF District 1-1 could be utilized. Presently the majority of funds available within this district up through 2001 have been allocated to a variety of projects. These include the following: 0 Mainstreet reconstruction 0 Bursch's redevelopment 0 Suburban Chevrolet redevelopment 0 CBD grocery store project/redevelopment of Rudy Luther block 0 Alleyscape project To undertake the above items and CPT: 0 Bond sales would have to occur Honorable Mayor and city council January 9, 1992 Page 10 0 No guarantee of sufficient funds to finance all projects in the event of a bond sale Based on a recent analysis by staff, it would appear that if a bond was sold based on tax increments generated through 2001, and all of the above activities were undertaken, there would be approximately $500,000 to $1,000,000 in excess TIF available to finance other projects. This amount of excess increment could increase based upon the following: 0 Some of the activities identified above are not undertaken 0 Project costs are less than originally anticipated by staff. If a project was undertaken outside of the downtown, there would be the potential of utilizing tax increments from TIF District 2-1. At the present time the only increment of any substance being received within this district is from the R.L. Johnson Wests ide Business Park project. Activities which are presently identified for utilization of this increment include the following: 0 Mainstreet reconstruction between 12th Avenue and Shady Oak Road 0 Upgrading of County Road 3 0 Road improvements, regarding Super Valu 0 Acquisition, regarding handicapped housing project at 5th Avenue and Mainstreet These activities could require substantial dollars, and at this time staff does not have an estimate as to the amount of the costs of these improvements. Childs Play Theater is presently talking to a couple of developers that would potentially incorporate Childs Play Theater into an overall larger development. Depending upon the magnitude of such a development, there is the possibility that such a project could repay a portion or all of the public costs required to facilitate the project. Furthermore, there is the possibility that even though Childs Play was developed as a stand alone project, it could be the catalyst to encourage other development which would result in tax increment generation. Honorable Mayor and City council January 9, 19,92 Page 11 2. HRA Levy. HRA's have the ability by state statute to levy a certain percentage of the tax capacity over and above the legal levy limits. It would appear that the Hopkins HRA would have the ability to raise approximately $80,000 per year utilizing this levy. The levy can be used for: 0 Capital Costs 0 operational costs ~ recent restriction enacted by the Minnesota legislature states that any HRA that did not collect the levy in 1991 could not implement one in 1992. Pressure is presently being placed on the legislature to change this restriction for next year. 3. Special service district. A special service district can be established in an identified area which would receive benefit from a service or project over and above other areas of the city. Such an area could be established for the amount of the cost of the project or improvement. Staff has some concerns relative to the legality of using the special service district for CPT and would need to research this idea further if the Council should decide this may be an appropriate alternative. It would appear that in order to use this financing tool the project would probably have to be city owned. Hopkins has the ability through special legislation to establish a special service district in the downtown area. However, implementation of such districts are very difficult for the following reasons: 0 A certain percentage of the property owners within the district must petition for undertaking the improvement or project and agree to assume the cost. 0 A certain percentage of the property owners within the special service district have the ability to veto the assessment. Honorable Mayor and city council January 9, 1992 Page 12 4. G.O. Bonds 0 This type of funding would require a referendum vote. It would place the burden of paying the costs of the improvement or project on all of the residents of the City of Hopkins. It may be difficult to secure approval of this type of financing in today's economic climate. 5'. Grants. Based on research by City staff it appears that there are potentially a couple of sources of grant funds for projects related to the arts. These include the following: 0 state Arts Board. These are operating funds and cannot be used for construction. The average grant is approximately $11,000 to $12,000 per year. The ability to receive a grant from this source is very dependent on the quality of the applicant. 0 McKnight Foundation. Funds received through this source could be used for construction. The application process is usually a four to six month time period. Grants usually do not exceed 10 percent of the total project cost. 6. Economic Development Fund Although this fund is available, CPT may not meet the existing policy guidelines associated with the Economic Development fund. staff has identified this to be the only long term funding source for economic development activities in the future. B. Financial Analysis If the City Council/HRA wished to facilitate a project with Childs Play Theater, a public subsidy would be necessary. The amount of subsidy would vary depending on whether the project involved renovation or new construction and whether it was publicly or privately owned. The following are various scenarios for both renovation and new construction. These could vary depending on the specific location and extent of improvements. These scenarios are based upon the following assumptions: Honorable Mayor and city council January 9, 1992 Page 13 0 Development cost - Renovation - $80 sq ft (includes $30 sq ft acquisition cost) - New construction - $93 sq ft (not including acquisition) 0 Present Value is figured at interest rate of 12%, with 20 year amortization. Present Value simply takes a series of paYments which are to be made over a term of years, and adds them together with interest, to represent "todays" dollars. 0 It is assumed that the Childs Play Theater would secure private financing for their equity portion. It is also probably true that the city would need to finance on the front end the figure shown as a debt supported by rent. 0 All debt is figured at interest rate of 12%, with 20 year amortization 0 No ongoing cash flow profit to developer is detailed 0 Market value of Taits Super Valu is presently $875,000 0 Childs Play Theater has the ability to pay $80,000 a year in operating costs 0 CPT and Minnetonka Dance Theater and School have ability to pay $103,000 annually: - $60,000 operating costs - $43,000 debt service 0 Childs Play Theater is able to secure $300,000 through a capital fund raising campaign 0 Minnetonka Dance Theater and School is able to secure $100,000 through capital fund raising program 0 Minnetonka Dance Theater and School is able to afford $23,000 a year in operating costs 0 For new construction, no land acquisition or site preparation costs are figured into the overall analysis Honorable Mayor and City Council January 9, 1992 Page 14 1. Renovation of Existing structure Scenario I Assumption - 20,000 sq ft building (existing Taits building) - City owned - Major tenants: Childs Play, Minnetonka Dance Theater - $3.00 sq. ft. will cover all operating expenses Capital Costs - Acquisition $875,000 - Renovation $1.000,000 Total Capital Costs $1,875,000 - Less equity by CPT and MDT 400,000 - Less debt supported by rent 320,000 payment Total Capital Shortfall ($1,155,000) Scenario II Assumptions - 20,000 sq ft building (existing Taits building) - Major tenants, Childs Play, Minnetonka Dance Theater - Privately owned, no public acquisition - Tenants to complete leasehold improvements Capital Costs - Acquisition $ 875,000 - Renovation ($50/sq ft, 1,000,000 20,000 sq ft) - Less equity by CPT and MDT 400,000 Total Capital Shortfall ($1,475,000) Rent and Operating Cost - Rent $9.87 sq ft $197,000 - Operating costs $5.00 sq ft 100.000 (includes $2 sq ft taxes) Total $297,000 - Maximum gross rent payable 103,000 by CPT and Minnetonka Dance Annual Operating Deficit ($194,000) Present value ($1,449,000) Honorable Mayor and City council January 9, 1992 Page 15 Scenario III Assumptions - 20,000 sq ft building (existing Taits building) - Privately owned - 5,000 sq ft other tenant (private retailj commercial secured by owner of building) - 15,000 sq ft for Childs Play - Tenant to complete AND finance leasehold improvements Capital Costs - Acquisition $875,000 - Renovation ($50jsq ft, 750,000 15,000 sq ft) - Less equity, Childs Play only 300.000 Total Capital Shortfall ($1,325,000) Rent & Operatinq Cost - Rent $8~87 sq ft $177,000 - Operating costs $5.00 sq ft 100,000 Total $277,000 - Maximum gross rent payable 80,000 by CPT - Rent payable by other tenant 45,000 ($9.00 sq ft) Annual Operating Deficit ($152,000) Present value ($1,135,000) 2. New Construction Basic Assumption - Land cost of $450,000 (70,000 sq ft x $6.00 sq ft) - This cost could vary substantially depending upon the site chosen Honorable Mayor and City Council January 9, 1992 Page 16 Scenario I Assumptions - Land cost $450,000 - 19,300 sq ft building - City owned - Tenant pays all operating costs - Childs Play and Minnetonka Dance major tenants Capital Costs - Land acquisition $ 450,000 - Total construction cost, 1,800,000 $93 sq ft Total Capital Costs $2,250,000 - Less equity from CPT & MDT 400,000 - Less debt supported by rent 320,000 payment Total Capital Shortfall ($1,530,000) Scenario II Assumption - Land cost $450,000 - 15,000 sq ft building - city owned - childs Play only tenant - Tenant pays all operating costs Capital Cost - Land acquisition $ 450,000 - Total construction $93 sq ft 1,400,000 Total Capital Costs $1,850,000 - Less equity from CPT only 300,000 - Less debt supported by rent 150,000 paYment Total Capital Shortfall ($1,400,000) Scenario III Assumption - Land cost $450,000 - 15,000 sq ft building - Privately owned - childs Play only tenant - Tenant to complete leasehold improvements Honorable Mayor and City Council January 9, 1992 Page 17 Capital Costs - Land cost $ 450,000 - Total construction $93 sq ft 1,400,000 - Less equity from CPT only 300,000 Total Capital Shortfall ($1,550,000) Rent & Operating Cost - Rent $13.83 sq ft $208,000 - Operating costs $5.00 sq ft 75,000 (includes $2 sq ft taxes) Total $283,000 - Max gross rent payable by CPT 80,000 Annual Operating Deficit ($203,000) Present Value ($1,516,000) VII. TIMETABLE This timetable has been proposed by CPT. 0 February 1992 Decision from City about the level of financial support they wish to contribute to the project Phase I of Capital Campaign 0 June 1992 Decisions about site are finalized and financial negotiations begin Phase II of Capital Campaign 0 Fall 1992 Announce the project and unveil plans for new facility 0 Spring 1993 Construction begins Phase III of Capital Campaign 0 Fall 1993 Opening night in new facility CPT is interested at this time in determining whether the City wishes to continue working with them to facilitate this project. Honorable Mayor and city council January 9, 1992 Page 18 VIII.CONCLUDING ANALYSIS Based on the above information, the Council is being asked to decide whether they wish to continue to work with Childs Play Theater in an effort to facilitate relocation of their operation to a new location in the City. If the Council desires to continue a working relationship, staff feels that it is essential that the City make decisions on whether they are still interested in undertaking some of the major projects being contemplated at this time, i.e. grocery store, Bursch's, theater, prior to making any detailed commitments. This project would require a public subsidy. If the city were to continue to work with CPT on this project, staff recommends the following be undertaken at some time. The cost of these studies could be substantial. These costs could be covered by either the City or CPT, or a combination of both. - Market Impact study A study such as this would provide the City with information relative to the benefit a development such as this would have on its surrounding area. This information may be useful in determi~ing the relationship between the potential public subsidy, and the benefit of having CPT here in Hopkins. There are only limited firms that might be capable of completing such a study. - Public Attitude Survey A public attitude survey would aid in determining the level of support there is for providing a public subsidy to CPT. It may also measure what perceived benefit there is in having a facility such as CPT in Hopkins. This survey may be similar to one which was completed when the City was examining the possibility of constructing the Pavilion. An alternative to completing a survey would be to hold public meetings to secure input. - Feasibility Study This study could provide a variety of information including the following: - Analysis of overall economic viability of project. Honorable Mayor and City Council January 9, 1992 Page 19 - strength of Childs Play Theater to monitor their operation and grow in the future. - Ability of Childs Play to support the debt load as proposed. - Ability of Childs Play to raise capital. - Analysis of ongoing operating costs for either new construction or renovation. - Analysis of various potential sites. - other potential uses of a performing arts facility. - Analysis of construction/renovation costs. IX. ALTERNATIVES It appears the Council has four alternatives available at this time: 1) Make a determination that the project is prohibitive based on cost or available sites. Under this action, Childs Play would explore alternatives for relocating their facility outside of Hopkins. One choice would be to stay at Eisenhower. 2) Authorize staff to continue to work with Child's Play and explore undertaking the various studies as detailed in this report. with this action it is assumed that the Council continues to be supportive of the project, and is willing to expend funds to undertake possible studies. 3) Have staff and Childs Play work with representatives of the School District to analyze alternatives for making Eisenhower a viable alternative. School District representatives feel they can accommodate Childs Play on at least a short-term basis, i.e. 3-5 years. Approximately $100,000 in improvements to the Eisenhower auditorium would address some of Childs Play needs. It should be noted that Childs Play has stated this is their least desirable option. 4) Take no action until such time as some of the major development activities presently being considered are resolved. At such time the Council could again review this project to determine possible alternatives. 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