Memo Child's Play Theater
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HOP KIN S
MEMORANDUM
DATE:
January 9, 1992
FROM:
Honorable Mayor and.S;~ty council
. ~ . .,
Paul T. Ste1nman, Commun1ty Development Spec1a11st
TO:
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'ite options 3
V. Ownership Scenar ios . 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,DOO to offse~ 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 Iew 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 wo~king 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 nec~ssary 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:
o 15,000 to 20,000 square feet w/minimal structural
obstruction.
o Minimum 15' ceilings.
o 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:
o Would require substantial additional parking
o Would remove open space in Central Park
site #2: Suburban Chevrolet.
This site is potentially going to be available near the
end of ~992. This site is also currently an
alternative grocery store redevelopment site.
Issues/comments:
o There is some question as to when the site
will be vacated and become available for
redevelopment.
o 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.
o Ample parking available in ramp
o If chosen for this project, would no longer
offer an alternative as a grocery store
redevelopment site.
o Demolition of a fairly substandard building
in the CBD.
o 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:
o currently in grocery store redevelopment
area.
o Existing commercial buildings are somewhat
substandard.
o Potential inadequate parking.
o 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:
o Potentially large enough to facilitate
adequate square footage and parking.
o Require property acquisition from R.L.
Johnson
o Would utilize a portion of HRA owned property
along County Road 3.
o Provide good access and visibility for CPT.
o There is presently a proposal to build a gas
station on the site.
o R.L. Johnson property is priced fairly high.
B. Renovation Of An Existinq Buildinq in Hopkins
The following are site alternatives for renovation:
site #1:
site #2:
site #3:
Taits Super Valu
Suburban Chevrolet
Rudy Luthers
These three sites are analyzed as follows:
site #1
Taits Super Valu
Issues/comments:
o Would utilize building if became vacant
Honorable Mayor and City Council
January 9, 1992
Page 6
o Central downtown location
o Adequate size and ceiling height
o Potential inadequate parking
o Presently not available
o Rent and operating costs are more than what
Childs Play Theater has the ability to pay
for.
o Substantial renovation costs
o 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:
o Existing building may potentially meet the
needs of this project. Childs Play has not
yet reviewed the feasibility of using the
existing building.
o Central downtown location
o Adequate off street parking available 1n
ramp.
o Presently not available; and some questions
as to when it will become available.
o This site is a potential alternative for the
Grocery Store project.
o 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.
o Substantial renovation costs.
Honorable Mayor and city Council
January 9, 1992
Page 7
Site #3: Rudy Luthers Auto Body Block
Issues/Comments:
o CPT representatives have not, looked at this
building.
o Building may be large enough to accommodate
CPT.
o Central downtown location
o Potential inadequate parking
o Substantial renovation costs
o site presently being considered as part of
the grocery store redevelopment project area.
C. Remain In Present Facility At Eisenhower Community
Center
Issues/Comments:
o Renovations to the building would meet some
of CPT's space concerns
o Major concern is sharing space with another
user
o Eisenhower presently conducting a needs
assessment for space at the community Center
o Facility does not meet all of the space needs
and requirements of CPT
o Long term use of facility is questionable
o CPT potentially may begin a capital
improvement fund drive and undertake
renovations on their own
o CPT may choose not to do any renovation
o 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:
Scenario #2:
Scenario #3:
City owned performing arts facility
Childs Play Theater owned facility
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 performinq arts facility
o Childs Play Theater would be major tenant
o Minnetonka Dance Theater and School possible
secondary tenant
o Would need to be open to the public at certain
times
o Facility would be tax exempt. Potentially would
remove privately developed site from the tax
rolls.
o Require initial city investment
o Could require ongoing city operating subsidy
o city would be responsible for securing and
sustaining tenants
B. Scenario #2: Chirds Play Theater owned facility
o Childs Play Theater possibly subleases portion of
the building to Minnetonka Dance Theater and
School
o Appears facility may be tax exempt
o Require initial city investment
o Likely require ongoing City subsidy
o 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
o CPT to be major tenant
o Minnetonka Dance Theater and School to be
secondary tenant
o Potential for incorporating other development
projects to help provide ongoing subsidy to CPT
o Facility would be taxable
o Require initial city investment
o May not require ongoing city subsidy
o Developer responsible for sustaining major tenant
VI. FINANCIAL INFORMATION
A. Fundinq 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:
o Mainstreet reconstruction
o Bursch's redevelopment
o Suburban Chevrolet redevelopment
o CBD grocery store project/redevelopment of
Rudy Luther block
o Alleyscape project
To undertake the above items and CPT:
o Bond sales would have to occur
Honorable Mayor and city Council
January 9, 1992
Page 10
o 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:
o Some of the activities identified above are
not undertaken
o 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 westside
Business Park project. Activities which are presently
identified for utilization of this increment include
the following:
o Mainstreet reconstruction between 12th Avenue
and Shady Oak Road
o Upgrading of County Road 3
o Road improvements, regarding Super Valu
o 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:
o Capital Costs
o 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 ~egislature 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:
o A certain percentage of the property owners
within the district must petition for
undertaking the improvement or project and
agree to assume the cost.
o 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:
o 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.
o 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
o Development cost
Renovation - $80 sq ft (includes $30 sq ft
acquisition cost)
New construction - $93 sq ft (not including
acquisition)
o 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 add? them together with
interest, to represent "todays" dollars.
o 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.
o All debt is figured at interest rate of 12%, with
20 year amortization
o No ongoing cash flow profit to developer 1S
detailed
o Market value of Taits Super Valu is presently
$875,000
o Childs Play Theater has the ability to pay $80,000
a year in operating costs
o CPT and Minnetonka Dance Theater and School have
ability to pay $103,000 annually:
$60,000 operating costs
$43,000 debt service
o Childs Play Theater is able to secure $300,000
through a capital fund raising campaign
o Minnetonka Dance Theater and School is able to
secure $100,000 through capital fund raising
program
o Minnetonka Dance Theater and School is able to
afford $23,000 a year in operating costs
o Fpr ~ew 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
- Renovation
Total Capital Costs
- Less equity by CPT and MDT
- Less debt supported by rent
payment
Total Capital Shortfall
Scenario II
Assumptions
$875,000
$1,000,000
$1,875,000
400,000
320,000
($1,155,000)
- 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
- Renovation ($50/sq ft,
20,000 sq ft)
- Less equity by CPT and MDT
Total Capital Shortfall
Rent and Operatinq Cost
- Rent $9.87 sq ft
- Operating costs ,$5.00 sq ft
(includes $2 sq ft taxes)
Total
- Maximum gross rent payable
by CPT and Minnetonka Dance
Annual Operating Deficit
Present value
$ 875,000
1,000,000
400,000
($1,475,000)
$197,000
100,000
$297,000
103,000
($194,000)
($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 retail/
commercial secured by owner of building)
- 15,000 sq ft for childs Play
- Tenant to complete AND finance leasehold
improvements
Capital Costs
- Acquisition
- Renovation ($50/sq ft,
15,000 sq ft)
- Less equity, Childs Play only
Total capital Shortfall
Rent & Operatinq Cost
- Rent $8.87 sq ft
- operating costs $5.00 sq ft
Total
- Maximum gross rent payable
by CPT
- Rent payable by other tenant
($9.00 sq ft)
Annual Operating Deficit
Present value
2. New Construction
Basic Assumption
- Land cost of $450,000 (70,000 sq ft x
$6.00 sq ft)
$875,000
750,000
300.000
($1,325,000)
$177,000
100,000
$277,000
80,000
45,000
($152,000)
($1,135,000)
- 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
- Total construction cost,
$93 sq ft
Total Capital Costs
- Less equity from CPT & MDT
- Less debt supported by rent
payment
Total Capital Shortfall
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
- Total construction $93 sq ft
Total Capital Costs
- Less equity from CPT only
- Less debt supported by rent
payment
Total Capital Shortfall
Scenario III
Assumption
$ 450,000
1.800,000
$2,250,000
400,000
320,000
($1,530,000)
$ 450,000
1,400,000
$1,850,000
300,000
150,000
($1,400,000)
- Land cost $4501000
- 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
- Total construction $93 sq ft
- Less equity from CPT only
Total Capital Shortfall
$ 450,000
1,400,000
300.000
($1,550,000)
Rent & Operating Cost
- Rent $13.83 sq ft
- Operating costs $5.00 sq ft
(includes $2 sq ft taxes)
Total
- Max gross rent payable by CPT
Annual Operating Deficit
$208,000
75,000
$283,000
80,000
($203,000)
Present Value
($1,516,000)'
VII. TIMETABLE
This timetable has been proposed by CPT.
o
February 1992
Decision from City about the level
of financial support they wish to
contribute to the project
Phase I of Capital Campaign
o
June 1992
Decisions about site are finalized
and financial negotiations begin
Phase II of Capital Campaign
o
Fall 1992
Announce the project and unveil
plans for new facility
o
Spring 1993
Construction begins
Phase III of capital Campaign
o
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 determining 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.
P/PS1226JA
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