VII.1. Accept Petitions from Summit on 7 Homeowners and Set Public Hearing for the Creation of Housing Improvement Area; Needham
CITY OF HOPKINS
City Council Report 2025-044
To: Honorable Mayor and Council Members
Mike Mornson, City Manager
From: Revée Needham, Community Development Manager
Date: March 18, 2025
Subject: Accept Petitions from Summit on 7 Homeowners and Set Public Hearing
for the Creation of Housing Improvement Area
_____________________________________________________________________
RECOMMENDED ACTION
MOTION TO accept petitions for the creation of a Housing Improvement Area for
Summit on 7 and set the public hearing for April 15, 2025.
OVERVIEW
The City is authorized by state statute to establish housing improvement areas (HIAs)
as a finance tool for private housing improvements. The city adopted an updated HIA
policy in 2024 and has previously established four HIAs with no collection issues.
The Summit on 7 Association submitted an initial HIA application on January 10, 2025.
After reviewing several bids, Summit on 7 is requesting $4.52 million to cover the
improvement costs, totaling approximately $4.99 million with city fees and soft costs.
The association submitted signed petitions March 10, 2025 from a majority of owners
requesting the City Council schedule a public hearing to establish the HIA and impose
fees. Per state statue, cities may only establish an HIA when 50% or more of the
association owners petition the city to do so. The City set a higher 75% threshold in the
HIA policy. Petitions were received from 75% of the owners at Summit on 7 and
certified by staff. The establishment of the HIA is a request of the Summit on 7
condominium association and is not something the City has proposed to the residents.
HIA Overview
A Housing Improvement Area, authorized under the Minnesota Statutes Chapter 428A,
allows cities to help arrange and finance rehabilitation for common areas of owner-
occupied residential buildings, such as condominiums or townhouses. HIAs cannot be
used for private area improvements that are the responsibility of individual owners.
An HIA is a defined area where private housing improvements are made and where
costs associated with the improvements are paid for by fees imposed on property
owners. Within an HIA, the city has the authority to finance housing improvements
through levying fees and assessments, and may issue bonds to pay for those
improvements.
Ideally, an association reserves money from association dues to make needed
improvements. In reality, associations often fail to reserve adequate funds due to a
number of factors including limitations in annual dues increases set by the association
Planning & Economic
Development
bylaws, failure to complete an accurate needs assessment and/or lack of an adequate
corresponding budget. A one-time assessment to pay for major improvements is also
problematic in that the escalating cost of repairs often puts a project out of reach for
most homeowners and an assessment is often unaffordable if not allowed to be
financed over time. It can also be more difficult for a condominium under shared
ownership to obtain private financing for improvements, due to insufficient collateral as
common areas have no real value that can be liened as security. Failure to obtain
financing for needed improvements can result in entire developments being restricted
from obtaining new mortgage lending, greatly impacting current owners’ ability to sell
and decreasing property values. HIAs are considered a financing of last resort. To apply
for HIA financing, an association needs to demonstrate that they have exhausted other
means of financing by submitting at least two denial letters from lenders. The
association would need to have an accredited third party complete thirty-year plans to
review their current reserves, assess future necessary improvements, and ensure the
association is sufficiently on track to cover future expenses, avoiding the need for
another HIA.
Background
Staff were initially approached by Doug Strandness, a consultant working with the
Summit on 7 association in July 2024. Staff have met several times with Mr. Strandness
and members of the association board to discuss the project. City Council approved an
updated HIA policy on September 18, 2024. The Council held a work session on
January 14, 2025 to discuss HIAs and were given an initial overview of the Summit on 7
project. Summit on 7 formally submitted their complete pre-application in January 2025,
and have since submitted additional application materials including petitions to formally
request that City Council hold a public hearing for the HIA creation.
Association Information
Summit on 7 is located at 1502 5th St N. The building was converted to condominiums
in 2006, and the association is comprised of 62 condominium units. The condominiums
are a mix of one-bedroom, two-bedroom, and three-bedroom units ranging in size from
770 sq. ft. to 1450 sq. ft. The median estimated market value is $227,550 and the
range is $174,200 to $261,600. The Association limits the number of rental units to 6
units in total.
Affordable Homeownership
All units at Summit on 7, even with HIA fees, will be affordable to households at 80%
Area Median Income (AMI) based on the affordable homeownership limit of $290,300
set by the Department of Housing and Urban Development. The creation of the Summit
on 7 HIA will preserve affordable homeownership in Hopkins.
Proposed Scope of Work
Based on an initial engineering assessment by Encompass, the scope of work includes:
roof replacement, façade/siding replacement, renovation of balconies, and replacement
of all windows and doors.
Initial Cost Estimates
Summit on 7 requests $4,520,000 in funding which includes approximately $3,714,312
in hard costs and $805,688 in soft costs. They received five bids for the improvements.
Initial estimates for the cost of bond issuance would equate to $4,985,000 in total costs
including funding for construction costs, bond issuance costs, and City administrative,
legal, and financial costs.
The requested loan term is 20 years. The loan would be repaid by a fee attached to
each unit. Hennepin County would receive the payments through the property tax
system and pass through to the City. This is a low-risk way for the City to assist with
bringing the property up to date to ensure many years of continued use for current and
future owners. Preliminary estimates of the fees to be imposed on the housing units are
based on the current interest rate, which is subject to change based on market
conditions. Initial estimates, attached, range from an annual payment of $5,516 to
$10,387 per unit.
Financing
The HIA would be funded using general obligation special assessment bonds. The
bonds will not be sold until after construction costs are finalized. The association
intends to use a construction loan to initially fund the construction. This temporary loan
would be secured through the City’s commitment to provide permanent take-out
financing. This structure allows the permanent financing to be right-sized and removes
the City from the draw request process.
HIA financing has been well-tested in the Twin Cities region and has not had a negative
impact on the City’s bond rating or resulted in negative cash flow for bond payment.
The City is protected from financial risk in several ways:
• Repayment of the loan is made through the owner’s real estate tax payments.
• In foreclosure events, tax liabilities, including special assessments, must be paid
by any party that purchases the unit. In cases of foreclosure, HIA fees have been
treated the same as special assessments.
• There would be a 105% debt coverage when the City issues bonds.
• A development agreement is required which will provide additional contractual
conditions to ensure the financial stability of the association.
Next Steps
The next step in the process is to hold the public hearing for the first reading of the
ordinance on April 15, 2025. If approved, there would be a second reading of the
ordinance on May 6, 2025. Then the Ordinance would be published and mailed to the
Commissioner of Revenue. There is a 45-day period where owners can object to the
creation of the HIA. If less than 45% of owners file an objection, then the HIA would be
established and the Development Agreement finalized. Then, Summit on 7 can finalize
the construction loan and begin the work. After construction costs are finalized, the City
will accept prepayments for the HIA fee and then issue debt to cover the balance of the
construction cost.
SUPPORTING INFORMATION
• Initial Financing Estimates
• Hyperlink to January 14, 2025 Council Work Session
• Hyperlink to HIA Policy
City of Hopkins
Summit Housing Improvement Area
Financing Summary - DRAFT February 17, 2025
SOURCES OF FUNDS
Par Amount of Bonds $ 4,985,000
Prepaid Assessments $-
Association Funds -$
TOTAL 4,985,000$
USES OF FUNDS
HIA Project Budget - Hard Costs 3,714,312$
HIA Project Budget - Soft Costs 805,688$
Rebate of prepaids special assessments $-
Total Project Costs 4,520,000$
Soft Costs (see detail below) $ 99,316
Underwriters Discount $ 59,820
Cost of Issuance $ 74,000
Capitalized Interest (Bond) $ 180,727
Rounding Amount $ 1,287
City Admin Fee (1%) $ 49,850
Total Soft and Loan Costs 465,000$
TOTAL 4,985,000$
Financing Information
Term (years)20
All Inclusive Cost 5.46%
All Inclusive Cost Plus 200 bps 7.46%
Average Annual Debt Service $ 487,503
Required Coverage (105%) $ 511,878
Annual Dues Paid 511,878$
Average Annual Assessment - Per Unit $ 8,256
Average Assessment if Monthly - Per Unit $688
Average Total Assessment - Per Unit - If Prepaid $ 80,403
Project Soft Costs Detail (included in Bond Amount)
City Legal Fees (estimate) $ 20,000
City Financial Advisor Fees (estimate) $ 15,000
Public Hearing/Legal Notice Fees $ 1,500
Ongoing Bond Consulting Expenses - To City (Con Disc, Pay Agent) - .05% of Bond Amount $ 62,816
TOTAL $ 99,316
Sources and Uses of Funds Amount
#PID Building Unit
No.Sq. Ft Percentage
Interest
Total Common
Area Construction
Cost
Total
Financing &
Soft Costs
Total Costs
(BEFORE
BOND SALE)
Annual Fee
(105% of
Total Costs)
Total P & I Paid
Per Unit (105%) -
Non prepaid only
Rebate to Owners
for Prepaid
Assessments
Total Annual Fee
With $10 City
Admin. Charge
1 2411722220078 1502 5th Str. N 200 770 1.0776% $48,707.58 $5,010.84 $53,718.42 $5,516 $110,320 $5,526
2 2411722220079 1502 5th Str. N 201 1,000 1.3995% $63,256.60 $6,507.59 $69,764.18 $7,164 $143,273 $7,174
3 2411722220080 1502 5th Str. N 202 1,086 1.5198% $68,696.66 $7,067.24 $75,763.90 $7,780 $155,594 $7,790
4 2411722220081 1502 5th Str. N 203 787 1.1014% $49,782.94 $5,121.47 $54,904.41 $5,638 $112,756 $5,648
5 2411722220082 1502 5th Str. N 204 1,105 1.5464% $69,898.54 $7,190.88 $77,089.42 $7,916 $158,317 $7,926
6 2411722220083 1502 5th Str. N 205 787 1.1014% $49,782.94 $5,121.47 $54,904.41 $5,638 $112,756 $5,648
7 2411722220084 1502 5th Str. N 207 826 1.1560% $52,249.95 $5,375.27 $57,625.21 $5,917 $118,343 $5,927
8 2411722220085 1502 5th Str. N 208 1,448 2.0265% $91,595.55 $9,422.99 $101,018.54 $10,373 $207,459 $10,383
9 2411722220086 1502 5th Str. N 209 1,445 2.0223% $91,405.78 $9,403.46 $100,809.24 $10,351 $207,029 $10,361
10 2411722220087 1502 5th Str. N 210 1,450 2.0292% $91,722.06 $9,436.00 $101,158.06 $10,387 $207,746 $10,397
11 2411722220088 1502 5th Str. N 211 1,450 2.0292% $91,722.06 $9,436.00 $101,158.06 $10,387 $207,746 $10,397
12 2411722220089 1502 5th Str. N 212 1,298 1.8165% $82,107.06 $8,446.85 $90,553.91 $9,298 $185,968 $9,308
13 2411722220090 1502 5th Str. N 213 1,012 1.4163% $64,015.67 $6,585.68 $70,601.35 $7,250 $144,992 $7,260
14 2411722220091 1502 5th Str. N 300 770 1.0776% $48,707.58 $5,010.84 $53,718.42 $5,516 $110,320 $5,526
15 2411722220092 1502 5th Str. N 301 1,000 1.3995% $63,256.60 $6,507.59 $69,764.18 $7,164 $143,273 $7,174
16 2411722220093 1502 5th Str. N 302 1,086 1.5198% $68,696.66 $7,067.24 $75,763.90 $7,780 $155,594 $7,790
17 2411722220094 1502 5th Str. N 303 787 1.1014% $49,782.94 $5,121.47 $54,904.41 $5,638 $112,756 $5,648
18 2411722220095 1502 5th Str. N 304 1,105 1.5464% $69,898.54 $7,190.88 $77,089.42 $7,916 $158,317 $7,926
19 2411722220096 1502 5th Str. N 305 787 1.1014% $49,782.94 $5,121.47 $54,904.41 $5,638 $112,756 $5,648
20 2411722220097 1502 5th Str. N 307 1,030 1.4415% $65,154.29 $6,702.82 $71,857.11 $7,379 $147,571 $7,389
21 2411722220098 1502 5th Str. N 308 1,448 2.0265% $91,595.55 $9,422.99 $101,018.54 $10,373 $207,459 $10,383
22 2411722220099 1502 5th Str. N 309 1,445 2.0223% $91,405.78 $9,403.46 $100,809.24 $10,351 $207,029 $10,361
23 2411722220100 1502 5th Str. N 310 1,450 2.0292% $91,722.06 $9,436.00 $101,158.06 $10,387 $207,746 $10,397
24 2411722220101 1502 5th Str. N 311 1,450 2.0292% $91,722.06 $9,436.00 $101,158.06 $10,387 $207,746 $10,397
25 2411722220102 1502 5th Str. N 312 1,298 1.8165% $82,107.06 $8,446.85 $90,553.91 $9,298 $185,968 $9,308
26 2411722220103 1502 5th Str. N 313 1,195 1.6724% $75,591.63 $7,776.57 $83,368.20 $8,561 $171,211 $8,571
27 2411722220104 1502 5th Str. N 401 1,000 1.3995% $63,256.60 $6,507.59 $69,764.18 $7,164 $143,273 $7,174
28 2411722220105 1502 5th Str. N 402 1,086 1.5198% $68,696.66 $7,067.24 $75,763.90 $7,780 $155,594 $7,790
29 2411722220106 1502 5th Str. N 403 787 1.1014% $49,782.94 $5,121.47 $54,904.41 $5,638 $112,756 $5,648
30 2411722220107 1502 5th Str. N 404 1,105 1.5464% $69,898.54 $7,190.88 $77,089.42 $7,916 $158,317 $7,926
31 2411722220108 1502 5th Str. N 405 787 1.1014% $49,782.94 $5,121.47 $54,904.41 $5,638 $112,756 $5,648
32 2411722220109 1502 5th Str. N 407 1,030 1.4415% $65,154.29 $6,702.82 $71,857.11 $7,379 $147,571 $7,389
33 2411722220110 1502 5th Str. N 408 1,448 2.0265% $91,595.55 $9,422.99 $101,018.54 $10,373 $207,459 $10,383
34 2411722220111 1502 5th Str. N 409 1,445 2.0223% $91,405.78 $9,403.46 $100,809.24 $10,351 $207,029 $10,361
35 2411722220112 1502 5th Str. N 410 1,450 2.0292% $91,722.06 $9,436.00 $101,158.06 $10,387 $207,746 $10,397
36 2411722220113 1502 5th Str. N 411 1,450 2.0292% $91,722.06 $9,436.00 $101,158.06 $10,387 $207,746 $10,397
37 2411722220114 1502 5th Str. N 412 1,298 1.8165% $82,107.06 $8,446.85 $90,553.91 $9,298 $185,968 $9,308
38 2411722220115 1502 5th Str. N 413 1,195 1.6724% $75,591.63 $7,776.57 $83,368.20 $8,561 $171,211 $8,571
39 2411722220116 1502 5th Str. N 500 798 1.1168% $50,478.76 $5,193.05 $55,671.82 $5,717 $114,332 $5,727
40 2411722220117 1502 5th Str. N 501 1,187 1.6612% $75,085.58 $7,724.51 $82,810.08 $8,503 $170,065 $8,513
41 2411722220118 1502 5th Str. N 502 1,086 1.5198% $68,696.66 $7,067.24 $75,763.90 $7,780 $155,594 $7,790
42 2411722220119 1502 5th Str. N 503 1,160 1.6234% $73,377.65 $7,548.80 $80,926.45 $8,310 $166,197 $8,320
43 2411722220120 1502 5th Str. N 504 1,105 1.5464% $69,898.54 $7,190.88 $77,089.42 $7,916 $158,317 $7,926
44 2411722220121 1502 5th Str. N 505 1,255 1.7564% $79,387.03 $8,167.02 $87,554.05 $8,990 $179,807 $9,000
45 2411722220122 1502 5th Str. N 508 1,448 2.0265% $91,595.55 $9,422.99 $101,018.54 $10,373 $207,459 $10,383
46 2411722220123 1502 5th Str. N 509 1,445 2.0223% $91,405.78 $9,403.46 $100,809.24 $10,351 $207,029 $10,361
47 2411722220124 1502 5th Str. N 510 1,450 2.0292% $91,722.06 $9,436.00 $101,158.06 $10,387 $207,746 $10,397
48 2411722220125 1502 5th Str. N 511 1,450 2.0292% $91,722.06 $9,436.00 $101,158.06 $10,387 $207,746 $10,397
49 2411722220126 1502 5th Str. N 512 1,298 1.8165% $82,107.06 $8,446.85 $90,553.91 $9,298 $185,968 $9,308
50 2411722220127 1502 5th Str. N 513 1,195 1.6724% $75,591.63 $7,776.57 $83,368.20 $8,561 $171,211 $8,571
51 2411722220128 1502 5th Str. N 600 798 1.1168% $50,478.76 $5,193.05 $55,671.82 $5,717 $114,332 $5,727
52 2411722220129 1502 5th Str. N 601 1,187 1.6612% $75,085.58 $7,724.51 $82,810.08 $8,503 $170,065 $8,513
53 2411722220130 1502 5th Str. N 602 1,086 1.5198% $68,696.66 $7,067.24 $75,763.90 $7,780 $155,594 $7,790
54 2411722220131 1502 5th Str. N 603 1,160 1.6234% $73,377.65 $7,548.80 $80,926.45 $8,310 $166,197 $8,320
55 2411722220132 1502 5th Str. N 604 1,105 1.5464% $69,898.54 $7,190.88 $77,089.42 $7,916 $158,317 $7,926
56 2411722220133 1502 5th Str. N 605 1,255 1.7564% $79,387.03 $8,167.02 $87,554.05 $8,990 $179,807 $9,000
57 2411722220134 1502 5th Str. N 700 798 1.1168% $50,478.76 $5,193.05 $55,671.82 $5,717 $114,332 $5,727
58 2411722220135 1502 5th Str. N 701 1,187 1.6612% $75,085.58 $7,724.51 $82,810.08 $8,503 $170,065 $8,513
59 2411722220136 1502 5th Str. N 702 1,086 1.5198% $68,696.66 $7,067.24 $75,763.90 $7,780 $155,594 $7,790
60 2411722220137 1502 5th Str. N 703 1,160 1.6234% $73,377.65 $7,548.80 $80,926.45 $8,310 $166,197 $8,320
61 2411722220138 1502 5th Str. N 704 1,105 1.5464% $69,898.54 $7,190.88 $77,089.42 $7,916 $158,317 $7,926
62 2411722220139 1502 5th Str. N 705 1,255 1.7564% $79,387.03 $8,167.02 $87,554.05 $8,990 $179,807 $9,000
TOTAL 71,455 100% $4,520,000 $465,000 $4,985,000 $511,878.15 $10,237,562.97 $0.00 $512,498.15
Summit HIA
Assessment Allocation - February 2025
City of Hopkins
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