Memo- Opus Development Project, Supervalu North Annex Property
I Economic Development I
MEMORANDUM
TO: Honorable Mayor and City Council
FROM: lILJim Kerrigan, Director of Planning & Economic Development
DATE: December 8, 2005
SUBJECT: Opus Development Project, SUPERVALU North Annex Property
PURPOSE OF MEMO
At the January 10 work session, Opus Corporation will be present to discuss their
development project for the SUPERV ALU North Annex property. City staff and a
representative of Opus are looking to secure Council feedback on various issues that
will need to be addressed in the redevelopment agreement. Bob Deike of Bradley and
Deike and Sid Inman of Ehlers & Associates will also be present for this discussion.
OVERVIEW
Opus has executed a purchase agreement for the subject property from SUPERVALU.
They are proposing to master-plan this site for a project that would be approximately 75
percent office and 25 percent other uses. (They have said that uses for the 25 percent
could include a hotel, medical manufacturing, research and development, and retail.)
When totally developed, the site would have approximately 600,000 square feet of
building.
Construction would be phased for a period oftime based on market demand. To move
forward with marketing of the site, Opus has a desire to undertake demolition of the
building on this property in the spring of 2006.
PRIMARY ISSUES TO CONSIDER
City staff and Opus have met over the last few months to discuss some of the major
"business points" that will need to be addressed in the development agreement. These
are identified in the attached term sheet. Staff and Opus will provide a brief overview of
each of the eight items. The Council needs to provide feedback as to whether they feel
comfortable with what is detailed or what alternatives need to be considered.
CONCLUSION
Based on discussion at this work session, staff and Opus will begin the process of
preparing a development agreement. When a draft has been negotiated, it is proposed
that there be another meeting with Council prior to consideration for action on this
document.
Attachments
TERM SHEET
OPUS SuperValu Site Redevelopment Site
It is proposed that the following business terms be incorporated into a Contract for
Private Redevelopment (the "Opus CPR") between the Hopkins Housing and Redevelopment
Authority ("HRA") and Opus Northwest, LLC ("Opus").
(1) Purchase Agreement. Opus has entered into a purchase agreement (the
"Purchase Agreement") with SuperValu for the North Annex site (the "Site"), contingent
upon reaching an agreement regarding the Opus CPR and other standard due diligence
conditions.
(2) Prior Agreements. The HRA possesses an Option to Purchase the Site from
SuperValu (the "HRA Purchase Option") pursuant to a Redevelopment Agreement between
the HRA and SuperValu (the "SuperValu CPR"). Upon execution of the Opus CPR, the
HRA Option Agreement, the SuperValu CPR and all other agreements between the HRA and
SuperValu will be suspended. When Opus acquires the Site, these agreements will terminate.
If Opus does not acquire the Site these agreements will be reactivated.
(3) 3-Acre Site. As a pre-condition to entering into the Opus CPR, the parties will
use best efforts to arrive at an agreement for joint use of the 3-Acre Site for snow storage by
the City of Hopkins and storm water ponding by Opus.
(4) Demolition & Remediation.
(a) Following (i) execution of the Opus CPR, (ii) completion and approval of
the Master Plan described below, (iii) satisfaction of the due diligence environmental,
geotechnical, utility adequacy conditions of the Purchase Agreement and (iv) deposit
pursuant to the Purchase Agreement of not less than $75,000 of nonrefundable
earnest money, Opus may elect to front-end the cost of demolition of all structures on
the Site, including environmental remediation with respect to such structures. Opus
will solicit proposals therefor and submit them to the HRA for its determination that
the proposed price is reasonable and consistent with then-current Twin Cities
demolition pricing and for determination of the parties that the tax increment
described in Paragraph (4)(b) will be adequate to reimburse Opus for such costs.
(b) Upon completion of demolition, Opus shall certify the cost thereof to the
HRA and the HRA shall issue its tax increment revenue note to Opus ("Demolition
Note") in the amount of such demolition and remediation costs. The Demolition Note
shall be payable from 90% of District tax increment (less debt service on the existing
infrastructure bonds), generated from construction of the SuperValu warehouse.
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(c) Details of this paragraph 4 will need to be agreed upon by and
coordinated with SuperValu.
(5) Master Planning. Opus will master plan the Site and present to the City an
application for a Planned Unit Development ("PUD") Zoning District with respect thereto.
As between Opus and the HRA, and subject to the City's ordinances relating to PUD and Site
Plan approval and construction permitting ("City Requirements"), only the following
proposed amendments to such plan shall require approval of the HRA:
(a) A decrease in the square footage office ratio required by Paragraph
7(a), an increase in "Restricted Uses" beyond that allowed by
Paragraph (7)(b), a decrease in the rating of the hotel to be constructed
below the rating described in Paragraph 7( c), or a change in the type or
increase in the square footage of the ancillary retail permitted by
Paragraph 7( d);
(b) An increase in overall Site density beyond that addressed by the
Alternative Urban Areawide Review or the completed traffic study;
(c) Any change in location of proposed ingress to and egress from the Site
involving a change in offsite streets or roadways;
(d) Any increase in building height that is greater than one story higher
than the highest building shown on the approved Master Plan; and
(e) Any decrease in the quality of building materials to be used to
construct the development as identified in the Master Plan and the
City's planning approval process.
All other amendments to such plan shall be made by HRA administrative action.
(6) Adjacent Properties. In the event Opus seeks to acquire the properties
adjacent to the Site and is unsuccessful in doing so, and assuming that it may legally do so,
the HRA will use its best efforts to acquire them through its powers of eminent domain.
Opus will pay all costs incurred by the HRA in doing so. The Opus CPR or a subsequent
agreement to be negotiated if and when Opus requests that the HRA use its powers of
eminent domain will set forth the conditions that must be satisfied prior to the HRA' s
commencement of eminent domain proceedings.
(7) Development Density & Schedule. The density and construction schedule for
the Site will depend upon market conditions, provided that Opus will use commercially
reasonable marketing efforts. The goal of both parties is a project of between 350,000 and
600,000 square feet as follows:
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(a) At least 75% of square footage constructed upon the Site will be for office
users. Office buildings shall be Class B or higher, as generally defined by the
Builders Owners and Managers Association International (BOMA).
(b) Up to 25% of the square footage constructed upon the Site may be for such
uses as (i) a hotel, (ii) medical manufacturing, (iii) research and development,
(iv) uses substantially similar to (ii) and (iii) and (v) ancillary retail (the
"Restricted Uses").
(c) Any hotel facility constructed on the Site shall be constructed as at least a
two-diamond facility, as described by the American Automobile Association
or a two-star facility, as described by the Mobil Travel Guide. Design plans
for the hotel shall be subject to City Requirements. Construction Plans for the
hotel shall be approved by the HRA, provided that such Construction plans
shall be approved if consistent with City Requirements.
(d) Total ancillary retail, including retail pads, shall not exceed 15,000 square
feet, ancillary retail will not include any business whose primary purpose is
the sale of coffee and all ancillary retail construction shall occur subsequent to
or concurrently with office construction.
Improvements may be either leased or sold, as completed.
(8) Go-Ahead Letters. Opus intends to develop the Site in phases (each, a
"Phase"). As Opus receives user commitments sufficient to warrant proceeding with a Phase
of development, it will deliver a Go-Ahead Letter to the HRA, which will include:
(a) Identification of the known user or users and whether the user(s) will
own or lease.
(b) Number of square feet to be constructed.
(c) Estimated construction cost.
(d) Construction schedule.
(e) Preliminary construction plans.
(9) Phased Assistance.
(a) Opus preliminary Site planning currently provides for a build-out of
approximately 600,000 square feet of finished building.
(b) Taking all costs into consideration, including structured parking, the
Opus development pro forma show a need for $19.60 of tax increment
assistance for each square foot of finished building, to be allocated to land
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and/or parking deck, in order to achieve what Opus believes will be
competitive rental rates and sales prices for the building(s). This pro forma
will be shared with HRA consultants.
(c) Upon completion of each development Phase on the Site, the HRA
will issue to Opus, or its designee, a tax increment revenue note in the original
principal amount of$19.60 per square foot of building constructed within that
Phase, payable, together with interest at an annual interest rate recomrnended
by the HRA's financial advisor as being representative of interest then paid on
similar municipal obligations, but in no event less than the then-current rate
paid on a 10-year US Treasury Bond plus 2.25 %, over the remaining life of
the District. The Note will be payable from 90% of District tax incrernent,
less debt service on the existing infrastructure bonds and the Demolition Note
(or on parity with the Demolition Note, at Opus' option).
(10) HRA Third-Party Costs. Opus will agree to pay the ordinary and customary
costs of third-party consultants incurred by the HRA in connection with preparation of this
Agreement and issuance of the tax increment notes. Billing detail will be provided upon
Opus request (but no more often than quarterly) and such costs shall not exceed $50,000
without written notification to Opus and the right of Opus to terminate all existing
agreements with the HRA.
(11) CPR. Other customary redevelopment agreement provisions would be
incorporated.
(12) Execution of Opus CPR. This Term Sheet represents the current
understandings of the parties as to the terms that will be contained in the Opus CPR. Neither
party shall be obligated to proceed with the proposed development unless and until they have
approved and executed the Opus CPR; provided, however, that the parties hereto are legally
obligated to (a) enter into good faith negotiations with respect to the terms and conditions of
the Opus CPR and (2) use best efforts to arrive at a plan for joint use of the 3-Acre Site
pursuant to Paragraph 3 hereof.
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