CR 91-60 Tax Increment Application - Hopkins Tech Center
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February 28, 1991 K Council Report:91-60
TAX INCREMENT APPLICATION - HOPKINS TECH CENTER
ProDosed Action.
Staff recommends adoption of the following motion: Approval of final
tax increment application subject to staff conditions and authorize
staff to undertake preparation of a development aqreement.
with approval of this action staff will undertake the preparation of a
development agreement. It is anticipated that this agreement would be
presented to the HRA/City Council for consideration at some date prior
to June 1, 1991-
Overview.
The subject building located at 1600 Second Street, South is an older
building which no longer meets modern day office warehouse
requirements. In order to facilitate a possible redevelopment of this
property, it was placed into a tax increment district in 1990.
Prior to this site being placed in a tax increment district, the owner
had submitted a preliminary tax increment application for the
redevelopment of this property. At that time, the HRA approved the
concept plan and authorized staff to continue to work with the
. developer.
As part of the tax increment policy, the owner has now submitted a
final tax increment application. If this application is approved, the
next step would be to prepare a redevelopment agreement for
consideration.
Primary Issues to consider.
o What are the specifics of the project?
o What are the problems with the existing building site?
o Amount of increment being requested.
o What is the benefit to the City in this project?
o Does this project meet the tax increment policy criteria?
o Additional assistance being requested.
o Does the project require public assistance?
o other concerns/issues.
o Timing Issues.
o What would be contained within the development agreement?
o What staff conditions are recommended?
supportinq Information.
o Application from Ron Clark Construction dated 2/11/91.
,~ Letter from Public Corp., Inc. dated 10/08/90.
reliminary site plan.
.
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Page 2
Analysis of Issues.
Based on the recommended action, the HRA has the following issues to
consider:
o What are the specifics of the project?
This project would involve demolition of the existing 290,000 square
foot building. The site would then be redeveloped with a three
building 255,000 square foot office warehouse development. Buildings
as detailed on the site plan would consist of between 40,000 and
135,000 square feet. A small 1.8 acre out lot would be provided on
the front of the site for future construction.
o What are the problems with the existing building site?
The existing building was designed for a single user. The parking and
internal layout does not adequately address multi tenant users. Also
users of a building of this type today require ceiling heights of
approximately 18 feet. The lower ceiling height that exists in this
. building limit the number of potential tenants. As a result, a good
portion of the building has been vacant since it was purchased by the
present owner.
The second problem concerns environmental issues. Hazardous waste
contamination has been found on the site. Thus far the owner has
spent approximately $100,000 to determine the type and extent of this
contamination. However, it appears that additional testing will be
necessary to determine the exact magnitude of the problem. A
remediation plan has been submitted to the Minnesota Pollution Control
Agency for their review.
The building also contains a substantial amount of asbestos. Prior to
demolition, this has to be removed and properly disposed.
o Amount of increment being requested.
The applicant is showing a total project cost of approximately
$12,000,000. Of this cost, approximately 23% would be tax increment.
The increment proposed to be captured by this proj ect is based upon
full increment being received in 1993 and being captured through 2014.
Increment is proposed to be provided on a pay as it is received basis.
The increment is proposed to be used to write down land costs and
possibly demolition, or other eligible activities.
The increment estimated to be captured is $400,000 a year. The total
4It net present value of this increment is approximately $2,733,000.
The applicant, in discussions with the staff, has agreed to the
receipt of increments as they are received on an annual basis.
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Page 3
Therefore no bond would be required to be sold by the cityjHRA.
0 What is the benefit to the city on this project?
The present owners of this structure on this property find it
difficult to find tenants interested in occupying this space. It
appears this is probably a result of the following:
0 Lack of adequate parking
0 Inadequate ceiling height for modern manufacturing and
warehouse method
0 Inappropriate location of existing parking spaces on the
site
For all of the above reasons, a large part of this building is
presently unoccupied. This in turn could result in a financial cash
flow problem for the owners. This situation could contribute to a
foreclosure.
Undertaking the project as proposed, provide the following benefits to
the city.
. 0 Increase tax dollars
0 Provide new employment opportunities
0 Upgraded structures
The applicant is anticipating that the project as proposed will have a
completed market value of approximately $12,000,000. Also, they are
projecting that following completion it will employ approximately 300
people. This figure will vary depending upon the types of uses that
occupy the completed structure.
Finally, the project will provide upgraded structures which meet all
the existing zoning and building codes. The existing structure,
unless it is used strictly for manufacturing and warehousing, does not
comply with existing parking requirements. Also, the building
inspectors have indicated that there are a number of substantial code
defects that need to be addressed.
0 Does this project meet the tax increment policy criteria?
Project as proposed meets a number of the goals and objectives and
criteria identified within the approved tax increment policy.
Based upon the net present value of the tax increment proposed to be
provided, approximately one job will be created for each $9,000 of tax
increment assistance (Net Present Value).
e Based upon the financial information detailed, this project would
provide approximately three parts private to one part public funding.
.
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Page 4
o What Staff conditions are recommended?
1. Approval contingent upon execution of a development
agreement.
2. with approval of the tax increment application, the
City is not making any commitment as relates to the
creation or use of a hazardous substance subdistrict.
o Additional assistance being requested
Besides regular tax increment financing assistance, the developers
also requesting that the HRA create a hazardous substance sub
district. This would allow the existing market value to be reduced to
as much as zero. Funds created through this process could only be
used to pay for the cost of removing or remediating hazardous
substances from the property. Therefore how this would be structured
would depend on the cost of implementing a plan to address these
problems. The action as recommended by Staff does not include the
creation of a hazardous substance sub-district.
. 0 Does the project require pUblic Assistance?
Due to the high acquisition cost, tax increment is required to reduce
the cost of the land. The original acquisition cost of this site was
approximately 5.7 million. Even with the tax increment assistance
being requested, the land cost will exceed $5.00 sq. ft., which is
high for an industrial development.
o Other concerns/issues
Under a tax increment district the increased taxes generated from the
project are used to pay project costs. In essence, it doesn't cost
the city any of it's existing tax base to undertake such a project.
On the other hand, a hazardous substance sub district allows the
private developer to utilize the existing property taxes that the city
might otherwise receive in order to facilitate a project. The Hopkins
Tech Center pays approximately $232,000 presently in property taxes.
As part of the TIF application, the developer is requesting that the
existing tax capacity be reduced to 0 for 25 years. At this time, the
Staff feels that more information needs to be provided on the impact
and use of funds generated from this type of district prior to any
commitment by the city/HRA on this matter.
o Timing issues
~ The timing for the proposed project is as follows:
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0 Demolition and hazardous material remediation work, Spring,
1992.
0 start of construction, late Summer, 1992.
0 Completion of construction, Summer, 1993.
It should be noted that this is only a proposed schedule at this time.
The environmental issues and project financing could establish a
construction start date beyond 1992. Even though the construction
start date is some time in the future, the applicant lS anxious to
under take the tax increment process at this time for the following
reasons:
0 Allows them to undertake the preliminary steps to determine
project financial feasibility.
0 Of the greatest priority at the present time, it is
important that a development agreement be executed prior to
June 1, 1991 in order that the tax increment district is
grandfathered under the pre-1990 tax increment law changes.
It appears that under the new tax increment rules, the
project would not be feasible.
e 0 What would be contained within the redevelopment agreement?
The redevelopment agreement would detail the responsibilities of the
BRA, City and developer.
As there are still a number of issues that need to be addressed with
this project, the redevelopment agreement would have to be structured
to allow enough flexibility for either party to terminate the
redevelopment agreement.
Alternatives.
The HRA has the following alternative regarding this issue.
1. Approve the action as recommended. This will allow staff to
begin working on preparation of a redevelopment agreement.
The redevelopment agreement will be drafted in such a manner
so that there is flexibility for either party to terminate
the agreement.
2. Deny the request for tax increment assistance. Under this
scenario it will be assumed that the HRA does not wish to
provide any public assistance with this project. This would
require that the developer look at other forms of private
assistance to facilitate either the redevelopment of this
site or the rehabilitation of the existing building. If
e financially nothing can be done to make the project more
functionally useful and correct environmental conditions,
the existing owners would probably attempt to undertake
steps to remove themselves from an ownership position.
,
,
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Page 6
3. continue for further information. At the present time, a
continuation would not be a problem. However, the BRA
should be aware that there is a June 1 deadline date to
approve a redevelopment agreement in order to grandfather
the district under the more favorable pre-1990 tax increment
rules.
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