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CR 91-37 Movie Theater Dedevelopment Agreement ..~ i , I January 31, 1991 council Report: 91-37 ' ~ e MOVIE THEATER REDEVELOPMENT AGREEMENT & FINAL TIF APPLICATION PUBLIC HEARING ON LAND SALE proposed Action. Staff recommends adoption of the following motion: Move to approve the sale of land. the redevelopment aqreement and final TIF application regarding Marcus corporation's redevelopment of Bursch's property subiect to a plan beinq developed and adopted which addresses the parkinq concerns identified in the Benshoof report. The impact of this motion will allow for the execution of the redevelopment agreement and allow for the project to proceed when the parking concerns have been addressed. overview. with the HRAjcity Council's direction, staff has been negotiating with Marcus Corporation on the redevelopment of the vacant Bursch site as a movie theater. During the review process of this site and conditions to the redevelopment agreement, the HRAjcity Council requested that a parking analysis for the area impacted by the theater. This study has now been completed. At the present time the HRA is being requested to consider approval of the sale of land, redevelopment agreement and final TIF application. ~rhe staff is recommending that the above action be contingent upon a plan being developed which adequately addresses the parking concerns identified in the Benshoof report. The Public Hearing on the sale of land to the developer, which is required by state statute, is scheduled for 7:00 pm. Therefore the opening of the Public Hearing & the subsequent discussions on this matter should be withheld until this time. Prior to discussing the actual redevelopment agreement, staff would recommend the Council discuss the parking study. Primary Issues to Consider. 0 What were the findings of the parking study? 0 What options are available to provide additional parking? 0 What are the parking requirements requested by the developer? 0 What comments were made at the Parking committee and informational meetings? 0 What are the timing concerns of the project? 0 What are the specifics of the purchase option held by the developer? 0 What is the impact to the CityjHRA as relates to the use of TIF for this project? 0 What are the other specifics of the agreement? 0 How has the agreement specifics been revised since the January 15 HRAjCity Council meeting? supporting Information. . 0 Redevelopment Agreement 0 Benshoof Report 0 IF ic tion 0 Site plan o Parking Map Bri ng r, Economic Development specialist CR: 91-37 . Page 2 Backqround. At the January 8th HRA meeting the Board was requested to consider action by staff for approval of the Bursch property for construction of a movie theater subject to conditions as recommended by staff. At that meeting the majority of the discussion was centered around what was the best location for this development. At this meeting the HRA took action to designate the Bursch site for the theater project and scheduled a special meeting for January 15 to discuss the specifics of the conditions of that approval. At the January 15 meeting, the Board approved a number of the conditions , but directed staff to continue working on others. Following discussions with the HRA Board staff has identified a number of conditions which they feel the approval of the theater should be based upon, the developer is in disagreement on a number of these. These conditions detail a variety of issues. The conditions for this project need to be identified and approved by the HRA in order to provide the basis for the execution of a Redevelopment Agreement. The Redevelopment Agreement details the specifics of the conditions as approved by the HRA as well as other conditions and requirements which staff and legal counsel feel are appropriate. An agreement has been prepared which staff believes takes into consideration the HRA's interests and concerns. .Benshoof and Associates were contracted to complete a study which would provide some detailed data on the availability of parking spaces during the movie theaters operating hours. This study took into consideration the competition which would occur between existing businesses and the theater. with the results now complete, the HRAjCity Council must review this information to determine if the available parking for the proposed site is adequate to meet the HRAjCouncil's comfort level. Analvsis. Based upon the action as recommended by staff the HRA has the following issues to consider: 0 What were the findings of the parking study? The findings of the study compiled by Benshoof & Associates is attached and should be reviewed carefully. The main points of the findings are as follows: - The proposed theater would generate a need for about 375 total parking spaces. This demand is 135 spaces (56 percent) greater than would occur if the site were developed as a 12,000 sq. ft. restaurant and is 250 spaces (200 percent) greater than would occur if the site were developed with 25,000 sq. ft. of retail space. _- Insufficient public parking spaces are available within 600 feet of the proposed theater to accommodate both theater users and existing users on Friday evenings. CR: 91-37 Page 3 . Intense competition would occur for parking spaces near the theater, including the parking lot on the west side of 8th Avenue. A significant portion of customers of existing businesses would need to park further away during the periods when the theater is busy. - High parking demand relative to supply would increase the incidence of motorists using private parking facilities. Owners of private parking lots who prefer that their lots not be used by theater customers would have greater enforcement responsibilities. - On an overall basis, about 150 additional spaces would be needed in close proximity to the theater site in order to provide an adequate parking situation for the theater and other nearby uses. 0 What options are available to provide additional parking? within the recommendation, staff suggests that a plan be developed for parking. This plan would be to identify, not necessarily to implement, what option is the most prudent solution to the anticipated parking problem. The HRA/City Council would then be able to prepare for any anticipated problems now rather than later. There are only several options to provide additional parking in the area of the proposed theater. They are as follows: ~- Construct a parkinq ramp The City Council discussed the possibility of constructing an additional parking ramp during the project prioritization process in late 1989. If a ramp were to be constructed in this area, the ideal location would be lot #200, behind Mainstreet Bar & Grill. If the ramp were constructed as a one level ramp, approximately 60 additional spaces could be gained. The cost for this facility, depending on the size, could range from $500,000 - $1,200,000. Currently, the City has adequate excess Tax Increment Financing available to construct a ramp. with the changes implemented by the state Legislature over the past several years, this money may not be available at some future date. - Purchase property from Elks and create additional spaces The acquisition of this property has been discussed on two separate occasions over the past 1 1/2 years. During the prioritization process, the City Council placed a fairly high priority on this acquisition for future parking expansion. At the recent meeting of the business owners to discuss the results of the parking survey, the representative of the Elk's did mention the possibility of selling the property for future parking. While the area would provide only 10-15 spaces alone, it could provide double that . figure if a ramp were to be constructed. The cost of this option was estimated at $50,000. This did not include the costs associated with construction of new parking spaces. CR: 91-37 Page 4 .- Complete qrocerv store proiect with the anticipated completion of the grocery store project an additional 272 spaces would be constructed in the immediate area. While this parking would probably not be able to meet all of the needs by the theater, it would have ample parking available near Mainstreet to meet some of the need. If the city were to approve of this project and was able to negotiate the right to use this parking within the public parking system, it is safe to assume that approximately 75 spaces would be available for theater parking. This is one-half the need identified by Benshoof. _ Establish aqreements with surroundinq businesses for sharinq parking currently, these private facilities have ample parking available during the time period when the theater needs the most parking. Each of these facilities are located adjacent to the theater site. If the developer were able to negotiate some agreements with these owners, it could meet a portion of the theater needs. - Developer provide additional parkinq Should the city decide that additional parking be made available, the city could require the developer to provide it. This could be accomplished in several ways. .1. Developer acquire additional property. 2. city acquire additional property and assess to developer. - Upqrade the alleyscape/liqhtinq/buildinq facades The result of this would be to improve the alley to a point where a well lit, safe "pathll could be constructed which would focus parking on the municipal ramp. The idea here is that the customers would park in the ramp and walk to the theater if a well defined lIwalking path" were created. 0 What are the parking requirements requested by the developer? Within the lease, the tenant has made a request that City owned parking facilities within a 600 feet of the theater provide free parking for up to 3 hours during the evening hours and weekends. The developer is also requesting that the city guarantee the number of parking spaces available within this same area. The developer has stated that "eveningll be defined as 6:00 pm and the "number of spaces" be defined as 400. The developer is asking that these requests stay in effect through the term of the lease signed with the theater tenant. Based on recent discussions with the Parking committee and City Council, the length of this request has become an item of contention between the City & Developer. ~o What comments were made at the Parking committee and informational meetings? The Parking Committee fully supported the attempt to locate a theater in the downtown and addressed the benefits in its operation. The Committee indicated that it would be a good project and bring people into the community. CR: 91-37 . Page 5 However, the concerns expressed by the Committee were as follows: - the agreement for parking should not be indefinite - the agreement should be tied to Midco/theater not site - they felt comfortable with making these policy changes in the short term. but questioned making them for long term - they questioned what would happen to the system financing in the future if this policy was adopted - some feeling that the agreement should be only for the parking lots, not on-street parking. Overall, the Committee did not have a problem with the policy change. However, it expressed concern and had some reservations about the policy implementation. The Committee also expressed a desire to review the findings by Benshoof prior to the HRA/Council action on this item. staff has delivered the report to the Committee and has invited them to the meeting. At the public informational meeting held to discuss the findings within the Benshoof study, only 2 business owners attended. They expressed concerns about the impact on private parking in the area. 0 What are the timing concerns of the project? .If the HRA/city Council is in favor of this project, the process for implementation needs to start soon. The option agreement held by the developer has a February 13 date for expiration. The developer has stated he is unwilling to extend the option past this date unless he has a firm commitment from the city. This means that if the city were to meet these demands, the redevelopment agreement must be executed no later than February 12. The lease agreement still specifies a June 1 construction start date with an October 1 completion date. All of these dates have been established by the developer and the tenant, not the city. Based upon the recommendation, it is unlikely the City would be able to meet the timelines. The developer has stated that it may be possible to have the theater tenant adjust the start/completion dates somewhat. Should the HRA and developer not be able to perform in the time frame identified above or receive an extension from the June 1 date, the tenant would have the ability to withdraw from the lease agreement. The developer has been unable to determine if the option agreement with the land owner can be extended. If the HRA is unable to approve the redevelopment agreement at this meeting, it may be necessary for the developer to get the option extended to continue the project. ~what are the specifics of the purchase option held by the developer? The developer currently holds an option of the Bursch property for $480,000. This option has to be exercised by February 13, or if extended on February 13, it must be exercised by March 15. CR: 91-37 Page 6 . What is the impact to the citY/HRA as relates to the use of TIF for this project? Based on the option being held by the developer staff is estimating a project cost of approximately $525,000 to the HRA which would include property acquisition and parking improvements. staff envisions the project costs being paid in the following manner: $500,000 - Redevelopment Bond Proceeds allocated to the project. $ 25,000 - Excess increment available in the CBO redevelopment district. staff has refined the costs associated with the project during the negotiation process. A portion of this public expenditure would be repaid as follows: - approximately $250,000 in todays dollars will be generated in tax increment revenues over the remaining 8 years of the tax increment redevelopment district. - The developer will provide an approximate land payment of $100,000. The tax increment generated and the land payment will not be sufficient to ~pay the total possible cost of this project (525,000 - 350,000 = $175,000 shortfall): However, staff believes the project deserves consideration for the followlng reasons: - This project will have significant impact on the amount of people who visit the downtown. This in turn should stimulate other development or business. - There is sufficient excess tax increment in this redevelopment district to fund any "gap". - The subject site is an expensive site to redevelop because it is presently occupied by a building. with a bare piece of ground the costs would be much lower. 0 What are the other specifies of the agreement? Prior to the HRA acquiring and conveying this property, the developer is required to have the following completed. - Must have an option agreement in place and in force. - Must obtain a waiver of plat or replatting. - Must secure conditional use permit approval. - Must obtain approval for alley vacation. . - Obtain all governmental permits and approvals. - Should obtain and submit evidence of financing. - All necessary environmental assessments should be completed. - Approvals must be obtained for all design and construction plans. - The Midcontinent lease must be in effect. - The letter of credit must be in the hands of the HRA. - The purchase price must be agreed upon. - All parking concerns must be addressed. CR: 91-37 . Page 7 The following are the major points of the redevelopment agreement as developed to date: Development Letter of Credit - The developer is required to provide to the authority, no later than June 1 1991, a letter of credit in an amount equal to the amount to be paid by the HRA to acquire the property. (Approx. $480,000) Minimum Improvements - The developer is required to construct at a minimum a 20,000 square foot, 1300 seat building. The cost of the minimum improvements must be no less than $1,400,000. Option Parcel - The developer would have the ability for twenty years to purchase additional land to allow for the expansion of the movie theater. Parking Improvements (Tenant's Request) - The city agrees to provide 400 public spaces within the area defined by the parking map. this area is roughly a 600 foot circle around the site. (See attached map) The City of Hopkins . guarantees that theater patrons will not be charged for parking in the city owned parking facilities evenings and weekends unless the patron parks over three hours, the city can institute a charge for time in excess of 3 hours. Purchase Price - The HRA would purchase the Bursch property for $475,000 based upon the option agreement which has been executed by the developer. The HRA would sell 20,000 square feet, exclusive of setbacks, of this property to the developer at a cost of $100,000. Any land required by the developer, in addition to the 20,000 square feet for construction of the building would be purchased at a price of $5.75/square foot. - The timing for the payment of the $100,000 purchase price would be based upon the financial feasibility of the project as relates to its ability to absorb a land cost payment. The timing would be determined based upon the financial statements approved by the lending institution. In the worst case situation, the payments would be received in equal payments in years 6 thru 10 of the project. The developer also agrees to pay for all associated demolition costs. Public Parkinq Area - The City/HRA would retain ownership of all of the property on this site not used for theater development. this would be maintained as . public parking. The costs for reconstructing the lot if it is determined to be necessary is approximately $20,000-60,000. Maintenance will probably be any where from $3000-9000 per year. Staff believes this annual fee will be minimal as far as operating costs. 0 How have the agreement specifics been revised since the January 15 HRA/City Council meeting? . CR: 91-37 Page 8 At the January 15 HRAjCity Council meeting, staff presented to the HRA the conditions of the redevelopment agreement as had been negotiated between the developer and City staff. The Council expressed concerns about several of these conditions and had staff continue negotiations with the developer. While the attached agreement reflects the concerns directed to staff by the Council, the developer has stated that the conditions within the agreement presented to the HRA on January 15 are the only conditions that he can continue to pursue the project under. The Commission must weigh the consequences of implementing the conditions as the developer proposes against the potential risk to the City. The Commission must then determine if it is appropriate that the developers conditions be included in the agreement. The following are the areas of contention between the developer and City staff. 1. Parking - Length of ~olicy chanqe city The city staff has been directed by both the city council and the Parking committee that the agreement to provide parking not be for an indefinite time period. The original agreement tied the length of this condition to the term of the Midco lease. Staff is now recommending a 20 year term, .WhiCh is the length of the current lease without options. Developer The developer contends that the tenant has required that the term of the agreement be for as long as Midco operates a theater in this structure. This length could be any where from 6 months to 60 years. 2 . Parkinq - Sale of parkinq ~roperty for 35 years city The City contends that the request for parking to be made available for 35 years is not possible. The idea behind the request was due to potential zoning changes which would require the developer to provide his own parking. If any changes would occur the City would be required to sell the necessary property to him. This request would in effect limit the City in potential redevelopment activities and set precedent in working with redevelopment. Develoner The developer initially requested this item to try to protect himself from any future changes to the zoning code. The developer contends that if he is unable to get this he needs at a minimum a guarantee that all on-site parking will remain parking. ~3. Letter of Credit City City Staff is requesting that the developer provide a letter of credit for the length of the contract. What this means is that as long as the developer owes the City payment on the $100,000 land price, a letter of credit should be available to pay this should the deal go bad. -- f' CR: 91-37 -Developer Page 9 The developer is willing to provide a second mortgage and/or a personal guarantee on the $100,000. In past agreements, the city has allowed this type of guarantee. However, it is not the most secure type of guarantee. 4. Land payment City The agreement which had been determined by the city's consultant was that the developer would pay at a minimum $100,0000 in years 6-10. The city would then review the financing package presented to the bank to determine if additional money could be paid or if the timing of the payments could change. Developer The developer has stated that he is only going to pay $100,000 in years 6 though 10. Nothing more, nothing sooner. 5. Construction plans city The City has asked the developer to provide construction plans prior to acquisition and property conveyance. These plans would have to approved ~and agreed upon. Developer The developer does not want to provide these plans up front. He indicated that this was an item which could be worked out as the process continued. 6. site Plan City After discussing the issue with the City Council, Parking Committee and Public Works department it became apparent that there was concern about the site layout. staff would like to continue to work out site plans. DeveloDer The developer has stated that he needs site approval at this meeting in order for him to proceed with the project. Many of the conditions and concerns which need to be yet worked out are contingent on having a site approval now. 7. Equity City The City has asked for the developer to provide 20% equity into the project. This project could not include land or developer fees. DeveloDer .The developer indicated that the bank would review his financial information and provide him with financing if the equity was present. He expressed concerns about the City requiring him to do so and had concerns about how the City defined "equity". , CR: 91-37 . Page 10 Alternatives. Based upon the action as recommended by staff, the HRA has the following alternatives: 1. Move to approve the sale of land, the redevelopment agreement and final TIF application regarding Marcus Corporation 's redevelopment of the Bursch property subject to a plan being developed and adopted which addresses the parking concerns identified in the Benshoof report. 2. Move to approve the sale of land, the redevelopment agreement and final TIF application not subject to future parking plan. The adoption of this motion will allow the process to continue for the redevelopment of the Bursch site as a movie theater. In undertaking this motion, the HRA/city Council must feel comfortable either with the existing parking situation or be willing to accept undertaking improvements at a later date when/if a parking problem occurs. 3. Move to deny the sale of land, the redevelopment agreement and final TIF application. The adoption of this motion would tell the developer that the City no longer wishes to proceed on the redevelopment of the Bursch site. 4. Continue for further information. From a timing standpoint it is . important, if the HRA wishes to undertake this project, that it proceed with addressing these various items as soon as possible. . _..,,'--_.-----..~ - - ~ -- . . CITY OF HOPKINS MEMORANDUM DATE: January 29, 1991 TO: steve Mielke, City Manager FROM: Ray Vogtman, Parks & Forestry Superintendent SUBJECT: Pavilion Operation Policy and Agreements At the last council meeting on January 15, 1991, the council identified two primary areas of concern regarding the proposed Hopkins Pavilion operation policy. 1. The use of the Hopkins Pavilion for city sponsored events, and whether or not these events should be expected to pay for any portion or all of the proposed rates for dry floor events. This issue brings up certain points that should be . addressed. Those issues are; recovery of costs, lost revenue, and last minute scheduling and associated costs. Recovery of costs - The public has invested heavily in the Pavilion which should not operate without an attendant on duty to protect the mechanical and architectural integrity of the building. This cost, along with set up costs, clean- up costs and utilities all combine to create certain operational costs. The recovery of these costs is important to the city if this facility is to support itself financially. Loss of Revenue - If the Pavilion is used for such city sponsored events as "Music in the Park", Raspberry Festival events, Heritage Day events, etc. at reduced or free rates, these dates will be lost as revenue generating dates. If the Pavilion is to be used as a back-up facility for "Music in the Park", as an example, up to eight separate days would be reserved. Potentially anyone of these days may have been rented as part of another groups event. The loss could be as much as $500 for one day or up to $1,100 if the date would have involved a three day event. The lost revenue for just one city sponsored program, such as "Music in the Park" could cost from $4,000 to $8,800. Multiply this program . times the number of organizations or events that could be allowed free use, and the budget impacts are substantial. The loss of this revenue is not consistent with past recreation philosophy that such programs and offerings be self-supporting. . 1/29/91 Memo Page 2 . Last Minute Schedulinq and Associated Costs - outside of those costs outlined above, there would be other costs involved in moving an event to the Pavilion if inclement weather threatens an outdoor event. If a decision was made no later than 12:00 p.m. on the day of the event, staff feels it could accommodate the change of location. However, the street division indicates that a total of $125.00 ln wages would be required to take down the stage and put it back up in the Pavilion. At this point, if the weather turned nice again, the event would have to be held in the Pavilion. Once the event is moved indoors, the operational costs outlined above would take place. 2 . The issue of whether or not the pavilion can be used free of charge throughout the summer by the general public for various picnics or gatherings. staff feels confident that the Pavilion could be open to the public free of charge under the following guidelines; 0 When no reserved event is scheduled the Pavilion would be open to the public. 0 open hours of operation, when there are no dry floor events scheduled, would be extended to 8:00 p.m. on . Thursday and Friday, and open 12:00 p.m. to 8:00 p.m. on Saturday and Sunday. The cost for an attendant to cover these additional hours of operation would be approximately $3,000 for the fourteen week season. These personnel costs are not budgeted in 1991, but could be offset by increases in projected revenues for dry floor events. This proposal still allows staff to schedule dry floor events, allows for an attendant on Thursday nights (when the Pavilion may be needed as a back-up for "Music in the Parkll), and also gives the public a fairly unrestricted use of the Pavilion for the "freetl use concept. The issues regarding security and hours of operation for consumption of alcohol are being reviewed by the Police department as requested. Their comments will be forwarded as they are received. RV:kam .