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CR 91-100 Develeopment Agreement - Hopkins Tech Center ( . April 30, 1991 \ i Y 0 ~ -$0 '" o P K \ ~ '\ Consent Agenda -. '\ Council Report: 91-100 DEVELOPMENT AGREEMENT - HOPKINS TECH CENTER Proposed Action. Staff recommends adoption of the following motion: Approval of a Develo~ment Agreement with Hopkins Tech Center Partners for the redevelopment of 1600 Second st. South subject to conditions as recOmmended bv Staff. Approval of this action will allow the agreement to be executed prior to June 1, 1991 and therefore grandfather the tax increment district under the pre-1990 statute requirements. It is understood by this action that Staff will be allowed to make minor changes prior to execution which do not change the overall intent of the agreement. . Overview. The sUbject building located at 1600 Second st. South is an older building which no longer meets modern day warehousing requirements. In order to facilitate a possible redevelopment of this property, it was placed into a tax increment district in 1990. The BRA Board has approved a preliminary and final tax increment application for the redevelopment of this property. Along with this action, Staff was authorized to undertake preparation of a Development Agreement. The Development Agreement, which is being presented to the HRA for consideration, details the various requirements of both the developer and the HRA necessary to facilitate this project. primary Issues to Consider. o What are the specifics of the project? o What are the problems with the existing building site? o What is the benefit to the. City of this project? o Does this project meet the tax increment policy criteria? o Does the project require pUblic assistance? o Timing issues. . o What are the specifics of the Redevelopment Agreement? o What are the conditions recommended by Staff? SUDporting Information. o ~lopment ~eement Ja es D. Kerriga , Planning & Economic Development Director . i' .~ . CR: 91-100 Page 2 Analvsis of Issues. Based on the recommended action, the City Council has the following issues to consider: o what are the specifics of the project? This project would involve demolition of the existing 290 ,000, sq. ft. building. The site would then be redeveloped with three buildings of approximately 255,000 sq. ft. of office warehouse space. The buildings as detailed on the site plan would consist of between 40,000 and 135,000 sq. ft. A small outlot 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 abuilding of this type today requires a ceiling height of approximately 18 feet. The lower ceiling height that exists in this building limits 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. . . For all of the above reasons, a large portion of this building is presently unoccupied. This in turn results in a cash flow problem for the owners. Undertaking this project as proposed provides the following benefits to the city: ,i . CR: 91-100 Page 3 " o Increase employment base of City o Increase tax dollars o Improve the appearance of the site o Does this project meet the tax increment policy criteria? The proj ect as proposed meets a number of the goals and obj ecti ves identified within the tax increment policy. o Does the project require public assistance? Due to the high acquisition costs, tax increment is required to reduce the overall development costs of this project. Tax increment would specifically be used to provide a land write down, demolition and assistance in the remediation of environmental problems. o What would be the specifics of the Redevelopment Agreement? The Redevelopment,' Agreement details a variety. of issues and responsibilities 1n order to facilitate implementation of this project. Specific responsibilities of the developer are as follows: . o Construction of 255,000 square foot, office/warehouse development. o Submission for a conditional use permit by April, 1993. three building o Start of construction 60 days governmental approvals (based on approximately mid-summer, 1993). o Completion of construction within 12 months following commencement. after securing all proposed schedule, The City/HRA responsibilities as relates to this project, is to provide tax increments on a semi-annual basis to the developer as they are provided by Hennepin County. The specifics of this transaction would'be detailed in a tax increment revenue note executed by the HRA. The tax o o o increment would be used for the following activities. Land write-down Demolition Correction of environmental conditions . The amount of increment to be provided for the various acti vi ties identified above would provide a land write-down to $5.00 a square foot. Additional land write-down could be provided if more tax increment is, generated. The amount of increment to be provided would be approximately $400 ,000 per year through December, 2014. This is based on a project value of $12,000,000 at present commercial industrial tax rates. Should less tax increment be generated, the developer would only receive the specific amount of increment provided to. .the HRA by Hennepin County. There is, no obligation on the part of ~. . . . CR: 91-100 Page 4 the City or HRA to supplement any tax increment short falls with general fund revenues. The tax increment would be provided to the developer as it was received by the city. No lands would be sold for the project. The Development Agreement is written so that if the developer is unable to undertake this project and therefore does not meet certain requirements, that either party shall have the ability to terminate the agreement with ten days written notice. Under such termination, neither party shall have any liability to the other party. o What are the conditons recommended by staff? Approval should be conditional upon approval of the Development Agreement by the HRA. Alternatives. The HRA has the following alternatives regarding this issue: 1. Approve the actions recommended by Staff. This will allow the agreement to be executed by the Chairman and Executive Director. 2. Deny the request. Under this scenario it will be assumed that HRA does not wish to provide any public assistance for 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 financially nothing can be done to make the project more functionally useful and correct the environmental conditions, the existing owners would probably take steps to remove themselves from an ownership position. 3. continue for further information. The HRA needs to be aware that there is a June 1 deadline date to approve a redevelopment agreement in order to grandfather the TIF district under the more favorable pre-1990 tax increment rules. If such an agreement is not executed by this date, it will be very difficult to make the project financially feasible for the developer.