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CR 91-149 Springsted Financial Consultants Reading - Westrbooke0 July 9, 1991 Council Report #91 -149 CONTRACT WITH SPRINGSTED FINANCIAL CONSULTANTS REGARDING REHABILITATION FINANCING ANALYSIS FOR WESTBROOKE NEIGHBORHOOD Proposed Action Staff recommends adoption of the following motion: Move to authorize the City Manager to execute a contract with Springsted to conduct a rehabilitation financing analysis for the Westbrooke neighborhood. Adoption of this motion will allow the City Manager to execute a contract with Springsted which will identify, explain and rank the various financial tools available to correct code, structural and aesthetic deficiencies in the various Westbrooke area developments. Overview Representatives of the Westbrooke associations have asked the City for assistance in identifying possible rehabilitation financing for the condominium and patio homes. Staff has attempted to identify the alternatives, however, due to the nature of the development, this has been extremely difficult to do. Earlier this year, proposals to undertake a financial analysis were sought from financial and research consultants. Five proposals were received. Staff is recommending contracting with the financial consulting firm of Springsted to identify Westbrooke's alternatives. Primary Issues to consider • Why is there a need for this study? • What is the study intended to do? • What firm is being recommended to conduct the study? • How much will the study cost? • How will the study be paid for? Supporting Information • Request for Proposals • Proposal from Springsted - Public Finance Advisors C ten ElvdrW ing Coorgfinator Council Rpt. #91 -149 page 2 o Why is there a need for this study? The Westbrooke condominium and patio home neighborhood Was built in the early 1970's and represents approximately 16% of the City's housing stock (1,296 units). Many of the buildings are in need of rehabilitation and updating in order to stabilize their value. As far back as 1988, the City began working with Westbrooke patio home owners in locating financing to upgrade their units. The City's Residential Rehabilitation program was discussed as one alternative, although under this program only improvements confined to the applicant's unit would be eligible. Improvements such as roofs or siding would only be eligible if the every household in the entire structure was determined to be eligible. Additionally, the City's guidelines require that the loan amount does not exceed the value of the property minus any outstanding debt. This requirement also places restrictions on potential applicants. City staff continued to research possible funding sources for the needed improvements. Meetings were held with representatives of HUD, MHFA, a private financial consultant and local lenders. Staff also discussed the situation with real estate professionals, other City staff and representatives of Westbrooke. Although a great deal of time was spent on this issue, clear solution to the financing problem was identified. was then recommended by staff to hire a consultant with experience in housing finance to evaluate the situation identify possible financing alternatives. �I It and This issue is of concern to the City due to the fact that this neighborhood represents a substantial portion of the City's housing stock. Property values have been decreasing, which results in less property taxes being generated. In addition, the deterioration of the neighborhood has a strong visual impact on the City. o What is the study intended to do? The guidelines for the study ask the consultant to identify all possible financing alternatives for the rehabilitation of both interior and exterior, private and public areas of the Westbrooke patio homes and condominiums. It then • requires the consultant to evaluate the sources based on a variety of criteria. Finally, the guidelines ask to rank the alternatives based on their evaluation. Council Rpt. 91 -149 page 3 o What firm is being recommended to conduct the study? Staff received a total of five proposals from various financial and research consulting firms to conduct the Westbrooke study. After evaluating the qualifications and background of the persons assigned to complete the study, as well as calling references, staff is recommending the firm of Springsted. o How much will'the study cost? Springsted's bid for completing the study is a fee not to exceed $7,200. The cost of the study is proposed to be divided between the various Westbrooke associations, and the City, with the City being responsible for 25% of the cost. Based on Springsted's maximum bid, the City's share would be $1,800. The remaining 75% of the cost has already been guaranteed by the various Westbrooke associations. The maximum fee charged by the other firms submitting proposals ranged from $5000 to $8000. o How will the study be paid for? Staff is recommending that the City's share of the cost of the study be paid for out of the Economic Development Fund. Alternatives • Approve staff's recommendation. • Select another firm to conduct the study. • Decide not to conduct study. CITY OF HOPKINS REQUEST FOR'PROPOSALS WESTBROORE REHABILITATION FINANCING ANALYSIS- INTRODUCTION The Westbrooke Condominium and Patio Home neighborhood was built in the early 1970 Originally, the condominiums were built as apartments then converted into condominiums in the 1980 The neighborhood has three separate associations and two management companies. Combined, there are 162 8 -unit buildings totalling 1,296 units, comprising nearly 16% of the City's housing stock. The percent of owner occupancy ranges from 7 -24% in the condominiums to 69% in the patio homes. Due to age, lack of maintenance, and in some instances poor construction, many of the structures and have deteriorated to the point that major rehabilitation is needed. The needs vary, but some of the common problems include sagging garage headers, leaking roofs, deteriorated siding, lack of fire walls, badly worn carpet in common areas and severely deteriorated interior roads, sidewalks and parking areas. The associations current reserves are not adequate to finance these needed improvements and conventional private financing does not appear to be available. The Westbrooke associations have contacted the City in an effort to locate public or private financing or a combination of both to facilitate undertaking the needed improvements. In discussions with various groups and individuals, some types of funding alternatives that have been identified include: • Tax Increment Financing • Special Purpose Revenue Bond • General Obligation Bond • Special Service District • Private Lending Institutions SCOPE OF SERVICES The purpose of this analysis is identify the following: * possible private and public funding sources that are available to finance the needed improvements 0 * the advantages and disadvantages of each funding source * a prioritization of the identified sources. THE SCOPE OF SERVICES WILL INCLUDE THE STEPS DESCRIBED BELOW: 1. IDENTIFY FUNDING SOURCES. Identify and describe each funding source available to either the City or the associations to finance the cost of the needed improvements to both the common and private areas of the condominiums and patio- homes. Detail the particular terms (i.e. interest rate, term, security, etc...) associated with each alternative. Consider creative financing options such as special legislation. 2. EVALUATE EACH OF THE IDENTIFIED FINANCING TOOLS AND LIST THEIR ADVANTAGES AND DISADVANTAGES. Consider at least the following when evaluating: A. Risk and cost to the City B. Eligible improvements with each source C. The availability of the funds /likelihood to secure D. The affordability of the financing to the associations E. Any special requirements or provisions associated with the funding source F. How difficult the financing would be to administer G. Any time constraints associated with the financing H. Process to be followed in securing financing 3. PRIORITIZE THE VARIOUS FUNDING ALTERNATIVES BASED UPON THE ABOVE EVALUATION. TIME FRAME All work, including the submission of the final report to the City, shall be completed within 90 days following contract execution. The proposed scope of services includes conducting two formal meetings with City of Hopkins staff and representatives of Westbrooke. The first involves a review of the problems and a discussion of the options already studied by City of Hopkins' staff or Westbrooke representatives. The second meeting is for presentation of findings and conclusions (which may be at a City Council meeting) complete with a summary memo and accompanying exhibits. Phone conversations and site visits for information collection are included. :7 FEES All quotes submitted for undertaking this study shall be on an hourly rate with a "not to exceed" cost. As part of the quote, a listing of all individuals that will be involved with undertaking this study shall be provided. Also describe your experience in conducting similar studies and list references. The City of Hopkins has targeted a budget of $5000, not to exceed $8000. SUBMISSION OF PROPOSAL Interested parties shall submit their proposals to the City of Hopkins by 4:30 p.m. on February 25, 1991. The City shall then make a determination as to the firm appropriate to be hired. Questions regarding the RFP can be directed to Jim Kerrigan, Director of Planning and Economic Development or Kersten Elverum, Housing Coordinator at 935 -8474. l SPRINGSTED PUBLIC FINANCE ADVISORS 500 Elm Grove Road Suite 101, P.O. Box 37 Elm Grove, WI 53122 -0037 (414) 782 -8222 Fax: (414)782-2904 2739 Second Avenue S.E. Cedar Rapids, IA 52403 -1434 (319) 363 -2221 . Fax: (319) 363 -6999 85 East Seventh Place Suite 100 Saint Paul, MN 55101 -2143 (612) 223 -3000 Fax. (612) 223 -3002 6800 College Boulevard Suite 600 Overland Park, KS 6621 1 -1 533 (913) 345 -8062 Fax:(913)345 -1770 135 North Pennsylvania Street Suite 2015 Indianapolis, IN 46204 -2498 (317) 684 -6000 Fax: (317)684 -6004 222 South Ninth Street Suite 2825 Minneapolis, MN 55402 -3368 (612) 333 -9177 Fax: (612) 333 -2363 LETTER OF TRANSMITTAL February 25, 1991 Ms. Kersten Elverum, Housing Coordinator City of Hopkins 1010 First Street South Hopkins, MN 55343 Re: Proposal to Conduct Westbrooke Rehabilitation Financing Analysis a Dear Ms. Elverum: On behalf of Springsted Incorporated, we are pleased to submit this Proposal to assist the City of Hopkins and the Association of the Westbrooke Neighborhood in analyzing financing options for the rehabilitation of the condominium and patio homes complex. The purpose of this letter is to respond to the requested scope of services, budget, and timeframe for the analysis. Other sections of the Proposal contain outlines of the resources that Springsted brings to the analysis, our prior experience, and references. Scope of Services The Scope of Services to be provided by Springsted directly follows the three steps outlined in the Request for Proposals. The steps include identifying possible funding sources, evaluating the financing tools, and prioritizing funding alternatives. These three primary work tasks are further described below. Identify Funding Sources: The funding sources identified to date include tax increment financing, special revenue bonds, general obligation bonds, special service districts, and private funding institutions. Springsted will research and describe each of these funding sources, in addition to attempting to identify any other creative financing options that, may be available. Specific terms such as interest rates, security, and term of the financing will be discussed with each alternative. The specific use for each funding source will also be identified, for example, the use of general obligation bonds for infrastructure requirements within the neighborhood area. Evaluate Financing Tools: The financing tools identified in the first task will be evaluated based on the eight criteria listed in the Request for Proposal. Both the advantages and disadvantages of each financing tool will be discussed in detail. February 25, 1991 Page 2 • Prioritize Funding Alternatives: Based on the results of the first two work tasks, the funding alternatives will be prioritized. Our recommendations may include pursuing a number of alternatives simultaneously, under the assumption that the final financing plan may include a number of the tools identified. An important component of our work program includes our interface with City staff and representatives of the Westbrooke Association. We are aware that both groups have dedicated considerable time and effort into researching these questions. In order to efficiently conduct our analysis, we will rely on input and information gathered by the staff and the Association to date. Proposed Budget and Timeframe We propose to conduct the work program outlined in this letter for a fee not to exceed $7,200. This is based on our hourly billing rates of $150 for senior officers, $125 for Project Manager, $90 for other professional staff, and $35 for support staff. The budget includes travel expense, report preparation expense, and other miscellaneous cost items. This budget provides for two meetings with City staff and Association members. Additional meetings or presentations will be billed at the above hourly rates. We will be ready to proceed with our assignment upon approval from the City Council and the Association. Our analysis will be completed within 90 days following contact execution. As we have discussed, the Westbrooke Rehabilitation Financing Analysis is not a standard consulting opportunity. We would like to assure you that the project team we have assembled for this assignment contains the experience, creativity, and dedication necessary to respond to the dilemma facing the City of Hopkins and the Westbrooke Association, We look forward to the opportunity to serve you and await your invitation to discuss our Proposal further. Please do not hesitate to call with any questions. Respectfully submitted, Kathleen A. Aho Rebecca D. Yanisch Senior Vice President Vice President mjh • TABLE OF CONTENTS LETTER OF TRANSMITTAL Page(s SECTION A RESOURCES Staff and Corporate Organization ........................... ............................... 1 ProjectTeam ............................................................. ............................... StaffPage 1 -2 .................................... .............................................................. Resumes ................. 3 ............................................... ............................... 4-6 SECTION B PRIOR EXPERIENCE HousingStudies ............................... ............................... 1 -2 SECTION C REFERENCES .......................................................... 1 ............................... R SECTION A RESOURCES Staff and Corporate Organization The high quality of Springsted's service is based on the talents and expertise of its staff. Springsted currently has a staff of 54, of whom 38 are finance professionals having an average tenure of seven years with Springsted. The nine senior officers of the firm collectively have over 157 years of experience in municipal finance. The firm's 38 finance professionals bring to Springsted various professional backgrounds, including municipal and state government administration, law, economics, commercial and investment banking, engineering, accounting, business administration, education administration, and journalism. These 38 professionals hold a total of 53 undergraduate and graduate degrees. The two largest units of Springsted's organization are the Public Finance Group and the Research and Development Group. The Public Finance Group consists of all Project Managers i and is responsible for servicing existing accounts and developing new accounts. The Research and Development Group comprises five divisions: Analysis (issue structuring and marketing, including Official Statement preparation); Information Systems; Legal Liaison (coordination of legal process and documents with bond attorneys); Resource Center; and Word Processing. Project Team For each advisory and consulting engagement, Springsted assigns a project team whose qualifications match the client's particular needs. This project team has primary responsibility for providing services to the client, but may draw upon the talents and services of other members of the firm when necessary and appropriate. The project team to be assigned to the Westbrooke Rehabilitation Financing Analysis will include Ms. Kathleen Aho, Senior Vice President and project manager, Ms. Rebecca Yanisch, Vice President, and Ms. Christine Haugen. As project manager, Ms. Aho will have primary responsibility for the assignment, attending all meetings with the City and working directly on the project. Ms. Yanisch will serve as backup to Ms. Aho and will provide her expertise in areas A -1 • of public /private partnership finance. Ms. Haugen will provide technical support for the analysis as needed and will also be available for direct consultation with City staff. Resumes of the key personnel selected to serve on the City's project team are found on the following pages. • - A -2 • SPRINGSTED STAFF AND ORGANIZATION Robert D. Pulscher, President and Chief (Executive Officer G. Ann Klein, Administrative Assistant Public Finance Group Kathleen A. Aho, Senior Vice President David N. MacGillivray, Senior Vice President J. Luther Anderson, Senior Vice President Daniel T. O'Neill, Senior Vice President William E. Brennan, Senior Vice President Richard L. Treptow, Senior Vice President Kingsley D. Forness, Senior Vice President J. Russell Fifield, Jr., Vice President Luther Fjelstad, Vice President Daniel W. Hartman, Vice President John M. Maas, Vice President Michael P. Schaefer, Vice President Gerard B. Shannon, Vice President Ronald E. Sundberg, Vice President Robert D. Thistle, Vice President Rebecca D. Yanisch, Vice President Walter L. Dornfeld, Project.Manager B. Joseph Rinas, Project Manager Ernest Clark, Consultant Diane M. Allan, Administrative Assistant Janice Plumitis, Administrative Assistant Research and Development Group Ronald W. Langness, Senior Vice President - Group Director Barry W. Fick, Assistant Vice President Lee J. Brundell, Finance Advisor Analysis Corliss J. Weeks, Vice President - Section Head Catherine R. Polta, Assistant Vice President Paul R. Donna Thekla K. Fagerlie Christine K. Haugen James G. Hodson Brenda A. Krueger Don W. Perlich Phyllis D. Slattery Information Systems Richard J. Christoph - Section Head Mark Winkelhake Legal Liaison Nancy L. Langness, Vice President - Section Head Carol L. Kraus Colleen D. Clayton Resource Center Carol M. Delak - Section Head Carol A. Ward Word Processing Carol J. Powers - Section Head Michele M. Rutzen Nancy K. Fossell Renee L. Schmitz Mary J. Hiel Administrative Group Bonn! C. Matson, Tr asurer - Group Dir ctor Patricia A. Walters - Section Head Patricia L. Heroff Elaine Alexander Sunny M. Frazee Heather I. Braun, Finance Advisor Theresa L. Fenton, Administrative Assistant A -3 RESUME Kathleen A. Aho Senior Vice President Experience: Ms. Aho was named a Senior Vice President of Springsted in 1990, following ten years as a principal and most recently president of the Minneapolis based government advisory firm of Public Financial Systems Inc. Following the merger of Public Financial Systems with Springsted, Ms. Aho continues'to serve as a Project Manager to the combined firms', major clients. In Ms. Aho's years of government advisory work, she has served as Project Manager on hundreds of financing transactions and consulting assignments that involved both taxable and tax - exempt obligations. Ms. Aho has a reputation for developing creative methods for managing today's most number intense financings such as housing, advance refunding, and sales tax backed revenue bonds. In addition to the sixteen years Ms. Aho has spent in the government advisory business, she has worked with the data services division of Control Data developing and marketing computer software to the securities industry and three years as finance director to a twin cities metropolitan school district. Ms. Aho has also been invited to speak and present papers on several security related issues to numerous national conferences and symposiums. Education: University of Minnesota , B.S., Mathematics and Business Practicing Law Institute Various Securities Related Programs Affiliations: Minnesota Institute of Public Finance - Board Member 1985 -91 Association of Local Housing Finance Agencies National Association of Independent Public Finance Advisors Government Finance Officers Association National Association of Housing and Redevelopment Officials National Association of School Business Officials A-4 RESUME Rebecca D. Yanisch Vice President Exp rience: Previously a principal with Public Financial Systems, where she headed the Development and Planning Group, Ms. Yanisch joined Springsted as a Vice President upon the merger of the two firms in July 1990. Ms. Yanisch serves as a Project Manager for special consulting assignments involving public /private partnerships and nontraditional finance tools. Her professional background in both real estate and finance enables her to bring a rare perspective to such assignments. Over the past five years, Ms. Yanisch has conducted diverse consulting assignments including forecasting special sales tax revenues for a $200 million convention center facility for the City of Minneapolis, and analyzing the need for and structuring tax increment financing for projects ranging in size from $100,000 to $100,000,000. In addition to sales tax revenue and tax increment studies, Ms. Yanisch has consulted on numerous economic development and downtown redevelopment issues. Prior to joining Public Financial Systems, Ms. Yanisch served as a Senior Associate with James B. McComb and Associates, a regional real estate consulting firm. Prior to joining McComb, Ms. Yanisch served as a development coordinator for a multi- family housing developer in the Twin Cities area. Ms. Yanisch began her professional career with the Minneapolis Housing and Redevelopment Authority, now the MCDA, as a housing finance coordinator. Her extensive experience in housing and commercial development, from both the private and public sector perspective, enables her to critically evaluate the costs and benefits of proposed public /private partnerships. Education: University of Minnesota M.B.A., Concentration in Business, Government, and Society University of North Dakota B.S.B.A., Finance, Summa Cum Laude Affiliations: The Minnesota Industrial Development Association The National Association of Housing and Redevelopment Authorities Urban Land Institute A -5 RESUME Christine K. Haugen Financial Analyst, Experience: Ms. Haugen joined Springsted in July 1990, having served as a Research Associate and Technical Analyst for the Development and Planning Group of Minneapolis based Public Financial Systems. She now serves as Financial Analyst for special projects and financial feasibility studies. Over the past five years, Ms. Haugen has provided technical support for a variety of consulting assignments, including cash flow feasibility analyses for public /private ventures, low to moderate income housing finance projects, cost/benefit analyses, and market studies. An important area of Ms. Haugen's expertise is tax increment financing, where she has provided both cash flow analyses and plan preparation for numerous housing and commercial projects. Ms. Haugen was also involved in a feasibility /sensitivity analysis for a $100 million resource recovery project. Prior to joining Public Financial Systems, Ms. Haugen worked in the marketing department of a Twin Cities based mortgage banking firm. Her knowledge in mortgage banking complements the housing aspects of her work. ® Education: Mankato State University, Mankato, Minnesota B.S.B.A., Finance, Real Estate and Insurance • A-6 . SECTION B PRIOR EXPERIENCE Housing Studies Client: Washington County Housing and Redevelopment Authority Project: Multi - Family Housing Bonds As financial advisor to the Washington County Housing and Redevelopment Authority (Minnesota), Springsted assisted in the implementation of a $65,000,000 multi - family housing program. The County issued Governmental Housing Revenue Bonds to facilitate construction, or acquisition and improvement, of several housing developments. Our role was to evaluate the reasonableness of revenue, expense and cash flow projections and construction and acquisition costs for each project as compared to area standards. In addition, Springsted prepared a net present value analysis of each project to enable the HRA to evaluate the value of the program under various operating scenarios. We also evaluated the credit background of project developers to identify problems that may adversely affect the HRA, and negotiated the developer's agreement with the HRA. Springsted also served as the financial advisor on the HRA's $65,000,000 Multi - Family Housing Revenue Bond Program in 1988 and the $150,000,000 Special Construction Revenue Notes, Series 1987. Client: Dakota County HRA, Minnesota Project: Elderly Housing Project Springsted assisted the Dakota County Housing and Redevelopment Authority in analyzing alternative low income elderly housing development options. The analysis was initiated in response to the changes in federal tax legislation. The primary tasks included analyzing various levels of public financial assistance and financing tools that were available to private developers plus two development options assuming that the facility would be publicly owned and developed. The analysis was conducted by first defining the options to be studied, then projecting development costs incurred in each development option and preparing ten -year cash flow pro formas. The main objective in the analysis was to determine what level of public assistance or form of ownership would generate the most affordable rents for the elderly. Cli nt: Austin HRA, Minnesota Project: Cedars of Austin The Austin, Minnesota Housing and Redevelopment Authority retained Springsted to assist them in analyzing the financial feasibility of the conversion of a former hotel into elderly housing. Located in downtown Austin, the redevelopment project, known as the Cedars of Austin, consisted of converting a 68 room hotel and adding a new wing, resulting in 143 units of elderly housing. Springsted assisted the HRA in determining the feasibility of the proposed reuse, structuring the assistance and participation by the City of Austin through tax increment financing, and negotiating a development agreement for interest rate reduction assistance between the City and the developer. • B -1 Client: Dakota County HRA, Minnesota Project: Inver Hills Student Housing Springsted assisted the Dakota County Housing and Redevelopment Authority in analyzing the need for and recapture of interest rate reduction assistance for student housing associated with the Inver Grove Heights Community College. The apartments were to be developed on land owned by, the Community College. The developer had requested that a tax increment district be established through the County HRA, and the captured increments be used to reduce the necessary student rents through interest rate reduction assistance. Springsted examined the feasibility of the project, recommended an appropriate level of assistance, and negotiated a development agreement including recapture of the assistance. Client: Mankato, Minnesota Project: REM Housing Project Springsted served as feasibility consultant to the City of Mankato in evaluating the use of the Interest Rate Reduction Program to be used for the development of a 70 -unit apartment complex. The analyses included both the need for and recapture of interest rate reduction assistance provided by the City. Springsted determined the feasibility of the project, recommended a reasonable level of assistance, and negotiated the development agreement, including recapture provisions for the City. Client: Rochester, Minnesota Pr ject: Handicapped Housing Project As financial advisor to the City of Rochester, Springsted assisted in analyzing the financial feasibility of a 26 -unit handicapped housing project and determining the amount and availability of tax increment assistance. This evaluation included reviewing the amount of assistance requested by the developer, the creation of a housing tax increment financing district, the negotiation of a reasonable rate of return on funds provided by the City, and structuring the developer agreement. Housing Plans Springsted has prepared housing plans for several Minnesota cities, including Aitkin, North Mankato, Bagley, and Sauk Rapids. These plans establish a meaningful housing strategy in compliance with the criteria set forth in Chapter 462C of Minnesota Statutes. The plans included a profile of the population, local economy, and housing stock in the community and described and illustrated the City's future housing needs. It identified market, government, and social constraints to meeting the City's housing needs, and the plan outlined a community housing strategy that focused on housing needs and the methods to be used in meeting those needs. B -2 SECTION C REFERENCES Perhaps the best test in evaluating the ability of a consultant is to check with past clients. Springsted is very proud of our reputation of high quality and client oriented services. We encourage you to check with our clients. They can tell you why Springsted is the right consultant for the City of Hopkins. Minneapolis Community Development Agency Contact: Mr. Jay Jenson, Executive Director (612) 342 -1207 Dakota County Housing and Redevelopment Authority Contact: Mr. Mark Ulfers, Executive Director (612) 423 -4800 Washington County Housing and Redevelopment Authority Contact: Mr. Dennis Balyeat, Executive Director (612) 458 -0936 • C -1