Loading...
Memo- GPS Development, LLC-6th & Main Project Economic Development MEMORANDUM TO: Mayor and City Council FROM~!-Jim Kerrigan, Director of Planning & Economic Development DATE: September 25, 2006 SUBJECT: GPS Development, LLC - Sixth & Main Project PURPOSE OF MEMO Staff has scheduled a discussion of the Sixth & Main Project at a special work session on October 3 from 6 p.m. to 7:25 p.m. The purpose of this discussion is to provide direction to both staff and GPS Development on how the Council wishes to proceed with this project. OVERVIEW The Hopkins HRA executed a redevelopment agreement with GPS Development for construction of the Sixth & Main Project in July 2005. This agreement required GPS to complete a variety of tasks over a six-month period. A number of these actions were not undertaken during this period. The HRA extended the terms of the agreement in February 2006 for an additional six months. Over the last few months discussions have been taking place to facilitate a negotiated purchase of the Park Plaza property. Unfortunately, to date these discussions have not resulted in an agreement between the parties. PRIMARY ISSUES TO CONSIDER What is the status of the redevelopment agreement? The amended redevelopment agreement for this project was executed on February 7, 2006. The six-month period for this agreement expired in August. As a result, the HRA needs to take action in the near future to either revise the terms of the agreement or terminate the agreement. As detailed above, the redevelopment agreement stipulates a variety of tasks that need to be completed by GPS. Attached is a summary of the status of each task identified in the agreement (memo to Steve Flanagan dated 8/28/06). Memo to Mayor and City Council, September 25, 2006 - Page 2 . What actions are available to the Council related to the redevelopment agreement? Amend the existing agreement. This action could involve three alternatives. One is to extend the agreement by an additional period to allow GPS more time to complete all of the tasks identified in the agreement. The second alternative would be to not only extend the period of the agreement but also revise the terms specified in the existing agreement. From a staff perspective there is a concern about any significant change to what is required of the developer in the existing agreement. These standard terms are meant to ensure the following: o That the project is constructed as detailed in the development agreement. o That the City is adequately protected from a financial perspective in proceeding with this project, especially if eminent domain is undertaken. The final alternative is to terminate the agreement with GPS. Termination would need to be related to non-performance with the development agreement. . What are the options for securing the Park Plaza property? One option is to continue to try to negotiate a purchase of this property. To date, this endeavor has been unsuccessful. City staff recently met with one of the owners of the Park Plaza property and his attorney. In this discussion they said they would rather have a purchase agreement with the City than GPS. The only other option to secure title to the property if a negotiated purchase is not successful is to have the City undertake eminent domain. Under the existing agreement, the City is protected from any financial exposure if they undertake this action. This is based on the fact that the developer is required to make up- front deposits for the following: o The estimated court award of the acquisition cost o Relocation costs o Legal costs (This could include a challenge to the eminent domain action.) Unfortunately, Steve Flanagan of GPS has now stated that GPS does not have the ability to provide these deposits; therefore, proceeding with the eminent domain process would result in a significant financial risk to the City. Prior to proceeding with such action, the Council would need to talk to both the City finance director and Ehlers regarding how these costs would be financed by the City if GPS was unwilling or unable to provide payment for these costs as they come due. Memo to Mayor and City Council, September 25, 2006 - Page 3 CONCLUSION The Council needs to make a decision on whether to continue a relationship with GPS Development for their Sixth & Main Project. If the decision is to consider a revised development agreement with them, there needs to be discussion regarding securing control of the Park Plaza property. Finally, if there is an interest in proceeding with eminent domain, the Council needs to have sufficient discussions to feel comfortable with the potential financial exposure to the City. ATTACHMENTS · Amended and Restated Redevelopment Agreement dated February 7, 2006 · Memo from Jim Kerrigan re: status of developer tasks · Memo from Bob Deike re: issues relating to eminent domain · Memo from Sid Inman re: project financial feasibility City of Hopkins I. MEMORANDUM TO: Steve Flanagan COPIES: Bob Deike, Kersten Elverum, Rick Getschow, Sid Inman, Mac LeFevre FROM: Jim Kerrigan, Director of Planning & Economic Development DATE: August 28, 2006 SUBJECT: Status of Developer Costs - Sixth and Main Project The amended redevelopment agreement for this project, dated February 7, 2006, requires that GPS complete a variety of tasks at various times over an 180-day period. These tasks are detailed in Sections 3.2 and 3.3 of the agreement. The following is what I see as the status of each of these items. Section 3.2 A) Financial Plan A financial plan dated August 26, 2005, was submitted to the City. This will need to be revised based on the current parameters of the project and the present financing options that are being considered. B) Financial Feasibility Analysis Ehlers has not yet received the necessary information to complete a detailed financial feasibility analysis of the project. C) Project Phasing Schedule A project construction and financing phasing schedule, dated March 7, 2005, and a construction phasing summary dated August 25, 2005, have been submitted to the City; however, these schedules are no longer valid, as they detail a construction start date that has already passed. A new schedule needs to be prepared with current project timing estimates. D) Environmental Remediation Plan A proposal to complete an environmental remediation plan of the project area has been submitted by Cooper Engineering. To comply with Section 3.2(d) they need to actually have Cooper complete preparation of the Environmental Remediation Plan. Memo to Mayor and City Council, August 24, 2006 - Page 2 E) Purchase of Properties There are still remaining properties to be acquired within the project area. This includes two properties (Park Plaza and used auto sales lot) necessary to facilitate Phase 1 construction. F) Financing Commitment . A financing commitment from a private lending institution has not been secured for construction of the project. G) Plan Review The concept review process as required has been completed; however, as also required by this section, construction documents for building inspection and determination of feasibility of compliance with State building code have not been provided. H) Condominium Documents Articles of incorporation and bylaws of the Sixth and Main Association have been submitted to City staff. These documents have not been reviewed by the City's legal counsel. I) Purchase Agreements Copies of purchase agreements have been submitted to Bob Deike. He is in the process of clarifying issues relating to these agreements. J) ParkinglTraffic Study SRF Consulting Group has completed an updated parking analysis based on the removal of the 55-year-and-older age restriction. This analysis is detailed in a memo dated February 1, 2006. K) Bimonthly Reports Project status reports have been provided. Section 3.3 (f) (ii) . Relocation contract - An amended contract with Wilson Development Services dated August 10, 2005, has been submitted to staff. A relocation plan dated April 28, 2006, has been received. There have been no written status reports provided to the City. --I MEMORANDUM To: Rick Getschow, James Kerrigan, Kersten Elverum From: Robert J. Deike Date: September 26, 2006 Re: GPS Development Agreement This is in response to your request for a memorandum describing the status of the development agreement between the Hopkins HRA and GPS Development LLC ("GPS"). Specifically, you asked that I discuss the mec~anics of an eminent domain action, the security required under the current development agreement to protect the BRA and City against liability inherent in an eminent domain action, and the security currently being proposed by GPS. The development agreement provides that if GPS is unable to acquire on a voluntary basis the property owned by Hopkins Park Plaza, LLC, GPS can request that the BRA commence an action to acquire the property using its powers of eminent domain. If the BRA does commence such an action certain liabilities on the part of the BRA would begin to accrue. The following is a list of the possible liabilities, how they are addressed by the current development agreement and GPS's proposed changes to the development agreement: 1. Attorneys' Fees. The BRA will be liable for attorneys' fees and other court costs incident to the eminent domain action. We have been advised by Kennedy & Graven, Chartered, the attorneys retained by the BRA to prosecute the eminent domain action, that $75,000 is a reasonable estimate of attorneys' fees, assuming that the BRA's legal ability to undertake the action would not be the subj ect of protracted litigation. If the property owner decides to contest the BRA's legal authority to take the property, the fees could be substantially higher. Security Required by Development A~reement. The development agreement provides that prior to the lIRA's commencement of an eminent domain action, GPS must deposit $75,000 with the lIRA to be drawn upon to pay its legal costs. If during the course of the legal proceedings the BRA determines that additional deposits must be made, GPS is required to make them. Security Proposed by GPS. GPS has proposed to deposit with the HRA $10,000 for attorneys' fees and costs. BRA and City Risk. It is fairly certain that the cost of the litigation will exceed $10,000. If GPS fails to make additional deposits for litigation costs the BRA could abandon the litigation but will be responsible for any fees incurred prior to that point and any fees incurred in connection with the termination of the litigation. Also, the lIRA will be responsible for the property owner's legal costs. If GPS does not make the deposits or pay the costs incurred by the lIRA, the only recourse available to the HRA is to seek to recover those costs through a legal action. The successful collection of a judgment obtained in such a legal action will depend on, among other things, the financial condition ofGPS and its owners at the time. 2. Initial Court Deposit. The development agreement provides that if the HRA agrees to acquire the Park Plaza property using its eminent domain powers it would do so on a "quick take" basis. The "quick take" statute allows the HRA to have, subject to court approval, title to the property transferred to the HRA 90 days after the HRA gives the property owner notice that it intends to have title transferred to it prior to a final award of damages for the taking. In order to have title transferred to it under this statute, the HRA must deposit with the court the amount of its appraised value of the property. The HRA has an appraisal prepared last year that values the property at $3,550,000. That appraisal likely will be updated. Therefore, in order to acquire the property under the "quick take" statute the HRA would have to deposit that amount, or the updated appraised value, with the court. Until that deposit is made the HRA has the right to termin8;te the court action but if it terminates the action it will be responsible for the property owner's legal expenses. Security Required by Development Aereement. The development agreement provides that prior to the HRA's commencemen( of an eminent domain action GPS must enter into and fund an escrow agreement which is part of the development agreement. The escrow agreement requires that prior to commencement of the legal proceeding GPS must deposit into escrow a letter of credit in the amount of $3,550,000 to be drawn upon by the HRA to make the initial court deposit. Security Proposed by GPS. GPS has proposed that the HRA waive the requirement that an amount equal to the initial court deposit be escrowed prior to commencement of the eminent domain action. Instead, GPS proposed that on the 89th day, the day before the BRA is required to make the court deposit, it will deposit the money with the HRA. If it does not make the deposit, the HRA can terminate the proceedings. BRA and City Risk. IfGPS fails to make the deposit when the HRA is required to deposit it with the court, the HRA will be forced to terminate the eminent domain proceeding and will be liable to the property owner for its legal costs associated with the litigation. If GPS does not pay those costs, the HRA will have to pay them and the only recourse available to the HRA will be to seek to recover those costs through a legal action against GPS and Steve Flanagan. 3. Final Court Deposit. If the HRA exercises its right to acquire the property through a "quick take" procedure it will acquire the property before the final damage award is known. That award will be determined by court-appointed commissioners after commissioners' hearings. The award will likely be more that the amount of the initial deposit and could substantially exceed the initial deposit. After title to the property has been transferred to the HRA under the "quick take" statute the action can not be dismissed by the HRA and the HRA will be liable for the final award, less the initial deposit. Security Required by Development Aereement. The escrow agreement that is part of the development agreement requires that 2 days prior to the date that the BRA is required to make the initial court deposit, GPS must deposit with the escrow agent an additional letter of credit in the amount of $3,500,000 to be drawn upon by the BRA to pay the final award if the final award is larger than the initial court deposit. Security Proposed by GPS. GPS has proposed that the BRA waive the requirement that GPS deposit the additional letter of credit when required by the development agreement. Instead, GPS proposed that GPS would guaranty the payment of any additional award and that the BRA could have a mortgage or other security to cover this obligation. Under the development agreement, as currently written, GPS has already guaranteed this obligation and no additional security has been identified that would protect the BRA. BRA and City Risk. If GPS fails to deposit the amount by which the final commissioners' award exceeds the initial deposit, the BRA will nevertheless be responsible for the payment of that amount. No property has been identified on which the BRA could file a mortgage that would provide meaningful security for the BRA. Our understanding, based on discussions with GPS and its attorney, is that all of the properties already acquired by GPS have at least one mortgage recorded against them. Some have multiple mortgages in place. No other forms of security have been offered. Therefore, absent the identification of security with value, if GPS fails to make the additional deposit to cover the final condemnation award, the BRA will have to pay it and its recourse will be to try to recover the payment through a legal action against GPS and its owners. The BRA will own the property. 4. Relocation Costs. Persons displaced from the Park Plaza property as a result of the BRA's acquisition of the property will, with some exceptions, be entitled to relocation payments and benefits under state and federal law. The ultimate legal obligation to pay those payments and benefits rests on the HRA as the acquiring authority. Security Required by Development Al!reement. The development agreement contains a number of provisions intended to both manage the potential liability for relocation benefits and to ensure that security is provided by GPS to pay the benefits. First, the agreement requires that GPS retain a relocation consultant to prepare a plan under which persons would be relocated and paid the benefits to which they are entitled by law. GPS has retained the consultant and the consultant has prepared the relocation plan. Second, the escrow agreement that is part of the development agreement requires that prior to the commencement of an eminent proceeding GPS must deposit a letter of credit with the escrow agent in the amount of $1,250,000, which is GPS's relocation consultant's estimate of the relocation benefits payable to persons who will be displaced from the Park Plaza property, to be drawn upon by the Authority or GPS to pay the benefits. Security Proposed by GPS. GPS has proposed that the lIRA waive the requirement that the relocation deposit be made when required by the current agreement. Instead, GPS proposes to make that deposit at the time that it begins to actually evict tenants. BRA and City Risk. State and federal relocation laws are complex, unclear and evolving as courts decide relocation cases. If a court were to rule that persons vacating the Park Plaza property prior to the date that tenant evictions began are entitled to relocation benefits, the lIRA will be responsible for those relocation payments. If GPS fails to fulfill its obligation to pay those benefits the lIRA would have to pay them and seek recourse against GPS through a legal action. If you have questions concerning this memorandum, please contact me. I will be at the lIRA meeting on October 3, 2006 to discuss this. . EHLERS & ASSOCIATES INC 0 TO: :E FROM: W :E COPIES: DATE: RE: Jim Kerrigan, City of Hopkins Sid Inman, Ehlers and Associates, Inc. Kersten Elverum, Rick Getschow September 26, 2006 GPS Development On October 3rd the city council will have a discussion of its options with regard to the contract it currently has with the GPS development group. One of the options is to proceed with eminent domain to acquire the Park Plaza property. As you're aware, the redevelopment agreement with GPS requires that prior to the council proceeding with eminent domain, Ehlers is to present an analysis to the city council as to the financial feasibility of the project. Back in the first part of 2005 Ehlers presented the city council with a preliminary financial feasibility analysis that was based on estimates that the developer provided at that time. At the current time we have not received any updated financial information. Based on the change in various market conditions and lack of updated financial information, we are not prepared to comment on the financial feasibility of the project. I will be at the meeting on October 3rd but please let me know if you have questions or comments. LEADERS IN PUBLIC FINANCE ............................................................. ...............................................................................................................................................................................................t 3060 Centre Pointe Drive Phone: 651-697-8516 Fax: 651-697-8555 Roseville, MN 55113-1105 rkurtz@ehlers-inc.com