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HomeMy WebLinkAbout07-21-08-WS ~ ~HILLS Approved: August 25,2008 CITY OF ARDEN HILLS, MINNESOTA CITY COUNCIL WORKSESSION MEETING JULY 21,2008 5:00 P.M. - ARDEN HILLS CITY COUNCIL CHAMBERS CALL TO ORDER/ROLL CALL Pursuant to due call and notice thereof, Mayor Stan Harpstead called to order the City Council Work Session meeting at 5:05 p.m. Present: Mayor Stan Harpstead; Council Members David Grant, Brenda Holden, Fran Holmes, and David McClung. Absent: None. Also present: City Administrator Ron Moorse; Assistant City Administrator Noah Simon; Finance Director Susan Iverson; City Planner James Lehnhoff; Stacie K vilvang, Ehlers & Associates; Steve Bubul, Kennedy & Gra'ven; Tanya Spaulding, Shea; and Steve Fenlon. 1. AGENDA ITEMS A. Continue the Discussion on the TCAAP Financials Stacie Kvilvang, Ehlers & Associates presented the City Council with further information on the proposed rate of return for the developer of the TCAAP site. She indicated she had prepared further information regarding tax capacity and tax increment amounts along with cash flow statements for the project. Ms. Kvilvang noted a memorandum was included in the packet of information from Ryan Companies outlining the risk elements underlying the proposed 150/0 rate of return. Ms. Kvilvang reviewed the information presented at the last Work Session meeting. She explained that Ryan Companies was requesting a 150/0 rate of return on the money they invest into the TCAAP project. Ms. Kvilvang indicated a rate ARDEN HILLS CITY COUNCIL WORK SESSION - JULY 21,2008 2 of return needed to be set as the basis for moving to the next step in determining the amount of public assistance to be provided and used as a benchmark. City Administrator Moorse stated it was important that the land value not be bought down below market value so as to provide the developer with a windfall in land sales. Councilmember Holmes noted she would be in favor of setting a limit on TIF and was not in favor of setting a rate of return for the developer. She felt the assistance provided by the City should be for infrastructure. Councilmember Holmes indicated she was not in favor of providing two phases of TIF, one being for the land sale and the other for affordable housing. Councilmember Grant questioned how much TIP would be provided to the developer without further going through the financials and provided analysis. Councilmember McClung asked if there was a way for the City to assist Ryan Companies in managing their risk by providing a "number" to make this project viable. He stated the City is removing a portion of the risk by providing TIF; and if this happens he wants to see the City benefit. Mayor Harpstead agreed with this statement that the City was easing the risk. He indicated however, that he would rather have Ryan Companies assume the majority of this risk and not the City of Arden Hills. Councilmember McClung stated if Ryan Companies were to assume the majority of the risk he can see how they should receive a return for their investment. Ms. Kvilvang noted the only way to reduce the developer's risk would be to find other funding sources other than RRLD's equity or invest City dollars. She recommended the City not invest their dollars, but rather to provide public assistance on a pay-as-you-go basis. Ms. Kvilvang indicated the market right now is providing rates of return in the high teens to low twenties for comparable projects. She added that the TCAAP site was 585 acres that would need to be prepared for development, which was extremely large in comparison to any other project and that it has environmental issues to address as well. Councilmember Holmes questioned why public assistance was requested for the land sale but not for the vertical. ARDEN HILLS CITY COUNCIL WORK SESSION - JULY 21, 2008 3 Ms. Kvilvang stated the theory was Ryan Companies would prepare the land for sale and should not need assistance in the vertical portion of the development. Councilmember Holden questioned if the TIF funding could be negotiated as the project proceeds, due to the fact the developer was limited in how these funds could be used. Mayor Harpstead noted this was not included in the finances at this time. Mayor Harpstead asked if the TCAAP project could be completed without TIF. Ms. Kvilvang stated the development would not be completed without TIF. She indicated the Council could be strategic in the use of TIF allowing it to be used only for housing and cleanup expenses. She added that the current internal rate of return was calculated at 8.30/0. Councilmember Holmes stated with the TIF dollars at $54 million the developer is receiving an 8.30/0 rate ofretum and questioned if the TIF funding would have to double in order to provide the requested 15% rate of return. Ms. Kvilvang noted this isn't a dollar for dollar equation~ but would depend on all the funding that comes in for this project. She explained that through the negotiation process, costs will be refined to reduce the amount of TIF needed. Mayor Harpstead questioned why $54 million was plugged into the proforma by Ryan Companies when this did not meet their 150/0 rate of return. Mr. Bubul responded that the long term goals of Ryan Companies were to achieve a 150/0 rate of return, but they need assistance from the City. He noted the TIF funding would be the last source of financing plugged into the equation. Mr. Bubul noted the 150/0 would be a benchmark. Councilmember Holmes indicated a guaranteed 150/0 rate of return on the land seemed unwise when the vertical profit on this project was uncertain. She felt these should go hand and hand. Councilmember Grant requested that the Council review the first few paragraphs of the developer agreement regarding the pay schedule. ARDEN HILLS CITY COUNCIL WORK SESSION - JULY 21, 2008 4 Ms. Kvilvang noted the public dollars would be provided for the land development or infrastructure costs. She stated this would assist the developer in grading and preparing the site for injtialland sales. Ms. K vilvang explained that neighborhood streets and parks would be added at a later time by the third party developers. Councilmember Holden questioned what the projected infrastructure costs were at this time. Ms. K vilvang indicated this was estimated to be $27.8 million. Mr. Bubul further explained how TIF funding can be used by the developer and reminded the Council that this site is "impaired." He stated the massive cleanup and infrastructure needs on this site warrant TIF funds for initial development. Councilmember Holden questioned if the GSA funding or credits covered anything beyond the cleanup, such as grading the site which could lend to double counting of expenses. Ms. Kvilvang stated this was a great question and seemed logical. She noted this may affect the numbers after the cleanup was completed. Councilmember Grant read that the level of public assistance would be adjusted at the end of the project with the TIF amount provided reduced if the profit was greater than agreed upon. He questioned when the "end of the project" was in this instance. Ms. Kvilvang indicated this would be upon completion of the land development phase. She stated vertical sales would be reviewed as well to see if the developer's projected numbers were aligning with actual sales or if the use of public assistance needs to be reduced. Councilmember Holmes indicated she was concerned with the fact that the developer had first rights to the property and how this would affect which parcels they sold off first. She stated they need to recognize the value in controlling the land. Councilmember Grant questioned if a control could be set on the developer to force them to develop instead of simply hold the land until they expect 150/0 return on their money. ARDEN HILLS CITY COUNCIL WORK SESSION - JULY 21, 2008 5 Ms. Kvilvang stated this would be expected and would be written into the developer's agreement to provide incentives for developing quickly. Mayor Harpstead asked about the TIF number at year five being $16.6 million when only $4 million had been collected to date. He stated if the project were to be financed as such, the internal rate of return would be reduced. Ms. K vilvang stated these were the numbers provided by the developer and that in reality the TIP funding would come into effect sooner than year five. Mayor Harpstead questioned if the total available for this project was correct at $147 million. He indicated the net present value of these dollars would need to be considered at some point. Ms. Kvilvang agreed stating this number was correct. She reiterated the fact that inflation was not put into her numbers and that her proforma was on the conservative side. Ms.' K vilvang added that a present value of these dollars would be refined during the process of this development. Mayor Harpstead stated the internal rate of return were extremely sensitive to what happens in the first few years of the project. He indicated the land sales and how they are financed will greatly affect this project. Councilmember Holden questioned what the TCAAP administrative costs were. Mr. Bubul stated this may not run as high as 10% but would cover the tax increment finance district established for this project. Mayor Harpstead asked that the discussion on this item be suspended to allow for the Naming of TCAAP to ensue with public comments. B. Continue the Discussion on Naming the TCAAP Property Tanya Spaulding indicated she was before the Council to present several names for the TCAAP site. She reviewed the goals and recapped the three names presented at the past Council meeting. Ms. Spaulding explained the criteria used in naming the site. She stated the three names were Arden Crest, The Ridges and Capstone. Ms. Spaulding asked for comments from the Council on the proposed names. ARDEN HILLS CITY COUNCIL WORK SESSION - JULY 21, 2008 6 Mayor Harpstead stated he was in favor of the use of Crest or Ridge based on the topography of the site but that none of the names really "grab" him. Councilmember McClung agreed noting none of the names grab him either. Councilmember Holmes stated she didn't understand the use of Rice Creek. Ms. Spaulding stated this type of reference has been used in other developments but was not necessary. She suggested this not be the hang up as there were other options. Councilmember Holmes noted she was in favor of the Arden connection. Councilmember McClung indicated he has received feedback from several residents in favor of just using the name Arden Hills. Ms. Kvilvang stated the Council was naming a development and not the City. Mayor Harpstead noted he wanted a clear break from TCAAP. Discussion ensued regarding a name for the TCAAP site. Councilmember Grant expressed the importance of a good name and how this would assist in increasing the land value of the site. Ms. Spaulding agreed stating if a strong enough name was not chosen, this site would be forever referred to as "the old TCAAP site." Mayor Harpstead stated there would have to be continuity within the development based on the site name. Ms. Spaulding agreed stating the condo names or villas would have to coordinate with the site name. She asked that the Council consider a starting point or direction for the name. Councilmember Grant indicated past developments within Arden Hills have taken on their name with a clear identity and vitality. ARDEN HILLS CITY COUNCIL WORK SESSION - JULY 21, 2008 7 Mayor Harpstead stated he would be in favor of having the development re- associate with the City of Arden Hills even if a different name were on the site. He indicated he was not in favor of the Arden Crest name suggestion. Ms. Spaulding asked for comments from the Council on Option B, The Ridges. Councilmember Holden stated there was a development with the City named Arden Ridges. Councilmember McClung added that this could be confusing with Ridgedale as well. Ms. Spaulding questioned if the Council was in favor of Capstone. Councilmember Holden stated it had a very negative connotation with a past development within the City. Councilmember Grant indicated he liked the simplicity of Capstone, but was concerned with the similarity between Capstone and TCAAP. Ms. Spaulding reviewed the original criteria which set out the need for a distinguished name. She passed out a longer list of names compiled for the site and reviewed the top ten with the Council. Ms. Spaulding indicated the name of this site will assist in changing its perception. Councilmember Holden questioned if the Council was in favor of using the word "Arden" within the name. Councilmember Holmes stated she liked the use of Arden Hills such as "The Crest of Arden Hills." Mayor Harpstead reviewed the five criteria used in developing the names. He agreed with the criteria used and stated the elements on this property were unique. Ms. Spaulding agreed the site was unique, has many ties to nature which makes the name so important. She questioned if the Council would like the name tied to nature and green space. Councilmember Holden stated she feels this should be a focus for the development as there was a large portion set aside for green space and parks. ARDEN HILLS CITY COUNCIL WORK SESSION - JULY 21, 2008 8 Councilmember McClung indicated he was in favor of a nature theme within the name. City Administrator Moorse stated the site really is striking and full of nature being surrounded by a wildlife preserve and the creek with trails, and the glacial kame, which still is the highest point in Ramsey County. Councilmember Holden expressed her concern for this new site blending into the original developments within the City. Councilmember Holmes indicated she was not in favor of "The Summit" because it did not convey the nature theme of this site. Councilmember Grant stated the green space within the City of Arden Hills was exceptional and that a. name that reflected nature would be well received. He felt this should be highly marketable too. Discussion ensued regarding the use of "Glacial" within the name and the marketing implications. Ms. Spaulding stated from her research "Capstone" was the most marketable name at this time because it was not overused, and because it turned the TCAAP into something positive. Mayor Harpstead questioned if two names could be developed one to be used for the residential development and the other for the commercial side. Ms. Spaulding stated this could be done but that it was ideal to have one for marketing purposes. She noted a balance would have to be reached for all future property owners. Mayor Harpstead encouraged the Council and staff to rank the current list of nature-related names, with each member writing down their top six recommendations and to add new names if they have suggestions. It was the consensus of the City Council to direct staff to develop additional names focusing on the importance of nature and to provide a list of ranked names to staff. ARDEN HILLS CITY COUNCIL WORK SESSION - JULY 21, 2008 9 C. Presbyterian Homes Conduit Financing Request Steve Fenlon, Midwest Healthcare Capital, introduced himself indicating he has been hired by Presbyterian Homes to work with municipalities and banks on financing issues. City Administrator Moorse explained Presbyterian Homes is requesting the City be the issuer of some tax exempt financing for a project worth $4.9 million. He handed out the executive summary of this project to the Council. Mr. Fenlon stated much of Presbyterian's workers office in a building on Harnline Avenue in Roseville, MN which was in need of an addition. He explained Arden Hills was approached for tax exempt bonds as well, and the City has proposed a fee of 10/0. Mr. Fenlon understood that the bonding process was lengthy but asked the City to consider his request and offered a $10,000 fee along with covering all city expenses. Councilmember Holden questioned if a 1 % fee was used in the past. Mr. Fenlon indicated a fee was not added in the past except in large metropolitan areas. He noted this now changed over the past five years with the majority of cities charging fees. Ms. Kvilvang interjected stating it has been her experience in working with cities that a 1 % fee is standard for bonds. She noted this was all part of conduit financing. Mr. Fenlon stated he sees his request as an opportunity for the City of Arden Hills use its authority to sell bonds, which will be discarded on December 31 st at midnight it is not used. He added that the project would not be completed within the City but would allow the City to use their bank qualification. Mr. Fenlon explained that two other cities have been approached and have offered the funds at Y2%. Discussion ensued regarding the possibility of funding $4.9 million in conduit financing for Presbyterian Homes. Past bond financing projects were discussed. Mayor Harpstead questioned the Council if they were in favor of staff negotiating a tax exempt conduit financing with a fee lower than 1 %. ARDEN HILLS CITY COUNCIL WORK SESSION - JULY 21, 2008 10 Councilmember Holmes asked what the 1 % fee of $4.9 million would be. Mayor Harpstead indicated this totaled $49,000. Councilmember Grant stated he was in favor of offering the funds lower than 1 0/0 and would be in approval of further negotiations. Councilm~mber Holden agreed but did not want to see the negotiations lowering the fee less than Yl%. Councilmember Holmes was in favor of further negotiations. Councilmember McClung was not in favor of negotiations at all. Mayor Harpstead suggested staff negotiate and preferred not to negotiate at the worksession. Mayor Harpstead indicated however it was the Council's consensus at this time go to forward with negotiations (4-1). He suggested Mr. Fenlon prepare further information and present it to staff. The Council further discussed the funding for Presbyterian Homes stating that they have been before the Council in the past. Staff was directed to negotiate with Mr. Fenlon and staff could bring the matter to the City Council. Staff could schedule a public hearing to speed up the process instead of having the Council call for a public hearing. A. Continue the Discussion on the TCAAP Financials Mayor Harpstead stated he would like to continue the TCAAP Financial discussion at this time. Mayor Harpstead explained his concern with negotiating an internal rate of return was that the timing elements would have to be negotiated very clearly because the developer was in complete control. Ms. K vilvang stated timelines could be added to the development agreement to keep the City with some level of control. She indicated Ryan Companies does want cash back as soon as possible because they are not guaranteed 150/0. ARDEN HILLS CITY COUNCIL WORK SESSION - JULY 21, 2008 11 Mayor Harpstead noted he would be in favor of setting a floor with a greater upside potential on the back end than promising 150/0 upfront. Ms. Kvilvang indicated she was merely looking for Council comments and would take this information back to the developer for further negotiations. She explained they can then choose to proceed with the Council's request or be done with the deal. Councilmember Holden stated in her conversations with several bankers they were surprised the developer was requesting only 150/0 because most developers were requesting 18-20%. Councilmember Grant stated this may be the case, but that Ryan Companies does not have the level of risk they are predicting with the property sales. He indicated however, he does see a risk in the time their money will be invested. Councilmember Grant explained that Ryan Companies would not be completing the residential developments which had the largest amount of risk. Discussion ensued regarding unknowns that may arise during the development and sale of properties within TCAAP. Ms. Kvilvang stated if an issue were to arise, this would have to be negotiated with the developer. Mayor Harpstead specific performance clauses should be written into the developer's agreement to hold the developer accountable and that they be obligated to complete the project. Councilmember Grant stated he felt the biggest risk was not the environmental concerns. He indicated the market was his concern at this time, along with the upfront costs of preparing the property for sale. Councilmember Holmes questioned if the developer would be retaining profits from the land sales in the first years of the project. Ms. Kvilvang reiterated the fact that any funds taken in would be paid back out to repay loans taken out by the developer. ARDEN HILLS CITY COUNCIL WORK SESSION - JULY 21, 2008 12 Councilmember Holmes asked if the Council completely understood the numbers provided by Ryan Companies. Councilmember Holden stated she understood the numbers and explained the numbers provided by Ryan were in their favor and that the financing provided by Ehlers showed more conservative land sale values. Councilmember Grant indicated these numbers were truly invalid at this time, until a rate of return was agreed upon by the Council. Councilmember McClung explained he would like further information on the internal rate of return on the vertical side of this project. Ms. Kvilvang noted this could run roughly 8-120/0. Councilmember Grant questioned how the City would be protected if the market rate for properties greatly increased over the Ryan projections. Ms. Kvilvang stated a look back would be used to continually review the numbers. She indicated the developer was not excited about these look backs but that this would be written into the development agreement. Councilmember Grant indicated the vertical rate of return should be set along with the land sale to give the Council a better picture of profits for the developer. He stated this would provide for greater structure. Councilmember Grant explained that without this information he would not be in favor of going forward with with the developer's agreement. Ms. Kvilvang stated this would be difficult because that means all 585 acres would have to have a developer in place with proforma's submitted as to how this would work financially. She indicated she could provide a mechanism or look back provision when certain criteria are met. City Administrator Moorse asked if the developer's agreement would set thresholds. Ms. Kvilvang stated the thresholds may not be defined specifically, but that each developer that comes forward is required to go before the Council for review and consideration to set terms and conditions. ARDEN HILLS CITY COUNCIL WORK SESSION - JULY 21, 2008 13 Councilmember Grant reiterated the fact that this development is more than just land sales. Councilmember Holmes agreed stating if the developer brought in more than 15% their TIF would be reduced. Councilmember Grant questioned how vertical rates of return would be monitored after the sale of property, such as with residential properties. Ms. Kvilvang indicated the property owners would come before the City for review of their proposed developments and that Ryan would only be selling their property at market value. She explained that this would have to be continually monitored because land values will change over the course of this project. Councilmember Holmes asked for the total amount of TIF that was being offered by the City at this time. Ms. Kvilvang stated $147 million was the estimated amount of the future value of TIF at this time, but that the suggested value by Ryan Companies was $54 million in present value. The City has not committed to a specific amount. Mayor Harpstead reviewed the discussion, itemizing the items agreed upon by Council at this time. He stated the Council was in favor of proceeding with the development but that a vertical assessment was needed along with the land development sales. Mayor Harpstead explained that TIF would be required in order to reach a desired fate of return for the developer with the amount still up in the air. Council understands the developer is investing $25 million up front for this project along with borrowing additional funds. Mayor Harpstead indicated the developer wants 150/0 internal rate of return for the development of the land. The Council was in agreement with these statements and further discussed how to proceed with negotiating the rate of return with Ryan Companies. Councilmember Grant stated he would like to see TCAAP provide a special amenity to the City of Arden Hills, whether it be a bridge, trails or sound barrier walls. ARDEN HILLS CITY COUNCIL WORK SESSION - JULY 21, 2008 14 Councilmember Holden questioned if all infrastructure fees were going to be passed along to the property owner through hookup fees, etc. Ms. Kvilvang stated City fees were going to be passed along to the future property owners and amounted to roughly $3.5 million. Mayor Harpstead asked if the Council had further direction for Ms. K vilvang to negotiate an internal rate of return of 150/0 with Ryan Companies, provided that look backs would be included with a total vertical assessment. Councilmember Holden stated she thought the going rate was higher than 150/0 and that this really could not be negotiated because this was the floor. Mayor Harpstead indicated this may be true, but that he would like to see the front end of the development run efficient and tight as it would greatly affect the finances going forward. Councilmember Holden questioned how the City would be protected if the developer were to walk away and the land sold. Mr. Lehnhoff noted a moratorium could be set on development on the site for one year. The City still retains zoning control Councilmember McClung indicated this is a hard decision for the Council to proceed with and he wants to make sure the Council stays involved as this development agreement moves forward. Mayor Harpstead indicated the 150/0 rate of return was based on appropriate land values and that TIF would be adjusted accordingly. Councilmember McClung questioned how the City would reach the 150/0 and what would have to be given up on the City's behalf. Ms. Kvilvang stated she felt the City would not be giving up anything because from day one, density would be the last thing discussed. She indicated land sale proceeds would affect this number along with a reduction in overall development costs. Ms. Kvilvang explained the City will be a great candidate for grants as well which would greatly affect the financial numbers upfront. ARDEN HILLS CITY COUNCIL WORK SESSION - JULY 21, 2008 15 Councilmember Holmes asked if the ballfields or public use area could be brought into negotiations to have them addressed. Mayor Harpstead stated this may be a good time to have these properties addressed and dealt with. Staff agreed to look into these issues. Councilmember Grant stated the quality of the development and design standards should be held to high standards with the developer. He indicated density was also a concern, and that he was concerned with density versus value. Councilmember Holden indicated she was in favor of negotiations continuing at the 15% rate of return. Councilmember Holmes explained she would need additional time to review and understand the numbers before being comfortable with the 150/0. Mayor Harpstead stated he was also in favor of the 150/0 as long as this would not mean additional TIF would be added. Ms. K vilvang indicated this would be the case as the numbers continued to be refined. She stated she could sit down with Councilmember Holmes in the next week to review the numbers. It was the consensus of the City Council to direct staff to proceed in negotiations with Ryan Companies setting a 150/0 internal rate of return for the TCAAP development. 2. COUNCIL COMMENTS AND REQUESTS There was nothing at this time. --_.~"~"".......,.,...._,-, Mayor Harpst ad adjourned the 'City Council Work Session meetjn t 8:34 p.m. Ronald J. oorse City Administrator