1. Liefschultz Proposal.CITY OF �
CHANHASSEN
690 COULTER DRIVE • P.O. BOX 147 • CHANHASSEN, MINNESOTA 55317
(612) 937 -1900 0 FAX (612) 937 -5739
MEMORANDUM
TO: Mayor and City Council
FROM: Don Ashworth, City Manager
DATE: October 30, 1997
SUBJ: Liefschultz Proposal
Issue
Should the city council allow Lakeview Hills Apartments to be converted to a market rate facility
and thus endanger our affordable housing goals?
Background
Councilman Senn has known the owners of Lakeview Hills Apartments for several years and was
actively involved in the state's acquisition of a part of the property,for Highway 212. During that
process, the owner's desire to see the property upgraded was unveiled including the option to demolish/or remodel the existing facility and develop the vacant property to the south for market
rate units being more compatible with the Bear Path development directly to the east and take
eater advantage of their lakeshore rights. This possibility would eliminate approximately 70
(their estimate /our estimate is %) of the city's affordable housing. Mayor Mancino, Kate,
Councilman Senn, and I met with the owners of the Lakeview Hills to explore alternatives to
their p
otential plan to upscale and thus eliminate affordable housing at that location. The
p p
attached memorandum details the concept plan envisioned by David Salene a housing
professional employed by Lakeview Hills. The conclusion of the meeting was to present Mr.
Salene's report to the city council to see if an interest existed to further explore the concepts
presented by Mr. Salene. The Lakeview Hills owners have stated that they-are very reluctant to
proceed with any plan that would involve government (federal, state and/or city). Their primary
fear is that our answer to them is, "maybe, but we'll have to study this for a few years."
Mayor and City Council
October 30, 1997
Page 2
Recommendation
n "Manager" Thoughts" as no clear recommendation can
I should have labeled this sectio g sentiments of
absolute answer. For example, I can fully understand the s
logically emerge as the lis Brooklyn
ctivist groups who pleaded with the city councils in Minneapolis, •
the number of a g p individuals
n Park to not displace the number of economically disadvantaged
Center and Brooklyn p and the
laced b the demolition of the Homan Complex in Minneapolis
that in fact were displaced Y enter. These
complexes that were razed in Brooklyn Park and Brooklyn C
numerous other comp . .
• ° economically disadvantaged families who no longer had a home once
projects represented 100. /o eco Y h c• t • made the best
• ed. However, the fact remains that those cities probably m
the projects were destroy ' itself. Those
decision for both the tenants that were in those buildings as well as the city •
um. St. Louis Kansas City, Chicago, Minneapolis, and
decisions were not made in a vacuum. � ro rams of
u hout the United States have realize g
countless other cities throughout d that the building p g
thirty years ago that concentrated 100% socially disadvantaged people into one project would
realized the mistake that was made and established dollars so as to
fail. The Homan Act itself re le to move into scattered site housing and
allow these economically disadvantaged people give
g p p thus.
lend into society without the stigmas and problems that are
the tenants the opportunity to b Y ' almost
concentrated housing for low and moderate individuals. Its alm
typically associated with concen g e can. keep
considering using the Homan dollars as a means by which w p
ironic that we may be con g g to build more low
o Lakeview Hills affordable and to couple that with a plan
1.00 /o of the units at L effort that the city
part of that singular project. I also consider the time and Y
income housing as a pa gu p •
ensure that scattered site affordable housing occurs
council has put into its commitment to ens � Hills property
have two projects, ects, literally abutting the Lakeview Hil p p y
throughout the community. We p �
ca in out the council's commitment to affordable housing.
where we have been effective in carrying
The concept presented b Mr. Salene appears to be in conflict with commitments t hat the city
council has already made.
I am sure that the entire council will have a list of
other concerns, i.e. existing age and condition
' rate of return to the existing owners, etc. Many of these
of the structures, management services, s the
concerns but none of them outweighs the question, Doe
are likely to be true � existing and future addition -
Chanhassen wish to ursue a plan that would ensure that g
City of Chanh p
are 100% economically disadvantaged?"
g: \mgr \lakeviewhills.doc '
Dk'41D M SNLENE INC.
DEVELOPMENTAL & FINANCIAL STRUCTURING
TO: The City of Chanhassen
FROM: David H. Salene & Steve Liefschultz
DATE: September 21, 1997
SUBJECT: Initial Concept Plan, City of Chanhassen
The initial concept plan is set forth to determine if the
opportunity exists for a cooperative agreement by and between the
city of Chanhassen and Lakeview Hills Apartment, a Limited
Partnership, and Bear Path Limited Partnership.
The general considerations for both the City of Chanhassen and
the respective Limited Partnerships are:
A. The general considerations for the City of Chanhassen would
be:
1 . To control the possible erosion or loss of 70` of its
qualified "Low to Moderate" housing; and
2. To provide a level of certainty that the City can
provide "Low to Moderate" housing into the future; and
3. The ability of the City of Chanhassen to control the
primary "Low to Moderate" housing for the City; and
4. To facilitate this control without incurring a fiscal
demand on the general revenue funds of the City of
Chanhassen and facilitate both the control of the "Low
to Moderate" housing, and creating the opportunity for
ownership of this housing, with the minimum capital
costs today.
B. The general.considerations for the owner are:
1. To obtain a return on equity for La} -i - e`view Hills
Apartments; and
2. To obtain a return on the equity in the vacant land
adjacent to Lakeview Hills Apartments; and
3. To secure a continuation of its current Net Operating
Income of the Lakeview Hills Apartments along with a
return on equity, and a return on equity in the land
and development profit for the proposed new
development; and
rema(Ij►97\memoO907 2572 Cohansey Street, Roseville, Minnesota 55113
612/484 -8909
Dk'41D H SkLENE INC
DEVEL O P MENTAL & FINANCIAL STRUCTURING
City of Chanhassen
Initial Concept Plan, City of Chanhassen
September 21, 1997
Page 2 of 4
4. To turn over the day to day management of the operation
to the City of Chanhassen, either -through a management
contract or by direct management by the city, subject
to the review and approval by the management agent for
the owner.
C. Proposed legal structure for transaction:
1. A m lease agreement would be executed by and
between the City or the City E.D.A. and the owner
outlining the respective responsibilities and
obligations of each party.
a. The lease would have to meet the requirements for
public participation; and
b. Consideration should be for the Chanhassen E.D.A.
to be the lessee vs the City or the County E.D.A.
and
C. An "Evergreen Lease Agreement" should be
considered because of thelimitations of public
law.
d. In all cases, the owner recognizes that public law
controls some of the terms and conditions of the
proposed lease agreement.
20 Setting forth the formula to determine the annual lease
payment to the owner; and
3. Setting forth the terms upon termination or extension
of the master lease agreement.
D. Projected procedures available to the City of Chanhassen:
1. Public housing for "Low to Moderate" tenants allow for
the real estate taxes to be adjusted 'to 5% of the
"shelter revenue" for that same unit.
a. Current Gross Rent l ess vacancy
( 1997) $1,016,770
b. 5% of gross rent $ 50,838
C. Current Real estate taxes (1996) 153 It 826
d. Net savings to the City $102,987
r � ,
DAVID H SkLENE INC.
DEVELOPMENTAL & FINANCIAL STRUCTURING
City of Chanhassen
Initial Concept Plan, City of Chanhassen
September 21, 1997
Page 3 of 4
2. A tax increment district could be formed for the
development of the new project, allowing for the
capture of 100% of the increase in real estate taxes,
for that development.
a. Tax.increment financing can be used on "Low to
Moderate" housing, as long as the project meets
the established rent rates for specific units.
b. The tax increment funds, if appropriate, can be
used to lower the debt cost of the development,
thus assisting in allowing for the "Low to
Moderate" rental rates as' established by the
State.
C. The city could consider the consolidation of
current city staff to perform duties such as
repairs and maintenance, snow plowing, lawn -care
and management services, thus lowering the
operating costs of the units.
E. Benefits to the Developer / Owner
The owner establishes a formula to determine the return on
equity from both projects, and secure its equity with a
master lease agreement with the City of;Chanhassen; and
F. Items necessary for the completion of development review, to
include the initial fiscal plans for both the City and
Developer.
a. General review of the concept plan by the City of
Chanhassen, and a determination by the City that they
have an .interest in pursuing concept.
b. A preliminary site plan, for the new development, that
can be reviewed and obtain a general approval as to
density issues.
C. A preliminary "Sources and Uses" schedule for the new
development.
d. A preliminary tax projection for the new development to
determine the tax increment capture potential.
Dk'41D H SNLENE INC.
DEVELOPMENTAL &FINANCIAL STRUCTURING
City of Chanhassen
Initial Concept Plan,
City of Chanhassen
September 21,
1997
Page 4 of 4
G. Proposed
schedule
for planning:
Date
Subject
1.
Development of a preliminary site plan
2.
Development of a preliminary cost of
Construction for "Low to Moderate" housing
units
3.
Develop a lending schedule for the proposed
new project
4.
Work with the City and County to generate a
projected tax value for the proposed new
development
5.
Development of a tax increment plan based on
the above
6.
Meeting with City to present update of
concept plan to include:
a. Proposed Master Lease terms and
conditions
b. Financial schedule to include projected
income and expense statement
C. Proposed tax increment - requirements for
development, along with other public
funding agreements
d. Review of city risk regarding
development
1
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