5 Lake Susan Apt Homes Develop
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MEMORANDUM
TO:
Mayor
City Council
SUBJ:
Lake Susan Hills Apartments/Villages on the Ponds
FROM:
Scott A. Botcher, City Manager
DATE:
January 5, 2000
As you are aware, the developer of the Lake Susan Hills Apartments is seeking
your permission this evening to remove the affordable housing contingency
from his site plan approval. The city council has previously given site plan
approval for this project with the contingency that an affordable housing
component be made part of the development. Even though we have discussed
this issue at length many times in the past, and as recently as Monday, I will
attempt to summarize some of the options and issues included as briefly as I can
in this memo.
Also, as many of you are aware, staff and the applicant have been working very
diligently to seek alternative revenue sources to assist in making up the shortfall
between the market rate and affordable rate rents. Staff and developers had both
thought that there had been an agreement reached with the Metropolitan Council
pursuant to the provision by Met Council of a second and additional round of
funding. However, upon reviewing the documentation closely, the Met Council
added a stipulation wherein all 33 affordable housing units must be at a 30% of
median (Section 8) income level. This is a substantially higher level of 30%
Section 8 housing units than had been previously discussed or contemplated by
either the developer or by the city. Additionally, these levels ofrent
detrimentally impact the cash flow proformas of this development. If this
arrangement were to be acceptable to the city and the developer (it's not), it
would require a substantial increase in the amount of additional financing (red
tax increment financing) to the project simply to make it cash flow.
,
. Option 1: You can deny the request. If the council does not see fit to
grant the request ofMr. Wert, the affordable housing component ofthe
site plan approval remains, and in order to do his project, this
contingency must be met. Candidly, this will not occur and if the
council denied the request, the project would die and never be built.
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Theoretically, this would open up the property for development in the
future, which mayor may not have lower costs ascribed to it. However,
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Mayor and City Council
January 5, 2000
Page 2
there is also the very real possibility that if this project is not built, this
specific piece of property within Villages on the Ponds would sit vacant
for a long number of years.
. Option 2: The city can leave the affordable housing component in and
the EDA can consider appropriating additional tax increment financing
funds to the project. In order to make the economics of the project work,
a massive amount of tax increment dollars, above and beyond those
previously contemplated by the council, would have to be provided. I do
not support, and I believe the city council does not support, providing
additional tax increment revenues toward this project at this time.
. Option 3: Grant the applicant's request. The city certainly has the
opportunity to remove the contingency for affordable housing as
previously stipulated. Within the Villages on the Ponds agreement, the
city sought to provide affordable housing at specific levels identified in
the agreement. By granting Mr. Wert's request, it in no way removes
from the developer of the Villages on the Ponds the obligation to
perform under the agreement executed. In other words, they will still be
obligated to provide affordable housing as contemplated in the
documentation.
Candidly, again not living through the development of this project, it
appears as ifthe city has given quite a bit in trying to get this project off
the ground. Density transfers, rezoning, and large amounts of cash
funneled through the city from the Met Council have been provided to
the developer. At this point, the developers of the Villages on the Ponds
have indicated that the approval of this project may be critical to the
survival of the Villages on the Ponds. Given the fact that the city has
provided much already in direct financial and indirect economic
assistance to the developers, to me it appears prudent that the city
perhaps consider extracting something of benefit from the developers of
the Villages on the Ponds in exchange for approval ofthis current
request by the Shelard Group.
Two issues strike me immediately. First, while AUSMAR is bound
through the development agreement to indenmify the city for the grant
monies provided to them through the city by Met Council, the city has no
collateralization for this indemnification. In other words, if AUSMAR
does not have the $700,000 for the city to collect, any collection action
undertaken on the part of the city against the indenmifier would be
fruitless to the extent that we probably would not get to collect any of
our money. To that end, the city may want to consider removing the
contingency wherein AUSMAR will provide a letter of credit to the
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Mayor and City Council
January 5, 2000
Page 3
benefit of the City of Chanhassen in the amount of all the grant proceeds
provided to date for the Villages on the Ponds project. This estimated
amount is the in neighborhood of $700,000. This letter of credit would
be in place until the project is complete or until AUSMAR has
performed consistent to the agreement. A second option might be to
require AUSMAR to a) complete the work, or b) to provide a
performance bond to complete said work on the private streets within the
Villages on the Ponds. There are many streets in need of a second lift of
asphalt and basic street finish work. Both Engineering and Public Works
have indicated that these streets could and probably should be finished at
the nearest possible date and cleaning up these streets within the Villages
on the Ponds would certainly clean up its appearance and enhance the
ability to market the property. (I have received negative comments from
citizens regarding the appearance of the Villages on the Ponds
development.) I obviously do not expect the AUSMAR group to go out
and begin paving these streets in February; therefore, I propose that
perhaps a performance bond be provided as with any other street project
and a date certain by which the street work must be done or the city will
use the proceeds from the bond to complete the street work as necessary.
(Additionally, the developer would give the city a written document
granting us permission to perform said work on the private street should
we need to do so.)
. Option 4: The city can simply grant the Shelard Group their request. If
the city were to grant the Shelard Group their request, they would begin
construction of market rate units on this site. There certainly is a strong
argument that the City of Chanhassen is in need of Class A apartment
buildings within our community, and the addition ofthese units and this
project would be a valued addition to the community.
Basically these are the options before the city. I, as well as you, may come up
with multiple derivations of these basic options, but simply put, these are the
fundamental choices before you. My recommendation is Option 3. I believe we
should allow for the construction of market units within the city, but we should
secure some extraction from the AUSMAR group to further solidify the position
of the city in the agreement or to enhance the development of the Villages on the
Ponds. The AUSMAR group to date has developed the prime lots within the
development and the hard work is yet to be done. I do fear that should this
request be granted to the Shelard Group, the AUSMAR group may be promptly
seeking relief from the agreement to provide affordable housing and potentially
other stipulations within the agreement. Under no circumstances at this point
would I entertain granting any relief from the executed development agreement
to the AUSMAR group. (Certainly as with any development, these projects are
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Mayor and City Council
January 5, 2000
Page 4
somewhat fluid and the city should stand open to discuss issues of import with
the developer at any time.)
Granted this is a very intricate and difficult development project. Should you
have any questions about the project, please call my office directly and I will
look forward to speaking with you.
Additionally, I would further require that all appropriate costs and application
fees be paid in full prior to this contingency being removed. Finally, I would
make an additional contingency that the Lake Susan Apartment Homes project
be a full participant in and act in compliance with the Minnesota Crime Free
Multi-Housing Program. (I am enclosing a copy ofthe documentation for your
review and would further hope that this contingency would be made part of
every development agreement involving multi-family housing in the city.)
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