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EDA 1998 06 25CHANHASSEN ECONOMIC DEVELOPMENT AUTHORITY REGULAR MEETING JUNE 25, 1998 Chairman Boyle called the meeting to order at 12:30 p.m. MEMBERS PRESENT: Gary Boyle, Jim Bohn, Nancy Mancino, Mark Senn, Steven Berquist, Mark Engel and Mike Mason STAFF PRESENT: Don Ashworth, Executive Director and Todd Gerhardt, Asst. Executive Director VISITOR PRESENTATIONS: None. APPROVAL OF MINUTES: Bohn moved, Mason seconded to approve the Minutes of the Economic Development Authority dated April 16, 1998 as presented. All voted in favor and the motion carried. CONSIDER SITE PLAN AND FINANCIAL ASSISTANCE TO BLOOMBERG COMPANIES FOR THE REDEVELOPMENT OF THE FRONTIER CENTER. Todd Gerhardt presented the staff report on this item. (The recording was very poor quality of the following discussion.) Boyle: Todd, before you start... Gerhardt: No. The market value is still as proposed. Back in 1965 and that market value is for the retail, after the redevelopment with the $1,566,645.00. Boyle: ... Gerhardt: The proposed improvements to the site of what we would use basically for what you would call the...is $350,000.00. That is to include facade improvements... Boyle: ... John Rice: My name is John Rice and I'm an attorney. I'm the attorney for the Bloomberg Companies. ! have my office here in Chanhassen. ! was here at the Council meeting about a month ago. Here is with us is Fred Oeschlager, who probably everybody in town knows. Certainly more than everybody knows me. And Clayton Johnson and Vernelle Clayton and Herb Bloomberg and Bob Davis and Bob Copeland .... we are asking you folks to approve the plan and to approve the redevelopment agreement that has been waiting here on the reconstruction and redevelopment of the Frontier building. This has been a long process. It started some time ago Economic Development Authority - June 25, 1998 but we now have, we think what is a plan that has been approved by the Planning Commission and by the Council. We have.., accepted and valid numbers as far as tax increment financing. And we have a plan for the building that will be... economically viable to Chanhassen and... Much of this started when the.., plan submitted in February that could not have a south facade... What we now have is a facade that has been, after changes, accepted by the Planning Commission. Accepted by the Council and.., accepted by Bloomberg and we now ask that.., plans that have been submitted to the city and the east and the west side, pardon me the west elevation, ... cedar lap siding. 1 x 10 as requested in comparison to what we thought was the better program to leave the existing siding. We've accepted that in the plan. Show that onto Page 3 of the revised plans that were submitted. The other item that was suggested and accepted by us is for the revised sidewalk plan on the east side. Pardon me, the west side. That sidewalk has been expanded to... follows along up to... along side the building. And there' s one other item that rather than.., the baleen roof. And those are all of... So we now have the plans that are set for approval and final approval, which is what we hope that we will get from you folks today. This will have been.., for commercial, retail sales in that spot which is what... The uses that are going to go in there basically retail. Right now we're talking to tenants regarding a furniture store. Regarding a dance studio and those will be complimentary uses that will fit the rest of the development which will fit other uses both on West 78th Street and will also be uses that will not tax... It's not like there's a bar that's going to open at 5:00, at the same time as the theater, or the cinema starts to have everybody coming in... for the construction from the Chanhassen Bank. This is a project that's waited a long time. It's gone through a lot of effort. The City knows that. Gerhardt and the staff knows that. Mr. Bloomberg knows that. ! know that. You folks know that. And we kind of looked upon this that this will be the healing up of getting this project done and that's what we hope to do and that's why we ask for your approval of the project and that you adopt the motion that Mr. Gerhardt has in the staff report. And ! don't know very much about buildings so I'm going to ask Mr. Bob Davis who is the architect to come up and give you a summary and an explanation... Boyle: John before you do, going back to the tenants. You do have tenants ready to move in or on....9 John Rice: We don't have tenants signed up. We have not been able to do that yet because we've not had the approval. But as ! said at the Council meeting, the attorney for one of the tenants is all over me about getting this done and.., until we get the approval. And there are others that have been discussed. There's none signed because we simply haven't been able to do that. Boyle: Okay, thank you. Bob Davis: Good afternoon. My name is Bob Davis. I'm an architect representing Bloomberg Companies. Some of you are not as familiar as others with this plan so ! will briefly go through what we've done. We're talking about the original lumber yard building that's 32 years old. The front of that building faces 78th Street. We have now dealt with the other three sides of that building and the Bloomberg Companies has accepted the recommendation of the Council in regards to those materials and the features which were discussed for a number of weeks and 2 Economic Development Authority - June 25, 1998 months through the process of Planning Commission and City Council. Let me briefly take up the four, the three remaining sides of the building .... facing the parking lot. We have lowered the windows here from a height of approximately of... and brought them down. We've changed this from a warehouse appearance... The roof is the same height that it is now. There's a metal curved roof... We've landscaped both.., of this facade, the south facade as well as... We go down the sides of the building then. On your page A3, this elevation has been changed. This shows the metal siding. It shows the theater... The other features on this side, ! don't want to belabor these points but we think... The gutter's been dealt with in terms of what they put on it to accommodate the... We go around to the east side. We've took out the overhead garage door. The warehouse door that was here. We covered up the concrete block with siding. We're landscaping heavily in this corner along with the... There are a couple of canopy roofs over the door entrances... We've dealt with the issue of... and the back side of this little... Thank you very much. John Rice: ... Copeland. Copeland has previously expressed opinions as to the proposed changes by Bloomberg... Bob Copeland: Good afternoon. My name is Bob Copeland and ! represent the cinema group and ! also represent a group that has control of the bowling alley building. We have the bowling alley building under a purchase agreement and we do intend to redevelop that building. So I'm speaking on behalf of both buildings. Or the other two-thirds of this overall redevelopment. ! think we are the neighbors that are most affected by this redevelopment of the Frontier building and we are the businesses most affected. And ! want to urge you to support this redevelopment. We think it's a worthy redevelopment and we wholeheartedly endorse the design of it. We've looked at it. We've familiar with it. We think it's in keeping with Chanhassen and we think it's in keeping with the total concept of the entertainment complex. So we like the design. We think it fits in well. And we also think that it is necessary to make the whole redevelopment happen. So if there are no questions. Vernelle Clayton: It's strange to be here in the middle of the day. My name is Vernelle Clayton. I'm here as a friend of the developer...! have not read in it's entirety the staff report but ! have been through it and the staff report seems to... address the possibility that you might.., and ! am here to say that it appears in the staff report that you have the right to do that and that it's legal and... But I'm here to say why would you want to do that. You can say that you don't... because it's been changed. Change is not always bad. ! can tell you that you may not like what you see as well as what you thought you saw before but you did not see complete plans before. You did not have plans for this east and west side before. One of the benefits of this...that there are improvements to the east and west side. And through a...we've pondered that. Staff and ! talked about that... So that's a benefit that you have from this change. Despite that however ! feel that.., the primary purpose ! believe that your body fulfills for the City of Chanhassen is not aesthetics development. It's economic development .... review and you probably should what it is that you're investing your money in. ! believe that the purpose and having that ability is not so much defined.., and to be subjective but a more general review.., that will be economically viable. ! don't think that you can find anything in this plan that appears not to be economically viable. As ! mentioned, your purpose is to see to economic development.., so ! think you need to ask Economic Development Authority - June 25, 1998 yourself... But anytime there's an eyesore in town, ! think it negatively impacts the value of adjacent properties...we're on a path to improving it and ! think we need to continue. The question is... provides something that would not be available otherwise... You have in this building for many years the possibility if this is approved of having... One of the reasons.., some assistance. If you do not give the assistance.., provide affordable housing. This is an opportunity to provide some assistance that will provide some affordable retail that would ultimately be an asset to the city .... and ! believe it is. You have, this is the small section of... You're going to undoubtedly see that... Thank you. Boyle: Thank you very much Vernelle... Berquist: In my mind the issue is whether or not assistance is needed to make the project go. When ! originally looked at this thing ! looked at the Frontier building, the cinema, the balance of the bowling alley as an entire project. And there was something very appealing about that. The immensity. The largeness of the project that, and the decision then was based on whether or not the entire project is worthy of community participation. ! thought it was. The separateness that it evolves to diminishes the worthiness. It may not negate it entirely but in my mind it diminishes it. Somewhat. ! got to a point where ! started to look at it, ! mean arbitrarily when ! sat through the very first Planning Commission meeting where the mansard roof was shown. My initial response was ah, ! don't want it. I'm not of the mind to participate in it. From a community perspective. Then ! began to think well. We're enhancing tax base. In my mind we're enhancing the tax base stronger with the entire plan conceptually. Now we're breaking it into segments but we're still enhancing the tax base. To a lesser degree. How do ! judge that lesser degree? ! don't know. There's nothing within the staff report that allows me to try and make any kind of determination regarding that. Now I'm to the point, in knowing that the clammer for space is there. You've got an attorney for one of the tenants knocking on your door. You've got a loan secured to the point where ! begin to wonder what's the true need for incentive to take place? ! mean it sounds as though the project is being complimented by the Dinner, or...but by the theater itself. The movie theater. The movie theater's a destination. Therefore that space is immediately become, the Frontier Center has immediately become more attractive because of the fact that the movie theater draws people. Is there truly a need because, does the project require assistance to be economically viable? Vernelle Clayton:... Berquist: The loan is contingent upon getting the TIF? Clayton Johnson: There's two things. The other thing is the cinema is there because we had your support and we provided $100,000.00. Well first of all we agreed to build the building which we would not have agreed to if we didn't think the project was going to go forward. And number two, we put $100,000.00 into the parking lot. Berquist: Well that's good. I'm glad to know that, and I've got that down. I'm weighing all this stuff in my mind to try and come to a, because this, in my mind this won't evolve to a yes or no decision. ! can't speak for the others but in my mind this is going to be something different than 4 Economic Development Authority - June 25, 1998 what the original deal was. But how different ! don't know. ! mean I'm still asking myself a lot of questions about it. ! don't like it as well as originally. However, ! voted to accepted it at the Council level. So obviously I'm willing to, ! think it's an improvement. I'd like to see the building value enhanced. ! think the building value has been enhanced. My decision is how much of the community do ! wish to contribute. That's my decision. ! don't know that ! have any other specific questions in mind. As the other people go around and talk, there may be some things that come to my mind so I'll end it at that for now. John Rice: Mr. Chairman, may I just address that... ? Boyle: Yes. John Rice: Because ! was involved in the issues of the split of the project so to speak. ! was involved in all of the different transactions related with the sale of the district. Copeland's entity and the other issues regarding leasing. But at the time, the only reason we came for a split was not to make three separate projects out of it. But to have the, to get the ball rolling down the hill. With the ball rolling down the hill was for Mr. Copeland's cinema. But without coming to three separate projects that are now going to be re-examined each time as to whether it's going to be now a worthy development. It seems to me that that decision was made in 1995 or 1996 and that' s the reliance that this placed and the reason why this went along and the issue of splitting was not to divide each up into their own separate project but to get the ball rolling to get something started and not to have...Bloomberg's project on the Frontier building. Basically stalled and Mr. Copeland's cinema project basically stalled because of what was totally, at least to the Copeland's and Bloomberg' s, external circumstances related to the bowling alley which none of the responsibility, cause or had anything else to do so ! think we have to review... Berquist: Maybe I wasn't expressing myself well but I think I am viewing it in that light. It becomes, you know again I'm trying to make an analogy and I'm having a difficult time coming up with something but... Truman Howell and you folks.., concept for the entertainment complex. Okay, all encompassing... Frontier building all the way down to the end of Chan Bowl. There was an inherent value in my mind from a community perspective for that. Now that it has evolved into something different. That inherent value has also changed and that's the part that I'm wrestling with. And ! still don't know if I'm making myself clear. John Rice: No, ! understand but the, this entertainment complex, that's become a catch word. Entertainment complex happens to be a phrase, a name that got attached to the full project. ! don't know who gets credit for it or sometimes ! think who gets blamed for it. It might have been the surveyor who put that name on the plat. ! mean that is, that's the name that got attached to it and it stuck with the folks here at the city. But if we look back at even the original plan, the Frontier building was always retail. The Frontier building was not going to become some other form of entertainment. It's always been retail and we have been consistent with that plan all this time. Berquist: I'm not disputing that. Economic Development Authority - June 25, 1998 John Rice: Okay. And that's what I just want to make sure that we don't have any, that we have some understanding about that premise. Boyle: And ! believe quite some time ago we recognized the fact that we were going to have to split that Steve due to the fact that the.., so we were going to look at three different things. Earlier ! brought up, and you mentioned value. The reason ! asked about market value was to say, if they're, we're not reducing the market value and this is going to be a question to you Todd. ! must assume then that they're going to create the increment that we asked for initially. Is this a fair assumption? Or a fair statement or am ! saying it correctly? If market value remains the same as was previously planned, regardless of what they're... Gerhardt: Well the only difference is that you're losing those two years when they didn't do the project initially originally. Other than that. Mancino: ... Gerhardt: Correct. Berquist: May ! ask one other question before I. You talk about the bank financing is committed with the TIF. ! would suspect that you also, doing your due diligence and being good business people, ! would also suspect that you approached them from the standpoint of what if we don't get TIF assistance or what if we get something less than what we're figuring on? Can you speak to those scenarios at all? John Rice: ! don't know that that particular issue was discussed. The mortgage was placed in anticipation that this project was going to go ahead and so that as soon as this was, it was done last fall. Late in the fall and ! can't remember the exact. ! went to the closing so ! ought to be able to tell you but it was done late last fall in the anticipation of the beginning during the winter. And that was when it was done. But ! mean right now we've got the parking lot. Where the money's been stuck in. That's not been, so far as ! know, ! don't think has been funded with mortgage funds. ! think the mortgage funds are just sitting there waiting. And the question is whether or not they're drawn upon to do, at that point whether or not it would or would not be an economic project. Boyle: Jim. Bohn: Yeah, ! don't like the change but it's better than what we had before. ! liked the original plan we were shown two years ago. The movie theater got their marquee up. That complete. ! hope the same thing doesn't happen with this and not have a complete project. I'm glad it's getting done. Boyle: Mark, we're going to swing it over to your end now, if you don't mind. Do you have some questions? Economic Development Authority - June 25, 1998 Senn: I don't have any specific questions, if that's essentially what you're looking for at this point. Boyle: Mike. Mason: Questions, no. Engel: No, ! don't have any questions. Boyle: Nancy you have the floor. Mancino: ! have a couple questions. Todd, Vernelle talked about...this being under the market level of Market Square...what do ! want to say, smaller companies, etc. Is there...maximum rental rate that you charge? Gerhardt: We did not get involved in rates. In market rates. Mancino: So they can be market rates, can be any rate whatsoever? Gerhardt: Yes. Mancino: Okay. So that there is nothing tied to keep it if we choose to... Okay, and we could always insert that. So if we're giving assistance under the guise that we want a below market rate in this facility, we can add that? Gerhardt: ! think there'd have to be a little bit of math done on, you know that we don't wander into something that you know isn't economical on their side. Mancino: But that would be the pretense. Well, if we do affordable housing and the affordable housing project.., on the single family homes north of Lake Riley. And we have attached to them you know a certain... Gerhardt: Yeah, ! mean what Vernelle was talking about and her subject, this is a 38,000 square foot facility. Of the 38,000 you've got was it 20,000? 20,000 that is the back two-thirds of the building which you're going to store furniture. You're going to store refrigerators, stoves and things like that, which you know our people understand industrial where you've got office space where you're going to charge you know $8.00 up and then your warehouse space you're going to charge $4.00. Or maybe a little bit under. So the same thing's going to happen in the retail space is that the tenants moving in there are not going to pay the $12.00-$15.00 a square foot for front window retail space. You know they're going to let those $4.00 to $8.00 for their storage for their large supply of storage. Furniture and refrigerators and stoves. So you know overall the square footage rates for this building per square foot versus Market Square will be under dramatically ! would think. Mancino: Because some of it may be storage for furniture... Economic Development Authority - June 25, 1998 Gerhardt: The back room storage. Mancino: Okay. Parking lot. How much assistance has already been given in the parking lot? That's already been done and some assistance... Gerhardt: First payment would not go out ! think until 1999, or 2000 to the movie theater group. Because they just built the building so there's a one year delay in taxes so, or maybe '99... It'd be 2000. First payment to the movie theater would be the year 2000. The value that they established as of January 1st would not, would be for taxes payable in the year 2000. Boyle: Mr. Rice, you wanted to comment ! believe on Nancy's previous. John Rice: If! could...! did want to address. Mancino: I just wanted to ask Todd. John Rice: The issue about a cap on rent. Well, it might have a certain appeal. The question and.., low cost and subsidized housing issues which probably hits about every suburb. Whether or not...what they're talking about is...trying to figure out what's market and what's below market and what you'd then be doing is you're in effect consigning this building what is everybody agrees is somewhere in the center of the central business district into reduced rentals. Which is going to be bad for the building. It's going to be bad for Bloomberg. It's going to be bad for the city because you're not going to, it's not going to permit the incremental increase in value of more responsible and better tenants and better businesses. But the other thing it does, the TIF agreement, the development agreement doesn't preclude raising taxes beyond the $1,566,000.00. If we put tenants in there because of whatever circumstances and get $20.00 a square foot, Orlin Shafer's going to be all over us. And so that's in fact a benefit to the city as well. $100,000.00 on a parking lot is paid out since July 19, 1997 and there hasn't been any coming back. See Bloomberg made that investment a year ago because that had to be done to enable again... necessarily do a favor for Copeland but that had to be done in order to get that cinema ball rolling. Boyle: Thank you. Mancino: I've asked my questions. Berquist: I've got a couple other quick ones. Just to get a feel for what, we originally agreed to $360,000.00, facade, boardwalk and parking lot. The parking lot's been done. The boardwalk according to the plan, you've got a concrete walkway so that's, you're shaking your head. Clayton Johnson: When the original increment was assigned, it's broken up between the three projects. It was acknowledged that the Frontier Building got less. Significantly less because there was not an elevated boardwalk. So there's $200,000.00 for the facade. There's $100,000.00 for the parking lot. There's $45,000.00 for improvements to the front of the Economic Development Authority - June 25, 1998 Frontier building that have already been made. $100 for the parking lot and $45 for the front. been allocated to do the back and the front. So out of the $360,000.00 we have already spent The only thing we haven't spent is the $215 that's Berquist: So we had $215 for the facade, $100 for the parking lot and $45 for the sidewalk. Clayton Johnson: $45 for the front of the Frontier and now I've got to explain that. The improvements that we made in the front side, the West 78th side of the Frontier got wrapped and for the sake that, the fact that it was only $45,000.00, to save the legal cost and the expense of writing separate development agreements... Berquist: I'm sorry. There are times when I don't hear very well. We have $45,000.00 which was the front of the building and that's it. And $100,000.00 for parking and the $215 then was? Clayton Johnson: For the south exposure of the development. In other words, the new south elevation on it. Berquist: The facade. Clayton Johnson: Including... by walker or landscape. Mancino: So $260 for the facade. Clayton Johnson: For the front... Berquist: Okay. So $45 for the part that faces Chan Bank. Clayton Johnson: Right. Berquist: Okay. Alright. And that's been done and the 100's been spent. Okay. And then just out of curiosity, as long as I'm on this line, although the original complex, nobody seems to take... The original complex they showed your building being... It would be your guesstimate for doing that facade was $215,000.00, or there abouts. Something in that neighborhood. There was a dollar amount assigned to it. What does this facade cost? Clayton Johnson: Well something in excess of that because this one addresses all three sides. The retail... Berquist: What is the south part. What does the south part cost? Any idea? That's a difficult question ! know. Clayton Johnson: Okay, you know the problem here is the process. In other words how do we go about accomplishing redevelopment. We come to the HRA and ask for their support of this concept. Then we have to go out and we have to find tenants. We have to find financing. We have to find ownership. Then one of the things that's happened here is the rental rate, you know Economic Development Authority - June 25, 1998 the approval of the loan has been based on the assistance and the rental rates that we've been able to get. And the construction costs have constantly changed as this thing has evolved. But the original plan as submitted failed. The original plan that you looked at failed and it failed because it didn't have tenants. It didn't have ownership and it didn't have financing. So as much as you like that plan, and you would have liked to have seen it built, it didn't get built. Berquist: ! understand. You know again where, from a community perspective, the decisions between good and bad, ! mean that's no decision. Anybody can make those decisions. The real decisions are good, better and best. What's good, what's better and what's best. And that's why I'm just trying to get as much information as ! possibly can to try and determine the answer to that question. Vernelle Clayton: Can ! interject...the earlier plan, the costs.., on this plan, what we...what was the maximum. . . if these projects were developed and the assessed valuation... Then what input... The maximum amount of interest in this project was then.., and then we had to divide it among the... So all, none of the three got what they... The TIF never... Clayton Johnson: It never equaled the numbers. If the staff had said to us, part of the deliberation of the development agreement will be a matching of cost, we probably would have never separated the plans and specs in such a way that we could have gone out and bid that separately...but that was never a consideration... Boyle: May ! comment just one second? If the issue is, does this current plan or is this current plan 20%. 10%. 5%. Whatever. Less in cost than the original. ! think, maybe that's where Steve is coming from. And from what I'm hearing on your part is, no. There is not a deduction in the cost of this plan versus the first concept and one of the reasons is because of the east and west exposure. This plan, no I'm not going to go into that. I'll stop. Berquist: Mr. Ashworth. What kind of, are there any conditions that could be added onto this that would help insure that the rest of the project came to fruition? Ashworth: Well, if you think about it in the larger entertainment complex that was presented. It was being done as a cooperative effort. We had one group of developers basically doing the whole thing. Then it became a problem. Mr. Copeland wanted to move ahead. We kind of split off his part of the project to let him proceed with that. You now have this part of the project, assuming that you looked at as part of the whole, you could go ahead and independently approve it... Because there was this separation of ownership' s... we do have and ! think it's approximately four, what I'll call obstacles that currently exist associated with the bowling center property. Where whomever would come in there and develop that is going to need to work with the Bloomberg Companies. It may end up that Bloomberg Companies in fact develop that part of the project but if they don't, right now they have control over part of the parking in front of that part of the building. There's also ! believe three areas inside the building itself where whoever ends up the final developer is going to need to get rid of those encumbrances and ! don't know if it means a cash purchase or what but it probably would be reasonable that should the EDA act to provide dollars associated with this part of the project, that a condition be added that Bloomberg 10 Economic Development Authority - June 25, 1998 Companies needs to sit down with staff and whoever might develop the rest of the bowling center property and resolve those encumbrances. And ! don't know, ! know Clayton's probably going to have some comments in regards to that type of condition but ! think from an EDA standpoint, it would be very realistic if you wanted to see the rest of that project in fact happen. ! don't know if you follow my answer. Berquist: ! did... I'd like to know the reason for the balance if that would occur. John Rice: ...we have no objection to doing that. But on the other hand, those properties pay taxes. We just want to get paid the fair market value of that property at whatever time it's going to occur .... nobody from the bowling alley again, to buy it. Or is willing to say ! own the bowling alley and all that. But at the same time, it's not in Bloomberg's interest to... Ashworth: ... developing that part of the project. We're going to need to get.., at least work out those problems with Bloomberg. It seems logical to me that you might add a condition that Bloomberg Companies resolve those issues with you know, whomever is going to redevelop the rest of that project, which I'm assuming is probably Mr. Copeland. Boyle: And that would be in conjunction with this... Senn: Boy, now you've really got me confused. Boyle: Yeah, I'm not quite...I'm not so sure... Senn: Well I understand why you're doing it. You're saying that protects our.., on what happens with the bowling alley, the way this deal keeps changing and moving but what I'm saying is, how can you make this deal contingent on them. What are you saying? Require them to release their. Ashworth: We may end up. Senn: Their encumbrances against the bowling alley? Ashworth: We may end up coming back to you at a certain point and saying, we either agree to the price associated with that or... They don't even have access to the bowling center... ! don't think it's either an unusual or... Senn: But what I'm trying to follow through and just understand the timing a bit, which is what doesn't make sense to me, is unless you effectively ask them as a condition of this to release their encumbrances, are you saying make this deal's approval contingent upon them doing that? And if that's the case, this deal can't go ahead or proceed until that's done. And if that's the case, ! don't know how all your timing's going to, ! mean this whole thing's been a disaster timing wise but ! mean ! don't understand how you're going to ever bring the timing back together one way or the other. 11 Economic Development Authority - June 25, 1998 John Rice: ... ! first met Mr. Ashworth when the bowling alley was put in. It was 13 years ago. 1985...there isn't anybody to buy it from... Bloomberg was not...to give it away .... number one, to get paid for the fair market value of that land as it is there and secondly, to the extent that part of it is devoted to parking, the way the rest of the area is... There will be a buyer. The problem is, there's nobody to buy it. Nobody has been willing to stick their money in to buy... Senn: Okay, well now I'd like our staff to answer the question ! posed to them. Ashworth: Well ! don't see any reason why if, ! personally think that we have you know... would just like to make sure that. Senn: But again, how are you going to control that as a condition of this when you allow this project to go forward? ! mean ! don't understand how you can make it a condition and then allow this project to go forward, which is what I'm hearing has to happen and attach this to the conditions. ! mean the only way you can deal with what you're talking about dealing with is say, go put the whole thing together and come back and talk to us when the whole thing's together. That's what I'm hearing you kind of say underneath because ! don't know how you accomplish what you know you're saying we should try to accomplish. And I'd like you to kind of tell me how you think we can do that. Ashworth: Well, I'm aware of the fact that Mr. Copeland has been discussing with the Bloomberg Companies... for whatever amount to resolve the existing problems that currently exist in trying to redevelop the bowling center property. And if they're unable to do that, fine. Maybe it comes back to you and you get rid of... I'm just saying as long as that, those four encumbrances sit there, nobody's going to redevelop the bowling center portion of the property. Senn: But isn't that real convoluted in the sense that we don't even, I mean we haven't seen anything as far as the redevelopment on the bowling goes. We don't know whether we'll approve it or agree with it, disagree with it, or even pass on it. And ! mean again, everything ! hear kind of says we kind of need to deal with these issues together but they're not before us together. ! mean what I'm saying is ! appreciate where you're coming from saying we need to kind of protect ourselves on this but I'm looking for a way how do we protect ourselves without making the deal come together. Boyle: Mr. Rice, maybe you can shed some light... John Rice: Well ! think, maybe this will solve that problem. I'll tell you as the attorney and there's Mr. Bloomberg and there's Mr. Johnson, and there's Mr. Copeland. I'll tell you right now, if we're supposed to, I'll start working on an option agreement with Mr. Copeland's group and purchase the property at whatever.., they close on their deal and the only thing that we're going to ask is that our right to use the parking are equivalent and adequate to the Frontier Building. Secondly, that's it a fair value. And thirdly that the, depending on how long that's going to be, which might be a greater or lesser amount, that the taxes from this date forward are paid. There. Now that's on, we will do it. Mr. Copeland and ! have had a lot of discussions about options. He and ! know what they involve. We had some problems on the previous 12 Economic Development Authority - June 25, 1998 options but we can do this one. And if Mr. Copeland doesn't want to do it, we'll give the EDA an option to buy it at the time you make and then you can put whatever conditions you want on them if you have the property. This is not a problem. Boyle: Thanks. Todd, you were about to say something. Gerhardt: Well, if I understood what's John saying...your approval would be... contingent upon Copeland and Bloomberg Companies entering into an option agreement showing that signed option.., agreement between Bloomberg Companies and Mr. Copeland which gives us and Mr. Copeland assurances that the bowling center will be redeveloped. And that if that doesn't happen, then... Ashworth: Well we can't guarantee that.., by resolving these four issues.., guarantee the redevelopment of the bowling center. Senn: Well even if whether it's going to be Mr. Copeland redeveloping it or not is not the issue. Whoever redevelops it .... no, ! mean it doesn't answer my concern because what I'm hearing is there isn't a good answer to my concern. There is not a way to protect yourself effectively on the bowling alley from redevelopment and allow it to go forward so ! mean it's a risk you decide either you take or you don't take. Boyle: Would the option be satisfactory at this time in your mind? Senn: There is no option. There is no option in existence nor would there be any legal binding option that you could create today. Gerhardt: ... option for Mr. Copeland that he will be... Senn: Well again Todd, ! want you to understand my concern is not Mr. Copeland. My concern is whoever would redevelop the site. We don't have the foggiest idea what Mr. Copeland's going to propose or not propose. That's not the issue. What I'm hearing Don say is we need to protect our redevelopment rights effectively as it relates to the bowling parcel, regardless of who has it. And what I'm hearing is is we can't do that. So you know you either take the risk or you don't and that's what it comes down to. Ashworth: Well you could... If you wanted Mr. Rice to prepare...with Mr. Copeland's name on it through whatever time frame that they work it out.., that part of the project. Boyle: Where does that put this proposal... Ashworth: ... If by the time you're ready to sign this and Mr. Rice informs me that he can take the document... 13 Economic Development Authority - June 25, 1998 Senn: Do you think it'd be appropriate for the city or EDA to enter that with an open ended, ! mean no purchase price? No nothing? ! mean how do you come out of that winning? ...well he just said fair market value. Ashworth: I'm sure that Mr. Copeland...try to figure out what that price is... Clayton Johnson: ! don't want to characterize... The only concern we've ever had is that not only is the price...the concern is the issue of whether he's going to build and is that going to impact our parcel. Let me give you a specific example. If his plans are to build a 16 screen cinema with the only entrance being on that corner right in the front of Frontier, then we're going to want to reserve more dedicated parking for the retail spots. That's the only concern we have. So until he has a plan, it's been difficult to write an agreement. ! don't...by spending $100,000.00 to build a parking lot...we're going to cooperate with them in every way that we can because we want to see the whole thing happen. We want to see the whole thing. Mancino: ... Boyle: I'm trying to recap a little bit here of where we're at but I'm not quite sure. ... redevelopment agreement and.., and two option agreements. Is that where we're at right now? I'm trying to bring it back into focus. We went off on several different roads here... Ashworth: ...bring that back with an option back. Boyle: And not have it as an option at this time? Ashworth: Not as an option. Mason: Chairman, would you state what we have in here please? Boyle: We have in front of us, as ! see it, a private redevelopment agreement and assistance agreement.., and an option... Mason: How would you state, how would we state the option agreement? Boyle: Help me out here? Ashworth: Bloomberg Companies shall attempt... Engel: ! have one question on that. Would that redevelopment of that last parcel then be contingent on the plan we already have seen for it or would that be open to revisiting? Number one, the original for lack of a better word. ! realize it' s... at this point in the conversation. The original entertainment complex plan. If we make the changes here, approve, give it 360K, we're approving with an option agreement added onto this. Or whatever. Or we're going by the site plan you've already seen? 14 Economic Development Authority - June 25, 1998 Ashworth: ...in the fashion.., actually approved the thing, ! don't think you know... Senn: Mr. Chairman, let me give it a try. I'm going to move that we approve a private redevelopment agreement with an assistance level of $145,000.00 in TIF assistance for parking improvements and front, or what would we say, 78th Street improvements already made. And that on the basis that the option as stated in the record by Mr. Ashworth just a few moments ago be incorporated as a condition of that approval. Engel: ! can second that. Berquist: Fair market value and all that stuff... Mancino: And a completion date? Senn: Yes. Yes. Mancino: For the remodeling. Senn: Yes. Mancino: And when would be the remodeling date? Senn: The date would be, ! thought we had that settled. Engel: January. Senn: January 1st I thought it was. Engel: Yeah. Boyle: ! just threw that out. Senn: I'm sorry, to incorporate the January 1st as the date on the improvements. Engel: I'll second that. Boyle: Further discussion? Call for the question. Mike? Mason: Okay, no. Boyle: Call for the question. All in favor? John Rice: Excuse me. ! was trying to stand up without interrupting but before we go, are we talking about assistance based upon $145,000.00 and not on the original? 15 Economic Development Authority - June 25, 1998 Engel: Yeah, we're making you.., for the money you put into the plan. Senn: Yeah, that's the motion, yes. John Rice: That's not... I mean I don't want to be negative but we're making a commitment for an increase valuation for increased taxes.., work that's being done in the development.., it falls apart. Senn: I mean the value levels that are set remain the same. They're immaterial. The value is being set by the improvements. The improvements we approve are the improvements as proposed that the Council already approved under the site plan design. Okay. That's a whole separate issue from, and has nothing to do with the issue of what level of, I mean that's the plan they've already submitted. Already asked for approval from the city on and the city gave them approval on that site plan. Okay, with those specific improvements. Okay, and those improvements are what establish the value. Okay, and so the valuation isn't really the issue. The issue was, what level of TIF assistance are we going to grant given the improvements which they're suggesting to make. Based on the original agreements and what those were supposed to go for and what we're accomplishing with it so. Boyle: ... market value remains that and we're going to get the increment that we asked for. Why would we... Senn: Increment meaning what? Boyle: If the market value is established at 360, is that correct? From that we arrive at... Senn: Yeah, but the market value determines the market value. It has nothing to do with whether they're getting TIF assistance or not. Or what level of TIF assistance they're getting. Mason: Why are they getting less TIF now than they were before? Senn: In my motion, the motion is to give them TIF assistance for the parking improvements and the front improvements they've already done on 78th Street side. It is not to give them TIF for the facade improvements on the back side which are not in keeping with the character of our original approval, nor are we accomplishing the intent of what we wanted to accomplish. That is what is in my motion. Okay, and that's the motion that's on the floor. Boyle: You're taking everything away. Senn: No. Boyle: You're taking everything away from that back side. Senn: No. It is taking the facade improvements assistance from the city away. Or from the EDA away, correct. That's what it's doing. 16 Economic Development Authority - June 25, 1998 Mancino:... Senn: They can still do that. Or they can come back with a different set of facade improvements and give it a try again but it does not give the facade dollars for what is now being proposed as facade improvements. Berquist: So basically.., capital costs, they can't afford to pay $40.00 a square... We're charging them $40.00 a foot on that valuation. They've got $215,000.00 more... Senn: ! lost you totally. Engel: ! don't understand.., say that again. Berquist: They've got to pay taxes based on $1.56 million, right? Senn: Well they have to put a new facade on the front of the building which they've proposed and already done. Berquist: They haven't done it yet. Senn: Well ! mean not done but ! mean done in terms of design. Yeah. Berquist: A minimum market value is based on $1.56 million. You figure it out based on 38,000 square feet, that's somewhere in the $40.00 a foot range for assessed valuation. Senn: For market valuation. Berquist: Market valuation. Senn: Yeah, $40.00 a square foot on a retail building. Yeah, that's pretty low value from everything ! know. Berquist: But it's not pure retail. There's retail. There's a lot of storage. 20,000 feet of it is... Senn: Well ! understand that. ! understand that but $40.00 is also a very low valuation on retail square footage. So ! mean yes, it's a blend but $40.00 is a blended number already is what I'm trying to say. It costs you $40.00 a square foot right now to build that size of an industrial buildings. $40.00 a square foot. Berquist: You may be right. ! just had.., on signing a purchase agreement to have a building go for significantly less than that. Senn: I'm saying this size Steve. That's an important feature. 17 Economic Development Authority - June 25, 1998 Berquist: $10.00. Senn: Yeah, ! mean no. 250,000 so ! mean that was 100,000 square feet being built simultaneously is a different number than building 30-38,000 square feet. Boyle: The 45,000's already put into it. ! mean was that all part of this? Senn: No. Boyle: ! thought the 45,000 went back to 1996. Engel: They're ahead of us on that. They've got that money into it. Boyle: I understand that part.., remember that coming up and it was an issue on whether or not we should go back and pay for something already done and I'm almost positive that we went ahead and said yes.., take that out. Senn: No, they were always supposed to submit that back to us. Boyle: Are you sure? Senn: Yes, we never approved that. John Rice: The facade improvements on West 78th Street were done in advance because they were to be... improvements but in reliance... The same thing was done in the parking lot. That's 100, ! mean the 45, ! don't know when that was...but ! know when the $100,000.00 was spent because ! saw the check go. That was on July 19, 1997. If we're talking about this, ! mean what we're talking about is that Bloomberg is then agreeing to close to $600,000.00 increase in the fair market value for assessment purposes for the sake of them paying at, I'm going to say roughly 6%. That's $36,000.00 more in taxes every year for who knows how long. That is not an economically viable proposition for TIF for $145,000.007 Their banker might have something to say about that. What we also have to recognize is that if these improvements are not done, then there is not the $1,566,000.00 valuation. There is not the taxes that accrue accordingly. The leases that we have been talking about have been premised upon this assistance being granted and accordingly there's a certain amount of rent that is going to be charged according to that lease. ! would expect, if we have to go back and ! have to call that lawyer this afternoon, I've got an idea of what he's going to say. And ! think that we are going to have an idea about what that tenant is going to do. Senn: Okay, that's a good point. Let me...I'm going to amend my motion. I'm going to amend my motion to basically say that the minimum market value will, the minimum market value will be determined by a new calculation based on the $145,000.00 or repayment of the $145,000.00 in TIF, okay? And that is the minimum market value and the new market value will of course be determined by the assessor as it normally is, okay. 18 Economic Development Authority - June 25, 1998 Boyle: What would that do? Senn: That means that. Boyle: The new market value could be. Senn: No, the minimum market value which is all we really deal with through the agreement is set at a level which is required effectively to pay back the $145,000.00 in TIF which we are giving, okay? But Todd does that calculation and makes the changes in the agreement and that's done, okay. We don't mess with market value. That's up to the assessor to mess with market value what he does one way or the other. Under these agreements all we deal with is the minimum assessed value which means it never goes below that. Engel: And they're not negatively affected by that tax structure... Senn: That's right. And Mark needs to, he's the second to the motion. Engel: I'll second that. I'll accept it. Senn: Okay. So I'd like to call the question. John Rice: May I address one more issue? Just another facet of the same issue. The question Mr. Berquist asked, you know do we get a more.., conditional upon this program being implemented, etc. No money until then. What ! said was.., mortgage loans, there's a mortgage on the property. There's been no disbursements or money disbursed on that mortgage because it's been waiting. But Chanhassen Bank, being a careful bunch of bankers, what they did require is a projection of earnings and what will come and will the rent... (There was a tape change at this point in the discussion.) Mancino: And that's what we're trying to work out here and give you a final answer because there have been many, many changes, both on your side and from what we've seen. We're trying to be clear and to tell you how much assistance we are willing to be in a business relationship with you. And things have changed quite a bit. John Rice: If the City or the EDA is going to make a different policy decision about how those... be offered, then you have the power to do that. But starting in 1995, and well before that. It goes back to 1989 and 1990 when all the turmoil with the Frontier Building and the working with the City began. But certainly in 1996 when the project was, whatever significance was attached to that, Bloomberg has made numerous decisions and expenditures of money in reliance upon the agreement which was carefully drafted and negotiated by Mr. Dean in the fall of 1996. ! don't think that's changed since November of 1996. And we didn't change anything except the facade according to, and here we are back to that plan again. That drawing that Mr. Howell did that is the least significant part of that economic, or entertainment complex. Set of plans that he brought 19 Economic Development Authority - June 25, 1998 in. I mean it was incidental and it was not the thing that counted in that set of plans. And what has not changed is the essential plan and retail nature of the Frontier Building. Berquist: You know you keep saying that and we keep saying that that was a vital part of it. Now one of us isn't looking at the other one's perspective here and maybe it's a combination. We looked at the thing as a whole. It was presented as a whole. It may be worthless now but everything was predicated on the whole. So for you to minimize our perspective is really insulting. John Rice: I'm sorry, I'm not minimizing your perspective. Senn: I'm going to end the discussion here. I'm going to call the question. Either it's going to get on it or not and we'll talk about that later. There's a motion on the table. There is a second. Okay. Let's vote it up. Let's vote it down. One or the other. Berquist: I want the motion restated so I know whether I'm voting yes or no. Senn: Okay. I'll try to restate it in total, okay. With the changes and everything, okay. Moving that we approve the private redevelopment agreement and minimum market value calculation to be recalculated based on assistance, TIF assistance level of $145,000.00 to fund the parking improvements and West 78th Street front improvements already made. And that the improvements under this agreement must be completed by January 1, 1999. And that this deal is contingent upon an option agreement as outlined by Mr. Ashworth earlier in the record, okay. To protect our interest as it relates to the redevelopment of the bowling alley parcel. Engel: ! will second again. Boyle: Call the question. Senn moved, Engel seconded that the Economic Development Authority approve the private redevelopment agreement and minimum market value calculation to be recalculated based on TIF assistance level of $145,000.00 to fund the parking improvements and West 78th Street front improvements already made. The improvements under this agreement must be completed by January 1, 1999. This is contingent upon an option agreement as outlined by Mr. Ashworth earlier in the record to protect the City's interest as it relates to the redevelopment of the bowling alley parcel. Senn, Engel, Mancino voted in favor. Mason, Boyle, Bohn and Berquist opposed. The motion failed with a vote of 3 to 4. Mason: That motion failed 4 to 3. Boyle: What was it? Mason: 4 to 3 in opposition. 20 Economic Development Authority - June 25, 1998 Berquist: My problems with it are the economic necessities that need to happen. I'm hearing one thing from Mr. Rice and yet, and we don't know enough of the financial, ! understand that Chan Bank would put some, they'd want to look at the cash flow and see if the building performs. I'd like to be able to come to a, and there must be some documentation that establishes a balance point that where market value and rent rules and what not pay the debt. We're not privy to that and yet we're being asked to be a partner. The January 1, 1999 date, if! heard you correctly, you're asking for completion by then? Given the complexity of the project, I'm reluctant to tie together.., time frame. Senn: That was their date. Berquist: That's their date? Well...that's their date predicated on doing the deal as stated. I think if they had to go back to the lender and do some other stuff, you know anyway. Engel: We can pull the date. Senn: Well ! mean they always can renegotiate the deal. Berquist: It doesn't matter. The primary reason was the economic reasons. I want to see the deal go. I'm not certain that we're not handcuffing them too much. I'm not certain, ! know they're not being open with the finances. ! know we haven't done our due diligence in doing projections as far as break even. I'd like to see the deal go though. Boyle: I'm going to comment now myself. We were at 360 and ! keep coming back to that and it appears to me one of the reasons that we're trying to reduce that is because of facade changes. Did it change that much? ! don't know. ! think we've still got a good looking building for where it's at and the east and west side ! believe is a fair argument that that wasn't in the initial plan. ! think that it... ! don't agree with that but it was and we agreed to a concept of $360,000.00... If the issue, and ! think maybe that's the underlying issue, is the whole TIF payment and where, how much. When we quit giving it. That's a different issue. ! don't know if we can do that right now. That now's the time to... ! mean these folks have waited patiently. That's why I'm opposed. Mike. Mason: If! may be flip for a moment I'm going to say ! don't think two wrongs make a right. I'm going to talk two ways here. Personally, plan number one was great. We were all excited about it. For whatever reason it didn't work. That's my issue. That's not my issue. Whether ! like that plan or not as an EDA member is somewhat immaterial. And I've been probably spent more time on my feelings on this one than ! have on a lot of other stuff and quite honestly Vernelle brought it into perspective when she talked about what economic development authority is. ! don't see any city, ! don't see why, and ! am going to use the word punished. ! don't see why any group would be necessarily punished because they changed a plan. Will it eventually enhance the city? Yes. Will it clean up a blight, quote unquote if you will on the city? Yes. Should, in my view, TIF responsibility of the city change because they changed? ! would say no. Now ! understand there are some different pieces that have been put into this but ! certainly do agree with Councilman, with EDA member/citizen Berquist, Councilman, whatever. That ! want 21 Economic Development Authority - June 25, 1998 to see this go through and if that motion would have passed ! do believe, in spite of anything that has been said by anybody, that this whole thing is going to fall apart. And ! don't want to see this fall apart. So my feeling is, ! don't understand. ! have yet to hear a financially responsible reason from the city perspective why TIF dollars should be based on anything different than they were before. Senn: Mike, if you want... Mason: Well ! understand this district is having problems and by EDA saying we're going to take, we're not going to give as much does not, what does that do to solve those problems? It does absolutely nothing except ! would argue make them worse. Mancino: Leaves it open to the market. Senn: No. Leaves it open to the market. More money coming in. Less going out. Mason: Well ! would, well ! don't know. ! don't buy that. But right, ! understand. Boyle: Would you like to revise a motion? ! mean not revise but to make another motion? assume that's where we're at. Mason: I'm not sure I could state it correctly at this point to tell you the truth. Boyle: I'm not quite sure either. We do have to have another motion... Engel: You know I've obviously been waiting here with this before we do. We're talking about this whole thing as a concept and I'm going back to what Steve said. We did buy that. We, as a body, whether any of us were here or not at the time. But the whole concept of what we were putting the money into the plan for. And if we're getting it back piece meal, it's a little less attractive but I'd still be willing to put the same prorated amounts in piece meal if it stuck to the concept. That's where I'm standing. ! will still go for it even though it's piece meal as long as ! see division coming together and I'm saying that because I'm looking at Applebee's. I'm looking at Tires Plus. I'm looking at Americana Bank. I'm looking at the movie theater and I'm looking at where this is going. And that isn't really what ! think the amount of money was predicated for with what we're seeing now. So I'm willing to make them whole in a money they put into the deal. ! think that's just fair. But ! don't think the city and this body gets the increment and the enhanced value down there that they were looking for when they voted for that money based on the original plan. So that's where I'm at. ! hope that's a little clearer. ! would go for it if we stuck to the original plan. Even if we did it piece meal. I just don't see that happening. And ! see if this one goes through, there's going to be a lot of changes on the next one and they're going to still want the money and ! think that they'd be right to ask that way because they should expect it. But ! think this is precedence setting and we had a precedent going forward. That's the one we're moving back on now. If we vote yes to this plan. Hard for me to say that because ! want this thing to be redeveloped and it is an eyesore and it is an improvement regardless. 22 Economic Development Authority - June 25, 1998 Senn: Yeah, ! mean the whole foundation of the original concept approval on this, the whole foundation of the money going in, primary purpose, the vast majority of the dollars were based on one and one thing only. Facade improvements acceptable to the vision of the city in relationship to what they wanted to accomplish down there. That was the reason for the money going in. There was also money put in for the parking...but again the vast majority of the funds were for the facade improvements. You cannot now rate the facade as the issue and simply say let's give the money because with that ! think you do create a precedence which is everybody can just go ahead and start saying they're going to do one thing. Come in and get their TIF money and do it differently. Boyle: Oh, ! don't think so... The first conception that comes forth, the first concept is presented on almost any development. Mancino: ...this isn't a concept. Mason: City Council and Planning Commission voted to accept these changes. Senn: On a site plan... Mason: Well but you're talking about things getting changed. ! understand that. City Council and Planning Commission voted to accept these changes. Senn: Right. And Mike, it's our job to vote whether our TIF assistance money which is supposed to be going for facades is buying us the level of facades we expected it to when we first said.., about the level of money we'd give. Mason: TIF assistance is for economic development. It is not for facades. TIF assistance is to better the economy of the city of Chanhassen and help the citizens of Chanhassen out. You can't show me anywhere that it says TIF money is for facades. Now ! think ! understand why you put it in that context but to say that TIF money is only for facades is, that's way narrow. Way narrow. Senn: I didn't say only. I said what it was defined as and if you'll go read the redevelopment agreement it defines it as that. Engel: Yeah it does. Senn: So. Engel: And there's a set amount in there for that. Mancino: TIF has been used to prime the economic development of the city, especially the city center where market forces weren't working so we had to use government assistance to do this to kind of like prime the market. The market's getting there right now, is there in centers of Chanhassen. We're doing well. We have.., going into business relationships and ! think that is a 23 Economic Development Authority - June 25, 1998 good question to ask. We're at a point now, as much as any business would ask themselves to change that philosophy a little and say do we need to keep doing that? Especially in a district which we could use the full increment. Mason: ! don't think you change horses in the middle of the stream either. ! am not denying that we need to re-evaluate TIF but ! don't think you, like ! said, ! don't think you change horses in the middle of the stream. Engel: I'm on the safe horse. ! don't think ! get the same horse. Mancino: It's not the same horse. Berquist: I'm trying to... There are two variables. ! mean basically ! have a sense that we agree that the project is, we all would like the project to go forward and ! sense that we agree that we have given site plan approval. We have given site plan approval. ! sense that we agree that we are willing to offer incentives to some degree to variables that are holding this up are the minimum market valuation and the assistance. If we allow the minimum market valuation to be predicated on whatever the assessor chooses, based on rentals and what not, then the applicant is saying the amount of assistance is insufficient to provide us adequate return. So we have those two variables working with us, right? Is there, there's got to be a balance point. If we change minimum market value and give it at $1.3 million, and I'm just asking this question. Let's say we go with a minimum market value of $1.3 million. What then can the assistance amount drop to? Senn: Steve my motion, and maybe you're missing it but my motion changed the minimum market value to equate to the TIF which is all we can do. We can't set market values. Okay. We're not allowed to do that. The assessor will set market values however he feels he wants to set them. All we do is we set a minimum which is an agreement between us and them that they will not appeal their taxes to go below that level because we need that level to repay the amount of TIF assistance we gave them and that was included in the motion. Berquist: And what I heard from the applicant, and I may have misunderstood but what I heard from the applicant prior to the vote was that if we approved that the economic incentives of $145,000.00 are insufficient to make the deal go. Mancino: Then why was... Senn: Well but that's not our. Boyle: Wait a minute. Couldn't that $1.5 become more though under your proposal? Engel: It could become 360 if the same plan is put forth I think. Senn: No. Under my motion it was limited to $145 based on the specific plan we had in front of us. The minimum assessed value was to be recalculated to give us a minimum assessed value which would tie out to the $145. 24 Economic Development Authority - June 25, 1998 Boyle: Okay, so that would never change. Senn: Well no. Again, we don't set that. You have to be very careful with that. All we do is set a contractual minimum obligation that they can't go in and appeal beyond. That's all we do. Vernelle Clayton: ! would just like a little bit of clarification, or maybe ! can add to the confusion but first of all, if what you're trying to achieve is to get some more money into the TIF district because it's in trouble. Whatever. You need cash. We all know that. The TIF district increment. This is not the way to do it. This was not the reason, this is a new district. This district was created for the purpose of developing these three properties. That's why it was created. There was one legal issue that was not addressed. Was not posed to, I've forgotten his name. John Dean, and that is, we created this district. We had to prove that but for the TIF district being created these would not be developed. Among other criteria was, how many projects were at X level. How many buildings within the project, within the area, were at X level of condition and would thereby be improved in order to meet the criteria for establishing the district. ! don't think the district could have been created without this piece being included. So there is in my mind a question as to the overall legitimacy of the whole district which could put in peril the redevelopment agreement you already have with the cinema if you don't have a development agreement with these folks. The other thing is, if you are going to reduce the overall valuation and consideration of the facts that they've presented to you, so that if in keeping with in relationship to the amount of TIF that they're getting, then nobody's getting any benefit from that. There's just less TIF created. There's less going to the Bloomberg's but it's not going anywhere else and benefit anybody else so why not keep it at the level that can be achieved so at least somebody benefits. If you can't do that, then Mike's right. The only reason you're reducing it is to punish these people for changing the front and ! happen to agree that Mike is also right that it's not the role of this body to say do ! like this front. It's not an issue, do ! like it. It's an issue does it work. Is this going to make life worse in Chanhassen than it is now? No. It's going to make it better. I'm sorry but your job is economics. Now, have you heard all of the exact numbers from Bloombergs? Probably not. Do they have them? Probably not. They haven't got it all out to bid yet. But there's no point in, as he says punishing these people by limiting what they're getting when nobody else gets it. ! mean ! see this as an affront. Mancino: I didn't understand it as punishment at all. I have no motive at all for punishment. That's something Mike came up with. There's no cell in my body that says I'm trying to punish anyone for changing it. You certainly have the right to an option and my full confidence and support to change anything you like to. You asked us to... as a city. You have to give us the right to have the option to say do we still want to be in partnership with you. And I'm not here to punish your business.., and I just want to be on record to say that. There' s no thought of punishment whatsoever. Vernelle Clayton: ...it was brought up... Boyle: Don, could you... 25 Economic Development Authority - June 25, 1998 Ashworth: Well, just so the EDA understands that, and Cliff and I worked at this for many years and ! think you may have forgotten the work that we've done, 2 or 3 years ago when we looked at this entertainment center. You have to realize that Bloomberg Companies owns what currently is the movie theater part of the building. They were getting rent out of there at $3.00-$4.00 a square foot. You would then take a look at what costs you would have to take and refurbish the building, or in this case the cinema. As well as to do the facia. It just made no sense. There would not be any form of economic return to the Bloomberg Companies. In fact they would lose money .... the deal we went back to them...just because the economics didn't work. What we assuredly will be doing, and we measured each one of those. We measured each project. Made a determination as to the amount of assistance which would be required to represent.., market rate as an office complex. Now in that area it would probably be $8.00 a square foot. Maybe $9.00. In other words right now they can take and pay for a return on that.., everything as it is and $2.00 to $3.00 a square foot. Maybe $3.00 to $4.00. It's that differential that you've got to look at in trying to take and encourage new business into that facility and to upgrade it to a standard that we want to see completed. If it stays at the 145, ! can assure you Bloomberg Companies will not do this project. They will lose money in comparison to just leaving it at $3.00 to $4.00 a square foot space. Mancino: So Don is that with every company that moves into Chanhassen then absolutely has to have assistance because they will not make it on their own because the margins aren't good enough? Ashworth: Well yes and no .... were on Main Street and you took down... Mancino: Again, we are priming the pump as it were back then. Ashworth: Right. And you maybe paid... $250,000.00 for his property. He sold it at the raw market value which was probably then $2.00 or $3.00 a square foot. He lost money but in comparison to the overall redevelopment he made money... $1.8 million for the land. $500,000.00 for road improvements in front. $2.3 million dollars. But if that was...we estimated their taxes to be $800,000.00 a year. It turns out... This part of the pie was the thing that was kind of left over and you really, you're going to get.., staff to go back and measure what they would need differentially between existing rents, what they can get for redevelopment and that's how we came back with the $370,000.00... In fact ! would encourage Bob Copeland to get up and talk about the dollars required to renovate his space. Pay Bloomberg an amount... $2.00- $3.00 a square foot that he was currently getting out of that, and if assistance at his level did not exist, that theater would not be there today. Mancino: Or he would have gotten different partners. Ashworth: Or anybody else for that matter. Senn: Nor would land values be at $10.00 a square foot which is where you're telling us they're at now. Rather than $2.00 to $3.00 per square foot. 26 Economic Development Authority - June 25, 1998 Gerhardt: On vacant land. ! mean Mr. Bloomberg can sit there and continue to rent his space out at $3.00 and see a 15% return on his original investment and not have to put in the furniture store. He can leave it in the shape it's in. But this Board did not want to see it stay in the shape it's in. So we have to provide incentive to work with Mr. Bloomberg to try to renovate this space into something that we see as feasible. ! agree that we'd probably not provide assistance on vacant land. Those should... We are trying to provide an incentive where it pays for his 30 year old building and try to bring it up to current standards. Mancino: Yes but you're also, and you have always said that part of the assistance is helpful in upgrading, getting more than we would normally get in ordinance. And then you're using that against us also to say this is just an aesthetic thing. And ! disagree with that. ! mean there' s no question that, and ! was not on the Council at the time. ! was on the Planning Commission, that the reason for the assistance on the entertainment center, and it is not a black word for me because ! thought it was a wonderful concept. Wonderful for our downtown. Not just aesthetically but what it would do to pull people down into the entertainment area. ! thought it was a wonderful concept. And ! think everyone bought into it hook, line and sinker. Gerhardt: And that's the point where we're at right now is, this is the new concept versus the old. Now we're trying to weigh the benefits of what this is versus the. Mancino: No, this is one building. We still have the other and we don't know what's going to come east of this. This is just one building. It is not again looking at a whole area as where ! think TIF assistance should go...into areas that you want to redevelop. Not single...but into an area and we don't have very many areas left but ! think that that is a... good way to use it. Boyle: Excuse me, ! think the discussion, we're getting a little bit philosophic. This started that way but it got chopped. Let me just ask one question. If the facade was the same as the original plan, would everybody here be in agreement? Engel: I would. Boyle: Or is there a deeper issue? Engel: No, ! think they're getting what they agreed to and this Council's getting what they agreed to two years ago. Everybody is sticking to what they agreed to. Mancino: It was the cinema... Boyle: Well but wait a minute. But the cinema isn't what the original plan was. Mancino: No, but close to it. Engel: Pretty close. Mancino: It's much closer than this. 27 Economic Development Authority - June 25, 1998 Boyle: This is not to be argumentative but to try to get some... Clayton Johnson: My concern here is the process. As a redeveloper who's been involved in this whole downtown from one end to the other, we've always followed the same process. We came here. We got conceptual approval and then obviously changes have to be made because you've got to go out and meet the marketplace. You've got to find renters. You've got to find lenders and so on and that's what concerns me here. The only project we have today that we can start on tomorrow is the one that has $360,000.00 worth of assistance because that's what the mortgage is approved on. That's what the leases are negotiated on. That doesn't mean if you change it that ! can't start all over and come back a year from now but ! mean really the only project we can start today is the one that we've outlined. And the process is we work with the staff and we get these development agreements put together and we get the dollars nailed down. To start all over again is going to just be devastating to us. ! mean we've already stuck $150 grand into it in good faith that we are trying to help improve the downtown and of course it's good for us economically. We're not Santa Claus. But let me talk just a second about why the facade changed. The reason the facade changed, if ! can just come up here.., personal desire to put a certain type of front of the building. The facade changed because this is an airplane hangar, okay. It's like that and the original plan that Howell came with anticipated one user. A Pier One. Hopefully we could have gotten a Pier One. A Pier One would have liked this design that had all these open windows and the high appearance and so on, but you know what. We spent three years and couldn't find a Pier One. We couldn't find a lender that would finance an unanchored retail center. This is a retail center that does not have a grocer or a discount. You can't find anybody to finance it. What we did find though is that Herb came up with a design of this big mansard that took the curse off the height of the building and we could divide it into three tenants. Now a lender likes a building that has three tenants where you spread the risk and people were comfortable with a cozy feeling of three intimate spaces rather than one big one. That's why the building changed is to meet, to find a solution. To find the market and to find some people that would rent it. It wasn't because... (There was a tape change at this point in the discussion.) Mancino: ...600 and something thousand. Gerhardt: No. Mancino: 500 and. Gerhardt: Well, the limited revenue amount which is in the back of that, of your report shows that they you know could receive $1,259,636.00 but again, the models that put this together you know was to balance this system out. You know pay off a $360,000.00 loan, including interest, over a 25 year period with the first payment occurring in the year 1999. Mancino: So how much totally is it? 28 Economic Development Authority - June 25, 1998 Gerhardt: $1,259,636.00. What I'm telling you is they probably won't create that much increment over that 25 year period. So you know, a good way to take a look at it is to take their proposed increment of $30,000.00 over 22 years. Mancino: So we will end up giving back to them $660,000.00. Gerhardt: Correct. Mancino: And they're going to be putting in $360,000.00. And...that they're going to remodel a building. My question is, is in that area and we made them stick to a plan, a new plan which was neither here nor there but we just have to stick to ordinance. Whatever the ordinance dictates. And yet to Applebee's and some of the other new buildings, Tires Plus. They had to be all brick buildings, etc. What are we doing? ! mean you know, or part of the Planning Commission, because ! went through the meeting. You're not allowed to bring tax increment. You can't ask for anything more just because it's going to get some tax increment financing. The Planning Commission cannot talk about that. Clayton sat here and told us... Boyle: Is that a true statement? Mancino: Maybe not. Boyle: Well ! would have guessed that this should have been brought up at either Planning or Council prior to that if they wanted a brick front. Mancino: Well the Planning Commission did bring it up and our City Council, when we discussed it said well is that in the ordinance. Do they have to have a brick front? And it's not in any ordinance that the buildings have, because we were under the premise that we were looking at it as a site plan. We were not making a decision as a Council whether to give assistance or not. So when we looked at it, and this is what ! want to get straight out. I'm not going to say thing any, well obviously as you can tell ! have some concerns about it. But as it goes through the process, the process is the Planning Commission can only look at even things in their.., economic development money assistance. They only look at it according to the ordinance. They don't look at it that it's going to get assistance and then ask for extra. They can't do that. That's not their, under their authority. When it comes to City Council. We said very firmly that night that we were not looking at it as an EDA. We were looking at it as a City Council. Did it meet ordinance and that was it. Engel: Yes because we didn't want to speak for the EDA as a Council body. Mancino: We didn't want to speak as an EDA so it just met ordinance. In fact. Senn: Just is underlined. Mancino: Just is underlined. Exactly. And there were those who were.., didn't even meet the ordinance. It still had the metal. So then it comes here and it just meets ordinance. There is no 29 Economic Development Authority - June 25, 1998 other building in the last five years that we've said yes to downtown, that ! know, that's gotten economic assistance and you guys can correct me because ! haven't been on this, that just meets ordinance. Boyle: You know Nancy, if that would have been proposed maybe in that way instead of saying you present a plan. You...therefore we're going to take it away from you but...that okay. If you approve this to this degree, ! think we can meet the... Engel: ! made it quite clear though, ! would approve if they just gave what we originally thought. made it clear. Senn: The original plan, yes. Engel: ...that the people would have bailed on that design. Boyle: Maybe there's something in-between there that would have been... Berquist: ... should have known... We were negotiating with our hands behind our backs. Engel: You've got to force them to come back with a new plan. We didn't do that. Berquist: Well we don't have to but. Engel: If you don't vote against them. Berquist: ... ! feel like Todd and Don sort of, some of the questions that ! was asking, like where the break even is, if ! can jump in here. Where the break even is. Vernelle talked about negotiating backwards. We're not privy to any of that stuff. ! mean we've been talking about this for a number of months and the facade changes. Obviously the costs change. A lot of things changed. Where the revenue numbers were. And none of that stuff was laid out. There was no compromise made available to us. No scale of incentives versus minimum market valuation. No definition of what changing one thing does to the other. ! felt like ! was talking with my head up my tail and everything ! said was true but ! did not have enough information to make a really good decision. Boyle: Did you not feel Steve that the proposal was very close, or very equal to the cost of the original plan due to the east and west? Berquist: ... Mancino: How does anybody know? Engel: You know what? Even if it was, it still is not what we bought as a concept. The concept was a downtown entertainment center regardless of what. 30 Economic Development Authority - June 25, 1998 Boyle: But that's gone and we knew that. Engel: It's definitely gone now. Senn: Well it's gone now because you just gave it away. Engel: Yeah, we just gave it away. They would ! believe come back and done that. ! believe they would have. Boyle: No. Engel: You don't think so. See ! know one of the tenants. He said they would hold back out on that. That ! know for sure he was lying about one of them. Mancino: Well... one more area that is so primo, it is so nice in Chanhassen that it's all together and you can, the walkway, the whole concept is just... Bohn: It sort of reminded me of... Mancino: ...well my question is, at what point do we, if we are going to give incentives, do we as an EDA say hey. We want, because we're, because we care about what the center of our city does look like for the next 50 years, because it's not just aesthetic value. It's what draws people to it. It's the pedestrianess of it and yes, people do come and go and not come to places because.., no question about that. Do we want to give some incentives for upgrading that a little bit? And if we are, what is it? Only above our ordinances and at what point should that decision be made and told to the applicant. Ashworth: IfI may. First of all I am sure that any applicant is going to stand up and tell the Planning Commission or City Council that EDA is the one that makes these incentive things and they shouldn't consider that. ! mean the Planning Commission should feel.., in any recommendation that they make up to the City Council and the City Council... feel free to say, ! could vote for this or ! need to vote for this as a councilman but ! can tell you as an EDA member ! would like to see something better. Or ! would like to see an alternate. You know ! guess ! was led to believe that it was an all or nothing. ! mean. Senn: No, that was told to them. That's in the Minutes. Ashworth: ! heard a number of, or some of you say ! will not vote for this unless it's exactly what was originally. And I'm not sure if! heard a couple of you say... ! did not hear anybody say, you know bring back one, bring back a third one. Maybe ! can vote for something that's halfway in- between. ! didn't hear that so ! apologize Steve if that's, if you thought that staff had been kind of given that as a marching order. Berquist: No, ! wanted a financial analysis. 31 Economic Development Authority - June 25, 1998 Ashworth: Oh okay. As it deals with the finances, ! mean these sheets, the projections and the money and all the rest of that, these are three years old. Yet it would appear as though that this design is probably less money.., than what had been presented originally. But look at the market value. They're exactly the same. It was a million five then and it's a million five now. So ! mean ! don't know how it can change all that much. ! mean you have a couple years inflation in here but so ! think basically the numbers are the same. Gerhardt: Well what ! hear the EDA...that this facades costs $500,000.00. The one they proposed is $400,000.00 and in our minds, you know ! think what Steve was saying, he would have liked to have seen incrementally you know reduce the incentive down $100,000.00 if that's the true thing. You know, you heard Clayton... Boyle: The point at the very beginning is, are we talking 10, 5, 20 percent difference from what the original plan. And you're right. Clayton never, and we probably should have... Well however, in hind sight. Senn: You're going to get a chance to go through it again when... You also are going to have an interesting time because I'll tell you what. You know the people selling Copeland's property are not giving it to him and when you underwrite deals like this, you're underwriting the cost of the land is what you're underwriting. So people can ask more. Make more off selling the property. You're lining your pockets and we're subsidizing it through city and EDA funds. That's it. Pure and simple. That's what...that's what you're doing on the other one. No difference. Engel: I'm sure we're going to see a plan. Berquist: So when it comes to the Council, it's the EDA's job to determine as to whether or not we really want this thing to go. And we make a decision based on that. Senn: Well that's really what it boils down to. I mean it's either do or don't... Berquist: ...less money by giving more money away. Yes. Mancino: Do you what? Berquist: Do we make less from a tax perspective by giving more away in incentives? Yes. ... start balancing that, do we have to assess? Yes. Mancino: But you may make less by giving more away and I'm not sure that's always true but you may give what you want also for the city as the other part of that compensation. It doesn't always have to be the monetary. It can also be the quality of our city or whatever. Boyle: Well it's a risk. Nancy, you could but on the other hand you might not. ! mean it's a risk. Mancino: Well it's also a risk if we would have said no and they would have had to get private partners and develop it. ! mean businesses do that all the time. 32 Economic Development Authority - June 25, 1998 Gerhardt: No, we would have been chasing him around trying to get industrial users out of that building. We'd be in... that furniture storage... Boyle: Why would we have done that? Because it's not zoned for warehouse? Gerhardt: He can make money renting that out at $4.00 a square foot without taking. Senn: That's right, but as the taxes go up and that land is taxed at the level you tell us downtown land is worth, there's no way he can afford to keep that kind of rent coming in on that and pay his property taxes and get his return. That's where we're supposed to operate from. But we aren't. Gerhardt: He takes his rental records down to the County and shows Orlin, you're absolutely right. This land is worth a lot but this is what I'm getting for it and he'll take it to tax court and won't lose because this is the rental that he has on his property. Senn: No, he won't lose in tax court. He won't. The income method is only one of three methodologies on which to appraise a property. Mancino: ...on my property then. Senn: Yeah, I'm going to pay myself a dollar a year then. Mancino: ...my property taxes are based on my income then, right? So anyway, this has been you know, I'm just bringing it up because aesthetics keep coming back and it's also telling me, ! mean as an EDA. The other thing is, I'm sorry I'm kind of fussy right now because...it's like. So why do we disapprove or approve anything? ! mean what we basically said today is everybody who comes in and asks for a development, redevelopment dollars.., and work it out and so why do we say yes or no. Gerhardt: Because the driving forces in both things were when the Highway 5 corridor study came in, we took pictures. This was the ugliest corridor in the whole city. Staff show us how we can redevelop this area. And that's what we've been doing. That was 7 years ago. We still... Mancino: And I'm saying though, as ! said earlier, the market forces, regular market forces will never accomplish it is what you're saying. Never. Ever. Gerhardt: Well, no. He can wait. You can wait. You can chase them around in the courts trying to get... We can wait. But 2-3 years ago we didn't want to wait. That's why we worked with them trying to come up with a plan that made economic sense for both sides to get this thing accomplished. We presented it. What threw us into the arena was that we were shown one picture and he said he couldn't do that picture so he brought in another picture and we said we don't like that picture. Staff is saying, which picture do you like? 33 Economic Development Authority - June 25, 1998 Senn: In my mind that's only half of the equation. The picture's part of it and the use is part of it. We were buying and paying for an entertainment district and a look and we're getting neither and you're still buying and pay for it. Berquist: ...when someone said if they were putting up the original, would we buy it and ! looked down the line and everybody nodded their head. ! mean why? ! mean if in fact the market. Senn: The original was the original though Steve. It was the original, a totally different concept. Berquist: The only reason...was because ! felt like ! said okay to that deal from the get go. So in looking at the market forces and all of the rest of the stuff that we were talking about, ... about, there was no reason that we should have purely made a decision based on... Mancino: ...the design that we saw and put... Chairman Boyle adjourned the meeting. Submitted by Todd Gerhardt Assistant Executive Director Prepared by Nann Opheim 34