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EDA 1997 05 27ECONOMIC DEVELOPMENT AUTHORITY REGULAR MEETING MAY 27, 1997 Chairman Mancino called the meeting to order at 5:30 p.m. MEMBERS PRESENT: Mark Senn, Mike Mason, Mark Engel, Steve Berquist, Nancy Mancino, Gary Boyle and Jim Bohn STAFF PRESENT: Todd Gerhardt, Asst. Executive Director APPROVAL OF MINUTES: Boyle moved, Bohn seconded to approve the Minutes of the Housing and Redevelopment Authority meeting dated March 20, 1997 as amended. All voted in favor and the motion carried. Mancino: Before we get into Visitor Presentations I would like to add something to the agenda and that is at the end of the meeting, ! would like to have a little organizational time to have an election of Chair and Vice-Chair and just review our meeting dates and times. So if no one has a problem with that, and time permitting, we will do that at the end of this agenda. VISITOR PRESENTATIONS: None. DISCUSSION REGARDING THE SALE OF LAND TO MR. BURDICK. Todd Gerhardt presented the staff report on this item. Mancino: Todd, if! can just make it clear. This is the January 16th letter that was signed by Mr. Burdick on 3/27/97 and it basically has the purchase price being $10.00 per square foot of approximately 81,600 square feet for $$816,000.00, correct? Gerhardt: That is correct. Mancino: And it, the letter goes on and has permitted uses. Non-permitted uses. It gets down to architectural review. A little bit about the architecture and what sort of building materials can be used. Talks about taxes and special assessments that the City will be paying, which is $138,000.00 and then who's paying what at closing, correct? Gerhardt: That is correct. Mancino: Thank you. Are there any other questions for Todd at this time from EDA members? Is Mr. Burdick here and would you like to approach the EDA. Could you please state your name and address. Brian Burdick: I am Brian Burdick. Address is 684 Excelsior Boulevard in Excelsior. I'm with Burdick Properties. I'll just make a brief introduction this evening and then be available for any Economic Development Authority - May 27, 1997 questions of course and then I'll introduce Mr. Luke Melchert who will be giving the presentation this evening too so. ! have a little information if ! can take a minute and just pass out to you some... Some of it you may have already seen. Mancino: We're missing a member who hopefully will come in any minute now. Brian Burdick: Thank you. Boyle: Brian, the last time you were here you had to leave abruptly because your wife was having a baby. Was it a boy or a girl? Brian Burdick: It was a boy... You were the only two here but everything went successfully and we feel very fortunate. In the packet, I'm just going to go through it quickly and then let Luke take over.., from there. A very brief presentation outline is being made to deviate a little bit from Mika Milo is not here yet from .... ! suspect he should be here very soon hopefully. He has the drawings and a couple of letters which were presented to the HRA Board members back on March 20th. But the.., people weren't there didn't see those and again an unsigned copy of Todd's letter from January 16th. A copy of a letter from Dan Herbst, who is currently in the 79th Street center in the phase ! building there which is directly adjacent to this and ! think probably everyone knows or has seen that property. And then the site plan concept showing are developed in here so ! think you have a drawing to refer to and again Mika Milo, our architect should be here shortly if we have a few more things just to show you on a conceptual basis. So ! think I'll introduce Luke Melchert and let him take it from here. Luke Melchert: Good evening ladies and gentlemen. My name is Luke Melchert. I'm an attorney from Chaska and please don't let the fact that I'm an attorney be held against Mr. Burdick or myself. We're not here because of anything legal. There are no illegal issues involved with this. I'm just here as a spokesman for, on behalf of Burdick Properties. As Brian said that the last time we were here there were only two of the gentlemen over on the right were here and there was a Gopher game. They were playing UCLA that night so everybody was, attention's may have been, at least mine was ! know, was elsewhere than really here but. So for the two of you gentlemen who were here, hopefully we can make this brief. The rest of you, maybe we can bring you up to speed in what our position is or request would be and we also know that you have a long evening tonight so we will really make this as brief as possible. You'll be hearing from Mika Milo this evening if he makes it through the traffic here. He's the architect who will discuss the site plan and then plans and specifications for what will proposed to be constructed on there. And Henry Ballou, a representative of Brown Intertec who was the soil correction and an expert in the field of soils and stability and what it takes to reconstruct or to improve the soil so there can be construction on it. There were four things that we'd like to accomplish tonight if possible, and one is to arrive at a decision or enough of a direction from the EDA to the Burdick' s and to the staff so that we know we're either proceeding to bring this to closure or not. And because at some point the umbilical cord's going to have to be cut and the Burdick's either go this way or go elsewhere and as would the EDA or Todd have to do. The second we'd show you the Burdick proposal and what's to be built thereon and showing you hopefully why we feel the Burdick proposal is reasonable and in the best interest of the City of Chanhassen. And then do one of two 2 Economic Development Authority - May 27, 1997 things. Either have enough direction so we can go with the existing option agreement or get an extension thereof for a period of time if the direction from you is such that that's in the best interest of everyone. ! might say that the option agreement that was signed was signed for a reason because... Ted from Kraus-Anderson who' s a leasing agent and it was necessary for us to have something in writing to keep the discussions with proposed tenants. And so that is the reason why the option was executed, and to keep officially that we have a continuing interest in the property. It's obvious that every seller. Mancino: So what's the fourth thing? Luke Melchert: Well, maybe ! didn't distinguish between showing you our proposal and the third one was hopefully showing you that our proposal is reasonable and the fourth one was the extension of the. Mancino: Option agreement. Luke Melchert: Option agreement. It's obvious every seller wants to get the best price it can for the property. Every purchaser, buyer wants the lowest price they can get for a piece of property. Hopefully we can show that in-between those two prices that are, there's a reasonable price for land and that's in the best interest of the City of Chanhassen. The Burdick proposal is for $8.00 a square foot or $652,800.00 for the property, which is the same price that Applebee's and Tires Plus paid for their property, which is abutting properties. Those properties needed no soil corrections and it's our observation that even without soil corrections on this property, those two properties you could make a good argument on more desirable because they would have built there on those two properties also before this, the subject property would be built on. And we would request that the EDA be responsible for the soil corrections they determine necessary to complete the construction of the improvements as would be on the approved site plan which would obviously have to be approved by the City Council. So that, they are either through, probably through tax increment, which would mean that the City could then still effectuate the net of $8.00 a square foot for the property. As we all know, and I'd like to bring up Mr. Henry Ballou from the Brown Intertec and just explain to you and show you and you can, now comes Mika. He made it. Maybe why don't we just get, if you can open up to the last page of...concept and we can get Mr. Ballou up here can explain to you and show you on the map where the soil correction, and what kind of soil corrections are necessary in order for there to be any kind of construction on the property. Henry. Henry Ballou: Good evening ladies and gentlemen. My name's Henry Ballou with Brown Intertec and we did some soil borings on this site. Actually the first time was in 1994. That was for the City of Chanhassen. More recently we did three more borings for Brian Burdick. The property in question has some soil correction work that needs to be done. It's not a bottomless pit. There is a bottom to it. It can be corrected. However, correction work in the north building is anywhere from 2 to 4 feet from existing grades. That has to be removed and replaced, probably with sand. We're looking at ground water levels on this site of probably 2 to 3 feet below the surface. We get into the southern building, soil correction work there is anywhere from 4 to 10 Economic Development Authority - May 27, 1997 feet. The 10 feet being towards the east end of that building and you can also refer to your sketches to figure out north and south buildings. Luke Melchert: There is a sketch in the back of the packet... Henry Ballou: Again, soil correction work on that south building is 4 to 10 feet. 10 feet being along the east side. Again, high ground water. It's doable but you're going to need a lot of sump pumps to control water, especially.., remove all this material from the site and they'll have to import clean sand to fill this. Correction work in the parking lots are not quite as extensive. You can probably build over some of this black and softer material but you're going to need some kind of a cushion and a reasonable cushion generally involves a fabric, 2 feet of sand and then your pavement section, which is the Class V and the bituminous. So there will be some sub cutting involved there. Enough to get that section in. We were also asked to get a general contractor to look at our soil borings and provide a rough cost estimate of what it would take to do soil correction work. Soil correction work, the total is about $164,000.00. Now ! should maybe back up a little bit. That includes drain tiling, both buildings, the foundations and below the floor slabs. Because of high ground water, if you get any kind of water pressure underneath there, it's going to end up coming up through the floors. We don't want that to happen. Mancino: And how much would it be for underneath the parking lot? Would there be any reason to? To do some soil corrections underneath the parking too? Henry Ballou: There's some soil correction under the parking lot to get a stable subgrade. Now we're just limiting so you get a 3 foot section in there, roughly. 2 foot of sand and the Class V and bituminous is usually about a foot. So ! mean if the site's a little low, you don't probably have to take anything out. If it's a little high, you cut that down. Mancino: Is that included in the 1647 Henry Ballou: Yes it is. Mancino: Okay. So the 164 is total, total cost first. Henry Ballou: Yes. Then for the drain tiling and the buildings only. It does not include the storm sewer system on the site to collect storm water or any water collected inside the drain tile. And it's my understanding, that could be a range of $100,000.00. (There was someone from the audience making comments which were not picked up by the microphone system.) Mancino: So you're saying. Henry Ballou: That's in addition to the $164,000.00 quote that ! got 2 months ago. Mancino: So we're at 264. 4 Economic Development Authority - May 27, 1997 Henry Ballou: Approximately, ballpark number. Mancino: And would you say that's a midrange? On a scale of 1 to 10, is that, when you say 2 to 10 feet, you know that's a big difference. Henry Ballou: Oh you mean as far as the actual cost of correction work? Mancino: The estimated cost of correction work. Henry Ballou: I think that's going to be fairly typical. I wasn't trying to go conservative and I was not trying to go the other way as well. ! was trying to get the most realistic number ! could. Nobody likes surprises. Boyle: Todd, could ! ask you a question. Is there a high water table along the Tires Plus or Applebee's property? Did we confront the same issue at any time that you recall? He's referring to the high water table. Gerhardt: High water tables, ! mean I'd ask the expert but don't just stop at the property line. There's high water throughout this site. Henry Ballou: ! could maybe interject a little bit. ! did the soil borings and some work out at the Americana Bank when it was being built and ground water was present, although it was a lot slower coming into the soils and a lot better and a lot tighter. The soil borings, when they were left open, as ! recall off the top of my head now, they were like 4 or 5 feet down. So ! believe that site's a little bit high. ! know we dug footings. They stay relatively dry, except for the rain but they had a lot tighter soils. They had really hard clay at the Americana Bank. Mancino: ! don't have any more questions, sorry. Any other EDA member have a question? Okay, thank you. Luke Melchert: Now I'd like to bring up Mika Milo of Mika Associates, our architectural firm. think he's done work in Chanhassen before. He's done work in Chaska. He's an excellent architect and explain to you what the Burdick's proposal is to you and what will be constructed on the property. Mika. Mika Milo: ...Mayor and Council and my pleasure to present...tonight. My name is Mika Milo. I'm a principal in... and when Brian Burdick and Burdicks asked us to take.., enthusiastic about this project because of several reasons. First of all, that is a unique site in the core of Chanhassen. It's very important what is going to be done with that. It's kind of infill site between the rest of the developed properties on the east and north and south. It's somewhat exposed to the highway so obviously it's important what is going to happen here. Good work has been done around that property and.., north of it. But the question is what do we do with this site? This is one reason. The second reason is that that is a challenging problem, both in terms of the site planning and at the same time... In terms of the site planning and also building design. In terms of the site Economic Development Authority - May 27, 1997 planning is that the challenge is that the properties, the other.., a question of what do we do now and for these uses that.., how you can make the design to work as a retail piece. Retail function. Have good exposure. At the same time it's tied up... The visual angles, both of this view corridor from the highway.., and we have been working on several solutions. We have been.., and then we discussed those with the.., and then tie the parking together in-between these buildings. So that's what we... and the buildings facing the street and that will... So we went in that direction just a diagram of that site plan that you have in mind for that property and in terms of the architectural design, the challenge is now presenting that site is also, on the back we have a brick building and block and brick building... On the east side we have a... 79th Street Center, we have been the architect for that building... So that is an interesting question and what we have decided to do, after open minded discussions.., is that we would produce these buildings that will provide a condition and blend between the design elements of the 79th Street and the Applebee's so we are going to have some brick and some elements from the design of the that side to connect them, to blend with some element.., between these properties that is being developed and these on the back.., looks like it's developed in a cohesive manner. So at this time ! would like to point out that all.., is only in the conceptual level. Obviously the Burdick's still have the land.., that's why we are here today and ! can only say from that we would be really pleased and happy that sale is happening because that's the... (There was a tape change at this point in the discussion.) Mancino: ... comfortable and safe, because you know that continues to be a problem with the families with small children that we have walking across huge parking lots. So you figure that out. I'm just telling you now so that if you could. Mika Milo: We did address that question. We had about half an hour discussion at the city planning about that and we did exactly what the conclusion was to do here about this... connected with pedestrian sections. We have... ! have done even some very sketchy concept ideas on the elevation... Mancino: That's okay. Mika Milo: To show you that really there's quite a bit of effort to really do something that will work out. Mancino: Good. Well if this goes further, you'll be going to Planning Commission so that's fine, thank you. Luke Melchert: As you can see there's been an extensive amount of work put into this project already and the proposal as before you, at least in a preliminary conceptual stage, is in accordance with generally accepted principles and what the staff' s recommendations were. One of the problems the Burdick's have experienced here is that, you know it's 1.87 acres to develop this property in accordance with the Chanhassen zoning ordinance, which is parking requirements for area ratios, etc. You can only put up a building of a certain size and in order for them to bring in the mix of tenants to deliver the goods and services that they think are needed, and the citizens of Economic Development Authority - May 27, 1997 Chanhassen want and need, we have to be able to provide this property for them at a competitive rate. If you cannot provide them the property at a competitive rate, the goods and services that the people in Chanhassen want and need are not going to be able to be provided and they're going to buy those elsewhere. And the Burdick's are experienced developers. They've developed here in Chanhassen before. They've developed in Prior Lake and it's their conclusion that to build on this property, they cannot afford to pay more than $8.00 a square foot to build a building they want to talk about. To provide the mix of tenants. To provide the services, goods and services that the people of Chanhassen want in order to be able to provide that at a competitive rate. To be competitive in the market and so that's why their request would be that they get essentially the same proposal, or the same deal that Tires Plus and Applebee's got, which is $8.00 a square foot in the city of Chanhassen. And that Chanhassen prepare the soil so that, as did Tires Plus and Applebee's. They did not need any soil correction to place their buildings on the property. So the EDA, there's no place in the statute that ! could find in checking the Economic Development Authority statute where it says get the best price you can, but ! mean that's what everybody wants to do but your charge ! think is to do what's in the best interest of the City of Chanhassen. And ! think we would submit to you that the Burdick's are ready and willing to go immediately to develop this property as proposed tonight. To bring in the mix of tenants that they really believe that are desired by the citizens of Chanhassen that these goods and services can be provided at competitive rates. Excuse me, yes ma'am. Mancino: Let me just ask you. So you're signing, or Mr. Burdick's signing this agreement to $10.00 a square foot is no longer what he feels he should pay? Luke Melchert: It's not what, it's what he cannot pay in order to be competitive in the market and ! think like ! said, and Brian can explain it further. It was necessary that they sign it in order to continue in good faith with the potential tenants that we still have an interest in the property. But Brian, you may want to. Brian Burdick: ... we signed that agreement simply the way Todd Gerhardt had written it at $10.00 a foot, because we felt we were bordering, almost bordering misrepresentation with the leases that we have going at this point. Not knowing where we're at for time delays...March 20th, which ! will always remember that date. That's 2 months ago. And we have, things have progressed along and we just, we felt very uncomfortable. ! clarified, ! guess ! might have a couple of things. ! clarified when we sent that agreement option to purchase the land back to Todd Gerhardt, that we were not in agreement with everything. We were not in agreement with the price. We set.., that basically are in agreement with all the other requirements that were requested. There's quite a number of them in there and ! think we said that we're in agreement with all of those but we still have an issue on price because we just can't make the numbers work. With the market and what we're.., for leases and we've had some time now on the leases and so forth, it has to be an economically feasible project. The land costs we feel at $8.00 a square foot, hopefully with that, with the soil corrected, hopefully there's some things to be worked out there... Mancino: Okay, then let's start with the letter. The January 16th letter. Do you have a copy of that so we can go through and say exactly what your proposal is, because ! haven't heard it word Economic Development Authority - May 27, 1997 for word. Number one, purchase price. Number two, soil corrections and let's just go through the letter and tell me what you would change and what you would add to it so we know exactly where we stand. Unless you have that written up someplace to give to us. Brian Burdick: Not really. Mancino: Okay. Brian Burdick: I'll start out as... Luke Melchert: It's my understanding, and Brian can correct me, that the letter, they're satisfied with all the letter except that. The dollar paid by Burdick is $8.00 a square foot. That the EDA prepare the soils. Whatever is necessary to prepare the soils so that the buildings or the improvements contemplated by whatever is the approved site plan can be constructed thereon. Other than that, the agreement, the letter is satisfactory to you ! think. Is that correct? Brian Burdick: ! think so. Mancino: Okay. So you are also asking the City to pay another $264,000.00 at this time that you've estimated for soil corrections. Todd, when you subtract the $264,000.00 for soil corrections, how much per square foot is being paid for the property? Gerhardt: Just the soil correction, it's $4.75. Then you must take another $1.69 out for specials that would be in it so it's $3.06 a square foot. Mancino: So didn't we already say in the letter we were going to pay for the specials in C? Gerhardt: Yeah. ! guess I'm getting down to the economic status of what you would net out of it after what you have stuck into the property. Mancino: Okay. So if we take, we start at $8.00 a square foot. We take off the soil corrections. We're down to $4.75. That is what the City would net. Okay. And then you're also saying, if you take out, and we didn't have soil corrections on Applebee's or on Tires Plus we didn't. On Tires Plus we netted $8.50 a square foot with no. Gerhardt: I'm not sure if we had soil corrections or not on Tires Plus. They did not. Mancino: The economic status report says we didn't. Gerhardt: Right. We offered $10,000.00 for soil correction. However, Tires Plus did not submit proper evidence at the time of closing to prove to us that there were soil corrections necessary on that site. That's not to say that they didn't have soil corrections and that they just did it on their own. And Applebee's did have soil correction and were reimbursed their allotted amount for soil corrections as outlined in the purchase agreement. Economic Development Authority - May 27, 1997 Mancino: Okay. I'm just trying to. Gerhardt: And it was $8.50 a square foot. Not $8.00. Mancino: It's $8.50 a square foot, okay. So we're at $4.75 and if you take out the special assessments that we're also paying, what do we get down to? Gerhardt: $3.06 and it does not include soft costs of platting the property, interest, wetland mitigation and soil borings. Mancino: And tell me, on the other properties, and I'll just pick out Tires Plus again, we did pay as a city for the special assessments. Gerhardt: Correct. Mancino: Which was $64,872.00. There were no soil corrections. And were there soft costs also? Yes. $924.31 on Tires Plus, correct? Okay. And they paid $8.50 per square foot. And that's 30,600 square feet. Okay. I'm just trying to figure out what else that we have done. Any other questions at this point from EDA members to Brian or to Todd? Boyle: I have one question. What do we have that would establish a fair market value for that piece of property? Do we have any background? Gerhardt: Well, at our previous two meetings ! submitted a piece of property that Mr. Burdick owned in downtown that sold for over $10.00 a square foot. And ! used that as my basis for determining value. And also taking into account that the sale to Tires Plus and Applebee's was two years ago so ! took a 10%, if you take a 10% inflation factor into that, you are at the $10.00 a square foot. So ! used the Burdick sale and 10% inflation. Luke Melchert: May I respond to that ma'am? Mancino: Sure. Luke Melchert: The Burdick sale was to the bank, was that not right Brian? And it's our understanding in the industry, banks will pay far and above fair market value for property just because they want it. Brian Burdick: ... Todd that used that as a comparable but ! think there are a lot of others in town too that are probably better as comparables than that. We had our appraiser, this is the Richfield Bank and Trust location that you're all familiar with and simply put, we had our appraiser look at it and in his words, quote, banks pay double. He appraised it at about 6-6.50. We had full intention of keeping that property and developing and putting a building on there. The bank, Richfield Bank has a lot of money and they paid us nicely for it. Mancino: I'm not sure I like knowing that. Excuse me. I'm not sure I like know this. Go ahead. Economic Development Authority - May 27, 1997 Brian Burdick: You know another comparable...would be some other land that we sold on the Target site to the City and the HRA at $4.00 a square foot. There were six lots there. They were... Target development and that was at $4.00 a square foot. Again, Applebee's and Tires Plus locations are obviously directly east of the property and good comparables. And there's some others that are in the range that we're asking for. Mancino: And that's what we're looking at too. We're looking at the Applebee's and the Tires Plus mostly. Luke Melchert: May ! make one more observation. It seems to me you were concerned about what the net to the City would be and I'm bringing in tax increment now and ! think that's part of the reason tax increment was involved or brought into or adopted by the State under 469.101 Subd. 18. It clearly says an authority may fill, grade, and protect the property and do anything necessary and expedite after acquiring the property to make it as suitable and attractive as a tract for economic development. And it seems to me that because of the Applebee's and the Tires Plus property, this is a clear candidate for tax increment financing, which still gives you the net of $8.00 a square foot then if you can look at it that way. And the rest of the State of Minnesota through the school districts and that is actually paying for that more so than the citizens of Chanhassen. It may be a bad way to look at it but we cannot deny the fact that God created this property with a major defect in it. There is substantial soil correction that is needed, of which a lot of the properties, a lot of the neighboring properties would not require. Mancino: Okay. Brian Burdick: I have one more.., and that's about the letter from Todd Gerhardt of January 16th. One other error you might see on the front page would be just due to the time.., if you could look favorably towards our project, we'd like to look at the dates under item number 2. And it would be perfectly acceptable to us if we could just start the agreement the way it's been written, perhaps June 1st of this year. Starting the initial 6 months and then we'd be willing to follow through...to extend an option for 6 months and pay the costs of $5,000.00. Mancino: Okay. Luke Melchert: If ! may just conclude with one last statement. We thank you very much for your attention to this matter and would appreciate it if you could give us some definitive direction tonight, if not a decision and maybe with a parting thought, you know the bottom line dollars is not always what is in the quote, best interest of the city. We happen to believe that getting the proposal going, starting the construction just as soon as possible will get the tenants in there to provide the goods and services that the citizens of Chanhassen needs, merits a certain amount of consideration also. Thank you. Mancino: Thank you very much. Is there anyone here tonight, anyone else here tonight wishing to address the City Council on, the EDA on this issue? Okay seeing none, comments from EDA members. Jim. 10 Economic Development Authority - May 27, 1997 Bohn: A year ago the HRA at the time said we weren't going to give any incentives on any property we own, including that property. And we put it up for sale for a price and no corrections, no soil corrections, no anything. Sell it as a piece of property and that would be the end of it. And do with all of our property including the property where Pauly's was. Sell it as is. We made that decision a year ago. Maybe it was even longer. Mancino: And that was based on? Bohn: That we want, where our funds were and where we were at the time in financing and we would just contend the.., so we were just going to set a set price. Whatever they could do with it, they would do with it and what they can afford, they can afford. Take it or leave it. The land's going to be there. Mancino: Okay. Gary. Boyle: I'm still a little confused about the fair market value. What's the property really worth? And ! think we're obligated to get the best fair market value of the property. And secondly, to use, it's in the best interest of the City to put the right parcel on that property. In other words, the right maybe not another eating establishment. Maybe retail, which ! do like the idea of retail. What's the best use of the property? There's two things. What's the best market value? What is the right market value? And what's the best use of the property? And those are the two issues as ! see it. Mancino: And do you still feel comfortable with the permitted uses in the letter of January 16th? Boyle: Yes. Mancino: Steve. Berquist: I was present at the HRA meeting where the land price was discussed as to whether or not raise it, lower it or leave it the same. I'm still of a mind to leave it exactly where it is. I'm a little bit offended to be honest with you that we have a signed purchase agreement that makes no specific reference to problems. There's talk, nebulous talk about necessary soil corrections but there's nothing specific. We have a signed purchase agreement that's now being, attempting to be renegotiated. I see the applicant has put a lot of time and money into the proposal before us. I look at that piece of land as virtually the last piece of land on the north side of Highway 5 within what I would call our business core and it has a value. Mika Milo, the architect specifically said it's a unique site in the core of Chanhassen. That in and of itself has worth. Now it's surrounded by built in traffic with Applebee's and your other development to the, this other development directly to the east of it. The first lots go for less. Last lot goes for premium. That's sort of the way I look at it. I think there's additional value there. I'm in favor of hanging the $10.00 a foot with no soil corrections. Mancino: With no soil corrections. And everything else staying the same? 11 Economic Development Authority - May 27, 1997 Berquist: Everything else being the same. Mancino: Except for dates. Berquist: Except for dates. There is no urgency for the city necessarily to sell that piece of land. ! mean as silly as it sounds, it has value to the city as a storage facility for snow in this climate. So you know. Mancino: Okay, thank you. Mr. Engel. Engel: I'm inclined to just leave it. If it's here a year from now and no one's bought it at what we think is the fair market price, I'd entertain lowering it but ! think we can, as Steve said, there's no urgency to sell it. If we think the price is $10.00, put it on the market and see if it gets it. If it doesn't, take it up later. ! don't have a lot to add. Mancino: Okay. Mr. Mason. Mason: ! concur with the comments that have been made so far tonight. Mancino: Okay. Mr. Senn. Senn: Well, ! guess no disrespect intended but ! guess ! can't agree at all. You know, ! don't know. Heaven forbid the reference but this is my business and even though ! kind of avoid practicing in Chanhassen, ! practice it all around Chanhassen. You know in my mind there's a lot of market information that's there and already available that's being ignored. You know the bank property is not a good comp. In any situation that would be thrown out just as the low comp would be thrown out. If you look at other sales in the area, the only sales in the area even in the $8.00 a square foot range are our two parcels. That's it. Geez, ! don't know. ! have a piece of ground that's at the intersection of Mitchell and Highway 5. It's been for sale at $8.00 a square foot for over 2 years and hasn't sold and quite honestly that's a little higher value property than this is. By normal market conditions. This property has been for sale for a long time. It was being offered for sale at the same time that Tires Plus and Applebee's was being offered for sale. There was in fact an interested party on this property who walked from the deal because they couldn't afford to build a Fuddruckers restaurant on the site. Mancino: Or they didn't want to be next to Applebee's. Senn: No, they couldn't afford the site. ! talked to the guy from Fuddruckers. In fact we deal with him on a deal in Eden Prairie. They walked from the site because they couldn't afford the site. Boyle: They couldn't afford the site at $8.00 a square foot? 12 Economic Development Authority - May 27, 1997 Senn: Right. Given our requirements and coverage ratios and everything else, they couldn't. Now again, Fuddruckers has, out of all fairness, you know their cookie cutter that they look for and other people have their cookie cutters and some cookie cutters can afford more than other cookie cutters can. ! mean the one thing for sure that ! would agree with Mr. Burdick on, and ! can only run my own set of numbers but ! certainly as a commercial developer couldn't afford to develop this parcel for any purpose at $10.00 a square foot plus the soil correction costs. So ! mean really what it gets back to in my mind is an issue of how you want to view this, and ! think going through the way I'm viewing it is we have been trying to sell it for quite some time. I'd like to see it get back on the tax rolls, and I'd like to see it get back on the tax rolls sooner rather than later. The property right on Highway 5 in Chanhassen hasn't sold for as much as we sold these two parcels for. So again, out of all fairness, these are small parcels compared to some of the parcels on Highway 5 which are larger parcels. So you stick in the discount factors for that, and you know it starts to make some sense. You know like ! say at the $8.00-$8.50 a square foot range but there's no way ! can get it to force up to that when you can go buy property on Highway 5 for $6.50. Mancino: Well this would actually be $4.75 if you want to sell it at $8.00 and do the soil corrections. Senn: And Nancy, it depends on how you structure the deal. You know quite honestly and ! mean I'm just trying to right now talk about pricing of the land versus the other issues. As far as the land goes, and again all ! can do is equate it to my knowledge based on the market. That's all ! can do and that's all ! can judge on. To me $8.50, given what we've gotten off the other parcels is a reasonable price. Soils corrections is a reasonable issue because $8.00 to $8.50 doesn't assume in current market a lot of soil correction. But at the same time ! don't, I'm not going to say ! agree with all the soil correction numbers either. You know in my mind a fair deal would be something around $8.50 a square foot for the land with maybe an allowance of $150,000.00 towards soil conditions on a proof basis. If costs go over that, they pay it. But then on top of that I'd also stick a caveat, and this is retail land and not in keeping with where we've been trying to go with it right now but so I'd say no TIF. Which takes the other thing out of the equation. And also gets the property back on the tax rolls. Which I'd like to see happen, and again like ! say sooner rather than later. But ! don't know. ! think we're just kidding ourselves if we're going to talk about $10.00 a square foot and waiting for $10.00 plus soil corrections. It's never going to happen. It can't happen under any economic scenario that I'm familiar with or have been familiar with for the last 25 years in this business. And ! think it's our job to get this property back on the tax rolls. We don't buy property to hold it forever to raise values. We buy property to turn around and return it to the tax rolls at a higher value than what it was previously used for. So that's just my thoughts. Mancino: Todd, a couple questions. Are there any interested other parties in this land and how interested, and etc? Gerhardt: ! fielded over the last 3 weeks 3 phone calls. One restaurant, one hotel and one office building. Professional. Medical. 13 Economic Development Authority - May 27, 1997 Mancino: And has there been any follow-up to the phone calls or are these just preliminary? Okay. Gerhardt: The restaurant.., due diligence. The medical professional building is adding it to a potential site. Doing site visits with their... The hotel user, it just wasn't big enough and our ordinance doesn't allow them to go... Mancino: And is there any TIF for Tires Plus or Applebee's? There isn't is there? Gerhardt: There isn't TIF for Tires Plus. There is... small percentage. It's either 25 or $35,000.00 to help offset their sewer and water hook-up. Their building that they came in with $99,000.00. The HRA at that time agreed to help offset those costs. Mancino: Special assessment assistance here of $25,000.00. Okay. (There was a tape change at this point in the discussion.) Gerhardt: ... SAC units are unbelievable for a full sized restaurant with the hook-up. That's why Pauly's is so interested in the bowling center. They're just incredible at that site. That would reduce the.., dramatically.., brand new facility. When you talk about building a million dollar.., it helps your long term budget. Mancino: Okay. Gerhardt: And the soonest ! think that Mr. Burdick could get a full value building was 1998 and taxes paid in the year 2000. That's the last year...this district collapses in the year 2000 so it's really not our policy of the HRA. Lately it's been...with the exception of, when ! say...take into account like Applebee's of $25,000.00 a minimum. But it's the direction that we received that we do not want to provide assistance to commercial use. Mancino: Okay. Let me just sum up a couple of my thoughts and that is looking at Applebee's and Tires Plus, which is the land directly west, and seeing that a year and a half ago, two years ago, 995, ! think they were paying $8.50 a square foot, which we have in front of us with no soil corrections costs that the city needed to pay. And the city also.., special assessments to each of those properties, which ! think is fair to the Burdick's. But I, myself would say somewhere between $8.50 a square foot, which was 2 years ago and $10.00 is fair. And no soil correction costs would the city pay but we would pay again the special assessments. The $138,000.00 as we have done for those two sites next to it. I'd like to see it get on the tax rolls. ! like the concept. ! think Mika does a wonderful job, and certainly does know where our city wants to go as far as some of the retail areas and the pedestrian friendliness and the architectural work and design work that he's done. So ! would like to see this go further, no question. But ! do not accept the $8.00 a square foot and then the $265,000.00 worth of soil corrections that the City would have to do too. Do we need a motion on this to give further direction? Todd. 14 Economic Development Authority - May 27, 1997 Gerhardt: ! guess I've heard direction from the EDA members. ! don't think you need a motion.., change their mind. Mancino: Any other discussion or anyone else would like to say anything? Steve. Berquist: Let Brian talk first. Brian Burdick: Could ! say a couple of quick things? Mancino: You bet. Brian Burdick: Thank you. Just a couple of comments after hearing all your comments. Thank you. To Mr. Berquist, that was not our intention at all, ! apologize. All ! can say is ! apologize when you commented on signing the purchase agreement. We were not trying to be misleading in any way. I'm listening to some of the things and ! guess we are, we're open to consider a compromise. Listening to Mr. Senn's comments, ! believe if! have it correct, you stated at $8.50 a square foot for the purchase price with an allowance idea of $150,000.00 for the soil corrections. Whatever they may be. I'm sure that's going to be used up, from what we know and so forth too so that may be, that's something we would consider looking at that and ! guess if I'm understanding everyone correctly, TIF just does not sound like an available option. Mancino: No. No. And ! would also say that ! would think that the majority of the EDA members who voiced their comments, you would not get a majority that would say yes to $8.50 a square foot plus $150,000.00 for soil corrections or some assistance. And if anyone else would like to talk to that, you may certainly. Berquist: Well, we're negotiating in public here so what I'd like to do. Well first of all, when first got a copy of your letter Brian, ! read it and ! thought great. We got a deal. Some small details need to be worked out. Because in looking at how the letter is written and how it is worded. Brian Burdick: You're referring to my letter that accompanied the. Berquist: April 8th. Brian Burdick: Okay. I'm sorry ! don't have a copy myself right in front of me but. Berquist: Well let me paraphrase. The option currently remain as per your original offer and recommendation. Brian Burdick: Okay. The reason we stated it that way was we are at such a point with many credit worthy, national tenants for this project that we simply felt we had some very good tenants that we're looking at, I think would be a very good mix with the city. Certainly bringing in money and property taxes on a $2 million development. We did not want to make any changes to Mr. 15 Economic Development Authority - May 27, 1997 Gerhardt's agreement feeling that we're going to border misrepresentation. We do not have even an option or any control for that property. We were concerned. Berquist: Okay, thank you. Well here's, given the position that we're in, here's what ! would offer for the Board's consideration. ! would offer that we authorize sale of the property at $9.50 a foot with $100,000.00 maximum out of city expense for soil corrections. If it's more than that, it's on the developer's end. If it's less than that, it doesn't get spent. ! fully expect it to be spent. $9.50 per square foot for the land and have him run the numbers, with a maximum exposure of $100,000.00 worth of soil corrections. We still end up with the specials. Assuming the specials. And everything else, there's no TIF. There's no other incentives. I'd make that in a form of a motion. Mancino: Would anyone here like to second the motion? Engel: I'll second it. Mancino: And take us a little bit of time to think about it. All those in favor of the motion signify by saying aye. With discussion first. Mr. Senn. Senn: You have a calculator here, don't you? Give me $9.50 a foot times the $75,000.00. Gerhardt: $712,500.00. Senn: Okay, take $100 from it. Gerhardt: 612. Senn: Take 138 from it. Gerhardt: What was the second one there? Senn: 138. Gerhardt: $474,500.00. Senn: That's fine with me. It's precisely what ! suggested before. It's a different way of getting there. My number was $487,500.00 is what my proposal came to. Mancino: Gary. Boyle: Just one question. If the motion carries and voted, Todd does that mean Mr. Burdick could not come back with a compromise position? Say at $9.00 and something or whatever. Mancino: No. He could come back. 16 Economic Development Authority - May 27, 1997 Boyle: He could still offer another. What happens? What's the result once we make the motion? Does that establish the price, and that's the only price that this authority will accept? Gerhardt: ... purchase agreement but I mean you know.., always look at. Mancino: Are you establishing a price or are you establishing that as a guideline and then to work out other details that need to be worked out? Berquist: I'm establishing, my intent is to establish it as a price. Senn: Really what you're doing is you're establishing a counter offer which you're extending back. Berquist: Now if Mr. Burdick chooses to accept it. Senn: Yeah, but I had $8.50 and I had the $150 out for soil corrections but I eliminated the TIF and the special assessments so I mean it really comes out to the same numbers. Gerhardt: ...special assessments. Senn: Well that's TIF, right? Gerhardt: No. Senn: Oh, you mean you're not doing the special assessments through TIF? Mancino: There is no TIF. Gerhardt: It comes off the purchase. Senn: So you're subtracting that off the purchase before the TIF enters the equation? Gerhardt: No. Included in the $10.00. Senn: Okay... so that's fine. Brian Burdick: Could I mention one point please? After Mr. Berquist's comments. Would it be acceptable to have the revised dates that I spoke about due to the delays we've had and so forth? On getting the option to purchase... Mancino: Would you like to add that onto your motion? Brian Burdick: Beginning the option to purchase as we proposed starting June 1st for the first six months and then if we should need an extension, by paying $5,000.00 for one additional six month extension. 17 Economic Development Authority - May 27, 1997 Berquist: How much are we paying, how much are you paying for the option, 5 grand? Brian Burdick: Yeah. Senn: One six months. Brian Burdick: In six months. Senn: ! would say if they want an additional six months then we should get an additional payment. Berquist: Well ! would, how did we come up with $5,000.00? Brian Burdick: That's the way it was written to us. Mr. Gerhardt proposed that. Berquist: Yeah, I'd just as soon up it. Is there an industry standard? Not that ! care. Mancino: But he's asking. Senn: On a deal like this. Probably about 5%. Engel: 30 grand. Berquist: Yeah, ! would up the, ! don't have a problem changing the dates but ! will up the option price within the context of the motion to $30,000.00. Gerhardt: So one six month. Senn: Well okay, were you saying the, ! thought you said you'd leave the dates as suggested, which actually gives them a year. Yeah, which would be fairly normal. Berquist: Right. Mancino: Any other discussion? Would you state your motion again please. Berquist: ! really wish ! had a calculator so ! could run these numbers myself but I'11, here's my motion. Is the machine on? Brian Burdick: Can ! make one more clarification please? My understanding was that we have a one year option to purchase this property. For the first six months there is no monies paid. If the option is to be extended for one additional six month period, there would be a $30,000.00. Is that correct? Mancino: Yes. 18 Economic Development Authority - May 27, 1997 Brian Burdick: Okay, thank you. Berquist: And that brings up a question to me. We're signing a purchase option with no monies paid? We're giving you the option of marketing the property, of going out and negotiating leases, putting the deal together with no up front costs, aside from obviously the architect and your. Brian Burdick: We've spent a lot of money on this project honestly. We can't afford to spec this whole project so it's kind of a mix if you will. We're not willing to spec a $2 million project without having the opportunity to go in and look at these leases and so forth. We need some time for that. Berquist: So there was no down, there was no option payment required within the context of your agreement that was originally sent out? Gerhardt: ! don't believe there was. Brian Burdick: There was not any. Mancino: Okay, we need to get closure here. Would you please state your motion? Senn: Why don't you do $5,000.00 on the first six months and add a $25,000.00 is they want the extension. Berquist: Okay. Senn: Then you've got something up front. You have to have some consideration to make it a contract. Berquist: Give me a moment please. Mancino: Brian, if you'll take your chair. We'll go ahead with this. As Mr. Berquist is writing furiously, we will need to continue this meeting and in just a few minutes we'll decide when and where. Berquist: According to my illustrious comrade here. Comrade. That's probably a poor choice. What am ! missing? I'm coming out at $9.50 a foot, $100,000.00 for soil correction. $138,000.00 for specials. That's $537,200.00. Engel: Yep, that's what I net. Berquist: Well you had said 4 something or another. Gerhardt: Mark came to 475. 19 Economic Development Authority - May 27, 1997 Berquist: Okay, $537,200.00. That's where ! want it to be. ! wanted to be in the $550 range. Okay, here's the motion. That we offer to sell the property, the details within the staff report for $9.50 a square foot, which totals $775,200.00. With allowance of up to $100,000.00 worth of soil corrections. Any less than that we don't pay. Any more than that is on the developer's head. We assume $138,000.00 worth of specials. Special assessments currently against the property. Mancino: What are we netting for square footage? Engel: I'll get that. Berquist: Mark's figuring that out. For the price of this offer we will require a down payment, or an option price of $5,000.00. For a six month extension, that's from June 1st onward, for a six month extension, which would commence on December 1, 1997, it would be another payment of $25,000.00. Or on December 1st the option may expire and the property's back on the sale block. Is that specific? Gerhardt: The money would then reduce the purchase price.., included in the $9.50? Berquist: The option, the costs, the option costs paid would be part of the purchase price. Gerhardt: Okay. Included in the $9.50. Mancino: Okay, is there a second to the motion? Engel: I'll second it. Berquist moved, Engel seconded that the EDA offer the following terms for the sale of Lots 2 and 3, Block 1, Crossroads Plaza Third Addition to Burdick Properties: Sell the property, for $9.50 a square foot, which totals $775,200.00 with an allowance of up to $100,000.00 worth of soil corrections. Any less than that the City doesn't pay. Any more than that is the responsibility of the developer. The City assume $138,000.00 worth of special assessments currently against the property. For the price of this offer the City will require an option price of $5,000.00 June 1, 1997 onward. For a six month extension, which would commence on December 1, 1997, it would require another payment of $25,000.00. Or on December Ist the option may expire and the property's back on the sale block. All voted in favor and the motion carried. Mancino: We need to very quickly here, because we're in City Council time. Senn: Could I move to table the rest of the HRA agenda until after the Council meeting? Mancino: You're wanting them coming back after the Council meeting? Boyle: I can't do that tonight. How long, it could be 10:00-11:00. 20 Economic Development Authority - May 27, 1997 Mancino: Yeah. Senn: Oh that's right. Mancino: What about. Boyle: Is Mancino: I'm sorry. I forgot about you guys. this next issue going to take long? No, but we're already 15 minutes past. tomorrow night at 5:307 Mason: I Mancino: see if you Boyle: ! can do that. Bohn: ! can. Senn: I can't. Mancino: You can't? And we need to vote. What about for an hour won't be here but if I'm the only one. Would everyone else please take one second to look at your schedule right now and could be here for an hour tomorrow night at 5:30? Senn: No. I've got a 50th birthday party. Mancino: You can't make it either? Okay. What about, because that's two. What about Thursday night? We're just trying to figure out a time to continue this meeting. Gerhardt: Well the best thing you probably could do is, is really to table this next item.., and approve Bills and adjourn. Mancino: And then wait until the next EDA meeting? Gerhardt: And then we'll just hit the next one. ! think we had leeway on it... That's what ! would suggest. Mancino: Okay, thank you. I'm very sorry and want to apologize to the people that are here waiting for the City Council meeting to start. We are still in our EDA meeting and will close it right now. May ! have a motion. Mason: Well are you going to approve bills? Mancino: Yeah. 21 Economic Development Authority - May 27, 1997 APPROVAL OF BILLS: Mancino: May I have a motion to approve the bills and a second please. Mason moved, Engel seconded to approve the bills of the EDA as presented. All voted in favor and the motion carried. CONSIDER PAYMENT TO DEAN JOHNSON REGARDING THE OAK PONDS DEVELOPMENT. Mancino: Then may ! please have a motion to table consider payment to Dean Johnson regarding the Oak Ponds Development to our next EDA meeting, which will be when Todd? Gerhardt: The next one is to be June 23rd. Mason moved, Engel seconded to table consider payment to Dean Johnson regarding the Oak Ponds Development to our next EDA meeting. All voted in favor and the motion carried. Chairman Mancino adjourned the Economic Development Authority meeting at 6:48 p.m. Submitted by Todd Gerhardt Asst. Executive Director Prepared by Nann Opheim 22