02/29/2016 - City Council Finance Committee
FINANCE COMMITTEE MEETING
FEBRUARY 29, 2016
12:00 PM
CITY HALL
FIRST FLOOR CONFERENCE
AGENDA
I. AGENDA ADOPTION
II. CEDAR GROVE UPDATE
III. CEDAR GROVE 2016 MARKETING PLAN
IV. BUSINESS FINANCING POLICY UPDATE
V. OTHER BUSINESS
VI. ADJOURNMENT
Agenda Information Memo
Finance Committee Meeting
February 25, 2016
II. CEDAR GROVE UPDATE
DIRECTION TO BE CONSIDERED:
To receive an update on the status of development within the Cedar Grove
Redevelopment District and provide direction to staff regarding next steps in that
regard.
FACTS:
• A number of projects have been moving forward within the Cedar Grove District. It is timely
to provide the Committee with an update on specific aspects at this time.
ATTACHMENTS:
• Communications from Morrissey Hospitality on pages 3 through I
.11 Y ^4111.1-
February
11.I
February 15, 2016
Mr. Len Pratt
Pratt Homes
3500 Willow Lake Boulevard
White Bear Lake, MN 55110
Dear Len:
We are meeting today with our two major investors to finalize some questions they have about the
project. They have received Letters of Commitment and after today it is .anticipated they will be
executed. Based on today's nl.eeting it will be determined which of the remaining investors will be
invited to join. the project and Letters of Commitment will be sent to them immediately, We are running a
little late in this phase of the project but other events are happening simultaneously so I still believe
ground breaking on May 23, 2016 is still realistic,
Last week we contracted with CPIvII to review RJRyan's Construction Contract and provide oversight, as
an owner's representative, while the hotel is being built. We also coordinated. with CPM.I and ESG to
insure we would have proper construction oversight from both a structural and architectural perspective
without duplicate costs. This should allow us to guarantee a quality constructed building which is built
on time within its project cost. RJRyan is forwarding its standard Construction Contract to CPMI so they
can begin to review its language. We also have reached an employment arrangement with an experience
General Manager who previously worked for us by coordinating the final construetion.phase and grand
opening ofa property in Minneapolis, He will rejoin Morrissey in early May as the project manager and
then transition into the property's General Manager when the hotel opens.
The major investor's funding is contingent upon us reaching an agreement with the City of Eagan on the
price, terms and conditions of purchasing the parcel of land adjacent to the one upon which the hotel will
be constructed. 1 know you have discussed this issue with the city and are awaiting a proposal. from us.
At this morning's meeting we will be discussing the investor's plan and developing their acquisition
concept. The proposal should be forthcoming before the end of the week,
All other items appear to be consistent with the dates on the schedule in my January 26, 2016 letter.
I hope this answers all of your questions. Let me know if you need any additional information.
SirlceytM1ly,
Philip R. Jungwirth
Chief Fi.naneial. Officer
2000 LANDMARK TOWERS, 345 S►'. PETER STREET, SAINT PAUL, MN 55102-1221
PFI. 651-221-0E315 • WWW,MORPIRRE:YHOSPITAL.ITY.COM
3
February 19, 2016
Mr, Len Pratt
Pratt Homes
3500 Willow Lake Boulevard
White Bear Lake, MN 55110
Dear Len:
Pursuant to Jon 1-lohenstein's February 16, 2016 E -Mail requesting additional information about Morrissey
Hospitality's Hilton Home2 hotel project on Cedar Grove Drive in Eagan please find the following information:
stablisitittg the 1.1.4t, We will be working with Mike Grimes at Briggs and Morgan to establish a Minnesota
limited liability company ("LLC") to hold the hotel property. We have not authorized Mr, Grimes to establish the
LLC because we are in the process of receiving all of the Letters of Comm itment. I would expect to receive the
final outstanding Letters of Commitment next week at which time we will determine when the LLC will be formed.
The Identity of the.%nvestprs;
The following individuals are investing funds to complete the hotel project equity raise:
$1,250,000
$2,050,000
$ 350,000
0 $ 350,000
$ 300,000
$ 200,000
$ 100,000
a $ 250,000
$ 200,000
IMAM
M
Total $5,250,000
Letters of Commitment have been sent to all the investors, We are awaiting their execution and return, which
should happen next week.
Land Purchase Proposal.
I am drafting a proposal this weekend to purchase the parcel of land adjacent to the one on which the hotel is being
built. It will be reviewed by the investors on Monday and forwarded to you as soon as possible. The investors have
been clear about their unwillingness to advance funds to this project without an agreement to acquire the adjacent
parcel of land from the City of Eagan.
Len, I hope this answers Jon's questions. If you or he have any additional questions please let me know.
"e
ti
1 hiii,.p R. Jungwirth
Chief Financial Officer
2000 LANDMARK TOWERS, 345 ST. PETER STREET, SAINT PAUL, MN 55102-1221
Pi{. 551.221-08 5 • WWW. MORR ISSEYHOSPITALITY.COM
Agenda Information Memo
Finance Committee Meeting
February 25, 2016
III. CEDAR GROVE 2016 MARKETING PLAN
DIRECTION TO BE CONSIDERED: To make a recommendation to the EDA regarding the
extension of the Preliminary Development Agreement between the EDA and Pratt
Development relative to the Cedar Grove Redevelopment District.
FACTS:
• In March, 2011, after Doran Companies withdrew from the Doran -Pratt master developer
partnership for the Cedar Grove Redevelopment District, the EDA entered into an Amended
Preliminary Development Agreement with Pratt Development, under which Pratt entered
into a partnership with Cassidy Turley to work as a team to market the EDA -owned property
in the Cedar Grove Redevelopment District. Cassidy Turley has since become part of
Cushman Wakefield and Jim McCaffrey has remained as the company representative.
• The agreement is essentially a listing agreement such that compensation to the team occurs
as broker fee at the time of any sale of property in which the team was involved.
• Since 2013, the Finance Committee has been designated to review the activities of the
development team and the district's progress toward development of the EDA parcels in
order to make a recommendation to the EDA as to whether to extend the agreement. At
the Committee's recommendation, the term of the agreement has been extended on an
annual basis to March 2016.
• Since the EDA and Pratt entered into the agreement, the following property
sales/developments have occurred:
• Paragon/Twin Cities Premium Outlets — 2013/2014 — the TCPO project included the
subdivision and development of the majority of the central area, the relocation and
installation of streets and utilities and the construction of the Cedar Grove Parking
Garage. The team represented the City throughout negotiations, but played a key role
during the due diligence phase, before the project plan became public.
• The Flats at Cedar Grove — 2014/2015 — The Flats property was the first project to come
forward in response to the TCPO development. The apartment portion of the project is
expected to be fully leased this spring. The team marketed the area to a number of
apartment developers before identifying Stonebridge as someone prepared to do new
market rate rental housing in Eagan.
• Home2 by Hilton — 2014-2016 — The Morrissey Hospitality Group was the next project to
be proposed in response to TCPO. It has taken longer to come together, but is expected
5
to break ground later this spring. The team has worked closely with the Morrissey
group, which has not functioned as a primary property developer in the past.
• Ryland Cedar Grove Townhomes — 2015/2016 — Ryland Homes purchased two parcels to
complete the new medium density residential development of the south side of Cedar
Grove Parkway. Construction is underway at this time.
• Inland/Affinity at Eagan — 2015/2016 — Inland Development has received approval for a
55+ active senior apartment project on Outlot A. They are completing PD, Subdivision
and Building Permit application materials at this time, in anticipation of a construction
start this spring.
• Once the closing occurs on Outlot A, the EDA will have two parcels remaining, Outlot B and
the other "half" of the hotel lot between Cedar Grove Parkway and the parking garage.
• Mr. Pratt and Mr. McCaffrey will be available by telephone to overview marketing activity
to date and the materials in enclosed.
• The question for Committee consideration is whether to recommend extension of the
agreement with the development team for another year or to pursue an alternative
strategy with respect to the marketing of the remaining parcels.
• Whether an extension is recommended or not, an additional question is whether the
Committee wishes to suggest preferred uses or marketing direction for the remaining
parcels.
ATTACHMENTS:
• 2015 Cedar Grove Developer/Broker Activity Summary 2016 Marketing Plan enclosed on
pages through 1/ .
ROVf
A .K°STING PLAN
016
Per the summary attached there were many inquiries handled and responded to in 2015. The vision of
high density mixed-use housing with office or retail remains the desired use for Cedar Grove and now
Outlot B in particular as the last major parcel for development.
Several users and developers stepped up in 2015 to present of variety uses. Those ranged from single
story retail, medical, in line retail, a non -full service restaurant, storage, fast food, landscaping amongst
others, all needing surface parking. None of these concepts garnered favorable merit from the
development team. All have fallen short of the vision for maximizing density, valuation and ultimately tax
increment dollars to the EDA,
On the bright side; Inland Development's new senior housing project on Outlot A has recently passed
Council approval and it headed for a spring start. The other positive response over the past many months
has been from Thompson Thrift Development out of Indiana with a mixed-use of retail and market rate
apartments on Outlot B.
Thompson's request for TIF assistance and other concessions ultimately met with incompatibility between
their need for assistance and what the EDA could reasonably deliver. This decision only came after
extensive financial analysis by the developer, the development team, and Ehlers as consultant.
Here is a summary of the electronic marketing blasts that were done thru market volt to the various
groups of users' and developers.
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116/2016 MarketVolt Blast MNCAR, multifamily, retail devs (1067)
11./18/2015 MNCAR Blast 1085 reoiplents
0/ (12015 Mai ketVolt Blast 217 recipients: Retail Developers, Outlot
6/11/2015 MarketVolt Blast
4/27/2015 MarketVolt Blast
2/4/2015 MarketVolt Blast
561 recipients:
Cedar Grove Retail
Multi -Family
Outlot A - Multifamily List
Outlot B - Cedar Grove
Retail Brokers
Retail Developer List
282 recipients: Retail brokers and developers, Cedar Grove .Retail
Retail Devs
Multifamily Devs (637)
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Marketing observations from buyer feedback and or objection to the area were primarily the lack of added
retail demand that has resulted from the TOPO Mall. Cedar Grove Business Center on the Parkway has
not seen any added demand by tenants nor have they seen any bounce in rents, occupancy has
remained steady at 80%.
Initially off to a slow start, the retail component of the Flats has now secured 2 tenants, an insurance
agency plus an athletic apparel store together taking 5300 sf. The Chase team remains optimistic about
filling the remaining space there within 6 months.
The Twin Cities Premium Outlet Mali continues to do very well based on industry Intel.
The second marketing observation relates to the outcome from Thompson Thrifts interest in Outlot B for
high density mixed use retrial and housing. Thompson did extensive financial analysis and asked
for significant TIF assistance to warrant their taking this risk. The resultant delta of dollars needed was
just too great and gives us pause to reflect on what can be accomplished on this Outlot on a reduced
scale or different mix that would be more feasible from an economic return basis to a developer.
Going forward, the focus will be almost exclusively on Outlot B and will continue to be on vertical mixed
uses of retail, housing, medical office, hospitality or possibly specialty grocery. Included also will be
restaurants; free standing or in line with emphasis on a brew pub or sports bar environment.
Discussion had taken place with Thompson on the possibility of vacating Fen Way Street to
accommodate a development footprint adjacent or connect to the existing structure parking. This option
will generate more interest also and hopefully create more demand for the existing structured spaces.
Additional possibilities for Outlot B are health care, entertainment venues, specialty uses, or even
workforce rental housing.
The new development momentum remains strong in the marketplace primarily in the Multifamily sector;
either market rate, senior, or workforce rental housing. Co-op for sale senior product has also been
considered.
Hospitality remains a very viable alternative for this site and those developers and flags are well aware of
the site. Several parties have asked about the Morrissey status as they gauge their interest.
Restaurant operators both local and national will be contacted again to sell the merits of Cedar Grove and
the new construction activity that will be occurring this year with Inland and Morrissey under contraction.
This team looks forward to the completion of this redevelopment area after many years of hard work and
tenacity to bring this to full fruition to accomplish the EDA's vision for Cedar Grove. We are grateful to
have been part of this landmark project.
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Agenda Information Memo
Finance Committee Meeting
February 25, 2016
IV. UPDATE PUBLIC FINANCING ASSISTANCE POLICY DISCUSSION
DIRECTION TO BE CONSIDERED:
To discuss further the priorities for public financing assistance and possible additional
options for such assistance.
FACTS:
• At its meetings on September 22, 2015 and January 13, 2016, the Finance
Committee reviewed the City's Business Assistance Policy, which was last updated in
2014. The Committee discussed policy issues further, but did not recommend any
amendments at that time. The Committee indicated an interest in continuing to
discuss the policy at its future meetings and with the full EDA at the appropriate
time.
• This business item will permit a continuation of that discussion.
ATTACHMENTS: None — Information to be provided at meeting.