11/14/2006 - City Council Finance Committee (2)FINANCE COMMITTEE MEETING
TUESDAY, NOVEMBER 14, 2006
7:00 A.M.
CONFERENCE ROOMS 2A & 2B
I. Agenda Adoption
II. Cedar Grove Redevelopment District / Discuss Options
for the Development of the Core Area of the Cedar
Grove Redevelopment District.
III. Discuss Funding Alternatives for Environmental Clean
Up Required as a Result of the Site Assessment Project.
IV. Homestead Market Value Credit
V. Adjournment
city of eagaR
TO: FINANCE COMMITTEE:
MAYOR GEAGAN AND COUNCILMEMBER CARLSON
FROM: CITY ADMINISTRATOR HEDGES
DATE: NOVEMBER 13, 2006
MEMO
SUBJECT: FINANCE COMMITTEE MEETING SCHEDULED FOR TUESDAY,
NOVEMBER 14 AT 7:00 A.M.
It was determined by members of the Finance Committee on Thursday, November 9 that a
meeting of the standing committee be scheduled for Tuesday at 7:00 a.m. to discuss the Cedar
Grove Redevelopment District to discuss options for the development of the core area of the
Cedar Grove Redevelopment area. There will be Caribou coffee and pastry available!
At the regular Economic Development Authority meeting on November 9, 2006 there were a
range of options provided to the EDA as to how the City should proceed with Schafer
Richardson who is the master developer for the core area of the Cedar Grove Redevelopment
District. The developer did not meet the October 23, 2006 deadline set by the City Council to
submit Phase I plans described in the amended development agreement and it is necessary for the
City to determine how to proceed in light of that circumstance. Any change will alter the vision,
challenge the Cedar Grove Redevelopment zoning requirements and beg the question regarding
market supportability. At the EDA meeting there were five (5) options presented for
consideration and the EDA approved Option 1 in receipt of information and took no immediate
action which has been expanded to direct a review and further recommendation by the City's
Finance Committee.
For a copy of the information that was submitted with the EDA packet, please refer to the
attached on pages 155-A — 155-I.
Item 3. Discuss Funding Alternatives for Environmental Clean Up Required as a Result of the
Site Assessment Project.
At the November 9, 2006 City Council meeting action was taken to authorize cooperation with
the Dakota County Environmental Services in a site assessment project for the Cedar Grove
Redevelopment District. Dakota County Environmental Services staff has worked with a number
of cities to assist in the identification and sampling of environmental challenges found with
public redevelopment projects and to advise with respect to remediation. While the Phase I and
Phase II Environmental Analysis for the core area in the Nicols Ridge subdivisions have been
completed, the County staff can be available to identify properties that are demolished, excavated
or improved to confirm environmental conditions or analyze any new conditions that arise during
construction.
Funding for environmental clean up could become a financial issue if certain environmental
conditions are identified require remediation. City staff is aware of programs that exist with
MPCA, DNR and Metropolitan Council and other State and regional agencies.
The purpose for including this on the agenda is to provide a brief discussion about the funding
alternatives that are available to the City.
Item 4. Homestead Market Value Credit.
At the Listening Session on Thursday, November 9 there was direction given to contact those Cities
that were surveyed back in September, whether they intend to propose in their preliminary levy an
amount equal to the loss of the market value homestead credit. Attached and referenced as page 3
is a copy of the original e-mail that was shared with the City Council dated Monday, September 18,
2006. This item will be on the MLC agenda for this coming Wednesday, November 15; the
meeting that the City Administrator chairs so an update should be available following that meeting.
Also mentioned at the Listening Session on Thursday, it is the intention of the MLC to push
legislation that will reform homestead market value credit by making a payment direct to the
homeowner. This item was added to the Finance Committee for discussion if times permits.
Agenda Memo
Eagan Economic Development Authority Meeting
November 9, 2006
1. CEDAR GROVE REDEVELOPMENT DISTRICT — UPDATE
REGARDING STATUS OF COBE AREA REDEVELOPMENT
AGREEMENT WITH SCHAFER RICHARDSON
ACTION TO BE CONSIDERED: To receive an update on the status of the TIF
Development Agreement between the City and Cedar Grove Development Corp for the
redevelopment of the core area of the Cedar Grove Redevelopment District.
FACTS:
® The City has taken steps to bring about the redevelopment of the Cedar Grove
Redevelopment Area, including public improvements, environmental reviews,
comprehensive plan and zoning modifications and the execution of development
agreements that are resulting in the construction of new private development
consistent with the City's plans for the area.
• Under the TIF Development Agreement between the City and Cedar Grove
Development Corp., which was approved by the EDA and City Council at its meeting
of January 17, 2006 and amended.on May 16, 2006, the developer and the City set
out dates for several actions that will lead up to the commencement of the .
redevelopment of the core area. They include dates for the submission of a Phase I
Site Plan, submission of a development application, submission of written affirmation
of an intent to proceed with the development and a deadline for the purchase of the
Cedarvale Mall by the developer from the City.
As the Developer's staff proceeded with preparation of the Phase I Site Plant and
approached the deadlines in the May 16 amendment, they identified issues that they.
wanted to address prior to proceeding with the submittals. Those issues relate
generally to the results of an updated market study, additional input from prospective
commercial tenants about the layout of the commercial segments of the property and
project cost analyses.
The Developer requested and the City approved a Second Amendment of the
Development Agreement on July 18, 2006 -that extended the deadline for submission
of the Phase I Site Plan to October 23, 2006.
Tn the meantime, the City proceeded with the acquisition of the Cedarvale Mall and
the tenant relocation activities and continues to negotiate for the acquisition of other
properties in the Redevelopment Area.
As of the date of packet preparation, the Phase I Site Plan has not been received.
®T ge of options available to the City at this time include:
1. Receipt of information and take no immediate action;. or
Authorize; Negotiation — As outlined in the developer's letter, the City may
seek to identify sources of additional financial assistance to close the
perceived gap; or
e 55- A
3. Negotiate Placement of Cedar Grove Development Corporation Proposal
on Hold and Solicit Proposals from Other Developers — Without declaring
default, the City may request that the developer place its proposal on hold
to permit the City to solicit proposals from other developers. If the City
were to pursue this alternative, it would be predicated on its ability to
terminate the development agreement, if it finds an alternative proposal to
better fit expectations for the redevelopment area; or
4. Seek Termination of Development Agreement If the EDA and Council
determine to take this action, it should provide direction to solicit an
amicable termination of the Development Agreement with the Developer;
or
5. Declare Developer in default and provide notice of default to Developer.
Developer has 30 days to cure the default to prevent the Agreement from
terminating.
ATTACHMENTS:
• Developer's letter on pages through
• Staff memo on pages through
• Area map on page
• Approved site plan on page
Schafer
A
LN Richardson
November 2, 2006
Mayor and City Council:
Thank you for the opportunity to work on the Cedar Grove project over the past several
years. We.have enjoyed working with you, your staff, and the City's consultants to
make the redevelopment of the Cedarvale Mall and the surrounding 70 acre area an
asset to the City of Eagan and the region.
The site plan which you saw and. approved as part of the development agreement
turned out not to be supportable in the current market. Specifically,
• Market conditions for for -sale housing have worsened substantially. As you know,
condominiums and townhomes were a large part of earlier site plans.
• The amount of freestanding commercial space - which is more feasible than
residential space in the current market - needs to be increased. However, it is
limited by traffic constraints and the City's design guidelines for the area.
In an effort to make the project more market supportable, we made several changes to
the proforma:
• We replaced some condo units with rental units,
We replaced condo units with senior housing units, and
We increased the amount of commercial square footage.
We do not feel that the project as it is currently structured is feasible. Over the past few
months, we have spent considerable time testing different mixes of land uses to attempt
to create a redevelopment plan which is market supportable and successful. Some of
these changes are:
• We increased the land price for townhome lots,
• We increased the land price for commercial land, and
• We increased the market values for the townhome units and commercial land,
which increases the amount of TIF available.
After all these changes, the project proforma still has a considerable financial shortfall,
and it puts too much risk on us as the developer. The project currently has a gap of
over $2 million, and the gap for Phase I -- the most critical phase for financing and
marketing the project - has a much larger gap still.
1 Real Estate Development
500 BPP J,5 Building 615 First Avenue NE
Construction
Minneapolis, MN 55413
1!��O,
IN Investment 1 0 Leasing & Management
Phone 612.371.3000 Fax 612.359.5858 www.sr-re.com
Mayor and City Council
November 2, 2006
Page 2
We believe that additional financial assistance- from the City is required to make the
project work. We ask that you consider:
• Carrying the land acquisition costs or providing a loan to us for this,
• Waiving park and trail fees,
• Paying for relocation expenses,.
• Paying for off-site traffic improvement costs, or
• Other ways to reduce project costs and/or carrying costs.
We are not set that any of these is necessarily the answer, but additional assistance is
needed to make the project feasible for us.
We hope to make the Cedar Grove project work, but we are prepared to work with you
to part company amicably in the event it does not. We believe the project could be a
great one, but it may not be the right project at this time.
Sincerely,
Brad Schafer
President
J 'S��
zCity of EaRan ma
TO: MAYOR GEAGAN ARID CITY COUNCILMEMBERS
TOM HEDGES, CITY ADMINISTRATOR
FROM: JON HOHENSTEIN, COMMUNITY DEVELOPMENT DIRECTOR
SUBJECT: CEDAR GROVE CORE AREA DEVELOPMENT AGREEMENT
UPDATE ARID REQUEST FOR DIRECTION
The purpose of this memo is to outline the status of the Cedar Grove Core Area
Development Agreement between the City and the Cedar Grove Redevelopment
Corporation, the Schafer Richardson partnership that was formed to act as the
master developer for the core area of the Cedar Grove Redevelopment District.
Overview
This matter is before the City Council and. EDA at this time for several reasons:
a The developer has not submitted Phase I Plans by the October 23, 2006
deadline prescribed in the amended development agreement and it is
necessary for the City to determine how to proceed in light of that
circumstance.
® The developer submftSr that market conditions have: shifted since the
development agreement and preliminary concept plan were approved in
January, 2006, which has diminished the market supportability of the
approved mix and density of, uses. In particular, the developer indicates that
the market. for new suburban_ condominiums, which made up a substantial
segment of the preliminary concept plan, has flattened.
® Despite the fact that City staff and the developer have worked: to re -fine the
assumptions projected for the redevelopment, the developer's financial pro
forma for the project shows a financing gap of $2 million to $3 million. The
analysis presumes: that the core area project will be self-financing through
TIF, with the -exception of the City's obligation to use resources from
elsewhere to cover costs such as environmental remediation, affordable
housing and prior transportation improvements..
® The refinement of some assumptions reduces the gap, but according to the
developer they, are offset by the inability to assure the number and timing of
construction of 'the vondom.ini� ern units. Silk the number and density of this
housing type represent a substantial amount of the new tax base in the
1 ,5,57 C—
revenue assumptions, the developer believes it is necessary to consider
alternatives to fill the gap. These may be in the form of additional public
capital investment and/or the consideration of some land use alternatives
not previously included in the plans for the area.
Vision and linolernentation
The City has made a substantial commitment to the redevelopment of the area in
the form of public improvements, environmental reviews, comprehensive planning
and zoning amendments, transit planning and other activities. The City has also
acquired well over half of the properties to be redeveloped in the core area. In
addition, private development investment has occurred consistent with the
redevelopment vision in the keystone and Nicols Ridge developments and the
McDonalds restaurant reconstruction. Further, a number of businesses relocated
within the area anticipating the mixed use development pattern.
The staff and the City's redevelopmentconsultant believe that the redevelopment of
the area can occur within the general concepts defined for the area, namely a
mixture of commercial and residential land uses, uniform and cohesive design
elements, pedestrian focus, transit orientation, public greenspace and structured
parking, where necessary to support necessary development. densities. If the
developer's assumptions are true, in order for the project to be market supportable,
it may be necessary to consider land use alternatives outlined below to complement
or supplement these new urban elements.
While a further alternative would be to consider a more dramatic shift to a different
mix of uses or redevelopment focus, that does not appear warranted because of
the development that has occurred to date, the practical limits of the current traffic
improvements and the proximity of the future Cedar Avenue BRT that will support
and benefrt from higher density residential development.
Market Conditions
One of the key assumptions of the Cedar Grove Redevelopment Project was that
the uses and mixture of uses would be market supportable. For the project to be
successful in the future, the vision for the area will need to be clear enough to -
assure its quality, but flexible enough to incorporate those specific uses that have
the greatest opportunity to succeed.
The approved development concept includes 974 housing units, including 553
condominium units. it has been reported that new condominium. development
has flattened in the region and, while markets are cyclical and are expected to
recover over the term of a major redevelopment such as this, aggressive
development of condominiums in the early phases of the project may not be
market supportable at this time.
lss
While there are reports of a, flattening of the residential market, it is not as
pronounced in the townhome and row home markets, such that a mixed use
project for the area should be feasible, but its specific characteristics may need
to change in the short run. A complete a shift toward lower density development
results in decreased overall property value and, by extension, reduces the TIF
available to underwrite project costs. This situation gave rise to discussions of
land use alternatives.
Land Use Alternatives
To complement and retain the City's redevelopment general vision for the area,
staff and the developer discussed whether market segments that are stronger at
the present time, including retail, office, senior housing of various types and
rental housing, could be integrated further into the mix of uses at.Cedar Grove.
The developer has prepared revised proformas for several scenarios under
which a portion of the higher density residential development would be replaced
by a greater square footage of retail and office development and some of the
higher density housing would shift to senior and rental products.
One of the scenarios discussed is the addition of a certain amount of traditional,
free standing retail development in the Gateway area of the development. - In this
scenario, the mixed use development previously shown at the gateway would
shift to the west and the residential development in the western part of the district
would contract to accommodate the change. This approach is similar to
developments in Maple Grove and Blaine that have a combination of a more
traditional suburban development pattern that functions as an anchor for the new
urban portions of the project, while generating additional tax base to support the
remainder of the project.
To the extent that they were analyzed, the developer's pro forma shows a
financing gap of for the core area project in each of the scenarios.
Concept Plan and Phase I Site Plan
The developer has indicated that it is not possible to proceed with
implementation of the approved preliminary concept plan. In addition, it has
indicated that it is not prepared to pay for the preparation of a graphic
representation of an alternative concept plan, until the City agrees to offset the
gap in the financial pro forma.
The challenge is that the City's level of financial support for a project in the area
has always been predicated on the proposed development conforming
sufficiently to the City's development expectations and the design guidelines.
This can only be determined through an analysis of a concept plan and the more
refined plans and graphics contemplated in the Phase Site Plans. The Council
will need to determine whether it wishes to proceed with direction to identify
1s�;C-�.
funds to close the gap, in the absence of those plans, or to provide other
direction with respect to the redevelopment of the Cedar Grove Area.
EDA/Council Direction
Alternatives for direction are outlined in the cover memo for this business item.
Regardless of the direction chosen, the following factors are important to note.
Q The City now owns more than half of the property within the redevelopment
district
• The Council has given general direction to continue to acquire the
remainder of the properties in the core area.
® A substantial number of businesses associated with those properties have
been successfully relocated and others are in the process of pursuing
relocation options.
While a downturn in the condominium market presents a challenge, the
emergence of market demand in a number of other sectors offers options
for alternative approaches to the redevelopment of the area.
The potential revisions to the approved preliminary concept plan that have
been identified would result in a development that would be different by
some degree from the project defined by the Request for Proposals and the
approved development agreement.
Staff, the developer and a representative of Ehlers and Associates will be available
to address the matter further and respond to questions on Thursday ,evening.
Cc: Gene VanOverbeke, Director of Administrative Services
115SH
W14M1Iw i
Development Concept and Schedule
Future Hotel Heritage Carriage S -Story Mlaganats Plaza/ Jensen's Transit StaUon
Transit Condominlums TownHomeb-Housinq 3 -Story Ice Rlrik Supper Club &Commereial
Housing over
rawry -- use:
Cornmerdal
Housing over
Cohlmtrdal
Plan
nesidentiai Cordage 285
Units
Commercial West(ytii:edl)se.
!UO sq it
...pt
Fagan,Minnesota
Oeveloprirant Heritage: 68
units
Development East'MainSfinee
EZ,70sgit
�Ahlgreni5iiprdlaw,andllban,I4R
Summary Nan 108
udts
Summar Transit Center
15,DWsq it
NovemberM
Hddsing(5-Stoj.
105 units
Fast MkedUse
40DMM
Nd:usingIn Mored U' se 469 unl
Total
)4321M.sgk
Total - 974
units
�.RHYC
D
• S
Cedar Grove Concept Plan Phasing
Ea9miMnesota
Dahlgren, 51tardlow, and Ubam Inc-
Novenber2W$
#�Z SeiY9:fe€ f
WTt%diardson
EXH0BZT A
DESCRIPTION OF PROPERTY
The property is the property described and outlined as Cedar Grove Properties
Development Area on the attached map, and located in the City of Eagan, Section 19, Township
27, Range 23.
1
Torn Hedges
From: Jennifer L. Berquam Oberquam@MesserliKramer.com]
Sent: Monday, November 13, 2006 10:05 AM
To: Tom Hedges
Subject: FW: Responses to the Question
-----Original Message -----
From: Jennifer L. Berquam
Sent: Monday, September 18, 2006 1:22 PM
To: 'Tom Hedges'
Subject: Responses to the Question
Hi Tom,
The following are responses (as of 1:20 p.m. on Monday) to the levy/MVHC question:
Apple Valley - Yes
Burnsville - Yes
Bloomington - Yes
Eden Prairie - Yes
Edina -Yes
Lakeville - No
Maple Grove - Yes
Maplewood -No
Minnetonka - (John Gunyou is out of the office until next week but I believe they did levy as if the
MVHC was not being restored... so yes)
Plymouth -?
Shoreview - Yes
Woodbury Yes
Jennifer
Jennifer L. Berquam
Messerli & Kramer, P.A.
145 University Avenue West, Suite 450
St. Paul, MN 55103
Direct: (651) 556-9205
Main: (651) 228-9757
Fax: (651) 228-9787
/yeryuam@mandklaw. coni
CONFIDENTIALITY NOTE:
This e-mail message is for the sole use of the intended recipient(s) and may contain confidential and
privileged information. Any unauthorized review, use, disclosure or distribution of any kind is strictly
prohibited. If you are not the intended recipient, please contact the sender via reply e-mail and destroy all
copies of the original message. Thank you.