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11/01/2017 - City Council Finance CommitteeFINANCE COMMITTEE MEETING Wednesday, November 1, 2017 10:30 AM Eagan Municipal Center First Floor Conference Room Agenda AGENDA ADOPTION II. UPDATE ON CEDAR GROVE REDEVELOPMENT III. ACCESS EAGAN FUNDING UPDATE IV. CIVIC ARENA DEBT V. OTHER BUSINESS VI. ADJOURNMENT Agenda Information Memo November 1, 2017 Finance Committee Meeting II. Update On Cedar Grove Redevelopment Action To Be Considered: To make a recommendation to the EDA regarding an extension to the purchase agreement with Commercial Investment Properties (CIP) for the sale of Outlot B in Cedar Grove. Facts: ➢ Commercial Investment Properties, Co. (CIP) has proposed a four-story, 150 -unit market rate apartment building with approximately 8,000 square feet of attached restaurant space, 199 underground parking stalls on two levels, and 110 surface parking stalls. ➢ At its meeting on February 7, 2017, the Economic Development Authority held a public hearing and approved the Sale and Purchase Agreement with CIP. ➢ At its meeting on August 15, 2017, the Economic Development Authority approved the First Amendment to the Sale and Purchase Agreement to extend the due diligence deadline by sixty (60) days until November 7, 2017 to allow the purchaser additional time to secure a restaurant operator. ➢ The purchaser has worked with a restaurant broker to market the site. Two interested parties have been identified, and the purchaser is requesting additional time to complete a restaurant market study and determine whether a deal is possible. Attachments: (2) III. -1 Extension Request Chart III. -2 Letter from Developer C O M >C +'coo O m N O O O N sem, y y cn Q. N o O m O O o° o U tz Ln 06 O V O N4-4 N + �, N ... 01� N os U s�. bn ° O = cd U N o O cl +, 4- O N bA O > + O +, �, N (1) O -�4 u ° O ++ V bbA y > 0 ° o N 4r O O O O O o o o°n C3 �. cn cd 4 i o cn � 0 4°0 N 0 a �. p ° -� o 40 4° O p GJ N 4- s, P O •o -0 lwd >N C2 in, Ei em U O O N s0• N s. M Cl O, p Q ' Oco � •N O N � U ¢' v � � •� � O � rn � O � N N N ' 4.1 bo as Cd y N Cn ° ¢ E En o U CSC U L1 U 4 cd 00 '. O z cl c� § |o ® � \ \� U © k§& / q K.�_ i / 5a. § k ( U t � o o 2 ( b uQ u « $-4U §/ 3 k D 110. ± cis .) U -0 '\ C -i7 � -0 -0 �] & 42 40, k � k 0 / \ c . , . . S K � © « a f •§ t 2 %a =q e® J7 � \ . b n � 7 - & § � §ƒ ƒ t � G Larkin .joinan October 27, 2017 Jill Hutmacher Director of Community Development City of Eagan 3830 Pilot Knob Road Eagan, Minnesota 55122 Re: Commercial Investment Properties Proposed Mixed-use Development at Cedar Grove Dear Jill: Larkin Hoffman 8300 Norman Center Drive Suite 1000 Minneapolis, Minnesota 55437-1060 GENERAL: 952-835-3800 FAX: 952-896-3333 WEB: www.larkinhoffman.com BY EMAIL Thank you for meeting with Mark Jepson and me to discuss the ongoing efforts of Commercial Investment Properties ("CIP") to acquire and develop a mixed-use project on the City's outlot adjacent to the Cedar Grove outlet center. CIP is very excited about the prospect of pursuing a market -rate apartment project on the property; while a challenge, CIP remains committed to fulfilling the City's desire to see a full-service restaurant included with the CIP proposal. This letter confirms the request of CIP for an extension of its current purchase agreement with the City's Economic Development Authority to the date on which the City Council and EDA confirm the decision on the restaurant use and approve the pending planned development application. If the restaurant use does not prove to be viable, CIP would still like to purchase the property for market rate apartments. Mark Jepson shared with you the pending retention of The Morrissey Group to put a business plan together for the restaurant use that Morrissey would operate; while they believe a restaurant is viable, we need to understand not only the format but the economics of any selected restaurant format. We intend to engage Morrissey to work on the business plan (at CIP's expense) and have their recommendations back by January 31, 2018. This recommendation will confirm the format, economics and Morrissey's commitment to proceed with it, in tandem with CTP. We are very hopeful that, with Morrissey's demonstrated experience as restaurant developers and owners, something exciting and economically viable will be confirmed. If, however, Morrissey and CIP are not able to reach a consensus on the restaurant plan, CIP would not intend to carry that concept forward. Simultaneous with the business case analysis being completed by Morrissey, CIP is prepared to initiate the full municipal entitlement process with a targeted submission date of early December 2017; our submission would include a conceptual restaurant space. This submission would be at CIP's risk given the continued uncertainty about the restaurant. We anticipate that the City's Jill Hutmacher October 27, 2017 Page 2 planning commission would be able to review the preliminary plat and preliminary development plan by January 2018, with City Council consideration thereafter. Mark Jepson confirmed that CIP would be prepared to close on the property with the City following Council approval of the preliminary plat and preliminary PD, with or without the restaurant component. We would expect to be in position to make that final decision with the City by mid-February 2018. If the City decides to put the property back on the market due to CIP's inability to confirm a restaurant use, CIP most likely will withdraw its application. CIP is strongly motivated to work with the City to achieve the desired mixed-use project. CIP develops and holds its properties long-term. This allows them more flexibility in pursuing projects that are complicated and thus have a longer lead time. The land acquisition will be internally funded by CIP so there is not a standard financial contingency attached to CIP's request. As Mark Jepson confirmed, they are prepared to accept the condition of the property and waive any unresolved due diligence conditions up to the present date as part of a written extension, subject to the final restaurant decision and City approval of its preliminary application with 150 or more market rate apartments. CIP anticipates commencing construction in late spring or early summer 2018. We sincerely hope the City and its EDA are able to accept CIP's proposed extension to February 15, 2018, or the date of the City Council's approval of the preliminary PD application, whichever is later. We are available to address any questions you may have regarding this request. We appreciate your willingness to consider and discuss it with the finance committee of the. City's EDA. Peter J. Coyle, for LARKIN HOFFMAN DALY & LINDGREN, Ltd. Cc: Mark Jepson, Esq. Charlie Sullivan Bob Bauer, Esq. 4842-1035-0418, v. 1 Agenda Information Memo November 1, 2017 City Council Finance Committee III. AccessEagan Funding Update Action to be Considered: Discuss funding for AccessEagan and make recommendations for Council action. Facts: ➢ As anticipated at this stage of its development, AccessEagan continues to operate at a loss. Revenue growth is difficult to project with any degree of certainty. In the more optimistic view of revenue growth (blue line in chart below), operations become profitable on a cash basis by 2023, at which point the cumulative net investment from inception would total $3.3 million. ➢ With a more conservative view of revenues (red line), cash profits are not generated until 2026, at which point the net investment will have reached $3.6 million. ➢ To date, the Council has approved a total investment of $2.6 million (green line) to build and operate the AccessEagan fiber network. Approximately $2.0 million of that investment represents construction of the original network. AccessEagan deficit (funding need) 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 (500,000) (1,000,000) (1,500,000) (2,000,000) (2,500,000) (3,000,000) (3,500,000) (4,000,000) Less Conservative Rev Growth More Conservative Rev Growth Approved funding ➢ By the end of 2017, we anticipate the total net investment will be close to $2.8 million, or $200,000 more than the Council has authorized to date. ➢ Under the 2018-19 budget presented to the Council in October, the cumulative deficit will grow to $3.1 million, or $500,000 more than the Council has so far authorized. ➢ All $2.6 million of funding to date has come from retained antenna lease revenues. The City annually receives about $1.0 million in antenna lease revenues. About $425,000 is used every year to partially subsidize ECC operations and Holz Farm operations, leaving roughly $500,000 available annually that is undesignated. Accumulated unspent antenna lease revenues since 2005 total $3.9 million. ➢ Since 2005, we have generated $10.8 million in antenna lease revenues, which have be utilized as shown in the Expenditure column below: Antenna Lease Funds Revenues & Expenditures 2005-2016 Cumulative 12,000,000 10,000,000 8,000,000 6,000000 4,000,000 2,000,000 Revenues Phone system 316,092 Holz Farm 422,079 Expenditures ➢ Other funding sources for consideration include: o Excess General Fund balance - $2.4 million above the high end of the target range at 12/31/16; will likely be higher by 12/31/17. o Community Investment Fund - $1.9 million, which excludes FAB proceeds to be used to finance Facilities CIP. Agenda Information Memo November 1, 2017 City Council Finance Committee IV. Civic Arena Debt Action to be Considered: Discuss options for the Civic Arena's internal debt of $2.2 million to the Utilities Fund and make recommendations for Council action. Facts: ➢ In conjunction with the geothermal and other improvements made to the Civic Arena in 2010, $875,000 in outstanding 1998B Arena bonds and $1,665,000 of improvement costs were rolled into a $2.55 million internal loan from the Utilities Fund to the Civic Arena Fund with a 20 -year amortization. ➢ Based on projections of energy savings coupled with expected growth of the Arena revenues and expenses, we anticipated the fund had the capacity to pay the annual debt service payments of $182,000. ➢ Because the energy savings and revenue growth have fallen short of expectations, the Arena fund has been unable to retire the debt according to the schedule for the past several years. ➢ Our hope each year is to take any Arena cash profit over and above what is needed for the capital R&R allocation and put that toward the debt; however, since 2014, essentially no interest or principal payments have been made. Furthermore, there are no debt service reductions built into the 2018-19 budgets. ➢ Options to address the inability of the Arena Fund to retire the debt include: o Restructure Arena revenue and expense budgets to create capacity for debt service payments. It would likely be difficult to realize the level of revenue/expense adjustments necessary to make a significant dent in the debt. o Levy additional dollars in support of Arena operations so the fund can afford to make debt service payments. o Forgive some or all of the debt. As discussed earlier with the AccessEagan agenda item, the Utilities Fund has accumulated excess antenna lease revenues to the extent of $3.9 million since 2005 (chart is again shown below). Those funds could be used to essentially cancel all or a portion of the Civic Arena debt. If $500,000 of unspent antenna lease revenues is utilized to fund AccessEagan through 2019, and an additional $2.2 million is utilized to cancel the Arena debt, that would leave a balance of unspent antenna lease revenues of about $1.2 million. 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 Antenna Lease Funds Revenues & Expenditures 2005-2016 Cumulative Revenues Phone system 316,092 Holz Farm 422,079 Unspent lease revenue 3,872,951 Expenditures