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011000 EDAOfficial File Copy CITY OF NEW HOPE EDA MEETING City Hall, 4401 Xylon Avenue North January 10, 2000 President W. Peter Enck Commissioner Sharon Cassen Commissioner Don Collier Commissioner Pat LaVine Norby Commissioner Mark Thompson 2. 3. 4. Call to Order Roll Call Approval of Regular Meeting Minutes of December 13, 1999 Approval of the Request for Proposal; Motion Authorizing Staff to Proceed with Solicitation of Proposals for Development at 7500-7528 42"d Avenue North (Improvement Project No. 665) Motion Authorizing Staff to Negotiate the Purchase of 5550 Winnetka Avenue North (Improvement Project No. 669) Resolution Approving Section 8 Housing Assistance Payments Program Contract No. C- 99-66 for Administrative Services Between the Metropolitan Council and the City of New Hope and Authorizing President and Executive Director to Execute Agreement 7. Adjournment CITY OF NEW HOPE 4401 XYLON AVENUE NORTH NEW HOPE, MINNESOTA 55428 Approved EDA Minutes Regular Meeting December 13, 1999 City Hall CALL TO ORDER ROLL CALL APPROVE MINUTES IMP. PROJECT 597 Item 4 MOTION Item 4 CHARDON COURTS APARTMENTS Item 5 New Hope EDA Page 1 President Enck called the meeting of the Economic Development Authority to order at 8.'31 p.m. Present: W. Peter Enck, President Pat LaVine Norby, Commissioner Sharon Cassen, Commissioner Don Collier, Commissioner Mark Thompson, Commissioner Motion was made by Commissioner Cassen, seconded by Commissioner Collier, to approve the Regular Meeting Minutes of November 8, 1999. All present voted in favor. Motion carried. President Enck introduced for discussion Item 4, Discussion Regarding Proposed Development for City-owned Property at 9200 49th Avenue and Authorization for Staff to Negotiate on Potential Sale of Property (Improvement Project No. 597). Mr. Kirk McDonald, Director 6f Community Development, provided history of the city-owned property. He reported that staff has been approached by ID Services, a New Hope based manufacturing company currently located at 3410 Winnetka Avenue. ID Services is proposing to build a 31,400 square foot building on the property. The building will be used primarily for manufacturing and warehousing its products and as office space for its operation. They have hired Olson General Contractors, Inc. to develop a preliminary concept plan for the site. He indicated staff is seeking concept approval and authorization to enter into negotiations. The EDA unanimously agreed to concept approval. Motion was made by Commissioner Thompson, seconded by Commissioner Norby, authorizing staff to negotiate the potential sale of city-owned property (Improvement Project No. 597). All present voted in favor. Motion carried. President Enck introduced for discussion Item 5, Resolution Consenting to and Approving Sale of Parmership Interest in North Ridge Properties of New Hope Limited Parmership. Mr. Dan Donahue, City Manager, explained that in 1984 the City entered into a redevelopment agreement with Northridge Properties of New Hope Limited Partnership. The agreement required the HRA to acquire land for Northridge Properties for the construction and development of the Chardon Court Apartments. The HRA's financial contribution to the project consisted of $975,000 in tax increment funds and $880,200 in interest rate reduction payments to the Partnership payable from tax increment funds generated by the development. The agreement provides that the HRA shall have a lien against the development in the minimum amount of $614,200 payable upon transfer or sale of the legal or equitable interests December 13, 1999 EDA RESOLUTION 99-13 Item 5 ADJOURNMENT in the property. When the agreement was originally signed in 1984, the parmership consisted of Charles P. Thompson, Charles T. Thompson, and Donald E. Forseth. In 1987, Donald E. Forseth and Charles P. Thompson's parmership interest were transferred or sold to Dr. James Pattee and M. Melinda Pattee. At this time the Charles (Charlie) Thompson wishes to transfer parmership interests to M. Melinda Pattee. Staff has consulted the City Attorney regarding the HRA lien against the property. The resolution approves the current ownership group and authorizes a transfer of interest from Charles T. Thompson to M. Melinda Pattee. The transfer will not negatively impact protection for the HRA lien against the property. The HRA lien will be paid when Chardon Courts and/or the land is sold by the current ownership group to a third party. Mr. Donahue stated the resolution will approve the 1987 transfer of interests, the present transfer of interest from Charles T. Thompson to M. Melinda Pattee, and acknowledges that these transfers of interests do not trigger the maturity of the HRA lien. Mr. Steve Sondrall, City Attorney, stated he has been advised by Judith Gartner, the attorney handling this transaction, that an amendment to the agreement may be presented to the City in the near future. Apparently the Pattees may wish to transfer their interests would could trigger repayment of the lien. Commissioner Collier introduced the following resolution and moved its adoption: "RESOLUTION CONSENTING TO AND APPROVING SALE OF PARTNERSHIP INTEREST IN NORTH RIDGE PROPERTIES OF NEW HOPE LIMITED PARTNERSHIP". The motion for the adoption of the foregoing resolution was seconded by Commissioner Norby, and upon vote being taken thereon, the following voted in favor thereof: Enck, Cassen, Collier, Norby, Thompson; and the following voted against the same: None; Abstained: None; Absent: None; whereupon the resolution was declared duly passed and adopted, signed by the president which was attested to by the executive director. Motion was made by Commissioner Collier, seconded by Commissioner Thompson, to adjourn the meeting. Ali present voted in favor. Motion carried. The New Hope EDA adjourned at 8:37 p.m. Respectfully submitted, Valerie Leone City Clerk New Hope EDA Page 2 December 13, 1999  EDA FOR ACTION Originating Department Approved for Agenda Agenda Section Community Development EDA 1-10-00 Kirk McDonald Item No. By?nd Phil Kern APPROVAL OF THE REQUEST FOR PROPOSAL; MOTION AUTHORIZING STAFF TO PROCEED WITH SOLICITATION OF PROPOSALS FOR DEVELOPMENT AT 7500-7528 42ND AVENUE (IMPROVEMENT PROJECT NO. 665) ACTION REQUESTED Staff is requesting approval of the Request For Proposal for the City-owned properties at 7500-7528 42nd Avenue. With EDA approval, staff will distribute the request for proposals to real estate developers. POLICY/PAST PRACTICE The request for proposal will be used to solicit development proposals for the City-owned properties. All proposals submitted to the City will be reviewed and shared with the EDA. The EDA will then have the ability to enter into a letter of intent if a proposal is desirable to the City. BACKGROUND The City has acquired three properties at 7500, 7516, and 7528 42nd Avenue due to groundwater contamination caused by Electronic Industries, the former owner of 7516 42nd Avenue. In August 1999, the City acquired the third parcel at 7500 42nd Avenue and demolition was completed at this property in December. All three sites have been cleared, and staff is working with the MPCA and Electronic Industries on possible methods to expedite the contamination clean up on the three properties. The City is working to submit a grant application to the Department of Trade and Economic Development in March to fund the costs of the contamination clean up. The State has over $2 million available for Brownfield projects that result in the redevelopment of contaminated land. In order to receive consideration for funding, several steps need to be completed. First, Phase I and Phase II environmental examinations have to be conducted to identify the levels of contamination. The next step i calls for a Response Action Plan (RAP) to be filed with the MPCA. Finally, a specific development must !be identified for the contaminated land following clean up with estimates of additional economic impact the development will have on the area. This impact includes jobs, wage rates, and added tax capacity. The City has completed the Phase I and Phase II examinations, and staff is currently working with the (cont'd.) MOTION BY ~ SECOND By ~).~ Request for Action Page 2 1-10-00 MPCA on a revised RAP. The last step the City needs to address is the identification of a potential development for the property. The request for proposals will produce potential developments for the site, which will be used in the DTED grant application. With a potential development for the site, the City will be more accurately able to identify the economic impact of redevelopment. Staff expects the RFP and grant application process to produce several options for the City in terms of the development of this property. The EDA will be allowed to select the development it would like to see at this property from the proposals submitted. Staff, consultants, and the MPCA have determined that the soil and groundwater clean up process will take approximately six-to-nine months. Development would be able to begin following the completion of this process, which could be as soon as spring 2001. The request for proposal identifies the City's desire for a maximum use of the property with a high market value, pedestrian-friendly development. While several potential uses were identified, the RFP encourages all proposals to be submitted to the City, with the exception of strip malls and auto-orientated businesses, such as gas stations and repair shops. The RFP sets a deadline of February 25, 2000, for final submission of proposals. ATTACHMENTS · Request for Proposal · Site Maps · 42nd Avenue Redevelopment Costs & Expected Revenues CITY Of NEW HOPE REQUEST FOR PROPOSALS 7500-7528 42nd AVENUE NORTH (ROCKFORD ROAD) FOR DEVELOPMENT Section One: Introduction The City is requesting proposals for the development of 7500-28 42°d Avenue North (Rockford Road). The project will involve the development of this 2.42-acre vacant lot, located on 42nd Avenue at Quebec Avenue. The property is part of New Hope's limited industrial (I-1) zoning district, but the City plans to rezone the property to the B-4 Community Business District. New Hope is a fully developed suburban community located just west of Minneapolis. With only nine undeveloped parcels of land remaining in New Hope's commercial and industrial zones, opportunities for development are at a premium in this area. Therefore, the City is requesting proposals that will maximize the use of this property. Section Two: Information about the property The City purchased the three parcels (7528, 7516, and 7500 42"d Avenue) that make up the 2.46 acres over the past 10 years to prepare the site for redevelopment. The properties were used for industrial purposes, and City envisioned a different land use for these properties along its most busy central thoroughfare, 42"d Avenue. The properties along 42"e Avenue are located in the City's most intense commercial zoning district. The City intends to apply the same zoning district to this property. The City first acquired property along 42"d Avenue in 1990 after learning of groundwater contamination in the area. After significant testing by the Minnesota Pollution Control Agency, it was determined that the soil and ground water were contaminated by solvents discharged from the industrial use at 7516 42"d Avenue. The City moved quickly to acquire this property and begin the clean-up process as soon as possible. By 1996, the City was able to acquire the second of the three parcels in the project area, 7528 42"d Avenue. This site was cleared as well, leaving only one operational industrial property in the contaminated area. This property was acquired in August 1999, and the warehouse on the site was demolished in December 1999. With all three properties under common ownership, the City and MPCA are prepared to expedite the Soil and groundwater clean-up process. The City is working with the former tenant at 7516 42na Avenue to development plans for the excavation of all the contaminated soils and the subsequent replacement with clean soil. The City is also working with the MPCA on this process. The excavation and soil replacement process will incur significant costs, and the City is working on a DTED Brownfield grant to recoup a large portion of the costs associated with making the lot developable. The City intends to have an accelerated soil clean-up process take place in the summer of 2000. With the involvement of the MPCA and the former tenant, the city is ensured that the clean-up process will meet all the standards of the MPCA. The site will be free of contaminants according to the requirements of the MPCA before it is passed over to a future developer. Once the soil corrections are complete, the City will conduct an appraisal on the property to determine the market value of the entire parcel. Based on an estimate from a professional appraiser, the City estimates that the market value will be around $8 per square foot, or approximately $850,000. The property is located in a tax increment financing district. The surrounding uses are indicated on the attached zoning map. The area directly north and to the south of the project area is a major center of employment in the City, and a multiple family residential complex is located to the northeast. West of the project area is New Hope's City Center area, the largest commercial district in the City. In 1999, the City invested over $2,500,000 in a large-scale streetscape treatment of 42"d Avenue to the west of the project area. The streetscape included the addition of planted medians, boulevard trees, reconstructed sidewalks, and general roadway improvements. This property has 320 feet of frontage along 42'd Avenue, and is located one mile east of Highway 169 in the New Hope City Center area. In 1992, a traffic count along 42nd Avenue two blocks east of this site indicated a daily traffic rate of 28,000 vehicles. The site is also visible from Winnetka Avenue, which had daily traffic flows of 14,000 vehicles. Along with the 42nd Avenue Streetscape, the new Walgreens Development one block east of this project area continues the revitalization of New Hope's City Center area. Walgreens began construction in December 1999 on a new freestanding retail store at the intersection of Winnetka and 42nd Avenues. The Walgreens development complements the 1999 redevelopment of the freestanding Kmart store two blocks east of the project area at 42ne and Xylon Avenues. Kmart made significant upgrades to the interior and exterior of its store in a comprehensive remodeling project scheduled to continue in 2000 with the addition of green spaces and overall parking lot improvements. Other improvements in the area include the rehabilitation of Winnetka Center in 1998, where exterior improvements were made to the entire site. Winnetka Center is located on Winnetka Avenue just north of 42"d Avenue. Section Three: Proposal Criteria The City has a keen interest in maximizing the use of this property and fulfilling a community need. The City would like to see a high market value, pedestrian-friendly development that blends with the existing uses and the streetscape improvements along 42nd Avenue. The City envisions a development with architectural character and modern urban design features. The site will be rezoned to the B-4 Community Business District. It is important to note that the City will not pay any realtor fees or commissions in the event of the sale of the property. Some potential developments that the City would encourage include, but are not limited to, a restaurant, movie theater, or other similar service businesses. The City is not interested in a retail strip-mall type development, as there is an abundant supply existing in the City. The City is also discouraging auto-orientated businesses, such as repair shops and gas stations. Section Four: Timeline The City will consider all proposals. The City will be submitting a grant application to the Department of Trade and Economic Development in April, and select proposals will be included with this application. The soil clean-up work is expected to start in the summer of 2000. Negotiations as to the sale of the property and the City building plan approval process would also begin in the summer of 2000. The City will have the property appraised and may negotiate a Letter of Intent after the Economic Development Authority has reviewed the proposals. The schedule for clean-up will take approximately six-to-nine months, allowing construction to begin in the spring of 2001. Section Five: Proposal Content RESPONSES MUST BE IN THE ORDER AND FORMAT PRESENTED BELOW. ADDITIONAL INFORMATION, IF DESIRED, MAY BE INCLUDED IN ITEM 7. 1. Proposed project Briefly explain your proposal. Please include the following items and how they relate to your proposal. If exact figures and explanations are not possible, please estimate using similar developments already in operation elsewhere. 1) Type of use/product 2) Size of development (square feet) 3) Number of employees 4) Hours of operation 5) Traffic/parking needs 6) Expected noise levels 7) Preliminary site diagram 2. Firm Organization A. How many years has your firm been established as a professional developer? 3. Professional Organization A. How many people are employed in your firm and summarize their areas of expertise. 4. Experience A. Please list some of the major development projects your firm has completed in the Minneapolis/St. Paul area. B. List projects similar in size and use to the project you are currently proposing. References A. List references for your five most recently completed projects. 6. Scope and Cost of Services A. List the additional work tasks that you think are necessary to prepare the property for development B. List estimate cost of development, including land preparation costs. 7. Additional Pertinent Information A. Provide any additional pertinent information about your firm or your proposal. 8. Certification of Information Provided A. The information provided herein is to the best of my knowledge accurate and can be accepted by the recipient first named above as true representation of: Company: Address: Title: Date: Section Six: Proposal Submission Submit four (4) copies of your proposal to: Kirk McDonald Director of Community Development 4401 Xylon Avenue North New Hope, MN 55428 Proposals must be received by February 25, 2000, at 4:00 PM CST. Proposals must be submitted in an envelope with the words "Proposal for 7500 42nd Avenue" clearly marked on the outside of the envelope. Information must be complete. The City of New Hope reserves the right to reject any and all proposals. Faxed proposals are not acceptable. Enclosures: · Copy of 1/8th Section map for the site · Zoning map of City Center area Cit CenterZonin Ma Project Site to be rezoned to B-4 Community Business 7500, 7516, & 7528 42nd Avenue NEW HOPE ELEMENTARY SCHOOL DEL DR CENTER PARK: :'- ,~ 42ND AVE N "Wa~'~'e~ns'-/ Development Underway ROCKFORD RD GETHSEMANE CEMETERY SCHOOL BUS HOLY NATIVITY I-1 1/8 Section Map Project Site (to scale) 7500, 7516, & 7528 42nd Avenue "1 IF PEOJ 1606 i ................ ,r ........... .7 ........... ! I , I ,_ ~, , , I~g : :Pt"RT ~ LOT 5 : (6) (5) = (8) : (7) : :_ ~ s ' ' (8) ' ~ .... ~s. 4 ', gs ', .... ~'~'~'[ ~.47 ...... ~4.~S;~.E ~ s~6"~'0'~'~ ..... ~'~ ~'~e'~'[ ....... -~" ~"" " = - ' ~ RD) ' ~ ~.,,.,,.[ ( ROCKFORD · s46.~,~.~ ': 42ND AVENUE I · - ~.01 42nd Avenue Redevelopment Total , Taxes Generated Property Size of 1998 Tax Appraised Acquisition Demolition Total City Land Value by Commercial Value at B-4 Parcel (SF) Valuation (Before Cost Cost Cost (@ $8 SF) Development Purchase) (over 20 yrs) 7528 42nd Avenue 40,128 SF $50,000 $433,000 $450,000 $48,545 $498,545 $321,024 7516 42nd Avenue 30,400 SF $33,300 $238,000 $40,000 $31,164 $71,164 $243,200 7500 42nd Avenue 35,000 SF $379,000 $432,000 $482,000 $26,037 $508,037 $280,000 All Three Parcels 105,528 SF 2,42 Acres $462,300 $1,103,000 $972,000 $105,746 $1,077,746 $844,224 $300,000 Combined ** Taxes Generated is future tax revenues based on a development equal to that in value of the Sunshine Factory. The Sunshine Factory contributes $15,000 in taxes to the City every year. Over a 20 year period, this added value equals $300,000. Total Revenues: Total Cost: $1,144,224 (Land Value + Taxes Generated) $1 ,O77,746 Balance for the City: $66,478 G:\Managers\Kern\Property 01/04/2000 01/04/2000  EDA REQUEST FOR ACTION O~~~]:~ent' Approved for Agenda Agenda Section 1/10/00 EDA Susan Henry Item No. By: Community Development Speciali ;t ~. 5 MOTION AUTHORIZING STAFF TO NEGOTIATE THE PURCHASE OF 5550 WINNETKA AVENUE NORTH (IMPROVEMENT PROJECT NO. 669) REQUESTED ACTION Staff has received the appraisal report for the vacant commercial property currently for sale at 5550 Winnetka Avenue North. Staff requests authorization by the EDA to negotiate on the basis of the appraisal with the property owner. POLICY/PAST PRACTICE In the past, the EDA has directed staff to pursue the acquisition of vacant commercial and available residential property that is located in areas of the City that the Comprehensive Plan has identified for potential redevelopment. BACKGROUND At the October 25, 1999, meeting, the EDA discussed the property located at 5550 Winnetka Avenue North and staff was authorized to order an appraisal. The commercial property, located at the southeast quadrant of the intersection of Winnetka Avenue and Bass Lake Road, has been vacant fbr the past several months. Formerly known as Ed's Donut Shop, the property is located in an area identified by the Comprehensive Plan for future redevelopment. BCL Appraisals recently completed the appraisal. The appraisal came in at $280,000, taking into account the various approaches to value. In addition, the value of immovable trade fixtures in the building is estimated at $5,600, according to the report. In total, the report stated a value of $285,600, including the immovable trade fixtures. The property is located in a B-2, Retail Business, Zoning District. The property contains 20,700 square feet (.47 acres), and the 1,300 square foot, one story masonry structure on the site was constructed in 1975. (cont'd.) RFA-O01 ~ Request for Action Page 2 1-10-00 The property is currently owned by Kiva New Hope Corporation. The current asking price for the property is $450,000. The property owners state this value because of the previous lease agreement held on the property (with a rental amount of $3,200/month). However, a copy of the lease that would support this statement was requested and not provided to validate the asking price. The 1999 value for tax purposes of the property is $160,000 ($126,000 land/S34,000 building). The property owners have stated there has been interest in the property; however, no response has been offered because of the City's interest in acquisition at this time. City staff have been in recent communication with the property owner. There is quite a disparity between the property owner's asking price and the appraised value; therefore, staff is not overly optimistic the City will be successful in negotiations. However, staff would like the opportunity to meet with the property owner, present the recent appraisal, and determine if negotiations can proceed. Staff feels the subject is a key piece of property for future redevelopment of the Bass Lake Road/Winnetka area, as identified in the City's Comprehensive Plan. The Plan outlines an aggressive strategy for enhancing the commercial character along Bass Lake Road. Recommendations include: · Expand the commercial land use patterns along Bass Lake Road to increase the land area for commercial redevelopment. · Assemble and redevelop smaller commercial sites to create longer commercial lots for contemporary retail, service, and office uses. In addition to this vacant commercial property, staff has been in recent communication with a couple of property owners along the 5400-5500 Block of Winnetka Avenue regarding a potential voluntary sale to the City. The residential property owners were in receipt of the City's recent letter indicating an interest in acquiring property as it becomes available. FUNDING If acquisition proceeds, the property is located in an area where TIF funds can also be expended for redevelopment activities. ATTACHMENTS · BCL Appraisal Report A SUMMARY REPORT COMPLETE APPRAISAL OF A Fast Food Restaurant Building 5550 Winnetka Avenue New Hope, Minnesota Ed's Donut Shop PREPARED FOR The City of New Hope c/o Susan Henry 4401 Xylon Avenue North New Hope, Minnesota 55428 EFFECTIVE DATE OF APPRAISAL December 3, 1999 OUR FILE 99921 BCL APPRAISALS 2852 ANTHONY LANE SO., MINNEAPOLIS, MINNESOTA 55418 (612)781-0605 Fax: 781-7826 RON LACHENMAYF-.R, SRA BRAD BJORKLUND, MAI, SRA REAL ESTATE APPRAISERS & CONSULTANTS December 3, 1999 The City of New Hope c/o Susan Henry 4401 Xylon Avenue North New Hope, Minnesota 55428 Re: Market Value Appraisal on a donut shop @ 5550 Winnetka Avenue North, New Hope Dear Ms. Henry: In response to your request, I have conducted the required investigation, gathered the necessary data, and made certain analyses that have enabled me to form an opinion as to the Market Value of the real property referenced above. Based on an inspection of the property and the investigation and analyses undertaken, I have formed the opinion that as of December 3, 1999, and subject to the assumptions' and limiting conditions set forth in this report, the Market Value is $280,000 as follows: TWO HUNDRED EIGHTY THOUSAND DOLLARS The narrative appraisal report that follows sets forth the identification of the property, the assumptions and limiting conditions, pertinent facts about the area and the subject property, comparable data, the results of the investigations and analyses, and the reasoning leading to the conclusions. Respectfully submitted, Edc Bjorklund,.~ Associate General Member of the Appraisal Institute & Certified General Real Property Appraiser MN License ~003154; Expiration 08/31/00 EB/Ib MORE THAN 80 YEARS FULL APPRAISAL SERVICES EEO/AA TABLE OF CONTENTS APPRAISAL CERTIFICATION ................................................. 1 APPRAISAL SUMMARY ...................................................... 2 ASSUMPTIONS AND LIMITING CONDITIONS .................................... 3 PURPOSE OF APPRAISAL AND DEFINITION OF VALUE ........................... 4 PROPERTY TO BE APPRAISED ............................................... 5 PROPERTY RIGHTS APPRAISED ............................................. 5 SCOPE OF APPRAISAL ..................................................... 6 OWNERSHIP, RECENT HISTORY & MARKETING PERIOD .......................... 7 LEGAL DESCRIPTION ....................................................... 8 REAL ESTATE TAX INFORMATION ............................................ 8 CITY AND NEIGHBORHOOD DESCRIPTION ..................................... 8 SITE DESCRIPTION ........................................................ 10 STREET SCENE PHOTOS .................................................. 13 ZONING MAP ................................. - ............................ 15 PLAT MAP ............................................................... 16 DESCRIPTION OF IMPROVEMENTS .......................................... 17 PHOTOS OF SUBJECT PROPERTY .......................................... 20 BUILDING SKETCH ........................................................ 23 HIGHEST AND BEST USE ................................................... 24 APPRAISAL METHODOLOGY ................................................ 27 COST APPROACH ..................... ' .................................... 28 SALES COMPARISON APPROACH ........................................... 46 INCOME APPROACH ....................................................... 61 SUMMARY AND CONCLUSION ............................................... 65 IMMOVABLE TRADE FIXTURE VALUE ......................................... 67 ADDENDA APPRAISING QUALIFICATIONS OF ERIC BJORKLUND CITY MAP COMPARABLE SALE MAP (3) EXTRA COMPARABLE LAND SALES APPRAISAL CERTIFICATION I certify that to the best of my knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, unbiased professional analyses, opinions, and conclusions. I have no present or prospective interest in the property that is the subject of this report, and I have no personal interest or bias with respect to the parties involved. My compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. My analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice and with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute. I have made a personal inspection of the property that is the subject of this report. It was inspected with the property owners permission on November 4, 1999. The owners, whom were in Phoenix and Chicago at the time, were not present for the inspection. No one provided significant professional assistance to the person Signing this report. I certify that the use of this report is subject to the requirements of the Appraisal Institute relating to the necessities (from time to time) for peer review to occur by its duly authorized representatives, and also with just cause, review by representatives of the Minnesota Department of Commerce Enforcement Division relating to enforcement of the terms and conditions necessary to hold a state general appraisal license. Edc Bjorklun~/ Associate General Member of the Appraisal Institute & Certified General Real Property Appraiser Minnesota Appraisal License #4003154; Expiration 08/31/00 BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 2 APPRAISAL SUMMARY Appraisal Scope - The property was inspected on November 4, 1999. The development of the appraisal is considered Complete. Three approaches to value, the Cost, Sales Comparison and Income Approach, are used to develop an estimate of Market Value. The reporting format of the appraisal is considered to be Summary in nature. Property Appraised - A fast food restaurant @ 5550 Winnetka Avenue North, New Hope. Date of Valuation - December 3, 1999 Property Rights Appraised - Fee Simple Name of Owner - Kiva New Hope Corporation (Pat Lusk & Dave Bresnahan) Date of Inspection - November 4, 1999 Property Data - Site: 19,900 sf zoned B-2, Retail Business. Improvements: One story fast food restaurant building with 1,323 sf GBA. Built in 1975. Highest and Best Use - As vacant; assemblage and development with a retail commercial building. As Improved; the present use. Property Value Indications: 1) Cost Approach $282,500 2) Sales Comparison Approach $282,000 3) Income Approach $270,000 Value Conclusion: $280,000 BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 ASSUMPTIONS AND LIMITING CONDITIONS This appraisal report has been made with the following general assumptions. No responsibility is assumed for the legal description or for matters including legal or title considerations. Title to the property is assumed to be good and marketable unless otherwise stated. The property is appraised free and clear of any or all liens or encumbrances unless otherwise stated. The information furnished by others is believed to be reliable. However, no warranty is given for its accuracy. All engineering is assumed to be correct. The plot plans and illustrative material in this report are included only to assist the reader in visualizing the property. o The appraiser assumes .that there are no hidden or unapparent conditions of the property or subsoil which would render it more or less valuable than otherwise comparable property. The appraiser is not an expert in determining the presence or absence of hazardous substance, defined as all hazardous or toxic materials, waste, pollutants or contaminants (including, but not limited to, asbestos, PCB, UFFI, or other raw materials or chemicals) present on the property. The appraiser assumes no responsibility for the studies or analysis which would be required to conclude the presence or absence of such substances or for loss as a result of the presence of such substances. The client is urged to retain an expert in this field, if desired. The value estimate is based on the assumption that the subject property is not so affected. It is assumed that all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local state, or national government or pdvate entity or organization have been or can be obtained or renewed for any use on which the value estimate contained in this report is based. 7. It is assumed that there is no encroachment or trespass unless noted in the report. The Americans with Disabilities Act (ADA) became effective in January of 1992. I have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the detailed requirements of the ADA. It is possible that a compliance survey of the property, together with a detailed analysis of the requirements of the ADA, could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect upon the value of the property. Since I have no direct evidence relating to the issue, I did not consider possible non-compliance with the requirements of the ADA in estimating the value of the property. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 ASSUMPTIONS AND LIMITING CONDITIONS CONT. This appraisal report has been made with the following general limiting conditions: Possession of this report, or a copy thereof, does not carry with it the dght of publication. It may not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraiser, and in any event only with proper written qualification and only in its entirety. The appraiser herein by reason of this appraisal is not required to give further consultation, testimony, or be in attendance in court with reference to the property in question unless arrangements have been previously made. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraiser, or the firm with which the appraiser is connected) shall be disseminated to the public through advertising, public relations, or other media without the prior wdtten consent and approval of the appraiser. PURPOSE OF APPRAISAL, INTENDED USERS AND DEFINITION OF VALUE The appraisal was requested to estimate the subject's market value. The client is proposing to purchase the property for the purposes of redeveloping it. Eminent domain is a power possessed by the client, and condemnation remains a possibility. The intended users of the opinions of value expressed in this document are Ms. Susan Henry of the City of New Hope, and her assignees (those whom she would personally provide the report to in efforts to negotiate a purchase of the subject with). These persons may be Kirk McDonald, Director of Community Development, or the city attorney. Other users of the report are unintended. Market value is defined as the most probable pdce which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus (such as the threat of condemnation). Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 PURPOSE OF APPRAISAL~ INTENDED USERS AND DEFINITION OF VALUE CONT. 1. buyer and seller are typically motivated 2. both parties are well informed or well advised, and acting in what they consider their best interests; 3. a reasonable time is allowed for exposure in the open market; 4. payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and 5. the pdce represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. (Source: Office of the Comptroller of the Currency under 12 CFR, Part 34, Subpart C-Appraisals, 34.42 Definitions [fi.) PROPERTY TO BE APPRAISED The subject property real estate is a 19,900 sf zoned B-2, Retail Business that is improved with fast food restaurant building (a donut shop) that was constructed in 1975. The building is The assigned address to the real estate is 5550 Winnetka Avenue North, currently vacant. New Hope. PROPERTY RIGHTS APPRAISED Real property ownership consists of a group of distinct dghts. In this appraisal, complete real property ownership, or the fee simple interest will be valued. Fee simple interest is the absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat. (The Dictionary of Real Estate Appraisal, 3rd Edition, by the Appraisal Institute, 1993.) Any limitations such as existing road easements on the unencumbered fee interest are discussed within the body of this report. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 SCOPE OF APPRAISAL The Scope is the extent of the process in which data are collected, confirmed, and reported, and the report is completed. The formality of the appraisal process began on about October 25, 1999 when New Hope City Council gave city staff the approval to obtain an appraisal report of the subject property. A BCL Appraisals fee quote was submitted eadier. With information contained in the clients engagement letter, the owner of the property was contacted (after the date of the letter) for the purposes of setting up a time when the real estate could be inspected. Collection of relevant data on the subject thence began, as did the process of collecting, confirming and reporting Market Data which would enable the appraiser to judge what approaches to value were relevant to this assignment. The subject was inspected on November 4, 1999. While several'techniques avail themselves to estimate the subject's market value, and some are better than others, it is the appraiser's opinion that the three typical approaches to value (Cost, Sales Comparison and Income Approaches) are relevant. The subject is a type of building that is typically purchased for owner occupancy (Sales Comparison Approach is relevant), but it may be rented to a tenant (Income Approach is relevant), and the replacement cost to some degree is a factor (the Cost Approach is relevant) that buyers consider. The reporting style of the data in this report is presented in summary form. Narrative description of the market data and analyses is kept succinct. Market data used in the appraisal was collected by Edc Bjorklund from a vadety of sources. These sources include BCL Appraisals, Inc. office files, other appraisers (active in a confidential data exchange), Realtors (active in the Residential and Commercial Multiple Listing Service), buyers & sellers of similar property, nearby land owners, municipal offices (the City of New Hope and court houses of vadous counties where data was found), and several computer on-line data search networks (REDI, MLS, MOORE DATA, & PLAT SYSTEM SERVICES). BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 7 OWNERSHIP, RECENT HISTORY & MARKETING PERIOD The subject is presently owned by Kiva New Hope Corporation, and is vacant. The ownership has remained the same over the past five years, but given that the subject is currently for sale, an ownership change might occur in the near term future. The current asking pdce for the subject is $450,000. The property was first offered for sale (through a sign in the window) in about mid October, 1999. The marketing pedod (at or abOut the appraised opinion of value) to reach a sale agreement is estimated to be about three months. The owner agent (Dave Bresnahan of Kiva New Hope Corp) reports there has been some interest already expressed in buying the property, but that no response has been offered because of the city's initiatives to potentially buy it. Mr. Bresnahan reports the pdor tenant recently left the building for health reasons after their lease expired. The old lease was for a three year term, and was quoted at a rate of $3,200 per month, triple net. A copy of the lease that would support this statement was requested, but it was never provided. A pdor tenant was, however, interviewed and they said their lease was not of this nature. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 LEGAL DESCRIPTION That part of Lot 38, lying North of the South 1,190 feet and West of the East 140 feet, except road, Auditor's Subdivision No. 226, Hennepin County, Minnesota. REAL ESTATE TAX INFORMATION Taxpayer. Kiva New Hope Corporation Fee Owner: Kiva New Hope Corporation Address: 5550 Winnetka Avenue North, New Hope, Minnesota 55428-3719 Property I.D. Number: 05-118-21-33-0019 Assessors Market Value: $160,000 for taxes payable in 1999. Value allocation as follows: $126,000 land & $34,000 building Real Estate Taxes & Solid Waste Fee: $5,840.52 Special Assessments: $0.00 CITY AND NEIGHBORHOOD DESCRIPTION The subject, is located in the City of New Hope, a second tier westedy suburb of Minneapolis with a current population of about 21,610. New Hope is approximately seven miles northwest of Downtown Minneapolis. The community is pdmadly residential in character. Most of the city's homes and apartment buildings were built in the 1960's. Industrial districts are scattered in several locations and comprise the second largest land use. The largest industrial distdct is found on the west edge of the city's north half. Commercial development is most concentrated at the intersection of 42nd Avenue North (C.S.A.H. #9/Rockford Road) and Winnetka Avenue (C.S.A.H. #156). New Hope has a council/manager plan B form of government that provides good quality municipal utilities and services. Essentially all of the city streets are paved, have concrete curb and gutter, street lights and service by sanitary sewer and water. The entire city is located in School Distdct #281. MTC bus routes serve most of the City including a route on Bass Lake Road by the subject. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 CITY AND NEIGHBORHOOD DESCRIPTION CONT. Major transportation to the City is provided by Highway #169 along the westerly City limits. Good secondary transportation in and through the city is also provided by Rockford Road (C.S.A.H. #9), Bass Lake Road (C.S.A.H. #10), Medicine Lake Road (/C.S.A.H. #70), and VVinnetka Avenue (C.S.A.H #126). The subject is located at the intersection of Bass Lake Road and Winnetka Avenue. No unusual municipal or economic influences are observed that would unduly affect the value of real estate in New Hope. The subject is however located in an area of the city (described in the Comprehensive Plan as Planning Dictrict 6) which is earmarked for potential redevelopment, and tax increment financing funds can be expended for redevelopment activities. While no blight in the area has been observed, it has been recommended by city staff that within this area, smaller commercially improved sites might be assembled and buildings razed to create larger commercial sites for re-use by contemporary retail, service and office uses. Despite such future plans though, and disregarding the potential threat of condemnation, the market area is perceived to be health~,, and the overall metro area economy is good. Vacancy is Iow (c.3%) in the retail commercial market. Most small commercial buildings like the subject are (owner) occupied. The Zoning Map shows the nature of uses in the immediate neighborhood. The three other comers of the Winnetka/Bass Lake Road intersection (the subject is the forth comer) are B-3 zoned (auto Oriented) and are improved with automotive service buildings. Two are service stations (Amoco on the Northwest comer, and Sinclair on the Southwest comer) that also sell gas (besides repairing cars), and one is a muffler shop (Midas on the Northeast comer). B-2 zoned (retail use) land is located behind each of the three comers. Developed uses on the B- 2 zoned land include a funeral home, two nursery/garden centers, and a small strip center. On the southeast comer of the intersection where the subject is, a one story office building abuts the subject to the east. A two story office is to the east of this. South of the subject is a single family home. A home is also located across the street to the southwest (along with one vacant residential lot). An elementary school and a junior high school are located behind the house, on the west side of Winnetka. According to a recent issue of the Wall Street Journal newspaper (11/29/99), the Federal Reserve Bank Discount Rate is 5.68%, the Prime Rate is 8.5%, and yields on 5, 10 & 30 year U.S. Bonds are 6.03%, 6.10% and 6.22% respectively. Interest rates on commercial BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 ]0 CITY AND NEIGHBORHOOD DESCRIPTION CONT. mortgages for real estate in the subject neighborhood depend on many factors, but a reasonable estimate would be say 1-2 points higher than the prime rate, and 3-4 points higher than the yield on treasury bonds. A 9.5% interest rate is estimated. Mortgage rates on 30 year conventional home mortgages are at 7.75% for 30 years with no points. In this market area, the annualized appreciation rate for commercial real estate has varied from -5%, to +7% as follows: 1990 =-5%. 1991 = -5%. 1992 = No change. 1993 = +3%. 1994 = +4%. 1995 = +4%. 1996 = +4%. 1997 = +4%. 1998 = + 7%. Thus far in 1999, +6.5%. SITE DESCRIPTION Location The subject property is located at 5550 Winnetka Avenue North, in the City of New Hope, in the State of Minnesota. The zip code for this address is 55438. Size The subject has the shape of a rectangle, less a triangular comer cut taken from the northeast comer. The size estimate is calculated as follows; 135' x 148' = 19,980 sf less 20' x 8' + 2 = 19,900 sf, subject to survey. Easements A wood pole on the east edge of the site, which carries overhead phone and electric lines (underground from the pole to the building) would appear to exist with a utility easement. But, overhead electric lines that parallel Winnetka Avenue appear to be in the road right-of-way. Road easements for Winnetka Avenue and Bass Lake Road are assumed to be taken in fee. No other easements were reported or observed to affect the subject. Streets The property contains about 148 feet of frontage on the right-of-way for Winnetka Avenue, otherwise known as County Road No. 56, and about 135 feet of frontage on the right-of-way for Bass Lake Road, otherwise known as County Road 10. Both street right-of-ways are BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 ]! SITE DESCRIPTION CONT. Streets Cont. improved with four lane, asphalt paved roadways. Concrete sidewalks, curbs and gutters are present. The intersection of the streets is semaphore controlled. The right-of-way for Winnetka is 90 feet wide, and it is over 100 feet of Bass Lake Road. The speed limit on both streets is about 40 MPH. The average daily traffic on Bass Lake Road and Winnetka Avenue by the subject is 21,000 and 13,500 vehicles respectively (1997 data). Utilities The subject is served with city sewer, water, electric, phone and natural gas. Topo,qraph¥ and Soils The site is generally level, but has enough slope towards the streets to allow for good drainage. Soils appear to be firm and support the building on the site. No significant settling is observed in the subject improvements, or on buildings nearby. Adverse contamination is presumed to be non-existent. An old Un-o-Cai service station was however once on the property, but the current owner reports than environmental concerns over the property were alleviated. Other than some scrub trees or brush near the northeast corner, a few shrubs on the west edge, and some sod, the building footprint and pavement occupy most of the site. Accessibility There are two curb cuts to the site from the adjacent streets; one on the north edge, and one on the west edge. Due to a road median on Bass Lake Road, only right turn in/out motions to the subject are allowed on the north edge. But, all turning motions to enter or leave the site are allowed on the west edge with the Winnetka Avenue frontage. Access to the subject from the surrounding neighborhood is good. Winnetka Avenue and Bass Lake Road are both county roads, and collect traffic that is destined for much of northerly New Hope, and adjacent Crystal. Moreover, these roads intersect Hwy 169, and County Roads 42, 102, 8, 9 and 81 within a mile. 1-694 is also within about one mile too. BCL APPRAISALS, INC, 2852 Anthony Lane South, Minneapolis, Minneso~ 55418 SITE DESCRIPTION CONT. Zoning The current zoning map of the City of New Hope shows the property is zoned B-2, Retail Business. The pdmary purpose of the B-2 district is to provide for Iow intensity, retail or service outlets which deal directly with the customer for whom the goods or services are furnished. The buildings allowed in this district are to provide goods and services on a limited community market scale and should be located in areas which are well served by collector or arterial street facilities at the edge of residential districts. The lot size minimum is 43,560 square feet, and the minimum lot width is 100 feet. Yard setbacks are 35 feet, 10 feet and 35 feet for front, side and rear yard respectively. IdentiW The identity of the subject is retail commercial. The site is located in retail zoned area, and is on the comer of two county roads. Frequent and convenient stops by consumers of retail goods and services may be readily made. But, given a lot size that is below standard, in order to construct a building on the site, a buyer would recognize that there are issues with rezoning or variances to consider. The site may also be identified as one to assemble with other similar zoned sites to the east. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 I I ! ! i I 1 I I i I ! ! ! i ! i ! STREET SCENE PHOTOS Street Scene West on Bass Lake Road Street SCene South on Winnetka 13 BCL APPRAISALS, INC, STREETSCENEPHOTOS ]4 Street Scene East on Bass Lake Road Street Scene North on Winnetka BCL APPRAISALS, INC. · BASS AVE · ~SS LAKE · ST AVE ( CO RD NO DESCRIPTION OF IMPROVEMENTS The subject land is improved with a fast food restaurant. Although currently vacant, it used to be an operating donut shop. Age According to county assessing and city building records, the building was constructed in 1975. As of the effective date of appraisal, the building is 24 years old. Dimensions and Size Please see attached sketch. The building is constructed on slab, and is one story tall. Due to inset exterior walls on the facade of the building, the calculation of the gross building area is less than if the dimensions of the drip line from the roof are used; 35.5' x 44'. The gross building area is estimated at 1,323 square feet. The story height (from floor to roof deck) is 11 feet. Exterior walls extend another two feet above the roof deck to shield roof top HVAC equipment. Foundation Not visible. Assumed to be poured concrete footings. The exterior walls are brick veneer over concrete block. Framing The roof frame is comprised of webbed metal joists which are supported by the exterior load bearing concrete block walls. Interior partition walls are framed with wood joists. Roof Flat with a rolled asphalt membrane. Walls Extedor walls are brick over concrete block. The facade however is covered with large, fixed sash, thermopane windows. In the kitchen and baking areas, interior walls are finished with marlite plastic panels. In the dining area, walls are finished with painted wood paneling. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 DESCRIPTION OF IMPROVEMENTS CONT. 18 ,Ceilings The ceilings in most of the building are suspended acoustic panels (2'x4'). Tongue and groove wood boards are however present on the ceiling above the wait station area. Clearspan ceiling height is eight feet. .Floors The building is constructed on a concrete slab. The slab is finished with clay tile floors. Doors/Windows There are eight large (floor to ceiling) thermopane glass windows on the facade of the building along with two side entry glass doors, and a front entry foyer with two glass doors. A rear sen/ica door and another side service door is metal. One glass entry door on the west side of the building is caulked shut. Interior doors to the bathroom and storage areas are hollow core metal. Electrical The building has a 200 amp electric main with 240 volt and three phase sen/ice. There are two circuit breaker panels. Lighting is provided by fluorescent fixtures. .plumbinp There is one, two fixture (toilet and sink) bathroom, one 40 gallon water heater, one janitors sink, and one hand sink in the rear storage area. Other plumbing fixtures are trade fixtures. .Heatinct/Cooling The building is heated by one natural gas fired furnace, and heated and cooled by two roof top HVAC units. The insulation capacity of the building is unknown, but it is assumed to be adequate. On the roof, there are probably rigid boards of styrofoam insulation above the metal decking, and below rolled asphalt weather coating. Wall insulation is not visible over the concrete blocks in the storage areas, but it may lie between the blocks and the bdck exterior finish, or within the blocks themselves. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 DESCRIPTION OF IMPROVEMENTS CONT. Miscellaneous At the time of inspection, the building was vacant but there were several items of personal property (cash register, 3-door freezer, pop dispensing equipment, coffee machine, refrigerator, portable storage racks, warming ovens, butcher block work top) and trade fixtures (plumbing and gas hook-ups, donut display case, a counter top & partition wall, a convection oven hood, fire suppression system, make-up air canopy system, beverage table, 3-tub scullery, dish tables & drying racks) that are not part of this appraisal of real estate value. Trade fixture value is considered separately in a later section of this report. Condition The overall condition of the building is good. But, deterioration is present none-the-less. The building is not new. Obsolescence is also observed. Restaurants are often constructed for a singular user, and are not typically usable by another type of tenant unless significant alterations are made or remodeling is done. Entrepreneurs seem to be particularly sensitive to the floor plan and decorating. Long lived parts of the building such as the walls, foundation and overall structure appear to be sound and in good condition. Short lived items such as the HVAC system and roof membrane are in good condition. The owners have apparently replaced the HVAC system two years ago, and also resurfaced the roof and parking lot. But, other short lived items such as the water heate~: (older) and the decorating, while not in bad physical condition, probably needs to be redone so that the buildings ambience would fit the entrepreneurs particular type of business. Also, odors from the old donut business saturate the floor and ceiling panels so that it is likely they would be replaced anyway if it wasn't another donut business that re- occupied the premises. ,On-Site Improvements 13,539 sf asphalt pavement 672 sf concrete pavement 382 If 6" concrete curb 4,175 sf sod grass lawn 2 shrubs 1 tree 72 If precast concrete parking bumpers 2852 554]8 PHOTOS OF SUBJECT PROPERTY Front View 2.0 Rear View BCL APPRAISALS, INC. PHOTOS OF SUBJECT PROPERTY Roof View Dining Area BCL APPRAISALS, INC. PHOTOS OF SUBJECT PROPERTY Baking and Reception Area Clean Up and Storage Area 22 BCL APPRAISALS, INC. 2.3 , BUILDING SKETCH FileNo ,,,21 Case No Storage Area & Clean-up Area Baking Area & Receptio~ Area 10.5' Dinii~g 18.0' ~-3.~ Area Building Area 44 x 18 = 792 (37 + 44) x 3.5 = 142 2 10.5x37 = 389 1323 sf HIGHEST AND BEST USE Highest and best use is defined as the reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteda the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability. Hi,qhest and Best Use as Vacant The subject property is zoned B-2, Retail Business under the City of New Hope's Zoning Ordinance. The primary purpose of the B-2 district is to provide for Iow intensity, retail or service outlets which deal directly with the customer for whom the goods or services are fumished. The buildings allowed in this district are to provide goods and services on a limited community market scale and should be located in areas which are well served by collector or arterial street facilities at the edge of residential districts. The lot size minimum is 43,560 square feet, and the minimum lot width is 100 feet. Yard setbacks are 35 feet, 10 feet and 35 feet for front, side and rear yard respectively. From a physical standpoint, the site's road access, good soils, and availability of all municipal utilities readily give the subJect the physical capacity to be developed. But, the subject's size of 19,900 square feet is below the minimum area required under the zoning ordinance. Either a variance, a change in zoning or assemblage is needed so that development 'might be permitted on the subject land. Currently, adjacent land to the subject is improved with a house and an office type building. Neither adjacent use as they are improved would appear to benefit much by having more land. A need for extra parking is not perceived, and it is not likely either adjacent use would use the subject land to add on to their building. Rather, assembling the subject with an adjacent site(s) would create a larger parcel that would be attractive and legally permissible for redevelopment. But since it is probable that these adjacent buildings as currently improved are worth more than the underlying land valued as if it were a buildable site, redevelopment at this time is unlikely. Then again, the subject is found within an area that the city would like to see redevelopment occur in. A buyer of the subject could be eligible to receive city assistance in offsetting contributing building value and demolition costs that with the land are higher than the unit value of a one plus acre developable site. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 HIGHEST AND BEST USE CONT. Hi,qhest and Best Use as Vacant Cont. Currently, the market demand for a retail commercial building at the subject location is perceived to be good. In other words, consumer demand from within the neighborhood trade area should support a retail building at the subject's comer. The trade area is fully developed, and consumers should be drawn from all directions given that the subject lies at an intersection of two county roads that carry north, east, west and south bound traffic. Boundaries of the trade area should extend a good half mile to the north, west and south of the subject. Supedor competition though within the Crystal Shopping center (% mile east) and in the downtown .area of New Hope (one mile south) would limit the drawing power of the subject to about a quarter mile to the east, and a half mile to the south. In conclusion, with financing readily available from most metro area lending institutions (for new and existing construction, with terms that vary of course), a market full with capable (able and qualified) buyers, all municipal utilities available to the site, good access, a limited supply of land, and a city willing to help with redevelopment, investment in the site for future retail commercial redevelopment should represent the most productive and feasible use of the site. Values of real estate have been increasing (7% over the past few years for commercial property), and the outlook for the real estate market as a whole is good. Appreciation is expected to exist and or persist into the near term future. Highest and Best Use as Improved The subject site is improved with a fast food restaurant. This use is a permitted type of improvement in the B-2 district. But, the building on this site alone could not be constructed new due to the lot size being less than one acre. As such, it would seem the subject is a legal non-conforming use of the land. The zoning ordinance does however allow for the use to continue. With a construction date of 1975, the subject is obviously not new. With a highest and best use for a new building, there is physical depreciation. Long and short lived items are both affected to significant extents. However, the building's condition is acceptable for occupancy; everything works and major items of deferred maintenance are not observed, even though another tenant might wish to redecorate. The building has received maintenance and repairs since it was built. A new roof covedng and a parking lot that was resurfaced about two years BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 HIGHEST AND BEST USE CONT. HiRhest and Best Use as Improved Cont. ago are reported to have been the most recent repairs. Overall, the building is in pretty good physical condition. From a functional perspective, the buildings vacancy does and yet does not provide some reflection as to the health of a fast food restaurant in this location. According to the owner, the building isn't vacant because the donut business wasn't doing well. The business was "ok", but the tenants health was apparently bad and rather than renew the lease, they just left. But then again, the building had been used for a donut business since it was constructed in 1975, some 24 years ago. With many restaurants having economic lives of around 30 years, a change in the buildings use was likely soon approaching anyway. Consumer tastes change, sales may decline as a result, and demand for a building like the subject dwindles. But, there is demand for buildings like the subject which are in good locations and in good condition, and most are occupied. Use of the building by a chain type operation for which the building was first constructed for, is however doubtful. A singular owner operated business offedng a specialty product is most probable. A coffee shop perhaps is a reasonable future use a buyer might use the building for. In conclusion, the highest and best use is the present use. The building is in good overall condition, and it contributes significant value to the vacant site. Demolition is not probable for pdvate redevelopment (unless the city makes a major financial commitment to help a buyer acquire the subject and other adjacent buildings, and demolish them in efforts to create a one plus acre site). BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 27 APPRAISAL METHODOLOGY General Appraisal The valuation of a typical parcel of real estate is dedved principally through three basic approaches to value: The Replacement Cost Approach, The Sales Comparison Approach, & The Income Approach. Cost Approach This approach requires that a current estimate of the cost of .replacing the improvements be made, from which must be deducted accrued depreciation in terms of physical deterioration, functional obsolescence, and economic obsolescence, if any, and to which is added the estimated value of the land, as if vacant. Sales Comparison Approach The Sales Comparison Approach is based upon the principle of substitution, that is, when a property is placed on the market, its value tends to be se{ at the cost of acquiring an equally desirable substitute property, assuming no costly delay in making the substitution. Since no two properties are ever truly identical, adjustments to the comparable are necessary for differences in location, date of sale, condition, size, land to building ratio, and other matters. These considerations are a function of the appraiser's experience and judgment. Income Approach The Income Approach involves an analysis of the property in terms of its ability to provide a net annual income in dollars over a given economic life. The estimated net annual income is then capitalized at a rate commensurate with the relative certainty of its continuance and the risk involved in ownership of the property, by utilization of the formula; Net Income, divided by Capitalization Rate, equals Value. In this appraisal, because owner occupancy remains a strong probability for the subject, and buildings like the subject are predominately owner occupied, the Income Approach is not a good approach. However, it will be applied because some stores like it are rented. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 2.8 COST APPROACH Marshall Valuation Service Section 13, Page 17 Type - Restaurants, Fast Food; Class C, Very Good Quality Basic Unit Cost $124.68 per square foot Square Foot Refinements Cold Climate Heat & A/C Total +$ 2.15 $126.83 per square foot Wall Hei,qht and Area Refinements Wall Height Multiplier (13' to roof deck) x 0.979 Area Multiplier. x 1.261 (1,323 square foot area/153 lineal foot perimeter) Temporal & Locational Multipliers Current Cost Multiplier Central USA, Class C, Section 13 x 1.08 Local Minneapolis Multiplier x 1.13 Application $126.83 x 0.979 x 1.261 x 1.08 x 1.13 = $191.08 per square foot BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 COSTAPPROACH CONT. Direct Construction Cost (Replacement) SAY $252,800 The building contains 1,323 square feet of gross building area. The direct construction costs are calculated as follows: 1,323 square feet @ $191.08 = $252,799 Site Improvements SAY $ 45,900 18,577 sf site grading @ $0.25 = $4,644 13,539 sf asphalt pavement (~ $1.69 = $22,881 672 sf concrete pavement @ $3.35 = $2,251 382 If 6" concrete curb @ $8.01 = $3,060 4,175 sf sod grass lawn @ $0.43 = $1,795 2 shrubs @ $25 = $50 1 tree @ $180 = $180 72 If precast concrete car bumpers @ $6.16 = $444 Parking lot stdping = $300 109 If 7.5' tall'basket weave wood fence @ $18.50 = $2,017 5' x 8' & 3' x 3' double faced signs on 2 - 16' metal poles = $8,300 Total.= $45,922 Indirect Construction Costs SAY $14,900 Interest and taxes on land dudng construction and development period, financing, appraisal and miscellaneous expenses at approximately 5.0% of direct construction costs and site improvements. 5.0% of ($252,800 + $45,900 or $298,700) = $14,935 BCL APPRAISALS, INC. 2852 Anthony Lane Seuth, Minneapolis, Minneso{a 55418 3O COSTAPPROACH CONT. Entrepreneurial Incentive SAY $ 31,400 Entrepreneurial Profit is a market-derived figure that represents the amount an entrepreneur expects to receive in addition to costs; the difference between total cost and market value. It is the reward for acquiring local or national tenants, coordinating and meeting with the architect and builder, and overseeing the management of the project to the point of occupancy in the subject project. Although the subject is a single tenant fast food restaurant, it usually constructed by entrepreneurs in chains. For their efforts that begin with finding an owner/tenant whom wants to open up a restaurant franchise in the given market area, entrepreneurs often realize some profit. In other words, the "develop and sell for a quick profit" scenario is frequently observed in this type of real estate. But, the small size of the subject will tend to inhibit an undue amount of profit from being made. Also, owner occupancy tends to occur after a few years, and the building ends up being used for a food business that reflects some individuality. Therein, the reward to the entrepreneur in not in the real estate per say, but in the opportunity to run a unique business (to make a living) in the building. The amount of entrepreneurial profit is best estimated at 10% of the sum of the direct and indirect costs. 10% of ($252,800 + $45,900 + $14,900 or $313,600) = $31,360 Total Replacement Cost $345,000 Depreciation Depreciation is estimated by an economic age-life technique where effective age divided by the economic life equals depreciation (percentage). The economic life of a building like the subject is estimated using a combination of methods; extracting the life from sales of similar buildings, the Marshall & Swift Cost Manual, and observations in the market noting when similar buildings are torn down or converted to another use. Marshall & Swift reports similar use (good quality fast food restaurants) buildings BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minneso~ 55418 3] COSTAPPROACH CONT. Depreciation Cont. have an economic life of 35 years. Extracted economic lives from Building Sales #1, #3 & #5 indicate economic lives of 24.4, 30.6 and 30.6 years (using their actual age as estimates of their effective age) respectively. The best overall estimate is say 30 years. The average of the four life indications is 30.15 years. The Marshall and Swift indication provides the highest indication at 35 years. While it perhaps is the more comprehensive indication, it is not as reflective of the local market as are the extracted economic life from the comparable sales. These indications are much better. Two are the same at 30.6 years. The effective age of the subject is best estimated at 21 years. This is based upon its actual age of 23 years, less say two years due to recent replacements made by the property owners (HVAC, roof and parking lot). As such, with a 21 year effective age and a 30 year economic life, (21 + 30 =) 70% depreciation is indicated. With a total replacement cost of $345,000, the depreciation is $241,500 calculated as follows: $345,000 x 0.70 = $241,500 Depreciated Cost Summary Total Direct and Indirect Construction Costs $345,000 Estimated Accrued Depreciation ($241,500) Depreciated Cost Estimate $103,500 BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 COST APPROACH CONT. Land Valuation A number of land sales, each having a similar highest and best use as the subject property, have been checked and related to the subject property (vacant land only) as to location, date of sale, size, zoning, topography, financing, and other matters influencing market value. A sampling of the market data follows. The analysis indicates that the subject would be marketable at about $179,000 as indicated below: LAND ONLY 19,900 Square Feet @ $9.00 = $179,100 Discussion of Comparable Land Sales Seven land sales are described on the following pages. Although they are comparable, there are many differences amongst these comparablesl and these differences are directly attributable to the variety in price. Preceding the description of each comparable sale is an adjustment gdd. On this grid are detailed adjustments which attempt to reconcile the significant differences (in terms of value) that exist between the subject and the comparable sales. From each comparable sale, an adjusted rate is produced which is an indication of the subject's value. An explanation of the major adjustment categories and why the adjustments are applied to the comparables follow. Other This is an adjustment to reflect any non-market motivations of the buyer or seller, property dghts conveyed other than fee simple, or simply a catch all category for miscellaneous adjustments like demolition costs to create vacant land. Sales #2-5 & #7 were adjusted upward by the amount of demolition costs that are needed to create a vacant site. Had the sites been vacant, buyers would have paid that much more for the property. Also included in the adjustment to Sale #3 is the buyers additional cost ($7,500) to acquire city owned land adjacent to the site. Sale #1 is adjusted down by the small amount of contributing value the building shell added to the site value. Rather than being demolished, the buyer found value in the shell because it was able to be totally remodeled into their new convenience store. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 33 COST APPROACH CONT. Land Valuation Cont. Financing This is an adjustment to reflect a cash pdce if the property was purchased on a contract for deed (or other non-cash arranged terms) that inflated the purchase pdce above that which would have been paid in cash. Because all other sales sold for cash, no adjustments are needed. Market Conditions This is essentially a time adjustment to reflect changes in market value between the date of sale and the date of this appraisal due to pdce changes in the real estate market. In this market area, the annualized appreciation rate has varied from +4%, to +7% as follows: 1995 = +4%. 1996 = +4%. 1997 = +4%. 1998 = + 7%. Thus far in 1999, +6.5% (or7% annualized). In short, the adjustment which appears in the gdd is the result of a monthly rate (i.e. 4%/year + 12mo/year = 0.333%) x the number of whole months between the closing date of the comparable transaction to the date of this appraisal. For instance, the adjustment to Sale #2 is 0.333 x 8 months = x1.0267 for the balance of 1995 (2.67%), x 1.04 (or 4%) for 1996, x 1.04 for 1997, x 1.07 for 1998, x 1.065 for thus far in 1999 = 1.265 (or 26.5%). $379,000 cash equivalent sale pdce x 1.265 = say $479,500 price on the effective date of this appraisal. Adjustment amount = $479,500 - $379,000 = $100,500. Location This is an adjustment for location quality and property amenities including value and type of neighborhood real estate, quality of road and utility service, access, and exposure to traffic. The subject is rated as having a good quality location. Sales #1 & #2 have better locations with very good ratings. 15% downward adjustments are applied. Sales #5 & #7 have above average ratings, but are still infedor to the subject. 15% upward adjustments are applied. Sale ~ is most unlike the subject in terms of location. It is rated as average. Access to the site is from one direction only, and the appeal of adjacent properties (older and some industrial use) is not as good as those which surround the subject. A significant upward adjustment of 75% is applied. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 34 COSTAPPROACH CONT. Land Valuation Cont. TooooraDh¥ This is an adjustment to reflect significant differences in shape, slope, subsoil conditions, or differing amounts or wetlands or other unbuildable portions of land. The subject has a modest incline from the street to the bulk of the site which is level, soils are good, and the shape is for the most part blocked in an area where building setbacks may be adequately met. Its topography rating is good. The topography of other comparables is fairly similar, and all are rated equally as good. No topography adjustments are therefore applied. Zonin,q/Use With the subject zoned B-2 and having only 19,900 square feet of land area, assemblage or a variance is needed to develop the site. Because all comparables either met the land size minimum of their particular zoning designation or didn't require either a variance or zoning change, all are superior. A downward zoning adjustment-is therefore needed. In other words, a buyer of the subject should expect a discount from the buildable price of land because they are accepting more than normal risk. A profit margin should be built into the price of the land that will reflect and eventually reward a buyer for future efforts to assemble other sites with the subject, change its zoning, or obtain a variance. 15% downward adjustments are applied to each comparable. Size This is an adjustment to reflect the diminishing value of each additional unit of land area (square foot) due to the higher overall price that comes with purchasing more, less competition for the property (who can afford the land) which does not ddve the price up through multiple bids, and also to the contrary, the reduced appeal of very small sites which are difficult to fit a building on that would find acceptance in the market place. With the subject being 19,900 square feet but needing assemblage for development, the actual size is not one to which a size adjustment would be attributed to, per say. Furthermore, a zoning adjustment, which ends up being a function of the size, has already been applied. The developable size is what should be adjusted for. In most cases, the comparables are of sufficient and comparable size to what the subject might be in the future. The exception lies BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 COSTAPPROACH CONT. Land Valuation Cont. Size Cont. with Sales ~ & #7. These sites are much larger and are well over the lot size minimums in their particular zoning designation (and about 2x and 3x that of the subjects). Economies of scale are felt to have impacted the purchase pdce, and the unit price of the land as such has been discounted. To offset this phenomena, upward size adjustments of 5% and 10% are applied. Land Sale Adjustment Gdd Significant areas for adjustment are identified in the first column, and are labeled Other Financin.q, Market Conditions, etc. The subject is identified in the second column, and the comparables in the remaining seven. The adjustment methodology in this valuation is based on widely recognized appraisal practice and adjusted as appropriate to fit the available market data. In short, the adjustments for significant differences are sequenced into an order where Other matters are adjusted for first, thence Financing and Market Conditions. Lump sum, dollar adjustments are appropriate for each and adjusted prices are the result of summation. A common unit of comparison is thence created to compare the sales with the subject. This is the price per square foot ($/sf). After converting the time adjusted purchase price to a unit pdce per square foot (a common unit of comparison), the remaining adjustments are then applied to the subject by a multiplication process and a single net adjustment factor. The adjustment factor is the result of individual percentage adjustments for location, topography, zoning and size multiplied by one another. The Indicated Subject $/sf is the result of the multiplication of each net adjustment factor by the adjusted common unit pdce (for time, etc made earlier) per square foot of the comparable land sale. The adjustment grid follows. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 COST APPROACH CONT. LAND SALES ADJUSTMENT GRID Price Other Adjustment Adj Price Financing Adjustment Adj Price Market Cond. Adjustment Adj Price Size (sf) Size $/sf Location Adjustment Topography Adjustment Zoning/Use Adjustment Size Adjustment Comparable SaLe No. Subject 1 2 3 4 N/A $285,000 $37],000 $170,000 S 75,000 Fee Simple Fee SimpLe Fee Simple Fee Simple Fee SimpLe Arms Length Arms Length Arms Length Arms Length Arms Length None BLdg Demo Demo Demo '$ 6,000 +$ 6,000 +$ 13,500 +$ 6,000 $279,000 $379,000 $183,500 $ 81,000 Cash Equiv 12/03/99 Good Good B-2/Assemb[e Cash $ 0 Cash $ 0 Cash Cash $ 0 $ 0 5 6 $530,000 $370,000 Fee SimpLe Fee Simpte Arms Length Arms Length Demo None +$ 35,000 $ 0 $565,000 $370,000 Cash $ 0 Cash $ 0 $279,000 $379,000 $183,500 $ 81,000 $565,000 $370,000 7 $ 900,000 Fee SimpLe Arms Length Demo +$ 13,000 $ 913,000 Cash $ 0 19,900 sf 913,000 06/02/99 04/13/95 05/04/95 03/11/95 03/19/98 01113/95 01/26198 +$ 10,000 +$100,500 +$ 49,000 +$ 22,000 +$ 68,500 +$ 95,000 +$ 122,000 $289,000 $479,500 $232,000 $103,000 $633,500 $465,000 $1,035,000 23,250 sf 30,270 sf 21,906 sf 18,555 sf 70,650 sf 44,431 sf 125,125 sf $12.43 $15.8~ $10.59 $ 5.55 $ 8.97 $10.47 $ 8.2? . Very Good Good Average Average(+) Good x 0.85 x 1.00 x 1.75 x 1.15 x 1.00 Very Good x 0.85 Average(+) x 1.15 Good Good Good ~ Good Good Good Good x 1.00 x 1.00 x 1.00 x 1.00 x 1.00 x 1.00 x 1.00 B-3/None B-4/None B-4/None B-4/None B-3/None B-4/None C-l/None x 0.85 x 0.85 x 0.85 x 0.85 x 0.85 x 0.85 x 0.85 23,250 sf 30,270 sf 21,906 sf 18,555 sf 70,650 sf 44,431 sf 125,125 sf x 1.00 x 1.00 x 1.00 x 1.00 x 1.05 x 1.00 x 1.10 Net Adj Fact x 0.722 x 0.722 x 0.960 x 1.487 x 1.026 x 0.85 x 1.075 ind Subs S 8.97 $11.44 $ 9.00 $ 8.25 $ 9.20 $ 8.90 $ 8.89 37 COSTAPPROACH CONT. Land Valuation Cont. Reconciliation of Value Indications The range of the seven indications is $8.25 to $11.44/sf, with an average of $9.24/sf, and a standard deviation of $1.01/sf. While all sales are meaningful, some are better than others. Because of their location and the fact that it is the unit pdce of the sale which is being analyzed (to estimate a subject land value), the comparables developed with automotive uses are good, but in reality, auto use of the subject is not very probable. The subject intersection is already heavily developed with auto uses, and zoning doesn't allow auto uses per say. Retail used sites, or those developed with restaurants are the better comparables. These are sales #2, #3, #6 & #7. Of these, Sale #2 is not as good as others because the restaurant soon closed; an indication perhaps that the buyer spent too much on the project and went "belly up~" The unit pdce of it is therefore felt to be high. The indications of value at $9.00, $8.90 and $8.89/sf are therefore best. In summary, the best estimate of value is at say $9.00/sf. At $9.00/sf, the value of the subject land is estimated as follows: 19,900 sf x $9.00/sf = $179,100 BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 38 COST APPROACH CONT. Type of Property: Location: Legal Description: Zoning: Date of Sale: Seller/Buyer: Sale Price: Land Area: Unit Price: Comments: COMPARABLE LAND SALE #1 Redeveloped Commercial Land 6113 West Broadway Avenue, New Hope Outlot 1, Mork-Campion Heights. PIN #05-118-21-22-0058. B-3, Auto Odented Commercial Closed June 2, 1999 Aurora Management Inc/GWM LLC $285,000 23,250 square feet $12.26 per square foot as improved Arms length, fee simple, cash transaction. No unusual conditions of sale, but an old Mobile service station on the site, although vacant for quite some time, did have some contributing value to the land. The buyer acquired the property and tore up most of the site in order to replace fuel tanks and pumps. The 1,161 sf GBA building was gutted and totally remodeled. The contributing value of the building to the land, at the time of sale is estimated to be $5/sf GBA, or say $6,000. Value of some pavement that remained is felt to offset demolition costs of pavement that was tom up. The end use of the site is a Citgo convenience store with gas sales. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesola 55418 39. COSTAPPROACH CONT. Type of Property: Location: Legal Description: Zoning: Date of Sale: Seller/Buyer: Sale Pdce: Land Area: Unit Price: Comments: COMPARABLE LAND SALE #2 Redeveioped Commercial Land 6800 56th Avenue North, Crystal Lot 4, Block 1, General Mills, Crystal Addition. PID #05-118-21- 42-0039 B-4, Community Commercial October 14, 1994; Closed April 13, 1995 Bridgestone Firestone Inc/BC Real Estate Investment $373,000 30,270 square feet $12.32 per square foot Arms length transaction, cash sale. Site was improved with an old Firestone Service Station which the buyer had to demolish to create vacant land. Demolition costs were $6,000. Price as vacant = $12.52/sf. Buyer built a Boston Market restaurant on the site which became vacant just a few years later. Reliance Development Company then purchased the restaurant for $700,000 and another older one adjacent to it (The Palace Inn) for $1,650,000 on September 29, 1999, demolished both and constructed anew Walgreen Drug Store. Their acquisition costs, with demolition does not however, reflect what the market value of the land is. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minneso{a 55418 4O COST APPROACH CONT. Type of Property: Location: Legal Description: Zoning: Date of Sale: Seller/Buyer: Sale Price: Land Area: Unit Pdce: Comments: COMPARABLE LAND SALE #3 Redeveloped Commercial Land 5358 West Broadway Avenue, Crystal Lot 1, Block 1, Clark's Submarine Sandwich 2nd Addition. #08-118-21-11-0125. B-4, Community Commercial February 3, 1995; Closed May 4, 1995 Robert & Karen Miller/Nath Property II Ltd Partnership $170,000 15,850 square feet $10.73 per square foot PIN Arms length, fee simple cash sale. Site was improved with an old "A" frame restaurant building which the buyer had to demolish to create vacant land. Demolition costs are estimated at $6,000. Buyer also purchased some adjacent land from the city to assemble with this for $7,500 bringing the total acquisition cost to $183,500 for 21,906 square feet of land, or $8.37/sf. Site is now developed with a Burger King restaurant. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 41 COSTAPPROACH CONT. Type of property: Location: Legal Description: Zoning: Date of Sale: Seller/Buyer: Sale Price: Land Area: Unit Price: Comments: COMPARABLE LAND SALE #4 Redeveloped Commercial Land 5264 West Broadway Avenue, Crystal Lot 16, Block 2, Hansons Addition. PID #09-118-21-22-0034. B-4, General Business March 17, 1995 Central Investment Corp/Garbon Properties LLP $75,000 18,555 square feet $4.04 per square foot Arms length, fee simple cash sale. Site was improved with an old wood frame office building which the buyer had to demolish to create vacant land. Demolition costs are estimated at $6,000. Vacant land pdce = $4.31/sf. BUyer built an auto service building (American Brake Service) on the site. Good traffic on Broadway. Right in/out access only. BCL APPRAISALS, INC, 2852 Anl~'~ony Lane South, Minneapolis, Minnesota 55418 42 COSTAPPROACH CONT. Type of Property: Location: Legal Description: Zoning: Date of Sale: Seller/Buyer: Sale Price: Land Area: Unit Price: Comments: COMPARABLE LAND SALE #5 Redeveloped Commercial Land 5410 Lakeland Avenue North, Crystal Lots 5 & 6, Block 5, Boulevard Acres. PIN: 04-118-21-34-0061, 0062 & 0063 B-3, Auto Oriented Commercial January, 1998; Closed March 19, 1998 Elk's Lodge (Jerry Gustafson)/Holiday Stores $530,000 70,650 square feet $7.50 per square foot Arms length, fee simple, cash transaction. No unusual conditions of sale. However, the property was improved with a one story Elk's Lodge b-uilding; 4,578 sf GBA originally built in 1951. The buyer had no use for the building, and it was torn down. Demolition costs are estimated at $35,000. Vacant land price is equivalent to $530,000 + $35,000 = $565,000 + 70,650 = $8.00/sf. An outdoor advertisement sign had no contributing value; a 90 day option was exercised that called for it to be removed at the cost of the sign owner. Buyer redeveloPed the site with a gas station/convenience store and a car wash. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis. Minnesota 55418 43 COSTAPPROACH CONT. Type of Property: Location: Legal Description: Zoning: Date of Sale: Seller/Buyer. Sale Pdce: Land Area: Unit Pdce: Comments: COMPARABLE LAND SALE #6 Vacant commercial land 5101 36th Avenue North, Crystal Lot 2, Block 1, Cub Foods Addition. PID: 07-029-24-22-0086 B-4, Community Commercial July 1, 1995; Closed July 13, 1995 Super Valu Inc./Anthonys Shopping Center Prtnrshp. $370,000 44,431 square feet $8.33 per square foot Arms length, fee simple, cash sale. No unusual other conditions. Peripheral site adjacent to new Cub Foods grocery store. It is now developed with a Video Update store. One block from Highway #100. " RL$ BCL APPRAISALS, INC. 2852 Anthony Lane Sot,'th, Minneapolis, Minnesota 55418 44 COST APPROACH CONT. Type of Property: Location: Legal Description: Zoning: Date of Sale: Seller/Buyer: Sale Price: Land Area: Unit Price: Comments: COMPARABLE LAND SALE #7 Redeveloped Commercial Land Northeast comer of Highway 47 and Mississippi Street, Fddley Lots 10-12, Block 2, Rice Creek Terrace Plat 1, and Lots 13-16, Block 3, Rice Creek Terrace Plat 2. PID #14-30-24-24-0009, 0010, and 0037-0040. Cl, Local Business January 26, 1998 Closing Theisen "B" Partnership and Gary Swanson/EGA Trust Limited Partnership $900,000 combined 125,125 square feet combined $7.19 per square foot Fee simple, arm's length, cash sale. Level topography, however the site was improved with an old grocery store (converted to a gym) which was demolished for a cost of $13,000. Transaction represents an assemblage involving two sellers and one buyer whom subsequently developed the property with a Walgreen's Drug Store. BCL APPRAISALS, INC, 2852 Anthony Lane South, Minneapolis, Minnesota 55418 45 COSTAPPROACH CONT. COST APPROACH RECONCILIATION Building Depreciated Cost: Land Value: Total $103,500 $179,000 $282,500 Final Value Estimate: SAY $282,500 BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 46 SALI=S COMPARISON APPROACH Three smaller fast food building sales and one larger restaurant were chosen from a survey of several in the subject's and competing market areas. These sales represent, overall, the most similar properties to the subject which a buyer would consider purchasing as substitutes, or would look to in an effort to establish the value of the subject. Based on the comparable's price per square foot of gross building area, with necessary adjustment where needed for significant differences, the total value indication is say $282,000 as follows: 1,323 sf GBA x $213.00/sf GBA = $281,799 Discussion of Comparable Buildin,q Sales Areas of adjustment and reasons why adjustments were applied follow. Other This covers the property dghts conveyed (fee simple Usually), the motivations of the buyer & seller (arms length or not), and miscellaneous matters such as deferred maintenance or assumed special assessments. With all sales being arms length transactions with fee simple property dghts conveyed and no other miscellaneous matters influencing value, no adjustments are applied. Financing This is an adjustment to reflect a cash price if the property was purchased on a contract for deed (or other non-cash arranged terms) that inflated the purchase price above that which would have been paid in cash. Sales #1 and #2 were purchased on contract for deeds, but no adjustment is applied. In each case, significant cash down payments were made, but given that the total acquisition costs was broken into amounts for real estate and non real estate, it was more advantageous for tax reasons that the buyers mark their cash down payment as paying for fixtures and business concerns rather than the real estate (which couldn't be depreciated as fast). Sellers probably wouldn't have gotten any less money for the real estate if the deal was worked differently (or they were cashed out). If any adjustment is needed, the real estate price might in fact be increased a bit because trade fixtures might have been allocated too much value relative to the total acquisition cost. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 47 COMPARISON APPROACH CONT Discussion of Comparable Buildin,q Sales cont. Market Conditions Like what was described in the valuation of comparable land sales, this is essentially a time adjustment to reflect changes in market value between the date of sale and the date of this appraisal due to pdce changes in the real estate market. In this market area relative to the transaction dates of the comparables, the annualized appreciation rate has vaded from 0% to +7% as follows: 1994 = No change. 1995 = +4%. 1996 -- +4%. 1997 = +4%. 1998 = + 7%. Thus far in 1999, +6.5%. The adjustment which appears in the gdd is the result of a monthly rate (i.e. 4%/year + 12mo/year = 0.333%) times the number of whole months between the closing date of the comparable transaction to the end of that year, times the annualized rate of each respective following year, to the date of this appraisal. Depending on how long ago the buildings sold, total upward adjustments (which reflect a compounding effect) range from about 4-28%. Sale #1 is adjusted the least because its sale date is most current, and Sale ~ is adjusted the most because its sale date is least currer~t. Location This is an adjustment for Iocational quality and property amenities including the size of the trade area, the appeal of neighborhood real estate, quality of access, and exposure to traffic. The subject is'rated as having a good quality location. With similar location ratings, Sales #2 & 3 are not adjusted. Traffic exposure, access and the appeal of adjacent real estate are similar to that which is found about the subject. Sale #4, in Bloomington, is rather similar also, but some upward consideration is applied though because the building is located on an intedor site. Comer located buildings like the subject are better. The upward adjustment is best estimated at 5%. Sale #1, in Fddley, is quite a bit inferior to the subject and is adjusted up 75%. Traffic flow by the building is much less, the location is in a trade area filled mostly with industry rather than residents or other retail commercial uses, and although on a comer of a county road, the site is one that is more destination odented that impulse oriented. The subject's location is more impulse oriented. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 48 SA~ FS COMPARISON APPROACH CONT Discussion of Comparable Buildin.q Sales cont. Condition This is an adjustment for the overall quality, condition and age of the building. The subject is in good overall condition. Comparables #3 & ~,4 are similar and require no adjustment. Sale #1 is a newer building constructed in 1981. It is in better condition, and also has a canopy that permits ddve-up food service. The canopy is an amenity that isn't included in the building area of the comparable, but is included in the value of the transaction. An overall 5% downward adjustment is applied. Sale #2 is an older building than the subject constructed with a wood extedor rather than bdck. Although updated since its original construction, physical deterioration of the buildings short lived items is more evident, and the appeal of the subject's bdck extedor is better. A 5% upward condition adjustment is applied. ,Size In restaurant buildings, the larger they are, sit down dining becomes more of an issue. The more sit down dining there is, the more area there is that needs to be finished with custom decorating and trade fixtures (booths, light fixtures etc). Because restaurants are generally decorated to serve or promote a specific type of business, the cost of the custom decorating has a very diminishing return to another user. In other words, the owner will probably not get too much of their money (for the decorating and fixtures) back from their investment in a later sale. Therefore on a per square foot basis at least, buyers tend to end up spending less for large buildings than smaller ones. Conversely, buyers usually pay more for smaller sized restaurants because on a per square foot basis, more of the area is dedicated to what every restaurant needs or what buyers can re-use (like clay tile floors, HVAC equipment, bathrooms). Lastly, on a per unit basis, larger sized buildings generally tend to cost less than smaller ones because discounts are given for purchasing and building in bulk, and labor costs are more evenly spread out. Because Sale ~4 appears to be a building identical in size to the subject, there is no size difference between it and the subject. But, size differences between the subject and other comparables do exist. Adjustment to these is needed. Sales #1 & #3 both have much more space for indoor dining, and are well over twice the gross building area of the subject. Sale #3 is in fact about four times the size. A 20% upward adjustment is applied to Sale #1, and a BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 49 S/t/r=s COMPARISON APPROACH CONT Discussion of Comparable Buildin,q Sales cont. Size Cont. 40% upward adjustment is applied to Sale #3. Sale #2 has no space finished for indoor dining, and in general is 26% smaller than the subject. A smaller, but none-the-less significant downward adjustment of 5% is applied. Land:Buildin,q Ratio More land equals greater value. This is an adjustment for diffedng amounts of land relative to the size of the building. The subject's land to building (GBA) ratio is 15.04:1. The comparables land to building ratios vary from 10.06:1 to 36.2:1. The adjustments for different ratios are based upon the slope of a "best fit" line on a graph of the comparables unit pdce to their land to building ratio, with the unit prices all made otherwise equal to the subject, except for one attribute, the variety in pdce caused by different ratios. What is readily observed is an upward sloping line (with a regression formula of Y = 2.34X + 162.57 that shows comparables with higher land to building ratios have higher unit pdces ($/sf GBA) than comparables with lower ratios. Entedng the land to building ratio of the comparable into the "X" vadable in the formula, and contrasting the resulting "Y" number with the uy,, number shown at the subject's land to building area ratio (made by plugging the subject's ratio in the "X" spot in the formula) is how the adjustment is made. Sale #2 is adjusted down by 20%, and Sale ~ is adjusted up by 5%. Sales #1 & #3, although having different ratios, do not require adjustment as the difference does not seem to be significant to cause a change in price. No adjustments to these buildings are therefore applied. Buildin.q Sale Adjustment Gdd Significant areas for adjustment are identified in the first column, and are labeled Other,, FinancinR, Market Conditions, etc. The subject is identified in the second column, and the comparables in the remaining four. The adjustment methodology in this valuation is based on widely recognized appraisal practice and adjusted as 'appropriate to fit the available market data. In short, the adjustments significant differences are sequenced into an order where Other matters are adjusted for first, thence Financing and Market Conditions. Lump sum, dollar adjustments are appropriate for BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 5O SALI=S COMPARISON APPROACH CONT Discussion of Comparable Buildin,q Sales cont. Buildin,q Sale Adiustment Gdd Cont. each and adjusted pdces are the result of summation. A common unit of comparison is thence created to compare the sales with the subject. This is the pdce per square foot of gross building area ($/sf GBA). After converting the time adjusted purchase price to a unit pdce per square foot of GBA (a common unit of comparison), the remaining adjustments are then applied to the subject by a multiplication process and a single "Net Adjustment Factor". The adjustment gdd follows. BCL APPRAISALS, INC. 2852 Anthony Lane South. Minneapolis, Minnesota 55418 51 SALES COHPAR[SON APPROACH CONT. BU[LD]NG SALES ADJUSTHENT GRID Subject Price N/A Other Fee SimpLe Arms Length None Adjustment Adj Price Financing Adjustment Adj Price Market Cond. Adjustment Adj Price Size (GBA) Size $/sf Location Adjustment Condition Adjustment Size Adjustment Land:BLdg Ratio Adjustment Net Adj lnd SubS Cash Equiv 12/03/99 Good Good 1,323 sf 15.04:1 ComparabLe 1 $300,000 Fee SimpLe Arms Length Norm $ 0 $300,000 CD,Cash Equiv $ 0 $300,000 04/15/99 +$ 12,500 $312,500 3,094 sf S101.00 Average x 1.75 Very Good x 0.95 3,094 sf x 1.20 16.55:1 x 1.00 x 1.995 S201.50 BuiLding SaLe No. 2 S209,000 Fee SimpLe Arms Length None $ 0 $209,000 CD,Cash Equiv $ 0 $209,000 04/30/97 +S 35,500 S246,500 977 sf $250.26 Good x 1.00 Average x 1.05 977 sf x 0.95 36.2:1 x 0.80 x 0.798 $199.70 3 S545,400 Fee SimpLe Arms Length None $ 0 $545,600 Cash $ 0 S545,400 11/17/97 +$ 80,100 $625,500 5,050 sf $123.86 Good x 1.00 Good x 1.00 5,050 sf x 1.40 13.13:1 x 1.00 x 1.~0 $175.40 4 $200,000 Fee SimpLe Arms Length None $ 0 $200,000 Cash $ 0 $200,000 10/05/94 +$ 56,000 $256,500 1,323 sf $193.88 Good (-) x 1.05 Good x 1.00 1,323 sf x 1.00 10.06:1 x 1.05 x 1.102 $213.66 SALFS COMPARISON APPROACH CONT. Value Reconciliation The range of the four indications is $173.40 to $213.66/sf GBA, with an average of $197.07/sf, and a standard deviation of $16.95/sf. While all sales are meaningful, some are better than others. Sale #3, although close, is a type of restaurant that usually ends up providing the customer a very different dining experience than what might be offered in the subject building. Not only is the building significantly larger, sit down dining with a full service menu tends to be the norm. It isn't likely a building like this would be used as a donut shop or fast food restaurant which are probable uses the subject building might be put to. Sales #1 & #2 are much better in this regard. These Dairy Queens restaurants are smaller fast food restaurant buildings that usually offer customers a limited menu, and small areas to eat. In both cases though, there are significant differences such that neither perhaps is better than another. A composite of the two, if possible, would end up being a good comparable. The midpoint value shown by the two indications might perhaps be equally as good. Sale #4 by and large though is clearly the best comparable. The building is virtually identical to the subject. It provides an indication of value at $213.66/sf GBA. A reconciled subject value should be close to this. In conclusion, the best estimate of the subject's value is say $213.00/sf GBA. At $213.00/sf GBA, the value of the subject property is say $282,000 as follows: 1,323 sf GBA x $213.00/sf = $281,799 BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 53 SAI_I=S COMPARISON APPROACH CONT. Type of Property: Location: Legal Description: Zoning: Date of Sale: Seller/Buyer: Purchase Price: Land Area: Building Description: COMPARABLE BUILDING SALE #1 Dairy Queen Restaurant 225 Osborne Road, Fridley Lot 2, Block 1, East Ranch Estates 3rd Addition PID #11-30-24-22-0021. C2, General Commercial April 15, 1999 Closing Donald Fitch/Kraus Foods $300,000 64,000 square feet Class C building, constructed in 1981. One story, on grade with no basement. 3,094 square feet gross building area. Good condition. Unit Price: $96.96 per square foot GBA' Comments: Arm's length, fee simple, contract for deed sale. The sale price is the allocated amount for the real estate only. Buyer reports paying additional cash amount for the fixtures equipment and the business value. Although the cash amount was not stated, the buyer did say that they generally follow a rule of thumb whereas a total package price is 25% more than the price allocated to just the real estate. Therefore, $75,000 is estimated to be the cash down payment which also represents that paid for the fixtures, equipment and blue sky value. Average quality location at the northeast comer of Osbome Road and Main Street, in Fridley. Land to building ratio is 2.69:1. However, about 20% of the land is encumbered by a water main easement, and the effective land to building ratio is best estimated at 16.55:1. Building has a canopy to serve drive-thru patrons, and buyer continued the Dairy Queen use of the real estate. The building is run as a franchise. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 SAI F$ COMPARISON APPROACH CONT. .S£~. U / ADD. I 54 BCL APPRAISALS, INC. .55 SALES COMPARISON APPROACH CONT. Type of Property: Location: Legal Description: Zoning: Date of Sale: Seller/Buyer. Purchase Pdce: Land Area: Building Description: COMPARABLE BUILDING SALE #2 Dairy Queen Restaurant 7749 Zane Avenue North, Brooklyn Park Lengthy metes and bounds. PID #21-119-22-33-0104. B-2, Retail Business Apdl 30, 1997 closing. McDonald Corporation/Michael Ziemann $209,000 35,370 square feet Class C building, constructed in 1962. One story on grade, no basement. 977 square feet gross building area. Average condition. Unit Price: $213.92 per square foot GBA Comments: Arm's length, fee simple, contract for deed sale. Purchase price of $209,000 reflects that allocated for only the real estate. A cash payment for the trade fixtures equipment and blue sky value was paid separately. The contract of $209,000 is at 9% for 180 months. Financing terms are considered to be cash equivalent. The property has a good location at the southWest comer of 78th Avenue and Zane, in Brooklyn Park. The land to building ratio is 36.2:1. The buyer continued the Dairy Queen use of the real estate. The business is run as a franchise. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 SP,! PS COMPARISON APPROACH CONT. BCL APPRAISALS, INC. 57 COMPARISON APPROACH CONT. Type of Property: Location: Legal Description: Zoning: Date of Sale: Seller/Buyer. Purchase Pdce: Land Area: Building Description: COMPARABLE BUILDING SALE #3 Perkins Restaurant 5420 West Broadway Avenue, Crystal Lot 2, Block 1, First Federal Ron Dopp 2r~ Addition. PID #05-118-21-44-0007. B-4, Community Commercial November 17, 1997 closing. MRT Properties/U.S. Restaurant Properties $545,4OO 66,290 square feet Class C building, constructed in 1975. One story on grade with no basement. 5,050 square feet gross building area. Good condition. Unit Price: $108.00 per square feet GBA Comments: Arm's length, fee simple, cash sale. Purchase price reflects that for only the real estate. Trade fixtures, business value and blue sky was not included in this sales pdce. Good location on West Broadway Avenue, good parking area with 110 car capacity. Property was lease{I, and buyer continued with the Perkins use of the real estate. The building ratio is 13.13:1. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 SALI=S COMPARISON APPROACH CONT. N taft BCL APPRAISALS, INC. SALFS COMPARISON APPROACH CONT. Type of Property: Location: Legal Description: Zoning: Date of Sale: Seller/Buyer: Purchase Price: Land Area: Building Description: COMPARABLE BUILDING SALE ~ BoSa Donut Shop 2325 90th Street West, Bloomington Lot 1, Block 1, Winchell's Addition. PID #08-027-24-41-0063. B2, Retail Business October 5, 1994 closing David and Deborah Clarkson/Henry and Sodara Ung $200,000 13,304 square feet Class C building, constructed in 1976. One story on grade with no basement. gross building area. Good condition. Unit Price: $148.15 per square foot GBA. Comments: 1,350 sf Arm's length, fee simple, cash sale. Price reflects real estate value only. The building is virtually identical to the subject. But, it is located on an interior site in a different community, and the land to building ratio is 9.84:1. The donut shop use of the real estate has continued since the building was first constructed. In February of 1999, Henry and Sodara Ung sold the property for th'e same price ($200,000) to a distant uncle of Sodara's, aka Chor Investment Company, but remained in the building as tenants. Lease terms are unknown. The buyer reported that the sale was not exposed to the open market, a broker was not involved, and an appraisal was not completed to estimate the sale price. The earlier 1994 sale for $200,000 is therefore believed to be most indicative of a market value price for this property. Whether or not the buyer would have been more informed by using a broker or appraiser, the $200,000 price in 1999 could have been higher, with all other things being equal, due to market appreciation since 1994. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 SAI F$ COMPARIS N APPROACH CONT. I I I I i i i ~ . _~ ..~- [."' 60 BCL APPRAISALS, INC. {51 INCOME APPROACH · The market value of the subject is appraised in fee simple. In the income approach to valuation, an estimate is made of the potential, market rate tdple net rental income that might be expected should the real estate be leased. From this number is subtracted estimated vacancy and credit loss to yield effective net income. From the effective net income is then subtracted any expenses that might be incurred by a typical owner or lessor. The end result is net operating income which is then capitalized at an appropriate rate to indicate the value of the property as an investment. Estimated Potential Net Income 1,323 sf x $22.00/sf = $29,106 Less Vacancy & Collection Loss 0.03 x $29,100 = $873 Effective Income $29,100 SAY ($ 900) $28,200 Operational & Administrative Char,qes* Structural Reserves ($0.70/sf) $ 700 Miscellaneous $ 500 Total $1,200 ($1,200) Estimated Net Operating Income $27,000 Capitalization Net Income = $27,000 = $270,000 Overall Rate 0.10 Value Indicated by Income Approach $270,000 "l'riple ne{ rent anal)lie IllUmes the tenant pay~ common area maintenance charges which cover real eatate text, hl~Zl~{I insurance, utility bills, enow removal and lite maintenance c¢~ts, and fees charge~, by I IXO~onal management firm. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 INCOME APPROACH CONT. Market Rent Data 1) Subway Sandwich Shop - 5557 West Broadway Avenue, Crystal. One of two tenants (Apartment Search is the other) in a freestanding 2,400 sf retail store building located in a satellite position (northeast comer) of the Crystal Shopping Center at the southwest comer of Bass Lake Road and West Broadway Avenue. Subway leases % the building, or 1,200 sf. The building is in good condition, has a bdck exterior with adequate parking, and has no basement. Unknown construction date. Shopping center was built in 1957, but this building is much newer;, probably in the late 1970's. Very good location. Lessee pays rent of $25.00/sf net rent. Lease is in third year of a ten year term. 2) Boston Market Restaurant - 8061 Brooklyn Boulevard, Brooklyn Park. One of two tenants (Hollywood Video is the other) in a brand new strip center (constructed for them in 1995) on the south side of Brooklyn Boulevard near its intersection with Co. Rd. 81. 2,887 sf leased area accompanied by a 25,000 sf site. Building in excellent condition, bdck exterior, no basement. Good location. Lessee was paying rent of $29.18/sf net for the first five year term of their 15 year lease that began in October of 1995. But, Boston Market closed this restaurant in 1998 (along with most of their others) and the building was presumably re-let to LeeAnn Chin's. Terms are unknown, but it seems apparent that the Boston Market probably got out of the market because they had paid too much for their real estate and their business couldn't support overhead costs. Boston/LeeAnn Chin's neighbor in the same building, Hollywood Video, is paying in the neighborhood of $18/sf net for about 6,000 sf. 3) Rax Restaurant - 1875 Co Rd B2, Roseville. 3,191 sf freestanding fast food restaurant located in the Rosedale Shopping Mall area. 67,082 sf site. Building is in average condition with a bdck exterior. Constructed in 1979. No basement. Good location, but the building is not on a comer. Lessee is paying $17.02/sf net for the entire premises. A percentage rent clause of 5% of sales over $1,086,000 has never been effected. Lease was negotiated in May of 1989 for a 10.5 year term. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 INCOME APPROACH CONT. Market Rent Data cont. The best estimate of the subject's rent is $22/sf. The rent on Comparable #2 is much higher than what the subJect could achieve. The building was brand new, and leased by a national chain. A national restaurant chain would probably not have an interest in the subject (anymore, that is). The fact that Boston Market is no longer there also indicates that even they perhaps were paying too much at $29.18/sr. The rent on Comparable #1 at $25/sf net is even higher that what the subject could achieve. Subway is a national chain restaurant, and the location is much better than the subjects. The rent of Comparable #3 at $17.02/sf is probably a rate that the subject could realistically achieve, and perhaps more. This restaurant doesn't have as good a curb appeal as the subject, and it is twice the size. The rent should be adjusted upward for this, as well as perhaps the date in which the lease amount was determined (even though the lessee paid no additional rent from generating sales over a designated break point throughout the term of the lease). Lastly, although no written documentation was ever provided (to me), the (out of state) property owners reported that they had the feeling they could rent the building "every day for $3,000 a month" if they wanted. Under the assumption that this would reflect a gross rent type of arrangement (an arrangement -_ in which a pdor tenant of the building had in fact reported paying in the past) with the lessor paying real estate taxes, the annual amount of $36,000 less say $6,000 for taxes = $30,000 + 1,323 sf = $22.67/sf. At any concern, the best rental estimate of $22.00/sf produces the following total rental income to the real estate. 1,323 sf GBA x $22.00/sf = $29,106 Vacancy & Collection Loss The market for commercial buildings in locations like where the subject is found, is not affected by much vacancy. An overall rate of 3% is estimated. Expenses On a triple net lease, most exPenses are paid by the lessee. The typical expenses incurred by a lessor are annualized structural maintenance charges (to replace the roof covering and HVAC system for instance one every 20 years or so) and miscellaneous items that would pay BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesola 55418 64 INCOME APPROACH CONT. Expenses Cont. every year for costs such as legal or accountant's fees and taxes on vacant space. The structural reserves are estimated at about $0.50/sf of building area or say $700, and miscellaneous expenses are estimated at $500. Although management charges in a net lease arrangement are typically handled as a pass through expense to the tenant, and comparable rentals were reflective of this trend, the subject is a single tenant building. It is probable the owners will manage the building themselves, but not pay themselves for it by passing on some charge to the tenant (like they would with real estate taxes). This phenomena is therefore accounted for within the funds for miscellaneous expenses. Capitalization Rates from sales 1) 12.0% Denny's Restaurant - 5025 Central Ave, Columbia Heights. Sit down, family style built in 1984, sold 10/95. 2) 8.30% Boston Market Restaurant - 8061 Brooklyn Blvd, Brooklyn Park. Hybdd fast food/sit down style, built in 1995, sold 11/95. 3) 10.9% Rax Restaurant- 1875 Co Rd B2, Roseville. Fast food design, built in 1979, sold in 5-96. ' ' Band of Investments 30% down, 70% mortgage, 9.50% interest, 20 years, mortgage constant = 0.111, equity constant = 0.07. 0.111 x 0.70 = 0.077 0.070 x 0.30 = 0.021 Rate = 0.098 Debt coveraqe ratio - 1.25 to 1.30 or say 1.275 Rate = 1.275 x 0.111 x 0.70 = 0.099 Conclusion: 10.0% BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 SUMMARY AND CONCLUSION The purpose of this appraisal is to estimate the subject's market value. The City of New Hope is interested in purchasing the subject, and this appraisal of it will provide aid in estimating what an offer to purchase might be. The interest to purchase the subject apparently stems from the city's identification of the subject area as one in which they would like to see redevelopment occur in. The city's acquisition of the subject might speed a redevelopment process along. The subject is a single tenant, 1,323 sf GBA fast food restaurant that was constructed in 1975. Although vacant, it has been used in the past as a donut shop. The property address is 5550 Winnetka Avenue, New Hope, a corner location at the southeast corner of County Road 10 and County Road 156 in Hennepin County, Minnesota. The site area is 19,900 square feet, and the zoning is B-2, Retail Business. To measure the subject's market value, the Cost, Sales Comparison and Income Approaches to Value are applied. The conclusions reached by these approaches are as follows: Cost Approach: Sales Comparison Approach: Income Approach: $282,500 $282,000 $270,000 The best approach to value is the Sales Comparison Approach. There are a few reasonably similar types of fast food restaurant building sales which have recently sold, and the market is usually guided to value by this approach more so than any other. The Income Approach is much less reliable. Buildings like the subject are usually owner occupied, and comparable rent and capitalization rate is difficult to apply. The Cost Approach is about as good as the Income Approach. The land sales are proximate and the cost estimate is reliable (even though alternate local bids are lacking which would provide a good test against the accuracy of the Marshall & Swift Cost Manual), but the subjects zoning is different from other land sales, assemblage is needed to create a larger site which may be legally developed, and support for the large amount of depreciation is modest. In general, the Cost Approach usually doesn't tend to have much influence on what a buyer pays for property that isn't rather new or of special use. In conclusion, the best estimate of value should lie between the indications of BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 SUMMARY AND CONCLUSION CONT. value provided by the Cost and Income Approaches, and rather close to the indication of value by the Sales Comparison Approach. This value estimate is say $280,000. Final Value Estimate $280,000 BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 67 IMMOVABLE TRADE FIXTURE VALUE Within the building are certain improvements that typically sell with the real estate, but are not part of it. They are classified as immovable trade fixtures. A listing of these items with their estimated cost new & installed, depreciation (by a factor of 70% based most simply upon the rate applied to the real estate in the Cost Approach), and as is value for continued use follows. Item Cost New 1) Convection oven hood $ 815 2) Fire suppression system $2,636 3) Make-up air canopy $4,465 4) ScUllery sink w/components $2,860 5) Dish table and racking components $1,669 6) Donut display case $2,634 7) Counter top and cabinetry $ 475 8) Partition wall $ 72 9) Beverage table and cabinetry $1,306 $1,864 10) Plumbing and gas rough-ins Total Depreciation As is Value less 70% $ 245 less 70% $ 791 less 70% $1,340 less 70% $ 858 less 70% $ 501 less 70% $ 791 less 70% $ 143 less 70% $ 22 less 70% $ 392 less 70% $ 559 $5,642 Immovable Trade Fixture Value Estimate SAY $5,600 BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 PHOTOS OF IMMOVABLE TRADE FIXTURES Items #1, 2 & 3 BCE APPRAISALS, INC. PHOTOS OF IMMOVABLE TRADE FIXTURES Item Item #5 BCL APPRAISALS, INC. PHOTOS OF IMMOVABLE TRADE FIXTURES Items #6, 7 & 8 Item #9 BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 BCL APPRAISALS BJORKLUND, CARUFEL, LACItENMAYER, INC. (612)781-0605 Fax: 781-7826 2852 ANTHONY LANE SO., MINNEAPOLIS, MINNESOTA 55418 RON LACHENMAYER, SRA LESLIE J. (LEE) RACINE, JR., SRA BRAD BJORKLUND, MAI, SRA ~ QU~T.T]~ICkTI(jsTS OF ~C BJORKL~ Bachelor of Arts; St. Olaf College 1991. Degrees in Economics & Biology, GPA 3.0 Appraisal Institute: Real Estate Appraisers Courses; 110 (Appraisal Principles) 120 (Appraisal Procedures) 210 (Applied Residential Property. Valuation) ~ 310 (Capitalization 2~_eory & Teca~nl.q.u. es - ~ A) 410 (Standards of Professional Practice - F. A) 420 (Standards of Professional Practice - Part B) 510 (Capitalization Theory & Techniques - Part B) 520 (Highest and Best Use and Market Analysis.) , 530 (Advanced Sales Comparison.& Cost_Appr.oac~es) 540 (Report Writing and Valuation _Apal.ys. ls,) 550 (Case Studies Ln B~al Estate Valuation) *~ REAL ESTATE APPRAISERS & CONSULTANTS MAI Candidate of the Appraisal Institute - January 1, 1994 MN Appraiser's License #4003154; CertifiedGeneral Real Property Appraiser 1999: (current) - 1988: Staff Appraiser for BCL Appraisals Inc. 1991: Residence Hall Tr~a-~urer; St. Olaf College 1990: Teachers Asst; St. Olaf College Biology Lab Department TYPES OF APPRAT~ c~t.tercial: Retail stores, Restaurants, office Buildings, shopping centers Industrial: Manufacturing, Processing & Distribution Buildings Residential: Single Family Hc~es, Duplexes, Townhomes, Condominiums, &Apartments Vacant Tand: C~tu,~rcial, Industrial, & Residential Appraisals have been c~mpleted upon the variety of aforementioned real estate for a broad range of functions including; sales and purchases, condemnation, tax appeals, development, insurance, estates, divorce, & subdivision analysis. c~.r~S INCLL~E Cities of: Blaine, Bloc~h~on, Cha-~ka, Crystal, Eden Prairie, Golden Valley, Maple Grove, Minneapolis, Minnetonka, New Brighton, New Hope, Plymouth, Richfield, Prime Mortgage GMAC Mortgage FBS Mortgage Fleet Mortx~age Kennedy & Graven Carlson C~t~oanies Best & Flanagan Marquette Bank Great t~kes Mortgage united Mortgage T,,~"r'kin Hoffman, Law Firm Prudential Life U.S. Navy Rochester & Savage Firstar Banks TCF Bank North Star Title Knutson Mortgage Peat Marwick Mpls Park Board MORE THAN 80 YEARS FULL APPRAISAL SERVICES EEO/AA ~Crystal .>~ I SUBJECT PROPERTY Z 2: Z Park T~'in Lakes Z m z AVE I '~ ~,Jord~ CITY MAP ~Shingle J Building Sale No 2 Sale No I SUBJECT PROPERTY Land Sale No 2 ~IST~ ~N Building Sale No 3 -- Land Sale No 3 Land Sale No 4 ! ~Cq/stal Land Sale No 5 Park Land Sale No 6 Pe/~vr Brookli ~Gar~er Comparable Sale Map -- Building Sale No 1 PEARSON I ~E 69TH AVE !Land Sale No 7 6~TH R 130 Island 61ST AVE NE AVE NE Comparable Sale Map z uJ W 82Nr Park YNESOTA W 76TH W W 81ST 79~ rk W 85TH W 84TH irk Nord Myr ,ndale Commuf z Penn Lake Building Sale No 4 R' S W 94TH W 98TH W 87TH Comparable Sale Map EXTRA COMPARABLE LAND SALE Type of Property: Location: Legal Description: Zoning: Date of Sale: Seller/Buyer: Sale Pdce: Land Area: Unit Price: Comments: Redeveloped Commercial Land 7900 Medicine Lake Road, New Hope PIN #19-118-21-44-0001. B-4, Community Business December, 1992 Burger King Corp/Naftali Aikalai $156,000 14,000 square feet $11.14 per square foot as improved Arm's length, fee simple, cash transaction. No unusual conditions of sale, but an old Burger King restaurant on the site had to be demolished so that the buyer could redevelop the land with his Car X Muffler shop. Demolition costs are estimated at $6,000. Vacant land pdce = $11.57/sf. Good corner location in an area with community shopping development and exposure to traffic. i / I - - 2~TH N ~ MEDZC]NE LAKE BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418 EXTRA COMPARABLE LAND SALE Type of Property: Location: Legal Description: Zoning: Date of Sale: Seller/Buyer: Sale Pdce: Land Area: Unit Price: Comments: Redeveloped Commercial Land 7001-7009 Bass Lake Road, New Hope PIN #05-118-21-43-0001 & 0002. B-4, Community Business December, 1990 Jerome Choromanski/National Bank of St. Louis Park $450,000 65,878 square feet $6.83 per square foot as improved Arm's length, fee simple, cash transaction. No unusual conditions of sale, but there was an old Burger King restaurant on the site that the buyer had to demolish to build a bank (which is now present). Demolition costs are estimated at $6,000. Vacant land pdce = $6.92/sf. Comer location but not at a major intersection. BCL APPRAISALS, INC. 2852 Anthony Lane South, Minneapolis, Minnesota 55418  EDA  1 1/EQUEST FOR ACTION Originating Depa~Ccaent Approved for Agenda Agenda Section EDA Community Development Item No. 1-10-99 B~irk McDonald By:. 6 RESOLUTION APPROVING SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM CONTRACT NO. C-99-66 FOR ADMINISTRATIVE SERVICES BETWEEN THE METROPOLITAN COUNCIL AND THE CITY OF NEW HOPE AND AUTHORIZING PRESIDENT AND EXECUTIVE DIRECTOR TO EXECUTE AGREEMENT ACTION REQUESTED Staff recommends that the EDA approve the enclosed Resolution Approving Section 8 Housing Assistance Payments Program Contract No. C-99-66 for Administrative Services Between the ~Metropolitan Council and the City of New Hope and Authorizing President and Executive Director to Execute Agreement. POLICY/PAST PRACTICE It has been the policy of the City in the past to provide Se~:tion 8 Program administrative services to Iow/moderate income residents in New Hope and several neighboring cities. BACKGROUND The City has contracted with the Metropolitan Council for the past 20 years to administer the Section 8 Housing Assistance Payments Program on a local level. The contract is revised periodically when the reimbursement rate to the City from the Met Council (through HUD) increases. The main contract was last amended in :~994. Subsequent to that time, several amendments were approved by the EDA authorizing the City to provide Section 8 Program administrative services to several surrounding communities, which results in additional reimbursements to the City for the services provided. The City of New Hope employs a full-time Section 8 Housing Representative to administer this program and reimbursements from the Met Council/HUD cover all costs of the program/position. The City currently administers 233 New Hope Section 8 contracts and 92 contracts from other cities, for a total of 325 contracts. A revised Section 8 Housing Assistance Payments Program Contract for Administrative Services was approved by the Metropolitan Council on December 15, 1999, after input was received from the cities with Section 8 programs and their respective housing reps. The revised contract calls for an increase in the ongoing administrative fee that will be retroactive to June 1, 1999, as follows: (cont'd.) RFA-O01 ~ Request for Action Page 2 1-10-00. 1. The administrative fee available to the City for regular vouchers will increase from $20.74 to $24.26 per unit/month for basic administrative services (an increase of $3.52). 2. The administrative fee available for the City for portability vouchers will increase from $16.59 to $19.40 per unit/month (an increase of $2.81). Of the 325 contracts administered by the City, 311 are regular contracts and 14 are portability contracts. The increased reimbursement to the City in 2000 will be approximately $13,500 and the retroactive fee paid to the City for 1999 will be approximately $7,000. The 2000 HRA budget anticipated an increase in revenues from the Metro HRA in the amount of $12,500 to balance the budget, so the increased reimbursement is greater than anticipated. ATTACHMENTS · Resolution · Correspondence · Contract · Excerpts HRA Budget CITY OF NEW HOPE EDA RESOLUTION NO. 00- RESOLUTION APPROVING SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM CONTRACT NO. C-99-66 FOR ADMINISTRATIVE SERVICES BETWEEN THE METROPOLITAN COUNCIL AND THE CITY OF NEW HOPE AND AUTHORIZING PRESIDENT AND EXECUTIVE DIRECTOR TO EXECUTE AGREEMENT WHEREAS, Minnesota Statutes Section 473.195, subdivision 1 (1994 and Supp. 1995) authorizes the Metropolitan Council to plan and administer a federal Section 8 housing assistance payments program within the seven-county metropolitan area and to exercise the functions, rights, duties, privileges, immunities and limitations as are provided for municipal housing and redevelopment authorities; and WHEREAS, the Council and the City of New Hope entered into Contract No. C-94-56 on September 1, 1994, under which the City agreed to perform specified Section 8 program administrative services within certain jurisdictions located in the metropolitan area; and WHEREAS, WHEREAS, subsequent to the approval of the initial contract, the City agreed to provide Section 8 program administrative services for the cities of Golden Valley, Edina, Maple Grove and Osseo through contract amendments, which result in additional reimbursements to the City for services provided; and the Metropolitan Council recently updated and approved new contracts for all cities administering a Section 8 Housing Assistance Program and the new contracts include an increase in reimbursements from the Department of Housing and Urban Development; and WHEREAS, the updated contract for New Hope also includes the previous amendments allowing the prov. ision of administrative services to other municipalities. NOW, THEREFORE, BE IT RESOLVED by the Economic Development Authority of the City of New Hope, Hennepin County, Minnesota, that the Section 8 Housing Assistance Payments Program Contract No. C-99-66 for Administrative Services between the Metropolitan Council and the City of New Hope EDA is hereby approved and the President and Executive Director are authorized to execute said Amendment. Adopted by the Economic Development Authority of the City of New Hope this 10th day of January, 2000. President Executive Director Metropolitan Council Improve regional competitiveness in a global economy Housing & Redevelopment Authority Metro ~ December 23, 1999 Marlene Isaacson City of New Hope 4401 Xylon Av. N. New Hope, MN 55428 Re: Section 8 Housing Assistance Payments Program - Contract for Administrative Services Dear Ms. Isaacson: The revised Section 8 Housing Assistance Payments Program Contract for Administrative Services was formally approved by the Metropolitan Council at its meeting on December 15, 1999. Thank you for your input and your patience in getting to this point. Enclosed for your approval are two copies of the contract. Please have both copies signed by the appropriate person(s) and return to me for final execution by the Metropolitan Council. One executed copy will be returned to you for your records. This revised contract calls for an increase in the ongoing administrative fee as well as a change in the enhanced service package and accompanying fee. Both fees are retroactive, if applicable, to June 1, 1999. Your payments from Metro HRA through December 31, 1999, have been based on the terms of the existing contract. Upon final execution of this revised contract, Metro HRA will begin making payments based on the terms of this revised contract. In addition, Metro HRA staff is in the process of finalizing calculations of applicable retroactive payments and any amount due you will be authorized after final execution of this revised contract. If you are presently performing enhanced services under the existing administrative services contract, you may discontinue performing data entry effective December 31, 1999. You must, however, notify us as soon as possible if you wish to perform enhanced services as called for in this revised contract. If you are not presently performing enhanced services under the existing administrative services contract but wish to perform enhanced services under this revised contract, you must notify us in writing. We will then review your request and determine an appropriate start date. www.metrocouncil.org Metro Info Ltne 602-18813 230 East Fifth Street · St. Paul, Minnesota 55101-1626 * (651) 602-1428 · Fax 602-1313 · TI'Y 291-0904 An Equal Opportunity Employer Metropolitan Council Improve regional competitiveness in a global economy Housing & Redevelopment Authority Metro ~ Thank you for your ongoing dedication and hard work. If you have any questions regarding this contract, please feel free to call me at 651-602-1600. Sincerely, Kathy Kline Program Operations Supervisor Metro HRA Enclosure www.metrocouncil.org Metro Info Line 602-188~; 230 East Fifth Street * St. Paul, Minnesota 55]01-1626 * {65l) 602-1428 * Fax 602-1313 * TTY 29]-0904 An Equ~l Opportunity Employer Contract No. C-99-66 SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM CONTRACT FOR ADMINISTRATIVE SERVICES CITY OF NEW HOPE THIS ADMINISTRATIVE SERVICES CONTRACT is made and entered into by the Metropolitan Council ("Council") and the City of New Hope ("Contractor"). WHEREAS, the Council is authorized by Minnesota Statutes section 473.195 to function as a housing and redevelopment authority throughout the seven-county metropolitan area and exercises its statutory authority through its Housing and Redevelopment Authority unit; and WHEREAS, the Council has entered into one or more Annual Contributions Contracts ("ACC") with the U.S. Department of Housing and Urban Development ("HUD") and has federal contract authority to operate a federal Section 8 housing assistance payments program ("Section 8 program'') within the seven-county "metropolitan area" as defined by Minnesota Statutes section 473.121; and WHEREAS, the City of New Hope is a public body, corporate and politic, duly organized under the laws of Minnesota and is authorized perform the administrative services contemplated by this contract; and WHEREAS, the City of New Hope performs certain Section 8 program administrative services within the City of New Hope and other jurisdictions on behalf of the Council under a Section 8 program administrative services contract ("Contract No. C-94-56''). NOW THEREFORE, in consideration of the mutual promises and covenants contained in this contract, the City of New Hope and the Council agree as follows: I. DEFINITIONS 1.01 Definition of Terms. For the purposes of this contract, the terms defined in this section have the meanings given them in this section, except as otherwise provided or indicated by the context. (a) "Metropolitan Council" or "Council" means the Metropolitan Council established by Minnesota Statutes section 473.123. When expressly stated or otherwise indicated by the context of this contract, the term "Council" means the Metropolitan Council acting through its Housing and Redevelopment Authority unit ("Metro HRA"). (b) "Contractor" means the City of New Hope acting though its goveming body and its duly authorized or designated employees, staff or agents. Page 1 of 16 Pages (c) "Preservation assistance" means a special allocation of Section 8 assistance made available by HUD to provide rental subsidy payments on behalf of eligible residents of properties for which federally-insured mortgages are prepaid. (d) "Section 8 program" means an existing housing assistance payments program under section 8 of the United States Housing Act of 1937, title 42, United States Code, section 1437f, as amended, including the HUD Housing Choice Voucher Program. II. SERVICES AND PROGRAM RESPONSIBILITIES 2.01 Basic Administrative Services. The Council agrees to purchase and the Contractor agrees to perform within the jurisdiction(s) identified in Exhibit A the following "basic" Section 8 program administrative services. (a) Initial Lease-Up. The Contractor will perform the following lease-up activities: (1) Assist Section 8 voucher holders locate suitable dwelling units eligible for use in the Section 8 program. (2) Obtain applicant and participant files and review the files for accuracy and completeness after receipt of Request for Lease Approval forms. (3) Inspect and, as necessary, reinspect rental units identified on Request for Lease Approval forms. (4) Complete rent reasonableness determinations and, when appropriate, help negotiate contract rents consistent with rent reasonableness determinations. (5) Complete computation worksheet to determine rent portions. (6) Verify rental property ownership. (7) Complete and obtain necessary lease documents for each applicant or participant family which shall include a lease, a required lease/tenancy addendum and any other required lease related forms, a housing assistance payments ("HAP") contract and a W-9 form, and review the documents for conformance with Section 8 program requirements. (8) Certify accuracy and completeness of all application and lease-up documents and submit completed files to the Council for final review and payment processing. (9) Perform other tasks and lease-up activities that may be reasonably needed to facilitate timely lease-ups. All initial lease-up activities shall be performed using forms and documents provided by the Council, which may be amended or modified from time to time by the Council. Upon completion of the initial lease-up activities, the Contractor will submit all original Page 2 of 16 Pages Co) documents to the Council for file management and payment processing purposes. The Contractor will maintain at its offices a duplicate set of program files and records. Ongoing Program Administration. The Contractor will perform all Section 8 administrative services associated with: annual and interim recertifications; rent, unit, income and lease changes; mutual terminations; evictions; and portability lxansfers. In addition to performing the lease-up activities listed in paragraph 2.01(a), the Contractor will perform the following ongoing program administration activities: (1) Initiate contacts with participant families for annual recertification. (2) Verify family composition, income, assets, medical expenses, child care expenses and citizenship as appropriate and determine eligibility for ongoing program participation. (3) Issue Section 8 vouchers and provide participants with program information. (4) Complete portability process if needed. (5) Complete rent reasonableness determinations based upon rent reasonableness information and forms supplied by the Council. (6) Initiate investigation of potential fraud or program violations and make recommendations to Metro HRA for further action. (7) (8) (9) (10) Promptly notify appropriate Metro HRA staff of any changes in participant status or problems including, but not limited to, participant evictions, mutual lease terminations, abandonment of dwelling units, lack of proper eligibility documentation, changes in household composition and income, changes in property ownership, noncompliance with HAP contract provisions and noncompliance with federal housing quality standards ("HQS") requirements. Maintain at its offices a duplicate set of Section 8 program files and records for each Section 8 family while the family is provided services under this contract. Files and records for each family will be retained by Metro HRA for three (3) years beyond the date when services no longer are provided to that family. The Contractor will provide prior written notice to the Council before the Contractor disposes of any duplicate files and records of families no longer provided services under this contract and will dispose of any duplicate files and records in accordance with the Minnesota Government Data Practices Act. Conduct affirmative marketing activities such as contacting and working with rental property owners, community groups, and rental property management groups to encourage participation in and understanding of the Section 8 program. Perform other work tasks that reasonably may be required to facilitate effective ongoing program administration. Page 3 of 16 Pages (c) All ongoing program administrative services shall be performed using forms and documents provided by the Council, which may be amended or modified from time to time by the Council. Upon completion of the ongoing program administrative services, the Contractor will submit all original documents to the Council for file .management and payment processing purposes. The Contractor will maintain at its offices a duplicate set of program files and records. Inspection and Reinspection. The Contractor will inspect and reinspect dwelling units for use in the Section 8 program. Inspections and of dwelling units shall include a thorough and complete on-site inspection and certification of the dwelling unit sufficient to ensure conformance with federal HQS as set forth in title 24, Code of Federal Regulations, section 982.401, as amended, or as required by locally established requirements which have been approved by HUD. Such inspections and reinspections shall be made at the following times: prior to initial lease by an applicant or participant family; at least annually thereafter; at other times during the term of the lease as needed to determine if the unit meets HQS as required by title 24, Code of Federal Regulations, section 982.405, as amended; and as required by locally established requirements which have been approved by HUD. For the purposes of dwelling unit inspections, "annual" inspection means an inspection that occurs no later than twelve (12) months after the previous inspection. The HQS inspections shall be performed in a timely manner and inspection forms shall be completed and submitted in a timely manner so the interests of Section 8 families, rental property owners, and the Council are not compromised. In addition to conducting initial, annual and other HQS inspections, the Contractor will perform the .-following additional inspection and reinspection activities: (1) Conduct damage inspections as required by the Council's policies and procedures. The Contractor will conduct all damage inspections within twenty-four (24) hours after a request, or as soon thereafter as is reasonably possible, so the interests of Section 8 families, rental property owners, and the Council are not compromised. Damage inspections shall be conducted only on rental units covered by a HAP contract containing a damage claims provision. (2) Conduct special inspections as requested by program participants or landlords, and as requested or required by the Council. (3) Complete assessment of rental unit and property conditions as required for rent reasonableness determinations. (4) Perform other work tasks that reasonably may be required to facilitate required inspections and reinspections. Reports of all inspections and reinspections shall be made by the Contractor on inspection forms provided by the Council. The Contractor will fully and accurately complete all inspection forms and will provide timely notification of inspection results to landlords and program participants. The Contractor will promptly notify the Council of any required subsidy payment abatements resulting from a landlord's or a family's failure to remedy within specified timelines any "failed" items identified during inspections or reinspections. Page 4 of 16 Pages 2.02 Enhanced Administrative Services. At the Contractor's option but subject to Council approval, the Contractor may perform within the jurisdiction(s) identified in Exlfibit A the "enhanced" Section 8 program administrative services described in paragraphs 2.02(a) or 2.02Co). (a) Additional Administrative Services. In addition to performing the "basic" Section 8 program administrative services described in paragraph 2.01, the Contractor may elect to perform the following "enhanced" Section 8 program administrative services: (1) Verify income and other eligibility information for Section 8 applicants living within the jurisdiction(s) identified in Exhibit A who have been selected by the Council fi-om the Council's Section 8 waiting list for participation in the Section 8 program. (2) Determine applicant eligibility for Section 8 program assistance. (3) Conduct Section 8 program briefing sessions for applicant families selected and determined eligible for participation in the Council's Section 8 program, and issue Section 8 vouchers to eligible families. (4) Receive paperwork for incoming Section 8 applicants and participants who have exercised their portability option to move into a jurisdiction for which the Contractor provides Section 8 administrative services under this contract. The Contractor will review the paperwork for completeness and accuracy and conduct Section 8 program briefing sessions for families exercising their.portability option. The Contractor also will perform and complete all required activities described in paragraph 2.01. (b) Preservation Assistance Administration. If HUD makes Section 8 preservation assistance available to persons residing in rental properties located in jurisdictions for which the Contractor provides Section 8 administrative services under this contract, the Contractor may provide preservation assistance services. These preservation assistance services shall include~ but are not limited to, the following: (1) Perform initial review of resident profile information to determine preliminary resident eligibility for preservation assistance. (2) Prepare and distribute initial information to project residents. (3) Conduct resident meetings at which preservation assistance information is provided and the process for receiving preservation assistance is explained. (4) Schedule and conduct additional group and individual resident meetings as needed. (5) Determine resident eligibility for Section 8 preservation assistance by verifying household income, assets and eligible expenses. (6) Schedule and conduct client briefings and issue Section 8 vouchers to eligible families. Page 5 of 16 Pages (7) Complete lease-up procedures and conduct unit insPections for residents who lease rental units using preservation assistance within the Contractor's area of service. (c) Eligibility to Perform Enhanced Services. The Contractor may perform the "enhanced" Section 8 program administrative services described in paragraphs 2.02(a) or 2.02(b) by providing the Council with written notice informing the Council about the Contractor's intention to provide "enhanced" administrative services. Following receipt of the written notice, the Council will determine the Contractor's capacity to perform the requested "enhanced" administrative services and will determine with the Contractor a date upon which the Contractor will begin providing "enhanced" Section 8 program administrative services. The Council will provide written notice authorizing the Contractor to undertake and perform the "enhanced" Section 8 administrative services described in paragraphs 2.02(a) and 2.02(b). All "enhanced" administrative services shall be performed using forms and documents provided by the Council, which may be amended or modified from time to time by the Council. Upon completion of "enhanced" administrative services, the Contractor will submit all original documents to the Council for file management and payment processing purposes. The Contractor will maintain at its offices a duplicate set of program files and records. 2.03 Program Requirements and Training. The Contractor agrees to comply with the following administrative and training requirements during the performance of this contract. (a) Personnel. The Contractor will designate to the Council the person or persons who will conduct or perform the Contractor activities described in this contract. (b) Training. The Contractor will develop and maintain a thorough understanding of the Section 8 program regulations and the requirements and procedures set forth in manuals and other materials provided by the Council. The Contractor agrees to send a representative to all required Section 8 program training sessions and staff meetings conducted by the Council. The Council will notify the Contractor of a required training session or required meeting at least ten (10) business days prior to the training session or meeting. (c) Resources and Staffing. The Contractor shall provide adequate staff time and office or program space to perform the Section 8 program administrative services contemplated by this contract and shall make staff and office or program space available to Section 8 applicants and participants during scheduled business hours approved by Metro HRA staff. Staff and office or program space provided by the Contractor shall comply with all applicable state and federal accessibility standards and requirements. The Contractor shall provide adequate signs and other directional materials to inform applicants and prospective applicants about the place and manner of making application. The Contractor shall keep available for distribution adequate brochures and other information or materials as may be prepared by the Council and shall supplement the brochures with local informational materials as appropriate or needed. The manner of furnishing these services shall be agreed upon by the Contractor and the Council. The Contractor and the Council shall from time to time confer about the details of the furnishing of these services. The Contractor agrees to Page 6 of 16 Pages comply with reasonable demands made by the Council concerning these program requirements. 2.04 Notice of Actions and Claims. The Contractor will immediately notify Metro HRA staff by telephone about any summons or other legal or judicial notices, including conciliation court summons or notices, involving claims or disputes related to the administration of the Council's Section 8 program within the jurisdiction(s) identified in Exhibit A. The Contractor will confirm its telephone notification by written notice within three (3) business days after the telephone notification. The Contractor also will notify the Council about and refer to Metro HRA staff within one (1) business day any contacts related to the administration of this contract or the Section 8 families served by the Contractor under this contract that are received from legal aid representatives, legislators or legislative staff, and television, radio or newspaper media staff. 2.05 Council Program Obligations. Unless otherwise performed by the Contractor under paragraphs 2.01 or 2.02, the Contractor and the Council understand and agree the Contractor shall not be required to perform the following Section 8 program services and activities which are the primary responsibility of the Council. (a) Areawide Marketing. The Council will coordinate all areawide affirmative marketing activities, such as preparing brochures and advertising, and contacting and working with area community groups, rental property owners and rental property management groups. (b) Waiting List Administration. The Council will develop and maintain a Section 8 applicant waiting list and will select applicants for participation in the Section 8 program. (c) Records and Overall Program Management. The Council will: create, update and maintain computer records of all active and nonactive Section 8 applicants and participants; collect all areawide data and prepare all housing assistance program reports for HUD; provide overall financial program management, including budgeting, requisitions and monitoring; provide-necessary equal employment opportunity and affirmative action documents as required by the Consolidated ACC between the Council and HUD. (d) HAP Contract Payments. The Council will execute housing assistance payments contracts with rental property owners and will authorize and make housing assistance payments to owners, both at month-end and on a weekly basis. (e) Informal Hearings. The Council will conduct informal hearings to review denial, reduction or termination of Section 8 program assistance. The Council also will conduct informal hearings to review and determine rental property owner and Section 8 participant claim matters. The Council will keep the Contractor apprised of the status and results of all informal heatings. (f) Program Training. The Council will provide necessary program training for Contractor staff including, but not limited to, HQS inspection training. The Council will perform HQS inspection monitoring activities. Page 7 of 16 Pages (g) Program Materials. The Council will prepare and Provide administrative policies, operating brochures, forms, manuals and other Section 8 program materials. (h) Application and Lease-up Processes. The Council will coordinate initial application processes and will serve as the clearinghouse for and maintain logs of all incoming and outgoing portability lease-ups. 2.06 Area of Operation. The Council is authorized by Minnesota Statutes section 473.195 to plan and administer a Section 8 program within the seven-county metropolitan area, including the jurisdiction(s) identified in Exhibit A of this contract. The Section 8 program administrative services contemplated by this contract shall be provided by the Contractor for Section 8 program applicants and participants residing in or moving into the jurisdiction(s) identified in Exhibit A. III. COMPENSATION AND FEE REIMBURSEMENT 3.01 Maximum Payment and Fees. The Council agrees to pay the Contractor on a monthly basis the reimbursable costs incurred by the Contractor in furnishing the Section 8 administrative services specified in this contract which are reimbursable to the Council by HUD. (a) Ongoing Administrative Fee. The Council will pay to the Contractor an ongoing administrative fee on a per-unit-per-month basis. The per-unit-per-month fiat fee reimbursement amount will be adjusted (increased or decreased) whenever the Section 8 program administrative fees received by the Council from HUD change. Effective upon written notice fi.om the Council, the per-unit-per-month fiat fee reimbursement amount will be adjusted (increased or decreased) whenever and by the same factor as the Council's ongoing administrative fee is adjusted (increased or decreased) by HUD. The ongoing administrative fee payable to the Contractor shall be fifty percent (50%) of the per-unit-per- month administrative fee received by the Council fi.om HUD. For the purposes of this paragraph, the "per-unit-per-month administrative fee received by the Council from HUD" means the administrative fee received by the Council fi.om HUD for the units in the Council's Section 8 programs in excess of the first 600 units (example: the "Column B" administrative fee depicted in the matrix at page 12,713 of the March 12, 1999 Federal Register). Notwithstanding any other provision of this contract, the Contractor and the Council agree that this administrative fee amount is payable for Section 8 administrative services performed by the Contractor on and after June 1, 1999. The Council will make a one-time lump-sum payment to the Contractor to effectuate the retroactive application of this provision. The lump sum payment will represent the difference between: the payments already made to the Contractor for services rendered under the terms of the previous contract fi.om June 1, 1999 to the date upon which this contract is executed; and the per- unit-per-month fiat fee reimbursement amount stated in this paragraph 3.01(a). Payments will be based on records described in paragraph 3.02(b). Ongoing administrative fees are' subject to portability adjustments under paragraph 3.01(d). Enhanced Services Administrative Fees. If the Contractor provides the additional "enhanced" administrative services described in paragraph 2.02(a), the Council will pay the Contractor a one-time preliminary fee of fifty dollars ($50.00) per selected applicant family and fifty dollars ($50.00) per newly ported-in family to offset administrative expenses Page 8 of 16 Pages incurred by the Contractor in performing the "enhanced" services described in paragraph 2.02(a). This one-time preliminary fee for enhanced administrative services is in addition to any ongoing administrative fees payable under paragraphs 3.01(a) and 3.01(d), any payments or fees for the performance of preservation assistance administration described in paragraph 2.02Co), and any hard-to-house fees under paragraph 3.01(c). If the Contractor provides preservation assistance services described in paragraph 2.02(b), the Council will pay the Contractor a one-time preliminary fee of $100 for each family determined eligible for preservation assistance by HUD. The $100 one-time preliminary fee is intended to offset administrative expenses incurred by the Contractor in providing preservation assistance services to eligible families of eligible projects within the Contractor's area of jurisdiction, regardless of the number of families ultimately determined eligible for such Section 8 preservation assistance. This one-time preliminary fee for preservation assistance services is in addition to any ongoing administrative fees payable under paragraphs 3.01(a) and 3.01(d), any payments or fees for the performance of additional "enhanced" administrative services described in paragraph 2.02(a), and any hard-to-house fees under paragraph 3.01 (c). (c) Hard-to-House Fee. Provided hard-to-house fees are reimbursed to the Council by HUD, the Council shall pay to the Contractor on a monthly basis forty-five dollars ($45.00), or such other increased or decreased fee amount established by law or by HUD, for each hard- to-house family actually housed in a different unit than the family's pre-program dwelling unit, as well as each time a hard-to-house assisted family moves to another dwelling unit with continued Section 8 assistance. A hard-to-house family is a family with three or more minors. A hard-to-house family is actually housed if both a lease and a housing assistance payments contract are executed. The hard-to-house fee is not payable to the Contractor if a hard-to-house family does not move, or if the hard-to-house family does move but moves without continued Section 8 assistance. This hard-to-house fee is in addition to any ongoing administrative fees payable under paragraphs 3.01(a) and 3.01(d), any payments or fees for the performance of additional "enhanced" administrative services described in paragraph 2.02(a), and any payments or fees for the performance of preservation assistance administration described in paragraph 2.02(b). (d) Portability Adjustment. In accordance with the portability provisions of the federal laws governing the Section 8 program, the Council receives from each "Initial PHA" eighty (80) percent of the Initial PHA's ongoing administrative fee for each unit month a participant family resides in the Council's Section 8 operating jurisdiction under the federal portability provisions. Accordingly, the Contractor and the Council agree that, for each unit month a Section 8 family receiving Section 8 assistance under the federal portability provisions resides in the jurisdiction(s) identified in Exhibit A, the Contractor will receive from the Council fifty percent (50%) of the ongoing administrative fee the Council receives from the Initial PHA. 3.02 Method of Payment. Payments to the Contractor by the Council shall be made according to the following provisions: (a) Quarterly Invoices and Reports. The Contractor shall prepare and submit quarterly invoice/reports on forms or in a format approved by Metro HRA staff. The invoice/reports Page 9 of 16 Pages shall describe actual administrative services performed during the quarter and itemize the Contractor's reimbursable costs of performing those services during the quarter. (b) Monthly Payments. Notwithstanding the quarterly invoices and reports, the Council will pay the Contractor the applicable fees under paragraph 3.01 on a monthly basis. Ongoing administrative fee and hard-to-house fee reimbursement payments to the Contractor will be based on the number of units, as indicated in Metro HRA's monthly utilization and hard-to- house reports, which are administered by the Contractor within the jurisdiction(s) identified in Exhibit A. One-time preliminary fees described in paragraph 3.01Co) will be paid to the Contractor based on records kept by the Council. The Contractor will notify the Council of any fee payment or utilization issues. The Council will provide the Contractor a written response to fee payment issues raised by the Contractor. 3.03 Administrative Fee Reserve (formerly Operating Reserve). During the term of this contract, all funds received by the Contractor from the Council pursuant to this contract must be expended for Section 8 program administrative costs or held for future affordable housing related activities. The Contractor must maintain an administrative fee reserve account that must be credited with the amount by which the total of administrative fees eamed and interest earned on the administrative fee reserve account exceeds the Contractor's actual administrative expenses during the calendar year. The Contractor may accUmulate in its local administrative fee reserve account up to $10,000.00 per year for future Section 8 administrative expenses or for other affordable housing related activities. IV. RECORDS, FILES, AND AUDITS 4.01 Records. The Contractor agrees to maintain accurate, complete and separate accounts and records of all expenditures of funds for which reimbursement is claimed under this contract and of all moneys received pursuant to this contract. Such accounts and records shall be kept and maintained during the term of this contract and for a period of three (3) years following the termination of this contract. 4.02 Audit and Inspection. The accounts and records maintained pursuant to this contract shall be audited in the same manner as the other accounts and records of the Contractor and may be audited or inspected on the Contractor's premises or otherwise by individuals or organizations designated and authorized by the Council at any time following reasonable notification during the term of this contract and for a period of three (3) years following the termination of this contract. The Contractor further agrees that HUD and the Comptroller General of the United States, or their duly authorized representatives, shall have full and free access to all Contractor offices and facilities, and to all the books, documents, papers and records of the Contractor that are pertinent to the performance of this contract or pertinent to the operation and management of the Section 8 program, including the right to audit, and to make excerpts and transcripts from the books and records. 4.03 Data Privacy. The Contractor agrees to abide by the Minnesota Government Data Practices Act and other applicable state and federal law governing private or confidential data on individuals. The use or disclosure of information concerning a Section 8 program applicant or participant in violation of the Minnesota Government Data Practices Act or any other applicable state or federal Page 10 of 16 Pages law or rule of confidentiality is prohibited, except on the written informed consent of the applicant or participant, or as otherwise allowed or provided by state or federal law. Data on a family that are collected or created because of the family's status as a Section 8 applicant or participant is classified as private "benefit" data under Minnesota Statutes section 13.31. V. CONTRACT TERM 5.01 Period of Performance. This contract is effective on the date this contract is finally executed by the Council and shall continue until the earlier of the following: termination of Section 8 program funding by HUD; termination of this contract by either party pursuant to paragraph 5.02 of this contract; or June 1, 2004. As provided in paragraph 3.01, the ongoing administrative fee described in paragraph 3.01(a) shall be payable retroactive to June 1, 1999. 5.02 Termination of Contract. The Council and the Contractor both shall have the right to terminate this contract at any time and for any reason by submitting written notice of termination to the other party at least ninety (90) days prior to the specified effective date of the termination. In addition, the Council shall have the right to terminate this contract on fourteen (14) calendar days' written notice if the Contractor's performance is not timely or is substantially unsatisfactory, or if the Contractor has violated any of the material terms, conditions or agreements contained in this contract. In either event, on the termination of this contract all finished and unfinished documents, work papers, products and records prepared by the Contractor under this contract shall become the property of the Council. On the termination of this contract, the Contractor will be paid for administrative services satisfactorily performed up to the date of the contract termination according to the terms stated in article III of this contract. VI. CONTRACT PERFORMANCE AND MODIFICATION 6.01 Assignment. The Contractor shall perform with its own organization the total work provided for under this contract and shall not assign, subcontract or transfer any of the contract work without the prior written consent of Metro HRA staff. 6.02 Prompt Payment of Subcontractors. If the Contractor receives prior written consent from the Council pursuant to paragraph 6.01 of this contract and assigns, subcontracts or transfers any of the work provided for under this contract, the Contractor agrees to pay any subcontractor within ten (10) days of the Contractor's receipt of payment from the Council for undisputed services provided by the subcontractor(s). The Contractor further agrees to pay interest of one and one-half (1 ½) percent per month or any part of a month to the subcontractor(s) on any undisputed amount not paid on time to the subcontractor(s). The Contractor agrees the minimum monthly interest penalty payment for an unpaid balance of one hundred dollars ($100.00) or more is ten dollars ($10.00). For an unpaid balance of less than one hundred dollars ($100.00), the Contractor agrees to pay the actual penalty due to the subcontractor(s). 6.03 Amendments. The terms of this contract may be changed or modified by mutual agreement of the parties. Such amendments, changes, or modifications shall be effective only on the execution of written amendment(s) signed by the Council and the Contractor. Page 11 of 16 Pages VII. LIABILITY 7.01 Indemnification. To the extent permitted by law, the Contractor agrees to indemnify, defend and save and hold the Council, its agents and employees harmless fi:om any and all claims or causes of action arising fi:om the performance of this contract by the Contractor or the Contractor's employees and agents. This clause shall not be construed to bar any legal remedies the Contractor may have for the Council's failure to perform its obligations under this contract. Nothing in this clause shall be construed as a waiver on the part of either the Contractor or the Council of any immunities or limits on liability provided by Minnesota Statutes chapter 466, or other applicable state or federal law. 7.02 Insurance. The Council assumes no liability with respect to bodily injury, illness, accident, theft or any other damages or losses concerning persons or property arising out of the use or maintenance of Contractor's premises, equipment or vehicles. The Contractor is responsible for providing adequate insurance coverage to protect against legal liability arising out of the Contractor's activities under this contract. Upon request fi:om Metro HRA staff, the Contractor shall provide copies of insurance instruments or certifications from the insurance issuing agency which show the insurance coverage, the designated beneficiary, the parties covered and the coverage amounts. 7.03 Independent Contractor Status. The Contractor acknowledges that the Contractor and the Contractor's agents and employees are independent contractors under the terms and conditions of this contract. The Contractor is responsible for the employment, discharge, compensation, benefit coverage and supervision of all Contractor personnel, employees and agents. The Contractor expressly acknowledges that the Contractor and the Contractor's personnel, employees and agents shall not assert any claims against the Council for reemployment, workers' compensation or other employee benefits of any type related to the performance oft his contract. VIII. EQUAL EMPLOYMENT; NONDISCRIMINATION 8.01 Equal Employment Opportunity. The Contractor agrees to provide equal employment opportunities. (a) Nondiscrimination and Affirmative Action. The Contractor shall not discriminate against any employee or applicant for employment because of race, color, creed, religion, national origin, sex, marital status, status with regard to public assistance, disability, sexual orientation or age. The Contractor shall take affirmative action to ensure that applicants are employed, and that employees are treated during employment, without regard to race, color, creed, religion, national origin, sex, marital status, status with regard to public assistance, disability, sexual orientation and age. Such action includes, but is not limited to, the following: employment, upgrading, demotion, or transfer; recruitment or recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship. (b) Notice Posting. The Contractor agrees to post in conspicuous places, available to employees and applicants for employment, notices setting forth the nondiscrimination provisions of paragraph 8.01(a) of this contract. The Contractor will in all solicitations or Page 12 of 16 Pages advertisements for employees placed by or on behalf of the Contractor state that all qualified applicants will receive consideration for employment without regard to race, color, creed, religion, national origin, sex, marital status, status with regard to public assistance, disability, sexual orientation and age. (c) Subcontracts. The Contractor agrees to incorporate the provisions of paragraph 8.01 in any subcontracts for project work. 8.02 Equal Opportunity Compliance Reviews. The Contractor shall cooperate with the Council and HUD in conducting compliance reviews and complaint investigations pursuant to applicable federal and state civil rights statutes, executive orders, and related roles and regulations. 8.03 Nondiscrimination in Housing. The Contractor agrees to comply with federal and state laws prohibiting discrimination in housing. (a) Federal Laws. The Contractor shall comply with the nondiscrimination requirements of Title VI of the Civil Rights Act of 1964 prohibiting discrimination based on race, color, or national origin and Executive Order 11063 with respect to those provisions prohibiting discrimination based on religion or sex, and with implementing HUD regulations. The Contractor shall comply with Title VIII of the Civil Rights Act of 1968 which prohibits discrimination in the sale, rental or financing of housing on the basis of race, color, religion, sex, handicap, familial status, or national origin and with any implementing regulations. The Contractor shall comply with Section 504 of the Rehabilitation Act of i973, as amended, which prohibits discrimination against handicapped persons who would otherwise qualify to participate in Section 8 programs and, where applicable, the Age Discrimination Act of 1975, as amended, which prohibits discrimination on the basis of age. Unwed parents, families with children bom out of wedlock, and recipients of public assistance shall not be excluded from participation in or be denied the benefit of the Section 8 programs because of such status. (b) State Laws. The Contractor shall comply with all applicable provisions of the Minnesota Human Rights Act. IX. GENERAL PROVISIONS 9.01 Conflict of Interest. The Contractor agrees to abide by federal and state conflict of interest laws pertaining to the performance of this contract. (a) Federal Conflict Provisions. (1) In accordance with title 24, Code of Federal Regulations, section 982.161(a), neither the Council nor any of its contractors or subcontractors may enter into any contract, subcontract or arrangement in connection with the Section 8 tenant- based programs in which any of the following classes of persons has any interest, direct or indirect, during tenure or for one year thereafter: (i) Any present or former member or officer of the Council, except a "participant commissioner"; Page 13 of 16 Pages (ii) Any employee of the Council, or any contractor, subcontractor or agent of the Council, who formulates policy or who influences decisions with respect to the Section 8 programs; (iii) Any public official, member of a goveming body, or state or local legislator, who exercises functions or responsibilities with respect to the Section 8 programs; or (iv) Any member of the Congress of the United States. (2) Any member of the classes described in paragraph 9.01(a)(1) must disclose their interest or prospective interest to the Council and HUD. (3) The conflict of interest prohibitions under paragraph 9.01(a)(1) may be waived by the HUD field office for good cause. (b) State Conflict Provisions. The members, officers and employees of the Contractor will comply with all applicable state statutory and regulatory conflict of interest laws, including Minnesota Statutes sections 10A.07 and 469.009, as amended. 9.02 Federal Certification Regarding Lobbying. Pursuant to title 24, Code of Federal Regulations, part 87, the Contractor certifies, to the best of its knowledge and belief, that: (a) Use of Federal Funds. No federal appropriated funds have been paid or will be paid, by or on behalf of the Contractor, to any person for influencing or attempting to influence an officer or employee of an agency, a member of Congress, an officer or employee of Congress, or an employee of a member of Congress in connection with the awarding of any federal contract, the making of any federal grant, the making of any federal loan, the entering into of any cooperative agreement, and the extension, continuation, renewal, amendment, or modification of any federal contract, grant, loan, or cooperative agreement. (b) Disclosure. If any funds other than federal appropriated funds have been paid or will be paid to any person for influencing or attempting to influence an officer or employee of any agency, a member of Congress, an officer or employee of Congress, or an employee of a member of Congress in connection with this contract or its funding, the Contractor shall complete and submit Standard Form-LLL, "Disclosure Form to Report Lobbying," in accordance with its instructions. (c) Certification. This certification is a material representation of fact upon which reliance was placed when this transaction was made or entered into. This certification is a prerequisite for making or entering into this transaction imposed by title 31, United States Code, section 1352. Any person who fails to file the required certification shall be subject to a civil penalty of not less than $10,000 and not more than $100,000 for each such failure. 9.03 Federal Regulations; HUD and Metro HRA Policies. The Contractor agrees to perform the Section 8 program administrative services contemplated under this contract in compliance with: parts 887 and 982 and other applicable provisions of title 24, Code of Federal Regulations, and Page 14 of 16 Pages other applicable provisions of the federal regulations governing the Section 8 program; applicable provisions of the HUD Handbook; the Administrative Plan for the Metropolitan Council Housing and Redevelopment Authority, as amended or revised; current procedures, letters and forms provided by the Council in policy/procedural memoranda; HUD's Housing Inspection Manual for the Section 8 Existing Housing Program; and all other applicable procedures and policies as may be provided to the Contractor. 9.04 Prohibition of Service Charges. The Contractor shall not charge any fee to any Section 8 program applicant or participant or charge any fee to any rental property owner for any Section 8 program administrative services provided under this contract. 9.05 Prior Contracts. The Contractor and the Council agree this contract supersedes and replaces Contract No. C-94-56, and any amendments to Contract No. C-94-56, and any other prior Section 8 program administrative services contracts entered into between the Council and the Contractor. Contract No. C-94-56 is terminated upon final execution of this contract. 9.06 Warranty of Legal Capacity. The individual signing this contract on behalf of the Contractor represents and warrants on the Contractor's behalf that the individual is duly authorized to execute this contract on the Contractor's behalf, and that this contract constitutes the Contractor's valid, binding, and enforceable agreements. IN WITNESS WHEREOF, the Contractor and the Council have caused this contract to be executed by their duly authorized representatives. Approved as to form: METROPOLITAN COUNCIL Associate General Counsel By: James J. Solem, Regional Administrator Date: CITY OF NEW HOPE By: Its: Date: By: Its: Date: C99~8 Page 15 of 16 Pages METRO HRA (12/99) EXHIBIT A CITY OF NEW HOPE The Contractor shall perform the Section 8 program contract services within the City of New Hope, Minnesota and within the following jurisdictions located in Hennepin County, Minnesota: Edina Golden Valley Maple Grove Osseo The Council will perform Section 8 inspection and reinspection services for dwelling units located within the cities of Edina, Golden Valley, Maple Grove and Osseo. Page 16ofl6Pages BUDGET FORM II DEPARTMENT: HRA Administration 92 ESTIMATE OF EXPECTED REVENUES AND SOURCE 2000 DESCRIPTION ', AMOUNT 221 New Hope Vouchers/Certificates x $20.74 $ 55,002 Reimbursement per unit for 12 months 12 New Hope Portability Vouchers/Certificates at $16.59 2,389 Reimbursement per unit for 12 months *90 Outside Vouchers/Certificates x $20.74 20,533 Reimbursement (admin. only) per unit for 11 months * 2 Outside Portability Vouchers/Certificates x $16.59 365 Reimbursement (admin. only) per unit for 11 months Hard-to-House Reimbursement Averages 540 x 5x12months Anticipated increase in percent reimbursement from Met Council 12,434 *Outside clients are from the following cities: Golden Valley 12 Edina 26 Maple Grove 35 Osseo 19 TOTAL $ 91,263 2-25