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062899 EDA Official File Copy CITY OF NEW HOPE EDA ME~I'ING City Hall, 4401 Xylon Avenue North dune 28, 1999 President W. Peter Enck Commissioner Sharon Cassen Commissioner Don Collier Commissioner Pat LaVine Norby Commissioner Mark Thompson 1. Call to Order 2. Roll Call 3. Approval of Regular Meeting Minutes of June 14, 1999 Resolution Approving 1999 Amendment to Master Modification to Redevelopment Plans and Tax Increment Financing Plans and Requesting the Approval of the City Council (Improvement Project No. 662) 5. Resolution Approving Subordination of Mortgages to New First Mortgage for New Hope Apartments (Improvement Project No. 510) 6. Discussion Regarding Potential Acquisition of Industrial Property Located at 7500 42nd Avenue North (Improvement Project No. 474) 7. Adjournment , CITY OF NEW HOPE 4401 XYLON AVENUE NORTH NEW HOPE, MINNESOTA 55428 Approved EDA Minutes June 14, 1999 Regular Meeting City Hall CALL TO ORDER President Enck called the meeting of the Economic Development Authority to order at 8:21 p.m. ROLL CALL Present: Enck, Cassen, Collier, Norby, Thompson Staff Present: Sondrall, Hanson, Donahue, Leone, McDonald, Hem'y, Kern, ' French, Johnson APPROVE MINUTES Motion was made by Commissioner Cassen, seconded by Commissioner Thompson, to approve the Regular Meeting Minutes of May 24, 1999. Ail present voted in favor. Motion carried. 7500 42~ AVE. N. President Enck introduced for discussion Item 4, Motion Accepting Appraisal and IMP. PROJECT474 Authorizing Staff to Negotiate with Property Owner Regarding Potential Item 4 Acquisition of Industrial Property Located at 7500 42na Avenue North (Improvement Project No. 474). Mr. Kirk McDonald, Director of Community Development, stated the appraisal conducted by BCL Appraisals was $432,000 compared to the owner's' appraisal of $545,000. The 1998 valuation of the property is $195,000. Mayor Enck questioned the disparity of the market value compared to the appraised value. The EDA directed staff to inquire with Heunepin County. The EDA unanimously supported the acquisition of the property. Councilmember Cassen complimented BCL Appraisals for the thorough analysis of the property. 'MOTION Motion was made by Councilmember Cassen, seconded by Councilmember Item 4 Thompson, accepting the appraisal and authorizing staff to negotiate for the purchase of 7500 42nd Avenue North for an amount not to exceed $432,000. All present voted in favor. Motion carried. ADJOURNMENT Motion was made by Commissioner Cassen, seconded by Commissioner Thompson, to adjourn the meeting. All present voted in favor. Motion carried. The New Hope EDA adjourned at 8:25 p.m. Respectfully submitted, Valerie Leone City Clerk New Hope EDA June 14, 1999 Page 1 I I I EDA ~  REQUEST FOR ACTION Originating Department Approved for Agenda Agenda Section EDA Community Development Item No. 6-28-99 BY'irk McDonald By:, 4 RESOLUTION APPROVING 1999 AMENDMENT TO MASTER MODIFICATION TO REDEVELOPMENT PLANS AND TAX INCREMENT FINANCING PLANS AND REQUESTING THE APPROVAL OF THE CITY COUNCIL (IMPROVEMENT PROJECT NO. 662) ACTION REQUESTED Staff requests that the EDA approve the enclosed resolution which approves the Master Modification to the Redevelopment and Tax Increment Financing Plans and requests the approval of the City Council. This resolution should be adopted prior to the City Council public hearing and prior to the adoption of the Council resolution. POLICY/PAST PRACTICE The resolution states that the modification serves the original goals and purposes of the City and HRA by providing recreational facilities available for use by the public which will be of benefit to all residents of the City. The 1999 Amendment authorizes the expenditure of tax increment revenues derived from Tax Increment Districts to pay for said facilities. BACKGROUND In July 1998, the City Council and EDA considered a resolution to modify the TIF District to inclUde the Cooper High School property in an area where TIF funds could be expended for purposes of financing the construction of gyms on the site. The City of Plymouth previously approved TIF funds for the construction of gym facilities at Armstrong High School. The resolution to add Cooper to the TIF District was not' approved and the general direction given was for the School District to develop more complete plans and dost estimates. Over the past year, representatives from the School District and Cooper have been meeting with city staff to determine the type of facilities that would best meet City and School District needs and still keep costs at a minimum. On April 19, 1999, the City Council conducted a work session to discuss this subject and the School District presented three options to the Council and requested consideration of TIF funding to finance the project. The Council was supportive of the project and directed staff to publish notice for the public hearing. Please refer to additional details in the City Council Request For Action. .... ¢cont'd.~ Request for Action Page 2 6-28-99 FUNDING The 1999 Amendment would allow the use of tax increment funds in an amount up to $3,250,000 from the Districts to pay all or a portion of the costs of the construction of the recreational facilities at Cooper High School. ATTACHMENT · Resolution · City Attorney Correspondence · 1999 Master Modification Amendment TIF District Map CERTIFICATE NEW HOPE ECONOMIC DEVELOPMENT AUTHORITY I, the undersigned being the duly qualified Executive Director of the New Hope Economic Development Authority, hereby attest and certify that: 1. As such officer, I am the recording officer of the New Hope Economic Development Authority and have the legal custody of the original record from which the attached resolution was transcribed. 2. I have carefully compared the attached resolution with the original record of the meeting at which the resolution was acted upon. 3. I find the attached resolution to be a true, correct and complete copy of the original: EDA RESOLUTION NO. 99- Resolution Approving 1999 Amendment to Master Modification to Redevelopment Plans and Tax Increment Financing Plans and Requesting the Approval of the City Council 4. I further certify that the affu'mative vote on said resolution was ~ ayes, ~ nayes, and ~ absent/abstention. 5. Said meeting was duly held, pursuant to call and notice thereof, as required by law, and a quorum was present. WITNESS my hand officially as such Executive Director this ~ day of ,1999. Daniel J. Donahue, Executive Director Commissioner introduced the following resolution and moved its adoption: EDA RESOLUTION NO. 98- RESOLUTION APPROVING 1999 AMENDMENT TO MASTER MODIFICATION TO REDEVELOPMENT PLANS AND TAX INCREMENT FINANCING PLANS AND REQUESTING THE APPROVAL OF THE CITY COUNCIL BE IT RESOLVED, by the New Hope Economic Development Authority (the "EDA"), as follows: 1. Proposed Amendment. The Housing and Redevelopment Authority in and for the City of New Hope, Minnesota (the "HRA") has approved six redevelopment plans, as defined in Minnesota Statutes, Section 469.002, subdivision 16, designated as Redevelopment Plan 80-2, Redevelopment Plan 81-1, Redevelopment Plan 82-1, Redevelopment Plan 85-1, Redevelopment Plan 85-2 and Redevelopment Plan 86-1 (the "Redevelopment Plans"), and redevelopment projects to be undertaken pursuant thereto, as defined in Minnesota Statutes, Section 469.002, subdivision 14 (the "Redevelopment Projects"), and that in order to finance the public redevelopment costs to be incurred by the HRA in connection with the Redevelopment Plans and the Redevelopment Projects, the HRA has approved tax increment financing plans, pursuant to the provisions of Minnesota Statutes, Section 469.175 (the "Financing Plans"), which establish tax increment financing districts, as defined in Minnesota Statutes, Section 469.174, subdivision 9, which are designated by Hennepin County as Tax Increment Financing Districts Nos. 1601, 1602, 1603, 1604, 1605, 1,606, 1607 and 1608 (the "Districts"). Pursuant to Minnesota Statutes, Section 469.094, subdivision 2, the City has transferred control of the Redevelopment Plans, the Redevelopment Projects, the Financing Plans and the Districts from the HRA to the EDA. On July 25, 1,994, the EDA approved an amendment to the Redevelopment Plans, the Redevelopment Projects and the Financing Plans which is entitled "Master Modification to the Redevelopment Plans and the Tax Increment Financing Plans" (the "1994 Master Modification") to combine the areas subject to the Redevelopment Plans and to expand the area subject to the Redevelopment Plans and to authorize the expenditure of tax increment revenue derived from the Districts to pay public redevelopment costs in the additional area made subject to the Redevelopment Plans by the 1994 Master Modification and other public improvement costs. On October 9, 1995, the EDA and City approved additional amendments to the Redevelopment Plans, the Redevelopment Projects and the Financing Plans entitled "1995 Amendment to Master Modification to Redevelopment Plans and Tax Increment Financing Plans" ("1995 Amendments to Master Modification"). On February 24, 1997, the EDA and City approved additional amendments to the Redevelopment Plans, the Redevelopment Projects and Financing Plans entitled "1997 Amendment to Master Modification to Redevelopment Plans and Tax Increment Financing Plans" (the "1997-1 Amendments to Master Modification"). On April 27, 1997, the EDA and City approved additional amendments to the Redevelopment Plans, Redevelopment Projects, and Financing Plans entitled "1997-2 Amendment to Master Modification to Redevelopment Plans and Tax Increment Financing Plans" (the "1997-2 Amendments to Master Modification"). On July 27, 1998, the EDA and City approved additional amendments to the Redevelopment Plans, Redevelopment Projects and the Financing Plans entitled "1998 Amendment to Master Modification to Redevelopment Plans and Tax Increment Financing Plans" (the "1998 Amendments to Master Modification"). The 1995 Amendments to Master Modification, the 1997-1 Amendments to Master Modification and the 1998 Amendments to Master Modification (but not the 1997-2 Amendments to Master Modification) included additional property in the area subject to the Redevelopment Plans and each of the 1995 Amendments to Master Modification, the 1997-1 Amendments to Master Modification, the 1997-2 Amendments to Master Modification and the 1998 Amendments to Master Modification authorized additional expenditures of tax increment revenue derived from the Districts. The 1994 Master Modification, the 1995 Amendments to Master Modification, the 1997-1 Amendments to Master Modification, the 1997-2 Amendments to Master Modification and the 1998 Amendments to Master Modification are herein together referred to as the "Master Modification". It is now been proposed that the EDA approve an additional amendment to the Redevelopment Plans and the Financing Plans which is entitled "1999 Amendment to Master Modification to Redevelopment Plans and Tax Increment Financing Plans" (the "1999 Amendment") to expand the area subject to the Redevelopment Plans and to authorize additional expenditures of tax increment revenue to (i) pay redevelopment costs in the area subject to the Redevelopment Pl/~ns, including, but not limited to, the additional area made subject to the Redevelopment Plans by the 1999 Amendments, and (ii) pay administrative expenses of the EDA and the City. 2. Approval of 1999 Amendment. The 1999 Amendment has been presented to this Board and is ordered placed on file in the office of the Executive Director of the EDA, and the 1999 Amendment is hereby approved. The 1999 Amendment further set, res the original goals and purposes of the City and HRA in approving the Redevelopment Plans, the Redevelopment Projects and the Financing Plans, by providing recreational facilities available for use by the public which will be of benefit to all residents of the City, including those residing in the area subject to the Redevelopment Plans. 3. Presentation to City Council. The 1999 Amendment hereby approved shall be presented to the City Council for a public hearing thereon pursuant to Minnesota Statutes, Section 469.029, subdivision 6 and Section 469.175, subdivision 4. Dated the 28th day of June, 1999. President Attest: Executive Director. -2- JENSEN SWANSON & SONDRALL, P.A. ' Attorneys ~It Law 8525 EDINBROOK CROSSING, STE. 201 BROOKLYN PARK, MINNESOTA 55443-1999 TELEPHONE (612) 424-8811 · TELEFAX (612) 493-5193 GORDON L. SENSEN* E-MAIL jss~jsspa.com WILLIAM G. SWANSON STEVEN A. SONDRALL MARTIN P. MALECHA C. ALDEN PEARSON* DEAN A. TRONGARDt May 25, 1999 SULIE A. THILL Kirk McDonald OF COUNSEL LORENS Q. BRYNF. SI'AD Community Development Director City of New Hope 4401 Xylon Avenue North New Hope, MN 55428 Re: City Council and EDA Resolutions Approving 1999 Amendment to Master Modification to Redevelopment Plan - Cooper Gym Project Our File No.: 99.11231 Dear Kirk: This letter will confirm our May 20, 1999 telephone conversation regarding the Cooper Gym Project and our need to amend the redevelopment plans and tax increment financing plans to permit TIF dollars to be spent on the gym project. At the April 26"~ Council meeting we passed a resolution calling for a June 14~ public 'hearing in connection with the amendment to the plan. Due to a 30 day notice provision required for the County and School District, the public hearing needs to be changed to the meeting of June 28~. The County and School District have already received notice of the June 28t~ public hearing. Also enclosed are the following resolutions that will need to be adopted by the City Council and the EDA at their respective meetings on June 28z: 1. City Council Resolution Approving 1999 Amendment to Master Modification to Redevelopment Plans and Tax Increment Financing Plans and Making Findings with Respect Thereto; and 2. EDA Resolution Approving 1999 Amendment to Master Modification to Redevelopment Plans and Tax Increment Financing Plans and Requesting the Approval of the City Council. Also enclosed is the 1999 Amendment made reference to in the referenced resolutions. *Rtal Propere/Law Specialist Ct.r~fied ny Tht Mi~ Sma- ~ Association /'Qualified ADR N~utt~l May 25, 1999 , Page 2 Please contact me if you have any questions or comments regarding the contents of this letter, the enclosed resolutions or the 1999 Amendment. Velours, . Steven A. Sondrall JENSEN SWANSON & SONDRALL, P.A. Enclosures cc: Dan Donahue Valerie Leone Jerry Gilligan 1999 AMENDMENT TO MASTER MODIFICATION TO REDEVELOPMENT PLANS AND TAX INCREMENT FINANCING PLANS NEW HOPE ECONOMIC DEVELOPMENT AUTHORITY MASTER MODIFICATION - APPROVED JULY 25, 1994 - 1995 AMENDMENT - APPROVED OCTOBER 9, 1995 1997 AMENDMENT-APPROVED FEBRUARY 24, 1997 1997-2 AMENDMENT - APPROVED APRIL 28, 1997 1998 AMENDMENT - APPROVED JULY 27, 1998 1999 AMENDMENT - APPROVED JUNE 28, 1999 I. INTRODUCTION The Commissioners of the Housing and Redevelopment Authority in and for the City of New Hope, Minnesota (the "HRA") and the City of New Hope, Minnesota (the "City"), have previously approved six Redevelopment Plans designated as Redevelopment Plan 80-2, Redevelopment Plan 81-1, Redevelopment Plan 82-1, Redevelopment Plan 85-1, Redevelopment Plan 85-2 and Redevelopment Plan 86-1 (the "Redevelopment Plans"), and have approved redevelopment projects (the "Redevelopment Projects") to be undertaken pursuant thereto, and in order to finance the public redevelopment costs to be incurred by the City and the HRA in connection with the Redevelopment Plans and the Redevelopment Projects, the HRA and the City have approved various tax increment financing plans (the "Financing Plans") which establish tax increment financing districts designated by Hennepin County as Districts 1601, 1602, 1603, 1604, 1605, 1606, 1607 and 1608 (the "Districts"). Pursuant to Minnesota Statutes, Section 469.094, subdivision 2, the City has transferred control of the Redevelopment Plans, the Redevelopment Projects, the Financing Plans and the Districts from the HRA to the- New Hope Economic Development Authority (the "EDA"). In order to authorize the City and EDA to undertake certain activities designed to remove, prevent and reduce blight, blighting factors and the causes of blight in the City and provide faci. lities intended to serve all residents of the City, on July 25, 1994 the EDA and City approved amendments to the Redevelopment Plans, the Redevelopment Projects and the Financing Plans entitled "Master Modification to Redevelopment Plan and Tax Increment Financing Plans" (the "1994 Master Modification") which (i) combined the areas subject t° the Redevelopment Plans, (ii) included additional property in the area subject to the Redevelopment Plans and (iii) authorized tax increment revenue derived from any of the Districts to be utilized in any area.subject to the Redevelopment Plans. On October 9, 1995, the EDA and City approved additional amendments to the Redevelopment Plans, the Redevelopment Projects and the Financing Plans entitled "1995 Amendment to Master Modification to Redevelopment Plans and Tax Increment Financing Plans" (the "1995 Amendments to Master Modification"). On February 24, 1997, the EDA and City approved additional amendments to the Redevelopment Plans, the Redevelopment Projects and the Financing Plans entitled "1997 Amendment to Master Modification to Redevelopment Plans and Tax Increment Financing Plans" (the "1997 Amendments to Master Modification"). On April 28, 1997, the EDA and City approved additional amendments to the Redevelopment Plans, the Redevelopment Projects and the Financing Plans entitled "1997-2 Amendments to Master Modification to Redevelopment Plans and Tax Increment Financing Plans" (the "1997-2 Amendments to Master Modification"). On July 27, 1998, the EDA and City approved additional amendments to the Redevelopment Plans, Redevelopment Projects and the Financing Plans entitled "1998 Amendment to Master Modification to Redevelopment Plans and Tax Increment Financing Plans" (the "1998 Amendments to Master Modification"). The 1995 Amendments to Master Modification, the 1997 Amendments to Master Modification and the 1998 Amendments to Master Modification, each included additional property in the area subject to the Redevelopment Plans, and the 1995 Amendments to Master Modification, the 1997 Amendments to Master Modification, the 1997-2 Amendments to Master Modification and the 1998 Amendments to Master Modification each authorized additional expenditures of tax increment revenue derived from the Districts. The 1994 Master Modification, the 1995 Amendments to Master Modification, the 1997 Amendments to Master Modification, the 1997-2 Amendments to Master Modification and the 1998 Amendments to Master Modification are herein together referred to as the "Master Modification." The EDA has identified certain property in the City not presently included in any of the areas subject to the Redevelopment Plans which the EDA believes could be used for additional recreational facilities to serve residents of the City. Such property consists of Cooper Senior High School located at 8230 47~' Avenue North in the City (the "Additional Property"). It is proposed that the EDA pay a portion of the cost of a gymnasium addition (the "Recreational Facilities") to be constructed to Cooper Senior High School by Independent School District No. 281. Such gymnasium addition will be available for use by residents of the City in the evenings and on weekends and will provide needed recreational facilities for the City. By the Master Modification the Commissioners of the EDA amended the Redevelopment Plans to combine the areas subject to the Redevelopment Plans and include additional property in the area subject to the Redevelopment Plans and amended the Financing Plans to authorize the expenditure of tax increment revenues derived from any of the Districts for public redevelopment costs incurred by the City or EDA in connection with the development and redevelopment of any property in the area subject to the Redevelopment Plans and to pay costs of a community center to be located at Community Center Park. By this 1999 Amendment to the Master Modification the Commissioners of the EDA includes the Additional Property in the area subject to the Redevelopment Plans and amends the Financing Plans to authorize the additional expenditure of tax increment revenues derived from any of the Districts for costs of the construction of the Recreational Facilities. This 1999 Amendment to the Master Modification does not include the Additional Property in any of the Districts. This 1999 Amendment to the Master Modification is approved by the Commissioners of the EDA and the City pursuant to Minnesota Statutes, Chapter 469.029, subdivision 6, and Minnesota Statutes, Section 469.175, subdivision 4. ' II. , STATEMENT OF NEED AND OBJECTIVES The construction of the Recreational Facilities will provide needed recreational facilities for residents of the City. III. ADDITIONAL EXPENDITURE OF TAX INCREMENT Additional expenditures of tax increment authorized by this 1999 Amendment to the Master Modification of the Redevelopment Plans and Tax Increment Financing Plans include costs associated with the site development and construction of the Recreational Facilities. While the adoption of this 1999 Amendment to the Master Modification authorizes such expenditures of tax increment, it does not obligate the City or EDA to assist with the construction of the Recreational Facilities. -2- In 1994 Springsted Incorporated on behalf of the EDA has prepared an analysis of the cashflow of the Districts through the year 2004. A copy of such cashflow analysis is attached as Exhibit B to the 1994 Master Modification. Not included in such analysis is any tax increment revenue derived from the tax increment financing district designated in Hennepin County as Tax Increment Financing District No. 6 (in which is located the Anthony James Apartments) since because of obligations previously incurred by the City and the EDA it is not expected that there will be any excess tax increment revenue generated by such District during the period covered by the cashflow analysis. The estimated costs of the Recreational Facilities is $3,250,000. The use of tax increment derived from the Districts to pay all or a portion of the costs of construction of the Recreational Facilities is hereby authorized. Costs authorized hereby to be paid with tax increment revenues of the Districts may be paid directly from tax increment derived from the Districts, or may be paid indirectly from tax increment derived from the Districts, by the payment of debt service on bonds or other obligations issued by the City or EDA the proceeds of which are used to pay such costs. Any such bonds or obligations will be repaid, with interest, from the tax increment derived from the Districts. IV. FISCAL AND ECONOMIC IMPLICATIONS OF ADDITIONAI, EXPENDITURES It is estimated fiscal and economic implications of the additional expenditures of tax increment revenue derived from the Districts authorized by this 1999 Amendment to the Master Modification will be as follows: The local governmental units other than the City which are authorized by law to levy ad valorem property taxes in the area where the Districts are located are Independent School District No. 281, Hennepin County, the HRA, the EDA, and various metropolitan area authorities, including the Metropolitan Council, the Metropolitan Transit Commission, the Metropolitan Airports Commission and the Metropolitan Mosquito Control District (the local government units). After the establishment and during the continuation of the Districts, as a result of the Redevelopment Projects and the implementation of the Redevelopment Plans and the improvements in the Districts there has been an increase in the tax capacity of the taxable property in the Districts. If the tax increments derived from the Districts are not applied to pay the additional expenditures described herein, the Districts would terminate earlier than would otherwise be the case assuming ad valorem taxes are paid with respect to the taxable property in the Districts in the anticipated amounts. Upon such termination such increased tax capacity would be available for taxation by the local governmental units. However, as a result of this 1999 Amendment to the Master Modification such increase in tax capacity will not be available for taxation by the local governmental units until at least approximately 2007. -3- V. DETERMINATIONS IN ORIGINAL FINANCING PLAN The determinations made in the Financing Plans with respect to designation of the Districts as Redevelopment Districts, the impact of the establishment of the Districts and the implementation of the Redevelopment Plans and undertaking of the Redevelopment Projects and the captured tax capacity of the Districts upon the redevelopment thereof are not affected by this 1999 Amendment ~to the Master Modification and such determinations will remain in full force and effect following the adoption of this 1999 Amendment to the Master Modification. VI. ADDITIONAL AMENDMENTS TO PLAN The City and the EDA reserve the right to alter the Master Modification as amended by this 1999 Amendment to the Master Modification and to further amend or modify the Redevelopment Plans and the Financing Plans by their joint action, subject to the provisions of state law regulating such action. VII. ORIGINAL PLAN The Redevelopment Plans and the Financing Plans, except to the extent provisions thereof have previously been explicitly amended or supplemented and are explicitly amended or ~upplemented by this 1999 Amendment to the Master Modification shall remain in and be in full force and effect. REQUEST FOR ACTION originating Department Approved for Agenda Agenda Section EDA Community Development 6-28-99 Ite~ By,irk McDonald By:. 5 RESOLUTION APPROVING SUBORDINATION OF MORTGAGES TO NEW FIRST MORTGAGE FOR NEW HOPE APARTMENTS (IMPROVEMENT PROJECT NO. 510) ACTION REQUESTED Staff requests that the EDA approve the enclosed resolution approving the subordination of mortgages to a new first mortgage for New Hope Apartments located at 7200-7260 43rd Avenue North. POLICY/PAST PRACTICE In the past, the City Council and EDA have been supportive of financing programs and tools for rehabilitation efforts directed at helping maintain the single and multi-family housing stock in the City. BACKGROUND Per the attached correspondence from the City Attorney, in 1994 the EDA made two loans, totaling $117,350, to New Hope Apartments for basic rehabilitation of its four building apartment complex located at 7200-7260 43rd Avenue North. The rehabilitation work was subsequently completed, and New Hope Apartments has been making regular loan payments ever since. The EDA's loans were secured by a Second Mortgage and a Third Mortgage on the property, which were second and third in priority behind the First Mortgage. Throughout the process, city staff worked with Dave Stewart of Paragon Real Estate Investments, as the representative of the owners of the apartment complex. Mr. SteWart recently approached city staff regarding the refinancing of the existing First Mortgage. The New First Mortgage will be in the amount of $1.194 million, of which approximately $1.101 million will go to pay off the existing First Mortgage. Of the remaining loan proceeds, approximately $50,000 will be consumed by loan application and related costs and the City Attorney has documentation from Dave Stewart to support this. Mr. Stewart also has stated that the remaining $44,000 will be spent on further improvements on the property, including installing new hot water boilers at a cost of approximately $22,5OO. SECOND BY I Request for Action Page 2 6-28-99 The EDA loanS for this property were initially approved for rehabilitation to help maintain the hoUsing stock in the City. That rehabilitation was completed and property owners have made regular loan payments since that time. If the subordination is approved, the EDA will be in the second and third priority positions behind the New First Mortgage, which is the same position as the ED^ is in now. The dollar amounts of the New Mortgage confirm that the refinancing is not designed to allow the property owners to take equity out of the property, at the potential expense of the ED^. While the ED^ could insist on getting paid off now, this project appears to be working well and fulfilling its original goals. The ED^ has ample basis for agreeing to subordinate their Second and Third Mortgages to the New First Mortgage. The refinancing is scheduled to be completed by the middle of July. Staff recommends that the ED^ approve the enclosed resolution, which approves the subordination. ATTACHMENTS: · Resolution · City Attorney Correspondence EDA RESOLUTION NO. 99- RESOLUTION APPROVING SUBORDINATION OF MORTGAGES TO NEW FIRST MORTGAGE FOR NEW HOPE APARTMENTS IMPROVEMENT PROJECT 510 BE IT RESOLVED by the Economic Development Authority in and for the City of New Hope as follows: WHEREAS, the Economic Development Authority in and for the City of New Hope (the EDA) adopted a Resolution approving multifamily housing policy, EDA Resolution No. 93-13, said policy calling for rehabilitation loans under certain circumstances to owners of multi-family housing in the City, and WHEREAS, New Hope Apartments, a Minnesota general partnership (the Owner) is the owner of a certain four building apartment complex located at 7200-7260 43rd Avenue North in the City of New Hope (the Apartment Complex), and WHEREAS, by Resolution 94-02 and in furtherance of its multi-family housing policy, the EDA approved a $97,350 loan (the Loan) to the Owner for basic rehabilitation of the Apartment Complex, known as City Improvement Project 510, which Loan called for the Owner to contribute at least half of the cost of the rehabilitation, and WHEREAS, due to unforeseen additional rehabilitation costs, the Owners requested and the EDA by Resolution 94-09 approved an additional $20,000 loan (the Additional Loan) to the Owners, and WHEREAS, the Loan and the Additional loan were secured by a Second Mortgage and Third Mortgage, respectively, on the Apartment Complex, which Second and Third Mortgages were second and third in priority behind the existing First Mortgage, and WHEREAS, the Owner completed the rehabilitation project on the Apartment Complex, and have since then made timely payments on the Loan and the Additional Loan, and WHEREAS, the Owner is refinancing the existing First Mortgage encumbering the Apartment Complex by replacing said First Mortgage with a new First Mortgage (the New First Mortgage) in the amount of $1,194,000 in accordance with that certain Loan Application letter from Glaser Financial Group to Mr. Dave Stewart, Paragon Real Estate Investments dated May 3, 1999, and WHEREAS, the proceeds of the New First Mortgage will be used to pay off the balance of the existing First Mortgage of approximately $1,101,192, to pay mortgage and brokerage fees for the New First Mortgage of approximately $50,000, and, as represented by the Owner, to provide further upgrades to the Apartment Complex, including the replacement of new hot water boilers in the amount of approximately $22,500, and WHEREAS, the Owner is requesting the EDA subordinate its Second and Third Mortgages to the New First Mortgage, and WHEREAS, it would be in the best interest of the City of New Hope and its people for the EDA to subordinate its Second Mortgage and Third Mortgage to the New First Mortgage. NOW, THEREFORE, BE IT RESOLVED: 1. The above recitals are incorporated by reference. 2. The subordination of the EDA's Second Mortgage and Third Mortgage to the New First Mortgage, is approved. 3. The President and Executive Director are authorized and directed to sign a Subordination of Mortgage and related documents on behalf of the EDA, and to take such other actions are reasonable and advisable, to carry out this Resolution. Dated the 28* day of June 1999. W. Peter Enck, President Attest: Daniel J. Donahue, Executive Director JENSEN SWANSON & SONDRALL, P.A. Attorneys At Law 8525 EDINBROOK CROSSING, STE, 201 BROOKLYN PARK, MINNESOTA 55443-1999 T£LEi'HONE (612) 424-8811 · TELEI*AX (612) 493-5193 E-MAlL Jss~jsspa.com GORDON L, IENSEN* WILLIAM G. SWANSON STEYEN A. SONDRALL MARTIN P. MALECHA C. ALDEN PEARSONt June 21, 1999 DEAN A. TRONGARD~ JULIE A. THILL OF COUNSEL LOR£NS Q. I~RYNESTAD Daniel J. Donahue EDA Executive Director 4401 Xylon Avenue North New Hope, MN 55428 RE.: New Hope Apartments Our File No. 99.11118 Dear Dan: In 1994 the EDA made two loans, totaling $117,350, to New Hope Apartments for  basic rehabilitation of its four building apartment complex located at 7200-7260 43rd Avenue North. The rehabilitation work was subsequently completed, and New Hope Apartments has been making regular loan payments ever since. The EDA's loans  were secured by a Second Mortgage and a Mortgage on property, which Third the ° were second and third in priority behind the First Mortgage. Throughout the  -~ City staff worked with Dave Stewart of Paragon Real Estate Investments, as process, the representative of the owners of the apartment complex. ( ~ Mr. Stewart recently approached City staff regarding the ref'mancing of the existing First Mortgage. The New First Mortgage will be in the amount of $1.194 million, of which approximately $1.101 million will go to pay off the existing First Mortgage. Of the remaining loan proceeds, approximately $50,000 will be consumed by loan application and related costs. We have been provided documentation from Dave Stewart to support this. Mr. Stewart also has stated that the remaining $44,000 will be spent on further improvements to the property, including installing new hot water boilers at a cost of approximately $22,500. The EDA loans for this property were initially approved for rehabilitation to help maintain the housing stock in the City. That rehabilitation was completed. The property owners have made regular loan payments, so there are no complaints in that regard. If the subordination is approved, the EDA will be in the second and third priority positions behind the New First Mortgage, which is the same position as the ~ ~o~.~ ~,~ s~ EDA is in now. And the dollar amounts of the New Mortgage confirm that the Certified By The Minnesota Sta~e Bar Association '~Qualified ADR N~ltral Daniel J. Donahue June 21, 1999 Page 2 refinancing is not designed to allow the property owners to take equity out of the property, at the potential expense of the EDA. While the EDA could insist on getting paid off now, this project appears to be working well and fulfilling its original goals. The EDA has ample basis for agreeing to subordinate their Second and Third Mortgages to the New First Mortgage. The refinancing is scheduled to be completed by the middle of July. Approval of the subordination would be most timely if it happened at the June 28, 1999 EDA meeting. If the EDA decides to approve the subordination, the enclosed Resolution can be passed at the June 28~ meeting. Please call if you have any questions. Sincerely, Martin P. Malecha Assistant City Attorney Enclosure cc: Kirk McDonald, Director of Community Development (w/enc) f Valerie Leone, City Clerk (w/enc) Steven A. Sondrall, City Attorney i UEST I OR ACrXO Originating Dep~ ~nt Apprm~d for ~nda ~nda $~¢tlon EDA Community Development 6-28-99 Item No. BYKirk McDonald By:. 6 DISCUSSION REGARDING POTENTIAL ACQUISITION OF INDUSTRIAL PROPERTY LOCATED AT 7500 42ND AVENUE NORTH (IMPROVEMENT PROJECT NO. 474) ACTION REQUESTED Staff requests to update the EDA on the negotiations with the property owner of 7500 42nd Avenue and have the EDA determine if they want to enter into a purchase agreement, subject to conditions, with the property owner or not. POLICY/PAST PRACTICE Since the early 1990s, the City has taken a number of actions to acquire the three industrial properties located at the northeast corner of 42"d and Quebec Avenues for redevelopment purposes. The City acquired and demolished the Electronic Industries building at 7516 42n~ Avenue in 1993, and the City acquired and demolished the Foremost building at 7528 42nd Avenue between 1993 and 1995. One property remains to be acquired at 7500 42nd Avenue. Over the years, the City has had a number of conversations with the property owner, Terry Jensen, regarding the potential acquisition of the property by the City and the City has had three appraisals completed on the property in 1992, 1996, and 1997. Ardel Engineering was a tenant in the building located on the site. In August 1997, the EDA approved a resolution authorizing the commencement of eminent domain proceedings to acquire the property at 7500 42nd Avenue, but the action has not been implemented. The environmental cleanup and future commercial redevelopment of the three industrial sites located at the northeast corner of Quebec Avenue and 42"~ Avenue is identified as a goal of the Comprehensive Plan. The upgrading of the 42"d Avenue infrastructure and the improvement or redevelopment of properties abutting 42"a Avenue has been a high priority of the City over the past decade. BACKGROUND The owner of the property has been in contact with the City to inquire about the City's interest in acquiring the property. Ardel Engineering's lease terminated on May 31, as an agreement was not reached between the owner and tenant to renew the lease. Ardel Engineering has relocated to Science Industry Park in the City. The property at 7500 42nd Avenue is currently vacant and the owner is considering making improvements to the building and marketing the property. Due to the fact that the building is vacant, the City would have no responsibility for relocation costs. The owner has recently obtained a current appraisal of the property indicating a market value of $545,000. Request for Action Page 2 6-28-99 , At the May 10 EDA meeting, the EDA approved a resolution authorizing appraisals and commencement of negotiations to acquire the property. At the May 24 EDA meeting, the EDA determined not to enter into a Right of First Refusal and Non-Rental Agreement in order to keep the property vacant. The City's appraisal was completed by BCL Appraisals and presented to the EDA at the June 14 EDA meeting. The appraisal indicated a market value (as allegedly polluted) of $432,000. (The estimated value without pollution stigma was $448,000, with a $16,000 deduction for pollution stigma.) The City originally became involved in acquiring the properties due to the contamination of ground water by Electronic Industries, formerly located at 7516 42nd Avenue. Electronic Industries was identified as the "responsible party" for the contamination and has cooperated with the Minnesota Pollution Control Agency on an approved cleanup plan, which is currently in process. On June 14, the EDA accepted the appraisal and authorized staff to negotiate with the owner and make an offer of $432,000. The City Attorney has prepared the attached June 22 correspondence summarizing the meeting. The property owner indicated that the offer of $432,000 was not acceptable, but that' he was willing to compromise on his appraisal of $545,000 (a difference of $113,000). The property owner indicated he would sell the property to the City for $482,000, which is $50,000 more than the City's appraisal and $63,000 less than his appraisal. The offer is also subject to the City implementing the condemnation resolution, which would be of tax benefit to the property owner. Staff indicated that this counter offer would be presented to the EDA for consideration. The owner has indicated to staff that he has had offers on the property in excess of $500,000, but that he will await the decision of the EDA at this meeting. He has stated he is willing to sell to the City for the indicated amount because of the benefits of condemnation. There are a number of factors that the EDA needs to take into consideration as it makes a determination as to whether the City acquires the property or not, including the following: 1. Long Term Planning and Redevelopment Goals of the City - This site is clearly identified in the Comprehensive Plan for redevelopment and the City has already acquired two of the three parcels. 2. Relocation Expenses - As the City Attorney indicates, the building is currently vacant and this obviously would be an opportune time to acquire the property so that relocation expense payments to a building tenant could be avoided. Relocation consultants have stated that those payments to a tenant from this type of building could be as high as $100,000. 3. Ground Water Contamination Issues - As the City Attorney indicates in his correspondence, the . major concern with the acquisition of this property is the potential soil/ground water contamination issues existing at the site due to its adjacent proximity to the former Electronic Industries property. A purchase agreement on this property should not be signed until a Phase 2 environmental study is done due to the potential contamination issues. This could cause a delay in finalizing a deal with the property owner. Possibly, language could be incorporated into a purchase agreement permitting the EDA to void its offer and be reimbursed any earnest money paid in the event the environmental study is not favorable to permit development of the site in accordance with the EDA's or City's plan. 4. Differences Between Appraisals: The City Attorney indicates in his correspondence in detail what he feels are the flaws in the property owners appraisal, However, he indicates that the appraisal process is not an exact science and is highly susceptible to manipulation based on the subjective opinion of the appraiser making the report. He indicates that the BCL Appriasal supports a market value for this property of $457,000 based on the income approach to value. This is based on an estimated potential net income rate of $4 a square foot. It was the City's understanding that the property owner was receiving $4.25 per square foot. If the $4.25 rate is accurate, BLC indicated to ~equest for Action Page 3 6-28-99 the City Attorney that the income approach would establish a market value at $487,000, rather than $457,000, as indicated in the report. In other words, based on the income approach to value, the City Attorney indicates that the purchase price of $482,000 requested by the owner may not be unreasonable assuming a Uno action" letter can be obtained from the MPCA concerning ground water and soil contamination at the site. This purchase price may also be justified if relocation costs to the EDA remain at zero by virtue of the property being vacant at this time. 5. Differences in Market and Taxable Values - Per the attached memo from the Administrative Assistant, the market value of the property listed in an earlier Request For Action was listed as $195,000. The BCL appraisal lists the market value as $329,000. Staff contacted the Appraiser's office to clarify this discrepancy. The County indicated that because the property is believed to have ground water contamination, the taxable value is discounted by the County. Therefore, in 1998, the property had a market value of $329,000 but was only taxed at a value of $195,000. The assessor also gave the 1999 figures - the market value is listed as $379,000 and the taxable value remains at $195,OOO. 6. Environmental Tests and Timeline - Northern Environmental provided the City with an outline of what the environmental testing would entail. The MPCA requires that two phases of environmental testing be done to potentially contaminated sites. The Phase 1 investigation determines what pollutants may exist, and what testing should be done in Phase 2. This process takes approximately two weeks at a ballpark cost of $2,000. Phase 2 actually takes soil samples and tests them to find the extent of the pollution. Due to the intensive laboratory work, the Phase 2 generally takes three- four weeks, and costs anywhere from $5,000-$7,000. All combined, the environmental testing on this site should take approximately six weeks and costs around $9,000-$11,000. The process can be done quicker at a higher cost. 7. Available Brownfield Grants - The Administrative Assistant has identified a couple grant programs that the City may be eligible for to cover some of the costs of this project. · DTED Contamination Investigation & Clean-up - This grant is for all sites that are contaminated, and is pretty wide open for eligibility. It will pay for land acquisition, demolition, cleanup, and most other costs. It will pay up to 75% of the costs, provided the City match with the .remaining 25% of the project costs. The MPCA has already investigated the site at 7516 42nd Avenue and found contamination, so the City should qualify for this grant. DTED gives strong emphasis to projects, though, that have a future concept for the use of the property. They want to see that jobs will be created and the tax base will be revitalized. DTED Redevelopment Grant - DTED has $4 million in a grant program for cities and counties each year for redevelopment projects on a one-to-one city match. Two million dollars is available for each application date. The purpose is to pay for predevelopment costs and get unused or underused land back into the local tax base. The program will pay for any land acquisition, demolition, infrastructure improvement, and site preparation costs. In order to be considered, the project must be ready to go, and begin shortly after the award date. Therefore, the City would need to own the land and have plans worked out with a developer. The developer would need to submit a letter of commitment to the project, and the City Council would need to pass a resolution stating they will do the project if the grant is approved. The grant process gives weight to projects that increase the tax base, improve the land use, and creates jobs. It must be shown that the project will have a positive impact on the surrounding area. The grant application can score better if the project meets TIF requirements and includes contamination clean-up. It appears this site would fit quite well with the requirements for the Redevelopment Grant. Request for Action Page 4 6-28-99 8. Costs of 42"d Avenue Redevelopment -Per the attached spreadsheet prepared by the Administrative Assistant, the City has purchased and demolished the industrial properties adjacent to 7500 42"d Avenue. Those properties were acquired and cleared for a total cost of $589,709. If the City were to acquire the Ardel property for $482,000 and demolish for $40,000, the total investment in these three properties would be $1,091,709. The total area available for redevelopment is 105,528 square feet, or 2.42 acres. The site would be marketed for development and the City would solicit proposals from developers for the property. BCL Appraisals estimates that if the entire parcel were rezoned to B-4 Community Business the City could expect to receive approximately $8 per square foot, or $844,224 for the entire parcel. If the development on this property were equal in value to the neighboring Sunshine Factory, the City would receive about $15,000 in tax revenue each year. Over a 20-year period, this would result in $300,000 of increased City revenue. The City currently receives approximately $1,500 a year from Ardel Engineering in tax revenue, which amounts to $30,000 over a 20-year period. Thus, purchasing this property, rezoning, and selling the three lots would result in $270,000 in added tax revenue over the next 20 years, provided the development is equal in value to the Sunshine Factory. Combining the tax revenue with the sale proceeds of the property, the City would have a positive balance of $22,516 for the project. FUNDING If the Council decides to proceed with the purchase of this property, initially the purchase would be funded with internal funds. Eventually, those funds would be repaid either upon the sale of the property and/or with grant funds. Staff requests that the EDA take all of these factors into consideration when determining whether to acquire the property or not. ATTACHMENTS · June 22 City Attorney Correspondence · Administrative Assistant Memo/Spreadsheet · Comprehensive Plan Excerpts · Excerpts BCLAppraisal . JENSEN SWANSON & SONDRALL, P.A. Attorneys At Law 8525 EDINBROOK CROSSING, STE. 201 BROOKLYN PARK, MINNESOTA 55443-1999 TELEPHONE (612) 424-8811 · TELEFAX (612) 493-5193 GORDON L. JENSEN* E-MAIL jss~jsspa.com WILLIAM G. SWANSON STEVEN A. SONDRALL MARTIN P. MALECHA June 22, 1999 C. ALDEN PEARSON'[' DEAN A. TRONGARD~f JULIE A. THILL Kirk McDonald Community Development Director OF COUNSEL City of New Hope LORENS Q. BRYNESTAD 4~01 Xylon Avenue North New Hope, MN 55428 Re: Acquisition of Ardel Engineering Property Our File No. 99.11111 DearKirk: This letter is in follow-up to our June 17' meeting with Terry Jensen, the owner of the Ardel Engineering property located at 7500 42"a Avenue North. The purpose of the meeting was to discuss the EDA's acquisition of the property at the BCL appraised value of $432,000.00. As you know, Terry Jensen also submitted an appraisal of this property prepared by the Taylor Appraisal Company. The Taylor appraisal establishes market value at $545,000.00. In our meeting, Terry Jensen indicated he would sell the property for $482,000.00 or $50,000.00 over the appraised amount established by BCL Appraisals. The Ardel Engineering building is now vacant. Obviously, this would be an opportune time for the EDA to acquire the property so that relocation expense payments to a building tenant can be avoided. Relocation experts have previously told us relocation payments to a tenant from this type of building could run as high as $100,000.00. The major concern with the acquisition of this property is the potential soil/ground water contamination issues existing at the site due to its adjacent proximity to the former Electronic Industries property. A purchase agreement on this property should not be signed until a Phase II environmental study is done due to the potential contamination issues. This will obviously cause a delay in finalizing a deal with the property owner in the event the EDA is inclined to accept the purchase offer being proposed by the owner. It is my understanding that Phil is in contact with Northern Environmental concerning the cost for and time to complete a Phase II environmental study. Possibly, language could be incorporated into a purchase agreement permitting the EDA to void its offer and be reimbursed any earnest money paid in the event the environmental study is not favorable to permit development of the site in accordance with the EDA's or City's plan. Regarding the two appraisals we have received on this property, the BCL Appraisal is *Re,, ~-oo~,~ ~, s~i.,i,~ much superior to the appraisal submitted by the property owner and more reflective of the C~rtifi~l By Th~ M~.~o~S,~-~ true market value of the property. There are numerous problems with the property Asa~iation ~'Quaiifi~d ADR Neuuai owner's appraisal as follows: June 22, 1999 Page 2 1. Even though it acknowledges environmental contamination at the property, it ignores any impact said contamination would have on market value. This is not realistic. In fact, our appraisal indicates a $16,000.00 diminution in market value due to the "contamination stigma." In my opinion, the $16,000.00 decrease in market value seems very reasonable. I would have thought °o the contamination stigma would have reduced the market value greater than $16,000.00. 2. The owner's appraisal only uses the sales comparison approach. Most appraisers will also use the income and cost approach, as did the BCL Appraisal, to verify and justify the sales comparison approach. The decision to use only one approach to value by the owner's appraiser renders their market value opinion somewhat suspect. 3. The comparable sales used in the Taylor Appraisal are not adequate comps with the exception of sale number 4. Basically, comps number 1 and 2 are simply too old in this market to be used. There are numerous and more recent comparable sales, per Eric Bjorklund, which can be used in this assignment to support market value. Comp sale number 3 is probably not relevant since the property is zoned commemial and not industrial. Also, this is not a building sale since the building that was located on this property was torn down by the American Legion. The American Legion bought this property for additional parking. The building photo shown in comp sale 3 is not the building that was located on this property, which was the subject of the sale. Since the American Legion needed additional parking for its property, the buyer's motivation for purchasing the property is also suspect, since this comp is really a vacant land sale comp, and the price paid by the American Legion for vacant land, given the building was torn down, is about $15.00 per square foot, which is much too high. Comp sale number 5 is also not a relevant sale since the building is mostly office space. Bjorldund informed me that about 11,000 square feet of this building is finished office space with only about 2,000 square feet of industrial space. As a result, the building sale really does not qualify as the sale of an industrial building. Comp sale number 6 is not relevant also, and was actually thrown out by Taylor Appraisals. Again, it is a commercial building, not really comparable to the subject. Therefore, regarding the comparable sales data incorporated into the Taylor Appraisal, only comparable sale 4 can be considered a relevant sale ,, comparable to the subject property. 4. There are numerous problems with the adjustments in the Taylor Appraisal compounding the problem with the comparable sales discussed above. As an example, there is a 15% adjustment to the comps based on visibility and location. While visibility may be important in connection with commercial properties, industrial properties are simply not that impacted by visibility concerns. This is due mainly to the fact most customers of an industrial business know where the property is located and therefore exposure to traffic is not that big of an issue, like it would be for commercial property. Further, it makes no sense to make a statistical analysis of the comparable building sales. The Taylor Appraisal established a standard deviation of $9.63 per square foot in relation to an average sale of $34.17 based on a five property sample size. The only thing this statistical analysis tells me is that the appraiser believes the subject property is in a highly volatile market, since he has established a market range between $24.54 per square foot to $43.80 per square foot. Based on this market range and given the small size of the sample market, why would anyone agree to pay more than the average rate of $34.17. It seems to me the statistical analysis done by the Taylor Appraisal does nothing but add a confusing calculation into the analysis, which June 22, 1999 Page 3 looks good on its face, but really tells us nothing other than the statistics are not very reliable. This is also true with the mathematical formulas used by the appraiser in connection with his adjustments on the land to building ratio and office space and air conditioning adjustments. The numbers simply do not mean anything, nor are they based on any factual information in the market that either I know of, or our own appraiser knows of. 5. As I have discussed, comparable sale number 4 is really the only relevant comp in the appraisal. The Taylor appraisal indicates the value of this comparable as compared to the subject is $36.15. If you eliminate the 15% upward adjustment to comp 4 for visibility, the value of the adjustment would be reduced to $29.13. Also, eliminating the $1.51 downward adjustment for the land to building ratio renders a final value of this property at $30.64. Multiplying $30.64 times gross building area of 13,600 square feet, produces a market value of $416,704.00, based on comparable sale number 4 and reasonable adjustments to said sale. Obviously, one must realize the appraisal process is not an exact science and is highly susceptible to manipulation based on the subjective opinion of the appraiser making the report. Based on my comparison of the two appraisals, it is obvious to me that the appraisal made by BCL Appraisals on behalf of the EDA is the more credible report and that the appraisal made by the property owner should be given very little weight. It is interesting to note that the BCL Appraisal supports a market value for this property of $457,000.00 based on the income approach to value. This is based on an estimated potential net income rate of $4.00 a square foot. It was my understanding that the property owner was receiving $4.25 per square foot. If the $4.25 rate is accurate, Eric Bjorklund indicated to me that the income approach would establish a market value at $487,000.00, rather than $457,000.00, as indicated in his report. In other words, based on the income approach to value, the purchase price of $482,000.00 requested by the owner may not be unreasonable assuming a "no action" letter can be obtained from the MPCA concerning ground water and soil contamination at the site. This purchase price may also be justified if relocation costs to the EDA remain at zero by virtue of the property being vacant at this time. As stated earlier, relocation expenses could be as high as $100,000.00 for this property and a vacant building will permit us to avoid that expense. Ple,a, se contact me if you have any questions or comments regarding the appraisals or the contents of this letter. Very truly yours, JENSEN SWANSON & SONDRALL, P.A. cc: Daniel J. Donahue Memorandum To: Kirk McDonald, Director of Community Development From: Phil Kern, Administrative Assistant Date: June 23, 1999 Subject: Ardel Engineering In response to your request, I have prepared this information concerning the potential acquisition of the Ardel Engineering property located at 7500 42r~ Avenue. Costs of 42"4 Avenue Redevelopment (see attached spreadsheet) The City has purchased and demolished the industrial properties adjacent to 7500 42nd Avenue. Those properties were acquired and cleared for a total cost of $569,709. If the City were to acquire the Ardel property for $482,000 and demolish for $40,000, the total investment in these three properties would be $1,091,709. The total area available for redevelopment is 105,528 square feet, or 2.42 acres. The site would be marketed for development and the City would solicit proposals from developers for the property. Eric Bjorklund, BCL Appraisals, estimates that if the entire parcel were rezoned to B-4 Community Business the City could expect to receive approximately $8 per square foot, or $844,224 for the entire parcel. If the development on this property were equal in value to the neighboring Sunshine Factory, the City would receive about $15,000 in tax revenue each year. Over a twenty year period, this would result in $300,000 of increased City revenue. The City currently receives approximately $1,500 a year from Ardel Engineering in tax revenue, which amounts to $30,000 over a 20 year period: Thus, purchasing this property, rezoning, and selling the three lots would result in $270,000 in added tax revenue over the next 20 years, provided the development is equal in value to the Sunshine Factory. Combining the tax revenue with the sale proceeds of the property, the City would have a positive balance of $22,516 for the project. Differences in Market, Taxable Value In the June 14, 1999, Request for Action, the value of the property was listed as $195,000. The appraisal, however, lists the 1998 market value of the property as $329,000. I called the Hennepin County Assessors Office to clarify this discrepancy and received the following explanation. The property is believed to be contaminated from the former neighbor, Electronic Industries, and thus the taxable value is discounted by Hennepin County. Therefore, in 1998, the property had a market value of $329,000 but was only taxed at a value of $195,000. The assessor also gave me the 1999 figures as well - its market value is listed as $379,000 and its taxable value remains $195,000. Environmental Tests With the contamination at the adjacent property, 7516 42"d Avenue, environmental testing will need to be done at this property. Doug Bergstrom of Northern Environmental provided the City with an outline of what the environmental testing would entail. The MPCA requires that 2 phases of environmental testing be done to potentially contaminated sites. The Phase 1 investigation determines what pollutants may exist, and what testing should be done in the Phase 2. This process takes approximately 2 weeks at a ballpark cost of $2,000. The Phase 2 actually takes soil samples and tests them to find the extent of the pollution. Due to the intensive laboratory work, the Phase 2 generally takes 3-4 weeks, and costs anywhere from $5000-$7000. All combined, the environmental testing on this site should take approximately 6 weeks and cost around $9000-$11000. Doug stated that the process can be done quicker at a higher cost. Available Brownfield Grants There are a couple grant programs that the City may be eligible for to cover some of the costs of this project. Here are the two that apply to this project: · DTED Contamination Investigation & Clean-up - This grant is for all sites that are contaminated, and is pretty wide open for eligibility. It will pay for land acquisition, demolition, clean-up, and most other costs. The City must have the MPCA investigate (reimbursable) and develop at RAP for the site. If a City knows about a property that may have contaminated soils, this grant will pay for the City's costs of land acquisition, demolition, and clean-up. It will pay up to 75% of the costs, provided the City match with the remaining 25% of the project costs. The MPCA has already investigated the site at 7516 42n~ Avenue and found contamination, so the City should qualify for this grant. DTED gives strong emphasis to projects, though, that have a future concept for the use of the property. They want to see that jobs will be created and the tax base will be revitalized. · DTED Redevelopment Grant- DTED has $4 million in a grant program cities and counties each year for redevelopment projects on a one-to-one city match. The first applications due by October 1, 1999, and the next deadline for applying is April 1, 2000. $2 million is available for each application date. The purpose is to pay for predevelopment costs and get unused or underused land back into the local tax base. The program will pay for any land acquisition, demolition, infrastructure improvement, and site preparation costs. Staff administration and consultant fees are the only items not reimbursable. Everything else can be included. In order to be considered, the project must be ready to go, and begin shortly after the award date. If it looks like the project will take months to begin following the award date, they will not consider it. Therefore, the City would need to own the land and have plans worked out with a developer. The developer would need to submit a letter of commitment to the project, and the City Council would need to pass a resolution stating they will do the project if the grant is approved. The grant process gives weight to projects that increase the tax base, improve the land use, and creates jobs. It must be shown that the project will have a positive impact on the surrounding area. The grant application can score better if the project meets TIF requirements and includes contamination clean-up. It appears this site would fit quite well with the requirements for the Redevelopment Grant. The grants are available, however it appears that the City will have to make the first move. These two grants in particular require that the City have a plan for the project in mind before the grants will be approved. · Page 2 42nd Avenue Redevelopment Total **Added Tax Appraised Capacity of Property Size of 1998 Tax Value Acquisition Demolition Total City Land Value at B-4 Commercial Parcel (SF) Valuation (Before Cost Cost Cost (@ $8 SF) Development Purchase) (over 20 yrs) 7528 42nd 40,128 SF $50,000 $433,000 $450,000 $48,545 $498,545 $321,024 Avenue 7516 42nd 30,400 SF $33,300 $238,000 $40,000 $31,164 $71,164 $243,200 Avenue 7500 42nd 35,000 SF $379,000 $432,000 $482,000 $40,000 $522,000 $280,000 Avenue All Three 105,528 SF Parcels 2.42 Acres $462,300 $1,103,000 $972,000 $119,709 $t,091,709 $844,224 $270,000 Combined ** Added Tax Capacity is future tax revenues based on a development equal to that in value of the Sunshine Factory minus current tax revenues. The Sunshine Factory contributes $15,000 in taxes to the City every year. Over a 20 year period, this added value equals $300,000. Ardel currently generates $1,500 in tax revenue per year, $30,000 over 20 years. ($300,000 - $30,000 = $270,000) Total Revenues: $1,114,224 (Land Value + Added Tax Capacity) Total Cost: $1,091,709 Balance for the City: $22,516 G:\Managers\Kern\Property 6/23/99 6/23/99 D~i~oge issues C. Promote a community-wide perspective by continuing to give attention to each of New Hope's different commercial locations. D. Maintain community pride through maintenance of public streetscape through public/private cooperative efforts (such as adopting a boulevard program). ~DUSTRIAL GOAL~' Goal 1: Retain and expand New Hope's industrial land uses to insure a diverse tax base and local employment Opportunities. Policies: A. Continue to facilitate the in-place expansion of existing industries. B. Examine and modify City development regulations as a means of providing site design flexibility to accommodate in-place industrial expansion. C. Promote the high quality industrial construction t° insure building durability and an aesthetically attractive appearance. D. Continue to maintain open lines of co. mmunication with local industries to stay abreast of their changing needs. Redevelop industrial sites that display building deterioration, ob?'01et design, an~J/or land use compatibility issues. · Policies: A. Remove obsolete or deteriorating buildings to create buildable sites for new industrial opportunities. _.B' Investigate alternative uses for industrial redevelopment projects where land use "~ compatibility issues exist. - ~~ COMMUNITY FACILITIES GOALS Goal 1: Maintain and improve existing services, facilities and infrastructure to meet the needs and interests of the commUnity. 7 Natural Environment LAKESISHORELAND AREAS Northwood Lake and Meadow Lake located in New Hope have been classified by the DNR as General Development Lakes. Additionally, Bass Creek and Bassett Creek have been classified as tributary streams. In 1997, the City adopted a Shoreland Ordinance in order to preserve the quality and user enjoyment of all lakes. Due to the fact that the land surrounding the City's water bodies is fully developed, the City's Shoreland Ordinance required flexibility in regulations of the DNR Model Ordinance. The City proposes to limit the shoreland regulations to the land that Consists of the first tier of riparian lots abutting a protected lake or tributary. This specific boundary has been defined as the "Shoreland Permit Overlay District"~ VEGETATION Being a fully developed City, areas having large tree massing appear to be very few. Dorothy Mary Park and North Ridge Care Center are two areas which have significant tree cover. This park has many native oak trees. While vegetation clearly provides a uniqUe character and adds substantially to the existing desirable qualities of New Hope, the majority of landscape consists of yards and boulevard planting which have matured with related adjoining development. This has contributed to the attractiveness of the landscape seen in the City. The Forester for the City of New Hope is responsible for the enforcement of trimming and care of trees on streets and boulevards. Also there are provisions in the Subdivision I Ordinance that encourage tree preservation and tree planting for new developments. Pollution has generally not been a significant problem in New Hope in the past. The Minnesota Pollution Control Agency (MPCA) was contacted to verify any present and past pollution problems which may have been noted. In addition to minor chemical leaks or spills (typically gasoline or oil associated with businesses), few potential pollution sites were identified, as shown on the following map. Most of these sites identified either have routine on-going monitoring for pollution or require no further action by MPCA. The building at 7528 42nd Avenue North (Site No. 4) was demolished in August 1997 and very nominal pollution was discovered. The neighboring site (Site No. 3) has an in-site air sparging system in operation to clean up ground water contaminated by Electronic Industries (El). The building at this site was condemned and demolished. The ground  Cib/of New Hope Comprehensive Plan Update Inventory 29 ....... Natural Environment water quality improved greatly, but has not yet been cleared by the MPCA. This lot and adjacent lots are likely commercial redevelopments. Noise from in'dust~j in automobile traffic along the busy corridors of Highway 169 has the greatest potential for contributing to pollution concerns, although no specific problems have been noted. City of New Hope Comprehensive Plan Update Inventory 30 PRCPOSED LAND USE LEGEND /**o¥o'* City Boundary ]Low Densi~ Residential Low Density / Medium Density Residential Medium Density Residential High Density Residential ~ Commercial ~ Industrial ~ Public & Semipublic ~[ l Parks & Recreation ~~k Lakes ~ ~ Vacant ~ Outside City limit 0.4 0 0.4 0.81vl~es Source: No~hwestAssociatedConsultants June 1998 City of New Hope Comprehensive Plan Update Development Framework 31 POLLU: ~£; SITES · · ViC - Voluntary Investigation and Cleanup Program · · HWIC - Hazardous Waste Generator / Investigation and Cleanup List · PLP - Permanent List of Priorities · · ~ NFRAP - No Further Remedial I Action Planned METRP - 1980 Metropolitan , Area Waste Disposal Site ~ i Inventory~ (~ i o~o~,r 1997 Base Map: 0 1000 2000 3000 Bonestroo Rosene · Anderlik &Associates SCALE IN FEET ·  GOLDEN VALLEY City of New Hope Comprehensive Plan Update 33 Inventory L~_nd Use 7. The City will promote a business friendly attitude through the community promotion and ongoing examination of City regulations impacting businesses (e.g., zoning, signage, business licensing) to keep New Hope businesses competitive with adjoining communities. 8. To enhance the commercial image and to unify the identity of New Hope's commercial areas, the City will implement its Streetscape Plan to establish a common design theme throughout the various commercial locations. In addition to the general commercial land use recommendations, the Land Use Plan calls for the following changes in commercial land use patterns: 1. The commercial area at the corner of Winnetka Avenue and 62nd Avenue is proposed to be redeveloped as medium density residential land uses. 2. Two commercial lots located along Bass Lake Road between Pennsylvania and Nevada Avenue are proposed to be redeveloped as medium density residential land uses. ~. 3. Commercial land uses are proposed to be expanded to include some existing ~. residential lots at the southeast corner of Bass Lake Road and Winnetka Avenue to accommodate future land assembly and redevelopment of existing small ~ substandard commercial properties. //~4.--"l~l'"~e ,w commercial land uses are proposed at the northeast comer of Quebec Avenue-'""~ { and 42nd Avenue. This land use change involves the redevelopment of three ~, industrial sites, j~t 5. Commercial land uses haVe been expanded along the east side of Winnetka Avenue just north of Medicine Lake Road to include a non-conforming multiple family site. This land use change is proposed to establish a contiguous land use pattern along Winnetka Avenue between Medicine Lake Road and Terra Linda Drive. 6. Commercial land uses have been expanded to two sites located at the corner of Hillsboro Avenue and Medicine Lake Road. City of New Hope Comprehensive Plan Update Development Framework 43 BROOKLYN PARK COMMERCIAL REDEVELOPMENT TARGET AREAS Base Map: 0 10~0 ~ Bone~mo Rosene ~__ . Anderlik & Aseodates SCALE I City of New Hope GOLDEN VALLEY Comprehensive Plan Update 45 Development Framewo~ BROOKLYN PARK iNDUSTRIAL REDEVELOPMENT TARGET AREAS I ~ Industrial Redevelopment ~ Infill Development II ~ Industdal Jun® 1~ · B(me~t~,t~o Eocene 0 1~ ~ m ~&~a SCALE IN FEET  Ci~ of New Ho~ GOLDEN VALLEY Com~hens~ ~an U~ato 49 Oe~lo~e~ Frame~ BROOKLYN PARK PLANNING DISTRICTS  · June 1998 Ba~ M~: 0 1{~0 20(X) 3000 · Am:lerllk&a SCALE IN FEET  Ci~ of New Hope GOLDEN VALLEY CompmhensNe Plan Update 77 De~lo~nt F~~ Planning Distdct~ PLANNING DISTRICT 11 District 11 has been configured to include the City Center and the commercial corridor along 42nd Avenue. The district extends from Zealand Avenue on the west to Louisiana Avenue on the east. In addition to the commercial land uses, District 11 includes high density residential, industrial and public/semi-public land uses. The following recommendations are offered for District 11. 1. A stated goal of the City is to enhance and revitalize the City's commercial location. The City Center and 42nd Avenue serve as downtown New Hope. In recognition of the City's commercial goals, the following strategies have been defined for the commercial land uses in District 11: a. Aggressively pursue the renovation and redevelopment of the Winnetka Center and the Kmart Shopping Center. Undertake efforts to enhance the physical appearance and tenant composition of the centers to improve the customer base of this area. b. Redevelopment efforts for the shopping center must attempt to integrate the site design with adjoining shopping centers to improve business interchange and pedestrian movement. c. The City will provide the creation of satellite commercial sites within the shopping center properties to accommodate new economic development. The City will examine currant development regulations and, consider modification that facilitates satellite site development. d. The City will pursue a uniform streetscape design around the City Center and along 42nd AvenUe to establish an attractive commercial identity.  e. The City will pursue redevelopment of marginal commercial sites along 42nd Avenue. Three target sites have been initially identified. The first site consists of two small commercial lots at the southwest corner of 42nd Avenue and Oregon Avenue. The lots are over-utilized, creating operation and aesthetic problems for the businesses. Redevelopment efforts should attempt to combine the properties to create a large commercial site. The second site is located at the northeast corner of 42nd Avenue and Nevada. This site is generally under-utilized and offers opportunity for commercial expansion.  City of New Hope Comprehensive Plan Update Development Framework 91 Planning Districts ile ® third site is located at the northeast corner of Quebec and 42nd"~-~ Avenue venue. Currently, this site consists of three industrial sites that are--" ndergoing environmental clean up. Only one lot contains an active ndustrial use. Redevelopment efforts should change this site to a mmercial land use that would be complementary to the entire City Center 2. The Civic Center Park and governmental buildings are included in District 11. This area serves as an important element to the City Center image and as an attraction to the planning district. Suggestions for this land use area include: a. Consideration of the Civic Center Park for a community center. b. Implementation of the Civic Center Park Master Plan. City of New Hope Comprehensive Plan Update Development Framework 92 BCL APPRAISALS 2852 ANTHONY LANE $O., MINNEAPOLIS, MINNESOTA 55418 (612)781-0605 Fax: 781-7826 RON LACHENMAYER, SRA. REAL ESTATE APPRAISERS LESLIE $. (LEE) RACINE, JR., SRA & BRAD BJORKLUND, MAI, SRA CONSULTANTS June 9,1999 The City of New Hope c/o Kirk McDonald 4401 Xylon Avenue North New Hope, Minnesota 55428 Re: Appraisal of 13,524 sf Industrial Building Ardel Engineering & Manufacturing; 7500 42nd Avenue North, New Hope, MN Dear Mr. McDonald, 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 of the market value of the fee simple interest 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 June 9, 1999, and subject to the assumptions' and limiting conditions set forth in this report, the subject property has a market value of: FOUR HUNDRED THIRTY TWO THOUSAND DOLLARS $432,000 The appraisal report that follows is a Complete Appraisal, meaning it was developed with all relevant and appropriate approaches to value, and it is.wriffen in a Summary form. The report is intended to be used by you, the city manager, the city council and Mr. Steve Sondrall, New Hope City Attomey, and the opinions of value herein stated are understood to be used to support efforts to purchase the real estate. Respectfully submitted, Eric Bjorklun~ Cert. General Real Property Appraiser Minnesota License #40031 54 EB/Ib MORE THAIV 80 YEARS ~ APPRAISAL SERVICES EEO/AA 1 SummarY Appraisal Report- Complete Appraisal This is a Summary Appraisal Report which is intended to comply with the reporting requirements set forth under Standards Rule 2-2(b) of the Uniform Standards of Professional Appraisal Practice for a Summary Appraisal Report. As such, it presents only summary discussions of the reasoning of analyses that were used in the appraisal process to develop the appraiser's opinion of value. Supporting documentation which would be used to expand the reporting format of this document into a Self Contained Appraisal Report is retained in the appraiser's file. PURPOSE OF THE APPRAISAL & DEFINITION OF VALUE: The purpose of this appraisal is to provide a current market value estimate of the subject real property so that the client may buy it. Any influence on the subject's value caused by a threat of condemnation is disregarded. Market value is defined by the federal financial institutions regulatory agencies as follows: Market value is the most probable pdce which a property should bdng 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 pdce is not affected by undue stimulus. 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: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and acting in what they consider their own best interests; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) the pdca 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 [f].) 2 INTEREST VALUED: Fee Simple EFFECTIVE DATE OF VALUE: June 9, 1999 DATE OF REPORT: June 9, 1999 APPRAISAL DEVELOPMENT AND REPORTING PROCESS: In preparing this appraisal, the appraise~. · Inspected the subject on May 25, 1999. · Gathered rental, expense, vacancy and cost information, as well as sale data on comparable land and buildings in the subject's and competing neighborhoods. · Discussed perceptions and components of value for the subject and other industrial properties in the area with the owner, tenant, buyers, sellers and brokers. · Completed the Sales Comparison, Cost, & Income Approaches to Value, and reconciled their opinions into a final value estimate assuming no on-site contamination exists. · Developed an opinion of value that is reflective of any stigma affecting the subject caused by on-site ground water and soil contamination. Review of' MPCA files (on the adjacent real estate to the west where the contamination originated from as well as others) and market analysis of sales of contaminated property aided this process. HISTORY OF THE REAL ESTATE APPRAISED The subject has been owned by Terry Jansen since the mid 1970's. For the past 13+ years, the building has been occupied by Ardel Engineering and Manufacturing. However, it is now vacant. Ardel left the building effective June 1, 1999. The move is reported to be over a concern caused by the City of New Hope's posturing to purchase the building, and an expired lease. In-so-far as is known, the building is not being offered for sale by the owner. Effects (if any) caused or related to the city's posturing to purchase the subject (by condemnation or other matters) are disregarded in the estimate of market value. In 1983, a ruptured settling tank for vadous industrial solvents was discovered on the adjacent property to the west. Later tests showed groundwater and soils under the subject, and in the immediate vicinity were contaminated by trichloroethylene (TCE), dichloroethylene (DCE), chromium, copper and lead. There are presently 15 monitoring wells in the area, and measures are underway to clean up the contaminants. Pollution levels have dropped most notably nearest the source, but apparently the contamination levels are no longer being effectively reduced in plume areas away from the former "hot spot" where the remediation equipment is located. Higher levels of contaminants apparently still exist under the subject building to a depth of about 15 feet. Because of the pollution, the subject is stdcken by a pollution stigma. While affects on value possibly attributed to the city's efforts to purchase the subject are disregarded, the pollution stigma is not. In the least concern (assuming the building itself has economic value and the contamination isn't deemed to affect its physical use), most prudent buyers would seek to fully inform themselves of the subject's contamination, and would seek some type of indemnification for themselves, or protection from being held responsible for the costs to clean up the property. Part of the indemnification process, which hasn't been done yet, is the property owner's responsibility to register the site with the Minnesota Pollution Control Agency with the intent of HISTORY OF REAL* ESTATE APPRAISED cont. obtaining documents such as an "Off Site Determination Letter," a "No Association Letter," or possibly a "No Action Letter." The costs to obtain such documentation is in this appraisers opinion, the pollution stigma that affects the market value of the subject. LOCATION DESCRIPTION The subject is located in the City of New Hope, a second tier westerly suburb of Minneapolis with a current population of about 21,715. New Hope is approximately seven miles northwest of Downtown Minneapolis. The community is pdmadly residential in character. There are scattered industrial districts and one major concentration of commercial buildings focused at the intersection of 42nd Avenue North (C.S.A.H. #9/Rockford Road) and VVinnetka Avenue (C.S.A.H. #156). Most development in New Hope has taken place since 1960. New Hope has a council/manager plan B form of govemment 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 District #281. MTC bus routes serve most of the City including a route on 42nd Avenue North. Major transportation to the City is provided by Highway #169 along the westerly City limits; also by Rockford Road, Bass Lake Road (C.S.A.H. #10), Medicine Lake Road (26th Avenue/C.S.A.H. #70), and Winnetka Avenue. These county roads provide good community access within the city. The subject is located on 42nd Avenue. No unusual municipal or economic influences are observed that would unduly affect the value of real estate in New Hope. The market is healthy, and the overall economy is good. Vacancy is Iow (c. 3%) in the industrial market. New leases and listings on older warehouse & manufacturing space in the market area range from a blended rate of $3.751sf to $4.25/sf. The Zoning Map shows the nature of uses in the immediate neighborhood. The abutting site to the north is improved with a larger sized industrial building. West are two vacant industrial lots owned by the City of New Hope. South of the subject, across 42nd Avenue, is a three story office building. East of the subject across the Soo Line Railroad tracks is a funeral home and an apartment complex. A commercial corridor exists along 42nd Avenue west of Quebec Avenue. The hub of the corddor is found at the intersection of 42nd and Winnetka about two blocks west. An industrial corridor exists along Quebec Avenue, both north and south of 42nd Avenue beginning about a block away from the intersection. LEGAL DESCRIPTION AND TAX INFORMATION Legal Description: The East 100 feet of the South 350 feet of Lot 5, Auditors Subdivision #324, Hennepin County Minnesota except road and alley. Parcel Identification Number. 17-118-21-22-0006 Real Estate taxes (non-homestead): $6,004.00 Assessor's Market Value: $105,000 Land + $224,000 Building = $329,000 Total 4 SITE DESCRIPTION Location: 7500 42nd Avenue NoAh, New Hope; in Hennepin County, Minnesota. The zip code for this area is 55427. Size: 100' x 350' = 35,000 square feet. Easements: 7.5' wide sanitary sewer easement along the entire east property line, and a 5' wide storm sewer easement along the noah 227.5' of the east property line. Streets: The south edge of the site has 100' of frontage on 42nd Avenue NoAh. 42nd Avenue is a divided four lane road. It has a 90 foot dght of way in front of the subject, is asphalt paved, with concrete curbs, gutters, and sidewalks. The pavement is in good condition. The sites noAhem edge has 100 feet of frontage on an alley. The right-of-way for the alley is 20 feet. Utilities: All municipal utilities are located in the neighborhood and are available to the subject property. These include city water and sewer, electricity, telephone and natural gas. Topography and Soils: The site is generally level and open. There is one tree near the northwest comer. The soils are comprised of a glacial drift intedayed with mixed sands, silts, clays, and gravel. They are stable and appear to be free of peat or soft soils which would render the site to be difficult to construct a building on. The water table is about 10-15' below the surface. Groundwater and soils below the site are known to be contaminated with tdchloroethylene ('I'CE), dichloroethylene (DCE), chromium, copper and lead. The contamination has been caused by an off-site source, upgradient of the site. Measures are presently underway to clean up the contaminants off-site. Zoning: The current zoning map shows the property to be zoned I-2, General Industrial. Access: The site is accessed by vehicular traffic through one curb cut on west bound 42nd Avenue, and also through the rear alley. Identity: The identity of the subject is industrial. It is located on industrially zoned land in an industrially developed corridor that lies west of and parallel to the Soo Line Railroad Tracks. IMPROVEMENTS DESCRIPTION Size - (100' x 60') + (99' x 76') = 13,524 sf GBA. Age - Front half of bldg. (100' x 60') constructed in 1961. Rear half of bldg. (99' x 76') added in 1971. Average actual age of just over 32 years. Foundation & Frame - Concrete block extedor walls, metal (webbed) roof joists with "1" beams and support posts. Roof- Flat; metal decking & rigid insulation sealed with a composition of pitch and gravel. Clearspan height = 12' in front manufacturing area, 16' in rear;, add 2' for roof joists to equal total wall height in respective areas. 14' average clearspan height, 16' average wall height to roof deck. 5 IMPROVEMENTS DESCRIPTION cont: Finish - Vinyl tile floors, wood panel walls, suspended panel ceiling, and recessed florescent lights in 1,200 sf front office area. 615 sf shop office has infedor finish. Slide by windows in front, fixed pane industrial sash windows on building sides, two 14' tall overhead ddve through garage doors. Mechanical - GFWA furnace in main office w/central air. Four suspended hot air blower units in manufacturing areas. 1,200 ampere electric to building. Other - Two fixture bathroom in front office, with adjoining four fixture bath accessed from manufacturing area. On-site improvements include 3,780 sf asphalt paving and 14,196 sf crushed rock paving. Furniture, Fixtures & Equipment - Not included in appraised value. Items removed or to be removed by tenant include air filters and air conditioner in warehouse areas, 3 ton crane and % ton crane, 400 amp electdc to serve 3 ton crane, and all electrical Bus-tdbution Ducts. Condition - Average overall. 18 year effective age of a 40 year economic life. 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 cdteda the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability. As vacant, the subject is zoned I-2, General Industrial. Heavy industrial and manufacturing uses that require isolation are allowed, but light industrial buildings (office/warehouses) are the pdmary developed use of this zoning designation in this market area. The lot size minimum is one acre. The size of the subject, at 35,000 square feet is less than one acre. A vadance would be needed to develop the site, or assemblage would need to occur. With vacant industrial land lying to the west of the subject, assemblage is quite possibly, more likely. An assembled ownership with the ~,djacent sites to the west would create about a 112,000 square foot parcel. This size of an industrial site could be readily developed with an industrial building improvement that is common in this area. All municipal utilities are available to the site, and access is reasonable. Semi- trucks could access the property from Quebec, and autos could access it from 42nd Avenue. However, ground water and soil contamination of the subject remain to be a problem that will deter development. Due to contamination that has migrated to the subject from the old Electronic Industries building that used to lie adjacent to the subject, the subjects soils and ground water are polluted. City and state officials, lenders, contractors, and labor unions are reticent to allow construction where contamination might adversely affect health, safety and value. Clean-up measures usually occur, and contaminated sites like the. subject are rarely developed until either a "letter of closure" or a "no action letter" are produced by the Minnesota Pollution Control Agency (MPCA). Even though the contamination on the subject is not the responsibility of its owner, a "no action letter" is still necessary. After the subject property owner voluntarily participates in a program to 6 HIGHEST ANDBEST USE cont: achieve a "no action letter", does testing over a pedod of months, achieves satisfactory results about the level of his own property's contamination, and pays for MPCA staff time, a letter of "no action" is likely to result. New construction might then occur. Economic conditions are favorable for industrial building construction (on non-polluted sites, or those sites that have been cleaned up to MPCA standards). Within the industrial market, vacancy is Iow (lowest in new buildings) and rents are dsing. Mortgage financing is readily available to qualified borrowers with a 20-25% (of value) down payment, interest rates between 7-8%, and a loan term of 15 years. Balloon payments may be installed in the amortization pedod at perhaps five or ten years. The maximally productive use of the site, considered as vacant, is to assemble it with. adjacent ones to the west, start clean up measures, and cooperate with the Minnesota Pollution Control Agency to obtain either a letter of closure or a no action. When a no action letter is issued, industrial building development could ensue. As improved, the building is a permitted use of the I-2 zoned site, but it is legal non-conforming in such issues as the size of the lot, parking, and landscaping. The non-compliances have been brought about by changes in zoning since the building was constructed. Physically, the building shows much deterioration. Most is incurable (long and short lived). A few items might be curable though such as leaking skylights and a crack between the building additions. These would at least keep a tenant happy, and in the building. Aspects of the building also reflect functional obsolescence which is a loss in value resulting from defects in design. Although the building itself is constructed with average quality materials which function adequately for its use, the building is a bit large for the site. Parking space for employees is tight, and maneuvering space for trucks is limited. Similar condition buildings with more parking and maneuvering room for semi trucks generate more rent. Although the subject and the industrial market does not suffer from economic obsolescence, the building is stricken by a pollution stigma. Disregarding this problem for a moment, there is a healthy market for this type of building (buildings exist, vacancy is fairly Iow at about 3%, and those for sale - the supply, are matched by their demand). Values are increasing at an annualized rate of 7%. Most buildings of the subject's size are owner occupied. Presently, market rents for similar warehouse space is between $3.00 to $4.25/sf warehouse & $7.00 to $9.001sf office, triple net. The building should be able to generate rents within this range (all-be-it at the lower end) if it were optioned to a lease. The pdor tenant in fact admitted to paying a blended rate of $4.25/sf for the new (and slightly better than the subject) space they move into, and had they stayed in the subject, something close to this amount should have been negotiated. At any concern, the recent presence of a successful business in the building, and several sales shows that there is a market for buildings like the subject. Furthermore, it is expected there should be a viable market for the subject in the foreseeable future. However, the subject still has contaminated soils and groundwater under the building. With the subject building being in reasonable physiCal condition, one that is amenable to occupancy, and functional enough to dedve rent, and the contamination is below grade and not thought to affect the health and safety of the buildings probable users (or the neighbors for that 7 HIGHEST AND BEST USE cont: matter, if not, the subject tenant and neighbors would have been moved out), there is remaining economic life in the property as it is improved. The highest and best use is for the continued use of the building. However, the pollution stigma that affects the site should be addressed, and cured. At this point, it hasn't. The subject's g~ound water and soil contamination will deter most buyers from purchasing the site, and most lenders from providing a mortgage until the property owner obtains either an "Off Site Source Letter" or a "No Association Letter" from the Minnesota Pollution Control Agency (MPCA). The costs to obtain such letters (and also the associated costs of hidng an environmental consultant to conduct a Phase I and Phase II Environmental report of the subject) should be deducted from the market value estimate of the subject as uncontaminated. However, there should be a considerable cost savings for what might otherwise be spent because much information contained in the Phase I and II reports conducted on the adjacent site (Electronic Industries) could be readily reviewed and applied to the subject. The fees charged by an environmental consultant would therefore be less. The MPCA though would still charge $90/hr to review the environmental reports when they wdte the no association or off-site letters. It is doubtful a "No Action" letter would be wdtten unless the contamination was gone. Demolition of the building and removal of the soil under it, is thought to be the fastest way to get a "No Action" letter written. 39 SUMMARY OF VALUATION AND RECONCILIATION Under an initial assumption that the subject is uncontaminated, the three approaches to value indicate the following: Replacement Cost Approach $421,000 Sales Comparison Approach $446,000 Income Approach $457,000 The Sales Compads°n Approach is the best approach to value and the indication it provides is ·. given a 50% weight. The Income Approach is considered the next best approach. The indication it provides is given a 40% weight. The Replacement Cost Approach is the least reliable approach. The indication it provides is given a 10% weight. With these assigned weights to the respective indications, the reconciled value of the subject is calculated as follows: $421,000 x 0.1 -- $ 42,100 $446,000 x 0.5 - $223,000 - $457,000 x 0.4 = ~ $447,900 VALUE ESTIMATE AS UNCONTAMINATED SAY $448,000 The subject is not a "clean" site. The groundwater and soils beneath the building are contaminated. The contamination is the result of downgradient migration of vadous rnatedals under the soils, emitted from the abutting property to the west. The property owner or tenant of the subject building is not responsible for the contamination. None-the-less, the subject is stdcken with a pollution stigma. It will be difficult to sell the property without obtaining at least a "No Association" and possibly an "Off Site Determination" letter from the Minnesota Pollution Control Agency. Accord!ng to the MPCA, neither of these letters have been written. In order to obtain such letters, the property owner must voluntarily enter the property into the Voluntary Clean Up Program with the MPCA, regardless of whether the party is a responsible person or not. An environmental specialist then needs to be hired to conduct a Phase I and II environmental analysis of the subject. The subject's history needs to be reported to the MPCA (to determine any potential they contributed to the contamination), and actual soil and grou0dwater tests need to be made. The costs of an environment specialist are best estimated at $6,000. After receiving the reports from the environmental consultant, the property owner must then pay the MPCA to review the reports and wdte the letters. Crague Biglow (whom is the project manager for the adjacent Electronic Industries site next door) and Karen Kromar (another project manager for a, several New Hope located properties that have participated in the Voluntary Investigation and Cleanup [VIC] Program) report staff costs to wdte the letters is based on a rate of $90/hr, and there is an allowed time period of 30-60 days to review the environmental consultant's reports. The MPCA's cost for staff time is best estimated at 20 hours, or a half week, at $90/hr = $1,800. With the normal marketing period for an industrial building like the subject (without the contamination) being about six months, the marketing pedod would be extended due to the time it takes to prepare the Phase I & II reports, and wdte the letters. To a certain d®gree, the marketing time could overlap the time taken by the consultant and MPCA to study the site, but it is probable that the owner would want to get the letters before listing the property for sale. A three month increase in the normal marketing pedod is estimated. 40 SUMMARY OF VALUATION AND RECONCILIATION cont: The total penalty against the subject's "market value as unencumbered' is the $6,000 cost for the environmental consultant and $1,800 for MPCA staff time, plus the loss of money from $448,000 not received for three months at an annualized rate of 7% which is $8,000 (the present value of $448,000 received three months late is $440,000:$448,000 - $440,000 = $8,000). Pollution Stigma Deduction = $6,000 + $1,800 + $8,000 = $15,800 SAY $16,000 The final value estimate of the subject property as it is allegedly polluted is estimated as follows: Estimated value without pollution stigma $448,000 Deduction for pollution stigma ($16.000~ Value as allegedly polluted $432,000 FINAL VALUE ESTIMATE $432,000