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0124specialCCHRAPCworksessioncompleteagendaCITY OF RICHFIELD, MINNESOTA Office of City Manager January 19, 2012 Council Memorandum No. 10 HRA Memorandum No. 6 Housing and Redevelopment The Honorable Mayor Authority Commissioners and City of Richfield Members of the City Council Subject: Pillsbury Commons Proposal and Upcoming Worksession Council Members and Commissioners: A joint City Council, Housing and Redevelopment Authority (HRA) and Planning Commission worksession is scheduled for Tuesday, January 24, 2012 at 5:45 p.m. The purpose of this meeting. is for the prospective developer (Ron Clark Construction) to provide follow-up information regarding their proposed site plan (including modifications made as a result of neighborhood feedback), further explain the Low Income Housing Tax Credit (LIHTC) financing in greater detail, and discuss their tentative schedule for advancing their proposal. In advance of the meeting, Ron Clark has provided a letter with some background information that might help inform the discussion at the worksession (attached). Ron Clark has also sent a letter to the neighborhood surrounding the site (attached) further explaining items that were voiced as concerns at the November 29, 2011 neighborhood meeting. Additionally, Councilperson Wroge has requested additional information regarding Ron Clark's complete financing for the project and about the City's role in analyzing all of the sources of funding. A memorandum from the City's financial analysts, Ehlers & Associates outlines the financial analysis (commonly called the "but-for analysis") that would be conducted on a project seeking tax increment financing (TIF) (as Ron Clark has expressed as their intention). Staff has not yet concluded this analysis, however, because we are awaiting receipt of a "sources and uses" statement as well as a formal request for a specified amount of TIF from the developer. There are a number of steps remaining in this process for which detailed analysis will be provided to decision-makers as soon as the appropriate applications are made by the devr and those analyses are conducted by staff. ec ully subm" ed, ven . De City Manager SLD:cak Attachments Email: Department Directors Assistant City Manager Copy: Planning Commission 7500 ~Y~est 78~}~ Street Lidina, ti[N 55439 (952) 947-3000 fax (952) 947-3030 January 18, 2012 Steve Devich Executive Director City of Richfield 6700 Portland Avenue Richfield,. MN 55423 RE: Pillsbury Commons Dear Mr. Devich: Our development team has been working to create a development plan. for a portion of the former municipal garage site at the southwest corner of 76`h Street and Pillsbury Avenue. We believe that we can develop a project that meets the needs of the whole Richfield community and responds to the needs identified in the City's Comprehensive Plan. We appreciate the opportunity to discuss this proposal with the City Council, Planning Commission and HRA ("the City") at,their January 24`h Work Session. WORK SESSION AGENDA We appreciate the opportunity to meet with the City in a Work Session to provide an update on our project. We hope to be able to provide a project update and get feedback from the City on several key issues. We will: 1. Provide background on the proposed project 2. Provide an update on the MHFA Tax Credit approvals and restrictions 3. Discuss the TIF project and impacts of potential site plan changes- related to access 4. Provide an update on our November 29th Neighborhood Meeting, including responses to questions raised by the community BACKGROUND Ron Clark Construction and Design has been working with the City of Richfield and the HRA since 2009 on a potential development on this site. We have entered into an option to purchase agreement with the City. During the last 2'/~ years, we have been working with City staff, the HRA and the Council to develop a concept that would be viable for development and would a8owthe City to sell the properky at market rates. During 'our discussions with the City, we authorized a professional market study to help us determine the highest and best use for the site. The .2011 study by Joe Urban. shows the need for workforce housing in Richfield because there are approximately 2 qualifying jobs for every affordable housing unit. This means that there are 2 people who work in Richfield competing for every affordable housing unit in Richfield.. 75001~/est 78'r* Strcct %dina, i•1N 55439 (952) 947-3000 fas (952) 947-3030 On May 12, 2009, the City Council reviewed the potential of selling the city-owned property to Ron Clark Construction and Design for a rental apartment building. The development team requested the meeting specifically to get preliminary input from the Council and discern -local support for the proposal. The concept that Clark showed at that meeting was fora 160-172 unit apartment complex on the full 3.3 acre site. The two questions asked of the Council were: 1. Do you support the rezoning from I (Industrial) to MR3 (High Density)? 2. Do you support the proposed density of 48-52 units per acre? The City Council. consensus was "yes" to both questions and the direction was to proceed with the project proposal. Based on this feedback, the development team went to work on refining the development concepts. On April 43, 2010, Ron Clark Construction and Design and the HRA entered into a Preliminary Development Agreement for an exclusive right to develop the property. At that time, the development team had revised the plans and was looking at a 66-unit for-sale concept. On March 21, 2011 the HRA supported this request to renew our agreement and move forward with the revised concept at their meeting. On April 12, 2011, the City Council reviewed the concept which was refined. as a 70-unit workforce housing project on the southern portion of the site. The staff report that went to the Council described the market. and finance reasons for the change from for-sale to rental units. The HRA and Ron Clark Construction and Design entered into a preliminary agreement far sale and development of this site (signed May 16, 2.011). Because this involved significant design costs-and financing application costs, both the City/HRA and the- Developer needed to be clear that there was City support for the concept. The agreement specifically states ''C/ark is willing to undertake the activities described in this Agreement only with the reasonable assurance from fhe HRA that it will support and cooperate with Clark in its efforts." The development team continued to develop concept plans and secure financing. On June 14, 2011, the City Council unanimously approved a resolution consenting to process for consideration of Housing Tax Increment Finance District for Pillsbury Commons development project on the former city maintenance facility property. Also, at that meeting, the .Council approved an option agreement (drafted by the HRA attorney) with Ron Clark Construction and Design.. As noted in that meeting and in the staff report, the developer wilt pay fair market-value of the land. The plan reviewed at that meefing wasfor °70 units of affordable housing". The staff report noted That "The City Council has received numerous presentations of Ron Clark's development proposal for this area and has, to date, expressed support for the project." The staff report noted critical timing issues related to-the MHFA tax credit application for this workforce housing project. The City Council voted unanimously to approve Resolution No. 10520 Consenting To The Process For The Creation Of A Housing lax Increment Finance District In Support Of The Proposed Pillsbury Commons Multifamily Housing Project. -Phis resolution noted that 100% of the units would be affordable to persons with incomes at 60% of the area median income. On June 14, 2.011, immediately following the Council action, the MHFA application was submitted. As part of the application, R'on Clark Construction and Design was required to have the. agreements to site control and financing in place. The Council action earlier that evening approved .the site control via the Option Agreement and public financing via Resolution No. 10520. Also included in the packet was a 2 75~~ ~X~C3t 78Th ~t[lCt ~il'uia,. \IN 55x39 (952} 947-3000 fix (952) 947-3030 letter of support from the HRA dated June 14, 2011, which reiterates that "The 70 units at Pillsbury Commons will help the HRA and City meet its goals for affordable housing, urban expansion without sprawl, and better serving populations that are traditionally underserved; including households of color and single heads of household with minor children." FINANCING On June 14, 2011,. based on this City Council adoption of the resolution of support, we proceeded to apply for MHFA housing tax credit financing, which is a very competitive process because of the limited dollars available, The Housing Tax Credit Program is not a subsidized housing program. It is a financing program that was created under-the Tax Reform Act of 1986 that gives income tax incentives (e.g. income tax credits) to for-profit corporations in .return for their commitment to the community and their investment capital that makes workforce housing feasible. The capital from these corporate investors is equity, not debt, and accounts for about 70 % of the total cast of the project. Therefore, with so much equity the project's debt (or mortgage amount) and. mortgage: payment is very low. This allows the project owner to charge a more competitive rent to meet: the MHFA workforce housing requirements. Each resident must have verified income to meet the MHFA requirements and they pay their total rent. There. is no government subsidy with the tax credit program. We believe it is the best financing program to promote community investment. .After a very competitive funding process, the workforce housing portion. of our project is fully funded and ready to go. This provides a fantastic opportunity for the City to provide the right use in the right place and provide new lifecycle housing opportunities. The tax credit reservation requires unto deliver a total of 70 units. Unfortunately, the tax credit reservation for funding will expire if the project is not approved on this site. The project will need to meet these program requirements for 30 years. Our option agreement with. the City was entered into on 06/15/2011 and exercised on 12120/2011 and states that vice: will pay $445,938 based on the cities land market value. appraisal The landowner (the City) is typically responsible for the cost of cleanup of the potentially contaminated site. However in this case, the developer will pay for the costs of cleanup and demolition and other eligible costs to make the site development ready. We are requesting Tax Increment Financing (TIF} for reimbursement of the above stated costs. The Total Development Cost (TDC} for this project is $12,574,903. The TDC is a combination of all costs :related to the project including land, development costs- and all construction costs. The Financing for the project comes through a combination of sources,. but as noted previously, site deve opment costs on this parcel would have made the development unfeasible without tax increment assistance. 3 7500 West 78~~~ Street Edina; nTi\ 55439 (952) 947-3000 fax {952) 947-3030 The preliminary funding sources and uses for the project are as listed in_the below table, but as the project is refined, these numbers may be modified: Pillsbury Commons Project Sources and Uses Project Summary Uses; Total Development Costs $ 12,574,903.00 $ 12,574,903.00 Costs of Land, Development Costs, Construction Costs and ail other project costs and fee's. Sources: MHFA Mortgage $ 2,571,937.00 Partion of Mortgage for Housing. MHFA Mortgage for TIF $ 598,55&.00 Portion of Mortgage for TIF Subtotal $ 3,170,493.00 $ (3,170,493.00) Total Mortgage from MHfA TaxCredits $ 9,000,000.00 $ (9,000,000.00) Total Value of Tax Credits Purchased by Tax Credit Investor and used as a financial source to pay for project costs. Subtotal $ (12,170,493.00) Financing Gap $ .(404,410.00) Financing. Gap: Total Development Cost exceeds project financing creating a need. to request additional TIF to cover additional costs. Total Sources $ (12,574,903.00) 4 7500 West 78~~~ Street' Eciint; l[N 55x39 (952) 947-3000 fas (952) 947-3030 COMMUNITY FEEDBACK _ On November 29, 2011., we held a neighborhood meeting to discuss our concept plans prior to preparing a formal submittal. This meeting was very well attended by the neighbors and other interested parties. A number of questions were raised at the meeting and we did our best to answer those questions at the meeting,. but wanted to reiterate a few of the main points: is this Subsidized Housing? What is the Housing Tax Credit program? This project is NOT subsidized housing with the exception of one unit which is part of the Veteran's Administration program for disabled and homeless veterans and that one unit may use a Section 8 voucher for their income/rent requirements. . The Housing Tax Credit Program is not a subsidized housing program. This project is funded in parfi by the Housing Tax Credit program, which is sometimes called Section 42 credits. Our project is a high- quality development that will be privately owned, operated and maintained to the highest standards. The Housing Talc Credit program is a financing program that was created under the Tax Reform Act of 1986 that gives income tax incentives (e.g. income tax credits) to for-profit corporations in return for their commitment to the community and their investment capital that makes workforce housing feasible. The capital from these corporate investors is equity, not debt, and accounts for about 70 % of the total cost of the project. Therefore, with so much equity the project's debt (or mortgage amount) and mortgage. payment is low. This low monthly mortgage payment allows the project owner to charge a lower rent to meet the MHFA workforce housing requirements. Unfortunately, the tax credits alone do not to make the construction of the housing project financially feasible. Accordingly, in addition to afirst-mortgage loan from a private mortgage lender or public agency, a developer must secure so-called "gap" financing, such as tax increment financing. This is a workforce housing project that requires the resident pay 100% of their rent. The residents must qualify under the program income limit and must show a minimum income of two times the rent. Income limits are $50,340 for a family of four. Rents would be from $787 - $1,091imonth per unit including utilities depending on unit size. What is the projecf ownership structure? The developer (Ron Clark) will. sell the tax credits and the sale proceeds will be used to pay for the development costs. There are many buyers for the tax credits. In this case, the developer will likely work with a bank (like Wells Fargo or U.S. Bank) with a strong local presence on the purchase of tax credits. The. bank will act as the broker between the developer and corporate investors, which will provide immediate cash to pay for the construction. The bank will provide the funds on a monthly basis to pay for the labor and materials used in the construction of the building. Pillsbury Commons will be owned by a parknership consisting of the Corporate investor(s) (one or more)-who will own 99.9% of the property and Richfield properties, which is Ron Clark's entity that will own.1% of the. property. The corporate investors must own. practically all of the development in order to .qualify for their tax. credit benefits. Richfield Properties will be the general partner responsible for ongoing management and ensuring the property is operated in compliance with the tax credit rules to ensure`the investors get their tax credit benefits. 75001~est 78~~~ Street Eiciu~a,1l~ 55439 (952) 947-3000 fix (952) 947-3030 Who will live in these units? The application fo the MHFA states that the targeted population for this development will be primarily for households of color and- single-head of households. Anyone who meets the income guides will be considered for these units provided that they pass the background screening .process. There is no preference given to any person or group. Fair Housing Act prohibits discrimination based on: • Race or color. • National origin. • Religion. • Sex. • Handicap (disability}. • Familial status {including children under the age of 18 living with parents or legal custodians; pregnant women and people securing custody of children under 18}. As stated above, the project will be open to anyone. who meets income requirements and will conform to Fair Housing regulations. In accordance with MHFA. policies, we will provide outreach to populations that may not be aware of the. project, including single head of household families and families of color. The term "targeted" is a reflection of MHFA policies, but is an unfortunate word choice that may .imply something different than the facts. When MHFA uses the term "targeted" in this context, they are referring to additional marketing to ensure that all populations are aware of this project. What is the screening process for tenants? This project will be professionally managed by Steven Scott Management. Each potential tenant is required to pass a credit, criminal anal housing history check. Only tenants that pass these screenings and meet the income requirements will be considered for a home. Steven Scott Management works closely with the Richfield Police Department and their crime prevention programs. Now will you ensure that the property is properly mainfained? The MHFA funding requires that that property be properly maintained in compliance with the Workforce Housing program requirements for a minimum of 30 years and requires a significant financial reserve for on-going maintenance. The tax credit investors and the developer insist that the property be maintained to ensure a return on their investment. Additionally, the developer has contracted with Steven Scott Management to ensure that the project is properly maintained and remains an attractive,. quality development. Why is this project being proposed here? As a developer, we look for well-located available land and complete a market study to ensure that any proposed project is feasible in the planned location. Our market study was completed by Joe Urban in 6 7500 West 78'~~ Street L~lin:~; AIN 55x39 (952) 947-3000 E~.t {952) 947-3030 2011 and shows demand for workforce housing in Richfield. This housing would support both existing and new businesses in Richfield so that their employees can afford to live-and work in Richfield and keep that money in the community. It is our understanding that Pillsbury Commons will be the first Workforce Housing. Tax. Credit project in the City. We are very excited to be able to provide quality housing for Richfield residents and those who work in the community. Why is this planned as workforce renfal apartments instead of for-sale homes or market rate apartments? As mentioned above, we completed a market study in 2011 to analyze feasible options for the site. The market study identified a need for this type of housing. Our market study says there are 1.9 affordable jobs in the area for every one affordable housing unit. Furthermore, the existing affordable housing stock in Richfield generally 40 - 60 years old and is not attractive to many working people. This provides a quality housing choice in Richfield. These homes are targeted to the workforce, but are available to anyone who meets the income limits and passes the background checks. We believe that this building will also be attractive to seniors wanting new single-level living with heated parking. There is an existing homeowner in this block that intends to stay in her home. How will you protect her home? We understand that there is a homeowner in the block who intends to remain in her home. Our proposal does not include her property. As noted previously, rather than simply proposing a 3-story apartment building as would be allowed, we have proposed to step the building from 2-stories near this home to 4 stories on the south. adjacent to 76'" in order to provide a nice transition from this existing home. Additionally, as we work to finalize our plans we will work to ensure that landscaping and other methods are used to transition from this existing home to the new project. if the City sells the land; will they get the full market value of the property? Yes. The agreement between the City and Ron Clark Construction and Design requires Clark to pay the appraised value of the land. How will this fit into the existing neighborhood? This property currently includes vacant industrial land (a mortuary and former city maintenance facility). Our plans will "down-zone" this. property from the current industrial use to a lower intensity residential use. This plan includes 70 workforce hausing units on the southern portion of the site. We have no plans to develop the northern portion of the property at this time. Future development would be driven by market forces. Our original concept. showed a 3-story building, but after conversations with the City and the development team, we revised the plans to provide a 2-story building adjacent to the single family homes oh Pillsbury Avenue and a 4-story building for the portion adjacent to the 77`" Street commercial corridor. We made this change far several reasons: • The. 2-story portion of the building on Pillsbury provides a good transition to the single family homes adjacent to this site. 7 75W West 78~t~ Street Edina; ~iN 55439 (952) 947-3000 fay {952) :947-3030 • This lower height portion allowed us to develop a softer urban edge fronting Pillsbury far a lower density residential character to blend with and transition to the existing single family homes. • The 4-story portion of the building on 77"' provides better screening and sound control/mitigation for the existing homes. The taller building elevation on 77`" eliminates the need for the existing noise wall along 77tH • The craftsman-style architecture includes many architectural details. The project has underground parking for each unit as well as surface parking for guests that is screened from the existing neighbors. This is a project that anyone would be proud to call home. This development will provide needed housing choice in the city and improve connections to work places, retail, services and entertainment on this underutilized land and will help the City meet their Comprehensive Plan goals. Are there an additional 100 units planned for Phase 11 on the north portion of this site? No. We do not have any plans for a Phase I I at #his time. The option agreement prepared by the City required us to prepare a concept plan to show that our purchase and development of the southern portion of the property would not preclude future development of the northern portion. We prepared. a very preliminary concept that showed a total of 160-172 units. on the full 3.3-acre site. We have since revised our plans and are proposing only to acquire the southern portion of the property for the proposed 70-unit apartment. We are not proposing any development on the northern portion of this site. Why is the City considering something different from the Corridor Study? In 2008., the City developed a corridor study that was to be used to help guide the 2030 Comprehensive. Plan process. The corridor study is not a zoning document and is not used to review applications.. The 2030 Comprehensive Plan and the City Code are the adopted documents that will be used to review any development proposal. The Comprehensive Plan does guide the property for Medium-High Density residential use (12-24 units per acre and no greater than 4-stories). However, our discussions with the City (dating back to 2009) indicate support for a higher density on this parcel. Will this project decrease property values? No. There is no evidence to support the idea that this high-quality project will decrease adjacent property values. The property is currently a vacant industrial site and there is no evidence that a new .residential use would negatively impact property values. The 2000 Maxfield Research, Inc. study entitled "A Study of the Relationship Between Affordable Family Rental Housing and Home Values in the Twin Cities" is the definitive analysis of this issue in the Twin Cities. The research showed that there is no evidence to support the claim that tax credit rental developments for families erode property values. A report the following year (the 2001 Workforce Housing: The Key to Ongoing Regional Prosperity report. by Maxfield Research lnc. and GVA Marquette Advisors) estimated that the Twin Cities foregoes an estimated $265 million in combined consumer spending and business income per year because there is a current shortfall of workforce housing. 75001~Vest 78~t~ titrcet ~diiaa, ~i~J 55439 (952) 947-3000 fa.~ (952) 947-3030 Will this increase crime in our neighborhood? This apartment will be professionally managed by Steven Scott Management to ensure that the property is properly maintained. Steve. Scott Management works closely with the police departments in the communities where they have apartments and have an excellent track record for quality developments. The good property management policies, application process and background checks conducted by Steven Scott. Management and rela#ionship with the community police department will provide significantly more control over residents than with for sale or market rate housing. Why was the original proposed access on Pillsbury instead of on 76~'' Street or 77"' Street? Generally, transportation policy directs that access be provided for development like this on the local streets (Pillsbury) rather than higher volume streets like 76~" Street or 77t~ Street. The Comprehensive Plan classifies 77th Street, a "Reliever Arterial" within the `A' Minor Arterial functional class. The focus being mobility, with limited access and no on-street parking. 76'h Street is classified as a Major Collector, which is intended to provide access from neighborhoods to other collector roadways. Following the neighborhood meeting, our design team looked again at the access issues and met with City staff to get their feedback. We hope that the work session will provide an opportunity to get City feedback on the alternatives. REVISIONS TO DEVELOPMENT PROPOSAL Following the neighborhood meeting we made a number of significant changes to our development proposal and we will have revised plans to present at the work session. Major changes in response to neighborhood comments include: 1. Elimination of Pillsbury access. We heard concerns about traffic on Pillsbury, so we looked at other access options and have eliminated this access point. 2. Eliminated apartment entrances on Pillsbury. The concept we presented a# the neighborhood meeting- included entries into the individual -units from Pillsbury to create an urban edge. We heard concerns from neighbors about these entries and eliminated them from the plan. 3. Eliminated on-street parking on Pillsbury. We heard concerns that this .apartment would have tenantsor guests using the existing on-street parking on Pillsbury and leaving little room for existing residents. We have eliminated the Pillsbury access and unit entries on Pillsbury, therefore, there is little reason for tenants or guests to be on Pillsbury and we are no longer showing this on-street parking. 4. Added proof of parking. We have one underground parking stall per apartment unit and surface parking for guests, but we heard concerns that this parking would not be adequate. Based on our experience with similar developments, we are confident that we have more than enough parking proposed. However, we have revised the plan to show proof of parking that could be added to the northwest of the parking lot should evidence be provided that adequate parking is not available. 7500 ~\~est 78~h Street Edina; lIN 55139 {952) 947-3000 fax {952) 947-3030 5. Acquire additional City property. We are now proposing to expand the area of acquisition to include the .area where the proof of parking is located. This would also reduce the density of-this project by increasing the land area and retaining the same number of units. 6. Expanded playground. We heard concerns that the planned play area would not be adequate for the development. We have expanded this play area on the revised plans. It is our intention to get feedback from the C}ty at the work session about the development concepts, including access#o the site, building design, parking and any other issues that should be addressed in our formal submittal. We intend to prepare a submittal for a public hearing at the Planning Commission meeting in February. In the end, the Pillsbury Commons development will foster a safe, walkable community with a new urbanism-type character. Care is being taken in the site planning to conceal major areas of surface parking through environmental design. Furthermore, the site will incorporate sound landscape design and OPTED (crime prevention through environmental design) principles. All phases of the project will strive.#otncorporate Minnesota Green Community Criteria and sustainable building design in order to reduce energy expenditures and to enhance the health, well-being and productivity of the building occupants. In addition, the apartment building will be professionally managed and operated by Steven Scott Management, a respected Twin Cities management group. Our team is committed to providing a safe, quality living environment and look forward to working with the City of Richfield and their Crime Prevention Programs. Lifecycle Housing Opportunities Our development proposal will provide a real opportunity for housing choice in Richfield. Our project includes 70 workforce housing units. Workforce housing is different from subsidized housing. Workforce housing has strict guidelines and requirements for residents. In fact, before- residents even qualify to live at Pillsbury Commons,. they must prove they are earning at least twice the cost of rent and utilities. This means the people moving into Pillsbury Commons are the kind of individuals and families Richfield can build its future on. They are the educators, healthcare associates, retail/service industry workers and other people who right now are working in Richfield, but don't earn enough to live in the higher quality developments located close to their work. Pillsbury Commons fills this need for high-quality workforce housing. V11e believe the new homes will also be attractive to seniors who are Ivoking for new, single-level living with heated parking. These workers are in need of affordable housing opportunities. Affordable housing provides opportunities for younger workers and senior citizens to stay in the community. Our 2011 Market Study prepared by Joe Urban indicates that there are 1.93 jobs paying less than $41,000/year for every affordable housing .unit in the project market area. That's almost two jobs for every affordable housing unit in the area. 10 75001~/cst 7A~h Street T:dina; ,4IN 55}39 (952) 947-3000 fix (952) 947-3030 SUMMARY _ We believe that affordable housing is a community issue, not a neighborhood issue. Quality affordable housing is the key for important community benefits--for health and public safety, neighborhood stability, economic development, transportation and education.- Quality affordable housing means our children have the opportunity to raise their families in the communities thatthey were raised in and allows our seniors the opportunity to stay in the community. It allows our workers to live where they work, thereby, reducing congestion. We know that unstable living situations create an environment where children struggle in our schools, but providing safe, quality housing dramatically improves performance. Businesses need the workforce to survive -and the economy can't grow if the workforce has nowhere to live. Unfortunately, some of the community's most vital occupations (educators, healthcare, retail and services, etc.) don't earn enough to live in the higher quality developments located close to their work in the area, That's where Pillsbury Commons fills this need. It will give young people just starting their careers, working adults and young famines the opportunity to live in Richfield in a nevv, high quality development. It will provide the chance to get. started in Richfield and gives them the opportunity to save equity to buy a home in Richfield in the future. Project Benefits: • Provides needed workforce housing in the community • .Provides needed. 2- and 3-bedroom new apartments in the community to replace old apartments that have been demolished • Puts this underutilized property back on the tax rolls • The City is able to sell this vacant land at market value, which is virtually unheard of in today's economy • Cleans up the contaminated property • Construction of Pillsbury Commons will provide jobs • Approximately $65,000 in building permit fees to the City We believe that this project is a positive addition to the City of Richfield and we look forward to the opportunity to continue to work with the City and the residents of Richfield to develop a plan that. the community can be proud of and the residents can be proud to call "Home". S' cere/ly~~ t-'`'~'~ Ronald E. Clark CEO Attactiinetit; Resolution 10520 I1 RESOLUTION NO.10520 ( RESOLUTION CONSENTING TO TWE PROCESS FOR THE CREATION OFA HOUSING TAX INCREMENT FINANCE DISTRICT IN SUPPORT OF THE PROPOSED PILLSBURY COMMONS MULTIFAMILY HODS#NG PROJECT WHEREAS, the City of Richfield (the "City"} is a municipal corporation and political subdivision duly organized and existing under the Constitution and laws of the State of Minnesota; and WHEREAS, pursuant to the Constitution and laws of the State of Minnesota, particularly Minnesota S#atutes, Sections 469.174-X69.1799 et. seq., as amended, the City acting through the Richfield Mousing and Redevelopment Authority {"HRA"} is authorized to use tax increment financing to carry out the public purposes described therein and contemplated thereby; and WHEREAS, a proposal has been made by R.E.C., [nc. d!b!a Ron Clark Construction and Design (the "Developer"} to construct 70 units of multifamily housing a# 211 West 76th Street near Pillsbury Avenue in the City o€ Richfield, which project is to be known as Pillsbury Commons and 100% of the units wilt be affordable to persons with incomes a# 60°!0 of the area median income (the "Project"}; and WHEREAS, the Project would be located on land that is currently owned by the City of Rich€ield; and '~.. WHEREAS, the City on or about the date of this resolution has approved an Option Agreement with the Developer for the sale of the land upon which the Project is intended to be built; WHEREAS, the Developer has submitted its development proposal #o the City and the City is supportive of continuing further consideration of the Project; and WHEREAS, the City wishes to support the Project and directs staff to work wifh the Developer to #ake the steps necessary to create a tax increment financing district for the Project. NOW, THEREFORE, BE 1T RESOLVED, by the City Council of the Ciiy of Richfieid that the City supports the Project and, pending final determination of project eligibility, required reviews, public input, notices and hearings, and without surrendering its _ legisla#ive discretion, hereby authorizes staff to proceed with the steps required to establish a tax increment financing district for the.Protect; and BE IT FURTHER RESOLVED, that City staff, in connection wifh the activities required to be undertaken by the City and the HRA, con#inue its analysis of the Pillsbury Commons project, negotiate the terms and conditions of a development contract with the Developer or an affiliate whose general partner is controlled by the Developer, and prepare a development plan and tax increment financing plan for the Project, alt subject to final determination of protect eligibility, required reviews, public input, notices and hearings; and BE 1T FURTHER RESOLVED, that the City Council supports implementation of the attached #imeline for the Project (Attachment 1 }: This resolution shall be in full force and effect from and after ifs passage, Passed by the Cify Council of the City of Richfield, innesota this 14th day of June 2011. r- ` eb ie Goeftel, ayor ATTEST: Nancy Gibbs, y Clerk January '17, 2012 ~ 7500 lNest 78th Stt•t:et Edina, Niinnest~ta 55439 RE: Proposed Pillsbury Commons Development at 76rh St. and Pillsbury Ave. (y52) 947_300t1 lax (952) 947-3t?30 Dear Richfield Resident: Thank you for taking the time to attend the Neighborhood meeting on November 29, 2011. We wanted to let you know we are continuing to work on our plans in response to some of the questions and comments voiced at the meeting. We also wanted to clarify some facts as you hear more about our proposed development. What kind of housin iq s Pillsbury Commons? / Piilsbtrry Commons is a Workforce Housing cieveloprnertt. Workforce Housing is intended to provide affordable housing to working individuals and family and requires residents to pay 100'/0 of their rent. Units will rent for $77S - $1,075(rnortth depending on size. / Pillsbury Commons is not subsidized housing. Pillsbury Commons is funded in part by the Housing Tax Credit program (sometimes called Section 42 credits). Created under the Tax Reform Act of 1986, the Housing Tax Credit Program is a financing program that gives incorrte tax incentives (e.g. income tax credits) to the corporations that invest in the development in return for their commitment to the community and their investment capital, which makes Workforce Housing feasible. This financing program is administered in Ntinnesota by the Minnesota Housing Finance Agency (MHFA). / This is not a Section 8 project. Each resident must have verified income to meet the MHFA requirements and they pay their total rent. There is no government subsidy with the tax credit program. • One of the units in this neighborhood is part of the Veteran's Administration program far disabled and homeless veterans and that one unit is under the Section 8 program. / The MHFA Tax Credit program requires that the project remain in compliance with the Workforce Housing program requirements for a minimum of 30 years. That means that this project could not transition to a Section 8 project in that period. Who will live in Pillsbury Commons? / No preference is given to any person or group. The Fair Housing Act prohibits discrimination based on: race or color, national origin, religion, sex, handicap (disability) or familial status (incl~iding children under the age of 18 living with parents or legal custodians; pregnant women and people securing custody of children under 18). / Prospective residents must qualify. Applicants must meet program income requirements and must show a minimum income of two times the rent. • Income limits are $35,280 for a single person- $50,340 for a family of four • The median household income in Richfield is $48,700 according to the 2010 Census. / All residents will be screened. Prospective residents must pass a 3"r party screening process including credit, criminal and housing history checks. This screening is more rigorous than a typical market rate rental would require and far exceeds what is required to get a mortgage to purchase a home. / Rents will be competitive to senior rental complexes in the area. Pillsbury Commons will offer a great solution for seniors wanting one-level living with heated indoor parking. / Will this project decrease property values? No. There is no evidence to support the notion that this high-quality project will decrease adjacent property values. 'T'he property is currently a vacant industrial site and there is no evidence that a new residential use would negatively impact property values. The 2000 Maxfield Research, lnc. study entitled "A Study of the Relationship Between Affordable Family Rental Housing and Home Values in the Twin Cities" is the definitive analysis of this issue in the Twin Cities. The research showed that there is no evidence to support //A\~ the claim that tax credit rental developments erode property values, ~!r t ~ ~~ b l~ `~"~~~ NSA Builder l.icrnse It 1220 2008 Recipient ~~~~1~a~.Roiit'lark.cont What will Pillsbury Commons look like? The site spans from 77` Street to 76' Street, on the west side of Pillsbury Avenue however; our current proposal is to develop only the southern portion of the site. / Our attractive, craftsman-style building features many architectural details that make this a qualify addition to the neighborhood. Rather than a typical 3-story building, we have designed the building to step from 2-stories to 4-stories. • The 2-story portion of the building facing Pillsbury Ave. provides a smooth transition to the adjacent single-family homes. • 1"he 4-story portion of the building facing 77`h St. next to the commercial corridor provides better screening and sound control/mitigation for' the existing homes and eliminates the need for the noise wall in front of the building along 77"'. • A rendering of the conceptual building plan is enclosed. How will the property be maintained? / Workforce Housing is consistently maintained. The MHFA Tax Credit program requires that the project remain in compliance with the Workforce Housing program requirements for a minimum of 30 years. The program requires very significant financial reserves, which means that the huiiding and grounds will continue to be maintained fo a high standard. / Pittsburg Commons will be managed and maintained by Steven Scott Management. Steven Scott has over 45 years of experience in managing Twin Cities properties and has been honored with over 50 Minnesota Multi Housing Association awards including "Property of Excellence" and "Best New Development." Thanks again for your time. We share your concerns for quality development and look forward to working with the residents of Richfield and City of Richfield. Sincerely, ~~ Ron Clark Ron Clark Construction & Design i=nclosure i '' ~ ,, ~~ Memo To: Richfield City Council From: Rebecca Kurtz, Ehlers Date: January 24, 2012 Subject: Explanation of the But For Analysis and Process In preparation for the public hearing and consideration of the 2012-1 Housing Tax Increment Financing District, the following information summarizes how tax increment can be expended in a project and outlines the But For Test. Background The City and HRA received a request on June 14, 2011, from Ron Clark on behalf of Richfield Properties I, LP (the "Developer") for tax increment assistance for amulti-phase housing development and adopted Resolution No. 1052 consenting to the process for creation of a housing TIF district. It is proposed that the City and the HRA create the 2012-1 Housing Tax Increment Financing ("TIF") District (Pillsbury Commons) on five parcels and adjacent right of way on the 7600 block of Pillsbury Ave. (This includes the north portion of the former City public works site.) Tax increment assistance was requested to assist with the financing gap due to land acquisition expenses and other project costs. The project is planned to be a two phase housing development. Phase I will consist of approximately 70 units of affordable rental housing. Phase II will also consist of housing; however, the number and type of units will be determined based on future market demands. What Expenses Can be Paid with TIF? It is proposed that tax increment from the development be provided in the form of a Pay-as-you- go Note to the developer to reimburse for land acquisition, site improvements, and other TIF qualifying improvements. In general, tax increment revenue can be used to pay for costs, including but not limited to, acquisition, demolition, site improvements, public infrastructure/utilities, streets and sidewalks and interest. In addition, for housing projects, increment can be used to pay for building expenses. The HRA is allowed to retain up to 10 percent of the increment for administration expenses, including consultant and staff time, reporting expenses, and annual maintenance of the TIF District. What is the But For Test? It is Ehlers' experience that there are two questions that cities evalutate when providing assistance to a development. The first is what is referred to as the But For Analysis. This simply says that ~+ wvvw,ehler~-inc.com. E H L E RS Minnesota phone fi51-697-8500 3060 Centre Pointe Drive LEADERS IN PUBLIC FFNANC£ Offices also in Wisconsin and Illinois fax 651-697-8555 Roseville, MN 557 1 3-11 22 toll free 800-552-1171 the project would not go forward without assistance. In most cases, the answer to this question does not require numerical analysis but relies on specific economic and site factors affecting the development. After it is determined that the development needs assistance, the second question is "how much." A variety of methods can be used to analyze this question, depending on a number of factors. Typically, Richfield has requested a pro forma analysis to determine the amount of assistance. This analysis determines the amount of return on equity that the developer will receive with and without the use of assistance. Real estate developments typically are highly speculative and risky ventures for the investors. By using a pro forma and analyzing the project without assistance and with assistance, a model can be developed to determine the level of assistance required to reach a return on equity that is comparable to the market return. It is important to understand that when evaluating these types of transactions, no one can be totally accurate as to the eventual returns or outcomes of the project. The simple objective is to try within certain variables to come up with an analysis that provides a comfort level to all those participating in the project. The City and HRA have asked Ehlers to review the Developer's feasibility analysis for the project to determine if the level of financial assistance requested is needed to make the project financially feasible. Ehlers is working with City staff and the Developer to gather information and continue to analyze the document and prepare a But For Analysis to determine that the level of assistance is reasonable based on the current market conditions and the financial assumptions. Council Review and Consideration Per the requirements of Minnesota Statutes, a summary of the But For Analysis, including both a numerical analysis and specific economic and site factors affecting the development, will be provided to the Council for review prior to the public hearing to adopt the TIF District. As part of the process to adopt the TIF Plan and approve the TIF District, the Council will be required to hold a public hearing and consider four findings. In general, the findings are summarized as follows: ^ The TIF District is a housing district as defined in M.S., Section 469.174, Subd. 11. ^ The proposed development, in the opinion of the City Council, would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future. (This is known as the But For finding.) ^ The TIF Plan conforms to the general plan for the development or redevelopment of the municipality as a whole. ^ The TIF Plan will afford maximum opportunity, consistent with the sound needs of the City as a whole, for the development or redevelopment of Richfield Redevelopment Project Area by private enterprise. Ehlers will continue to work with the City and Developer to gather detail information and complete the But For Analysis, which will be presented as part of the information for considering approval of the TIF Plan. In the meantime, please do not hesitate to contact me if you have questions.