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12-15-08 Agenda• CITY OF RICHFIELD, MINNESOTA MONDAY, DECEMBER 15; 2008 REGULAR HOUSING AND REDEVELOPMENT AUTHORITY MEETING RICHFIELD CITY HALL COUNCIL CHAMBERS 6700 PORTLAND AVENUE 7:00 P.M. AGENDA Call to order 1. Roll call 2. Approval of minutes of (1) HRA Special Worksession of November 3, 2008 and (2) Regular HRA Meeting of November 17, 2008 3. HRA approval of agenda Notes: • 4. Consideration of public financing assistance in amount of $8,700,000 in combined 429 Bonds, tax increment financing and Fannie Mae Community Express Loan funds secured by City of Richfield to assist in development of Cedar Point Phase II and construct portion of Richfield Parkway Staff Report No. 52 Notes: 5. Executive Director report 6. Claims and payroll Adjournment Auxiliary aids for individuals with disabilities are available upon request. Requests must be made at least 96 hours in advance to the City Clerk at 612-861-9738. C ~~ STAFF REPORT AGENDA ITEM # 1 REPORT # 52 HOUSING AND REDEVELOPMENT • AUTHORITY MEETING DECEMBER 15, 2008 REPORT PREPARED BY: REPORT PRESENTER: DEPARTMENT DIItECTOR R REVIEWED BY EXECUTIVE KAREN BARYON, COMMUNITY DEVELOPMENT MANAGER NAME, TITLE JOHN STARK, COMMUNITY DEVELOPMENT Tlm r~rm~r ITEM FOR HRA CONSIDERATION: Consideration of public financing in the amount of $8,700,000 in combined 429 Bonding, Tax Increment Financing, and Fannie Mae Community Express Loan funds secured by the City of Richfield, to assist in the development of Cedar Point Phase II and to construct a portion of Richfield Parkway. RECOMMENDED ACTION: Consider public financing assistance in the amount of $8,700,000 to facilitate the development of Cedar Point Phase II and a portion of Richfield Parkway utilizing 429 Bonds, Tax Increment Financing, and Fannie Mae Community Express loan funds secured by the City of Richfield. • BACKGROUND The Cedar Point Phase II area is located between 63rd and 65th Streets and between 16th and 17th Avenues (directly west of the Cedar Point retail development). This area is in the low frequency noise impact area and has been identified by policymakers as a high priority for redevelopment. 121508 Cedar Point Phase II Public Financing At the January 14, 2008 meeting of the Housing and Redevelopment Authority (HRA), the • HRA directed staff to continue working with Susee/LaNel for the development of a senior. housing project on the site. In May the HRA approved the conceptual financial deal points for the proposed development by Susee/LaNel. Staff then began the process of finalizing the deal points and memorializing them in a Contract for Private Development (CPD) with Susee/LaNel. As the process continued, the turmoil and volatility of the financial markets combined with skyrocketing fuel costs, created a significant gap in the developers pro-forma amounting to approximately $1.2 million. Additionally, discussions with an appraiser led staff to conclude that the City/HRA payment to the developer for the Right-of-Way would need to be decreased. At that point, staff and the developer were forced to step back and attempt to address this financing gap if the development was to move forward. Staff has presented several public financing possibilities to the HRA on November 3, 2008 at a Special Work Session. Subsequently, the HRA directed staff to pursue one of the options presented and bring back a recommendation to the HRA at their December 15, 2008 meeting. Staff is recommending the HRA consider the following public financing scenario for the development of the Cedar Point II project to be developed by Susee/LaNel ("Developer"): Acquisition of Properties • The Developer will be responsible for the acquisition and assembly of the 29 homes in the redevelopment area. Construction and Land Acquisition for Richfield- Parkway between 63~d and 65th Streets The City will issue approximately $2,600,000 in 429 Special Assessment Bonds. • a. $1,100,000 of the bond proceeds will be used for construction and stormwater costs of Richfield Parkway between 63rd and 66th Streets. b. Approximately $1,500,000 (or the actual appraised value) of the bond proceeds will be used to purchase 25 feet of right-of--way from the Developer for the portion of Richfield Parkway between 63rd and 66th Streets. c. The development will be assessed 20% of the bond costs ($520,000) over the life of the bond (i.e., 20 years}. d. The remainder of the debt service on the 429 bonds will be paid through-the general obligation of the City. e. The impact of this debt service on a Richfield household at current tax and class rates would be as follows: Assessed House Value Annual Tax Impact $200,000. $ 10.30 $225,000 $ 11.59 $250,000 $ 12.88 Five-Year Fannie Mae Community Express Loan to the Developer • The City will also secure a Fannie Mae Community Express Loan in the amount up to $3,800,000 and would in turn loan the funds to the Developer for the project. a) The Fannie Mae loan would be secured by taxable Tax Increment General Obligation (TIF G.O.) bonds pledged by the City; b) The City would secure the loan to the Developer through a mortgage on the property and assignment of rents and dividends in the event of default by the Developer. The mortgage would be payable in full in year five of the loan. c) The Developer would be responsible to make any and all interest payments on the Fannie Mae loan during its fve year life. d) The Fannie Mae loan requires a balloon payment (payment in full) in year five. e) The City would retire the Fannie Mae debt with the proceeds from the Developer's repayment of the mortgage. f) In the event of default by the Developer, the City would be required to pay off the Fannie Mae loan in full utilizing the proceeds of a TIF G.O. bond. This bond would be serviced through Pay-as-you-go TIF proceeds, by foreclosure on the HRA's mortgage .(see b -above) and drawing on any other form of security posted by the developer. In the event that these sources are insufficient to service the bond, then the City's general obligation would be required to make any remaining debt service on the bond. • g) The amount of the loan ($3,800,000) assumes the value of the right-of-way to be purchased from the developer at $1,500,000. If the actual appraised value differs, then the Fannie Mae loan would need to be adjusted proportionately to make up the difference. Pledge of Tax Increment Financing to the Developer Assuming the Developer does not default and the Fannie Mae debt is retired through repayment of the mortgage, thereafter 90% of the available tax increment generated by the development would be pledged to the Developer on a "pay-as-you-go" basis, with the HRA retaining 10% for administrative costs. The "pay-as-you-go" TIF has an estimated present value of $2,300,000 based on current value, tax and inflation adjustments. The TIF would not be pledged to the developer until they have .retired the Fannie Mae loan. At that point, the developer would receive any TIF that had been generated during the five-year loan period, plus annual TIF payments for the remainder of the. TIF District (an additional 19 years). BASIS OF RECOMMENDATION A. POLICY • The City has identified a Low Frequency Noise Impact area in the northeast corner of Richfield where the negative impacts of low frequency noise will exceed the tolerances of existing housing. • Federal funding for property acquisition in this area has been expended. • Redevelopment planning efforts have identified the Cedar Point Phase II area as ideal for multi-family senior housing. B. CRITICAL ISSUES • The City would be wholly liable for repayment of the Fannie Mae debt in the event of default by the Developer. • This public financing scenario provides for the construction of the Richfield Parkway. • The financing strategies assume the Developer will be able to successfully negotiate the purchase of all 29 properties in the development area. Should they be unable to accomplish this task, the Developer can. choose to abandon the project. • Since the TIF District in which the proposed project is located was established in 2005, each year that passes further diminishes the available tax increment generated by the district. • Due to the recent economic developments and the increased development costs, an additional gap developed in the Developers pro-forma. • Due to the high cost of assembling the private property and development financing, the Developer has indicated a need for public assistance. • For the development to proceed as proscribed, the Richfield City • Council must approve the public financing component. C. FINANCIAL • Due to the high cost to assemble the property, the Developer has identified a need for public assistance. • The Developer will be required to repay the City through debt-service, Special Assessment payments, and through a note secured by a mortgage on the property to be repaid in full at a future date, with interest. • The HRA's financial analyst, Ehlers and Associates has participated in these financing strategy discussions and drafting of the alternatives. D. LEGAL • HRA legal counsel has participated in the negotiating and drafting of the financing alternatives in cooperation with City staff and the Developer. ALTERNATIVE RECOMMENDATION(S~ • N/A ATTACHMENTS • N/A PRINCIPAL PARTIES EXPECTED AT MEETING • Representatives of the Developer • John Dean, HRA Legal Counsel • Rebecca Kurtz, Ehlers and Associates Financial Advisors •