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06-28-82 agendaHOUSING AND REDEVELOPMENT AUTHORITY Office of Executive Director HRA Letter No. 26 Agenda June 28, 1982 Housing and Redevelopment Authority Commissioners City of Richfield Dear Commissioners Subject: Lincoln Hills School Purchase and Re-use For a period of time, the city staff has been discussing the potential acquisition of Lincoln Hills School with the Richfield school committee appointed to negotiate on this issue. We are now prepared to present an agreement to the HRA and city council but perhaps a little background should be reviewed in order to remind all parties of the history of the project. In April, 1981 the city council discussed Target Issues that became adopted objectives for the city staff to pursue over the two year period of July, 1981 to June, 193. Of the top ten target issues three of them relate directly to this project. The are as follows: Priority # 2 Provision of Senior Housing Priority # 6 Development of a program to attract young families Priority #7 Provision of low and moderate income housing The HRA has concurred with the goals of the council on various occasions. Also, in early 1981 at a joint School L~oard and City Council meeting, both bodies expressed concern over the future use of school facilities in light of the continuing decline in enrollment in our community. A committee was appointed by the bodies including the Mayor, School Board Chair and six staff persons to pursue the issue of facility use. As a result, discussion has been taking place for over a year between the two organizations about the use of school facilities for either recreational or housing purposes. You may recall that part of the study that was done on Legion Lake examined the possibilities of using the Middle School for a community center and the elementary schools for housing uses. Schematics and pros and cons of those uses were shown and discussed by the council. Media coverage was given to these discussions, specifically in the January 14, 1932 edition of the Minneapolis Star. HRA Letter No. 26 -2- June 28, 1982 The School administration ultimately recommended the closing of two elementary schools in Richfield and that was approved by the School Board. During the hearings which took place, references were made to potential re-uses of the buildings as housing projects and media coverage mentioned that on more than one occasion. Since the buildings to be closed were both elementary schools, the discussions narrowed down to re-use for housing for a senior community center. The potentials for use as housing were examined in greater detail in early 1982 with the conclusion that housing for the elderly was the most appropriate re-use of Lincoln Hills School from the city perspective. Media coverage of that was ongoing also, with an article in the Star on May 20. Discussions with other groups took place, in particular the Ministerial Alliance, which resulted in some of the churches in the area of Lincoln Hills taking particular interest in the humanitarian aspects of a housing efforts for less advantaged senior citizens. In the middle of May the U.S. Housing and Urban Development Department (HUD) released an invitation to submit applications for Section 202 mortgage financing which was coupled with reservations under the Section 8 rental housing program. As a result, the four churches in the area (St. Nicholas, St. Richards, Woodlake Lutheran and Emerson Congregational) has formed a non-profit corporation known as Lincoln Hills Incorporated (LHI). LHI is contracting with the Community Development Corporation (CDC) to provide management services on this project. The deadline for the applications to HUD is June 30, 1982. This program would go the furthest to provide housing at a rate affordable to low income persons. If an application for Section 202 mortgage money is unsuccessful, we will still pursue other potentials for housing on the site. The new deadline intensified discussions with the school district for acquisition of the parcel and building. At the same time the city council held a public hearing on June 14 to redesignate the Community Development Block Grant funds to allow for their use in the acquisition of the school The HRA agreed to consider an application from the four churches in combination with CDC at their May 17 meeting. All of the actions and discussions over the last year and one-half have been aimed at the action being considered by the council and the HRA at the special meeting on June 28 at 9:00 p.m., assuming the School Board approves their role in the process at their 7:00 p.m. meeting on the same evening. In our discussions with the school district the following points were considered by both parties: - the most logical re-use of the Lincoln Hills site would be a use allowed in the multiple family residential zone - uses permitted in this zone include churches, schools, or multiple family residential HRA Letter No. 26 -3- June 28, 1982 - the maximum initial resale value of the school would be achieved by sale to a purchaser who would have to perform a minimal amount of structural rehabilitation (such as a school or church) - a housing re-use decreases the initial resale value of the property because of the extensive costs which will be incurred to adapt the building for housing - the appraisal value of $1,319,000 reflects the maximum resale value to a school or church - a school or church is likely to be a tax-exempt property in perpetuity and would, therefore, yield no property tax benefits to the community - sale of the property to a school or church would likely result in loss of the open space area which is now available for community recreational purposes - the parcel could readily be subdivided into two tracts, if the use of the eastern tract is one with minimal parking requirement needs and the western tract remains as open space (development can count adjacent open space toward meeting its requirements for open space on site) - housing for the eldelry requires a minimal number of parking spaces under the city's zoning requirements, whereas churches, schools or other multiple family residential projects would require more parking - re-use of the site for housing for the elderly would permit an even split of the parcel and retention of the western half for open space - the school has outstanding indebtedness which will be retired in 1993 - proceeds from the sale of school properties which are received before 1993 are required to be deposited into the debt service fund, while proceeds from property sales which are received after 1993 can be used for capital improvements - the City/HRA desires to stimulate the provision of low income housing for the elderly to meet a need in the community - the need for low income elderly housing is dramatically demonstrated by the waiting list at Richfield Towers which contains 1,700 persons (75% of whom currently live in Richfield or have previously resided here and wish to return) - the provision of housing alternatives for the elderly allows for single family houses to be recycled for younger families with children HRA Letter No. 26 - -4- June 28, 1982 ~' - the city's use of special revenue funds (liquor profits) for this property acquisition will delay park improve- ment projects in the community (i.e. Little Bob's Park and Memorial Park). The HRA's use of Community Develop- ment Block Grant monies for this purchase will diminish its ability to address its priorities for elimination of substandard houses and resale of lots for family housing, since the resale to a non-profit corporation will yield a minimal amount of money at best. - the establishment of a tax increment district puts some assessed valuation on the tax rolls immediately, con- trasted to the current tax exempt property. Under the provisions of the tax increment law, once the tax increment district is dissolved, the entire property tax yielded by this parcel will be distributed city-wide and district-wide . The proposal for purchase of the property from the school district calls for a purchase price of $1,100,000 of which the HRA would pay $700,000 for the easterly parcel containing the school building and the City would pay $400,000 for the westerly parcel containing the park land. The closing an the properties would be in unison by both parties no later than August 15, 1983. The HRA would pay its share of the cost up front by a $700,000 payment. The source of funds for that payment would be the $400,000 available from the CDBG funds and a $300,000 loan for the City of Richfield's Permanent Improvement Revolving Fund (PIR). The loan from the City to the HRA would have a term of 25 years bearing interest of 12%. The loan would be paid off by the HRA either from a future tax increment bond or from the proceeds of tax increments on the project which will be received over the 25 years allowed for a project of this kind. Assuming construction completion by the end of 1984, the tax increment flow should be sufficient to retire the debt by 1998. All of the assumptions made in the tax increment forcast are conserva- tive, so hopefully we will be able to do better than than in reality. The City would pay its commitment for purchase of the property by making payments of $12,000 per year until 1993 and then paying the balance on July 1, 1993. The unpaid balance from date of closing would be subject to interest of 11%. If we assume we can close by I~?arch 31, 1983 we need to have a balance on July 1, '~~93 of 550,819. This can be achieved b a y ppropriating $54,000 Leer year from the Special Reserve Fund and investing it with. interest until 1993 (see attachment for more details). HRA Letter No 26 -5- June 28, 192 The financial plan as a whole appears to be sound for both the City Council and the HRA. I would recommend that both bodies approve the option for a purchase agreement containing these major elements. The option would be a $1,000 payment to the School with $10,000 of earnest money. Both amounts would be deductible from the purchase price. Subsequent to this purchase option, the HRA should consider granting a purchase option to LHI. The purchase option to Lincoln Hills Incorporated would contain the following major provisions: - the site would be used only for multiple unit housing for the elderly - the sale price would be $1.00 or the amount which is justifiable in the financial formula approved by HUD, whichever is higher - LHI must give the HRA firm commitment to construct a project by August 15, 1983 or lose its option to proceed. Other elements of the agreement will be discussed Monday night. The approval of the purchase option with the school district and the purchase option with LHI set up the financial ramifica- tions of this project, yet protect the HRA from disadvantageous situations developing in the future. They are really just the initiation of a lot of steps to be taken before this project becomes reality. If approved, the staff will work closely with LHI to make this project come to fruition. Respectfully submitted, ~~'VSt~aCs~e-..- '1 Karl Nollenberger KN/skh cc: Community Development Director Administrative Services Director Housing and Redevelopment Coordinator CITY OF RICHFIELD LINCOLN HILLS ACCOUNT Special Principal Revenue & Interest Approp• Balance (11°a) Payment Balance 3/31/83 $54,000 $ 54,000 $ 59,40 $12,000 $ 47,940 3/31/34 54,000 101,940 113,153 12,000 101,153 3/31/E5 54,000 155,153 172,220 12,000 160,220 3/31/Q6 54,000 214,220 237,735 12,000 225,7£35 3/31/£37 54,000 279,785 310,561 12,000 29F,561 3~31/8E 54,000 352,561 391,34-2 12,000 379,342 3/31/89 54,000 433,342 x81,010 12,000 469,010 3/31/90 54,000 523,010 580,5x1 12,000 568,541 3/31/91 54,000 622,541 691,021 12,000 679,021 3/31/92 54,000 733,021 813,653 12,000 301,653 3/31/93 54,000 855,653 949,775 12,000 937,775 7/1/93 937,775 963,563 PAYMENTS TO SCHOOL Principal Balance Ending & Interest After Balance Principal (lla) Payment Payment 3/31/(14 $400,000 $444,000 $12,000 $432,000 3/31/85 432,000 479,520 12,000 467,520 3/31/6 467,520 513,947 12,000 506,947 3/31/87 506,947 562,711 12,000 550,711 3/31/3F; 550,711 611,29 12,000 599,239 3/31/89 599,29 665,210 12,000 653,212 3/31/90 653,212 725,065 12,000 713,065 3/31/91 ~ 713,065 791,502 12,000 779,502 3/31/92 779,502 X65,247 12,000 853,247 3/31/93 853,247 947,103 12,000 935,104 7/1/93 960,19