06-19-95 SpecialCITY OF RICHFIELD, MINNESOTA
SPECIAL CITY COUNCIL MEETING WITH
HOUSING AND REDEVELOPMENT AUTHORITY
JUNE 19, 1995
CITY COUNCIL
MEMBERS PRESENT: Martin Kirsch, Mayor; Don Priebe; Russ Susag; and
Michael Sandahl.
CITY COUNCIL
MEMBERS NOT
PRESENT: Susan Rosenberg.
HRA MEMBERS
PRESENT: Thomas Harms; Russ Susag; and Michael Sandahl.
HRA MEMBERS
NOT PRESENT: Joan Helmberger and Vern Luettinger.
STAFF PRESENT: James Prosser, City Manager; Steven Devich,
Administrative Services Director; Byron Wallace,
Community Development Director; Thomas Ferber,
City Clerk; and John Dean, City /HRA Attorney.
The meeting was called to order by Mayor Kirsch at 7:00 p.m.
Item #1 PRESENTATION OF PROPOSED CONVEYANCE OF THREE
RENTAL APARTMENT COMMUNITIES TO HRA AND PURCHASE OF
REPLACEMENT RESERVE. HRA LETTER NO. 37
Executive Director Prosser reviewed HRA Letter No. 37 regarding the proposal
from the Sage Company to transfer to the HRA ownership of the following three
apartment communities:
Hampton Place
620 -735 East 78th Street
221 units
13 buildings
Heritage Square
900 -1000 East 78th Street
150 units
4 buildings
901 -1001 East 77th Street
Crestwood
772040 Fourth Avenue
51 units
3 buildinas
TOTAL
422 units
20 buildings
Special City Council/HRA Meeting Minutes 2 June 19,1995
He stated each community has a replacement reserve, which in the aggregate totals
approximately $750,000, that are intended to help cover the cost of significant capital
improvements when needed such as roof or boiler replacement.
Executive Director Prosser stated that to accept the apartment buildings as a,gift,
the HRA must purchase the reserve fund from Sage Company. He described a
tentative proposal for the HRA to pay for the reserve fund from rent revenues at the rate
of $160,000 per year for two years with the balance due in the third year. The interest
rate would be 5.5 %.
Mark Ruff, Publicorp, Inc., stated that Publicorp, Inc. had reviewed the historical
income and operating expense history of the apartment units, reviewed the Stuart
Companies projections for the apartment units, and conducted a feasibility analysis of
the acquisition of the units. He stated that based upon this analysis, the financial risk
to the HRA is relatively small. He indicated the outstanding debt on the buildings is
significantly less than the appraised value of the apartment units. Mr. Ruff stated that
the occupancy rate was historically high and the units were in good shape for their
age. He stated the net operating income from the units is expected to be at least
130% of debt service, which is 10% to 20% higher than the industry standard. Mr.
Ruff responded to detailed financial questions related to the mortgage amount,
minimum payment in lieu of taxes, operating costs, debt service, optional payments in
lieu of taxes over the minimum, repayment of the replacement reserves, appraised
value per unit, revenues, and cash flow. Mr. Ruff stated there appears to be no
financial barriers to the proposed transactions. The HRA and Council indicated a
desire that the financial information described by Mr. Ruff be provided to them in
printed form.
Stuart Nolan, Stuart Properties, discussed the possible motivation for Sage
partnerships to transfer ownership of these apartment properties to the Richfield HRA.
He concluded that the tax benefits, coupled with not having to expose the financial
details of the buildings to the marketplace and not having to pay a real estate
commission, are the most likely motivations for the Sage proposal. Mr. Nolan stated
he believed that the income tax benefits to Sage were of no consequence to the HRA
and that the HRA should only consider the benefits of the transaction to the HRA
which appeared to be considerable. Mr. Nolan recommended that the HRA operate
the buildings as a business, pay off the replacement fund as soon as possible, and
pay an amount in excess of the minimum payment in lieu of taxes. He suggested a
business plan whereby the HRA hire a professional management company to operate
the buildings at market rents with appropriate maintenance and operating policies. He
discussed the potential for the use of the excess cash from the operation of the
properties. Mr. Nolan answered questions from the HRA and City Council on issues
related to this proposal regarding occupancy, appraisal value, management
responsibility, liability insurance, and the inspection of the buildings prior to any
transfer.
Special City Council/HRA Meeting Minutes 3
June 19, 1995
HRA Attorney John Dean reviewed and answered questions regarding the legal
aspects of the proposal and the required procedures related to the special legislation
passed by the 1995 legislature to allow the HRA to establish the single asset
corporations for this purpose. Discussion and questions followed regarding the tenant
mix and low /moderate income tenant requirements, the limitations of the proposed use
of excess cash flow from the project, agreements regarding payments in lieu of taxes
to the City and School District and the required five year minimum that the HRA must
maintain ownership.
Council Member Priebe stated concerns about maintaining assurance for the
payment of revenues to the school district in lieu of taxes.
Executive Director Prosser stated he had discussed this issue with the school
district and could schedule a presentation before the School Board.
Discussion followed regarding school district funding formulas and the potential
impact of this proposal on school district revenues.
Mark Jones, owner of several apartment complexes in Richfield, stated
concerns about the competitive issues related to the options for payment in lieu of
taxes at the minimum level.
Chair Harms and Executive Director Prosser reviewed the potential for how the
HRA could utilize funds from operating these apartments for programs to assist other
apartment owners.
Chair Harms requested that staff do the following prior to the July 17 meeting:
1. Provide summary financial statements of the properties.
2. Accomplish a mechanical review of the properties.
3. Provide an opportunity for HRA and City Council Members to tour the
properties.
4. Review the police reports on the buildings.
5. Provide a map that identifies the properties that are proposed to be acquired.
Discussion followed regarding publicity in the Sun Newspaper related to the
July 17 public hearing on this issue. It was requested that the information be provided
to the City Council and HRA as soon as possible. It was suggested that an
informational item at the July 10 City Council meeting would also be beneficial in
informing the public about this issue.
This concluded the City Council participation and then the HRA took the
following action:
S/Sandahl to approve .. rancept nf thp qpqrtmPnt community i and
purchase of the reserve fundo and to:
Special City Council/HRA Meeting Minutes 4 June 19, 1995
1, Set the July 17, 1995 HRA meeting to consider the formal approval of the
Agreement;
2. Invite the City Council to schedule a special meeting for that same date and to
hold the public hearing on the housing plan and program;
3. Request the City Council on July 17 to approve the special legislation recently
enacted by the State Legislature;
4. Direct staff to prepare the necessary documents implementing the special
legislation for presentation to the HRA as soon as practicable following City
Council approval of the special legislation should the approval be forthcoming;
and,
5. Direct staff to prepare a recommendation for presentation to the HRA on July 17
for a property management company.
The HRA motion rarried 3-0.
ADJOURNMENT
The Special City Council meeting was adjourned by unanimous consent at 8:25
p.m.
Date Approved:
Thomas P. Ferber
City Clerk
Martin J. Kirsch Mayor
James D. Prosser
City Manager