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HomeMy WebLinkAbout2021/12/06 - ADMIN - Minutes - Economic Development Authority - Regular Official minutes EDA meeting St. Louis Park, Minnesota Dec. 6, 2021 1. Call to order President Brausen called the meeting to order at 5:30 p.m. 2. Roll call Commissioners present: President Brausen, Lynette Dumalag, Rachel Harris, Larry Kraft, Nadia Mohamed, Margaret Rog, and Jake Spano Commissioners absent: none Staff present: City Manager (Ms. Keller), CFO (Ms. Schmitt), Economic Development Manager (Mr. Hunt), Executive Director/Community Development Director (Ms. Barton), City Attorney (Mr. Mattick) 3. Approval of minutes 3a. EDA meeting minutes of Nov. 1, 2021 It was moved by Commissioner Rog, seconded by Commissioner Kraft, to approve the Nov. 1, 2021, EDA meeting minutes as presented. The motion passed 7-0. 4. Approval of EDA disbursements It was moved by Commissioner Mohamed, seconded by Commissioner Dumalag, to approve the EDA disbursements presented for the period of Oct. 23 through Nov. 26, 2021. The motion passed 7-0. 5. Reports - none 6. Old business - none 7. New business 7a. Adoption of amended and restated TIF Policy. EDA Resolution No. 21-36 Mr. Hunt presented the staff report. DocuSign Envelope ID: CA73F1D6-8513-4C63-A383-44C3AAEA382F Economic Development Authority -2- Dec. 6, 2021 President Brausen left the meeting at 5:40 p.m. Vice President Rog presided over the meeting during his absence. Commissioner Spano thanked Mr. Hunt and staff for this report and all the work done to revise the TIF Policy per the EDA’s direction, noting that TIF is a critical tool that enables the city to realize it’s redevelopment vison and plans. Commissioner Harris stated one requirement, which is pending, is the diversity, equity, and inclusion policy. She noted this was brought forward by Commissioners Mohamed and Dumalag. She asked for details on this pending item. Mr. Hunt stated the policy is forthcoming to the EDA and council, is recognized in the amended and restated TIF policy, and when adopted will be considered part of the revised TIF policy. Commissioner Dumalag thanked staff for their work on this. She stated we are asking our development partners who do work in the city to think about diversity and inclusion and to keep it top of mind when proposing projects. Commissioner Mohamed thanked staff as well. Vice President Rog asked about the “not to exceed 10% development cost” and if this is a reduction compared to the total cost. Mr. Hunt stated this reflects current practice. He stated it is a benchmark, that the TIF request is not to exceed 10% of a project’s total development cost, adding it is now formalized in the TIF policy. Vice President Rog asked about developers’ disclosure of TIF requests, and if this is now formalized as well in the policy. Mr. Hunt stated yes, it is now formalized in the revised policy. Vice President Rog asked if a policy changes during developer negotiations, do policy changes need to be applied. Mr. Hunt explained the applicable policies depend on when the developer submitted their planning applications, and the policies in place at that time. Mr. Hunt stated developers need to have clarity as to which policy they will be expected to follow at the time of their application. Vice President Rog noted under item H, she has concerns around equity when developers need to demonstrate experience. She hoped for partnership opportunities on this going forward. Vice President Rog also noted she feels this is the early stage of the process and changes can be discussed prior. She noted she will contact staff about this at a future time. President Brausen returned at 5:45 p.m. and presided over the rest of the meeting. Commissioner Harris asked if there has been an instance when the city asked a developer to hold up until a policy was finalized. Mr. Hunt stated that staff has been DocuSign Envelope ID: CA73F1D6-8513-4C63-A383-44C3AAEA382F Economic Development Authority -3- Dec. 6, 2021 proactive with developers and provides information to developers in advance, including information on forthcoming policy revisions being worked on by council, and not yet finalized. President Brausen stated he is supportive of the revised policy, adding this fosters the type of development we want to see in St. Louis Park. It was moved by Commissioner Spano, seconded by Commissioner Harris, to adopt EDA Resolution No. 21-36, approving amended and restated TIF policy. The motion passed 7-0. 7b. Subordination agreements – PLACE E-Generation One, LLC. EDA Resolution No. 21-37 Mr. Hunt presented the staff report. Commissioner Kraft asked about the EDA’s $975,000 loan to the developer. Mr. Hunt explained it is a loan that allowed the developer to pay for a portion of its land purchase from the EDA over a 10-year period. Commissioner Kraft asked about the original housing revenue bonds and if the city is being asked to increase the amount of those bonds or provide any additional funding. Mr. Hunt stated that the city is not being asked to increase the size of the original bonds and that the city is not being asked for any additional funding. Commissioner Kraft asked if existing bond holders approve this and if they have . Mr. Hunt stated yes. Elizabeth Bowling with the PLACE/Via Sol and E-Generation project, the developer’s representative, stated the specific financing was developed with a loan process and the existing institutional bond holders. Commissioner Kraft asked if the city has any increased financial risk for this agreement and if the city has outlaid any cash. Mr. Hunt stated there are no additional financial obligations involved with this. Commissioner Rog noted significant staff time has been expended on this project over the years and asked if the city will be able to recoup these costs. Mr. Hunt stated many of these costs will be recouped through the TIF district associated with the project. Commissioner Rog asked why an additional $10 million is needed to complete the project. Ms. Bowling explained after the 2018 series bonds were closed, there were extensive omissions in the plans which caused an 11-month delay to rectify. As a result, DocuSign Envelope ID: CA73F1D6-8513-4C63-A383-44C3AAEA382F Economic Development Authority -4- Dec. 6, 2021 they filed a claim with their insurance company which has not yet been resolved. Additionally, there were design errors found in the field and so the design costs were expended twice. She stated nearly all their reserves were expended. She stated the rectification claim is still pending and COVID has slowed down this process, and supply chain issues added increased costs. She stated unless the claim paid out soon, all reserves would be expended, so additional funds for $10 million were sought. She stated they were also paying additional property maintenance expenses and all these things combined have caused this issue, and they hope to be able to secure the additional financing very soon. Commissioner Rog asked what happens if the insurance claim does not come through. Ms. Bowling stated putting the completion financing in place will help to service this additional debt, adding the bond holder is confident the project can service the total package. Commissioner Kraft stated the total additional cost is $10 million and asked what the buffer is now. Ms. Bowling stated the bond holders are also interested in this, adding there are additional sources they will draw from, including grants that are reimbursement-based. She stated this will provide several million dollars for the project, not part of the completion financing. She added there is also more funding for a buffer. Commissioner Dumalag stated the $10 million is in corporate debt and asked the developer who the debtholder is. Ms. Bowling stated she did not have authorization to publicly disclose this yet, but she has shared that information with staff. She added there is a bond holder ready to issue funds. Commissioner Dumalag stated she is confused as to why council was not notified sooner of this issue. Ms. Bowling stated they have been keeping staff informed of the issues surrounding the project ongoing. Commissioner Dumalag asked what is in the pipeline now. Ms. Bowling stated they are all in on completing Via Sol and E-Generation and that they are the organization’s top priorities. Commissioner Rog asked if staff feels confident with the financial issues here. Mr. Hunt stated based upon what staff has been told, the $10 million being provided by the lender to the developer and the stated outstanding grant amounts seemed correct. Commissioner Rog asked in the process is there any corroboration that happens, or any documentation of the cushion amounts. Ms. Ingram stated staff has confirmation there are reimbursement grants outstanding. She stated there is reason to believe there is cushion from the grants. DocuSign Envelope ID: CA73F1D6-8513-4C63-A383-44C3AAEA382F Economic Development Authority -5- Dec. 6, 2021 Commissioner Rog asked what share of occupancy is required to meet financial obligations. Ms. Bowling stated 75% is required, noting there are some milestones as well. She added the existing bond holders and lawyers have gone over all the details of the project, and there are more than adequate funds available to fund the total project. Commissioner Rog asked about the bad plans approved and structural issues that needed to be redone, and if this is common or has ever happened before. Mr. Hunt stated this is unusual. Commissioner Spano asked what the total budget is currently for the project. Ms. Bowling stated it is $76,350,000 with the completion financing. Commissioner Spano asked what the contingency budget is at this point. Ms. Bowling stated there is a 5% contingency built in. Commissioner Spano asked what the margin of error is. Ms. Bowling stated another $8 million is accounted for. Commissioner Spano asked what percentage of the project is complete . Ms. Bowling stated 82% and after reinspection with contractors, it is now 76% taking into consideration the rework. Ms. Bowling stated if the amount they are borrowing is not enough, the bond holder has more contingencies, so the difference can be met, if more funds were needed. She stated there is a potential $8 million buffer. Commissioner Spano stated he is very concerned about this project and is not sure he can get to yes on this request. He stated he has concerns when she said, “let me explain this as it’s been explained to me”. He needs more of an assurance on this, adding he has approved previous requests for PLACE, but he has hit his limit now, especially when hearing about the upfront amounts needed to complete the work. He stated COVID has had tremendous impacts on supply chain and staff knows this ; however, the council has not had these types of large requests in the past. He stressed this project has been in front of the council numerous times asking for funding repeatedly as well as extensions. He does not doubt the commitment, but all the stretches and risks are concerning, and it is reasonable to say at some point, this is not working. Commissioner Spano stated this project will not be completed by the end of the year. He asked Ms. Ingram what happens if the council does not approve this project before the end of the year. Ms. Ingram stated the contract provides that if an event of default is incurable in its nature within 30 days, then the developer may provide reasonable assurances that they are working to address the event of default as quickly as possible. But the trustees would have a chance to still step in and prevent default, even if the EDA does not approve the 7th amendment. But if the developer receives the funding, they could continue with the project, even if the EDA does not approve of the 7th amendment. DocuSign Envelope ID: CA73F1D6-8513-4C63-A383-44C3AAEA382F Economic Development Authority -6- Dec. 6, 2021 Commissioner Spano asked why this is being recommended for approval. Ms. Ingram stated construction is progressing, the EDA is receiving loan payments, and if the EDA pulls the plug, there will be no more payments toward the $975,000. This is the best course if the EDA wishes to continue to be paid. Commissioner Harris stated she is uneasy that this subordination would put the city 3rd in line. She asked if the developer has been working on the financing since April . Ms. Bowling stated they have been working on this and the insurance claim issue since last fall, but this new situation to provide for more financing has been worked on since April. Commissioner Harris asked about occupancy and management of the unit. Ms. Bowling stated they are working with a professional 3rd party management group. Commissioner Mohamed stated there has been a lot of back and forth on the project, as well as “if this, then that”. She stated she is very hesitant at this time. Commissioner Kraft stated this will be the 7th amendment, it feels like a lot, and he has concerns if something else happens and they are not able to complete it . He asked if there is any difference if the EDA does not approve the 7th amendment or not. Ms. Ingram stated the master subordination agreement puts EDA in 3rd position, and the 7th amendment allows the developer extra time. She continued if all of those are adopted, then if there is a default, the notice of default goes to the developer, the trustee of completion bond and the trustee of the 2018 bonds. She stated if the EDA approves the subordinations and not the 7th amendment, which does not change anything, the two trustees would still be ahead of the EDA. She added if the EDA approves the 7th amendment and not the subordinations, then there would only be the 2018 bond trustees and the developer. Commissioner Rog asked if the corporate bonds are dependent on the deadline being moved. Ms. Eddington, city bond counsel, stated the two subordination agreements are required by the bond holder group to provide the $10 million in additional funding. If the deadline is not extended, there will be questions within this group. She stated the $10 million in funding will help the project be completed. She also noted that if the bonds default the city has no responsibility but there may be press on the issue. She added the bond group will press to get the project done, as they will want to be paid back. President Brausen noted the ones at risk are the new bond holders, and they are willing to make a $10 million investment in this project because they think it can work. He added the city is not being asked to expend any additional assets of the city by extending this deadline, or by subordinating the debt, and the city is behind on $44 million already. He stated as a practical matter if this goes into default, the city will try to figure out how to cut their losses, and the $975,000 behind $44 million will be relatively small, with recourse to the TIF funds later. He stated the additional risk to the DocuSign Envelope ID: CA73F1D6-8513-4C63-A383-44C3AAEA382F Economic Development Authority -7- Dec. 6, 2021 city, aside from the frustration the project is not yet done, this is not a substantial additional risk by extending the deadline. He stated he will support this. Commissioner Kraft appreciated this discussion, adding while the 7 th amendment is concerning, he agrees with President Brausen’s comments and will support this as well. Commissioner Spano thanked staff for their fast response on this. Commissioner Dumalag stated if this passes, she would appreciate a check in on the project and more open communication in the future . Commissioner Mohamed agreed with Commissioner Dumalag’s comments and asked for access to daily logs and updates on the project. She stated constituents want answers and she wants to be sure she is answering correctly. Mr. Hunt stated staff will continue providing updates to the EDA. Commissioner Rog stated her constituents have watched this project and they are unhappy as deadlines have continued to be pushed back. She stated she does agree with President Brausen’s comments and will reluctantly support this . Commissioner Dumalag stated she will also support this and asked the developer to finish the project. Commissioner Harris stated it is in the best interest of the city to go forward with this . Ms. Barton stated the developer, at staff’s request, has provided weekly updates and updates to council, but will pass on the developer’s updates to the EDA going forward. Commissioner Spano stated he would like the updates also but added while he has been supportive of the project, he will not support the subordination agreement this evening . It was moved by Commissioner Mohamed, seconded by Commissioner Kraft, to adopt EDA Resolution No. 21-37 approving an amended and restated master subordination agreement and a subordination agreement with PLACE E-Generation One, LLC. The motion passed 6-1 (Commissioner Spano opposed). 7c. Seventh Amendment to Purchase and Redevelopment Contract with PLACE E- Generation One, LLC. Resolution No. 21-38. It was moved by Commissioner Mohamed, seconded by Commissioner Kraft, to adopt EDA Resolution No. 21-38 approving the seventh amendment to purchase and redevelopment contract between the EDA and PLACE E-Generation One, LLC. DocuSign Envelope ID: CA73F1D6-8513-4C63-A383-44C3AAEA382F Economic Development Authority -8- Dec. 6, 2021 The motion passed 6-1 (Commissioner Spano opposed). 8. Communications – none 9. Adjournment The meeting adjourned at 7:00 p.m. ______________________________________ ______________________________________ Melissa Kennedy, secretary Tim Brausen, president DocuSign Envelope ID: CA73F1D6-8513-4C63-A383-44C3AAEA382F