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Commuinity Development Authority - MINUTES - 5/20/2004 CITY OF MUSKEGO APPROVED 10-4-04 COMMUNITY DEVELOPMENT AUTHORITY (CDA) Audio recording of meeting MINUTES is also available. Thursday, May 20, 2004 CDA Chairman Frank Waltz called the meeting of the Community Development Authority to order at 7:00 p.m. Those in attendance recited the Pledge of Allegiance. The meeting was posted in accordance with the Open Meeting Law. PRESENT: Commissioners Rob Glazier, David Lidbury, Suzi Link, Gail Miles, Frank Waltz, Ald. Schroeder and Ald. Nancy Salentine Also in attendance were Mayor Slocomb, Interim Plan Director Jeff Muenkel, Finance Director Dawn Gunderson, Ald. Patterson, Mr. Dave Anderson from Ehlers & Associates, Developers Dave Jorgensen and Steve Stewart and Architect Mark Phaller. GUESTS: Tom O’Laughlin, Jay and Janet Erdman, Earl Duewel, Frank Switala, Jim Szalacinski, Jeanne Zangerle, Keith Hammitt, Frank Kerzich, R. W. Munkwitz, David Bihler, Kathleen Luglio, Donald Knoll, Marie Hansen APPROVAL OF MINUTES Joint Meeting/CDA and Committee of the Whole, April 29, 2004 Commissioner Link moved to accept the minutes, as amended, for the April 29, 2004 joint meeting with Committee of the Whole. Ald. Salentine seconded. Amendment on page 1, change TID I to TID 9. Upon a voice vote, the motion carried unanimously. CDA Meeting, April 29, 2004 Ald. Salentine moved to accept the minutes for the April 29, 2004 meeting of the CDA. Commissioner Glazier seconded. Upon a voice vote, the motion carried unanimously. OLD BUSINESS None. NEW BUSINESS CDA Chairman Waltz shared with the members that a meeting had been held on Wednesday, May 12. Mayor Mark Slocomb, City Finance Director Dawn Gunderson, City Engineering Director Sean McMullen, Interim Planning Director Jeff Muenkel, CDA Chairman Frank Waltz, City Council President Nancy Salentine, Dave Anderson of Ehlers and Associates and Andrew Petzold of Concord Development Company met with developers Dave Jorgensen and Steve Stewart and Richard Frederick, attorney for Art Dyer, to give feedback and to request clarification on issues with CDA Minutes May 20, 2004 - page 2 the proposal that had been forwarded previously to the developers. Copies had also been forward to members of the CDA. Presentation of new concept by developers for the former Parkland Mall site Mr. Dave Jorgensen gave the presentation on Voss Jorgensen Schueler Co., Inc.’s concept for the Parkland Mall site, Beacon Square. His presentation highlighted the following:  Organizational Chart and the Project Team He reviewed that Beacon Square is the project and Beacon Square, LLC is the project team. Members of the project team included the developers, the land owner, an equity partner, and the bank. City of Muskego was acknowledged as also a part of the team.  Conceptual Site Plan Architect Mark Phaller provided Scheme HI. This conceptual scheme gave a breakdown of all the square footages and parking for the condos and the retail and the restaurant. It was a total of 108 condo units, 64,000 square feet of retail, and about 6,500 square feet for the restaurant. On the site plan, one thing that changed was that they are now doing the condos in three buildings, rather than two for a better look. They felt this would look better in the downtown area. They are trying to get more of a city-center type feeling to the development.  Performa and Other Supporting Material The first part of the performa was broken down into the hard and soft costs of the development. The hard costs would be the land roughly listed at $4,000,000 and the construction costs. The soft costs would include design, utilities, insurance, environmental studies, demolitions, city fees and assessments, property tax, interest, closing costs, loan fees, legal and accounting, carrying costs, marketing costs, and developer’s costs. Sources and uses of funds included equity in land and cash, and TIF dollars. These sources would cover the land, construction and soft costs for the project. He informed the CDA that after the project completion, property value added to the tax base is estimated to be $32,800,000, but needs to be confirmed by the assessor’s office. Director McMullen had provided them with the additional items for the development which included roadway improvements, water main improvements and storm water improvements at an added cost of $1,067,251.20. Further, the TIF requested for the project was $6,990,000. Items TIF would cover included the cost of site grading, soil testing, erosion control fencing, asphalt parking/path, curb and gutter, site lighting, landscaping trees, sanitary sewer, storm sewer, water lines, storm grates, fire hydrants, manholes, endwalls, sign monument, WeEnergies lines, insurance, acquisitions/demolitions. At the end of his presentation, Mr. Jorgensen addressed the issues that CDA members and city staff had after reviewing the documentation on the concept plan last week. Further inquiries from the CDA members included the agreed upon operating structure, parking for the condos, the price of the land, office space included in the site plan, appraisals on the proposed CDA Minutes May 20, 2004 - page 3 properties to be acquired, infrastructure costs, spending the taxpayer dollars and developer’s costs, and TID request dollars. Commissioner Miles stated they had talked a little bit about rate of return. She mentioned that there is a pretty large discrepancy between 28% which was quoted at one point and the 18%. She asked if they were saying by their performas that it was 18% and why would there be such a huge disparity? She stated the CDA has been told all along that they can’t make this happen for less than 28%, now they were seeing 18%. Mr. Jorgensen stated he wasn’t at the meetings where the 28% was discussed. Commissioner Miles asked if they were saying 18% is a palatable number? Mr. Jorgensen responded that they did talk it over with the bank and the equity partner and they’ve agreed with these performas. To answer her question, yes. The architect, Mr. Phaller, clarified that before Steve and Dave were involved, he was working with Art and Jansen and they used the 28% which included developer fees and fees like that inside the 28% which is not correct. Commissioner Miles inquired then that the 18% did not include developer fees? Mr. Jorgensen stated that they are broken out separately. Commissioner Miles commented on the item described as developers’ cost was actually 1.5 million in profit. Mr. Jorgensen said that it was not profit as there are a lot of costs that go behind it. Commissioner Miles stated she was not understanding, who’s making how much money, where? Mr. Jorgensen said they could get the detail on that. There is four years of time that goes into it, such as overhead, staff, leases and operating agreements for the 60,000 square feet of tenant space which could be from one tenant to thirty tenants and those leases need to be negotiated, including negotiations with the attorneys, which is a time-consuming process. Finance Director Gunderson noted the costs in the document don’t reflect any residential versus commercial. She stated they would like to see a breakdown of the site improvement costs applicable to retail portion and applicable to residential The CDA and staff do not want to support any residential dollars with TIF financing. Mr. Anderson spoke on the TIF. The existing TIF provides for about 2.7 million dollars of total project costs, including about $800,000 for development incentive. If this requests falls within that, then it can be approved. But, it appears the request is going to be beyond the 2.7 million dollars and that requires that the TIF project plan be amended. The amendment requires a public hearing, approval of the CDA, the Common Council, and the Joint Review Board. It also must meet the “but for” test at each level. He could also foresee a problem with the magnitude of the subsidy per acre, which is above the norm. There are a number of steps in this approval process and at any point in time, this proposal could be rejected. Each step of the way the individual bodies have to determine the ‘but for’ test which says that “but for the TIF assistance this project would never take place.” Individual line items aside, he made a couple observations. It sounded like the developers were saying they really don’t care what those individual line items are being requested, they need $6,990,000 to satisfy the bank and the investors. He asked Mr. Jorgensen if this was a fair characterization? Mr. Jorgensen responded, yes. Mr. Anderson continued, that without getting into the detail on it, they’re contending the project cannot happen without that. He did not know that he could ever say that he heard the “but for” and the ability to earn cash on cash of 30% that the project wouldn’t go forward. He did not think, at least from his point of view, that the constraint of the bank and the investor was really the “but for” test. He thought that they would have to use some different criteria to make that judgment on their behalf. It may mean that this development CDA Minutes May 20, 2004 - page 4 from this set of developers, investors and bank, may all go away. This could very well happen. But, again, he did not know that and really doubted whether the CDA or the City Council or the Joint Review Board would say they needed to subsidize this project to achieve a 30% return. He stated that just wouldn’t work. He continued, there were several different returns in here--internal rate return, cash on cash, so you can use a lot of ways of looking at it, but he thought any way they’d look at it, they’re not going to say we need to subsidize to the levels in here even though that’s the representation being made now. In addition, he thought going through the process, he could foresee some problems that would come up. One is the magnitude of the subsidy that is being requested per acre. What’s being requested, with the public TIF improvements included, is about a million dollars per acre, or if you exclude that, it’s seven hundred and some dollars per acre and that’s way above the norm. Normally, he thought you could say what a developer would get would be in the hundred thousands per acre but it has gone higher. He did not want to try and say it hasn’t gone higher but it could where you get to the levels of subsidy per acre that’s being requested here. He was not going to focus on Individual line items again too much because the CDA members had already identified some of the issues and those also had to be reviewed by all the bodies and they would have to say they believed it was a good expenditure of public funds. It’s good public policy to identify and pay for these items and the conclusion of that had to be reached by every body. Finally, he said, as Dawn pointed out, there’s really not a breakdown of what ‘s condo and what’s retail and if the CDA takes the position that they do not want to subsidize condo, which he thought was a position that would definitely be taken by the Joint Review Board and would likely be taken by the bodies involved, then the CDA really needs to see that breakdown. He continued, that just on the surface with the magnitude of the request $6,990,000 versus the fact that the buildings are only worth 7.7 during the first year after construction, it seemed like the money was probably not all going to retail, looks like some was going to the condos. And finally, the big problem they’ll have in going through the process is they’ll look at the performas that have been provided and think they are mathematically accurate. They’ll see that really the dollar amount is an assumed 32.8 million in value. He thought the assessor indicated something less than that. Even with 32.8 million dollars, there’s not enough money to pay for the subsidy request plus the amount that’s required for the public improvements. The cash flow will not support the level that is here so it would be difficult to go through the process On a side comment, the number that should really be focused on in terms of what would be available realistically for TIF for later projects would be in the first column the 7.2%-7.9% as you really can’t expect to borrow money at 4% today that would be the underlying assumption; the lower level is just not realistic in today’s market. These were Mr. Anderson’s observations with the TIF portion of the project. Finance Director Gunderson said they have met at a staff level with outside consultants and the developers. She said some of the issues and concerns at the meeting on May 12 had been addressed. With the proposal of May 17, there are some additional questions that have come up and felt there was a need for some additional meetings. Further, referring to a recent item in the news media, she stated that any representative from the city or for the city has not committed any TIF dollars towards this project. CDA Chairman Waltz noted that at least a million dollars has been added into the construction costs since their last meeting and some of the expense items in the performa add another million dollars as well as changes in the justification for the TIF requests. He felt it was appropriate to direct staff to continue to work with the developers and the consultants, to continue meeting to try and close the differences between the two. He stated the proposal addresses the concept that CDA Minutes May 20, 2004 - page 5 was put forth by the CDA and the Common Council from last year. The concept seems to be in line with what the CDA expected. Ald. Salentine moved to direct staff to continue to work with the outside consultants and then hopefully, too, the appraisal will be back. Commissioner Link seconded. Upon a voice vote, the motion carried. PUBLIC INPUT None. Ald. Schroeder inquired if the contractual agreement had occurred between the developer and Mr. Dyer and would it be available at the next meeting? Mr. Jorgensen stated the attorneys have agreed and it would be shared with the city’s attorney. Commissioner Miles asked about the scope of the agreement? Mr. Jorgensen stated it is 33 pages and refers to who is the developer, the equity partners. Mr. Glazier inquired why the city has to subsidize part of the 4 million dollar cost of the property as Mr. Dyer is the owner? The actual owner of the land is the Beacon Square LLC. Mr. Jorgensen said he is a minority partner in the project. This is explained in the operating agreement. Ald. Schroeder expressed that he hoped the document would be supplied to the city by the time the CDA met again. NEXT MEETING: The next meeting was not scheduled. Interim Plan Director Muenkel will advise the members of a meeting date in June. ADJOURNMENT: There being no further business, Commissioner Glazier moved for adjournment, seconded by Commissioner Link. Upon a voice vote, the motion carried. Meeting adjourned at 8:41 p.m. Stella Dunahee, CPS Recording Secretary