Administration - Erik Thorvig, Community Development Director
Title
title
Resolution Establishing Economic Development Tax Increment Financing (TIF) Districts I-23 Approving Tax Increment Financing Plan Therefor (Blaine 35)
end
Executive Summary
This item formally establishes economic development TIF Districts I-23 related to the Artis REIT, Blaine 35 industrial project.
Background
Artis REIT has an opportunity to deliver a Class A Industrial campus on undeveloped land at the northwestern quadrant of the interchange of Interstate 35W and County Rd J (85th Avenue NE), a major east-west arterial. The proposed development will include:
• Three (3) multi-tenant office/manufacturing/warehouse buildings:
§ Building A - 118,500 SF
§ Building B - 98,900 SF
§ Building C - 100,000 SF
• 28’ - 32’ interior clear heights.
• Campus site improvements with comprehensive stormwater management design and cohesive, native landscaping.
• Flexible parking and dock arrangements.
The proposed project costs are estimated to exceed $35,000,000.
Development Purpose & Need:
Artis REIT owns and internally manages approximately 3.8 million square feet of industrial properties throughout the Twin Cities metro. Occupancy is 98%. The proposed development provides the opportunity to grow the portfolio and bring local and national industrial employers to the City of Blaine. The cost of the investment is over $35 million. Enclosed is a rendering of the proposed campus plan.
CBRE Group, Inc. (CBRE) represents Artis REIT in leasing and brokerage. Despite the pandemic and political uncertainties locally and nationally, the industrial real estate market has remained resilient. CBRE notes the manufacturing sector has the greatest need, even though wages in the field are 16% higher compared to the average wage across the state. To date, CBRE is in conversations with several prospective companies interested in the development.
TIF & City Financial Assistance Request Details:
The proposed development is consistent with City of Blaine zoning (PBD-Planned Business District) and is compatible with surrounding land uses of primarily light and heavy industrial. Logistically, the site has great access to Interstate 35W, specifically ingress and egress from/to the south - making it a highly desirable location for warehouse/manufacturing assembly employers above all others (i.e., office, retail, residential).
Over the years, several traditional developers have considered the property, however all have selected other locations due to the inherent barriers associated with the site. Artis REIT, as a primary owner and property manager of real estate, sees potential in the property through public-private partnership and commitment to long-term success.
For the project to move forward, Artis REIT is requesting Tax Increment Financing (TIF) and City of Blaine financial assistance to offset extraordinary costs of developing the site. However, but for the proposed financial assistance outlined within the table below, the project is not feasible.
Project Component
|
Site Requirements |
Marginal Cost(s) |
|
MN WCA Wetland Mitigation (Market Rate $2.50/SF) |
644,688 |
|
DNR Rare Species Mitigation |
12,800 |
|
Mass Soil Import (90,000 CY) |
600,000 |
|
Required Stormwater Storage Systems |
1,400,000 |
|
Pipe Public Drainage Ditch (Max. Developable Area) |
443,400 |
|
Change Basins B3 & B4 to Underground System |
83,000 |
|
High Water Table (Dewatering Costs) |
98,500 |
|
Site Retaining Walls (Max. Wetland Preservation) |
82,600 |
|
TOTAL |
3,365,000 |
The following is additional project-specific information related to TIF.
• TIF Source - If TIF is provided for this project, the TIF funds are generated from the increase in value and taxes paid by this project. In other words, the increased tax revenue from this project basically goes back to the developer to finance a portion of the project for a duration of eight (8) years. The project will be done in two different phases with Phase I beginning in 2021 and Phase II beginning in 2022. Therefore, in order to maximize the amount of TIF made available to the developer, it is proposed to establish two TIF districts. The first district would be certified immediately. The second district would be certified sometime in 2022 prior to the start of construction of Phase II. If for some reason Phase II does not occur, that district would not be certified. The total estimated TIF generated by the project is $2,689,994. The increment to be generated from this project is not available for use elsewhere or for some other project. In addition, TIF provided for this project would not utilize other taxpayer funds or EDA funding sources that could be used for other economic development activity in the City.
• City Risk - Any TIF payment would be structured where annual TIF payments for a period of eight (8) years would be provided to the developer (PAYGO financing). There is no financial risk to the City as any payment to the developer requires them to perform and maintain the value of the project otherwise the developer will receive less or no TIF.
• The “But-For” Test - In order for a new TIF district to be created and funds provided to a developer, the developer must demonstrate that the project would not occur as proposed, but for the City assisting in the financing of the project through TIF.
The developer has provided City staff and the City’s financial consultant (Baker Tilly) thorough information regarding the project pro-forma. The main purpose of the review is to ensure that any financial assistance provided does not unduly enrich the developer or land seller and is warranted based on the demonstration of extraordinary costs. It was determined by the consultant that financial assistance is warranted for the project based on a thorough analysis of the project pro-forma and expected return on investment by the developer.
The property has never been developed. Staff is aware of several reputable industrial developers that have looked at the property within the last five years. Because of the extraordinary costs associated with developing the site, those developers chose not to proceed. ARTIS is the first developer willing to complete a thorough due diligence analysis which revealed the need for TIF assistance in order to make the project financially feasible. Staff believes that any developer looking to maximize development on the site is going to incur extraordinary costs and therefore require the need for TIF.
A project could still occur in the future without the need for (or possibly require less) TIF assistance. However, it would not maximize value on the site and:
§ The project would not happen within the same timeframe as the proposed ARTIS project and the City would not immediately benefit from the positive impact of said project such as job growth, impact on area retail/service businesses and impact to the Blaine housing market.
§ The development would be at a lesser value and level of private investment.
§ The development would be less square footage, which does not maximize the level of jobs.
§ Another project may have not have as high a quality of amenities and aesthetic finishes.
By providing TIF for the proposed project, the City investment is maximizing the project which accomplishes the following:
§ Maximizes the development footprint and private investment, which creates the highest tax value and in-turn tax revenue to the City in the future.
§ Creates the most building square footage, which will provide for the maximum amount of jobs.
§ High-finish architectural design.
• City of Blaine TIF Policy - The City of Blaine updated its TIF policy in 2018. The policy outlines objectives and guidelines for when the City should consider using TIF. Without going into the details of the policy in this staff report, the community development director and finance director believe the proposed project and level of assistance is consistent with the guidelines set-forth in the policy.
Current Industrial Vacancy in Blaine
The developer has indicated that, at this time, all three buildings would be built as speculative, meaning they do not have any secured tenants. For a developer to consider constructing a project of this scale and investment without secured tenants shows that they are confident there is a strong market in Blaine for office/manufacturing/warehouse users.
The developer’s broker provided information regarding current industrial vacancy rates in Blaine. The current vacancy rate is 3%, which is the lowest it has been since 2017 and is significantly lower than neighboring communities. There is only one existing vacant industrial space in Blaine over 30,000 sf. currently available.
Lastly, there is currently positive absorption for industrial space in Blaine for the first time since 2016. Positive absorption means more space was leased than was made available on the market. It indicates a relative decrease in the supply of available industrial space available in Blaine.
If additional industrial space is not made available in Blaine, the City would likely lose opportunities for businesses to either locate or expand within Blaine and those businesses would locate in other communities.
Potential Job Creation
The developer’s broker has provided information regarding the types of businesses looking at the project and the potential job creation. Potential job creation based on current prospects ranges from 225-260 jobs. The businesses looking at the project do not currently reside in Blaine and therefore would be new jobs to the community.
Industrial job growth is vital to any community. These types of businesses employ people that live in Blaine, eat at Blaine restaurants and shop at Blaine stores. Certain sectors that Blaine is trying to attract, such as high-end grocery, restaurants and retail, analyze many things in their service area, including job creation centers such as industrial parks. Projects such as what ARTIS is proposing can only be seen as a benefit to Blaine and the sectors Blaine is trying to attract.
Future Tax Generation
If a TIF district is created, the City and other taxing authorities would receive the full positive tax impact of the project after eight years. It is estimated the City’s share of annual property tax revenue at that time would be between $95,000 and $125,000 as a result of the project.
If the project does not move forward, the property would remain vacant and undeveloped for an unknown period of time and the City would only collect property tax generated from a vacant parcel of land - about $5,500 annually.
Strategic Plan Relationship
Development of this site as proposed is consistent with the strategic priority of Successful Development of the 35W Corridor.
Board/Commission Review
No board or commission review is required.
Financial Impact
TIF dollars provided to the developer are created as a result of this specific development. General property taxes from other tax payers or other city funds are not the source of TIF dollars. The agreement is structured as a PAYGO, meaning the developer will not receive TIF dollars unless they complete the project, therefore there is no financial risk to the city, nor is the city obligated to pay the developer if they don’t perform and/or taxable values are below projections.
Public Outreach/Input
Notice of the TIF plan was sent to other impacted taxing authorities including Centennial Schools and Anoka County. Other taxing authorities do not have approval authority, however have the right to comment on the proposed plan. Attached is Anoka County’s comment letter.
Staff Recommendation
By motion, approve the resolution.
Attachment List
Draft TIF Plans
Anoka County Comment Letter
Body
BE IT RESOLVED by the City Council (the “Council”) of the City of Blaine, Minnesota (the “City”), as follows:
Section 1. Recitals.
1.01 The Blaine Economic Development Authority (the “EDA”) has proposed to establish Tax Increment Financing District No. 1-23 (An Economic Development District) (the “TIF District”) within the Blaine Economic Development Project (the “Project Area”) and to adopt the Tax Increment Financing Plan relating thereto (the “TIF Plan” and, together with the heretofore established Project Plan, the “Plans”), all pursuant to and in conformity with applicable law, including Minnesota Statutes, Sections 469.001 through 469.047, 469.090 through 469.1082, 469.124 through 469.134, and 469.174 through 469.1794 (the “TIF Act”), respectively, all as reflected in that certain document, dated May 3, 2021, entitled “Amendments relating to Blaine Economic Development Project Plan of the Blaine Economic Development Authority including establishment and approval of Tax Increment Financing Plan for the Tax Increment Financing (Economic Development) District No. 1-23 (Phase 2 - 35W Industrial Park Development)” and presented for the Council’s consideration.
1.02 The Council has investigated the facts relating to establishment of the TIF District and adoption of the TIF Plan.
1.03 The City has performed all actions required by law to be performed prior to the adoption and approval of the TIF Plan, including, but not limited to, delivery of the TIF Plan to the County Auditor and School District Clerk, and the holding of a public hearing thereon following notice thereof published in the City’s official newspaper at least 10 but not more than 30 days prior to the public hearing.
1.04 Certain written reports and other documentation (collectively, the “Reports”) relating to the TIF Plan including the tax increment application made and other information supplied by Artis REIT (or an affiliate thereof, the “Developer”), as to the activities contemplated therein, have heretofore been assembled or prepared by staff or others and submitted to the Board and/or made a part of the City and EDA files and proceedings on the TIF Plan. The Reports include data, information and/or substantiation constituting or relating to (1) why the assistance satisfies the so-called “but for” test and (2) the bases for the other findings and determinations made in this resolution. The Council hereby confirms, ratifies and adopts the Reports, which are hereby incorporated into and made as fully a part of this resolution to the same extent as if set forth in full herein.
1.05 The Developer has proposed to acquire, construct and equip two buildings on the site for a total of an approximately 198,500 square feet of light industrial facilities for manufacturing, warehouse and distribution, related research and development activities and other related activities (collectively, the “Development”) and has requested that the EDA provide tax increment assistance to pay a portion of the public redevelopment costs of the Development.
Section 2. Findings for the Creation of the TIF District and Adoption of a TIF Plan Therefor.
2.01 The Council hereby finds that the land within the Project Area is proper and desirable to establish and develop within the City, its effect will be to carry out the objectives of the Project Plan by creating an impetus for the development of light industrial facilities for manufacturing, warehouse and distribution and related structures in the City, and otherwise promote certain public purposes and accomplish certain objectives as specified in the Plans. The Project Area has been previously established by the City and the EDA and is not being expanded in connection with the establishment of the TIF District.
2.02 The Council hereby finds that the TIF District is in the public interest and is an “economic development district” within the meaning of Minnesota Statutes, Section 469.174, Subdivision 12, because it will discourage commerce and industry from moving their operations to another state, it will result in increased employment in the state, and it will result in capital investment in the City and therefore preservation and enhancement of the tax base in the state.
2.03 The Council hereby makes the following additional findings in connection with the TIF District.
(a) The City further finds that the proposed development, in the opinion of the City Council, would not occur solely through private investment within the reasonably foreseeable future and, therefore, the use of tax increment financing is deemed necessary. The specific basis for such finding being:
The Developer has represented that it could not proceed with the proposed construction of the Development in the TIF District without tax increment assistance due to the high cost of the specialized nature of the construction of the facility.
(b) The Council further finds that the TIF Plan conforms to the general plan for the development or redevelopment of the City as a whole. The specific basis for such finding being:
The TIF Plan will generally complement and serve to implement policies adopted in the City’s comprehensive plan. The Development contemplated on the property is in accordance with the existing zoning for the property and the Council has determined that the Development is consistent with the comprehensive plan.
(c) The Council further finds that the TIF Plan will afford maximum opportunity consistent with the sound needs of the City as a whole for the development of the TIF District by private enterprise. The specific basis for such finding being.
The proposed Development will be used by private enterprise primarily as light industrial facilities for manufacturing, warehouse and distribution and related activities and will afford maximum opportunity for the development of the applicable parcels consistent with the needs of the City. The Development will maximize the potential of an underutilized site and will increase the taxable market valuation of the City and the available manufacturing facilities in the City.
(d) For purposes of compliance with Minnesota Statutes, Section 469.175, Subdivision 3(b)(2)(ii), the Council hereby finds that the increased market value of the property to be developed within the TIF District that could reasonably be expected to occur without the use of tax increment financing is probably $0 (other than amounts due to inflation), which is less than the increased market value estimated to result from the proposed development (i.e., approximately $16,188,650) after subtracting the present value of the projected tax increments for the maximum duration of the TIF District (i.e., approximately $1,303,653) which is approximately $14,884,997. Thus, the use of tax increment financing will be a positive net gain to the City, the School District, and the County, and the tax increment assistance does not exceed the benefit which will be derived therefrom.
2.04 The City elects to retain all of the captured tax capacity to finance the costs of the TIF District. The City elects the method of tax increment computation set forth in Minnesota Statutes, Section 469.177, Subd. 3(b).
2.05 The provisions of this Section 2 are hereby incorporated by reference into and made a part of the TIF Plan.
2.06 The Council further finds that the Plans are intended and, in the judgment of this Council, their effect will be, to promote the public purposes and accomplish the objectives specified therein.
Section 3. Creation of the TIF District and Approval and Adoption of the TIF Plan; Interfund Loans.
3.01 The creation of the TIF District and the adoption of the TIF Plan, as presented to the Council on this date, including without limitation the findings and statements of objectives contained therein, are hereby approved, ratified, established, and adopted.
3.02 The Council hereby approves a policy on interfund loans or advances (“Loans”) for this TIF District, as follows:
(a) The authorized tax increment eligible costs (including without limitation out-of-pocket administrative expenses in an amount up to $87,150 and other project costs in an amount up to $1,655,827) payable from the TIF District, as its TIF Plan is originally adopted or may be amended, may need to be financed on a short-term and/or long-term basis via one or more Loans, as may be determined by the City Finance Director from time to time.
(b) The Loans may be advanced if and as needed from available monies in the City’s or the EDA’s general fund or other City or EDA fund designated by the City Finance Director. Loans may be structured as draw-down or “line of credit” obligations of the lending fund(s).
(c) Neither the maximum principal amount of any one Loan nor the aggregate principal amount of all Loans may exceed $1,742,977 outstanding at any time.
(d) All Loans mature not later than February 1, 2033 or such earlier date as the City Finance Director may specify in writing. All Loans may be prepaid, in whole or in part, whether from tax increment revenue, TIF bond proceeds or other eligible sources.
(e) The outstanding and unpaid principal amount of each Loan shall bear interest at the rate prescribed by the statute (Minnesota Statutes, Section 469.178, Subdivision 7), which is the greater of the rates specified under Minnesota Statutes, Sections 270C.40 or 549.09 at the time a Loan, or any part of it, is first made, subject to the right of the City Finance Director to specify a lower rate (but not less than the City’s or the EDA’s then-current average investment return for similar amount and term).
(f) Such Loans within the above guidelines are pre-approved. The Loans need not take any particular form and may be undocumented, except that the City Finance Director shall specify the principal amount and interest rate and maintain all necessary or applicable data on the Loans.
PASSED by the City Council of the City of Blaine this 3rd day of May, 2021.