Administration - Erik Thorvig, Community Development Director
Title
Title
Resolution Approving an Amendment To The Blaine Economic Development Project Plan, Establishing a Redevelopment Tax Increment Financing District and Approving a Tax Increment Financing Plan Therefor (Rainbow Village Redevelopment Project)
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Executive Summary
This item formally establishes the redevelopment of TIF District I-24 related to the Rainbow Village Redevelopment Project.
Background
Roers Companies is proposing new construction of a 196-unit, Class A apartment building at the Rainbow Village center located at 551 87th Lane NE. The project will include demolition of a former Rainbow grocery store (vacant since 2014).
The community would be near a range of existing retail development and convenience. The primary retail node is Northtown Mall. This retail intersection is adjacent to the site and contains numerous retailers anchored by Cub, Home Depot, Target, At Home, Applebees, and numerous retailers at Northtown Mall, among others. This area is near State Highway MN- 610 and has multiple mass transit bus stops within walking distance. This proposed project will also respond to a demonstrated market demand for the kind of rental housing being sought by many of the young professionals critical to the continued growth of area businesses. Having this type of housing stock available will help ensure Blaine residents have a well-diversified housing stock available for their housing needs. With these positive conditions, Roers is confident this location will serve Blaine's growing high density housing demand very well and will lease quickly.
The project as it is currently envisioned will require demolition of part of the existing Rainbow Village retail center. Once demolished, Roers plans to construct two “L” shaped, four-story wood framed, flat roofed apartment buildings constructed over a one-story parking garage that will be partially below grade and connected in the middle by a single-story clubhouse/amenity building. The apartments will consist of a mix of studio, one-, two- and three-bedroom units all with numerous high-end upgrades. Roers intends to include an amenity rich community to help foster a sense of community. The planned community amenities for this market rate project include:
• Fitness Center - An approximate 1,000 SF fitness center overlooking the outdoor courtyard area.
• Community Lounge - Large open shared community lounge that can accommodate private events (birthday, holiday, and other event parties) and overlooks the outdoor pool/courtyard area to engage residents and create a sense of community.
• Enclosed Heated Parking - Parking will be available for resident use in the underground heated garage.
• Outdoor Patio - An outdoor patio area that will have outdoor seating and grill stations to encourage outdoor resident engagement.
• Coffee Bar - A gourmet coffee machine will be provided for residents to use for residents with on-the-go lifestyles and helps bring residents to common areas to further the community engagement.
• Pet Spa - A large majority of residents have pets, and this amenity space will include a stand-up pet wash station, dryer, as well as treats for their loved ones.
• On-site full-time Property Manager.
Development Purpose & Need:
In July 2022, the City Council adopted the Northtown District Vision Plan (Plan). The Plan includes the Northtown Mall property plus the surrounding area, including the subject site. The Plan presents a long-range framework for redevelopment in the district. Market-driven, the framework is designed to change in a myriad of ways, accommodating, for example, existing large-footprint stores while, over time, responding to retailers’ changing needs and the impacts of new technologies on the shopping habits of clients. More importantly, it envisions new, finer-grained development and housing mixes with retail uses, as well as other complementary uses. According to the Plan, there is a strong demand for Class A residential property. The market demands show a need for an addition 750 units in this area over the next ten years.
The Northtown District vision also considered examples from other regional malls in the Twin Cities Metropolitan Area that are undergoing redevelopment such as Southdale, Ridgedale, Rosedale and Burnsville Mall. Multi-family housing is a key component for these malls to replace aging retail centers and provide additional residential density to support remaining retail and services in the area. The Northtown Vision Plan identified this site in the short-term phasing as multi-family to be a catalyst for future retail/service commercial. It will be difficult for the area to attract new, upgraded commercial development/tenants until redevelopment of certain vacant/blighted properties occur with multi-family housing.
As referenced in the Blaine 2040 Comprehensive Plan Housing study, “Detached single-family housing tends to be the most expensive type of housing because it requires the most land.” (Blaine 2040 Comp, p. 46). This furthers the need to have a more diverse housing stock primarily focused in single family homes, which currently represent 88.9% of the housing stock in Blaine. The needs and preferences of an aging and diversifying population is likely to translate to a higher regional demand for more smaller housing units and multifamily development.
Currently multifamily housing only represents 6.9% of the available housing stock in the City of Blaine. The City has recognized this and has made it a priority as referenced here, “The City will continue to provide a range of housing options that will serve a diverse population and will consider opportunities to encourage multifamily and attached housing infill development to meet a growing regional demand…” (Blaine 2040 Comp, p. 43). The proposed project will help to address the need for quality rental housing at a density level that is not only of need within the city, but it appropriate to the surrounding land uses and retail areas. It is also the hope that a market-rate project of this size and quality will be a catalyst for other future development within the Northtown area.
Roers recently opened a 262-unit apartment at the former Holly Center location at Mississippi Street and University Avenue in Fridley. This project resulted in demolition of an outdated commercial retail center. The City of Fridley provided $8.1MM in tax increment financing to assist with extraordinary costs for the project including demolition, utilities, and environmental remediation. The overall project cost was approximately $50.6MM.
Roers is also currently constructing a 182-unit project in Blaine at the corner of 109th Avenue and Lexington Avenue called Lexi Apartments. The overall construction costs were $39.6M. Tax increment financing was not requested for this project as development of the property did not have extraordinary redevelopment costs such as the Fridley project and proposed Rainbow Village project.
The following is a rent comparison of the three projects for information purposes.
Axle Project (Fridley)
• Studio - $1,095
• 1 BR - $1,290
• 2 BR - $1,650
• 3 BR - $1,910
Lexi Apartments (109th and Lexington)
• Studio - $1,295
• 1 BR - $1,525
• 2 BR - $1,850
• 3 BR - $2,150
Rainbow Village Apartments (Proposed)
• Studio - $1,250
• 1 BR - $1,450
• 2 BR - $1,750
• 3 BR - $2,000
TIF and City Financial Assistance Request Details:
There are various types of tax increment financing (TIF) districts. The most common are redevelopment, housing, and economic development districts. Housing districts are created to build housing for low- and moderate-income families/individuals. Economic development districts are created to increase employment and tax base. Redevelopment districts are intended to remove blight and increase tax base.
The following is a summary of existing TIF districts in Blaine.
Redevelopment Districts
• Oak Park Plaza - Redevelopment of a former grocery space and construction of a new grocery space.
• 102nd and University Avenue - Redevelopment of former office buildings to for-sale townhomes.
Housing Districts
• Town Square Apartments - Construction of an affordable senior housing apartment.
• Crest View - Construction of an affordable senior housing apartment.
Economic Development Districts
• Crown Iron Works - Construction of a new office/R&D facility for Crown Iron Works.
• Blaine 35 - Construction of 300,000+ sf. of manufacturing/office/warehouse space.
The proposed type of district for this project is a redevelopment district. Redevelopment districts are intended to redevelop areas occupied by structurally substandard buildings and increase the tax base. Minnesota Statute 469.174 identifies specific requirements for the creation of TIF districts. In the instance of redevelopment districts, structurally substandard buildings are crucial since it’s the litmus test of blight. The statute identifies specific findings to be made to declare a building structurally substandard. A third-party architect was hired to determine whether the former Rainbow grocery space meets the requirements of structurally substandard. The attached report finds that the space meets the statutory requirements of structurally substandard.
The developer is requesting TIF to assist in the extraordinary redevelopment costs associated with this project. The estimated construction costs of the project are $51,918,634. The following are the proposed sources of funds for the project:
• Bank Loan - $32,000,000
• Equity - $11,918,634
• TIF Note - $8,000,000
The attached plan identifies approximately $21,690,810 in eligible TIF related expenses (Section K). The developer is not seeking this amount. The developer is seeking $8,000,000. Attached is a draft term sheet identifying the framework of the assistance requested. The following is additional specific information related to the request.
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. 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 twenty-six (26) 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 and their equity partners.
Pooling - Typically in the City of Blaine provides 90% of the increment generated and retains 10% for administrative costs. In certain instances, the increment exceeds the TIF assistance provided, and the district can be closed prior to the full term. At the last workshop, the scenario of pooling was discussed. For this project, the $8,000,000 assistance would be paid back prior to the 26-year term of the district. If the length of the district is maximized to 26 years, the EDA can provide 75% of the increment to the developer and retain 25%. The 25% retained can be used in the Northtown project area for other public infrastructure projects or redevelopment expenses such as property acquisition, demolition, etc. This provides the EDA an additional funding source for the Northtown area. Baker Tilly is currently analyzing the amount of pooled TIF that could be made available to the EDA.
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.
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 when the district expires. The current taxable market value of the property (only the Rainbow box, not the entire center) is $2,444,420 with a tax generation of $30,555, of which the city collects 35.113%. When the project is complete and the full taxable value is realized in 2026, the estimated taxable market value will be $47,586,000. When the district expires in 2050, the estimated taxable market value will be $96,732,540 and have a tax generation of $1,209,157, of which the city would collect approximately 35.113%.
If the project does not move forward, the property value would be significantly less, therefore resulting in less tax revenue for the city in the long-term.
Strategic Plan Relationship
Redevelopment of the Northtown area is identified in the strategic plan. The Northtown area is also one of the four priority areas identified by the city council in 2021.
Board/Commission Review
The Planning Commission reviewed the TIF plan to determine whether the proposed project and plan is consistent with the comprehensive plan. The Planning Commission approved a resolution identifying that the proposed TIF plan is consistent with the comprehensive plan.
Financial Impact
TIF dollars provided to the developer are created because of this specific development. General property taxes from other taxpayers 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. Additionally, up to 25% of the increment generated in this district could retained can be used in the Northtown project area for other public infrastructure projects or redevelopment expenses such as property acquisition, demolition, etc. This provides the EDA an additional funding source for the Northtown area.
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.
Staff Recommendation
By motion, approve the resolution. If approved, a development agreement based on the term sheet will be drafted and considered by the Blaine Economic Development Authority on December 19, 2022.
Attachment List
Draft TIF Plan
Structurally Substandard Architectural Report
Draft Term Sheet
Body
WHEREAS, 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 amend the Project Plan (the “Project Plan”) for the Blaine Economic Development Project (the “Project Area”) to establish Tax Increment Financing (Redevelopment) District No. 1-24 (Rainbow Village Redevelopment Project (the “TIF District”) within the Project Area and to adopt the Tax Increment Financing Plan relating thereto (the “TIF Plan” and, with the 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 469.133, and 469.174 through 469.1794, all inclusive and as amended (collectively, the “TIF Act”), all as reflected in that certain document, dated December 5, 2022, entitled “Amendments Relating to Blaine Economic Development Project Plan of the Blaine Economic Development Authority Including Establishment and Approval of the Tax Increment Financing Plan for Tax Increment Financing (Redevelopment) District No. 1-24 (Rainbow Village Redevelopment Project)” and presented for the Council’s consideration.
1.02 The Council has investigated the facts relating to the amendment of the Project Plan, the establishment of the TIF District and the adoption of the TIF Plan.
1.03 The City has performed all actions required by law to be performed prior to the establishment of the TIF District and the adoption and approval of the Plans, including, but not limited to, delivery of the Plans to the Auditor of Anoka County (the “County”), the Clerk of the Anoka-Hennepin School District (the “School District”) and the individual affected County Commissioner; a review of the Plans for conformity with the City’s comprehensive plan by the City Planning Commission; 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, which was held on the date hereof.
1.04 Certain written reports and other documentation, information and materials (collectively, the “Materials”) relating to the establishment of the TIF District and the approval and adoption of the Plans, including the tax increment application made and other information supplied by Roers Companies (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 Council and/or made a part of the City or EDA files and proceedings on the TIF Plan. The Materials, which are incorporated herein by reference, include data, information and/or substantiation constituting or relating to (1) the “studies and analyses” on why the new TIF District meets the requirements to be a redevelopment tax increment financing district, including a report prepared by LHB, Inc., Minneapolis, Minnesota, dated August 18, 2022 (the “Blight Report”), (2) why the TIF District meets the so-called “but for” test, including an analysis of the proforma and other materials submitted by the Developer; and (3) the bases for the other findings and determinations made in this resolution. The Council hereby confirms, ratifies and adopts the Materials, 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 the demolition of part of an existing retail center in the TIF District and the construction thereon of a new multifamily housing facility consisting of approximately 220 residential units and related parking, improvements and amenities to be located at 551 87th Lane NE in the City (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 Modification of the Redevelopment Plan, the Creation of the TIF District and Adoption of a TIF Plan Therefor.
2.01 The Council hereby approves the amendment to the Project Plan and specifically finds that: (a) the land within the Project Area would not be available for redevelopment without the financial aid sought under the Redevelopment Plan; (b) the Redevelopment Plan will afford maximum opportunity, consistent with the needs of the City as a whole, for the development of the Project Area by private enterprise; and (c) the Redevelopment Plan conforms to the general plan for the development of the City as a whole. The Project Area is not being expanded and the only modification of the Redevelopment Plan relates to the incorporation by reference of the proposed TIF District and the terms of the TIF Plan therefor.
2.02 The Council hereby finds that the TIF District is in the public interest and is a redevelopment district, as defined in Minnesota Statutes, Section 469.174, Subdivision 10 for the following reasons:
The TIF District is, pursuant to Minnesota Statutes, Section 469.174, Subdivision 10, a “redevelopment district” because it consists of a project or portions of a project within which the following conditions, reasonably distributed throughout the TIF District, exist: (1) parcels consisting of at least 70% of the area of the TIF District are occupied by buildings, streets, utilities, paved or gravel parking lots, or other similar structures and (2) more than 50% of the buildings located within the TIF District are deemed “structurally substandard” (within the meaning of Minnesota Statutes, Section 469.174, Subdivision 10(b) and (c)) to a degree requiring substantial renovation or clearance. Such conditions are reasonably distributed throughout the geographic area of the proposed TIF District.
The TIF District consists of one parcel which is “occupied” (i.e. 100% of the parcels in the TIF District which is more than 70%) as defined in Minnesota Statutes, Section 469.174, Subd. 10(e), in that 93% (which is more than 15%) of the area of the parcel is occupied by buildings, streets, utilities, paved or gravel parking lots, or other similar structures. There is one building in the TIF District, and that one building (i.e. 100% of the buildings in the TIF District which is more than 50%) is structurally substandard to a degree requiring substantial renovation or clearance. In addition, the costs of bringing the structurally substandard building into compliance with building codes applicable to new buildings would exceed 15% of the cost of constructing new structures of the same size and type on the site.
The Materials, including, without limitation, the Blight Report and the supporting facts for these determinations, are on file with the staff of the EDA. There have been no building permits issued or improvements made to the parcel or the building since the date of the report.
2.03 The Council hereby makes the following additional findings in connection with the TIF District:
(a) The Council further finds that the proposed Development, in the opinion of 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 property on which the proposed Development will occur would not be developed in the reasonably foreseeable future. The estimated total redevelopment costs for this property make the total cost of this effort significantly higher than costs reasonably incurred for similar developments on a clean site. The demolition and redevelopment costs are higher than for new development and would make development infeasible. The Developer has represented that it could not proceed with the Development without tax increment assistance.
(b) The Council further finds that the Plans conform to the general plan for the development or redevelopment of the City as a whole. The specific basis for such finding being:
The Planning Commission reviewed the Plans and found that the Plans conform to the general plan for the development or redevelopment of the City as a whole. The TIF Plan will generally complement and serve to implement policies adopted in the City’s comprehensive plan. The City has determined that the Development proposed in the TIF Plan conforms to the City comprehensive plan and is or will be in substantial accordance with the existing zoning or any permitted exception for the property and is consistent with other uses in the area. The anticipated redevelopment of the project site and any subsequent demolition, reconstruction, or renovation related to the project will remain consistent with the City’s design goals.
(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 or redevelopment of the Project Area by private enterprise. The specific basis for such finding being:
The Development proposed to occur within the TIF District will afford maximum opportunity for the removal of the substandard building and the development of the applicable parcel consistent with the needs of the City. The Development will increase the taxable market valuation of the City. The Development will expand the number and type of available housing options in the City and help fulfill the need for such housing in the City.
(d) For purposes of compliance with Minnesota Statutes, Section 469.175, Subdivision 3(d), 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 likely $0 (other than amounts due to inflation), which is less than the increased market value estimated to result from the proposed development (approximately $94,288,121), after subtracting the present value of the projected tax increments for the maximum duration of the TIF District (approximately $11,056,077), which is approximately $83,232,044. In making these findings, the Council has noted that the existing building on the property is blighted and would likely remain in its current condition or further deteriorate if tax increment financing were not available for redevelopment. 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 provisions of this Section 2 are hereby incorporated by reference into and made a part of the TIF Plan and the findings in the TIF Plan are incorporated herein by reference and made a part hereof.
2.05 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 Plans; Interfund Loans.
3.01 The creation of the TIF District and the amendment to the Project Plan 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 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).
3.03 In accordance with Minnesota Statutes, Section 469.175, Subd. 1(b), the City elects to delay the receipt of the first increment until tax payable year 2025.
3.04 The staff of the EDA and the advisors and legal counsel of the City and the EDA are authorized and directed to proceed with the implementation of the TIF District and the TIF Plan. City staff shall, in writing, request the Anoka County Auditor to certify the new TIF District and shall file the Plans with the Commissioner of Revenue and the Office of the State Auditor.
3.05 The Council hereby approves interfund loans or advances (“Loans”) for the TIF District, as follows:
(a) The authorized tax increment eligible costs (including without limitation out-of-pocket administrative expenses in an amount up to $2,169,081 and costs associated with land, buildings and site improvements in an amount up to $19,521,729) payable from the TIF District as provided in the TIF Plan as originally adopted or as it 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) 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 funds 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 $21,690,810 outstanding at any time.
(d) All Loans shall mature not later than February 1, 2051 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, tax increment revenue bond proceeds or other eligible sources including, but not limited to, other bonds to be issued by the City.
(e) The outstanding and unpaid principal amount of each Loan shall bear interest at the rate of 4.00%, which does not exceed 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 5th day of December, 2022.