City Council Worksession

South St. Paul JOINT WORKSESSION COUNCIL & EDA SSP City Hall 125 3rd Avenue North Training room Monday, February 11, 2019 7:00 p.m. AGENDA: 1. Request by Sam’s Tobacco to discuss number of tobacco licenses and proximity to other licensed retailers – No Attachment 2. Deleted 3. EDA-Owned Property at Southview Boulevard and 12th Avenue South – Developer Interest (EDA) 4. Concord Exchange Parking Lot Leases (EDA) 5. Hardman Triangle Update (EDA) – No Attachment 6. Draft MOU with Dakota County for Library Study  EDA/Council Worksession Report Date: February 11, 2019 EDA Executive Director: _________ 3 Agenda Item: EDA-Owned Property at Southview Boulevard and 12th Avenue South – Developer Interest (EDA) Desired Outcomes: • Discuss and provide general response developer’s interest in EDA-owned property at Southview Boulevard and 12th Avenue South • If consensus of EDA is to support developer’s concept, identify next steps and timeline Overview The Proposed Development Peder Wallace, a local businessman, has approached staff with interest in acquiring the property at the northwest corner of Southview Boulevard and 12th Avenue South and developing a multi-tenant commercial building with approximately 6,000 square feet of leasable area. The developer is interested in building out approximately 1/3 of the space as a coin laundry, sensing a lack of these services in the community. The remaining leasable area would be marketed for retail, restaurant, and other service uses in keeping with the character of commercial development on Southview Boulevard. Although Mr. Wallace has not finalized his plan for the development, he has provided some conceptual examples of the character of the development he has in mind for the EDA’s consideration. Pending tonight’s discussion, a fully realized site plan and development specifications would be prepared for discussion and ultimately decision as a part of a formal development review and purchase and development agreement process. The Development Property The EDA owns the approximately 20,000 square foot (125’ x 160’) property at the northwest corner of Southview Boulevard and 12th Avenue South. This property is comprised of three tax parcels and lies directly east (across a public alley) of Kaposia Convenience Center, across Southview Boulevard from the Southview Shopping Center, and across 12th Avenue South from $5 Pizza. The property was historically three separate single-family home sites. The HRA acquired these properties sequentially from south to north in 1999 (156 12th Ave. South), 2001 (152 12th Avenue South) and 2009 (144 12th Avenue South) at a total acquisition cost (including demolition costs) of approximately $245,000, and has been held for redevelopment ever since. The western edge of the property is subject to a month-to- month lease at $50 per month with Roger Green/RK Kaposia LLC for overflow and employee parking. Annual holding costs (for lawn care and snow/ice removal) related to the property average about $2,500 per year. In the 20 years since the EDA first began assembling properties, staff estimates that the HRA/EDA have spent more than $20,000 in property maintenance costs. The property has been exempt from property taxes for as long as it’s been publicly owned, however the Dakota County Assessor’s Office lists a total estimated market value for the property of $122,600 for Pay 2019, or about $6.17 per square foot. The property is guided for Commercial Development in the City’s 2030 Comprehensive Plan as well as the 2014 “Southview Hill Plan”. Commercial is defined as a general land use category calling for “retail sales/services, restaurants, hotels/motels, and for-profit entertainment/recreational facilities as well as general office buildings”. The property is in the City’s C-1 retail business zoning district, which allows a broad range of retail/service uses – including coin-operated laundry - by right within the district. Key Considerations and Questions • It is staff’s opinion that the property’s highest, best, and most marketable use is a single-story commercial building with surface parking lot. Realistically, what is proposed by the developer is representative of the type of real estate development that the market can be expected to support in the foreseeable future. • As noted earlier in the memo, the property has been property tax exempt for a number of years. The proposed development if fully occupied might be expected to generate a market value for taxable purposes of between $400,000 to $600,000, which would equate to a total annual property tax bill (in 2019 figures) of between approximately $12,500 and $19,800. • The existing parking lease with RK Kaposia is month-to-month and can be terminated without cause by the EDA with 30-days notice. • Should the EDA support the development in concept, we would proceed with a purchase and development agreement that the EDA would review at a future business meeting, and the developer would be required to proceed through the site plan review process with the City Planner’s office. • The developer has inquired about structuring the purchase as a forgivable loan and has also inquired about reduced SAC (Sewer Accessibility Charges) fees or SAC credits. At this stage, staff does not believe the scope or scale of development justifies these business subsidies nor meets the nature and intent of the City’s Subsidy Policy. Particularly, it would be difficult to illustrate that “but-for” City subsidy, the development as proposed would not be possible. Attachments: Property/Orientation Map Developer’s Conceptual Materials PID: 364880004-130,-140,-150 ADDRESS: 144 – 156 12th Ave S 3 PARCEL SIZE (Approx.): 19,900 SF (0.5 Acres) DIMENSIONS (Approx.): 125’ x 160’ ZONING: Retail Business (C-1) SOUTH Kaposia AVENUE Convenience 12th SOUTHVIEW BLVD Southview Shopping Ctr. 1  EDA/Council Worksession Report Date: February 11, 2019 EDA Executive Director: _________ 4 Agenda Item: Concord Exchange Parking Lot Leases (EDA) Desired Outcomes: • Review historic parking lease agreements within EDA-owned “parking ramp” at northwest quadrant of Grand Avenue and Concord Exchange North • Provide EDA with status update on parking leases in “parking ramp” • Develop consensus approach to administration of parking Overview The EDA is the owner of the two-level “parking ramp” on the north side of Grand Avenue, just east of Neighbors, Inc. and encompassing almost 2.2 acres. The paved parking area is delineated with over 250 parking stalls between the two levels, and was constructed by the South St. Paul HRA in 1984 in accordance with the Concord Street Urban Development Plan which envisioned an expansive retail area along North Concord Exchange to be served in part by shared parking areas such as the property in question. Ultimately, the full scope of the plan was not realized and the parking ramp has served almost exclusively to meet the parking requirements of three nearby properties: 200 Concord Exchange (the Historic Concord Exchange), 201 – 205 North Concord Exchange, and 224 Concord Exchange (Globe Publishing, et al). In fact, a 1984 Parking Agreement predicated the HRA’s construction of the parking lot, providing “exclusive” parking rights to these three properties for 47% (123 total stalls) of the 262 stalls that the HRA provided through its construction of the lot. As the EDA is aware, staff has been collaborating with a residential developer on a multi-phase residential development on the northern half of the EDA-owned property which includes the parking ramp. While the early phase of this potential development primarily focus on the existing green spaces directly across from the post office as well as the northern expanse of the existing upper parking lot, a development project will almost certainly result in the creation of new property configurations, legal descriptions, and could be expected to impact what has historically been used/leased by private entities for parking. Background and Current Status – 1984 Lease Agreement Enclosed is a copy of the 1984 Lease Agreement pertaining to the EDA-owned property. While this document provides helpful historic context and the EDA is encouraged to at least skim it, staff provides the following summary: • HRA constructed and has all maintenance/repair obligations. • There are three parties listed as “users” in this one lease: “Kloster-Madsen, Inc.”; “Farmers Union Central Exchange/Cenex”; and Erret Horst (Globe). Of these, only Globe is still an existing entity in the vicinity. • The original term of the agreement was twenty years – through July of 2004. Although it’s not spelled out in the attached documents, only one of these “users” has a documented extension of lease rights – Cenex (technically, now-owner Tom Nguyen via an assignment agreement from E&E Enterprise who themselves were assigned lease rights from Cenex). Nguyen has lease rights through July 2034. • To reiterate and be clear – neither Valentino’s (200 Concord Exchange) NOR Globe Publishing have an enforceable lease agreement and they haven’t since 2004, as far as we can tell.  Nonetheless, all parties have continued to (at least periodically) pay their rent, have signed/designated parking stalls, and utilize the lot. • The lease payment amount for each “user” is based upon a somewhat cumbersome formula which the HRA (now EDA) is supposed to recalculate annually and present for public comment and review each year. It appears that this recalculation and public comment/review has not occurred since at least 2014. Currently, the lease payments amount to $16,000 annually and are broken down as follows: o Globe: $1,920 per year, payable monthly at $160/month o Nguyen: $4,160.04 per year, payable monthly at $346.67 o Valentino’s: $9,920.04 per year, payable monthly at $826.67 • The EDA’s expenses for property upkeep (utilities, lawn care, snow/ice/trash removal, etc) have varied from year to year, with 2018 expenses calculated at about $24,000. In summary, the key issues as we see it are that we have two of three lessees continuing to occupy without an enforceable lease agreement, we haven’t taken a fresh look at the lease rates in several years, and lease payments typically do not keep up with property maintenance costs, to say nothing of replacement reserves. While at face value this may seem like a bad thing, taken in the context of our pending development prospect for the northern portion of this area (in the short term) and the potential for future development on other portions of the site, this freedom from a legally binding agreement may prove beneficial. Alternative Approaches As staff sees it, there are a few potential approaches the EDA could take, summarized below. We are hopeful that we can discuss these as a group on Monday and develop consensus about the way forward. • Do Nothing: Generally speaking, there’s no great harm in continuing to collect rent at the same rate as we have for several years and essentially ignoring the fact that we have no lease with 2 of the 3 users identified in the original agreement. This does provide us with some flexibility as well as at least some income to offset holding costs. The issue becomes whether and how quickly development prospects materialize for the green space at the north of the EDA property… and whether that expands to include the existing parking lots. • Draft New Lease Agreements: If the EDA thinks it is in our best interest to provide exclusive parking rights to the three users that have historically enjoyed those benefits, then we should draft new lease agreements with (at least) Valentino’s and Globe. Given our anticipation that development may very well entirely change the character of this area and alter how and where parking is provided, staff would suggest that if we do draft new lease agreements we keep the language as general and flexible as possible. • Get Out of the Parking Lot Management Business: It is well within our rights to effectively put an end to the exclusive parking rights of Valentino’s and Globe by terminating the existing de facto month-to-month lease that they enjoy (of course this means ending the collection of lease payments from these two entities). We’d have to approach Nguyen to terminate the existing lease that he is party to by assignment. Regardless of what happens, we control the site and at least in the near term there will almost certainly continue to be more than 150 public parking stalls in the ramp, which the users could continue to utilize free of charge if we take this approach. The benefit to the EDA is that this approach provides us flexibility to control the development trajectory of the property without the encumbrance of dedicated surface parking stalls at a set lease rate. Conceptually, if development takes off in this quadrant, we may be able to provide a more efficient shared-parking solution (such as a structure) that can accommodate a number of properties’ needs (and which we could, if needed, prepare lease agreements at that time). From an expenses perspective, this would shift the entire burden of paying for maintenance of the parking lot areas to the Concord TIF, which as the EDA is aware is set to  decertify at the end of 2024. The risk, of course, is that development does not take off, we forfeit the rental income we’re receiving right now, and we continue to own a large surface parking lot that requires upkeep and maintenance. Staff Recommendation Staff suggests that we notify Globe and Valentino’s that their leases have expired and that the EDA will not renew them, and thus that they are no longer obligated to pay monthly rent. In addition, staff suggests that we approach Nguyen about terminating the lease and similarly that they will no longer be obligated to pay monthly rent. In the future, should redevelopment result in a plan that would significantly reduce or eliminate surface parking, the EDA will need to either work with any redeveloping entities to identify a shared parking solution that retains the ability for other users in the area to have access to sufficient parking areas, or to provide those parking areas as a necessary public good. Attachments: Property/Orientation Map 1984 Parking Agreement (including leased areas map)  4 Royal Star Furniture Post Office John Carroll Highrise Neighbor’s Inc. GRAND AVENUE EDA-OWNED PROPERTY