City Council Worksession

South St. Paul WORKSESSION AGENDA SSP City Hall 125 3rd Avenue North Training room Monday, January 9, 2023 7:00 pm AGENDA: 1. Stockyards Dump Redevelopment (587 Verderosa) 2. 139 Grand Avenue Update 3. Performance Recognition Awards (No Attachment) 4. Council Comments & Questions A CITY COUNCIL WORKSESSION REPORT DATE: JANUARY 9, 2023 1 DEPARTMENT: Economic and Community Development Prepared By: Ryan Garcia, Michael Healy ADMINISTRATOR: RG AGENDA ITEM: Stockyards Dump Redevelopment (587 Verderosa) DESIRED OUTCOMES: • Review the history of the Stockyards Dump Site • Discuss the proposed redevelopment of the Stockyards Dump Site • Generate consensus about the formal review of and Council action on the proposed redevelopment OVERVIEW: Background On December 19, 2022, the City Council considered an application for a Preliminary Plat, Site Plan Review, multiple Conditional Use Permits, and Planned Unit Development for the redevelopment of the former Stockyards Dump located at 587 Verderosa Avenue. After much testimony and deliberation, the Council moved to continue the item until the February 6, 2023 City Council meeting in deference to the absence of one Council Member (Podgorski) and the pending swearing-in of Council Member Thompson. Danner Inc., the Applicant, is a trucking and road construction contractor currently located at 843 Hardman Avenue South with a workforce of approximately 40 people. In 2016, Danner Inc. acquired the former Stockyards Dump with the intention of relocating their business. At the time of its acquisition, this property was literally unbuildable due to the soil being full of construction waste, animal waste, and other buried debris and waste associated with the Stockyards Operations throughout the latter 19th and most of the 20th centuries. In 2017 and 2018, the Applicant partnered with the South St. Paul Economic Development Authority (EDA) and with the Minnesota Department of Employment and Economic Development (DEED) and obtained $1,565,526 in two rounds of grant funding to help clean up the site and make it suitable for development. Danner Inc. has also invested upwards of $1,200,000 of their own money – 35% more than the required match for the grant - in the cleanup. Summary of the Proposed Redevelopment At this point the Council is familiar with the fundamentals of the Applicant’s proposal: to build a new building of approximately 21,500 square feet (4,300 square feet of which is storage in the basement level) that will house a business office as well as maintenance shops/garages for larger commercial vehicles associated with the Applicant’s primary business operation as an excavation, earthwork and road construction contractor. The site plan also calls for a significant amount of exterior storage for earthwork/roadbuilding material, equipment, and vehicles. In addition, the applicant proposes a total of 3 gasoline fueling islands at the property, one of which will be located outside of a gated “yard area” and open to the general public. The discretionary approvals – all of which were recommended for approval by the Planning Commission in December 2022 – that the applicant is seeking at the Stockyards Dump site relate to:  • Exterior Storage (requires a CUP) • Truck/Vehicle Repair (requires a CUP) • Retail fuel sales (requires a CUP as a (staff-defined) “limited truck stop”) • Accessory buildings (due to the size of the fueling canopy, requires a CUP) • Flexibility from minimum Floor Area Ratio (FAR) requirements of 0.2 (.059 is proposed, requires a Variance or PUD – PUD suggested by staff) • Parking lot landscape islands (requires Variance or PUD; this provision has been waived in numerous Industrial developments in Bridgepoint in the past) • Shoreland Impervious Ratio exceedance (requires Variance or PUD) • Various other minor accessory building, parking lot, storage, and setback deviations from code (requires Variance or PUD) It is important to note, for context, that the Applicant applied for – and received approval of – a similar application at the October 3, 2016 meeting of the South St. Paul City Council. To be clear – the 2016 approval in no way binds the Council to approval since the developer did not commence construction in a timely fashion and those approvals lapsed. Nonetheless, the building size, the number of fueling islands, and the exterior storage area were all proposed (and approved) in 2016, and in addition the applicant proposed (and Council approved) “temporary on-site rock crushing” at that time (which is not a component of the 2022 submittal). The fueling islands (all three) were situated outside the gated area in the 2016 proposal (the 2022 proposal calls for only one island outside the gated area). Minimal landscaping was proposed (and approved) in 2016, although the approval did require subsequent submittal (for staff approval) of revised civil, landscape, and screening plans. The approval did require that the applicant re-plat the property into 3 separate lots (under the presumption that all could be sold/built upon in the future) no later than July 31, 2017. This never happened, as it became evident in early 2017 that the contamination issues throughout the site were daunting to say the least (more on that later). City/EDA Involvement in the Redevelopment In April 2017, the EDA approved Resolution 2017 – 9, which authorized the submission of an application for a Contamination Cleanup Grant through the Minnesota Department of Employment and Economic Development (DEED) for the cleanup of the 587 Verderosa Avenue site. In September 2017, DEED awarded the EDA with $864,276 in contamination cleanup grant funds for the project, based upon an application and approved Response Action Plan tailored to the development that the City Council approved in October 2016. Via EDA Resolution 2017-32, the EDA approved a subgrant agreement with Danner Family Limited Partnership for the project. In summary, these resolutions formalized the agreement between the South St. Paul EDA, Danner, and the State of Minnesota to clean up the contamination at the Stockyards Dump to the necessary standard required to support the development that was approved by the City in October 2016. Notably, in April 2017 the EDA also applied for funding through the Metropolitan Council’s Tax Base Revitalization Account to fill the “gap” for the cleanup of the property. That application was ultimately unsuccessful, leaving a significant gap (almost $2 million) for the cleanup of the site to be completed. The EDA, the developer, and DEED worked closely throughout early 2018 to extend the term of the DEED grant so that the developer could look for ways to make the project more economically viable as cleanup commenced, ultimately settling on a 2nd application to DEED in the Fall 2018 Application Cycle due to the extraordinary level of contamination found at the site, including previously undetected contamination encountered during cleanup in 2018. In October 2018, the EDA approved Resolution 2018-27 which authorized the submission of a second application for a Contamination Cleanup Grant through the DEED for the cleanup of the Stockyards Dump (since the Met Council application failed). In January 2019, DEED awarded the EDA an additional $701,250 in contamination cleanup grant funds for the project. Cleanup continued throughout 2019 and into early 2020, at which time all grant funds had been expended but excavation and backfilling activities (per the RAP) were not yet completed at the site. From mid-2020 through mid-2022, the EDA worked closely with DEED and the Minnesota Pollution Control Agency (MPCA) to compel the developer to honor its commitment – at their own expense – to remediate the site in accordance with the 2016 plan, 2017/2018 RAP, and Grant Applications, which the developer did. A final letter of No Further Action Determination for Soil was issued by MPCA in December 2022, following the recording of an environmental covenant (for soil and vapor) against the site in November 2022. The Cleanup as proposed in 2017 was complete. Challenges impacting the redevelopment of the Stockyards Dump Property Development of the former Stockyards Dump property is complicated by a number of challenges: 1. The 587 Verderosa Avenue property had been used for dumping and landfilling activities since at least 1920s through the 1970s. The Property was owned and operated by the United Stockyards Corporation, who used the property (which was a wetland) exclusively as a dumping ground for livestock bedding, paunch manure, abbatoir offal, animal carcasses, refuse, and demolition and construction debris (wood, metal, glass, plastics). Following more than a half-century of dumping activity, upon Danner’s acquisition the site was found to have more than 30 feet of this contaminated material underlying a thin layer of clay topsoil which was irregularly mounded between 2 to 10 feet higher than the street elevation. Remedial activities, consistent with a Response Action Plan (RAP) as approved by the Minnesota Pollution Control Agency (MPCA) commenced in early 2018 and continued through May 2022. Upon completion in May 2022, more than 85,000 cubic yards/120,000 tons of contaminated waste were excavated from the property and disposed of at a licensed and regulated contaminated waste facility. For a site of this size, that is remarkable (as a comparison, the “Bridgepoint Condominiums” at Bridgepoint Way/Hardman Avenue, formerly the NW corner of the Armour Plant, is almost the same size as 587 Verderosa and required disposal of about 67,000 tons of material). A final RAP Implementation Approval was provided by MPCA in June 2022, conditioned upon the recording of an Environmental Covenant against the property, which occurred in November 2022. All MPCA and DEED required cleanup for the proposed redevelopment (approved in 2017) has been completed for this site. That said – and this is a critical point – contamination STILL exists at the property, at depths of between 2 – 11 feet of finished grade. It should be made clear that this is perfectly normal for contaminated sites, and this is perfectly in line with the MPCA-Approved RAP from 2017. To put this in perspective, 120,000 tons of waste, at a cost of approximately $2.75 million, were removed from this site just to make it buildable for the development of a 17,000 square foot building footprint. A larger building would require additional excavations (and MPCA approvals) at least for the building footprint area in order to be “buildable”. The economic feasibility for any developer to undertake this without significant price concessions from a seller (which won’t happen) or additional grant funds (which won’t happen) are tenuous at best. In other words, it is extremely unlikely that under any circumstance “someone else” (or this developer) will find it economically feasible to build a larger structure on this site, in full view of its environmental challenges alone – to say nothing of its other challenges.  2. The eastern part of the site is encumbered by a number of easements including a billboard easement, a flowage easement, a City sewer line easement, and an Xcel Energy easement for large overhead power lines which cross the Mississippi River east of the subject property. When combined, these easements effectively prevent the far eastern part of the site from being buildable. Senior council members may recall that a flowage easement previously encumbered the site at 843 Hardman Avenue at the time that site was proposed for a 300,000 square foot distribution center. Ultimately, the challenges of releasing the flowage easement proved to derail that project. 3. The property is only about 300 feet deep between the Verderosa Avenue curbline and the I-494 Right-of-Way, which is not ideal for medium- to large-scale industrial development. The shallowness of the property makes it more challenging to develop a site plan for a business operation that needs outdoor storage, parking, loading docks or doors, and also needs to accommodate the turning movements of large trucks. 4. There are overhead power lines located just a few feet from the curb on the north end of the property along Verderosa Avenue. These power lines are an obstacle in planning for any improvements along Verderosa Avenue. 5. Engineering requirements for stormwater management are complex for this property due to its proximity to the Mississippi River and the fact that the soil (contamination) and geotechnical (high water table, suboptimal construction and drainage characteristics) conditions at the site affect how stormwater facilities can be designed. The Applicant is proposing to address stormwater issues by building a large pond, located in the southcentral portion of the site, and this further complicates site design. While a larger building and less pavement /more green space could mean a slight downsizing of the pond, ultimately any development on this site would require ponding which will need to “balance”. Finally, staff would note that within South St. Paul, specifically in close proximity to the Stockyards Dump, there are several developments that were not developed at a 0.2 FAR (all of which predate the FAR Ordinance or are not within the I-1 Zoning District) but are nonetheless important contributors to the dynamic of our business community. In each case, these developments were challenged in one or more ways similarly to the Stockyards Dump – soil and groundwater contamination, soft soils, high groundwater, and/or high levels of soil vapor impact almost every property within the former Stockyards and Armour complex (which is essentially everything east of Concord and South of Grand to 494). CONCLUSION The former Stockyards Dump is a uniquely positioned development opportunity within South St. Paul. Its development origins as a wetland filled in with agricultural, industrial, and construction waste for 60+ years leave little doubt as to why the site sat fallow and undeveloped for 35+ years. The site was unbuildable and effectively had a very narrow and limited economic value in the market. The current owner purchased the site in 2016 because, by the nature of their business, they felt they could extract some value from the site in the course of their operations (namely: digging up, hauling, and dumping dirt, crushing big concrete blocks into gravel, and filling the hole they just dug up with that material). Even then, the economics of the site only worked thanks to extraordinary help from the EDA and DEED. The developer is requesting significant flexibilities as a part of their development approval, to be sure. However, it is challenging for Staff to see a development path for this site that is tangibly and objectively “better” or will not require flexibilities as sought by this owner/developer. Hypothetically that path, in Staff’s opinion, would need to include all of the following: - The current owner agreeing to sell the property to another developer/user at what both agree is a “fair market price” (Danner’s operation simply does not demand a larger building and they are unwilling to invest in what they would identify as wasted space). - Another developer/user requiring a larger building and less exterior storage area. It is difficult to see how this hypothetical user would be a more typical I-1 Light Industrial Land Use, just given the limitations of truck maneuvering/access/docking that this site can’t get around. Theoretically, a strictly office-oriented user could make this site work, however it is difficult to identify who that user would be and why this location would be preferable to the many much stronger office markets in the Twin Cities. - This hypothetical other developer/user and their lender, title company, and insurance company being comfortable with the environmental covenant recorded against the property, and then this hypothetical developer/user taking on the additional financial cost (above what is presumably the seller’s “fair” selling price) to conduct additional excavation below the building footprint. It should be noted that this topic in particular is purely speculative – MPCA has not studied what would be needed for a bigger building because what they reviewed and approved between 2016 – 2022 has always been specifically Danner’s proposed redevelopment plan (the 17,000 SF building footprint). - Again hypothetically, this other developer/user could try to work with the EDA/City to secure additional grant funds for the additional cleanup costs that would be needed. Never say never, of course, but Staff’s feeling is that DEED will be reluctant to commit additional (limited) resources to this site. Again, hypothetically maybe Met Council could be an option. Ultimately, Staff is not confident that any, let alone all, of the above conditions could come to pass. Therefore, we concur with the Planning Commission’s recommendation of approval for the project as presented, including the City Planner’s conditions of approval. We agree that the FAR standard found in our ordinance is sound policy in its intent. At the same time, so is the PUD tool sound policy for those circumstances and sites that require nuance and flexibility, which the Stockyards Dump certainly requires if it is ever to be redeveloped. In the end, Staff is comfortable with the give and take that the proposed PUD provides. ATTACHMENTS A- SITE ORIENTATION MAP B- PHOTOGRAPHS OF PROPOSED DEVELOPMENT SITE C- MAP SHOWING EXCAVATION DEPTHS/CLEAN SOIL BUFFERS  ATTACHMENT A SITE ORIENTATION MAP  ATTACHMENT B PHOTOGRAPHS OF PROPOSED DEVELOPMENT SITE View of Site Along Verderosa Avenue Looking East Towards the River View of Site Along Verderosa Avenue Looking West Away from the River View from the Existing Dead-End of the Wakota Bridge Pedestrian Trail Looking North View from the Interstate 494 Exit Lane Nearest the Subject Property  ATTACHMENT C MAP SHOWING EXCAVATIONS/CLEAN SOIL BUFFERS A CITY COUNCIL WORKSESSION AGENDA REPORT DATE: January 9, 2023 2 DEPARTMENT: ECONOMIC & COMMUNITY DEVELOPMENT Prepared by: Ryan Garcia ADMINISTRATOR: RG AGENDA ITEM: 139 Grand Avenue East Update DESIRED OUTCOMES: • Discuss disposition alternatives for 139 Grand Avenue East SUMMARY: In support of the implementation of the City’s 2040 Comprehensive Plan and the Hardman Triangle Redevelopment Strategy, the EDA and its predecessor the HRA have assembled site control of properties to the east of Concord Street, on the north side of Grand Avenue. The EDA has owned the property at 139 Grand Avenue East, occupied by Twin City Pallet Company, since January 2021. As the EDA discussed during the development of the Hardman Triangle Strategy, it is highly likely that redevelopment of the Hardman Triangle area will require the use of specifically tailored Economic Development Tools including Redevelopment Tax Increment Financing, County and State Redevelopment Grants, and State Contamination Cleanup Dollars in order for private development to be feasible in this area. Given the statutory framework influencing many of those tools, we need to think methodically about when and how to undertake activities (such as demolition and site restoration) within the Hardman Triangle. It is important that the EDA keep in mind that Redevelopment Tax Increment Financing is expected to be a critical tool for redevelopment in this area. State TIF law explicitly states that Redevelopment TIF can only be utilized in areas where 70% of all parcels in a district meet a “coverage” test (they are “improved” with buildings, pavements, parking, utilities, etc.) AND that at least 50% of all buildings pass a “blight” test. With this in mind, the EDA undertook a TIF analysis in late 2021 and adopted Resolution 2021-28 which resolved that 139 Grand Avenue (as well as 135 Grand Avenue and 302 Hardman Avenue North) met all statutory criteria for the declaration of blight/coverage in accordance with the Redevelopment TIF law. Demolition of 135 Grand Avenue East (20/20 building) commenced in March 2022, which (per State Law) gives the EDA until March 2025 to establish a new Redevelopment TIF to include that site. Options for 139 Grand Avenue East Upon our acquisition of the 139 Grand Avenue property, we entered a lease with the occupant, Twin City Pallet Company. At the time of acquisition, Twin City Pallet Company was under contract to purchase a site/facility near Hastings for their relocation, which they have since closed on. The Tenant is currently occupying 139 Grand Avenue on a month-to-month lease, and anticipates completing their relocation by the end of March 2022 which will leave 139 Grand Avenue East vacant. Given the tenant’s looming exit from the property, Staff is seeking the EDA’s guidance and feedback on what we should do with the property once it is vacated. The three most obvious options before us are:  • Option 1 - Retain the building and attempt to re-tenant. • Option 2 - Retain the building structure, but effectively prepare it for demolition. • Option 3 - Demolish the building as soon as possible. Option 1 – Retain/Re-tenant This option is probably the most complicated approach in terms of execution. Staff is not well- equipped to market the property for lease, and given the building’s age, deferred maintenance, and obsolescence we may benefit from employing a leasing agent in our efforts to find a new tenant (which would mean we need to pay a commission once a lease is signed). This approach (assuming a tenant was found) would generate rental income from the property, and would likely relieve the EDA from most if not all upkeep and maintenance obligations. However, there are some critical drawbacks to this Option. First and foremost, unless we find a tenant immediately, we will immediately begin to accrue carrying costs (utilities, security, insurance, maintenance and upkeep, marketing) for the building upon the tenant’s exit and until a new tenant is found. If we are able to secure a tenant, our challenges in structuring a lease that is fundamentally temporary and subject to future development momentum introduces its own challenges – namely what our responsibility/obligation to any such tenant would be should we need to relocate them in the future. Ultimately, Staff does not feel the retain/re-tenant option is a viable one for the EDA at this time. However, if the EDA feels that this is the preferable option, we would suggest that staff return at the next worksession to provide a closer examination of the logistics of marketing the property as well as the costs of maintaining and operating the property. Option 2 – Retain / “Mothball” This option would see the EDA defer demolition of the building but effectively cut off all utilities and generally prepare the building for demolition. The benefit of taking this approach is that it buys us as much time as we need for redevelopment opportunities to mature in the district, specifically if (as expected) Redevelopment TIF is to be a tool. However, this approach is not without its drawbacks. A vacant building is a potential liability and may introduce unforeseen maintenance issues as well as potential security and public safety concerns. Option 3 – Schedule Demolition This option would result in the EDA soliciting bids for the demolition of the 135 Grand Avenue East building in the relatively near-term. While this approach by and large eliminates the “liability” concerns raised above, it does introduce some additional – and potentially unknown - cost on the front-end of the project without an active redevelopment proposal and timeline for the site or its surroundings. As the EDA has discussed previously, the general feeling is that development of this portion of the Hardman Triangle is not yet “ripe”, due to some of the remaining, incompatible uses within the district. Staff would note that our experience at 135 Grand Avenue in early 2022 revealed numerous buried “surprises” (deep and gigantic concrete foundations and buried petroleum holding tanks) which increased the cost of demolition by about 30%. If we had waited to conduct demolition until a redevelopment project commenced, we likely could have leveraged grant dollars to help offset some of those extraordinary costs. Staff has not yet pursued cost quotations for demolition of the existing structures on the property, so if Option 3 is the preferred option of the Council, staff would suggest that we return at a future worksession with this additional information for your consideration. In Staff’s opinion, Option 2 represents the best option for the EDA to balance its operational and financial capacity and the community’s redevelopment aims. SOURCE OF FUNDS: Based on estimates from previous utility cut-offs, we estimate the cost to “mothball” the property at no more than $20,000 on the high end. The property is currently located within the Concord Street No. 2 TIF District, and demolition-related expenses would be an eligible expenditure in the district. ATTACHMENTS: Orientation Map