TIF project at Saxon site up for vote at May 17 Elk River City Council meeting

Saxon Auto World on Zane Street and between Highway 10 and the Mississippi River in eastern Elk River has been vacant since it closed in 2009.

The blighted area might finally be redeveloped, and tax increment financing is the tool being used to hammer out the final details of an agreement. And it’s not just any tax increment financing tool. It’s an oversized one that extends five years past the city’s existing policy for 15-year terms on tax increment districts for housing development.

by Jim Boyle

Editor

Saxon Auto World on Zane Street and between Highway 10 and the Mississippi River in eastern Elk River has been vacant since it closed in 2009, and it shows.

The blighted area might finally be redeveloped, and tax increment financing is the tool being used to hammer out the final details of an agreement. And it’s not just any tax increment financing tool. It’s an oversized one that extends five years past the city’s existing policy for 15-year terms on tax increment districts for housing development.

The Elk River City Council will cast its final vote on May 17, and the stakes were raised during its May 3 meeting when council members learned the acceptance of a 20-year term for tax increment financing was part of an all-or-nothing purchase agreement for the land, according to Patrick Briggs, the land owner of record with Sun Rae Apartments who had proposed projects of his own previously to no avail.

The latest project would clear away the former dealership and construct two 90-unit market rate apartments along the Mississippi River.

Stonewood Development has asked for rolling TIF districts to build the two buildings based on the extraordinary costs associated with demolition and transition the site for its new use. The idea behind the proposal is that without this assistance, the project could not and would not happen.

The Delta Apartments represents Stonewood’s first apartment project proposal for the former auto dealership site, and it is the first  project for this site that has gotten this close to becoming a reality.

The Elk River City Council has already approved a zone change from FAST to a planned unit development, a conditional use permit, easement vacation and final plat of Delta Apartments.

A previous proposal for Riverwalk Apartments didn’t come close to coming to fruition as several concerns surfaced, including the city’s desire to ensure a trail could run between the apartments and the river and someday be able to link downtown Elk River and Ramsey. The Delta Apartments plan includes a trail easement that runs the length of the buildings to allow for nature trails and improved trails.

The property has had the attention of city officials, who took steps to guide development, and several starkly different proposals emerged in recent years. The first two — a boat dealership with a half-acre pond complete with a dock and pavilion as well as and a high density apartment building —  died before they ever got close to coming to fruition.

A third proposal to restore the facility as an auto dealership was shut down. The former Saxon property will not host an auto dealership again after the Elk River City Council narrowly denied on a 3-2 vote an ordinance amendment allowing auto sales on the property.

One idea was to keep the former Saxon building for temperature controlled storage and to marry that with an apartment building.

That didn’t take hold, but the push to create an apartment complex has been kept alive with Briggs, who first proposed Riverwalk Apartments and has now turned the development over to Stonewood, who is promising to buy the property from Briggs and clean up the site.

The Elk River City Council handled the request for TIF District No. 27  at its May 3 meeting, after the public hearing was opened and continued at the April 19 meeting..

While it was clear on May 3 there was not unanimous support on the council, there did appear to be the majority support that the developer needs.

Council Member Matt Westgaard called the project a great opportunity to get the site redeveloped.

“Supporting the request makes some sense,” he said.

Elk River Mayor John Dietz agrees with the need redevelop the site and said he likes the project being proposed, but said he was having a tough time with the 20-year term being requested.

He noted the projects would have the ability to produce $6.6 million in tax increment that would flow to the developer and not to the city, county and the school district. He also noted the bump to city, county and the school district coffers after 15 years would be delayed another five years under the proposal.

“This deviates too far from our policy,” Dietz said.

This project has been deemed extraordinary due to the fact that it’s not just a residential project, but its also redevelopment project to rid the city of blight along what serves as both an entrance and exit to the city.

The developer has identified $7.7 million in eligible project expenses, and the city’s authority to use TIF to cover site improvements and prep work as well as administrative expenses would top out at $7.3 million.

The maximum term for TIF districts in the state of Minnesota is 20 years, but city policy sets the limit at 15 years on tax increment financing of housing.

The applicant requested 20 years for each phase, “kind of a rolling level of assistance to absorb extraordinary costs,” according to Mikaela Huot, of Baker Tilly, a St. Paul firm which serves as an financial adviser to the city of Elk River.

Stonewood provided information from their lender that supports the need for TIF for the additional number of years, and that information has been reviewed by the city’s joint finance committee.

The total estimated development costs come in at $34.7 million.

Huot said the deviation would be a one-time change and not a change to policy. The developer must show that redevelopment would not occur but for tax increment financing.

Mark Buchholz, of Stonewood Development, thanked the city for working with them and expressed anxiousness and excitement over the gateway project.

“It’s the first thing or last thing people will see when they enter or leave the city,” he said.

He also told council members and city officials he doesn’t enjoy asking for the assistance, but he wants to find an arrangement that works for both his group and the city.

Some city officials thought the appraisal of the property came in off and might cast a shadow over the project, so they called in a third party adviser. The city’s financial consultant received a verbal appraisal from a trusted third party group estimating the property value at $1.9 million less demolition costs for a value of $1.75 million. This is consistent with an appraisal submitted with the original TIF application, according to City Administrator Cal Portner.  

The joint finance committee recommended approval of the TIF project and the proposed deviation.

Council Member Jennifer Wagner was receptive and cautious at the same time, noting the city has gone beyond 15 years for redevelopment.

“What’s unique about this is it’s redevelopment and housing,” Wagner said.

Former Elk River City Council Member Nate Ovall, who serves on the Elk River Housing and Redevelopment Authority with Wagner and on the city’s finance committee, said the finance committee concluded that the combination of factors coming together warranted the longer term.

Because it’s a pay-as-you-go form of tax increment financing, the developer assumes the risk and not the city in more traditional uses of TIF where the city incurs cost from the issuance of bonds.

“In this case the developer is financing the cost 100%, and they are eligible for reimbursement up to the agreed amount and number of years,” Huot told the Star News.

The uniqueness of this project is a big factor. Ovall said there’s a pecking order for TIF districts, with industrial and job creation at the top of the list and development of housing a step below. He noted, however, redevelopment and housing provide together provide a more worthy combination. He said TIF can be used to facilitate changing land uses in certain applications.

“The city’s (policy) is out of alignment with the state guidelines,” Ovall said.

Council Member Mike Beyer said he understands the project is a big commitment and it’s a big deviation but added the property has been empty for a long time and the city would be killing two birds with one stone by adding to its housing stock in a prime area and taking care of a blighted area.

“Sometimes we have to take (big steps),” Beyer said.

Huot said the final terms will be presented at the May 17 meeting.

There was some discussion about whether the developer could proceed with site work.

Briggs clarified that the position of applicant and contract to purchase property a subject to 20-year TIF District.

“The applicant and the seller won’t proceed if it’s not 20 years,” Briggs said.

Buchholz said they are anxious to get going, because of the economy and the state of construction costs.

“When it was two, three years ago, we’d be patient,” he said, noting costs right now have been going up. “We need to start getting contracted with vendors.

“We want to do it together. It’s a big ask. Frankly, we need it.”

Dietz suggested that the developer had three votes that he would need, but said he himself needed more time.

“I think this is a great project and we need to do something,” Dietz said.

Westgaard said a whole lot of real numbers have to be fleshed out and called it a chicken and egg thing on what comes first.

“You have heard us say what this project means to us,” Westgaard said. “We’re willing to consider a deviation while we develop final numbers.”

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