43-unit workforce housing moves forward in Rockford Special Meeting

By Alaina Rooker

Sun Press Newspapers

Third party property sale needed to advance

In lieu of Sand Companies’ deadline to apply for federal and state tax credits for its proposed work force housing project, the Rockford council convened in a special meeting to approve a needed purchase agreement.

This marked the first time the housing project had been discussed out of closed session, which had taken place May 23 and June 1. Workshops had been conducted for the project starting mid-April.

 WHY WORKFORCE HOUSING?

Sand Companies is interested in purchasing land near the Rockford City Center Mall to develop an apartment complex designed to be affordable to those building a career locally.

In a letter to the city dated April 25, Sand Co. described the benefits of a workforce development: “The research demonstrates that the development of housing increases spending and employment in the surrounding economy, acts as an important source of revenue for local governments and reduces the likelihood of foreclosure and its associated costs.”

Without sufficient and affordable housing, local and regional employers are at a competitive disadvantage, the letter says.

The complex would be a mix of one- to three-bedroom apartments, with a starting monthly cost of around $805 for a one-bedroom which would include underground parking, water/sewer, waste removal and utilities. Potential residents are screened for adequate credit, along with their past rental and criminal histories. There is also a check for the applicant’s income, which must be at least two times the cost of rent plus utilities.

Since 1995, Sand Co. has built 26 developments in cities like St. Michael, Maple Grove, Plymouth, Shakopee, Blaine, Bloomington, and St. Cloud.

THIRD PARTY PROPERTY PROBLEM

To move forward, Sand needs to acquire two city-owned properties and an additional property owned by a third party. As of press time, this party had expressed interest in selling the property to the city this winter.

However, the city wasn’t sure they wanted to buy it.

A few drafted purchase agreements were offered at the June 15 meeting, centered around how the third party property will be acquired and who (Sand or the City of Rockford) would acquire it. The first option included the city’s purchase of the third party property in the winter of 2017, with a closing of all properties to Sand Co. after late June 2018. The second involved Sand Co. purchasing the third party property independently and the city contributing its two parcels only.

In a memorandum to the council, city staff expressed concern over the risk of purchasing the third party property. In the event of Sand Co. abandoning the project, the city would become ultimately responsible for buying a property with their own funds.

The memorandum noted some protections were included in the purchase agreements to protect the city in a worst case scenario. One of these protecting clauses includes a $250,000 non-refundable escrow that would go to the city if they decided to purchase the third party property, which would cover the sale and demolition costs. If Sand Co. defaults or fails to close on the properties by June, the money would be retained by the city.

Demolition of houses on city properties would not have to begin until Sand Co. closed in June.

Still, staff warned that ultimately “there is no language in a purchase agreement that can completely and fully protect the City from this situation– or litigation– if the wrong chain of events take place.”

In response to wariness of council and staff, Megan Carr, Senior Business Development Manager of Sand Co., offered the company’s perspective on the purchase agreements. “In neither scenario would you acquire additional property. . .you ‘would,’ but you would have all that [escrow] money sitting in the bank. If we said no, that would come back to us. You guys would have the money, so you’d be whole.”

If the city decided to acquire the third party property this December or January, Sand Co. would take on the property in the event that the project fell through.

“I think we’ve done a lot to mitigate the city’s risk,” said Sand.

NEEDED CONTRIBUTION

To further complicate the situation, the project needs a minimum contribution from the city to be eligible for points; the points help decide the amount of state and federal money the project receives, and whether it happens at all.

If Sand was tasked with purchasing the third party property, then the city’s contribution (including land, waived fees, and costs) would come to 5.7%. That lower percentage was not something Carr recommended, as projected costs could vary and any potential savings could bump that percent contribution too many decimals in the wrong direction, giving the project little to no points.

If the city purchased the extra property for Sand, the percent contribution would be much higher, and more likely to get adequate funding. That certainty had originally been enticing to the city, but a recent decision on Sand’s behalf to use a lower valuation of the city properties to be sold to them had called it into question.

“Option one drastically increased our likelihood of getting funding,” said City Administrator Dan Madsen of the city purchasing the third party parcel for Sand. “When that valuation of all three parcels was decreased, it decreased the likelihood that we would be awarded this development. It’s still a possibility, but it’s decreased points on the application.”

Sand Co. actually requires 10% contribution from the city, but the additional funding will be made over time through Tax Increment Financing, or TIF, which would reallocate property tax money back to Sand.

Councilor Rick Martinson was not in favor of involving the city in purchasing the extra parcel, due to his disinterest in “spending any more money or owning any more property.”

Councilor Ted Hill echoed Martinson’s dissent. “As I have been very clear, I would never support option one,” he said.

Still, the council voted to move forward, approving the option that removed city responsibility from purchasing the third party property with a 3-2 vote. Councilor Ted Hill and Rick Martinson voted against. City administrator Madsen agreed to begin introductions between Sand Co. and the third party homeowner, who had only agreed to sell to the city so far.

Sand Co. will hear back from MN Housing on their request for $911,000 in credits in October. If funding is adequate, ground breaking for the apartments would be slated for spring 2018.

Contact Alaina Rooker at [email protected]