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HomeMy WebLinkAboutDMCC Resolution No. 166-2025 (Approving Amendment To Resolution No. 146-2024 In Connection With Request For Private Development Funding (Civic Center North Project))DESTINATION MEDICAL CENTER CORPORATION RESOLUTION NO. 166-2025 A RESOLUTION APPROVING AMENDMENT TO RESOLUTION NO. 146-2024 IN CONNECTION WITH REQUEST FOR PRIVATE DEVELOPMENT FUNDING (CIVIC CENTER NORTH PROJECT) The following Resolution was offered by Paul Williams, seconded by Mark Thein. BACKGROUND RECITALS A.Pursuant to Resolution No. 146-2024, the Destination Medical Center Corporation (“DMCC”) approved (1) up to $3,000,000 in funding through general state infrastructure aid under Minnesota Statutes, Section 469.47, subdivision 3 and (ii) up to $13,000,000 in funding from tax increment financing (the “Approval”) to support the development of the Civic Center North Project, as further described in Resolution No. 146-2024 (the “Original Proposed Project”). The Approval was subject to the Original Proposed Project including certain public realm improvements within the project, as well as connecting to the City of Rochester’s (the “City”) thermal energy network (the “Project Requirements”). B.Subsequent to the Approval, the City paused implementation of the City’s thermal energy network, precluding the Original Proposed Project from satisfying the Project Requirements. On April 27, 2017, the DMCC approved Resolution No. 51-2017, which requires additional review of projects upon material deviation from the approvals granted, to ensure that “as-built” projects are consistent with approvals that have been granted. As a result, a new joint funding application was required to be submitted. C.Sherman Associates Development (the “Applicant”) submitted a new joint funding application (the “Request”) for funding to facilitate the construction of the “Proposed Project” as originally defined in Resolution No. 146-2024, but with removal of the Project Requirements from the Original Proposed Project (the “Revised Proposed Project”). D.The DMCC is charged with evaluating whether a proposed project (i) is consistent with the Destination Medical Center (“DMC”) vision, goals and objectives; (ii) is consistent with the Development Plan, adopted by the DMCC on April 23, 2015, as amended (the “Development Plan”) and any updates; (iii) is consistent with adopted strategies, phasing and capital improvement planning; (iv) is financially viable; and (v) complies with or support the economic- fiscal goals and objectives of the DMC initiatives (collectively, the “Evaluation Criteria”). E.Staff from the City and the Destination Medical Center Economic Development Agency (the “EDA”) have reviewed the Request and the Revised Proposed Project in light of the Evaluation Criteria. F.The EDA has recommended approval of the Revised Proposed Project based on the summary and recommendations attached hereto as Exhibit A and recommends the Approval be amended as follows: (1) rescind the approval of the $3,000,000 in funding through general state infrastructure aid under Minnesota Statutes, Section 469.47, subdivision 3, (2) re-endorse the 2 City’s financing of up to $13,500,000 in funding from tax increment financing, without seeking credit to the City’s $128,000,000 local contribution and (3) approve up to $500,000 to support public realm improvements occurring as a part of the Revised Proposed Project. This recommendation of approval is based on the application of the Evaluation Criteria. G.As originally set forth in Resolution No. 146-2024, the Revised Proposed Project continues to sufficiently advance the goals of the Development Plan despite the removal of the Project Requirements. H.The DMCC has considered the recommendation of the EDA and based on the materials submitted, has independently evaluated whether the Revised Proposed Project is consistent with the Development Plan and the goals of the DMC. RESOLUTION NOW, THEREFORE, BE IT RESOLVED, by the DMCC Board of Directors, that the DMCC approves the Request based on the following findings of fact: 1. The Revised Proposed Project meets the definition of a public infrastructure project within the meaning of Minnesota Statutes, Section 469.40, subdivision 11. 2. The Revised Proposed Project lies within the Development District. 3. The Revised Proposed Project is consistent with the goals and priorities set forth in the Development Plan. 5. The Revised Proposed Project requests up to $500,000 in DMC funding and a re-endorsement of the City’s financing of up to $13,500,000 in funding from tax increment financing. The Revised Proposed Project includes eligible public infrastructure improvements, including, site preparation and remediation, utility connections, streetscape enhancements, sustainable energy systems, and parking infrastructure. The total cost of said public infrastructure improvements exceeds the amount of assistance. 6. The Revised Proposed Project may not proceed without the public funding, and the requested DMC funding will provide gap financing to support extraordinary growth in the market, as contemplated in the Development Plan. 7. The Revised Proposed Project will serve as a catalyst or anchor development in the subdistrict. 8. The Revised Proposed Project activates the area through the introduction of commercial space or visible recreational building amenity uses on street level. 9. The Request provides sufficient evidence of financial viability. 10. The Request supports the economic strategies of the Development Plan by providing civic/cultural uses and/or public amenities that support strategic growth in the 3 Development District and/or specific business development and economic development strategies that are adopted as part of the Development Plan. BE IT FURTHER RESOLVED, that the DMCC Board of Directors approves the Approval being amended to rescind the approval of $2,500,000 of the $3,000,000 in funding through general state infrastructure aid under Minnesota Statutes, Section 469.47, subdivision 3 and to re-endorse the City’s financing of up to $13,500,000 in funding from tax increment financing, without seeking credit to the City’s $128,000,000 local contribution, subject to the following conditions: 1.The Applicant must provide evidence of financing for the Revised Proposed Project satisfactory to the DMCC Board of Directors, such evidence to be presented within the time period set forth in the City’s approved development assistance agreement. 2.The Revised Proposed Project must meet all City requirements, including, without limitation, execution of a development assistance agreement by and between the Applicant and the City. 3.The Revised Proposed Project must meet all conditions set forth in Exhibit A. 4.Any modification to the scope of the Revised Proposed Project, as set forth in Exhibit A, will be subject to subsequent approval by the DMCC. 5.An agreement by the parties to the development assistance agreement as to both tax increment financing and general state infrastructure aid that secures public funds and enforces the income-affordability criteria set forth in the agreement for a period of at least thirty (30) years, requiring repayment for breach or default. 6.The Applicant must provide evidence of long-term income affordability criteria and appropriate enforcement as set forth in the City’s approved development assistance agreement. 7.The DMCC Board of Directors shall receive periodic updates from the EDA as to the status of the satisfaction of the conditions set forth in this resolution, the Revised Proposed Project expenditures, and the ongoing status of development of the Revised Proposed Project. BE IT FURTHER RESOLVED, that DMCC Resolution No. 51-2017 is incorporated fully herein by reference. BE IT FURTHER RESOLVED, that the Chair or the Treasurer of the DMCC is authorized to transmit this Resolution to the City, and to take such actions as are necessary and appropriate to effectuate the findings and approvals of this Resolution. 31604767v3 The question was on the adoption of the Resolution and there were YEAS and NAYS,as follows: BOARD OF DIRECTORS Destination Medical Center Corporation OTHER Douglas M.Baker,Jr. James R.Campbell Kim Norton Randy Schubring Mark Thein Pamela Wheelock Paul D.Williams EEame1aWheelock,Chair Destination Medical Center Corporation 7 0 X X X X X X X EXHIBIT A Civic Center North (Sherman) To: DMCC Board of Directors From: DMC EDA Date: May 16, 2025 Request of the board of directors: This project has changed since 2Q2024’s DMCC and City Council action. The City of Rochester’s pause on the downtown district thermal energy network in December 2024 means that this project cannot be the first private customer of the network due to timeline incompatibilities. In addition, the overall unit mix and count has changed. The DMC EDA recommends: •Rescinding the prior commitment of $3 million in DMC GSIA funds to this project due to the City of Rochester’s pause on the downtown district thermal energy network. Those funds would then be available within the Strategic Development CIP budget for re-deployment to this project or to others under evaluation. •Affirming the City of Rochester’s plans to finance up to $13,500,000 in project expenditures from tax increment financing bonds authorized under DMC statute, without seeking credit to the City’s $128,000,000 local contribution. •Authorizing $500,000 in GSIA to support the riverfront public realm component of the project. •Making these approvals contingent upon: o Mutually agreed upon final design for the public space and the pending private development o Site development commencing before year-end 2025 or sooner if the City of Rochester directs it to be so Background: The site was the subject of an RFP released by the City of Rochester for a mixed-use development at 217 East Center Street in Rochester, Minnesota, known as the Rochester Civic Lot. Sherman Associates was selected as the preferred development partner and has been working to advance a project on the site. Their proposed project includes the construction of two residential buildings on a 77,006 square foot site located just northeast of downtown. The exclusive development agreement, which has been extended multiple times, is due to expire in June 2025 if no development agreement is reached. In May 2024 DMCC and City Council authorized (in RESOLUTION NO. 146-2024) $3M in GSIA funds and $13M in TIF to support the development of 246 units of market rate housing and 84 units of affordable housing on this City-owned surface parking lot located at 217 E Center Street. The GSIA funds were primarily granted in order to support the extraordinary costs of this project being the first private customer of the City’s downtown thermal energy network. In December of 2024 Rochester City Council voted to pause the implementation of that thermal energy network indefinitely. Due to the fact that the option to connect to a district thermal energy system is no longer available to the developer, and thus it is a different project, an updated application has been submitted for review. The revised project is as follows: − An 76-unit, five-story affordable housing building utilizing Section 42 Low Income Housing Tax Credits (LIHTC) − A 14-story market-rate apartment building with 265 units − A 348-stall structured parking garage − A riverfront trail connection The affordable building will include studios, one-bedroom, and two-bedroom units. All 84 units will be income- restricted, serving households earning at or below 30% or 60% of the area median income (AMI). Eleven of these units will be further subsidized and targeted to High Priority Homeless (HPH) individuals and Persons with Disabilities (PWD). The project is designed to create new housing opportunities in a centrally located, transit- accessible part of Rochester, addressing both market-rate and deeply affordable housing needs. Fulfilling the DMC Vision, Mission, and/or Goals: The project aligns with the following DMC and City priorities as follows: • Mixed-income housing project within the Downtown Waterfront subdistrict of the DMC • Revitalizes underutilized site • Provides a balanced and sustainable housing stock • Promotes neighborhood stabilization and revitalization • Increase to the city’s tax base. • Project is being designed to meet minimum City and DMC Sustainable Design Requirements which will also benefit occupants in terms of lowering their monthly utility costs via improved building efficiency MEMO To: DMCC Board of Directors From: City of Rochester, Administration Date: April 24, 2025 Subject: Consideration of the Civic Center North Project GSIA Request The City of Rochester provides the following update on the Civic Center North Project. Sherman Associates Development (the “Applicant”) has submitted revised materials, and the City finds that the project aligns with the Destination Medical Center (DMC) vision and the shared goals of both the City and DMC. Affordable senior housing in transit-accessible, mixed-income settings remains a top priority for both entities. In May 2024, the DMC Corporation Board and the City Council approved an allocation of up to $3 million in GSIA funding for the project. Additionally, up to $13 million in Tax Increment Financing support has been conditionally approved as part of the overall development negotiations. The project would also benefit from the contribution of City- owned land. In response to a pause in the City’s planned Thermal Energy Network (TEN), the Sherman team has shifted away from designing a development that would connect to the network. As a result, the project is being redesigned without integration into the TEN’s system. Although the development will no longer include geothermal systems, the project has transitioned to other sustainability measures. As a result of these changes, the Applicant must seek reapproval of the GSIA funding originally allocated in 2024. Project Overview: The project is a residential development featuring both market-rate and affordable housing units. The market-rate building is ~265 units in a 15-story structure, while the affordable building includes a 76 unit, 5-story low-rise building designated for senior housing. Together, the two buildings will wrap around three sides of an above-grade parking structure that will serve the parking needs of the development. This will improve the visual streetscape and create a more pedestrian-friendly environment, aligning with the City’s goals of promoting walkable, vibrant neighborhoods. The project includes numerous areas of green space, shared uses, and public amenities. Green space surrounds the entire property enhancing the pedestrian experience, with particular emphasis placed on landscaping along the riverfront. Of the 76 affordable senior units, 36 units will be reserved at 50% Area Median Income (AMI) and 14 will be available to those at 30% AMI. This deep level of affordability ensures that low-income seniors have access to safe, high-quality housing, addressing a critical need in the community. Both projects combined will result in over 22% of total unit count being affordable at or below 60% AMI. Sustainability Features: The sustainability elements of the design include: •The tower will achieve both National Green Building Standards Silver and Energy Star Multifamily New Construction certifications, be solar-ready, and meet SB2030 standards. •The low-rise will achieve both Enterprise Green Communities and Energy Star Multifamily New Construction certification, be solar ready, and meet SB2030 •Sustainable transportation will be supported with EV charging stations and bike storage •Incorporate energy-efficient electric heat pumps, high-efficiency gas heating, direct expansion cooling, Energy Star appliances, and solar-ready upgrades •Participation in Rochester’s Energy Benchmarking program Financial and Development Support: The Applicant has provided a detailed list of eligible public infrastructure improvements associated with the project. These include site preparation and remediation, utility connections, streetscape enhancements, sustainable energy systems (high efficiency magic paks, water source heat pumps), and parking infrastructure. The total cost of these improvements exceeds the amount of public assistance requested. The Applicant has shared comprehensive financial documentation with City and DMC EDA staff. The project will leverage a mix of private and public funding sources, including tax credit equity, HUD loan, TIF, owner equity, and other financing tools. Despite these funding efforts, a financing gap remains, based on a reasonable return on private investment. Without securing $3 million in GSIA funding, the project is shown to have a $5 million gap. With $3 million GSIA the gap is $2 million, and the development team believes that they will be able to close that gap to get to a point where construction can occur. Alignment with DMC Goals: Given the changes in the broader funding environment for 2025, this project represents a critical opportunity to provide a mixed-income housing project with the Downtown Waterfront subdistrict. The project aligns with the following DMC and City priorities as follows: • Revitalizes underutilized site • Provides a balanced and sustainable housing stock • Promotes neighborhood stabilization and revitalization • Increase to the city’s tax base • Designed to meet City and DMC Sustainable Design Requirements which will also benefit occupants in terms of lowering their monthly utility costs via improved building efficiency Public Infrastructure Improvements: Eligible public infrastructure elements for the project include: •Site preparation and remediation •Utility and streetscape improvements •Parking and environmental clean-up The project’s parking ramp, which will be concealed by the development’s wraparound design, is considered a critical public infrastructure improvement. By integrating the parking into the overall design and concealing it from view, the project helps improve the surrounding urban environment, enhancing both aesthetically and functionality. This integration supports the creation of a more welcoming, walkable space for the public. Additionally, the development brings significant housing density to an area that currently lacks retail and entertainment options. This increased residential presence is expected to support and attract future commercial amenities, helping to catalyze a more vibrant, mixed-use neighborhood. City Staff Recommendation: Approval of this project by the DMCC Board as a DMC Public Infrastructure Project is required before the City Council can take action. Any DMCC approval should be contingent upon future approval by the City and the City EDA of both the Development Assistance Agreement (DAA) and the final TIF assistance amount. Sherman is requesting the reauthorization of $3 million in General State Infrastructure Aid (GSIA) to support the revised scope of the project. However, the City and the DMC Economic Development Agency (EDA) are recommending a reduced GSIA allocation, based on the fact that the project no longer includes the use of district energy or a geothermal system—both of which were key components in justifying the original GSIA commitment. To enhance public space and infrastructure, the City and DMC EDA recommend an allocation of up to $500,000 to support improvements to the riverfront public realm. This funding will contribute to the creation of high-quality, accessible amenities consistent with community goals for placemaking and waterfront activation. In addition, the City recommends the allocation of up to $13.5 million in DMC Tax Increment Financing (TIF) to support continued project implementation and to facilitate progression through the City’s formal review and approval process. Sincerely, Josh Johnsen Strategic Initiatives Director City of Rochester DESTINATION MEDICAL CENTER ECONOMIC DEVELOPMENT AGENCY MEMORANDUM To: Chair Pam Wheelock and the Destination Medical Center Corporation Board of Directors From: Dr. Clark Otley, President of the Board of Directors Patrick Seeb, Executive Director Destination Medical Center Economic Development Agency Date: May 16, 2025 Re: Sherman Associates (Civic Center North) DMC Funding Recommendation Dear Chair Wheelock and members of the DMCC Board of Directors: The DMC legislation provides that the DMC EDA must assist the DMCC by “evaluating proposals for development and evaluating and making recommendations to the (DMCC) and the city regarding those proposals.” Following our evaluation, the DMC EDA board of directors recommends that the DMCC board of directors approve up to $500,000 in DMC General State Infrastructure Aid (GSIA). This figure is less than the revised amount requested by the applicant ($3 million). We provide this recommendation following thorough consideration of the project as previously described in the 2024 Joint Funding Application, the priorities expressed by the DMCC, and the goals and objectives of the DMC Development Plan. In addition to our previous project evaluation, other factors may weigh in your independent consideration of this funding request and our recommendation. These factors may include: •Public Benefit. When previously approved, the proposed project included several elements that the DMC EDA deemed to be of specific public benefit. Several of these project elements, including public realm improvements at the Zumbro River frontage, remain. Importantly, our revised recommendation for DMC support is offered in recognition that the proposed project is no longer slated to connect to a future downtown thermal energy network. •Opportunity Cost. We fully recognize that this recommendation is being provided alongside several others and that, if approved, these combined recommendations will draw DMC “strategic development” funds down to approximately $300,000. Even so, we heartedly offer this recommendation and, should the approval of a future funding request require the DESTINATION MEDICAL CENTER ECONOMIC DEVELOPMENT AGENCY authorization of funding outside the usual capital budgeting process, we will balance that request against competing demands on DMC resources. •Alignment with DMC Priorities. Each application for DMC funding is unique, and the considerations around each proposed project necessitate careful, singular evaluation. An additional consideration of the DMC EDA is whether—and if so, how—a given project aligns with our understanding of the priorities of the DMC Corporation and City of Rochester. This is an inherently subjective determination, but DMC processes, including a standard application, advisory review by City staff and the DMC EDA, successive agreement by the DMC Corp. and City of Rochester, and final approval of expenditures by DEED, safeguard against the non- aligned or imprudent allocation of public funds. We recognize and appreciate this process. In closing, we recommend several conditions be applied to the project to ensure that DMC interests are protected and goals are met. For the reasons noted above and in our previous report, the DMC EDA board of directors respectfully submits our funding recommendation. Thank you for your consideration. Respectfully, Clark Otley, M.D. Patrick Seeb President of the Board of Directors Executive Director