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HomeMy WebLinkAbout03-25-19861 RECORD OF OFFICIAL PROCEEDINGS CITY OF ROCHESTER, Special Meetinq No. 27 - March 25 Agenda Item OF THE COMMON COUNCIL MINNESOTA 1986 A-1 President Postier called the meeting to order at 3:00 P.M., the following members being present: President Postier, Aldermen Allen, Bluhm, Duffy, Powers, Solinger and Strain. Absent: None. The call of the special meeting was -read by President Postier, the same being called for the purpose of approving the Phase I agreement for the D5 Development Project, and any other business the Council may deem proper. E-1 Stevan Kvenvold, City Administrator introduced Mike Neimeier, presenting the D-5 project. He explained the various stages of development and the needs of the D-5 project and how the City would become involved. Mr. Kvenvold also mentioned the fact that the other proposal ( Mortenson Development Company ) had sent a letter to the City requesting an additional couple of weeks in order for them to present a project to the City. Mr..Kvenvold stated that this time that the administration of the City of Rochester recommended the selection of the Olympus Lombard Maddux project ( Phase I) as developer in the downtown area of the City of Rochester. Wishing to be heard was Harold W. Milner of the Kahler Hotel. Mr. Milner is president of the Kahler Corporation and issued the following statement. The unaminous decision of the Council allowed Mr. Milner the opportunity to be heard. Normally citizens can only be heard at hearings. My name is Harold W. Milner. I am president of the Kahler Corporation I appreciate this opportunity to meet with you and discuss the Kahler Corporation's position on Downtown Development in general and the D-5 project in particular. Specifically, I would like to request the Advisory Board to consider delaying of the approval of a Phase I Agreement for two weeks. The reasons for this are as follows: 1. The Bill Maddux/OLM group made major, last minute changes in their proposal. I believe Kahler (and in fact the whole city of Rochester) should be allowed two weeks to study these changes. 2. The M. A. Mortensen Company has presented an impressive proposal for downtown Rochester development and has shown their good fait by backing their proposal with a $100,000 letter of credit. Mortensen has not been afforded an opportunity to discuss their proposal with the City staff; and, in fact are not here today because they learned late Friday afternoon that this meeting had been postponed from yesterday and they had a commitment for toda in Denver that they could not break. The Kahler Corporation has been an active supporter of downtown revitalization. Through extensive contributions of staff time and mor ���01 RECORD OF OFFICIAL PROCEEDINGS OF THE COMMON COUNCIL CITY OF ROCHESTER, MINNESOTA Special Meeting No. 27 - March 25, 1986 Agenda Item E-1 we have taken an active role in downtown development going back in recent years to the Development Control Corporation's proposal. Our staff has actively participated on the Development Advisory Board, was instrumental in the formation and we were charter members of Downtown Tomorrow Inc.,Downtown Business Association, The Chamber of Commerce and various committees on streetscaping, transit planning, redesign of Broadway, etc. Wehave demonstrated our support of the new Civic Center --Attraction Center by pledging $250,000. In the past year, since I have resided in Rochester, we have supporte the D-5 development to the fullest extent possible believing Kahler involvement in D-5 would be consistent with our stockholders' interes From our original position on some of the proposals, we have made many compromises as we saw the proposals fading from feasibility without our help. There have been many ups and downs as projects were proposed, analyzed, modified and failed. This past summer we saw the original overly ambitious proposal of Olympus/Lombard falter when the Phase I Agreement was allowed to expire. In August 1985, we saw the bringing in of a new experienced partner, Maddux Properties. At that time Mortensen Construction Company was dropped from the Olympus/Lombard development team. Bill_ Maddux stated as he entered the D-5 project that he wanted to involve the local property owners and he assured Kahler any hotel in the project could belong to Kahler. Kahler Corporation's first contact with Bill Maddux occurred in the summer of 1985. On September 4, 1985 we met again and were encourage by his apparent change in philosophy from the previous developer's to provide cooperation with adjoining property owners rather than the previous approach of isolating the D-5 project from neighbors. We said to Bill Maddux, "We would like to work with you; when you have your plans developed and some costs put together, let's meet and see where we can fit in." We met again on September 19th at Bill Maddux's office to discuss further. cooperation and where the hotel should be located in the project. We considered whether the hotel should be east of Broadway or on the Zumbro Hotel site. My staff met again with Bill Maddux's office on September 24 to provide them with information about our properties. The next meeting was November 13 when we spent the better part of a day meeting and discussing the project and joint development alternatives. We met again on November 20 as a follow-up of the last meeting to discuss the matters further and provide additional information. S. 1 RECORD OF OFFICIAL PROCEEDINGS OF THE COMMON COUNCIL 6119 CITY OF ROCHESTER, MINNESOTA Special Meeting No. 27 - March 25, 1986 Agenda Item E-1 . For the next six weeks we heard nothing from Bill Maddux. On January 3, 1986, following a meeting with Doug Knott and Steve Kvenvol t which D-5 was discussed, I called Bill Maddux to find out the statu f his D-5 project. I was told by Bill Maddux very abruptly that Kahler was no longer in the project and OLM was "going it alone". A otel east of Broadway was in the plan to be developed and owned by thers. This came as a surprise after having been told specifically y Bill Maddux that: "Kahler would have the opportunity to own the otel." Before the end of the conversation, it was agreed to meet gain and reconsider the involvement of Kahler in the project and in he ownership of the hotel. We met in Rochester on January 13, 1986. At that meeting we discusse, the specifics of D-5, how we would work together and how Bill Maddux could arrange financing for all of us. We had a follow-up meeting in Bill Maddux' office in Minneapolis on January 16. Because Bill Maddux has throughout these negotiations not been consistent in his position of working with Kahler, it became apparent to us that we needed to work on our ,own development plan. The recent announcement of the Mayo Clinic to develop a new world class medical conference center on the 1914 site gave us new impetus to redevelop the Zumbro Hotel. We felt very strongly this conference center required supportive services and quality hotel rooms adjacent. While it.was.our first choice to reach agreement with Bill Madduxx, Kahler would be prepared to develop its own Zumbro Hotel -Wilder Masonic Lodg( site. We had already requested from the City that the alleys adjoining the Zumbro Hotel be vacated to permit a contiguous developm( We gave consideration to who in addition to Bill-Maddux were logical partners to move forward quickly with our own plan. We knew that under the Development Advisory Board's development guidelines that as owner of the property we have the right to make a proposal for the use of our own property and receive a 30 day notice. (At this point, there had been several proposals from OLM using various blueprints, none of which had been approved by the adoption of Phase I agreement.) The Kahler Corporation retained the BRW architectural firm because of its excellent architectural capabilities and its intimate involvement in the planning process of D-5. We also brought Mortensen Developmeni Company into participation because of its performance record, and lon( interest and involvement with D-5 dating back to prior to the City requesting proposals. We had a number of meetings with.BRW and Mortensen to develop a plan for our site with two key dates in mind: 1) The Kahler Board of Directors meeting on January 30 and 2) the Downtown Development Advisory Board's tentative meeting date of February 6 when plan submissions for D-5 were.to be made. We had been assured that: Ent. Ir 2620 RECORD -OF OFFICIAL PROCEEDINGS OF THE COMMON COUNCIL CITY OF ROCHESTER, MINNESOTA SRarial MPPtinn Nn-_ 27 - March 25, 1986 Agenda Item E-1 1) The OLM Phase I Agreement had expired; and,2) Kahler could submit a proposal and enter directly into a Phase II Agreement with the City for the use of its property. Negotiations with OLM took a different turn as the City staff and Mayo Clinic encouraged Kahler and Bill Maddux to work out a common plan because of the many inherent advantages of .3 coordinated plan. The City expected to gain from the coordinated plan as follows: 1. Better coordination of the building uses and allocation of spaces. 2. Superior connections between the Clinic properties and the D-5 development area. 3. No risk of potential legal problems regarding the right to connect to the subways and acquisition of land through condemnation procedures. 4. Kahler's participation would also assure substantial tax increments with minimal city acquisition costs because the following three major property holdings were to be made part of D-5 and financed with private funds: a) Wilder Lot b) Zumbro Hotel c) One Hundred First Avenue Building --second floor which OLM utilize for retail space and connections. The Mayo Clinic would benefit from an adjacent, high quality hotel facility, a favorable connection through the new proposed conference cneter and the availability of convenient office facilities. We were concerned that if the Zumbro Hotel was not included in the project with private financing, it would probably remain for many years as a somewhat antiquated building in the center of a new Rochester. The plan developed by Kahler included the entire east half of the block west of First Avenue between Second Street and First Street including the Masonic Temple Building; this area was included for several reasons: 1. We did not want the Masonic Building being the only building except the Plummer Building that would not be new on the entire block. 2. The Masonic Building precluded having an entire new 1/2 block image facing the retail core of the city. itogratio 3. Because of its function as a lodge, it did not permit/wish other uses or vacilitate skyway extension to the First Bank. 4. We felt a minimum of 75 underground parking spaces were needed on site to allow the hotal and office space to functior property and parking under the entire 1/2 block is required to achieve this parking. Our plan included approximately 200 quality hotel rooms, two levels of retailing with 23,000 square feet and 40,000 square feet of office. It provided for skyway connections to the north, east and south. 1 1 RECORD OF OFFICIAL PROCEEDINGS OF THE COMMON COUNCIL ���� CITY OF ROCHESTER, MINNESOTA Special Meeting No..27 - March 25, 1986 Agenda Item E-1 Our concept was to build our development to be: 1) self supporting from an economic and tax increment basis and 2) provide the connectioi to encourage development in adjoining blocks, especially the D-5 block. We feel we had succeeded in satisfying these objectives. In February, we were approached to have additional meetings with OLM under the guidance of the City. On February 5 the first of three weekly meetings took place with representatives from the City Council City staff, Mayo Clinic, OLM Joint Venture and the Kahler Corporation In between these weekly progress meetings, OLM and Kahler met, sometimes including City staff on particular issues. Our staff also met with HGA and Bill Maddux's staff and provided proprietary information to assist them in plan design as part of their developmen team. Based on assurances received, we discontinued activities with Mortensen. As part of these discussions, an Agreement was reached between Maddux Properties Inc. and Kahler. Documents were prepared including such matters as: 1. Description of development 2. Developer and fees 3. Financing terms and responsibility for obtaining 4. Construction responsibility and fees 5. Parking facilities 6. Ownership of completed facilities 7. Management of facilities 8. Project costs The agreement was discussed as recently as March 10 with Bill Maddux with agreement on all matters being reached. A follow-up meeting was set for March 20. Based on the agreement that had been reached on March 5, 1986, I appeared at the Downtown Advisory Board meeting on March 6 and publicly supported the Bill Maddux plan. I did this because I believed agreement with Maddux was more favorable to Kahler. Kahler made many compromises and commitments during our negotiations including: - We agreed to own the hotel east of Broadway developed by Maddux - We agreed to a plan for the second floor of the One Hundred First Avenue Building to be at Bill Maddux's disposal for leasing and management ' - We would provide a first class connection from Mayo Clinic Buildings to D-5 part of the project - We agreed to build office and retail space west of First Avenue that would generate substantial tax increment which was to be made available to other blocks of the project. - We agreed to use Bill Maddux as developer and/or contractor for the project. is Ir 2622 RECORD OF OFFICIAL PROCEEDINGS OF THE COMMON COUNCIL CITY OF ROCHESTER, MINNESOTA Special Meeting No. 27 - March 25, 1986 Agenda Item E-1 On Friday, March 14, I contacted Bill Maddux by telephone. We discussed the agreement between OLM and Kahler. Bill Maddux said the interest of Mayo Clinic in leasing space at the proposed Masonic Building office site looked good. He did not tell me of any change in plans. Our meeting of March 20 was still on. On Monday, March 17 Steve Kvenvold informed me of Bill Maddux's change of plans. Upon my return to the office on March 19, I received a letter from Bill Maddux advising me of a complete change in the plans and proper to be acquired, ownership of buildings and proposing a different arrangement altogether which excluded Kahler. He cancelled our meeting of Thursday, March 20, and told me he would be out of town until after the Advisory Board and City Council meeting then scheduled to occur on Monday, March 24. This precluded any opportunity to meet until action on the Phase I Agreement would have been taken by the Advisory Board and the City Council. We have asked that the designation of the developer be extended for two weeks. We feel that the change in direction was unexpected, unwarranted and violates the process implemented by the City and followed until last week. Maddux Properties now asks for immediate action by the City on a substantially revised proposal which eliminates the Kahler Corporation's participation in the Project. In order to bolster this revised proposal, the City is asking that the Kahler Corporation develop a new hotel on the site of the Zumbro Hotel and the half of the Wilder lot which Maddux Properties does not want. The Kahler Corporation has no commitment by the City or Maddux Properties to support, coordinate or assist with such development (while the City and Maddux Properties are to provide substantial assistance to an outside hotel chain as part of the new proposal). Under these circumstances, where Maddux Properties/OLM.continues to bE unwilling to honor its previous commitments to the Kahler Corporation we can see only two reasonable alternatives: A. If the City intends to commit to Maddux Properties/OLM, the Kahler Corporation must evaluate the feasibility of construction of the new hotel on the Zumbro site and the remainder of the Wilder site. This would require substantial redesign of our proposal and an evaluation of the feasibility of the revised design. We have not been able to complete this re-evaluation in the 24 hours, since we met with Maddux Properties, the Clinic and the City and were told by Maddux Properties that The Kahler Corporation was clearly no longer to be a part of the D-5 pro- ject. We also need to discuss with the City and with Maddux Properties the coordination of that.work with the new D-5 pro- posal and the availability to The Kahler Corporation of the benefits being offered to an outside hotel chain for its part of the Maddux Properties project. 1 Agenda Item E-1 L RECORD OF OFFICIAL PROCEEDINGS OF THE COMMON COUNCIL CITY OF ROCHESTER, MINNESOTA Special Meeting No. 27 - March 25, 1986 B. We need to proceed simultaneously to work with M.A. Mortensen on their proposal. The Mortensen proposal appears to be very beneficial to the City and complimentary to The Kahler Corpora- tion's planned development on the Zumbro and Wilder -Masonic sites. The Kahler Corporation is willing to proceed to work with Mortensen and, we expect to have a proposal to present to the City within two weeks. We believe this proposal will be superior to the Maddux Properties/OLM proposal in several re- spects, such as more convenient access to the medical complex, cl to the City and similar matters. The'Downtown Development Advisory Board's own policies indicate the wisdom of providing property owners at least 30 days to respond to proposals to present their own plans. Here Maddux Properties has by assurances of our involvement in the D-5 project, prevented the Kahler Corporation from presenting its own proposal. The current change should entitle The Kahler Corporation to 30 days to evaluate the new proposal which terminates its right to participate in develo ment of its own land. These questions are not merely of interest to The Kahler Corporation. Answers to these questions are needed by the City prior to making the kind of commitment requested here today. Once exclusive rights ti develop our property is given to Maddux Properties, the City may lost its.ability to make intelligent decisions concerning the ex- ecution of a Phase II Agreement by eliminating its other choices. In view of the changed terms of the Maddux Properties proposal, we feel that the City, as well as M.A. Mortensen and The Kahler Corporation deserve two weeks to analyze and evaluate the new proposals and the alternatives. Alderman Powers stated that the Kahler Corporation had time to presen their views of the proposals. He stated that up until March 6, of this year, they were included in the OLM D-5 project. Alderman Powers was not in favor of giving them more time. Wishing to be heard was Gus Chafoulias of 930 8th Street S.W. and is the original developer of D-5 project. Mr. Chafoulias stated that he included the Kahler Corporation.and tried numerous times to meet with them and until recently, the Kahler Corporation was meeting with them. Mr. Chafoulias stated that they spent over $1,000,000.00 on this project so far and throughout the project he has added the partners of Lombard and finally Maddux. He stated that they have excellent financing at this time. Mr. Chafoulias stated that they will continue to work with the Kahler Corporation. Having no further discussion, Duffy moved, Powers second to adopt Resolution No. 172-86 authorizing the execution of the Phase I Agree- ment with Olympus Lombard Maddux (OLM) and designate OLM as the developer for the D-5 project. Ayes (7), Nays (0). Motion carried. 2623 Ist Agenda Item RECORD OF OFFICIAL PROCEEDINGS OF THE COMMON COUNCIL CITY OF ROCHESTER, MINNESOTA Special Meeting INb . 27 - March 25, 1986 0 Having no further business, Strain moved, Allen seconded to adjourn the meeting. Ayes (7), Nays (0). Motion carried. L22�� City Clerk 1