Serving Northern St. Louis County, Minnesota

Council sets deadline for new town home agreement

Marshall Helmberger
Posted 8/29/18

TOWER— The city council here set a late September deadline for the development group led by Orlyn Kringstad to sign a revised development agreement for town homes at the city’s harbor or the city …

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Council sets deadline for new town home agreement

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TOWER— The city council here set a late September deadline for the development group led by Orlyn Kringstad to sign a revised development agreement for town homes at the city’s harbor or the city will cancel the project.

The agreement would require the developers to take on significant additional financial risk, since it would leave them potentially on the hook for the cost of public infrastructure if the project failed to move forward.

Under the original agreement, the city had agreed to pay for the full cost of public infrastructure, mostly through grants from the IRRRB and the state Department of Employment and Economic Development. But estimated costs have risen sharply and the city has been less successful than anticipated in obtaining outside funds to assist with project costs.

“In order to protect the city, the letter of credit was asked for, so if something went awry, we wouldn’t be sitting on three-quarters of a million dollars of infrastructure,” said Mayor Josh Carlson, who acknowledged the requirement was not part of the original development agreement.

The city’s deadline comes barely a month after permits and platting for the project were finally approved, which means the project could potentially move forward to actual sales if the dispute over the development agreement could be resolved.

The council’s action appeared to be a reaction to Kringstad’s recent decision to file for mayor in the fall election. Council member Kevin Fitton questioned whether Kringstad was committed to the development given his plans to divest himself from the town home project in order to avoid any conflict of interest as mayor. “How is that supposed to increase our confidence that you will complete the project?” Fitton asked. Kringstad said his partners on the project would be taking over the project in his place.

“What is the current contract between Tower Vision 2025 and the city?” asked council member Lance Dougherty.

“There is no current development agreement,” responded Carlson, who noted that the previous agreement had expired and that the two parties have not come to agreement on the new terms.

Kringstad said his group had been willing to sign an extension of the agreement until the city made demands that put the developers at risk for costs the city had originally agreed to cover.

“What should have happened is that we simply changed the dates for begin construction and end construction,” he said.

Harbor committee chair Steve Altenburg, who is also running for mayor, said the request for a line of credit or some other backing by the developers had been made upon the advice of the city’s financial advisors.

The city did agree to explore a pay-as-you-go tax abatement plan, but that would still put the onus on the developer to pay for the infrastructure if tax receipts failed to cover debt service. Still, Kringstad said his team believes they can make that approach work. “That does solve this issue that’s come up for the city,” he said. “But when we first signed the agreement, the infrastructure funding was there.”

“We can’t afford to take on any more bonded debt,” said City Clerk-Treasurer Linda Keith.

“With the pay-as-you-go tax abatement, the developer takes out the bond, not the city. That means all the risk is on them.”

Dougherty expressed frustration with the delays and the mutual finger-pointing that has surrounded the project in recent months. “I don’t say much about this because it’s kind of been the harbor committee’s deal. “I’ll tell you, I’m tired of reading about this. To me, it’s so convoluted right now that I don’t know who to believe, who to trust or even if anything should be signed to move forward.”

Fitton said his confidence in the project has diminished over the past two and half years, and he suggested, without foundation, that if the city were to approve infrastructure funding, Kringstad could come back to the city three months later seeking funding to build the town homes.

“At what point does this become entirely the city’s project?” he asked.

Fitton’s comments overlooked some of the project’s history, including that the city of Tower had originally attracted Kringstad’s group to the project by seeking development services, like architectural design, marketing, sales, and construction, while the city intended to actually serve as developer and finance the project itself. The city changed course shortly after bringing Kringstad’s group on board, asking Tower Vision 2025 to serve as developer of the town home project, while the city agreed to finance public infrastructure. The city’s latest change now puts the potential financial risks of much of the public infrastructure onto Tower Vision 2025.

Kringstad took issue with Fitton’s comment, noting that construction of the project was always to be based on sales, not upfront financing, by the city or anyone else. “That has never changed,” he said.

Carlson said the harbor committee is asking that either the developer sign a letter of credit or the tax abatement option. “That’s where we’re at right now,” he said, adding that it’s up to the developers to take the next step. “The ball is in their court and has been for quite some time.”

Kringstad said he believes that his team can make the tax abatement approach work. We would like to help the city out of that situation, which has changed from the original agreement.”

Fitton chastised Kringstad for suggesting that his team was “helping out the city.”

“They’re getting the land for a dollar,” he said, and suggested, again without foundation, that the project stood to net close to $4 million profit. Fitton said he based that estimate on rough calculations he did on the project sales, assuming construction costs of 50 percent of the home price. In fact, the construction price for the homes, based on financials reviewed by this reporter, are well above 50 percent of the cost, and those costs don’t include expenses incurred for soft costs, including architectural design, engineering, marketing, sales commissions, insurance, and contingency. In the end, the project’s current projected margin is approximately eight percent, and most of those proceeds are promised to outside investors who have financially backed the project.

Kringstad said his group has already spent several hundred thousand dollars on the development. Fitton responded saying that the city paid for $120,000 of that through a grant from the IRRRB and stated that Kringstad was now coming to the city asking for more.

Kringstad asked Fitton what he meant by that. “I would say that three-quarters of a million dollars is asking for more,” responded Fitton. Kringstad explained that those funds are for public infrastructure, which the city had agreed to finance as part of the original development agreement. Carlson concurred with Kringstad. “Those costs were always going to be on the city,” he said.

“We’re choosing our words very carefully here,” said Kringstad. “There are a lot of pieces to this project and I’m not blaming anyone and I don’t think the city should be blaming us. Things happen along the way.” Kringstad said that finishing platting and applying for permits had made it impossible to meet the timeline in the original agreement.

Carlson said he understands the sense of frustration by some on the council who are less informed about the reasons behind delays in the project. And he suggested the council look at setting a deadline for the developers to accept the new terms of the agreement. The cvouncil agreed to give the developers until Sept. 25 to accept the proposal.

Other business

In other action, the council:

 Discussed sidewalk repairs at length, agreeing to seek quotes from local contractors for work on the sidewalk along the west side of the Scenic Rivers clinic (Spruce Street) as well as in front of the U-Betcha antique shop, where a woman recently fell face first due to rough sidewalk there.

 Approved the installation of a holding tank for wastewater at the airport pending a review by City Engineer Jason Chopp. The single bid, for $33,500, from CW Winger was significantly above earlier estimates for the cost of the project. The new holding tank was made necessary by the council’s decision last year to abandon the septic drainfield that used to serve the city’s campground and still serves the airport.

 Approved a 2018-19 propane contract with Como for 1.09.9 per gallon. The council also approved a motion to limit the employee propane discount to employees who receive a W-2 from the city.

 Agreed to send a letter to residents of North Third Street asking them not to park off-street in the drive lane. The narrow nature of portions of the road is creating problems for emergency vehicles and delivery trucks when two cars park on either side of the road. The council opted to seek the cooperation of residents of the street before considering other possible approaches to address the problem.

 Approved the location of the Welcome to Tower sign at the intersection of Hwy. 169 and Hwy. 135. The council also approved hiring CW Winger to do site prep, at a cost of $3,000.

 Heard a proposal from Greg Dostert for the creation of a joint youth recreation board.

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Lee Peterson

Best to freshen up with another large splash of IRRRRRB money. But is it going to end up like a game of musical chairs? Money is the music.

Wednesday, September 5, 2018