HomeMy WebLinkAbout2011-09-13 PACKET 10.City of
Cotta Grove
Minnesota
To: Economic Development Authority
From: Ryan R. Schroeder, City Administrator
Date: August 30, 2011
Subject: Office Incubator Update
At the June 14, 2011 meeting of the EDA staff brought forward a proposal from the Genesis
Business Centers, Ltd to conduct a preliminary feasibility study toward a goal of creation of a
Business Incubator from the current City Hall at 7516 80 Street. EDA staff had initiated a
meeting with Genesis and had requested the proposal. The EDA requested additional clarity
and outcomes in response to the proposal.
At the July 12, 2011 meeting staff informed the EDA of an effort to meet with additional
authorities in the field ahead of further consideration of the proposal from Genesis. On July 8
staff had -met with representatives from University Enterprise Laboratories which is a St. Paul
based bioscience incubator. We are anticipating some level of response from UEL prior to the
next meeting of the EDA.
We have needed to reschedule with University Technology Enterprise Center which is located
in Dinkytown. At this point we have a September 8 meeting with the Property Manager for that
facility.
According to County tax records this building has a value of $2,878,700. If rented that value
would incur a tax liability of approximately $85,000 (about $23,000 of which would accrue to
the City/ tax bill would accrue in second year of operation). The current electric /gas estimate
for a fully occupied building would be $37,000. The water /sewer /street light/storm sewer bill
for this building could be estimated at about $5,000 /year. Janitorial should be budgeted at
$23,000. That all totals $150,000 or $6.21 /gross square foot ($5.26 excepting the City tax bill)
plus costs to maintain the landscaping /parking lot as well as maintenance, repair and
replacement. What that seems to suggest is perhaps a $7 or $8 /gross square foot in CAM's
(to break even) plus any profit, marketing, management, and vacancy costs (plus additional for
any extras such as IT, office support services and the like).
Market comparisons to the above include:
1. 8750 90 Street: $9.50 plus $5.50/ $15
2. Hillside Center (across the Street): $10 plus $8.60/ $18.60
3. 7420 Hardwood (Shoppes): $16 plus $7.98/ $23.98
4. Oak Park Commons $20 including CAM's
Given the above, it would seem we could create a product at a below market lease rate for
business start up's if the EDA /Council believes that the expenditure of effort and potential risk
of vacancies, lack of rent payment, maintenance expenses beyond budget and the like are
worth the potential upside of growing businesses. It should be mentioned that owners of
competing office space may see a potential venture as unfair competition. While this is valid it
also seems that our potential tenants may not be as bankable as would tenants attracted to
competitive office locations.
An alternative to the above use would be to place the property on the market for resale.
According to the County the property is valued at $5 /square foot ($693,600) while the building
is valued at $90 /square foot ($2,185,100). There are not any recent comps in this market.
From a cash flow perspective assuming market rents at $10 and $4 for garage space
assuming a 10% vacancy and an 11 % cap rate the building on the land could value at $1.7
million. Within the marketplace this might be perceived as a distressed sale meaning it should
not be surprising to receive offers in the $1.2 million range.
Additional options would include offering the building as a straight lease or a land lease.
At this point we continue to look for additional feedback from property management
professionals and will bring any we receive to the Board meeting.
Board Action: Based on Discussion