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HomeMy WebLinkAbout3.1 12-13-2022 EDA Meeting Minutes CITY OF COTTAGE GROVE ECONOMIC DEVELOPMENT AUTHORITY ____________________________________________________________________ MINUTES Economic Development Authority (EDA) Meeting December 13, 2022 Pursuant to due call and notice thereof, a meeting of the Economic Development Authority was held on the 13th day of December, 2022, at 7:30 a.m. CALL TO ORDER The meeting was called to order at 7:30 a.m. by EDA President Bailey. ROLL CALL Assistant Mann called the roll: EDA President Bailey-Here; EDA Vice President Dennis-Here; EDA Member Carey-Here; EDA Member Krohn- Here; EDA Member Myers-Here; EDA Member Sandi Scott-Here; EDA Member Thiewes-Here. Members Present: Myron Bailey, EDA President Steve Dennis, EDA Vice President Chris Carey, EDA Member Dan Myers, EDA Member Sandi Scott, EDA Member Members Absent: Joe Krohn, EDA Member Eric Thiewes, EDA Member Staff Present: Jennifer Levitt, City Administrator Gretchen Larson, Economic Development Director Brenda Malinowski, Finance Director Jaime Mann, Assistant to the City Administrator Emily Schmitz, Interim Community Development Director Others Present: Tanya Pierson, MAI, Senior Managing Director at HVS APPROVAL OF MINUTES 3.1 Approval of November 8, 2022, EDA Meeting Minutes EDA Vice President Dennis made a motion to approve the November 8, 2022, EDA Meeting Minutes. Motion was seconded by EDA Member Scott. Motion passed unanimously (5-to-0 vote). BUSINESS ITEMS 4.1 Economic Development Update/Business Inquiry Gretchen Larson, Economic Development Director, reviewed the Beige Book Report: Labor Markets and Employment: Grew slightly since the last report. Total job openings have softened, but the overall demand for labor is healthy. Price Pressures: Strong since the previous report, and most businesses reported they had to raise their final prices in October from September. Consumer spending: Grew slightly since the last report, but it still remains fairly high. Construction and Real Estate: Commercial construction fell slightly since the last report; in industrial and multifamily segments, they reported steadier activities and outlooks. Residential construction has slowed with single family permitting levels notably below last year. Retail vacancies had some decline while office vacancy continues to increase, as people are still not back in the office fulltime. Manufacturing and Agricultural: Manufacturing activities increased moderately; agricultural sector conditions remained strong through the harvest season. Most lenders reported that farm incomes had increased. Minority and Women-Owned Business Enterprises: Continue to struggle with hiring and retention challenges, even in the fact of offering higher wages and benefits. Generally, it mirrors exactly what’s happening here in Cottage Grove. Project Updates: Renewal by Andersen: Their project is moving along with wall panels being set. Hemingway Industrial Center: Footings and foundation work has been completed for both buildings. On-site construction of the wall panels may have to wait until Spring. Leafline Labs: Roof construction for the addition is being conducted on weekends to get it finished quicker. Underground trade work has started. Pizza Ranch: Footings and foundation are complete with civil work commencing to beat the winter season. Cottage Grove Apartments: Wood framing continues with trade work ongoing. The Views Apartments: Construction of the wood-framed portion of the building continues. 4.2 Hotel Market Study Director Larson introduced Tanya Pierson, Senior Managing Director of HVS Consulting and Valuation Services based in Pequot Lakes. Director Pierson has worked there since 1994 and has provided consulting and appraisal services for over 3,500 hotels and resorts in nearly every state in the U.S., as well as Canada, Mexico, and the Caribbean. She has a B.S. Degree in Hotel, Restaurant, and Tourism Management from the University of Denver, and she’s a designated member of the Appraisal Institute. Director Pierson reviewed the market study that they conducted in September. She explained the process used to conduct the market study: They did a market evaluation based on potential site options for a hotel, the location of demand generators, where access might be most appropriate for a hotel, and complementary amenities around the various potential sites. They look at a variety of factors when considering potential sites. Next, they looked at who the demand generators were for a hotel: They interviewed commercial businesses and other sources of demand, such as youth sporting groups, and convention or meeting facilities in the area; they conducted phone interviews as well as email surveys. They looked at the existing supply of hotels Economic Development Authority - Minutes December 13, 2022 Page 2 of 4 on the market and where businesses are currently putting their guests who come to visit their business. They also took into consideration additional new hotels coming into the market, either in Cottage Grove or surrounding communities, as that might impact additional development. Based on all of that information, evaluating the economic and demographic statistics for the area, and future outlook for development, they arrived at a recommendation and forecast of income and expense. Director Pierson stated after they drove around and evaluated where growth was currently occurring, based on land use forecasts for the community and conversations with economic development officials, they identified three potential site locations: 1) The 80th Street interchange: Has a variety of restaurant options, as well as some retail. 2) Jamaica Avenue also has retail and food and beverage, maybe more fast food in nature, which could potentially be viewed as a negative for hotel guests, who might want some more sit-down options. 3) Keats Avenue: There really isn’t much development currently there, but there are proposed plans for a larger development at that location. If those developments took place, that location would also be favorable for a hotel, certainly given its proximity to the Business Park. They used the idea that a hotel right along Highway 10/61 would be very important from an access and visibility standpoint so looked at the three exits along Highway 10/61. A key factor in their demand generator surveys was guests would like to have supportive amenities next to a hotel. While you might have a complimentary breakfast in the hotel, they also want a place to go to dinner; they also want that restaurant to be conveniently located. Having a hotel at one end or the other of the City would be nice to capture those guests. The potential sites identified were also based on their demand generator interviews; they’d placed phone calls and sent out emails to various individuals with many of the major employers in the market. They were asked to give us: An idea of how many room nights they needed on a monthly or annual basis, how long their guests were staying, what type of accommodations they look for, what their price point is, if they require meeting space, if they have difficulty getting rooms, and where they currently stay. They also reached out to the wedding venues, the golf course, sporting associations and asked them similar questions. What we heard from several of them was while there are two properties in Cottage Grove, oftentimes there may not be availability at those or they’re not the type of accommodations that they desire. Many of them indicated that they’re brand loyal customers and so they want a franchise like Marriott, Hilton, or InterContinental. They want some of the larger brands for their guests because they are loyal members of those affiliations. Because of that and because of the lack of those types of accommodations in Cottage Grove, they go to Woodbury; some even mentioned that they stay closer to the airport if they’re just coming in for a day or two, just to be closer to it when it’s time to leave town. They realized that there is some business that’s being lost in Cottage Grove because of the lack of required accommodations for their guests. Based on those conversations and where they’re sending their guests, we evaluated a competitive set for a hotel if it were to be developed in Cottage Grove. She displayed a map showing the two hotels in Cottage Grove and a set of hotels in Woodbury. There were a wide variety of hotels, from the more budget oriented Wakota Inn up to a full service Sheraton Hotel. There’s a wide range of places where businesspeople could potentially stay. Director Pierson stated they also conducted interviews with area hotels and ordered a Smith Travel Report; that’s a national company that focuses on hotel reporting data. This reflects a 10-year trend of how this set of 9 hotels have performed over the last 10 years. There was an obvious dip when COVID happened and what a significant impact that had on the hotel market. What’s encouraging is how quickly they have bounced back since the pandemic, as many other markets haven’t seen good recovery in the area. Hotel rates and occupancy are already back to 2019 levels. Considerations for a new development include: Sources of Demand, Strength of the Hotel Market, Historical Economic Trends and Future Forecasts, Additional Supply, Revenue Potential and Operating Costs, and Construction Costs. We only identified one new hotel coming into the market and that’s in Hastings; it’s a boutique hotel expected to open next year with 77 rooms. That’s a little bit different than what currently exists in the market, as it will have event space and a restaurant. Based on all of these market factors, they also evaluated the revenue potential and operating costs for this market, based on employment levels and area labor costs. They also needed to be cognizant of construction costs, as they’re very high right now and make projects like this challenging. Recommendations Consideration of a Midscale to Upper-Midscale Hotel, Limited Service: Fairly limited amenities, a complimentary breakfast in the morning. Maybe offering a small meeting room, up to 50 people or so, as demand generators indicated there’s not a huge need for a lot of meeting space right now. Other amenities might include a swimming pool because of the amount of youth sports in the community, which is a huge factor. If a hotel doesn’t have a pool on the weekends and there are all of these youth sports groups coming into the area, your hotel might be missing out on that opportunity; the climate in our area is also favorable for a pool or whirlpool. Based on market dynamics, they’d also recommend consideration of more double-bedded rooms because of the wedding groups that come to the two event centers here and also the sports teams with their families. Typically, you can have a larger number of people per room with that. Midscale and Upper-Midscale level hotels include these brands to consider: Fairfield Inn, Hampton Inn, and Holiday Inn Express. It might also be interesting to see a combination of a dual-branded property with a Fairfield Inn and TownePlace in one building; so, you’ll have some extended-stay rooms designed for people who might be here for training or relocation, who will be here for five (5) nights or more. It’s combination of both offerings under one roof. Several of the brands offer dual-branded type combination properties, so that’s something to consider. Forecasted Income & Expense The range is from 80-100 rooms and reflects the seasonality of the market, weekday vs. weekend demand in the market, and the operating efficiencies of a hotel. To have a property smaller than that makes it very challenging, particularly with a lot of fixed costs including insurance and property taxes. They have a database of comparable operating statements of similar type hotels. An average occupancy rate can take from two-to-five years to stabilize in a hotel, as it takes time to build up a hotel customer base. They expect approximately three years to stabilize a property such as this, and feel comfortable with a 70% occupancy within this market at that price point. They envision this property opening mid-2025, based on the amount of time for planning, approvals, construction time, and seasonality. They’re forecasting 27% Earnings Before Income Taxes Depreciation & Amortization (EBITDA) based on how other comparable properties perform. Summary They recognize there was a very strong recovery in the competitive set coming out of COVID; that’s indicative of the amount of demand generators you have, their diversity, and Cottage Grove’s location. It’s a high drive-in area, and you have some leisure traffic coming off of the Interstate; there’s been a huge influx of leisure traffic over the past two years. They need to be cognizant of rising costs, not only operating costs and labor but also property taxes, inflationary concerns, and construction costs. It’s encouraging to developers to see that there aren’t as many hotel brands in this market; it’s a very attractive market from that standpoint, particularly given the amount of demand generators you have. There also aren’t other similar hotel projects proposed in this area. One concern: With the rising construction costs, how do we make these projects feasible today; it leaves an opportunity for communities such as Cottage Grove to potentially offer incentives to hotel developers to attract this type of development. Overall, they found Cottage Grove to be a very favorable community from the standpoint of all of the demand generators, how well the hotels in surrounding areas perform, and the level of the growth that you’re expecting in the future. EDA President Bailey thanked Director Pierson for her great presentation. When we talked to some hotel builders, her company was mentioned as one that they trust; we want to make sure that we provide them with data that’s concrete and available. He asked if the EDA members had any questions. Economic Development Authority - Minutes December 13, 2022 Page 3 of 4 EDA Vice President Dennis asked if any of the hotels she mentioned would provide an opportunity for restaurant space inside of the facility itself; we have a Cottage Grove resident who is a very well known Minnesota chef, and he and his partners currently own 13 different restaurants. If we were to get a hotel, he’s expressed interest, if there would be an opportunity where he could be involved. Director Pierson replied every brand is different in terms of what they do and do not allow. With a Limited Service scale, they’re not going to be as open to having a restaurant right in their lobby, but they’ve certainly seen restaurants being connected via an enclosed walkway; so, that’s an option. The Homewood Suites by the Mall of America has a restaurant connected to it with a covered walkway. Each brand would dictate that, but they’ve certainly seen it happen; they remove it from their front entrance but still have it accessible to guests. EDA Vice President Dennis stated when Director Larson introduced her, she talked about her education and background in tourism. He asked Director Pierson if she was aware that we had a Convention and Visitors Bureau called Discover Cottage Grove; she replied affirmatively and stated she’d seen the website. He asked her what she thought of it and if she had any tips. Director Pierson replied it was several months ago that she looked at it, so she’d have to take another look to refresh her memory. From the standpoint of identifying all of the City’s perks, the hotels that are offered here, and other events that take place throughout Cottage Grove, she found it very informative. Before offering any suggestions, though, she’d have to look at it again; she’d be happy to contact him about that after she did so. EDA Vice President Dennis noted when we were in Las Vegas, many investors asked if we had a Lodging Tax; we do now, and we utilize those funds to fund this great opportunity. Director Pierson stated that’s a wonderful thing for hotels to benefit from, as they’re collecting that from the guests, so it’s not a direct expense to them. Oftentimes, guests don’t even pay attention to those things, so to be able to benefit from a government entity promoting the community afterwards is huge for them. EDA President Bailey asked if one of our hotels were to cease operating or be redeveloped, if that would change the number of hotels we could have. Director Pierson replied if one left the market, there may be the potential to expand the size of this hotel or, down the road, add another hotel. EDA President Bailey thanked Director Pierson for her presentation. Recommendation: By motion: Receive and approve the report as presented. EDA Member Myers made a motion to receive and approve the report as presented. Motion was seconded by EDA Member Carey. Motion passed unanimously (5-to-0 vote). 4.3 CDA Predevelopment Grant Application Director Larson displayed a map and noted staff has identified a project that’s eligible to submit to the Washington County CDA Predevelopment Finance Fund Grant. If it were approved, it would be for a Comprehensive Utility Servicing Study for future development or sale of the 3M-owned parcels shown on the map. It would also include development of the area-wide Stormwater Management Plan and is a part of the future realignment of County Road 19 and 100th Street; it would include local roadway networks and connections to be reviewed. While the land is generally guided Industrial, there is a Commercial node that’s potentially anticipated at Innovation Road and Highway 61. The study would look more closely at the options for the Commercial node, so there are four elements of this study. Total cost for the project is $85,000; the CDA Request for this 1-to-1 match would be $40,000 from them, with the remaining $45,000 coming from the ED Trust Fund. If approved, staff and the City Administrator would recommend that the team at Bolton & Menk, Inc. be hired to do the study, which will take approximately 16 weeks to complete. A copy of the application was in your packet, as well as a map of the area. Director Larson stated she’d take any questions. EDA Member Carey confirmed that this was 3M-owned land, and asked for clarification on the purpose of doing this. Director Larson replied that 3M is a willing participant in this study because this study will address some of the underlying issues and the due diligence related to the property, obviously making it more saleable or developable for them. She felt at some point 3M would probably sell it. All of the engineering work and other things that are a part of this study are important because generally investors need to see what the land could be used for, and those things would be addressed as a part of that process. Administrator Levitt stated when we’ve previously looked at the 3M parcels as part of our Comprehensive Plan, 3M was providing their own sewer and water system to their own development on their property. Since last December, when their hazardous waste incinerator ceased operating and they’re going through the decommissioning process, 3M now has a different outlook on how they could develop their parcels with that change; they wouldn’t be servicing it from their own sanitary sewer and water system, so at that point, the City of Cottage Grove would need to provide those utilities. We have not previously undertaken a study to provide utilities to their 320 acres; it would be new for us to look at how we could service that. It really dovetails into the 100th Street realignment; we’ve been communicating with 3M about this project, and they’re excited about it. We’ve also provided them a proposal for their medical spinoff to potentially look at this property, but we also know that it’s going to have a high interest level in the market as Industrial and Commercial spaces that are over 100 acres are very much needed in the metro. It would be a very competitive piece of property for us to add sewer and water; the study is the first element for us to start undertaking that activity. EDA President Bailey stated there currently is no City sewer or water in the Langdon area, near the former Majestic Ballroom, which kind of touches this area. Having all of this kind of tie together will actually facilitate development or redevelopment of the Majestic site and those areas. EDA Member Carey stated he likes to connect the dots; so, that future development will lead to an increase in property values, which will lead to an increase in property taxes, and that’s why we’re making this investment now. EDA President Bailey confirmed that it is good news because previously 3M wasn’t entertaining the idea of selling this area, so we never really anticipated this area being an opportunity for us. We always wanted it to be, but never had the ability to do it; now, their philosophy and ideas have changed, so we’re pretty excited about that, as is Washington County from a CDA standpoint. EDA Member Scott asked if at any point 3M would do any soil testing or wastewater testing in that area. Director Larson deferred to Administrator Levitt. Administrator Levitt stated depending on how the property size is developed, there would be an EAW to start the environmental study; the EAW would then tell us about the soil, traffic, invasive species, or wetlands and if 3M needed to do more formal EIS work with that. Clearly, environmental work would take place with any development of that raw land. Recommendation: By motion: 1) Approve Resolution 2022-012 supporting the Predevelopment Finance Grant submittal. 2) Approve the application submittal to the Washington County CDA Predevelopment Finance Fund. EDA Vice President Dennis made a motion to Approve Resolution 2022-012 supporting the Predevelopment Finance Grant submittal. Motion was seconded by EDA Member Scott. Motion passed unanimously (5-to-0 vote). Economic Development Authority - Minutes December 13, 2022 Page 4 of 4 EDA Member Scott made a motion to approve the application submittal to the Washington County CDA Predevelopment Finance Fund. Motion was seconded by EDA Member Myers. Motion passed unanimously (5-to-0 vote). PUBLIC HEARINGS - None. OTHER BUSINESS 6.1 EDA Calendar EDA President Bailey stated the EDA Calendar was in the packet of information provided to each of the EDA Members. 6.2 EDA Comments - None. 6.3 Response to Previous EDA Comments 6.3 (A) Commercial Vacancy Rates in Cottage Grove Director Larson stated at the previous meeting it had been asked what the commercial vacancy rates were in Cottage Grove; it’s 3.4% in the Business Park-Industrial area, but in the retail segment it’s 15%. There are three properties that have pending leases on them, and if all of those go through, the vacancy rate will be cut approximately in half, about 7%, well below the metro average of 15.9%. Without those leases having closure, the overall vacancy is still approximately 8.3% in Cottage Grove. There really isn’t that much space available, so redevelopment and other new developments are really something that the City needs. EDA President Bailey stated we were just talking about that, as office vacancy rates are high but here in Cottage Grove they actually are not. 6.3 (B) EDA Owned Parcels Director Larson stated in the packet there’s a map from the GIS Department showing what the EDA owns and those are our saleable properties, not any of the marshland, right-of-ways, bits, and odds and ends. It’s mostly all in the Majestic Ballroom area, so development is important, as the EDA owns a lot of property in and around that development. That will someday be useful when its sold or whatever the EDA decides they want to do there. EDA President Bailey interjected that within the last 30 days, Thai Garden closed on one of the EDA parcels that we owned along East Point Douglas Road, and they will eventually begin construction there. Director Larson added that all of these properties have been given to your financial consultant, Ehlers, to include in the financial plan; they have a tax value of about $800,000, but obviously the market value is going to be higher than that. 7 WORKSHOP - None. 8 ADJOURNMENT EDA Vice President Dennis made a motion to adjourn. Motion was seconded by EDA Member Carey. Motion passed unanimously (5-to-0 vote). The meeting adjourned at 8:07 a.m. Respectfully submitted, Jaime Mann Assistant to the City Administrator /jag