Mayor stresses EDA must keep building filled

By Robert Williams

Editor

The downtown retail building infill is going to cost the City of Frazee and residents more money and lingering but necessary construction is going to cost its two newest tenants a summer of sales. The conversation about the building popped up multiple times during the city council’s meeting Wednesday, April 9, before its scheduled time on the meeting’s agenda.

EDA Consultant Karen Pifher addressed the building infill and the bond during the meeting’s open forum.

“We, as an EDA, have spent a lot of time looking over that building and how we ever got to this point and how things got to where they are and looking at what happened here? How did we get to this point where we’re going forward with this bond? What were all of the things that we could have done differently? What are the 80 million scenarios at the root of it? I think we’ve done a good job of identifying all of the things that we would do differently moving forward and where those gaps are to ensure in the future we don’t have things like this happen. At the end of the day, we had made this commitment to people that wanted to be in this building and we have a third tenant that wants to be in the building so we’re working on a lease negotiation on that. So, the building would be full. There were just multiple things and of course, an entire staff turnover. The way it was built in the first place and the recommendations and the staff turnover and all of these things built up to get to a point where now you’ve got all these new people trying to, hey, let’s build a building and not having the right information about any potential limitations with that. And also because it sat for five years, just the increasing costs alone, which is almost double. Even though I know there it’s a hefty bonding bill in front of you I think we’ve done due diligence to say how do we make sure this never happens again.”

The two incoming tenants, owners of Mama’s Pizzeria N Scoops and Home Sweet Bakehouse, signed their leases with the intent on moving into the building on May 1. The projected date they will be moving in has now been delayed until Aug. 15, according to City Administrator Stephanie Poegel.

“They are going to lose pretty much their entire summer of business being open,” Poegel said. 

The tenants have been in negotiations with the EDA on compensation for the delay.

“The bakery, she has been approached by other cities or places; we don’t want to lose her is what it amounts to,” said EDA City Council Liaison Andrea Froeber. “It’s unfortunate, but it seems reasonable.”

Froeber continued on the process of how the EDA worked together to make the decision on the bond and some concessions to tenants.

“This was a hard decision to come to, kind of between a rock and a hard place,” she said. “Do you just say okay, go and you start over and now we’ve lost all of that time? Or do we go forward with something that’s viable and have tenants and get the building filled and there may be turnover but at least it’s filled and there’s progress? There was a lot of discussion and I think our EDA just felt we need to stay the course and hopefully it’ll end up being a really positive thing, kind of when you don’t sell your stocks when your stocks are falling. You hang in there and wait for it to come back and that’s where we’re at.”

Froeber emphasized how the only other option for the EDA was to cancel the leases and begin from scratch.

“We decided as a community that it would be better to fill these and just stay the course,” Froeber said.

Council member Mark Kemper responded by stating the original builder, Goldmark, exacerbated the problems the city and the EDA are currently facing with their work in creating the building.

“Basically, it was handed to Goldmark; they built us a building. They built us a crappy building that didn’t meet any of the needs that we needed and it was totally screwed. That’s the part that irks me more than anything. We’ve sat on this building for five years because, I hate to say it, it’s an unsellable building. It’s not built for what we were looking to build it for. That’s the part that burns me. We spent a lot of money and then we spent more money than we should have. I’m not against keeping it going because I think that’s the only thing you can do, but it just irks me that we keep spending money on this project that was never thought through in the first place. This is just my opinion, but before something like this goes forward again and the city getting stuck for a building the EDA does not get to make a decision if we’re going to build or not. It’s a council decision. The money comes from the city and now the city is stuck with this building. We’re going to end up paying for it and the residents of Frazee are paying for it and that’s the bad part.”

Kemper continued stating the infill building was a hasty decision.

Froeber responded, having not been involved with the initial decision, by reiterating the building went up as a replacement of the Gary’s Furniture and Carpeting building, which had sat empty on Main for a decade after operating for 43 years.

“Kind of like you have to clean up your yard before you sell your house, so to speak,” said Froeber. “I think we’re here and I think what we’re presenting tonight with Jason and how it’s going to be…I think we just have to hear what he has to say.”

Mayor Mike Sharp stopped the conversation and got the meeting back to approving committee reports. After approving utility bill adjustments for three residences on Willow Avenue, the infill building was up for its scheduled discussion.

Senior Associate Jason Murray of David Drown Associates, Inc., outlined his recommendations for the structure and sale of $2,045,000 Taxable General Obligation Tax Abatement Bonds associated with the permanent financing of the downtown building, owned by the Frazee Economic Development Authority.

“We’re at a point here with this downtown fill where our only option is to permanent finance, look at the term, determine it out and go on,” said Murray.

In 2021, the city borrowed for the construction of the building with a three-year temporary bond. In 2024, before the 2021 bond came due, the city borrowed again as a temporary deal knowing that the building was not finished.

At that time, Seip Drug was still the only tenant and the EDA was aware there was going to need to be more build-out to complete the structure.

The EDA has awarded bids for the build-out of Unit A and C in the downtown building. Unfortunately for the City and EDA, bids came in significantly higher than budgeted, with the EDA needing to borrow an additional $300,000 for improvements. With limited temporary options, along with the need for additional funding, the City will need permanent financing in place.

“We’re locked into borrowing on the long-term side of it,” Murray said.

The new 20-year bond pays off the Principal Payoff of the 2024A Temp of $1,566,000, Interest Payment through Payoff – $29,123.25 and Building Improvements – $600,000.

Total Project Costs are $2,195,123.25 and this will complete the building with all units ready outside of any unusual tenant requests for the remaining unit that is currently in lease negotiation. That potential business is office-based and not expected to require any unusual requests. 

Proceeds remaining of Issuance Costs – $60,925.00 and Capitalized Interest – $77,677.07 create a total borrowing amount of $2,045,000, according to Murray.

The maximum time of 20 years is dependent on school district participation. Closing will include a tax abatement hearing in May, a proposed sale of bonds later in May, and closing in early June.

If council proceeds with the recommendation, Murray explained several action items for Council consideration:

1. Attached is a trigger resolution to engage David Drown Associates with this negotiated sale. The trigger resolution sets specific parameters for the proposed sale, which includes a max borrowing of $2,100,000 and a net effective interest rate of 7.0 percent. As you will see with the timeline noted above, this is a 45 to 60-day process, conditions may change during this time, to which the “cushion” will allow flexibility with the final sale. Upon a successful sale, as long as we can meet the parameters noted above, this resolution authorizes the Mayor and Clerk to immediately sign a bond purchase agreement. This essentially commits the City to borrowing the funds, with Council ratifying those actions at a following meeting..

2. A resolution calling for the public hearing on the proposed tax abatement. As noted above, we have selected 136 parcels for the proposed abatement. The tax abatement public hearing is scheduled for May 14, 2025.

3. Council also needs to consider a request to the school district to deny the tax abatement. The City is contemplating using Tax Abatement up to a 20-year term, the additional five years is needed to lower annual principal and interest payments. The maximum term may only be up to 15 years unless a formal denial is made by either the County or School District. Pursuant to Minnesota Statutes 469.1813, subdivision 6(b), if the school district declines, in writing, to grant an abatement or if 90 days pass after receipt of this written request to grant an abatement without a written response from the County, the duration limit for the proposed Abatement by the City may be increased from 15 to 20 years. 

“If we can make some sound decisions on the next three to five years on this that will help us on the next three to five years,” said Murray.

Murray went over a declining payment structure over the 20 years, along with building operating costs and revenues.

“This is a tough pill to swallow but there are some positives that come with these decisions,” Murray said. “It’s a big investment.”

“In 20 years, we’ll look back and things will be behind us, but it’s going to create some tough decisions in the short-term for us,” said Sharp.

The council approved three resolutions regarding the bond:

Approving the Issuance of Taxable General Obligation Bonds subject to the approval of the 

mayor and city administrator and ratification by the city council.

Setting Date for a Public Hearing on the Approval of a Tax Abatement Resolution for the 2025 EDA Downtown Building Financing, and  

Resolution Approving the Decertification of Tax Increment Financing District No. 1-6 of the City of Frazee.

“Going forward, it has to be the top priority of the EDA to keep this building full,” said Mayor Sharp. “Literally, the top priority. The implications of if this building sits empty that’s just an additional burden on our taxpayers and I can’t stress this enough.”