By Gabe Licht
DELANO, MN Since 2006, the Delano Economic Development Authority has owned and managed the Rivertown Commercial Building at 203 Bridge Ave. E.
That era is set to come to an end in mid-March, as the EDA approved a purchase agreement with JPV Properties during a Feb. 17 city council meeting.
The purchase price of the 6,000-square-foot building is $550,000, based on the Wright County Assessor’s estimate of $555,700.
Under the agreement, JPV Properties would pay a $50,000 down payment, $15,000 annually for three years, $33,275 annually for years four and five, and a balloon payment of about $494,000 due at the end of the five years.
“That arrangement provides the EDA with 3 percent interest over those five years, which would result in the final collection of $625,691,” City Administrator Phil Kern said.
The building currently houses Jukebox Restaurant, Alex Roeser American Family Insurance Agency, and Fran Stein Barbershop.
A request for action regarding the transaction said, “The existing tenants have leases that would remain in full force with the transition; however, the Jukebox Restaurant’s most recent amended lease allows for a significant rent increase as soon as May 2015. It is unlikely that the leases with Alex Roeser or Stein would change over the five-year term of the contract for deed, but it is possible that the arrangement with Jukebox Restaurant does.”
Though the EDA approved the purchase, it cannot be completed until mid-March because Roeser has a 30-day right of first refusal clause built into his lease.
“He has until March 11 to exercise that option,” Kern said. “If he doesn’t, the EDA would have the opportunity to close with JPV, who would like to close as soon as possible.”
Kern noted the building generated nearly $18,000 in revenue for the EDA in 2014. Finance Director Brian Bloch later added that the building had positive cash flow for the past two years after raising rents.
From the beginning, the EDA intended to sell the building.
“When the EDA was considering this, it didn’t intend to be a forever landlord,” Kern said. “It was known at the time this building was going to cost more to construct than ultimately it could be sold for right away. The EDA’s intent at the time was to own it for a period of time while the positive cash flow reduced the balance against the building until a point when it could sell, theoretically, at that time, to hopefully break even.”
Money was borrowed from the city sanitary sewer fund to finance the project and the current loan amount is nearly $1.14 million.
“There’s a little over $500,000 that would need to be reconciled. What is the EDA’s plan to reconcile that $500,000 that wouldn’t come from the sale?” resident Sara Beamish asked during a public hearing.
“The city will have to transfer money from one fund to another to make it whole,” Kern said. “At the end of the day, some fund will end up losing that money. It could be out of the sewer fund, liquor fund, capital improvements fund; whichever it is, there isn’t an outside loan or anything that the city needs to raise $500,000 to pay someone back.”
Mayor Dale Graunke said the city will make the money back through taxes. Currently, the Riverfront Commercial Building and eight row home buildings the EDA built at the same time and sold generate nearly $33,000 in property taxes, with $21,600 of that going into the Tax Increment Financing District for improvements in that area through 2033.
When Beamish noted it would take about 15 years to recoup the funds through taxes, Graunke said, “What’s wrong with that? It’s redeveloping the area. It’s like having a mortgage on your house.”
“Are we going to take a loss on it? Yes, we’ll take a loss on it,” Councilman Jack Russek said. “Will we lose more money if we hold on to it? I think we will.”
The council unanimously approved the sale.
Odds and ends
In other business, the council:
• by a 4-1 vote, tabled the application for “Before I Die, I Want To” art application until questions can be answered about who will moderate what is written on the piece of art and how it is anchored. Russek voted against it, saying, “Having seen some of what I saw on it last year, I will vote against it because I don’t think I want that in my town.”
• approved continued enforcement of a fire code that requires sprinklers for new commercial buildings and commercial additions.
• tabled accepting a bid for a copier so the project could be rebid with the possibility of a lower price.