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Request for Committee Action

Modified redevelopment terms with United Properties for Nicollet Hotel Block redevelopment, 30 3rd St S (RCA-2018-00240)

ORIGINATING DEPARTMENT
Community Planning & Economic Development
To Committee(s)
# Committee Name Meeting Date
1 Economic Development & Regulatory Services Committee Mar 13, 2018
Lead Staff:
Emily Stern
Presented By:
Emily Stern
Action Item(s)
# File Type Subcategory Item Description
1 Action Development Project

Authorizing modifications to redevelopment terms with United Properties or an affiliate (the Developer) relating to minimum improvements and updated time frame for performance for construction of a mixed-use tower at 30 3rd St S, commonly referred to as the Nicollet Hotel Block.

2 Action Development Project Authorizing a redevelopment contract with United Properties or an affiliate based on the terms described in the report.
Previous Actions

(2017-01373) - Contract amendment for Option Agreement with United Properties for the Nicollet Hotel Block and Gateway Project, 30 3rd St S

(2017-00508) - Contract amendment for Option Agreement with United Properties Development, LLC for Nicollet Hotel Block redevelopment,30 3rd St

(2017-00026) - Option Agreement with United Properties Development, LLD for Nicollet Hotel Block redevelopment, 30 3rd St S

(2016-00028) - Land sale and redevelopment terms for UP’s Gateway project

(2015-00358) - Nicollet Hotel Block development rights designation

Ward / Neighborhood / Address
# Ward Neighborhood Address
1. Ward 3 Downtown West 30 3rd St S, Minneapolis
Background Analysis

The Nicollet Hotel Block, a 1.7 acre City-owned parcel, was once a gateway to downtown Minneapolis occupied by an 18-story hotel from which the block got its name. The hotel was demolished in 1991, and the site has since been a surface parking lot. The City purchased the site in 1993 with federal transit funds and intended to use it as a transit terminal. Between 2002 and 2005, the City issued three different requests for proposals (RFPs) hoping to integrate the transit terminal with additional development. However, given the constraints imposed by federal funding and transit operations, no proposals were received. In 2014, the City was able to remove the federal interest and acquired fee title to the Property.

In October 2014, the City issued an RFP for the Property, and in April 2015 the City awarded exclusive negotiating rights to United Properties (UP) based on its proposal and the City’s redevelopment goals for the Property. The Developer’s proposal included construction of a 36-story, mixed-use residential, hotel and commercial tower with a large public plaza and underground parking structure. Since that time, the project has gone through several permutations with various outside partners.

In January 2016, the City Council approved redevelopment terms and authorized the land sale for UP's “Gateway” project, a mixed-use tower of at least 30 stories with a hotel, residential, commercial and/or office uses. Once UP secured a commitment from Four Seasons as the hotel partner, the project costs increased substantially, and UP needed more time to secure additional equity commitments to move the project forward and meet City imposed deadlines. 

In January 2017, the City Council authorized City staff to execute an option agreement with UP, extending its development rights through February 2017, with subsequent one-month incremental, administrative extensions through April 2017, subject to City receipt of a $50,000 option fee for the initial extension and $25,000 option fees for each subsequent one-month extension. In April 2017, the City Council authorized City staff to execute an extension of the previously approved option agreement with UP to June 30, 2017 with subsequent one-month incremental, administrative extensions to Dec. 31, 2017, subject to City receipt of a $50,000 option fee for the initial extension and $25,000 option fees for each subsequent one-month extension. The Council also directed staff to return to the Community Development & Regulatory Services Committee on Nov. 13, 2017, with a report of potential progress in advance of potential administrative extension to Dec. 31, 2017. In November 2017, the City Council approved an administrative extension of the previously approved option agreement with UP to December 31, 2017, and authorized an optional, additional extension of one month to January 30, 2018.

In total, UP has paid the City $300,000 in option fees to extend its development rights through December 31, 2017 (the “Option Fees”). By December 31, UP notified the City that it had secured a sufficient equity commitment for the project and was prepared to move forward with finalizing designs and submitting land use applications in a reasonable timeframe. Consequently, UP chose not to exercise its final extension option to January 30, 2018. Per the option agreement, UP has three months from the end of the option period to execute a redevelopment contract with the City i.e. by March 31, 2018.

Proposed Modifications to Redevelopment Contract Terms

Unless specifically approved otherwise pursuant to the terms of this report, the term sheet approved by the City Council in January 2016 remains unmodified. The proposed modifications to the redevelopment contract terms are as follows:

  • Minimum Improvements: 
    • No spire on building
    • No mullion pattern façade 
  • Updated time frame for performance

The following sections highlight the key term sheet provisions, with proposed modifications noted (see also Exhibit A).

Minimum Improvements

Minimum Improvements for the project include those previously approved by the City Council in January 2016 ("Original Minimum Improvements") together with some subsequently developed "Additional Minimum Improvements." The Additional Minimum Improvements were developed by a Consensus Preliminary Design team, authorized by Council on the same date, comprised of staff from (former) Council Member Frey's Office, Council Member Goodman's Office, (former) Mayor Hodges' Office, CPED and Public Works, together with representatives of the Developer's team.

Original Minimum Improvements:

  • A mixed use tower with at least 30 stories to include a hotel, residential, commercial and/or office uses with a façade, a portion of which includes a mullion pattern reflecting the topography of the Mississippi River.
  • Active street-level retail space.
  • All parking shall be underground and comply with City requirements related to parking maximums as outlined in Chapter 541 of the Zoning Code.
  • A design to accommodate a skyway crossing Third Street South to connect the Tower to the Hennepin County Central Library.
  • A public plaza including a staircase connecting the plaza to the skyway level and lobby, interactive feature, sidewalk café seating, and an activated year-round common space. The public plaza shall comply with the minimum standards as outlined in Chapter 535 of the Zoning Code.
  • Public artwork in the plaza area mutually acceptable to the City and Developer.
  • LEED certification or equivalent for building shell and core and incorporation of sustainable design features.

There were three meetings of the Consensus Preliminary Design Team which resulted in the following Additional Minimum Improvements. The Additional Minimum Improvements are incorporated into the deal terms and Redevelopment Contract, along with the Original Minimum Improvements. 

Additional Minimum Improvements:

  • A transparent, interior lobby/atrium that provides a pedestrian connection to the public plaza both from the building’s skyway level crossing South 3rd Street and from the ground level entering from Hennepin Avenue. A portion of the lobby’s ground floor will be open to the skyway level.
  • An architectural feature (such as a stone wall) that highlights the connection between Hennepin Avenue, the lobby/atrium, and the public plaza.
  • “Sculpted Seating Steps” installed at Cancer Survivors Park to improve the connection to the Nicollet Mall to the extent an acceptable agreement is reached with the owner of that park. The Developer will be responsible for these costs.
  • A spire that extends past the top of the main tower structure, which may be lit.
  • A portion of the tower façade will be lit.
  • The public plaza area will include active green space prior to and subsequent to any streetcar improvements.

UP has incorporated all of the Original and Additional Minimum Improvements (above) into its new design with the exception of (1) the spire and (2) a façade that includes a mullion pattern reflecting the topography of the Mississippi River. The new building design, in contrast with the previous design, has an architecturally significant style with a primarily glass façade and stepped rooftop terraces that no longer warrants additional aesthetic enhancements such as a spire or mullion pattern façade.

If UP determines that the Minimum Improvements as modified are financially infeasible, UP shall have an opportunity to propose modifications to the Minimum Improvements provided that in any event, they must include a tower with at least 30 stories, underground parking, an outdoor public plaza (that will allow for the streetcar easement) and ground floor retail.  The CPED Director’s approval of modifications is required, but will not be unreasonably withheld, conditioned or delayed if the modified improvements continue to substantially meet the development goals of the City for the property, including the goal of having an iconic design.

The main building components include the following:

  • Restaurant, plaza, lobbies: floor 1
  • Skyway connection, open atrium, hotel ballroom and conference center: floor 2
  • Amenities: floor 3
  • Hotel pool and bar area: roof of floor 3
  • Office tenant(s): floors 4 - 20
    • RBC would occupy 12 – 14 floors (final space determination won’t be made until fall 2018)
    • The balance (3 – 5 floors) of the office component would be speculative.
  • Hotel: 8 floors (floors 21 - 28)
  • Residential condos: 18 units (floors 29 - 33)
  • Parking: P1-P3 (540 stalls)
  • Total Development Cost (TDC): approximately $330 million (about twice the original estimated TDC of $161 million)

Office Component

In February 2017 UP responded to a request for proposals from RBC Capital Markets, LLC (RBC), a subsidiary of Royal Bank of Canada. RBC sought lease proposals for its current downtown Minneapolis offices. UP has completed a Letter of Intent with RBC to anchor the office component. RBC expects to occupy between 310,000 and 370,000 square feet on up to 14 floors. UP continues to work with RBC towards finalizing a lease agreement on or before March 19, 2018. The City will execute a Redevelopment Contract with UP contingent upon UP providing evidence that the lease with RBC has been executed.

Hotel & Restaurant Component

UP has a commitment from Four Seasons Hotel. The hotel would have approximately 275 rooms, a ground floor restaurant, bar/lounge, fitness center, pool and spa, meeting rooms, and event space, including a 10,000 sf conference center and ballroom available to support both office and social functions by the hotel, such as weddings.

Purchase Price and Good Faith Deposit

The purchase price for the Property remains $10.4 million and will be due on the closing date. The Option Fees of $300,000 paid to date will be credited to the purchase price at closing.  The City confirmed through an August 2015 appraisal that the Developer’s offer is at or above the fair market value. At the time the redevelopment contract is executed the Developer will provide a good faith deposit of $1,040,000 (10% of the purchase price). The Good Faith Deposit is returned to the Developer when the project is completed. If, after closing, the Developer defaults on the redevelopment contract, the City will retain the Option Fees and various percentages of the Good Faith Deposit depending on when in the due diligence process a default occurs.

Due Diligence Period

The Developer will make best efforts to close on the property by the end of 2018, but in any event, the Developer will close no later than June 30, 2019. In order to extend the closing deadline, the Developer will need to make a $160,000 Additional Deposit.

To ensure progress is being made by the Developer during the Due Diligence Period, it will be required to submit the necessary land use applications by August 31, 2018. If the required land use applications are not submitted by that date and City staff determines that sufficient progress is not being made by the Developer then the City will have the option to cancel the redevelopment contract. Under this scenario the City would retain the Option Fees and $400,000 of the Good Faith Deposit. Below is a table illustrating both the previous and modified closing timeline:

Previous

Updated

City Council Approval and start of Due Diligence Period

Jan 2016

March 2018

Deadline to submit complete land use applications

Jan 2017

August 2018

Anticipated closing

July 2017

Dec 2018

Alternate closing (if needed; requires Additional Deposit)

Jan 2018

June 2019

If the Developer submits complete land use applications by the required date that are consistent with the Minimum Improvements but the City does not approve said applications or imposes unreasonable conditions for approval of the project, the Developer may cancel the contract and the City will return the Good Faith Deposit to the Developer.

City staff feels the proposed Due Diligence Period is reasonable and necessary given the complex nature of this project, including the desire for an iconic design, the anticipated mix of uses, building height, need for anticipated streetcar integration, etc. During the Due Diligence Period, the Developer will be finalizing the project design, submitting land use applications for City entitlements, securing project financing, obtaining title commitment, etc. Construction will begin no more than three months after closing and the Developer will have up to 30 months to complete construction.

The proposed design, closing and construction timelines for this Property are consistent with other downtown residential projects of similar density and scope that have been recently completed, are under construction or are in the planning stages (e.g. The Nic on Fifth, Opus Group’s Ritz Block project at 315 Nicollet Mall and Alatus’ project proposed at 200 Central Ave S.E.).

Skyway and Good Faith Deposit at Risk

UP intends to construct a skyway across 3rd Street South to connect its project with the Hennepin County Central Library. Representatives of Hennepin County have indicated there is County support for a skyway connection across Nicollet Mall, connecting the Library to the Opus Group’s project at 315 Nicollet Mall. Letters of Intent have been executed between the County and UP and the County and OLAF LLC (property owner of 315 Nicollet Mall) outlining proposed terms of these skyway connections. The Developer asserts that adding these two connections is critical for the marketability and success of the project as it will connect the mixed-use tower to the rest of the skyway system. The Developer is currently working with officials at Hennepin County and the Opus Group to secure “skyway connection agreements” that would be executed prior to closing on the Property with the City.  If UP is unable to satisfy itself with the status of the skyway connection agreements (or the soil or environmental testing of the site or the survey for the site) by June 30, 2018, UP may terminate the agreement and the City will retain the Option Fees and $100,000 of the initial Deposit.

Streetcar-Integrated Design

The Developer has been working closely with City staff to ensure the elements of this project will accommodate integration of a future streetcar line across the Property. The City will retain a permanent easement running diagonally through the Property as well as an area either at ground level or in the underground parking structure to accommodate a traction power substation.

FISCAL IMPACT STATEMENT
  • No fiscal impact anticipated
  • Meets Small and Underutilized Business Program goals. As the project moves forward, the Developer plans to work with the City to set appropriate construction workforce and SUBP goals for the project.