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Request for Committee Action

A briefing memo explaining the purpose, background, and impact of the requested action.
Exclusive development rights for AECOM for 800 Washington Ave S (RCA-2020-01211)

ORIGINATING DEPARTMENT
Community Planning & Economic Development
To Committee(s)
# Committee Name Meeting Date
1 Business, Inspections, Housing & Zoning Committee Dec 8, 2020
Lead Staff:
Emily Stern
Presented By:
Emily Stern
Action Item(s)
# File Type Subcategory Item Description
1 Action Development Project

Authorizing a six-month extension of AECOM's exclusive development rights for 800 Washington Ave S, with an option for additional administrative extension(s) as determined by the Department of Community Planning & Economic Development Director. 

Ward / Neighborhood / Address
# Ward Neighborhood Address
1. Ward 3 Downtown East 800 Washington Ave S, Minneapolis
Background Analysis

In this report staff is seeking Council approval to extend AECOM’s exclusive development rights for 800 Washington Ave S from December 31, 2020 to June 30, 2021, due to changes in the project scope resulting from the American Academy of Neurology (AAN) withdrawing from the project and the ongoing economic impacts of the pandemic.  The extension would allow for AECOM to complete due diligence on an alternative housing project and staff to return to the City Council in 2021 with terms for sale.  The developer will pay a monthly $8,500 fee to retain the rights.  The proposed extension provides the most likely opportunity to see redevelopment of the site in the near term.   

In April 2018, City staff issued a request for proposals (RFP) for City-owned property at 800 Washington Ave S. On August 31, 2018, the City Council authorized exclusive development rights to AECOM for the purchase and development of the property until March 8, 2019, unless the CPED Director approved any extensions, subject to AECOM paying option fees to the City. AECOM's original proposal was for a mixed-use project comprised of market-rate multifamily ownership housing (with 10% of the units affordable at 80% AMI), office space, and retail.

On March 3, 2019, August 28, 2019, and January 9, 2020, the CPED Director authorized extensions of AECOM’s development rights subject to the developer paying option fees to the City in the amount of $8,500 per month. During that time, AAN withdrew as the office user for the project, which required the development team to reformulate its plans to backfill the space reserved for office with more housing.

On July 2, 2020, the CPED Director authorized a further extension of AECOM’s development rights until November 8, 2020, so that the development team could reassess its project plans and financing amid COVID-19-related economic impacts, and also deferred the final $8,500 option fee that was due under the preceding option period. The CPED Director recently authorized another short-term administrative extension of AECOM’s development rights through December 31, 2020, to bridge the time until the current Council action could occur.

In response to changing local market conditions, the development team has since revised its development plan to a more modest-scale, 143-unit multifamily ownership housing project, targeting a unit mix of 50% market-rate / 50% affordable at 60-70% AMI.

AECOM has requested an extension of its development rights until June 30, 2021, to more fully develop its financial model and architectural plans and get financing commitments for this modified project approach.

Given the significant changes to the project plans and the need to assemble financing from multiple sources for the affordable housing component, staff recommends a six-month extension of AECOM's exclusive development rights through June 30, 2021, coupled with an option, if needed, for the CPED Director to administratively extend through December 31, 2021. This extension should give AECOM sufficient time to complete necessary due diligence and secure preliminary financing commitments for the revised project.

The deferred $8,500 option fee is due at the end of the current administrative extension period (December 31, 2020). Staff recommends that the six-month extension from January 1, 2020, through June 30, 2021, be subject to AECOM continuing to pay $8,500 monthly option fees to the City under terms similar to the current option fee agreement. Any further extensions beyond June 30, 2021, would be subject to AECOM paying the City option fees in the amount of $10,000 per month.

AECOM has paid the City $110,500 in option fees to date. These payments, along with all future option fees paid would be credited against the purchase price of the property at closing.

The City will have no obligation to further extend AECOM’s development rights if AECOM is unable to secure necessary financing commitments and meet due diligence benchmarks by the end of the extension period.

If AECOM does not meet financing and due diligence benchmarks or staff and AECOM are unable to return to Council with a term sheet reasonably acceptable to both parties after the end of any approved extension period, either the City or AECOM may notify the other in writing that it is ending negotiations, in which event, the City would retain all option fees paid.