The Crossing: stymied, struggling, or spinning?

IMG_0793_1000.jpgI was surprised when I read the article in this week’s Northfield News titled MnDOT holds up Crossing: Right-of-way sale delays Hwy 3 project. (This particular story does NOT require a subscription/login to read.)

(Full disclosure/shameless self-promotion: my wife and I have money down on a condo there. Open house this weekend! Finder’s Fee! Operators are standing by. Not available in stores!)

My understanding was that, like nearly all new condo and mixed-use developments in the state, The Crossing is struggling. (See this Strib article from last week as an example of the problems with mixed-use developments.) Mendota Homes has sold or have commitments on 18-20 of the condo units. They’ve sold 2 of the retail condos. They’ve been shopping the idea of a hotel for the development instead of constructing the second 55-unit condo building. Northfield News reporter Suzanne Rook writes:

Mendota Homes, developers of the 4.64-acre property at the corner of Second Street and Minnesota Highway 3, can’t begin the second phase of its multi-million dollar construction project until the Minnesota Department of Transportation sells the company a couple of small parcels near the center of the development. The property was purchased by MnDOT a few years ago as part of the Highway 3 widening. That project wrapped up last fall, about the time The Crossing’s Phase II was to begin. Northfield’s Community Development Director Brian O’Connell said the city’s well aware of Mendota’s predicament and has agreed to press MnDOT into selling its excess right-of-way. Mendota, O’Connell said, “can’t move forward with the second phase until they get the land.”

I don’t object to Mendota Homes trying to put a positive spin on a sluggish development. (Here’s a May 1 press release titled Quaint college town south of Minneapolis prides itself on cows, colleges, contentment, and condos on the Dolan Media Newswire that really puts the development in glowing terms.) I’d do the same. And as a future condo owner, I have a stake in the development flourishing as soon as possible.

But it seems to me that the Northfield News has not done its job here, that they’ve just taken the company’s characterization of their situation at face value and turned it into a news story without digging deeper. Or am I off-base?

25 comments to The Crossing: stymied, struggling, or spinning?

  • 1
    Ray Cox says:

    This seems to be very confusing and somewhat disturbing news. I find it hard to believe that the city’s bond counsel, attorney’s, commercial lenders, and everyone else involved overlooked the ownership of ‘two small parcels’ of land. The city of Northfield has a huge stake in seeing this development move forward as planned, since bond repayments depend upon the construction of sufficient taxable value on the site.

    Secondly, nothing was said about why MnDot is holding title to the land still. Are they disputing the sale? Do they have other plans for the land? I assume the land in question is the rear portion of the old Godfather’s Pizza site. MnDot secured that site to widen highway 3 but they do not need the east portion of the land. I cannot imagine that MnDot is simply holding title for no good reason. Send them the money for the land and the title will be transferred.

    It is upsetting to think that a project like this was not properly vetted by officials before it was allowed to start….if in fact this story is accurate.

  • 2
    Anne Bretts says:

    IMHO, with all the vacancies they admit having, Mendota Homes is in no rush to start new construction. The problem is the stone cold condo market, not a deal with MnDOT on a parcel of land. The retail space is a problem because new construction costs have created a lease rate too high to allow a local business to cash flow (hence all the talk about a restaurant but no deal). If businesses in cheaper space on Division are struggling, imagine trying to manage in a much more expensive space.
    It seems a call to MnDOT is in order to clarify the land situation, however.

  • 3
    kiffi summa says:

    If i remember correctly, at one point there were lawsuits ( between pizza owners, MNDot and ?) revolving around that land for the easements….Is that the “hang-up”? Maybe the newspaper should investigate the actual and specific ownership of those parcel pieces, and whether those court cases have been resolved. I asume records would be at Rice County courthouse, since that’s where the land in question is located.
    Let’s get the story straight, and not “taint” the project.

  • 4
    Griff Wigley says:

    Ray/Anne/Kiffi, thanks for chiming in. I’ve asked the Northfield News to comment here but they’ve declined. I’ve contacted the Star Tribune South section editor and asked them to investigate. No word back yet.

    On a related note, in Saturday’s Northfield News, it appears as if Mendota Homes has something else in mind for the old Byzantine property:

    Rental housing for artists nixed by downtown developer

    With the deadline to apply for state tax credits just weeks away, a downtown housing project for artists and creative professionals may have nowhere to go.

    The project’s planners, the Northfield Downtown Development Corp., last month received a commitment of $105,000 from the city’s Housing and Redevelopment Authority to build a $6 to $7 million structure called the “Building for Creative Professionals.” But that money is guaranteed only if the NDDC meets a June 19 deadline to apply for state tax credits, builds on a specific piece of property and doesn’t restrict renter eligibility.

    The building, also known as the BCP, was to have been located on a half-acre parcel on the southeast corner of Minnesota Highway 3 and Second Street (often referred to as the Old Byzantine location). But the property owner, Mendota Homes, won’t sell the NDDC the land.

    Mendota Homes President John Mathern, whose company is constructing “The Crossing” project just north of the proposed BCP site, confirmed that he and NDDC Executive Director Ross Currier had discussed the land sale and Mendota Homes building the four-story structure. But, he said, his company isn’t ready to tackle such a project, and that it now has other plans for the site.

    Mathern wouldn’t reveal what is being considered for the property, saying only that changes in the residential market have altered the company’s plans.

    No plans have been submitted to the city for that site or another Mendota Homes holding on the Q Block, just west of the property across Highway 3.

    The only condition placed on the Old Byzantine property is that Mendota Homes set aside 28 parking spaces for public use. That stipulation was included in a 2005 financing agreement for “The Crossing” between the city and Mendota Homes.

  • 5
    Paul Fried says:

    Griff: I don’t think you’re off base at all in asking whether the NNews should have dug deeper.

    Mendota Homes buys ads in the paper. Small papers may be reluctant to dig in such circumstances. The NNews dug deeper, and was openly critical, in the case of Progressive Rail and its railroad billboard (a-hem, I mean “banner”), but this was only after many letter-writers and a few other news events (the Jason Hill presentation at St. Olaf) called the ethanol plans into question. Perhaps it seemed that siding with Progressive Rail would have meant ignoring a large segment of its readership.

    My sense of it is that they have to feel motivated to dig, and they have to feel it’s safe to do a story. Why upset readers or businesses, or lose ad revenue over it? An ad-related bias goes against the grain of journalistic codes of ethics, but it happens often.

    I’m glad the NNews eventually wrote the stories they did about the sign, but I’m not sure that they’d be especially concerned if a developer is slow to finish, or to fill retail slots. Things take time, there have been empty retail slots downtown that sit empty sometimes, and if it takes a while to build another set of condos or a hotel, many folks may feel the development as it is seems better than what was there before.

    If it ends up being a hotel, will this compete with the Archer House? Some Northfielders would not mind if such competition is slow in coming.

    If they build more condos, why rush when the housing market is slow? Would realtors and local builders really mind if it’s a while before more condos appear there? Maybe not.

  • 6
    Ray Cox says:

    Paul, one thing to remember is that the success of The Crossing could possibly have a significant impact on the citizens of Northfield. The city granted millions of dollars of assistance to the project. The payback of those dollars is predicated on the real estate value being constructed, allowing the city to capture the tax increment differential and pay back the bonds sold to finance their share of the project. If the next condo building is late….the city will be short on funds to pay the bonds back. If the second condo building is never constructed, there will be a huge ‘hole’ for the city to deal with. If the second condo building turns into a hotel, the value most likely will be substantially lower than a condo building, again leaving the city with a ‘hole’ to fill. All these ‘holes’ could be filled by the developers if they have the resources.

    I think the real story for the NNews would be to look into the condition of the whole project at this time. Verify if MnDot is infact holding up the project…what is the impact on the developer/city if that is happening….is there any language in the development agreement about who is responsible for such actions….when is the second condo going to start….and on and on.

    So to answer your question about “why rush when the buiding market is slow”, as long as someone has a way to pay back the bonds due, there doesn’t need to be a rush. But right now it appears the real estate taxes are not being paid by the developers—how are they going to pay the very large bond payments if much smaller real estate taxes are not being paid?

  • 7
    Paul Fried says:

    Ray: Thanks for the information.

    When you say “right now it appears the real estate taxes are not being paid by the
    developers,” I assume you mean not that they’re delinquent in paying their tax bill, but that the taxes the city anticipated collecting, given an on-schedule timetable of completing the development, are not there (so the developer does not yet have to pay real estate taxes on the portion of the development not yet built).

    This means there is not as much real estate tax money coming in to the city as anticipated for the city to pay off the bonds on the anticipated schedule. You say, “as long as someone has a way to pay back the bonds due, there doesn’t need to be a
    rush.” Yet it’s not the developer, but the city that has to pay these bonds--do I have that right?

    Is that what you meant?

  • 8
    Griff Wigley says:

    Ray wrote:

    I think the real story for the NNews would be to look into the condition of the whole project at this time.

    Including the city staff’s role in the MNDOT property issue.

    Paul wrote:

    If it ends up being a hotel, will this compete with the Archer House? Some Northfielders would not mind if such competition is slow in coming.

    I spoke to Erin Mathern, Director of Development for Mendota Homes and she indicated to me that the hotel idea has been dropped, that the second unit will be residential. I suppose it could be rental or even student housing (SOMEBODY ALERT VERN RIPPLEY!!!) but at least it’ll be residential.

  • 9

    This is what happens when the City subsidizes private development — “Grant Park” is one example where there wasn’t legal follow through on land issues that resulted in a problem later down the pike. For the city to be “investing” and obligated in connection with a big buck condo development when the market across the country is down the toilet, how is this justified. Seems the city is on the hook for the payments and may have to rob Paul (Fried?) to pay Peter! Where there’s transfer of city $$$$ for a private project, shouldn’t there be equal assumption of risk by those gaining from the city cash???

  • 10
    Ray Cox says:

    Paul,

    I have not looked lately, but the project was listed this spring as having delinquent real estate taxes. I assume they did not pay the real estate taxes due on the land and therefore were listed on the official list that the city sent to Rice County.

    I also assume that they must have brought the taxes into some current condition in order to transfer title on the units that have been sold.

    The owner of the property, assumed to be the developer, is obligated for the taxes due on the property in its current condition. (That is the nice thing about real estate taxes—-they generally are paid regardless of ownership and provide a steady stream of revenue that the state can just about peg to the dollar each year.) The problem surfaces for the city in that their bond proforma anticipated a second building sitting on the site, which should have started last September.

  • 11
    Anne Bretts says:

    OK, reporter’s curiosity gets the best of me again. I called Al Roder, city administrator and good guy, and here’s the short version:
    The city isn’t on the hook for anything. Mendota Homes agreed to an annual assessment for the improvements, which is charged no matter how much is built or when. The assessment is based on the cost of the improvements and is not related to the value of the property or its tax rate.
    Roder said it is his understanding that the delinquency on property tax payment on The Crossings is very small and a result of a miscalculation.
    He also said that while he is not commenting on Mendota Homes, he has known developers, even very wealthy ones, who put off paying taxes until absolutely necessary, using the money as long as possible. It makes government kind of a short-term lender.
    I have a message in to MnDOT on the two small parcels of land that remain in question on the site. Al said he didn’t know what the problem was, but speculated that the parcels are so small they simply may not be a priority compared to the giant issues the state must resolve each year.
    I’ll let you know what I hear from the state.

  • 12
    Ray Cox says:

    Anne,
    You still have the reporter bug in you!
    Al Roder is right in that I suspect the city development agreement requires payments to be made to cover the bond payments, regardless of the amount building improvements constructed.

    However, if for some reason the developer in such situations is not able to cover those payments, if there is a shortage, a default can occur. While not a normal turn of events, it does happen. That is why the bonds carry interest, also known as ‘risk’, for the bondholders.

    Al is also correct that some developers to let their taxes lapse, in effect borrowing money from the real estate tax account. Such borrowings carry interest cost.

    I hope MnDot will let you know about the status of the ownership of the two parcels of land in question. If it is holding up construction of the second residential building the ‘little’ parcels become a big deal for Northfield.

  • 13
    Griff Wigley says:

    Thanks much for doing some digging, Anne. I’m confused, tho… and forgive me, I’m a TIF newbie! I’m reading about TIF on the wikipedia to help me understand.

    Here’s the PDF of the prelim term sheet on the City’s site.

    Here’s the PDF of ASSIGNMENT AND SUBORDINATION OF CONTRACT FOR PRIVATE DEVELOPMENT

    You wrote after talking to Al Roder that:

    The assessment is based on the cost of the improvements and is not related to the value of the property or its tax rate.

    which seems contrary to what TIF is.

    So what does the Crossing’s “Annual Pledged Tax Increment of $411,660″ mean? If Northfield doesn’t collect that amount in additional taxes then Mendota Homes has to make up the rest?

    Also, I see that the Crossing’s 2nd residential unit could now be rentals instead of condos, as described in the last page or two of the April 26 EDA meeting packet PDF:

    A copy of the update report that has been provided to the Council is attached to this Staff report. Based on recent discussions with Mendota Homes, Inc., it is likely that a change in the Phase II residential structure from for sale condominiums to market rate rental dwellings is being pursued by Mendota Homes, Inc. This change reflects the noticeable change in the market conditions for condominiums in Northfield and elsewhere in the region.

    The original location of the Phase II residential building will remain the same and the exterior design of the building would remain unchanged. It is likely that additional dwelling units would be necessary to generate sufficient tax revenue to support the Tax Increment that has been offered by the City. These details and others are being researched by Mendota Homes, Inc. at this time.

  • 14
    Anne Bretts says:

    I’ll do some more digging and see what I find. You’re right about TIF assuming the increased property taxes will pay for the bonds, which is what TIF means. I think Al is saying that there’s a guaranee involved to cover the annual bond payment if the tax revenues don’t cover it.
    Apartments are the hot trend now all over the metro as developers try to fill ailing condo projects, so I’m not surprised that Mendota Homes would consider that option.

  • 15
    kiffi summa says:

    Back in comment #3, I noted that there were lawsuits on two of the parcels in the Crossing Area (having nothing to do with Mendota Homes, but between Pizza bldg. owners and MNDOT; eminent domain issues, I believe) Is that STILL the problem ???? Will MnDOT say that if that is so?
    I would think Mendota Homes would also know if those cases are still active, since it affects their development………..

  • 16
    dontbelieveanything says:

    As the owner of a Mendota Homes condo, I suggest you question everything they do or say, particularly on water runoff and noise issues. A quick call to the engineering dept. of Minneapolis or a downtown city council member will tell you all you need to know: Mendota Homes is no longer welcome in Minneapolis.

  • 17
    v summa says:

    Stymied, struggling or spinning?

    In response to dontbelieveanything’s comment:

    I wish you’d identify yourself -- it is hard to evaluate a comment when you don’t more fully understand its source. Maybe it’s just buyer’s remorse.

    At the very least, when you say as a “owner of a Mendota Homes condo, “ I’d like to know if that’s a Northfield condo or if it is from another locale.

    I can’t comment about any “water runoff and noise issues.” here or in the TC areas as they might have occurred with Mendota Homes properties… and I m assuming since you suggest contacting Minneapolis City council members for verification of your remarks, that yours is a TC located condo.

    Having made those remarks and assumptions… I ‘d ask you to look at the picture of the Northfield project as it stands today; granted, in a sorry state of NON-completion… but, view that next to what it replaced… a blighted flood plain and pseudo industrial area that had dominated Northfield’s downtown fringe for DECADES.

    SIDE NOTE: Perhaps Griff can shoot some BEFORE & AFTER pix. These could be quite thought provoking as reminders for LG readers when assailing The Crossing Project or its developers. I know Kiffi has some revealing shots of pre-develoment conditiions

    Maybe the global economic stress since 9/11 is not the full cause of the hiatus in successful sales in the Crossing project… certainly all residential sales are down in Northfield… but, that aside, Mendota Homes’ efforts in Northfield have resulted in many positive changes… and offer to deliver more… and in my opinion if the economy rights itself and or we get the dollars of a few hours of the costs of maintaining a warrior presence in Iraq -- ( as I understand it $11,000,000 per hour!) then the Mendota Homes project may get back on the successful economic track, along with a lot of local, national, and global needs.

    Don’tbelieveanything further wrote “Mendota Homes is no longer welcome “ in the Twin cities I presume?

    I’m not there… but if the sun is setting on Mendota Homes’ welcome here in Northfield, that is a too bad situation.

    As to other welcomes… I’m sure we’d welcome more specifics in the case of Mendota Homes… and fear not> If you continue under the cover of anonymity (sic) dontbelieveanything, then you can feel safe in taking shots at MH and others as well.

    In any event, Griff put it well when he first asked: The Crossing: Stymied, Struggling or Spinning?

  • 18
    dontbelieveanything says:

    So, who is V. summa? Isn’t that anonymous?. I SAY, not welcome IN MINNEAPOLIS. Don’t believe me, if that’s convenient. I make no judgements about the Northfield project. I’m not an engineer. Call the engineering dept.in Minneapolis, or Lisa Goodman for opinions. I have forwarded documents and emails to city council AND administrators in Northfield, as well as the northfield news, as a precaution. As I told Griff, I’m willing to appear in public meetings in Northfield, as are others here in Mpls. to share our opinions about MH.

  • 19
    v summa says:

    Thanx Dontbeliveanything, for your response.

    I can assure you that v summa in Northfield is anything but anonymous. Google it and you’ll get a lot of hits. I’m not claiming any importance… only I can be held accountable for what I say or write.

    If you’ve spoken w/Griff in the past via LG then I have not read that. If you’ve done so off line then how would I know.

    Finally, I have no personal quarrel with you and might in the end
    welcome your perspective. thanx again.

    v (for victor) summa, 812 St Olaf Avenue Northfield MN -- 507 663-1826

  • 20

    I too was disturbed by the anonymous slam of The Crossing, because when you say something that could be slanderous, you should own it, sign it. And my belief is that ANYTHING we say we should own, otherwise, it’s just irresponsible blather. Slanderous? Is it true or not true? There’s not sufficient facts here to make any determination, just ominous conclusory statements. Isn’t there a policy for posting that commenters be identified? That anonomyous posts not be published? If not, similar to Letters to the Editor, there should be!

  • 21
    dontbelieveanything says:

    V: If you send me an email address, I can forward public memos I’ve obtained regarding MH and their practices in the Twin Cities. As I said, I did send some of those to your city council and administration, but they didn’t seem to be interested. However I wanted it on the public record in the event Northfield residents begin to complain, and public officials pretend not to know about issues in Minneapolis. They haven’t done due dilligence, and you should call them on that.

  • 22

    Why the secrecy about documents? Have you sent them to Locally Grown for publication? The Northfield News for review and comment (yeah, I know, the sNews is dissappointing to say the least).

    Send them to me and I’ll do a blog post about it. Though of course I’ll do my own analysis and comment, I am an attorney afterall!
    overland@redwing.net
    http://www.legalectric.org

  • 23
    v summa says:

    Yo, DBA… I’m reluctant to print my E address here in LG -- and don’t believe there’s any other way for me to E mail you. I’m not much of a computer maven… but I appreciate your offer to share the views. Carol A (Attorney) Overland has evidently stepped up to say she’d accept them from you and, etc etc etc. Works for me… OKAY?

    Full disclosure: I am a real fan of what Mendota Homes has started here in N’fld -- while progress has been stymied… I don’t have any reason to believe it is purposeful on the part of MH. I also do know that of the few buyers to date, there is a high level of disenchantment caused by the stymie.

    victor

  • 24
    Griff Wigley says:

    We’re laggards on getting our Locally Grown policy on discussion comments posted publicly so my apologies for contributing to the contentious issue here re: anonymous comments.

    We allow people to be anonymous to the world with their comments but not to us. This means I’m able to see the email address of someone who doesn’t use their real name and I can confirm with them whether or not they’re legit.

    I’ve been gone a few days but when I did check email and saw the comment from ‘dontbelieveanything’ (DBA) I did check who it was. I got email from him last week and spoke with him by phone, too. And he’s been sending me copies of Mpls city hall email exchanges that are evidently part of the public record.

    I’m not sure yet what I’ll do with all this info but I do NOT plan to use any of the info for anything related to our personal dealings with MH re: our condo purchase agreement.

    I really want this development to succeed for Northfield, whether or not we live there. I want it to be a crown jewel mixed-use development for that end of downtown. So if this info about MH and the city of Mpls is relevant, my hope is that it helps the City of Northfield be super vigilant in their dealings with MH so that the project succeeds for us as taxpayers, and of course, for MH as a business, too.

  • 25

    [...] Drive on a month-to-month basis while we wait to see what happens with The Crossing (see posts here, here, and here.) [...]

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