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05/07/01 Sandry to Kukulski/Southfield Park CompromiseLAW OFFICES OF JOHNSON, BERG, MCEVOY & BOSTOCK, PLLP 221 First Avenue East PO Box 3038 Kalispell, Montana 59903-3038 ESTABLISHED 1891 MERRITT N. WARDEN JAMES W.JOHNSON 1914-1996 STEPHEN C. BERG BRUCE MCEVOY TELEPHONE (406) 755-5535 THOMAS R. BOSTOCK May 7, 2001 TELEFAX (406) 756-9436 KENT P. SAXBY PAUL A. SANDRY EMAIL ADDRESS ERIKA L. JOHNSON jbmb@centurytel.net KATHERINE P. MAXWELL GARY R. CHRISTIANSEN, PC HAND DELIVERED Of Counsel 81039.6 City of Kalispell ATTN: Chris Kukulski / Glen Neier, City Attorney en _ PO Box 1997 c M Kalispell, MT 59903-1997 C � ca Re: Southfield Park Development -=CD i Dear Chris and Glen: As you are aware, my firm represents Northwest Investments Partnership, LLP ("NIP"), which acquired the Southfield Park property from Mr. Richard Dasen. Mr. Dasen is one of the principals of NIP. The purpose of this correspondence is to respond to Mr. Kukulski's letter to Mr. Dasen of May 1, 2001. In that letter, two issues are discussed, namely the need for additional parking associated with the current development at Southfield Park and the Development Agreement entered into by and between the City and Mr. Dasen. Those issues are discussed separately below. Mr. Dasen purchased the Southfield property (Haven Field) on or about July 1, 1997. The City and Mr. Dasen entered into a Development Agreement on or about February 11, 1998, several months subsequent to Mr. Dasen's acquisition of the referenced property. NIP acknowledges that, in the event the Development Agreement is valid, a current monetary obligation to the City of Kalispell exists. However, Mr. Dasen and NIP question the validity of the Development Agreement for various reasons. Some of those reasons are set forth in my firm's letter to you dated October 11, 2000, a copy of which is enclosed herewith for your immediate reference. No useful purpose would be served by reiterating the position of NIP and Mr. Dasen regarding the Development Agreement here. In the spirit of compromise and in an attempt to dispose of the differences of opinion existing between the various parties concerning the Development Agreement, Mr. Dasen and NIP propose the following changes to the Development Agreement: NIP will agree to pay to the City the sum of $80,000.00 on or before September 21, 2001. 2. NIP or Dasen will enter into an amendment to the Development Agreement with the City whereby any difference between the amount of tax actually generated by the Southfield City of Kalispell ATTN: Chris Kukulski / Glen Neier, City Attorney May 7, 2001 Page 2 property and $124,000.00 will be paid to the city for a period of eight years commencing with the calendar year beginning January 1, 2002. The first payment would be due thirty (30) days following issuance of the calendar year 2002 tax notices for the Southfield property. Our current estimate is that the taxable value of the Southfield properties as of January 1, 2002 will exceed $8,000,000.00. Assuming an approximate tax rate of 2%, total annual tax will exceed $160,000.00. Said amount over a period of eight years, coupled with the $80,000.00 cash payable in September 2001, will exceed the City's expectations expressed in the Development Agreement. Acceptance of the foregoing will avoid contentious litigation and will not compromise the City's overall financial expectations concerning tax receipts from development of the subject property. The second issue contained in Mr. Kukulski's correspondence concerns Jackola Engineering's request made on behalf of NIP for additional parking associated with the project on Lion's Park Street. Lion's Park Street is owned by NIP. Article 4 of the Development Agreement indicates that developer should design appropriate access and parking arrangements to compliment and encourage the public use of Lion's Park. It is my understanding that alternate parking for purposes of public use of Lion's Park has been identified and that an amendment of Article 4 of the Development Agreement regarding Lion's Park Street can be made to accommodate the contemplated (and currently progressing) development of the Southfield property. Please consider amendments to the Development Agreement discussed above. As you are aware, development is progressing at the Southfield property and time is of the essence. It is my hope that a decision regarding the foregoing can be made at the City Council meeting held tonight. In the event the Council has any questions or concerns, please do not hesitate to contact us. I look forward to hearing from you for purposes of putting this matter to rest. Sincerely, aul A. Sandry PAS:djb Enclosure GARY R. CHRISTIANSEN, P.C. JAMES W. JOHNSON STEPHEN C. BERG TODD A. HAMMER . BRUCE McEvoy THOMAS R. BOSTOCK KENT P. SAX8Y PAUL A. SANDRY LINDA G. HEWI77 ERIKA L. JOHNSON DAVID M. SANDLER KATHERINE P. MAXWELL CO - LAW OFFICES OF WARDEN, CHRISTIANSEN, JOHNSON & BERG, PLLP 221 First Avenue East P.-O. Box 3038 Kalispell, Montana 59903-3038 ESTABUSHED 1891 MERRITT N. WARDEN 1914. 1996 Mr. Chris Kukulski City Manager City Hall Kalispell,Montana 59901 October 11, 2000 Re: Richard A. Dasen Assignee: Northwest Investments Partnership, LLP Southfield Park Property TELEPHONE (406) 755-5535 TELEFAX 1406) 756-9436 EMAIL ADDRESS wcj6@digisys.net 79361.1 I am writing on behalf of Northwest Investments Partnership, LLP in response to your letter to Mr. Dasen of August 2, 2000. It appears from your letter that you are not familiar with the history regarding this property or the prior discussions between Richard Dasen, my client, and the City of Kalispell. In the majority of this letter I will discuss some of this history, but before doing so I want to address the comments in your letter of August 2 where you state that Mr. Dasen acknowledged, in his meeting with you (which meeting included several of Mr. Dasen's partners), owing certain monies to the City. Similarly, your letter also states that Mr. Dasen did not deny owing such monies to the City. I do not believe either of your comments accurately characterize Mr: Dasen's comments to you. Mr. Dasen specifically disputes that he acknowledged any current obligation to make a payment in lieuof taxes at this time. While Mr. Dasen acknowledges the existence of the Development Agreement dated February 11, 1998, it is his position and the position of Northwest Investments Partnership, LLP that such Agreement is either unenforceable given the context of its execution, or was modified in subsequent discussions with the City. At a minimum, the City of Kalispell is estopped from enforcing this Agreement at this time. In this regard, Northwest Investments Partnership, LLP is entitled to defer performance given the Cit-y's actions and inaction. I believe that after you better understand the history of this matter you will concur that what you have proposed in your letter of August 2, 2000 is not appropriate under the circumstances. Mr. Chris Kukulski October 11, 2000 Page 2 In October of 1996, the City of Kalispell published a legal notice requesting bids on the Haven Field property (n/k/a Southfield Park). Bids were due on November 19, 1996. My client timely submitted a bid, which I believe was the only 'bid received by City at that time. However, I believe - another party had expressed interest in the property and the City wanted to provide that party with an opportunity to bid on the property. As a consequence, and without explanation, the City extended the bid deadline until January of 1997. A few minutes before the January bidding deadline, Mr. Dasen's bid was submitted. Mr. Dasen's bid was the only bid submitted by the time set for the close of bids, but the City refused to close the bids given that the City Manager was aware of a third party who intended to bid, but allegedly was delayed in delivering its bid because of the snowy conditions that day. That third party's bid was delivered to the City well after the published time for the close of bids, and -although clearly late, the City accepted this party's bid for consideration. However, Mr. Dasen's bid was eventually accepted by the City given that his bid was determined.to be the highest and best bid. At the time Mr. Dasen submitted his bid, he had received commitments from several third parties to either purchase lots or to lease space in a building that would be constructed on the Southfield Park property. At that time, Mr. Dasen was confident that he had firm commitments for four of the parcels, and a fifth potential purchaser/lessee had expressed significant interest. At least one party had paid earnest money toward their purchase of a lot. Unfortunately, even though Mr. Dasen's bid was accepted in early 1997, the purchase of the property did not close until July 1, 1997, a delay of six (6) months. This six-month delay was short compared to the delay from purchase until final plat approval was obtained on ,July 23, 1998. I will not go into detail with respect to all of the reasons for the delay between July 1, 1997 and July 23, 1998. However, based upon my review of matters during this 13-month period, it is clear to me that this delay is attributable to the actions of and inaction on the part of the City of Kalispell. Additionally, during this period the development costs of the Southfield Park property were increased significantly given various requirements of the City, including an extremely expensive storm drain system. In total, infrastructure costs related to this property totaled approximately $4.50 per square foot (approx. $800,000.00), which was significantly more expensive than originally anticipated by Mr. Dasen and Northwest Investments Partnership, LLP. My client initially anticipated that part of this infrastructure cost would be covered through tax increment financing (TIF). However, the City of Kalispell advised my client that the property was outside of the airport TIF district. After construction of the infrastructure improvements had been completed, the City advised my client that the property was within the TIF district, but when my client sought TIF funds for some of its infrastructure improvements it was advised that TIF funds could not be paid for improvements which were already constructed. This inability to obtain TIF funds is an especially sore subject with my client given that this occurred because of an erroneous determination by the City of Kalispell of the Mr. Chris Kukulski October 11, 2000 Page 3 TIF district boundaries. This incorrect determination by the- City of Kalispell cost my client a substantial amount. Both of your predecessors as City Manager, Clarence Krepps and Al Thelen, met with Mr. Dasen and/or representatives of Northwest Investments Partnership, LLP regarding this matter. Both of these individuals recognized that requiring payments under the Development Agreement to commence January 1, 1999 was not equitable under the circumstances. I believe Mr. Krepps stated to my client that he "recognized that there were significant delays which were primarily caused by the City of Kalispell," or words to that effect. Mr. Krepps further indicated to my client that a deferral of the commencement date of the payments required under the Development Agreement was appropriate. After Mr. Thelan looked into this matter while he was serving as the interim city manager, he echoed the same sentiments that had been expressed by Mr. Krepps. In short, the delays caused by the City have resulted in my client not being able to develop the property as originally anticipated at the time it submitted its bid to purchase this property in November of 1996. Just under two (2) years passed from when my client initially bid on the property until it received final plat approval from the City of Kalispell. During this period, all of the original tenants/purchasers who had expressed interest or committed to acquire or lease property in Southfield Park understandably concluded that they needed to pursue other alternatives. My client's inability to commence construction or even commit to a construction time frame was simply unacceptable to these parties. For the City to attempt to enforce the payment in lieu of taxes beginning January 1, 1999 when the City's own actions have effectively prevented my client from developing the property as initially envisioned is simply not equitable. A final matter of which you should be aware relates to the circumstances of the execution of the Development Agreement. Mr. Dasen was told in early 1998 that he had to execute this Agreement before the City of Kalispell would consider his application for preliminary plat approval, even though purchase of the property had been consummated eight (8) monthly earlier in July of 1997. The Development Agreement is likely unenforceable given a lack of consideration since the City refused to carry out its statutory obligation (to consider Mr. Dasen's application for preliminary plat approval) unless Mr. Dasen executed the Development Agreement. I do not believe any judge or jury -would look very favorably upon such tactics. p While my client. has a number of legal and equitable arguments, it is interested in resolving this matter without the necessity of litigation. Accordingly, i have been authorized. to extend the fo�aowing offer to the City. in this regard, my client proposes that it will begin making payments in lieu of taxes on July, 1, 2002. This will give any client the opportunity to implement its current development plans for property with new tenants/purchasers with whom it has been in touch. The commencement of the 10-year term of the Development Agreement would be July 1, 2002. For the year 2002, the payment in lieu of taxes would be computed by subtracting the actual taxes for the year M; Chris Kukulski October 11, 2000 : Page 4 2002 from $124,000.00. This difference would then be divided by two, and this amount would be the payment in lieu of taxes that would be paid by Northwest Investments Partnership, LLP for the year 2002. Subsequent years would be calculated in the same manner set forth above (but for the entire year), and as provided for in the Development Agreement. After you have had an opportunity to review and consider this letter, please contact me with any questions. Likewise, if you would like to meet at that time please let me know and I will be more than willing to arrange a meeting with you and my client. Very truly yours, WARDEN, CIRISTLANSEN, JOHNSON & BERG PLLP Kent P. Saxby KPS/cll bc: Mr. Matthew J. Waatti Mr. Richard A. Kasen P.O. Box 1 Kalispell, Montana 59903-0001