3. Equity UpdatePlanning, Economic &
Community Development Department
P.O. Box 1997
Kalispell, MT 59903-1997
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Incorporated 1892
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TO: KDC Ad Hoc/Equity Supply Project Review Committee
FROM: Lawrence Gallagher, PECDD, Director
c
DATE: April 8, 1994
SUBJECT: Preliminary Information - Background Information
248 Third Avenue East
(406) 752- 7491
(406) 755-8017 (office fax)
(406) 752-6639 (City Hall fax)
Attached is a Memorandum to the Equity Supply File dated March 25, 1994.
Please review it prior to next weeks meeting to discuss the issues and deal points. At our first
meeting, it will be important to identify specific issues that will require evaluation and analysis
by the KDC. Also, it will be an opportunity for you to identify any considerations (hot buttons)
I may have overlooked or failed to cover in the Memo. I'd like to stay ahead of the curve on
this one and will appreciate your advice and assistance.
According to the November 30, 1991, American Appraisal Associates Fair Market
Value appraisal of the designated improvements onlX to Equity's real estate, they concluded:
Land Improvements $ 61,000
Buildings 1,058,000
Machinery and Equipment 1,864,000
Total S2 983 000
The following quote is from the Appraisal:
"It is presumed within this appraisal that the City of Kalispell will receive title
to the appraised assets. It is not based on the premise that Equity Supply
Company has any right to salvage of the appraised fixed equipment, except in
payment therefore.
"As indicated earlier, this fair market value does not represent the amount that
might be realized from the property's piecemeal disposition in the open market
or from its use for an alternate purpose. "
KDC-Ad Hoc/Equity Supply
Memorandum #1
April 8, 1994
Page 2
The Appraisal is available if any of you desire to review it. When Equity's
consultant provides the update I have requested to adjust for added depreciation since 1991, and
to estimate salvage value, we will have a better idea of the potential "upset limit" for acquisition.
It will be difficult to estimate demolition and site prep costs until we have more information but
it is safe to assume the cost will exceed $500,000.
I want to make sure everyone understands that there is no obligation to pay the
appraised FMV or to absorb the full cost of demolition and site preparation for this project.
Because there are no federal funds or grants involved, this is not a "just taking" governed by
the Uniform Relocation and Real Property Acquisition Policy Act of 1970, as amended. The
City more than likely will not be able to afford or justify paying for or reimbursing all of the
project costs that may be considered eligible for funding under the Montana Urban Renewal
Law. Therefore, the city's participation will be governed or limited by both affordability
(bonding capacity + other project $ demands) and what makes sense using reasonable return on
investment assumptions.
Yesterday, Nathan Byrd advised me that his consultant would be in Kalispell April
12, 1994, to begin his work. He told me that a copy of my Memorandum had been given to
his Board of Directors so it is safe to assume this project will start to generate a lot of interest
over the next few weeks. During my conversation with him, I again emphasized how important
it will be to consider market comparables when they negotiate a land sale price with Goodale
Barbieri. I look forward to your advice and assistance as we move this project forward.
Please call if you want specific information available for the meeting next week.
cc: Bruce Williams, City Manager
the Cityal Kalispell
Planning, Economic &
Community Development Department
P.O. Box 1997
Kalispell, MT 59903-1997
TO:
FROM:
DATE:
SUBJECT:
Incorporated 1892
Equity Supply File and Nathan Byrd
Lawrence Gallagher, PECDD, Director
April 1, 1994
Land Value - Comparable sale considerations
248 Third Avenue East
(406) 752- 7491
(406) 755-8017 (office fax)
(406) 752-6639 (City Hall fax
Earlier today, I was involved in a discussion of recent commercial property land
sales that must be considered as you negotiate with Goodale & Barbieri Companies for the
possible sale/lease of Equity's real estate in Kalispell.
Over the next several weeks, I should be able to confirm each sale; however, I
believe the prices discussed below are close to accurate and reflect market transaction that will
be considered "comparable" when the proposed project is evaluated.
Although it may be some time before all of the "assemblage" costs are calculated,
it appears the Shopko land transaction ranges from $3.38 - $3.64/SF before any consideration
is given to site preparation and development cost. The Walmart/Seaman sale is reported at not
less than $2.50/SF, but more reliable sources indicate $2.90/SF with estimated site development
costs exceeding $2.50-$3.00/SF. Currently, Tidyman's is assessed at $5.50/SF, Buttrey's at
$4.50 and there are other sale indications at the upper level of value. Currently, the 21.423
acres of land held by the Kalispell Center Mall Limited Partnership is assessed at $5.00/SF, with
taxable value of $180,053.
The reason for providing this information is to make sure that you recognize how
important it will be to recognize a fair market value consideration in your negotiations. The
extent possible, we must avoid any appearance that tax increment is unfairly subsidizing
developers by allowing them to purchase land at bargain prices. It is equally important to
demonstrate that Equity will not receive a "windfall" profit on land sold at the expense of
schools and other taxing jurisdictions.
Finally, according to the County Assessor, a $4.50 - $5.00/SF market value
should be used for purposes of computing the future tax increment to be generated by Equity's
land if this project is implemented. It would be difficult for the State to support a lower value
in light of the market comparable's discussed above.
cc: City Manager
Planning, Economic &
Community Development Department
P.O. Box 1997
Kalispeil, MT 59903-1997
To: Equity Supply File
Date: March 25, 1994
iheClh of Kalispell
Incorporated 1892
MEMORANDUM
248 Third Avenue East
(406) 752- 7491
(406) 755-801 7 (orrice faxr
(406) 752-6639 (City Ha:l'ati
Subject: March 23, 1994 Meeting with Nathan Byrd, Keith Eckelberry, Ross Plambeck
and Larry Gallagher
On March 23,.1994, at 2:00 PM, Ross Plambeck and I met with Nathan Byrd and
Keith Eckelberry at Equity Supply's corporate offices. The meeting was at the request of Mr.
Byrd, to discuss his March 22, 1994, meeting with Tom Barbieri, of Goodale & Barbieri,
owners of the Kalispell Center Mall.
This Memorandum is intended to first summarize our mutual expectations and
understanding of the deal points and issues and then to document what was discussed during the
meeting so that all parties are progressing with the same set of assumptions. It is intended to
clarify issues to avoid any possible misunderstandings as the public/private partnership is formed
to analyze the feasibility of the proposed redevelopment project and to determine the level of
public and private financial commitment required, source and use of funds, project timing and
most important to communicate in black and white the complex issues that must be resolved if
the project is to be implemented. The Equity representatives are encouraged to add to or clarify
this documentation of the meeting and subsequent meetings.
For purposes of clarification and future negotiations and discussions between
Equity, the City, and Goodale-Barbieri, I believe it is important to establish how I envision the
project proceeding from this date forward.
1. As soon as possible, hopefully within the next ten days I will advise Mr. Byrd of
the legal opinion regarding the segregation of tax increment on the proposed project and
whether or not that's going to be a problem in the future.
2. I will advise Mr. Bvrd as to whether or not FIFTH is willing to sell and convey,
at FMV, their land and warehouse located on lots 7 & 8 of Block 28.
Equity Supply Project
March 25. 1994
Page 2
3. Mr. Byrd or his consultant will go through the November 30, 1991, Equity
Supply Appraisal Report completed by American Appraisal Associates, identify any
equipment that is no longer in use or included in inventory, identify the depreciation
schedule for each item of equipment, and compute the additional depreciation that has
accrued according to the schedule since November 30, 1991--the date of the appraisal.
4. Mr. Byrd will furnish the City of Kalispell with a complete, detailed listing of all
equipment (identified in the Appraisal) Equity will request to purchase at a negotiated
salvage value if the City purchases the equipment at FMV as part of the negotiated
settlement. It would help expedite the process if each item of equipment is (i) identified
according to the description in the appraisal, with reference to page number, (ii) Fair
Market Value 1991, (iii) Fair Market Value 1994, and (iv) estimated salvage value.
Equity's estimate of salvage value must include documentation as to how the salvage
value was established ---whether it was based on their consultants experience, market
comparable data, results of auctions in other locations for similar equipment, or simply
as `best guess' or scrap value. As long as their consultant is determining salvage value,
I would also like to have a clear understanding as to who will be responsible to
disassemble and remove the equipment and any building foundation or improvement
demolition required to move the equipment.
Before the City begins evaluating the project and analyzing the economics of the deal,
it is important to determine what improvements will be purchased by the City, the value
and how it was established, the negotiated salvage value and how equipment to be
retained by Equity will be paid for and relocated to its new location. All of these project
costs and cash flow considerations must be developed before a decision on the City's
participation can be made.
Another area of concern is who will conduct the Phase I and II environmental audits of
the site(s) to determine any mitigation required, the cost and the responsibility.
Additionally, it would helpful if Equity Supply could furnish us with a time schedule
identifying:
a. When a negotiated purchase should take place and when the actual
payment for acquisition is expected.
b. When the actual Equity move could our would take place, and,
C. When the proposed improvements to the Kalispell Center Mall would
begin.
Equity Supply Project
March 25, 1994
Page 3
d. When the improvements would be completed and valued as completed for
ad valorem tax purposes.
Together with Equity Supply, the City of Kalispell, and Goodale-Barbieri, we will
develop a detailed project budget and a cash flow analysis, and determine the level of
participation and activity of each one of the participants. It is important to note that before the
City of Kalispell can agree to participation in the project it must have assurance from the
Kalispell Center Mail Limited Partnership and Equity Supply as to what the market value of
taxable property to be redeveloped will be so the ad valorem tax computations can be made.
Thus, the level of tax increment from the project based on current mill levies will be
predetermined and made part of a redevelopment agreement.
Goodale Barbieri Companies, and Equity Supply will be expected to enter into a
redevelopment agreement establishing specific performance for all of the parties, including an
agreement not to protest market valuations for tax purposes established in the redevelopment
agreement.
It is understood that the City of Kalispell will be party to the agreement and will
specify the level and extent of its obligations under the agreement.
The Mall developer must agree as to the minimum fair market value of the
proposed improvements and estimate of total ad valorem taxes to be paid. Also, agree not to
protest the FMV for tax purposes for a specified number of years. This will an important
consideration because the City of Kalispell, will be bonding to its maximum capacity and must
provide the necessary assurances to the bond underwriters and purchasers that anticipated tax
revenues will in fact be paid or generated by the project.
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Mr. Byrd began the meeting by asking whether or not I had obtained information
regarding the availability of Flathead Industries for the Handicapped (FIFTH) warehouse
property located on Lots 7 and 8 of Block 28, on Third Avenue W.N., immediately adjacent to
the railroad tracks. I advised Mr. Byrd that I had not contacted Flathead Industries for the
Handicapped regarding this property because I did not want to encourage any speculation or
excitement on their part until I had heard from Tom Barbieri and Equity Supply regarding their
plans to move forward with the project.
I told the Equity Supply representatives that I would contact FIFTH decision
makers to determine the availability of the property and would convey the information back to
Equity as soon as I obtained it.
Equity Supply Project
March 25, 1994
Page 4
Later, on the afternoon of March 24, 1994, I met with FIFTH Director, Mike
Kelly. Together, we inspected the FIFTH warehouse site and I told Mr. Kelly that it was
possible the Equity relocation/Kalispell Center Mall expansion project was going to be
reconsidered. Therefore, before proceeding with discussions with Equity and Barbieri, I needed
an answer from him, or his board of directors, as to whether or not FIFTH would consider
selling its property at fair market value (FNM. Mr. Kelly asked if there was any interest in
other real estate that FIFTH owned in the neighborhood; specifically, the Thrift Store and
warehouse located between Third and Fourth.
I advised Mr. Kelly that at this time, the only interest indicated by Equity Supply
management, after their conversation with Tom Barbieri, was for the warehouse property
mentioned above because it abuts and is immediately west of the Equity Supply property fronting
on Second Avenue W.N. Mr. Kelly wanted to know whether or not the FMV consideration
would take into consideration the value of the warehouse improvements as well as land. I told
him it was my opinion that any improvement value would have to be considered in a FMV
appraisal, as well as the highest and best use of the property.
Mr. Kelly said that he did not want to unnecessarily alarm his board as he had
done over two years ago when this project was first considered; but, he would obtain the
necessary consensus of opinion as to whether or not the property was available. He also asked
if he could have at least until mid next week to answer the question. To which I responded that
if the property was not available for any reason, I needed to know as soon as possible.
Mr. Byrd and Eckelberry advised us that they had already been able to assure
themselves that property owned. by Alpine Industries and a single family residence located on
Block 28 would be available and could be purchased by Equity. Mr. Byrd again confirmed that
Equity Supply had already acquired the Chuck Rhodes property located in the same block.
Mr. Byrd stated that the reason for requesting the information on the availability
of the FIFTH property was that Goodale & Barbieri told him that they needed all of Block 28
if they were to proceed with their plans. I asked Mr. Byrd whether or not they had discussed
any closure of Second Avenue West between the railroad track and West Montana Street. He
said he was not aware of any discussion nor had they planned on requesting closure at this time.
He illustrated on a site map that Goodale-Barbieri intended to acquire fee -simple, or a lease hold
interest, all of the property owned by Equity Supply located in Block 28, Block 27 and Block
14, plus the 1.76 acre grain elevator site located at the northwest corner of Fifth and Center.
At this point, I asked Mr. Byrd to describe the project he and Tom Barbieri had
discussed and how the Equity real estate would be redeveloped. Mr. Byrd told us that Tom
Barbieri said they intend to expand the Cavanaugh's Inn rooms at the east end of the Kalispell
Center Mall/Cavanaugh's project; and, planned to add at least one large anchor tenant (Target
or the BON had been discussed in earlier meetings) to the west end of the mall. The project
Equity Supply Project
March 25, 1994
Page 5
would displace all or most of the parking at the west end of the Kalispell Center Mall, and; that
until such time as the railroad track were removed. if ever, the Equity Supply land would be
utilized by the Kalispell Center Mall Limited Partnership to satisfy parking demands.
Because it is an important issue which may impact TIF available for the project,
I again advised Mr. Byrd that I was still awaiting a legal opinion from the city attorney and bond
counsel as to whether or not the tax increment generated by new construction only on the
Kalispell Center Mall's existing 20 acre site, could be segregated in full by the City of Kalispell
for debt service on bonds. I explained to Mr. Byrd, as I had on previous occasions, that in
order to secure legislator support for amendments to the state Urban Renewal Law to extend the
`sunset' provision on the Kalispell project, enabling us to consider the Equity Supply project,
there were some trade-offs.
I explained further that it was my concern since none of the new construction or
significant added value of the redevelopment project now proposed by Equity and Barbieri would
actually take place on Equity land, but rather would be almost entirely generated by additions
to the existing Kalispell Center Mall, I wanted a clear legal opinion that we could utilize the
increment in calculating our ability to handle debt service on bonds. I further stated that it was
my opinion that we would be able to take advantage of new construction or additions to the
Kalispell Center Mail but that we would not be able to take advantage of any incremental
increase in value to the existing land or improvements as a result of this redevelopment project.
Mr. Byrd stated that this was the first time that he had heard me state this
reservation, and I advised him it was the first time that I had heard that all of the new
construction (added value) of the -proposed redevelopment project would take place on land other
than the Equity Supply real estate. In previous discussions I had been aware of significant
additions proposed to the Kalispell Center Mall, but that the Barbieri's and Equity had both
referred to an anchor store tenant such as Target or The Bon being located on Equity property --
even with the railroad tracks in place.
At this point I asked Mr. Byrd if Tom Barbieri told him what he and Mr. Wright,
the BN Railroad official from Havre, had discussed regarding track abandonment or relocation.
Mr. Byrd stated that Mr. Barbieri had given him no insight or information on the results of those
discussions --only that Barbieri said he would like to proceed with putting together the feasibility
of the project, contingent of course on the availability of the balance of Block 28, not currently
owned by Equity Supply, and the City's subsidy and participation in acquisition of Equity's
improvements, cost of demolition and site preparation.
I asked Mr. Byrd what kind of land value he had been discussing with Tom
Barbieri; and, I advised him that the value of land or the consideration paid by Barbieri to
Equity would have a significant bearing on the level of participation and the City's decision as
to whether or not to participate in the project. I explained in detail the public scrutiny that this
Equity Supply Project
March 25, 1994
Page 6
project would receive as it went through the decision making process and that if elected officials,
advisory boards, and the public in general, perceived that there was a windfall gain for Barbieri
in acquiring the land at anything less than FMV, or a windfall gain to Equity Supply and its
members by virtue of receiving more than FMV, then it would be difficult to justify the public
investment required to allow the project to move foreword. I explained it another way: because
Equity and Barbieri would be in essence forming a partnership to accomplish this project, and
the City would become an additional partner, and a significant financial participant in the
project, the partnership agreements and benefits would have to hold up under a great deal of
public scrutiny, and --a term that I have frequently used-- "look good in the light of day".
Mr. Byrd then said that Barbieri and Equity were discussing a $2.00 a square foot
value for the land that may go as high as $3.00 a square foot. I suggested that a $2.00 per
square foot rate, in my opinion, was significantly below the market and that a blended rate in
the $3.00 range probably could be supported and documented. Mr. Byrd said that he did not
believe the land value should make any difference in how the City considered its level of
participation. He stated that if the City insisted on showing a higher land value that Equity
could simply enter into a lease agreement with Goodale-Barbieri at whatever terms they could
mutually agree to, and then at some later date, after the deal was done, consummate a sale at
whatever land price they wanted to agree to. I assured Mr. Byrd that the City would scrutinize
any lease or lease purchase agreement between Equity Supply and Goodale-Barbieri. In other
words, the city would have to examine all of the financial considerations and deal points to
support a multi -million dollar investment of tax increment funds in the project.
At this point we again discussed what the City of Kalispell could and could not
do in considering financial participation in the project.
First, to determine the value of Equity's improvements and immovable fixtures
and equipment, the City of Kalispell has obtained and paid for a November 30, 1991, appraisal
report from American Appraisal Associates. The Appraisal is American Appraisal Associates
estimate of the fair market value of the improvements on the premises for continued use as of
November 30. 1991. The appraisal was to serve as the basis for determining the level of
assistance or payment the City of Kalispell would consider as , it evaluated any decision to
participate in acquiring any or all of Equity Supply's real estate improvements and Class 9
personal property. The level of City participation, if any, would be contingent on
redevelopment of the Equity property to its highest and best use and a "rate of return" on tax
increment invested analyzed using the estimated ad valorem tax increment yield of that
redevelopment as a measure.
I asked Mr. Byrd to review the November 1991 appraisal and to adjust values
downward according to the either the depreciation schedule discussed in the appraisal or an
"industry standard" that could be documented by his consultant. This is necessary because the
appraisal is not current and is based on a November 1991 estimate of the value of Equity's
Equity Supply Project
March 25, 1994
Page 7
property for continued use. Most of the equipment and improvements are class nine property -
--depreciable assets. I asked him to furnish the city with documentation updating the appraisal
taking into consideration the additional depreciation for 1992, 1993 and 1994.
Although it was not discussed during our meeting with Mr. Byrd, I do want to
express my opinion in this memorandum, that the City may want to consider asking American
Appraisal Associates or the appraiser who actually did the appraisal in 1991, or an independent
third party to provide a narrative update as to any market considerations other than additional
depreciation that should be considered in establishing the FMV of Equity Supply's improvements
and furniture, fixtures and equipment.
Mr. Byrd wanted to discuss and confirm that the City of Kalispell, if it acquired
any of the fixtures and equipment, would be able to negotiate and sell back to Equity at a pre-
established salvage value, any equipment that Equity could re -use in their new location. I
assured Mr. Byrd, as I had in the past, that the City of Kalispell had obtained information
regarding the negotiated salvage value authority used by the Montana Department of
Transportation, and that rather than 're -inventing the wheel', or requesting additional authority,
we would use Montana Department of Transportation guidelines for owner retention of
improvements or negotiated salvage value, following methods already in use and a part of
Montana and Federal Highway Department acquisitions.
At this time Mr. Byrd asked whether or not the City of Kalispell would use the
right of eminent domain so they may expect a favorable tax treatment and deferral of any capital
gain resulting from a sale to the City. I responded, as I have in the past, that it is the policy
of the Kalispell City Council not to exercise the right of eminent domain but to arrive at
negotiated settlements. However, I assured Mr. Byrd that under the Montana Urban Renewal
law, the City of Kalispell has the right to exercise eminent domain; and, it was my
understanding Mr. Byrd had used this as a basis to request his accountants opinion as to the tax
treatment of any acquisition proceeds paid to Equity Supply.
For clarification, approximately two years ago Mr. Byrd requested an opinion
from his income tax advisor regarding the federal income tax implications to Equity Supply of
the sale of any or all of its improvements to the City of Kalispell as part of an urban renewal
project. Although I do not have a copy of the letter in the file, it is my understanding that
Equity's accountant advised them that because the City had the right to exercise eminent domain,
whether or not it actually did, Equity Supply would be allowed to defer any capital gain tax
normally due on sale of business property and instead transfer their basis to a new investment
or relocation project anytime within twenty-four months of receipt of payment for those
improvements from the City of Kalispell. In other words --acquisition by the City of Kalispell,
because it has the authority to exercise eminent domain, would not be a taxable event. On the
other hand, if Equity were to sell its real estate improvements or any other depreciable property,
fixtures or equipment to any private party such as Goodale & Barbieri or any other party without
Equity Supply Project
March 25, 1994
Page 8
the right to exercise eminent domain. it would have to pay capital gains tax on any capital gain
realized as a result of the sale.
I believe Mr. Byrd had calculated the significant tax advantage of Equity selling
to the City of Kalispell to be in the twenty-eight to thirty percent range because most of the
improved value of both buildings and equipment currently owned by Equity Supply has been
fully depreciated; and therefore, any amount received above current basis in the property would
be taxable at current taxable gain rates. This tax savings will have a significant bearing on
Equity's decision.
I wanted to assure Mr. Byrd that neither I, nor the City of Kalispell, were in a
position to offer any opinion or provide any assurances that the acquisition proceeds if paid by
the City, would be tax exempt or enable Equity to transfer the basis to another property without
paying income or capital gains tax. It is a matter between their accountant and tax advisors.
In response to my inquiry about the estimated total cost, or value of the project
he had discussed with Tom Barbieri, Mr. Byrd said that he understood Barbieri's were talking
about investing approximately $8.2 million. The Barbieri's would expand their present
operation, build an additional store for another anchor tenant, and expand a significant number
of rooms on the Cavanaugh's side of the project. He said that he expected, or Tom Barbieri told
him that they would have a preliminary proposal and sketches ready for consideration April 30th
to early May. To meet the schedule he would need to know whether or not the City was going
to buy their property, the amount the City would pay for the improvements, and whether or not
they could purchase salvage and negotiate the value of the salvage.
I told Mr. Byrd, I: the appraisal, when updated, would probably establish the
outside limit of the City's participation to acquire improvements and identified fixtures. 2. the
salvage value would be established and documented by Equity's expert; and, that several months
ago Nathan told me that their consultant would identify specific fixtures and equipment items
that they would like to salvage, identify the salvage value and the method of determining the
salvage value. After receiving this information and reviewing the documentation the City would
decide whether or not it needed an independent evaluation of Equity's salvage value estimates;
but, that in my opinion their consultant was probably a better judge of value then the City.
Again, I told Mr. Byrd that the City's level of participation, if any, would depend
on a complete economic analysis of the deal. The City would have to include consideration of
the value of land or the price agreed to or negotiated, for either purchase or lease between
Equity and Barbieri. The total market value and taxable value of the addition(s) to be
constructed and leased by Barbieri, and the residual value of Equity's land for ad valorem tax
purposes would be evaluated. The conversion from an active industrial/retail use by Equity to
a mall/hotel parking lot will affect land value, perhaps negatively, and we would have to deduct
total ad valorem tax currently paid by Equity to arrive at the net tax yield expected from the new
Equity Supply Project
March 25, 1994
Page 9
redevelopment. In addition to acquisition costs the City would have to compute the cost of
demolition and any site preparation or other public improvements required or included in the
deal.
I have acknowledged, as Mr. Byrd again reminded me, that Equity's
improvements are all depreciating assets for tax purposes. Each year of use without remodeling,
replacement or improvement, they decrease in value, albeit it slightly, rather than appreciate for
ad valorem tax purposes. In other words, the Equity improvements are becoming less valuable
rather than more valuable, and that the only thing that would cure the depreciation are additional
improvements and expenditures by Equity to modernize or build new facilities on the land that
it owns.
All of these items must be analyzed, if the City/Equity/Barbieri public/private
partnership is to proceed as proposed, or as preliminarily discussed by Barbieri and Equity. It
is assumed that without a significant level of tax increment subsidy and level of public
participation and commitment, the project will not proceed and may not be feasible.
A significant cost of the project being considered would involve the acquisition
of Equity's grain elevators and other improvements located north of Center Street at its
intersection with 5th Avenue W.N. Part of the justification and a consideration supporting the
investment of public dollars for acquisition and demolition of the grain elevators involve both
public safety and transportation issues. The City will more than likely want to know if the
investment of public funds will expedite the railroads consideration of track removal or
relocation. In any event, the city would want assurance that the railroad track loading spur
serving the Equity grain elevators would be removed and that no additional rail shipping or
receiving would be conducted from the site. It is my opinion that the City not fund this portion
of the project if Equity were to relocate its grain elevators or any other rail dependent activity
west or south west of Kalispell.
We concluded our meeting with the agreement that: 1. I would advise Mr. Byrd
of our attorney's opinion regarding whether or not the tax increment derived from improvement
to the existing Kalispell Center Mall could be measured in full to .calculate the tax benefit and
cash flow to the City of Kalispell, as soon as it was received. 2. Additionally, I advised him
that I would contact FIFTH officials regarding their property on Block 28, and that I would
advise Mr. Byrd of their decision to sell or not to sell, as soon as they contacted me. 3. I also
asked that he contact Mr. Barbieri and advise him that the City would examine the land value
consideration paid by Barbieri as part of the transaction. I related to him that recent information
indicates that the Tidyman's land is assessed for tax purposes at a market value of $5.50 a
square foot, Buttery Foods land is assessed at a market value of $4.50 a square foot, Kmart
between $2.25 and $2.50/sf, Gateway West Mall, $2.50 to $3.00/sf, and also acknowledged that
Super One Foods is under assessed at $.23 a square foot.
Equity Supply Project
March 25, 1994
Page 10
Worth mentioning as part of this Memorandum, is one of the most recent market
comparable that I am trying to confirm. The WalMart/Seaman sale, rumored to be as high as
$2.90 per square foot has been confirmed by a person who should know. With an estimated site
improvement cost exceeding $2.00 - $3.00/sf the sale is indicated to be in the $5.00- $6.00/sf
range. This would establish a new high water mark in Kalispell and Montana for large block
discount retail. The previous high was established by Tidyman's who had a blended rate in their
land close to $5.00 per square foot.
Before closing the meeting with the Equity Supply management I said the level
of tax increment proposed to be invested in the Equity/Kalispell Center Mall project would
represent the largest tax increment investment in the State of Montana. Therefore, we can
expect the maximum level of public and private scrutiny as we proceed through the decision
making process on this project. State and local school officials as well as legislators, Equity's
competitors, and the any business competing with the Kalispell Center Mall/Cavanaugh's, who
are already objecting to tax increment programs, will demand that the measures of public benefit
be examined and documented before the final determination of the City of Kalispell's Ievel of
participation in this project is final.
At this point that the City of Kalispell will endeavor to do all that it can to move
this project forward expeditiously now that Equity and Barbieri have decided that it is in their
best interest to proceed. The City of Kalispell win independently evaluate the project, and
follow the Public Notice, Resolution Authorizing The Redevelopment Project and other
acquisition procedures established in the Montana Urban Renewal Law. The City must
also amend its Urban Renewal Plan and develop a project budget before it can approve the
redevelopment project discussed in this Memorandum. Both activities are currently
underway and a new budget and Urban Renewal Plan (amended Ordinance c 33) will be
considered by the City Council over the next 90 - 120 days.
The City of Ka.lispell's ability to participate in the project is also contingent
upon approval by the Kalispell City Council and its ability to market tax increment bonds
at favorable rates to generate the dollars necessary to proceed with the project. If there
is any Montana Tax Law change during these negotiations, or prior to executing any final
agreements for the project or sale of bonds which adversely affects the City's ability to
generate tax increment income; or, if any of the parties fail to perform for whatever
reason, then the City of Kalispell will be unable to consider or proceed with its
participation in the project.
cc: Nathan Byrd, Equity Supply
Ross Plambeck, PECD Redevelopment Manager
Bruce Williams, City Manager
Glen Neier, City Attorney
Planning, Economic &
Community Development Department
P.O. Box 1997
Kalispell, MT 59903-1997
Incorporated 1892
MEMORANDUM
TO: Nathan Byrd, General Manager, Equity Supply
FROM: Lawrence Gallagher, PECDD, Director
DATE: March 31, 1994
248 Third Avenue East
(406) 752- 7491
(406) 755-8017 (orrice fax)
(406) 752-6639 (City Nail fax;
SUBJECT: 1. March 29, 1994, Legal Opinion on Kalispell Center Mall Expansion; and
response from Flathead Industries For the Handicapped (FIFTH)
Yesterday I received the legal opinion I had requested from Glen Neier. It is
enclosed.
This morning, Mike Kelly, Executive Director of Flathead Industries For The
Handicapped called. He said they would be willing to consider the sale of the property
discussed. They currently owe in excess of $57,000 on the purchase which exceeded $66,000
several years ago. He said they would consider an offer at fair market value and a release from
responsibility for mitigation of any environmental problems. He was informed the property was
used for storage and distribution of petroleum products before FIFTH purchased it. FIFTH has
never conducted any activity that would cause environmental problems; however, several FIFTH
board members are aware of the previous use of the property.
Please keep me advised of your progress on this project and communication with
Goodale & Barbieri.
�
N cll� 0� Kdllg
Incorporated 1892
Telephone (406) 752-6600
FAX (406) 752-6639
Post Office Box 1997
Zip 59903-1997
DATE: March 29, 1994
TO: Larry Gallaghe
FROM: Glen Neier
RE: Kalispell Cen er Mall Expansion
On March 21, 1994 you sent me a memo concerning the effect
of certain provisions of Section 7-15-4292, MCA on a
proposed expansion of the Kalispell Center Mall. You
specifically asked whether or not the City would suffer any
loss of increment because of the reduced distribution under
Section 7-15-4292 (5), MCA.
On this date I talked to Mae Nan Ellingson regarding the
question and she informed me that Section 7-15-4292 (5),
MCA only applied to the "hold harmless" provisions of
Section 20-9-306 (2), MCA. Therefore it is my opinion that
the increment district would be entitled to receive all the
incremental tax increase as a result of the Kalispell
Center Mall expansion.
GN/sh
Douglas Rauthe
Mayor
Bruce Williams
City Manager
City Council
Members:
Gary W. Nystui
Ward I
Cliff Collins
Ward I
Barbara Moses
Ward 11
Dale Haarr
Ward II
Jim Atkinson
Ward III
Lauren Granmo
Ward III
Pamela B. Kennedv
Ward IV
M. Duane Larson
Ward IV