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3. Equity UpdatePlanning, Economic & Community Development Department P.O. Box 1997 Kalispell, MT 59903-1997 i 0 V l e It KJlt SPo Incorporated 1892 AyjI5I►y[W:71�`-1►Ti 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. 0's -play 11121r t tiihtlD ►M 1i �)►� 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