Edina HRA weighs city-backed financing to restart 70th & France development

The Edina Housing and Redevelopment Authority on March 27 discussed a developer proposal to change how tax-increment financing (TIF) would pay for a planned parking garage at the approved 70th & France development, and whether the city should use its borrowing power to secure tax-exempt debt backed by the city or an HRA pledge.

The proposal, presented by Bill Neuendorf, Edina’s economic development director, and developer representatives from Orion Investments and Mortenson Development Company, would replace the previously planned pay-as-you-go TIF note with tax-exempt borrowing supported by a city or HRA repayment pledge so the project could obtain lower interest rates. Neuendorf said the change is intended to close a financing gap created when market interest rates rose: “we could move this project forward most efficiently if we combine the tax exempt financing supported by a repayment pledge from the city.”

If the HRA or a special-purpose entity used the city’s credit to issue the debt, the tax increment generated by the project would still flow to debt service, but the mechanics would change: instead of the developer taking a TIF note and borrowing privately, the public issuer would borrow and the TIF increment would be used to pay the debt service. Staff and the developers described that arrangement as a way to lower the effective borrowing rate and close what they described as an approximately $4.7 million shortfall caused by changes in assumed interest rates (project assumptions moved from about 4% to roughly 6.5%). The packet and presentation identified an earlier funding gap estimate of $22 million that, under current market assumptions, now produces roughly $17 million in TIF capacity — creating the $4.7 million delta.

Developers and finance consultants emphasized this is a discussion of concepts, not a finalized deal. Ted Carlson of Orion Investments said the market and financing architecture have changed and that the developers want “to decouple the financing between the two sides” so the office (Site B) can proceed independently of the residential tower (Site A). Nick Anhut of Ehlers & Associates described the practical consequence of the developers’ request this way: “they’re basically asking for you to cosign their loan.” Anhut added that cosigning or otherwise securing repayment would increase the city’s exposure and therefore its risk profile.

Commissioners probed risks, precedent and timing. Several raised concern that the proposal would move the project away from the HRA’s prior pay-as-you-go TIF structure — which places most repayment risk on the developer — to a structure in which the city’s credit or levy could be on the hook if tax increment falls short. Commissioner Pierce used an extended analogy about “bailing water” to urge the HRA to be sure it is solving the right problem rather than covering symptoms; Commissioner Risser and others repeatedly asked for revenue forecasts and mitigation options before backing further action.

Staff and developers outlined mitigation approaches discussed in preliminary work: (1) phasing the parking garage so only a portion is built initially while Site A could be used as temporary surface parking; (2) requiring developer guarantees such as letters of credit or special assessments; (3) charging for parking or establishing parking revenues; (4) using other local TIF pooling resources (the packet referenced Centennial Lakes funds) or obtaining grant dollars where available. Neuendorf reiterated that the developers are not asking for more total TIF dollars than previously pledged (the packet identifies roughly $17 million to the office component and $5 million to the residential component), but that the method by which those dollars enter the deal would change.

Commissioners also flagged timing constraints. Staff said the TIF district’s five-year qualification window (the requirement to have qualifying expenses and certificates of occupancy within five years) expires in 2027; the city is pursuing a legislative change to extend the statutory five-year rule to 10 years, which staff called important for preserving the original TIF arrangement if the project cannot proceed on the previously assumed schedule. Neuendorf said a decision from the state legislature is expected in May and that the HRA should be mindful of that calendar before committing to a detailed alternative financing plan.

No motion or vote was taken on the financing concept; the board provided general direction and a list of follow-up requests. Commissioners asked staff and the development team to: produce detailed revenue and debt-service forecasts under alternate scenarios; outline concrete mitigation instruments (letters of credit, assessment agreements, minimum-assessment covenants, parking revenue projections and possible special assessment mechanisms); and return with those materials only after the anticipated legislative outcome on the TIF timing request is clearer. Developers indicated they would consider issuing a letter of credit and continue market work but said they wanted an early signal from the HRA before the teams spent substantial time on detailed term sheets.

The meeting record shows broad interest in preserving the project’s public design elements — street connections, plaza and utilities — while limiting new municipal financial risk. The HRA did not approve any financing changes at the March 27 meeting; staff will return with more detailed analyses and proposed risk-mitigation terms if the board directs them to continue.