Council Minutes
PROCEEDINGS OF THE CITY COUNCIL
OF THE CITY OF GRAND FORKS, NORTH DAKOTA
November 12, 1999
Chairman Carpenter called to order the Growth Fund meeting for Friday, November 12, 1999 and called for roll call with Council Members Brooks, Polovitz, Lucke, Hamerlik, Bouley, Glassheim, Carpenter, Beyer, Babinchak, Bakken, Hafner, Martinson, Owens - 13; absent: Council Members Lunak and Klave - 2.
Chairman Carpenter stated that for purposes of the joint meeting he relinquished the chair of the Growth Fund Authority to Mayor Owens for purposes of administering both of the meetings.
The city council of the city of Grand Forks, North Dakota met in special session in the council chambers in City Hall on Friday, November 12, 1999 at the hour of 12:00 noon with Mayor Owens presiding, pursuant to call by Mayor Owens, which was served on all members on November 11, 1999: Document No. 7903 - Notice.
Present at roll call were Council Members Brooks, Polovitz, Lucke, Hamerlik, Bouley, Glassheim, Carpenter, Beyer, Babinchak, Bakken, Hafner, Martinson - 12; absent: Council Members Lunak and Klave - 2.
MATTER OF JOB INCENTIVE PACKAGE FOR
TOOLCRIB/AMAZON.COM EXPANSION
John O’Leary , Urban Development, stated that several months ago they began discussions with Tool Crib on possible expansion of the Noah’s Ark building, that when the building was built Tool Crib took about 50,000 sq.ft. and over the last six to eight months the area of the building they were using kept increasing, from 50,000 to 70,000 and discussions started about their using the entire building. He stated that a few months ago discussions started with expanding the call center that Noah’s Ark currently houses, that Tool Crib of the North does national catalog sales and prior to the merger of Tool Crib with Amazon.com that national call center serviced their catalog sales division and occupied about 10,000 sq.ft. on the first floor of the Noah’s Ark building, that the other half of the first floor of the finished office space as well as all of the second floor was vacant; that staff from Tool Crib began discussions with our staff about expanding their operation and whether it would be possible to rent additional space on the first and second floor. He stated that when Noah’s Ark building was constructed most of the money came from a grant from the Department of Commerce, $5 million plus came from the Department of Commerce and just under $2 million came from CDBG funds, that building contributes about $180,000 per year to our tax base and $486,000 per year in rental income now that it’s full. He stated that when they built the building they didn’t know exactly what the use was going to be and some of the improvements talking about today have to do with the full usage of the building, and deferred decision for additional parking until today; that there is no debt on the building and the revenues from the building because of the combination of CDBG money and EDA money must be used for economic development purposes.
Mr. O’Leary stated there was a project summary of Tool Crib of the North which had been placed on council members desks; that Tool Crib merged with Amazon to make a large call center here in Grand Forks along with establishing Noah’s Ark building and Tool Crib building as another national distribution center for the Amazon.com program He stated that the merger will mean 386 new jobs to the city, that in the handout there is history of what the City has done in the past with the Tool Crib business here in Grand Forks - that in 1998 they approved a PACE loan for $111,000, that money was put into an escrow and drawn as needed to reduce the interest rates, and when Tool Crib merged with Amazon that PACE loan was paid off and we'll get $95,000 back from the PACE program. He stated that in 1995 we gave grant to Tool Crib to create 80 full-time jobs and they have exceeded our expectations there and that a tax increment program was given for their expansion on North Washington a few years ago and that building is paying taxes and servicing the bond; and that we will get $95,000 back from previous investments and that Tool Crib did more than promised in the past. He stated that the 386 jobs are being proposed for Grand Forks range from $18,000 to $60,000/year, and discussions they have had with Amazon involve a job incentive proposal that’s very consistent with what we’ve done in the past with similar kinds of businesses, which is $5,000 per job and the second part of this has to do with the building itself, as building needs 190 additional parking spaces adjacent to it and think boulevard on the north side of the building has more than enough room to do that and have solicited a couple bids from Tony Anderson and Greg Opp, and those bids are $178,000 and $177,000, respectively, and there is some urgency with this part of the project because in order to get parking for those employees, will put some aggregate down on our side of the building and have them park on the gravel and then do this in the spring, however, weather has held for us and are told it’s nearly as expensive to do the aggregate as do a combination of the aggregate and the concrete and are recommending that they proceed with installation of the parking as soon as they can. He stated there are some issues with the building itself which have to do with building improvements, including fire protection improvements and are negotiating with the fire marshal’s office, and est. of those is $300,000 and are asking that you consider authorizing proper staff to develop the plans and specs. for that and advertise for bids.
Mr. O’Leary reported that the third part of this has to do with interior renovations, that there needs to be about $3 million for miscellaneous interior renovations, office furniture and moveable assets, installation of walls, training rooms, etc. He stated they were suggesting that they consider a loan from the EDA Fund, revolving loan fund, at 4.25%, and very consistent with what they’ve done with other businesses and interest subsidy that could be used to either write down the loan or for interior improvements of $375,000, and some of those would be from the $95,000 returned from the loan. He stated that in August of 1998 the Growth Fund approved $110,000 and there’s $15,000 because they paid off their loan early that normally would have to be repaid and the provision was put into our PACE program to have that money returned, that if a business is sold and moves away we’d like to have that $15,000 back to make sure they didn’t profit from the transaction, and in this case recommending that they consider forgiving the $15,405 which is the balance of the unexpended PACE program. He stated the staff has taken the liberty of outlining the JDA actions necessary, the issues that the council would have to take and JDA would have to take if they were to proceed with this project.
Mr. O’Leary reviewed sources and uses in the summary described the job incentive package for the 386 jobs at $1.930 million , the building renovations of $600,000, and tenant improvements (to include interest subsidy) of $925,000, for a total package of $3.455 million. He stated that the sources for these funds would be $1.930 million from the supplemental fund, and suggesting using funds from account 6020 which is the FEMA Rehab account; secondly, $600,000 from the Noah’s Ark operating revenues, $550,000 from EDA Revolving Loan Fund (and those funds will be repaid back so reutilize those in the future), and $375,000 from account 2163 which is Growth Fund Account; and that concludes his presentation.
Council Member Polovitz questioned whether the $1.93 million for job incentive was a loan; Mr. O’Leary stated that was a grant, and whether paid in advance or as a loan as the jobs are created, there is a developer’s agreement that is drafted by the city attorney which includes the terms and conditions of how those jobs are to be created. He stated in this instance, they are suggesting that they pay it in advance and that it’s reinforced with the developer’s agreement, because if they use CDBG money to do this, will want to get those funds obligated well in advance of time frames; that money will go into the operating fund of the company but they are obligated to create 386 jobs as they promise, full-time equivalent. Mr. O’Leary stated if not created, would ask for it back, and the 386 jobs would be created between now and the end of
2000, January 1, 2001, and company thought the jobs would be created before then.
Council Member Martinson questioned impact on other employers in the city, and it was noted that the $5,000 would go to the employer to help employer with starting a business like this.
Terry Hanson, Urban Development, stated that 6020 happens to be Phase IV Acquisition Account and the $2.1 million that will come back into that account from homes that were purchased to FEMA funding.
Council Member Lucke questioned whether we will get additional rent because of $600,000 building renovations to compensate for making those improvements; Mr. O’Leary stated they didn’t negotiate that because parking requirements and fire protection issues really are Code issues.
Council Member Glassheim questioned whether 386 jobs are new jobs or are already working for Tool Crib; Mr. O’Leary stated that would include all employees hired prior to October 1, 1999, and on October 1, they had exceeded their employment expectations for all previous deals we have done with them were at 151 employees, and this business started at 50 employees two years ago, is at 151 as of October 1, and have added 70 or 80 employees since October 1 and another 40 in the last week, and the 386 are new employees over and above the 151.
Mr. O’Leary stated that they will be paying rent and there are different rates for warehouse than for office space but in total there’s 41,000 s.f. of office space and 124,000 sq.ft. of warehousing space, yearly rent $486,000 per year. He stated they have continued to add more space and we’ve rented them additional space as they need it and existing terms for paying for sq.ft. would carry over into the expansion. He stated that in addition to the $486,000 they also pay $180,000 in taxes and all maintenance of the building; the only thing they don’t pay for is capital costs for the building itself.
Council Member Glassheim moved items 1 through 5 of the JDA actions: 1) Recommend proper officials to execute a developers agreement between the JDA and Tool Crib/Amazon.com for the approval of a $5,000 job incentive for 386 employees in the amount of $1,930,000 and refer this matter to the city council for approval of source of funds-CDBG supplemental appropriation; 2) due to the imminent need for parking created by the merger, and the imperative need to begin work immediately due to approaching winter conditions, it is recommended to waive bidding requirements and enter into a contract with Opp Construction and approve project costs for additional parking and other building improvements in an amount up to $300,000; 3) JDA authorize City staff to prepare bid documents and advertise for bids for the necessary fire protection improvements to the building - estimated total $300,000; 4) JDA approve up to $375,000 to be used for a PACE loan buydown or other miscellaneous building improvement costs and approve a loan from the EDA RLF in the amount of $550,000 at 4.25%; and 5) to forgive the outstanding balance for the PACE loan made in 1998 in the amount of $15,405. Council Member Carpenter seconded the motion. Upon roll call the following voted “aye”: Council Members Brooks, Polovitz, Lucke, Hamerlik, Bouley, Glassheim, Carpenter, Beyer, Babinchak, Bakken, Hafner, Martinson - 12; voting “nay”: none. Mayor Owens declared the motion carried.
Council Member Glassheim stated as part of the city council moved the following recommendation to obligate $1,930,000 from CDBG supplemental appropriation; and this amount will be released subsequent to the execution of the Developers Agreement between the JDA and Tool Crib/Amazon.com. . Council Member Martinson seconded the motion. Upon roll call the following voted “aye”: Council Members Brooks, Polovitz, Lucke, Hamerlik, Bouley, Glassheim, Carpenter, Beyer, Babinchak, Bakken, Hafner, Martinson - 12; voting “nay”: none. Mayor Owens declared the motion carried.
Mr. Swanson stated that the matter of building improvements for the Noah’s Ark Building was approved by the action taken with respect to the JDA action recommendation Nos. 2 and 3.
MATTER OF PENDING ECONOMIC DEVELOPMENT
NEGOTIATIONS
Mr. O’Leary stated this item involves some negotiations with an economic development client they are currently visiting with, and thinks it appropriate to have an executive session and for that reason are requesting that you close the meeting to the public except for essential personnel.
Mr. Swanson stated that both the council and the JDA would need to have separate motions authorizing that you enter into an executive session for the purposes of discussion and directives for contract negotiations with a prospective economic development client pursuant to NDCC Section 4404-19.1.
It was moved by Council Member Carpenter and Council Member Bouley authorizing that the JDA enter into an executive session for the purposes of discussion and directives for contract negotiations with a prospective client pursuant to NDCC Section4404-19.1. Carried 13 votes affirmative.
It was moved by Council Member Bakken and seconded by Council Member Hafner that the city council enter into an executive session for the poses of discussion and directives for contract negotiations with a prospective client pursuant to NDCC Section 4404-19.1. Carried 12 votes affirmative.
Mr. Swanson stated that for purposes of procedure the meeting will go into executive session, the council chambers will need to be cleared of all persons other than direct staff related to the issue and members of the two bodies; that the meeting will be recorded separately and minutes will be maintained separately, those minutes and the recordings will become public only after the matter is concluded and a determination made that it is no longer necessary to remain confidential or closed. The meeting cannot be broadcast publicly at this time but may be available for broadcast at a later date.
The city council went into executive session.
EXECUTIVE SESSION
The Mayor announced moving into an executive session as a continuation of the JDA and City Council joint meeting of November 12, 1999. She announced present are the members of the JDA that were here for roll call, City Council and appropriate staff that work with this issue.
Mr. O'Leary pointed out a non-disclosure statement on the desks and asked that it be signed - the client asked people who we discuss this project with to execute one of the statements. Council Member Bouley said her husband is in direct competition with this company and asked if she should leave the room. She said it is uncomfortable for her. Mr. Swanson said if Council Member Bouley deems that this constitutes an actual or potential conflict of interest, which is a decision she needs to make, she declare that as a conflict, ask to be excused from any deliberations, debate or consideration and it may be appropriate. Council Members Babinchak and Martinson moved that Council Member Bouley be excused. Carried 11 votes affirmative. Mayor Owens excused Council Member Bouley. Mr. Swanson said that excusal would be both as a member of the JDA and as a member of City Council. Council Member Bouley left the room.
Council Member Lucke asked the implications and requirements of the non-disclosure statement. Mr. Swanson responded that he had not had the opportunity to review the agreement so could not advise on this particular agreement. He added that generally speaking they typically require someone not to disclose in any fashion any items you may learn in the course of your consideration of this matter. He said that is also consistent with state law with respect to open records where it includes proprietary information or confidential information - he said he had not read the agreement. Mr. Swanson said Council Member Lucke would retain his ability to debate the issue in a public meeting - it would, however, eliminate any ability he might have to have public discussion outside the forum of an actual meeting. If you are debating an item in the context of a public meeting of the City Council or the JDA, you are allowed to do that. Council Member Lucke said for theoretical purposes, because he had no intention to do otherwise, what would be the risk of some later disclosure. Mr. Swanson said in theory it could involve a restraining order, injunction, it could involve potential monetary damages for losses - can't anticipate that it would potentially include any criminal charges. Council Member Lucke said he'd better sign it. In answer to a question by Council Member Martinson, Mr. Swanson said he was not able to advise but in a general sense most non-disclosure agreements provide the ability to bring an action against an individual if there is a violation of the non-disclosure agreement. Council Member Martinson said he would like to have seen it ahead of time and Mr. Swanson said he had not seen it either. He added the closest and easiest way is to make sure you comply with the non-disclosure agreement. Council Member Brooks said his intention is to sign but has a concern that we not only debate things here but are asked general questions and if we can't talk about it whatsoever we are doing a disservice to the people who elected us. Mr. Swanson said you cannot disclose any proprietary or information that is classified or considered confidential - does not know what kind of information Council will get today - typically proprietary information includes financial data, ownership information, process, inventory, formulas, recipes or anything of that nature - those items would not be able to be discussed with the public and potentially whatever action taken today, if any, may not be able to be discussed with the general public until a later date. Council Member Brooks said action was taken before going into executive session and what we did was what needed to be done and was good and he could vouch for that publicly and we all can no matter what we sign here. Mr. Swanson said all action taken prior to executive session is clearly open for public debate, discussion, explanation, whatever you feel is appropriate. He said what is learned in executive session is what is governed now.
Mr. O'Leary said once in a generation or once in a career does a project come along that absolutely does take your breath away - he said he thinks we are in that position today. He spoke of an overview of what E-commerce is and about what you heard yesterday. He said Council saw the Amazon.com people in action yesterday - they opened in 1995 and distribute music, books, videos, games, toys, electronics, software, groceries, auctions and home improvements. He added they are very systematically setting up distribution centers all over the country and they are large warehouses to be used as focal points to distribute goods nationally and worldwide. They recently opened an office in Europe, eight distribution centers are in place now - we have one in Grand Forks at 170,000sf - we have the potential to have one major distribution center in Grand Forks in the very near future. These distribution centers have to be a minimum of 500,000sf up to 1,000,000sf. Nationally these distribution centers have held 1,000-1,500 employees, generally one employee/1,000sf at a minimum. Mr. O'Leary offered facts and figures about E-commerce - the company is forthright about their situation in the marketplace today - Mr. Bezos said that he is losing a lot of money but his eye is on the ball two years down the road and that is where he thinks he needs to focus, not on how much cash he loses month after month in the immediate future. He said Mr. Bezos is trying to build a customer-centered, friendly company - the stock has risen from $1.50/share in 1997 to $80/share and has been bid back down to as low as $60. It's market cap is $28 billion, more than twice as big as that of Sears, five times bigger than Kmart, 17 times bigger than Barnes and Noble.
At this time the Mayor asked for all the signed disclosure statements and Mr. O'Leary said a copy would be provided.
Mr. O'Leary said this year while sales are expected to be up 136%, operating expenses will be up 252% for Amazon.com to $869 million. Net losses will be over $600 million this year according to Fortune Magazine. He said right now they have about $900 million in cash, they floated a $1.2 billion debenture six months ago and they have been using that to grow the company into the fastest growing company in the world. Mr. O'Leary said Time Magazine identified Mr. Bezos as the #1 person to impact commerce in the 21st century of the top 50 in the country - he beat out Gates, Dell and everyone - that tells us that Amazon is sure to play a significant role in 21st century commerce. He said the internet economy is projected to reach $507 billion this year, up from $301 billion in 1998. The number of internet-related jobs increased from 1.6 million in the first quarter of 1998 to 2.3 million this quarter of 1999 - in the last year the internet economy has zoomed past century old industries such as telecommunications, $300 million/year in sales, airlines, $355 million/year in sales and is fast approaching publishing at $750 million/year and the health care industry at $1 trillion.
Mr. O'Leary said preliminary discussions were begun about a month ago on whether or not Amazon would be interested in one of the major distribution centers in Grand Forks. He said they wanted to make it very clear to us that the proposal was coming from us not from them and they don't have an RFP out, they haven't been out shopping for communities, but what they have seen of Grand Forks and our work ethic here and the kind of quality people they have been able to attract to the business, they are interested in us and asked us to aggressively pursue a proposal to them for some kind of a growth scenario here. Mr. O'Leary said the timeframes are very, very tight - their target to have another distribution center of 1 million square foot size is to be in this center somewhere around September 1, 2000. He said most of the time they have used someone's abandoned building and that puts us at a disadvantage - we don't have a million square foot building we can pitch to them. He said in more recent months they have been looking at the construction of a new facility which is designed to satisfy their needs. In order to put Amazon.com into a building by September 1, which will give them from September 1 until mid-October to fit up the building with their elaborate storage and retrieval systems, we will have to start construction in about 15 minutes - it's not an exaggeration. He added there are rumors going all over this community about a million square foot building and the fact is that no one in town can manage the construction of a 1 million square foot building and assure our client that they are going to be in it be September 1 - will take a remarkable rallying of resources, personnel and money to get this done. He said he thinks it can be done. Mr. O'Leary said as staff they tried to set the stage to help Council make the decision - they have been looking at a variety of sites and cost and how can it be paid for.
Mr. O'Leary said at Mr. Swanson's suggestion he asked Tim Dittus to secure two blind options on a couple parcels of land and Mr. Dittus has done that with one and the other should be executed in a couple of hours. The first parcel is the corner of the railroad tracks and DeMers Avenue - this area needs rail access, close to air cargo and postal shipping facilities, close to good employee support services, proximity to the call center would be nice - which is in the industrial park, but more than this, good proximity to I-29 because most of their services come in by truck. Two sites would work - the Johnson property, near DeMers and the depot. He said he visited with Mr. Vein and he is interested in a spot in that area for a water treatment facility (40 acres) - this is a bigger parcel than we need - we need at least 80 acres.
At this time, Council Member Martinson said he perceives a conflict of interest and asked to be excused from the meeting. Council Members Brooks and Hamerlik moved to excuse Council Member Martinson from the meeting. Carried 9 votes affirmative. Council Member Martinson excused himself from the room. Mr. O'Leary then reminded anyone with a conflict of interest to return the work in progress draft proposal.
Mr. O'Leary said the site of choice is by 32nd Av. So. and I-29 - it is 77 acres - barely big enough for the facility - option to secure the Johnson property was purchased for $1,000 and is tied up for 90 days. The Bateman property will probably be a $5,000 option with similar kinds of requirements. In response to Council Member Polovitz's question, Mr. O'Leary said he bought an option on both properties and said the owners would sell. He then discussed price and values,
Mr. O'Leary said staff asked Mortenson to come up with a turnkey cost on how much this building would require to build and whether the timeframes are realistic. He said they are also under a non-disclosure agreement - we want a building that is functional and looks good but one that will not overwhelm with maintenance costs. He said Mortenson built a similar sized building for Wal-Mart. He said he asked them to plug local contractors into this whenever possible - this has to be on the top of their list - includes Concrete, Inc., people who will be putting down concrete, site prep and site improvements.
Mr. O'Leary said they have proposed to Amazon.com that in order to proceed with this we will need to acquire the land instantly and do some site prep on the land that includes stripping the site, taking the black dirt off, putting some aggregate down for winter construction, covering it with straw and generally prepping this so we can put footings down all winter long. In the meantime we would authorize the construction of the concrete panels and in spring be ready to have the footings in place and start putting up the walls and then go like crazy all summer long. He said this building is so big that the production run on this would take all of Concrete's run for a year and one half - so there will be a lot of work for a lot of different people if this becomes a reality.
Mr. O'Leary said that at December 15 we have a decision point - between now and December 15 we decided that we would prepare the site and get it ready for winter construction. On December 15 we need a yes or no from Amazon on whether or not they are willing to proceed. He added that date is important for another reason - we have a lot of work to do on the financing of this thing - the total cost of this project is going to exceed $60 million and there are a lot of different ways we can proceed with this. Between now and December 15 we need to take a risk if we are going to proceed with this. He said if Council does not want him to, this is why we are discussing this right now, there is no sense in proceeding any further with it. On October 1, 2000 we turn over the first 500,000 square feet of the building to the occupant and on January 1, 2001 we would complete the building and turn over the second 500,000 square feet. The building doesn't exactly break in half in terms of cost - the first half of the building is substantially more because of infrastructure cost, site acquisition, site prep and parking - around $40 million and the second half around $20 million. In response to Council Member Lucke's question about what the distribution center would encompass, Mr. O'Leary said Mr. Hanson had a chance to look at a 1 million square foot facility in Nevada that included television, power tools, everything you can imagine. Amazon.com's intent is to penetrate E-commerce in a way where you can buy anything from them. Council Member Lucke asked how this would interplay with the Noah's Ark situation. Mr. O'Leary responded that this is good news - since we don't have debt on the Noah's Ark building, it is not clear to us whether the million square feet will encompass the 120,000 square feet they have in warehouse space now for home improvement products - it won't impact anything in the call center - it may impact 120,000, part of or all which may go over to the million square foot building. He said that will free up 120,000 square feet of manufacturing and industrial space in a community that is almost guaranteed to gravitate other kinds of manufacturing processes to it because of this distribution center. Mr. O'Leary said the first building they did was the Foreign Trade Zone Building - 18,000 square feet, we added 20,000 and added 20,000 more now over 60,000 square feet and fully occupied - the same with the Lystad's building - he said with no debt we are in such a terrific position with the Noah's Ark building given a distribution center like this to attract other kinds of industries to Grand Forks. He said we pitched Amazon on taking additional space downtown as well - he said he hopes they outgrow the call center tomorrow - they are close to it - the jobs we are talking about will consume all 40,000 square feet of space - but we do have 20,000 square feet of space at 402 DeMers, Hawley next door has more than half again as much - we will find them the office space - it should be remembered that the call center and distribution center are totally separate and could be mutually exclusive activities. Either one could be located anywhere. He said we want them both - whether we realize it or not, yesterday we got the call center - with 386 jobs and that is certain to grow to a number much larger than that and we are going to work with them on finding additional space for that to happen. Mr. O'Leary said the distribution center could be in Minneapolis, Kansas City or anywhere. In response to Council Member Lucke's question, Mr. O'Leary clarified that the call center handles all kinds of products, not just the home improvement products.
Council Member Hamerlik asked for explanation on how to select someone - don't we have to request proposals or bid. Mr. O'Leary said he thought about it a lot - we have gotten phone calls from a number of local contractors he knows and respects very much who are class acts, who do good work, but he looked at the time frames of having them in the first 500,000 square feet by September 1 and the second three months later and didn't see any chance in the world of anybody that is a local contractor being able to do that - they will tell you they can do it - he said he did not believe that they could accommodate it and that is why he asked Mortenson to take the lead on this. Council Member Hamerlik asked how are we doing legally. Mr. Swanson said he has not been involved in any discussions with Mortenson but the concept is that Mortenson will build and own the building. Mr. O'Leary said they will build it and sell it back to us based upon a lease. Council Member Polovitz said we have always said that geography is what kills us here and if this is one of seven distribution centers for the entire world, considering shipping costs, why would they want to put it here instead of closer to where most of the people are. Mr. O'Leary responded saying one reason is everything that goes out has to come in and almost in the same condition and right now we have a lot of empty back hauls coming back in for agricultural products so it puts us in a terrific position to get product into Grand Forks - product coming out - our central location in the country makes it a good location to do this kind of thing because we are centrally located. They use UPS, Federal Express and the US Post Office. Mr. Polovitz said he gets more excited about the spin-offs than the project itself - these kinds of things will strengthen the spin-offs. Council Member Babinchak said the airport has been looking at Intermodal for many years - had proposals for mid-continent and also for going up to Canada and south - we are in direct line - this would compliment it quite well and the spin-offs would be very exciting. Council Member Bakken spoke of some hauling rates that were barely audible referring to higher cost hauling out of Minneapolis than here. Mr. O'Leary said most of the distribution centers outside of Atlanta and Seattle have been built in relatively rural areas of 50,000 or less - they also went to smaller communities for other reasons - when they come into a community, Federal Express, UPS and the Post Office will do everything they have to do to accommodate the needs of a company this size and they got their attention.
Council Member Brooks said we all have our disagreements and debate things but we all have to see the potential of what we are dealing with here and work together. He said his reaction to Mortensons is we are simply talking about something and even our local contractors say they couldn't have built the Aurora and every one of them who criticizes Mortensons say that - we couldn't have taken that on - he said the only thing he would offer is the other thing you here from them that they kill our local contractors with the paperwork and stringent items and we will hear some of that from a PR standpoint - it's logical that is who we would have to use on it - probably as a sole source because no one around here could handle this size of project. We will hear some of that and hopefully they will work with us on that - the FEMA paperwork was enormous because it was FEMA - here it should be a little easier.
Council Member Hamerlik said if Mortenson is building the building but we are negotiating the land, do we lease it - there's a conflict there - it's our land but their building. Mr. O'Leary said this is a turnkey purchase so at the end of the construction we would purchase the building - we would bring the building back. Mr. Hamerlik said the community would say you are really involved because you own the land but probably that could be covered later. Mr. Swanson responded what would be envisioned is a lease between the city and Mortenson and although it is contemplated to be a turnkey purchase, it probably will be set up in some form of an option - he said he discussed with Mr. O'Leary whether or not this could be done - you have a number of things working against you - the speed of getting the proposal to Amazon - their goal is to be fully operational for Christmas season 2000 - additionally you have the size - the economic impact - and whether or not there is anyone locally who can do it, so we were examining how we can move forward given all of those constraints - contemplated entering into a lease with the developer.
Mr. O'Leary said the discussions that have happened with Mortenson is that after December 15 when authorization to proceed with the entire project was either recognized or not, that we would deed Mortenson the land, they would use that as their down payment to help secure the interim financing - then we would have a purchase option at that point and exercise that purchase option upon completion of the construction project.
Mr. O'Leary then invited Dan Mehls into the room to talk about the scope of the project. He introduced Mr. Mehls and Greg Funk. Mr. Mehls said he had no idea what Council had been talking about but would just explain what he has been working on. He said this is a 1 million square foot distribution center on a site to be determined - he said they made some assumptions on what potential sites may be as it relates to the railroad. He talked about a pre-schematic design of the facility, the cost and historical cost information on similar type facilities. He said this facility is 560,000 square feet across the front which would be fronted on a major road - and 1700 feet deep - the building would be built in either two or three phases depending on the tenant's needs. The first phase would be 500,000 square feet and Phase 2 would be another 250,000 square feet and Phase 3 another 250,000 square feet for a total of 1 million. He said to get an idea of proportion, he described footprints of buildings that would fit inside this building. He added there are 750 parking stalls, two main employee entrances and two trucker's lounges. He said he tentatively shows 100 docks - had an opportunity to visit an existing facility for this proposed tenant and learned the facility would require 60 doors and a planned office annex would be moved into the building for efficiency. He said the potential exists for an on-site holding pond for all of the drainage from the roof area and the site - it can be located adjacent to the railroad with the potential of adding a railroad spur. Mr. Mehls said he assumes they would have to strip the site of approximately one foot of topsoil and bring in two feet of granular fill across the entire area as well as some around the perimeter and some around the parking area which is a phenomenal amount of fill that would have to be brought in. He said they had done a first pass estimate of a million square feet (1.014 million s.f.) for a lump sum, design - build proposal of $53.2 million ($52.44/sf). He said that information was prior to a visit of an existing facility - visited very recently - gained a lot of knowledge - subsequently there were some adds, but a majority were savings and we were able to pull some money out of the proposal - current proposal is $52.623 million with a square footage of 999,600 - still at about $52/sf - costs do not include financing and the land, but do include all of the design and all of the construction including acceleration costs for finishing the first phase by September 2000 and the second phase by January 2001. He said he understands the tenant needs to be operating by mid-October in order to support the Christmas season so backing off of that means we have to turn the facility over in September 2000 and that still accounts for overlap when the tenant's conveying system have to come in - takes about 10 weeks to set up their very large, sophisticated system of conveying within the building and half of that would overlap with construction.
Mr. Mehls said after putting together the proposal they were asked to locate some historical cost information so they looked in three national construction industry publications (ACE Estimating Guide, Billing News Index and Means) related to cost per square foot and all three will include $1.25/sf for site work - in this region site costs are higher than normal because of the unstable soil and our proposal has about $6.70 worth of cost. He said three other facilities they have built had actual costs of $51, $47 and $44 square foot - these didn't have the accelerated schedule which would account for some of the difference in the cost. He said they were also able to research how much it cost to build the Wal-Mart Distribution Center in Menomonee, Wisconsin, about the same size and that was $50-$55 per square foot. Mr. Mehls said the design has been tentatively reviewed with the tenant's facilities people and they were overall very impressed.
Council Member Polovitz asked if Mortenson could get the labor to build a building this large with the reported labor shortage. Mr. Mehls said they would get the people. Mr. Mehls said they have signed a non-disclosure agreement and are unable to talk about this project - but have been able to generically talk about a project in order to research the availability and have generically spoken to numerous contractors and suppliers about their availability and there is a shortage right now but they are coming off a lot of that because of going into the winter season - while it is more expensive to work in the winter, the benefit is there are more people available to work through this winter. In response to Council Member Babinchak's question Mr. Mehls said they would have to - it would be impossible for us to build this facility without local contractors and suppliers - understanding too that some products would be coming in national - we would have to pull in nationally - but this is a community project and the community we are hoping, based on relationships we have built with contractors, to pull them together under a unified team to make this happen. He said he really believes he can pull these people together. Council Member Brooks said the volumes of paperwork related to FEMA and this isn't going to have nearly that volume - this won't be the case here and that will help us locally.
Council Member Hafner asked the cost of site prep for the winter. Mr. Mehls responded they envision temporary blankets, heaters, shelters, building some large garages on oversized rubber tires or hooks that can be picked up with a crane and placed over a work area, heat them up, build, and move it again.