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A file photo shows the Lakeland Hotel building in downtown Willmar, Minn. (Tribune file photo)

Council to consider tax abatement for Lakeland Hotel redevelopment project in Willmar, Minn.

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news Willmar, 56201
Willmar Minnesota 2208 Trott Ave. SW / P.O. Box 839 56201

WILLMAR -- The Willmar City Council will take comments from the public Monday night on a request from Southwest Minnesota Housing Partnership of Slayton to approve a tax abatement for Southwest's proposed $3.6 million Lakeland Hotel redevelopment project.

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Southwest is proposing to rehabilitate and operate the historic former hotel building as a mixed use commercial and residential property in downtown Willmar. Southwest is proposing to buy the building from Bremer Bank. The bank acquired the property in a foreclosure proceeding.

The Lakeland was recently named to the National Register of Historic Places and Southwest was contacted by the Willmar Design Center to assist in preserving the 85-year-old former hotel.

Design Center President Richard Engan has said the project is tied to the downtown improvement plan, which the council approved last month. He said the project is consistent with the plan element calling for expansion of quality housing in the central business district.

The Design Center is asking interested citizens to sign a letter of support for the project "due to its positive impact on Willmar as a regional center.'' The letter will be given to Mayor Frank Yanish and the council's eight members.

The ground-level floor is currently used by four commercial businesses. Most of the 30 efficiency and studio rooms on the second and third floors provide low-rent housing.

Southwest proposes to preserve the exterior façade; maintain three commercial spaces on the ground level; and transform the residential units into affordable housing with five apartments on each floor.

The partnership is requesting a 15-year property tax abatement, which is estimated to total $52,443 to $61,043 over the abatement period, to establish an operating reserve during the first through sixth years. The reserve will offset operating deficits over the term of the abatement, according to background information provided by Southwest.

Southwest assumes annual property taxes starting at $13,500 in 2013, of which the city portion is 27 percent and the Kandiyohi County portion is 52 percent.

Because the city's share is insufficient to provide enough relief to sustain operations, Southwest will also request tax abatement from Kandiyohi County. Without the relief, Southwest says the project is not feasible.

Even with the assistance, the property will turn negative in year 23. However, Southwest assumes the Willmar and downtown economic climate will improve, allowing the property to gradually improve its revenues over the long term.

Without the abatement, the property is unable to maintain sufficient revenues to operate in a positive manner after the first seven years, according to Southwest. The operational deficit would be a function of low commercial and residential rents prevailing within the central business district.

Property tax abatements were authorized by the Minnesota Legislature in 1997. Local units of governments are allowed to grant abatements to businesses to locate or expand or to redevelop an area. State law limits the duration to 15 years.

Businesses approved for abatement must first pay their property tax and then the local unit of government rebates the tax back to the business during the abatement period.

"It's basically a way of helping a business or development that has some cash flow problems get going in some of the earlier years by rebating to them all or a portion of the property taxes that they pay,'' according to Bruce Peterson, director of planning and development services.

The law allows abatements for a broad range of projects and purposes if the political subdivision finds that the public benefit exceeds the cost.

This would not be the first time the City Council has approved property tax abatements. Previous abatements are:

n Gurley's Foods: 2006 to 2015, city portion not to exceed $34,700 total. $18,447 paid through 2011, four years remaining. The $34,700 is the total over the abatement term.

n MinnWest Technology Campus: 2007 to 2015, city portion of taxes on all land, unoccupied buildings, and buildings occupied by non-JOBZ businesses. $91,659 paid through 2011; 4 years remaining.

n Northern Factory Sales, 2008 to 2012. City portion not to exceed $17,371 over 5 years. $16,213 paid through 2011; 1 year remaining.

n West Central Steel, 2007 to 2016. City portion not to exceed $44,500 total. $18,141 paid through 2011. Five years remaining.

Southwest said most of the financing will come from the sale of low-income housing tax credits and from the sale of 20 percent state and 20 percent federal historic tax credits.

The proceeds from the sale of low-income housing tax credits are treated as equity and become part of the capital used to develop the project for 15 years. Investors use the credits to offset their corporate or personal income tax liability.

Historic tax credits offset the cost of redeveloping property placed on the National Register and are purchased by investors.

City Council members, city officials and others toured the Lakeland on Wednesday. Among them was Steve Renquist, executive director of the Kandiyohi County and City of Willmar Economic Development Commission.

Renquist said he will tell the council Monday night that the city has an opportunity to inspire development in an area that, without some type of outside incentive, might not otherwise occur. He said government should keep out of the private sector's business except in the rare instance when either the risk is too great or the profit margin is too thin for the private sector.

Renquist said the city's abatement share is roughly $3,000 a year for 15 years.

"In terms of risk to the city of Willmar, there's no risk,'' he says. "There's nowhere that the city of Willmar can get more bang for their buck in terms of inspiring development than this. I doubt if we'll have another project come along like this anytime soon where less money has the potential to inspire more growth.''

WILLMAR -- The Willmar City Council will take comments from the public Monday night on a request from Southwest Minnesota Housing Partnership of Slayton to approve a tax abatement for Southwest's proposed $3.6 million Lakeland Hotel redevelopment project.

Southwest is proposing to rehabilitate and operate the historic former hotel building as a mixed use commercial and residential property in downtown Willmar. Southwest is proposing to buy the building from Bremer Bank. The bank acquired the property in a foreclosure proceeding.

The Lakeland was recently named to the National Register of Historic Places and Southwest was contacted by the Willmar Design Center to assist in preserving the 85-year-old former hotel.

Design Center President Richard Engan has said the project is tied to the downtown improvement plan, which the council approved last month. He said the project is consistent with the plan element calling for expansion of quality housing in the central business district.

The Design Center is asking interested citizens to sign a letter of support for the project "due to its positive impact on Willmar as a regional center.'' The letter will be given to Mayor Frank Yanish and the council's eight members.

The ground-level floor is currently used by four commercial businesses. Most of the 30 efficiency and studio rooms on the second and third floors provide low-rent housing.

Southwest proposes to preserve the exterior façade; maintain three commercial spaces on the ground level; and transform the residential units into affordable housing with five apartments on each floor.

The partnership is requesting a 15-year property tax abatement, which is estimated to total $52,443 to $61,043 over the abatement period, to establish an operating reserve during the first through sixth years. The reserve will offset operating deficits over the term of the abatement, according to background information provided by Southwest.

Southwest assumes annual property taxes starting at $13,500 in 2013, of which the city portion is 27 percent and the Kandiyohi County portion is 52 percent.

Because the city's share is insufficient to provide enough relief to sustain operations, Southwest will also request tax abatement from Kandiyohi County. Without the relief, Southwest says the project is not feasible.

Even with the assistance, the property will turn negative in year 23. However, Southwest assumes the Willmar and downtown economic climate will improve, allowing the property to gradually improve its revenues over the long term.

Without the abatement, the property is unable to maintain sufficient revenues to operate in a positive manner after the first seven years, according to Southwest. The operational deficit would be a function of low commercial and residential rents prevailing within the central business district.

Property tax abatements were authorized by the Minnesota Legislature in 1997. Local units of governments are allowed to grant abatements to businesses to locate or expand or to redevelop an area. State law limits the duration to 15 years.

Businesses approved for abatement must first pay their property tax and then the local unit of government rebates the tax back to the business during the abatement period.

"It's basically a way of helping a business or development that has some cash flow problems get going in some of the earlier years by rebating to them all or a portion of the property taxes that they pay,'' according to Bruce Peterson, director of planning and development services.

The law allows abatements for a broad range of projects and purposes if the political subdivision finds that the public benefit exceeds the cost.

This would not be the first time the City Council has approved property tax abatements. Previous abatements are:

- Gurley's Foods: 2006 to 2015, city portion not to exceed $34,700 total. $18,447 paid through 2011, four years remaining. The $34,700 is the total over the abatement term.

- MinnWest Technology Campus: 2007 to 2015, city portion of taxes on all land, unoccupied buildings, and buildings occupied by non-JOBZ businesses. $91,659 paid through 2011; 4 years remaining.

- Northern Factory Sales, 2008 to 2012. City portion not to exceed $17,371 over 5 years. $16,213 paid through 2011; 1 year remaining.

- West Central Steel, 2007 to 2016. City portion not to exceed $44,500 total. $18,141 paid through 2011. Five years remaining.

Southwest said most of the financing will come from the sale of low-income housing tax credits and from the sale of 20 percent state and 20 percent federal historic tax credits.

The proceeds from the sale of low-income housing tax credits are treated as equity and become part of the capital used to develop the project for 15 years. Investors use the credits to offset their corporate or personal income tax liability.

Historic tax credits offset the cost of redeveloping property placed on the National Register and are purchased by investors.

City Council members, city officials and others toured the Lakeland on Wednesday. Among them was Steve Renquist, executive director of the Kandiyohi County and City of Willmar Economic Development Commission.

Renquist said he will tell the council Monday night that the city has an opportunity to inspire development in an area that, without some type of outside incentive, might not otherwise occur. He said government should keep out of the private sector's business except in the rare instance when either the risk is too great or the profit margin is too thin for the private sector.

Renquist said the city's abatement share is roughly $3,000 a year for 15 years.

"In terms of risk to the city of Willmar, there's no risk,'' he says. "There's nowhere that the city of Willmar can get more bang for their buck in terms of inspiring development than this. I doubt if we'll have another project come along like this anytime soon where less money has the potential to inspire more growth.''

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