Committee favors eight-unit plan with sale prices averaging $1.8 million
Prime riverfront property fronting St. Anthony Falls would become eight townhomes, selling for an average of $1.8 million each -- among the priciest Downtown -- under a proposal approved by a key Minneapolis Park and Recreation Board committee.
The Park Board's Administration and Finance Committee voted Aug. 20 to give Lucky Club, LLC and its principal, Jeff Arundel, exclusive development rights to the former Fuji Ya site
Lucky Club was one of three developers submitting proposals for the site, where 1st Street South meets West River Road. The site features unobstructed views of the river, with no developable property between it and the falls. The two-story development would be built on the river side of River West Apartments, 401 S. 1st St.
The full Park Board is expected to vote on the contract Sept. 3. If approved, Lucky Club would pay $50,000 to cover board costs to work out the details. The development rights last for one year.
Arundel is calling the new development Columbia Mill Commons, recalling the flourmill that stood on the site from 1882 to 1941.
Lucky Club and Arundel have significantly less residential development experience than the runner-up, The Occidental Group. However, Arundel's proposal had a unique feature -- a 50/50 profit sharing with the Park Board. Under his plan, the units would cost $9 million to build and sell for $14 million, a Park Board memo said. The board and Lucky Club would split the $5 million profit, getting $2.5 million each in 2006.
"The two other developers were more experienced," said Don Siggelkow, Park Board assistant superintendent for finance, who helped review proposals. "The bottom line: the Lucky Club proposal was a profit-sharing proposal with the Park Board."
Occidental offered the Park Board $2 million in 2004 to build nine to 12 luxury townhomes. Its principals are Charles Leer, president of North First Ventures; Paul Reyelts, Chief Financial Officer for Valspar Corporation; and Thomas Meyer and Garth Rockcastle, founding principals of Meyer, Scherer & Rockcastle.
In 2003 dollars, the Park Board would net $255,000 more from Lucky Club's proposal than from Occidental, according to the board's analysis. If Lucky Club's profits work out as forecast, the Park Board would receive $2.2 million in 2003 dollars, versus $1.9 million from Occidental.
TRS Properties LLC submitted the third proposal, a plan for nine townhomes that would net the Park Board $386,000.
Under the Lucky Club proposal, the Park Board would own the land, giving townhome owners a 99-year lease with rolling renewal. The Park Board would also maintain parkland on either end of the townhomes, with the owners paying a $500-per-month per-unit fee to maintain it.
Still, the winner's unusual name and unfamiliarity generated comment. Park Board Commissioner Walt Dziedzic wanted to know who is Lucky Club, "and has Mr. Lucky ever done a project?"
Arundel is the former owner of Compass Entertainment, 251 1st Ave. N., a creative and marketing firm, Siggelkow said. The firm's businesses include a custom line of CDs sold through Target. Arundel had sold his interest in the Compass. Though he lacked development experience, he had the financial wherewithal to do the project, Sigglekow said.
During the next year, the Park Board would do its due diligence to determine if Lucky Club can do the project, he added.
"It will be contingent on who he [Arundel] puts together as his team," Sigglekow said.
Arundel did not attend the Park Board meeting, nor did he return a phone call from Skyway News. The Lucky Club proposal said, "If we are lucky enough to be chosen, we will make this project the main focus of our company."
Maximizing profit to recoup losses
A $1.8 million townhome would not set any price records. Six Minneapolis single-family homes have an assessed value of $2.9 million or greater -- five on Lake of the Isles, according to the City Assessor's office. A Washburn Crosby Lofts unit, 700 S. 2nd St., sold this May for $3 million. Still, a $1.8 million townhome would join elite housing options.
The Park Board acquired the Fuji Ya property in the late 1980s as part of the West River Road expansion, the Park Board memo said. The board needed the Fuji Ya parking lot, not the restaurant, but was forced to condemn both. That requirement added $3 million in unanticipated public costs.
Engineers and architects say the restaurant building is not reusable and should be demolished.
"This is a very difficult property to redevelop," Siggelkow told the board. "You have had it in your possession for over a decade."
The Park Board used tax-exempt bonds to buy the land, and the state has encumbered the title, restricting its reuse, he said. During the next 12 months, the Park Board has to get clear title, either through legal or legislative changes. The site would need soil testing. The site has old mill ruins, so the city's Heritage Preservation Commission and the State Historic Preservation Office would review the project. And just as any other development, it would need to get various city approvals.
The Park Board requested proposals in October, Sigglekow said. It restricted the height to that of the Fuji Ya restaurant. It had anticipated the new development would include a restaurant, but after reviewing the plans, staff concluded a restaurant would reduce the project's value, the memo said.
The original proposal request anticipated the Park Board would select a developer by last March. "These guys all had great plans, but they were thin on the financial aspects," Siggelkow said, explaining the delay. "We had to get them to disclose exactly what they were going to do."
Even in August, participants had different opinions about what was on the table.
Siggelkow said part of the Occidental Group's $2 million payment would have included in-kind payment -- Park Board concession space along River Road.
Rockcastle said the $2 million offer was all cash and called the Park Board's selection process "rather unfulfilling."
He said, "We gave them a general framework. They dropped the ball on the conversation, not us."
Arundel's development credentials include renovation of 18,000 square feet at the McKesson Building, which houses Compass, according to his proposal. He also renovated a Lake Harriet home and is renovating Flash Electric, a turn-of-the-century Downtown residence.
Other key players listed in the Lucky Club proposal are Tim Oskey, project manager, and Dennis McGrath, architectural consultant. Oskey has worked on the Loring Corners and the Colonial Warehouse projects. McGrath worked on the McKesson Building and the Park Board's new headquarters building, 2117 West River Rd.
Principals in the Occidental Group most recently developed the 61-unit 801 Washington Ave. Lofts, according to its proposal. Meyer, Scherer & Rockcastle's Downtown projects include its own offices above the new Mill City Museum, and Open Book, 1011 Washington Ave. S. Rockcastle said the firm has done dozens of very exclusive homes in the Twin Cities.