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HomeMy WebLinkAbout1997 08-25 EDAP Regular Session • EDA AGENDA CITY OF BROOKLYN CENTER August 25, 1997 7 p.m. 1. Call to Order 2. Roll Call 3. Approval of Agenda 4. Commission Consideration Items a. Jim Klas will present his final report on the Earle Brown Heritage Center -Requested Commission Action: - Presentation. b. Resolution Approving Settlement Agreement for Acquisition of 610 53rd Avenue North -Requested Commission Action: - Motion to approve resolution. • 5. Adjournment • EDA Agenda Item No. 4a is Materials zelating to this item will be handed out at the facilitated Council work session on Saturday, August 23, 1997. • • uanL FSTATE GOUNSG'L(72S EARLE BROWN HERITAGE CENTER ' OPERATIONAL STUDY FINDINGS, CONCLUSIONS & ' RECOMMENDATIONS AUGUST 1997 410 YOUNG QUINLAN BUILDING 81 SOUTH NINTH STREET MINNEAPOLIS, MINNESOTA 55402 PHONE: (612) 335 -8888 FAx: (612) 334 -3022 kE:91. I STATL' ( O NSE[,ORS -.. THE VALUATION GROUP MINNEAPOLIS ' THE HOSPITALITY GROUP .SEATTLE THE CORPORATE AND INVESTMENT GROUP THE AVIATION GROUP Brooklyn Center Economic Development Authority City of Brooklyn Center ' 6301 Shingle Creek Parkway Brooklyn Center, MN 55430 ' Pursuant to our engagement letter dated November 4, 1996, we are pleased to present the accompanying report entitled "Earle Brown Heritage Center - Operational Study: Findings, ' Conclusions and Recommendations." This report presents a summary of the tasks which we performed in studying the operations ' of the Earle Brown Heritage Center; the conclusions which we have drawn from our analysis; and our recommendations to improve fixture performance. As in any study of the operations of an on -going business, the operating profile continues to change and evolve, even as the study and reporting process are underway. Indeed, operations at the Earle Brown Heritage Center continue to be steadily improved and refined by city and facility management. As a result, various recommendations presented in this report may either already be in place or under consideration. Such recommendations are included to reinforce ' the importance of the actions which management has taken or which they may be about to take. We would like to thank the management and staff of the Earle Brown Heritage Center and the representatives of the Brooklyn Center Economic Development Authority and the City of Brooklyn Center who provided assistance in this study for their ready cooperation and candor. August 1, 1997 ' MARQUETTE ADVISORS ' James M. Klas Senior Vice President Hospitality Group ' 410 YOUNG QUINLAN BUILDING 81 .SOUTH NINTH .STREET ' MINNEAPOLIS, MINNESOTA 55402 PHONE: (612) 335 -8888 FAY: (612) 334 -3022 1 EARLE BROWN HERITAGE CENTER OPERATIONAL STUDY ' Letter of Transmittal TABLE OF CONTENTS PAGE ' INTRODUCTION .............................................................................. .............................. EXECUTIVESUMMARY .............................................................. ............................... 3 REVIEWOF 1993 STUDY ............................................................... .............................. ' ANALYSIS OF COMMUNITY INTERACTION ......................... .............................17 ' RECOMMENDATIONS ................................................................ ............................... 23 O A O E EO 4 00 ' Earle Brown Heritage Center Operational Study - August 1997 1 INTRODUCTION The Earle Brown Heritage Center is a public landmark in the City of Brooklyn Center, providing catered conference facilities, rental office space, a boutique inn and a small, newly added restaurant while preserving the structures and grounds of an important part of the City's heritage. While the Heritage Center is an important asset to the community, it is not without cost. The Center has been incapable of covering capital costs and has required operating subsidies on an on -going basis. This is by no means unusual for facilities of this type. However, the EDA has a continuing interest in eliminating or minimizing such subsidies and evaluating the benefits of the Center against its costs. Marquette Advisors (then Marquette Partners) conducted an operations and marketing review of the Earle Brown Heritage Center in 1993. Since that time improvements in operating performance have occurred and some of the recommendations made in our report have been implemented. However, it is recognized by all parties that room for further improvement exists and that several facility and operational issues remain to be fully ' addressed. In addition, current EDA directors were not involved in the process during the 1993 study. Consequently, Marquette Advisors was engaged to complete an updated study of the operations of the Earle Brown Heritage Center and to develop updated recommendations to further improve the financial success of the facility. To accomplish this objective, our engagement was divided into four key areas: ' • A review of the recommendations from our 1993 study to determine the extent to which they have been implemented. • Analysis of the interaction of the Earle Brown Heritage Center with other Y g community development, including, in particular, the market implications of additional hotel development in connection with the Heritage Center. • Preparation of preliminary recommendations and presentation to the EDA at a ' - working session. • Preparation of revised recommendations and completion of a final written ' report and presentation. _ The recommendations which we have developed are presented in summary form ' in the following section. A detailed discussion of our findings, conclusions and recommendations for various facility components and operational issues is presented in the body of this report. Page 2 T � V1 r ENO rr r rr rr r rr r� rr ri rr rr �r rr rr rr rt r r r Earle Brown Heritage Center Operational Study - August 1997 1 EXECUTIVE SUMMARY The Earle Brown Heritage Center has made significant strides since our 1993 study, achieving better than break -even operations for the first time in 1996. That improvement is reflected in the graph of historic net operating profit presented on the following page. Through the first five months of 1997, the Center has fallen below 1996 performance levels. However, this is due almost entirely to an increase in capital expenditures (primarily carpet replacement in the Carriage Hall), which, despite their name and long -term use are fully expensed when purchased. ' Many of our 1993 recommendations have been implemented in some form and other changes /improvements have been made which have enhanced performance. The Inn remains unprofitable. However, it has a positive impact on the complex as a whole. Bond related legal restrictions limit options for changing the basic operating structure of the Inn. Interaction between the Heritage Center and the surrounding community is i generally positive. Brooklyn Center hotels in particular receive benefits from conferences at the Heritage Center and do not generally experience any significant competitive impact from the Inn. However, current market conditions, including already highly active private sector hotel development, discourage use of city funds to effect development of significant additional lodging at or near the Heritage Center. RECOMNMNDATIONS Based upon our analysis of current operations, review of our prior study and input from facility management, city management and the EDA, we have prepared the recommendations listed below. These recommendations are described in greater detail in the body of the report. • CONTINUE TO PURSUE WAYS TO IMPROVE INN/EARLE'S OPERATING PERFORMANCE UNDER CURRENT STRUCTURE: REDUCE EVENING LABOR COST CLOSE PORTIONS OF FACILITY DURING SLOW PERIODS • CONDUCT NEGOTIATIONS WITH HILTON OR OTHER AREA HOTEL FOR ' JOINT MANAGEMENT OF INN • INCREASE AVAILABLE MEETING SPACE AS OFFICE SPACE BECOMES AVAILABLE Page 4 ;i }oad lenuuy ■ 9664 5664 b666 E664 2666 6666 0664 (009$) (00b$) — (OOZ$) o f/1 Q N DOZ$ IIAO DNIIVM IX1 DHUI r ' Earle Brown Heritage Center Operational Study - August 1997 RECOMMENDATIONS (cont.l • COMPLETE IMPROVEMENTS TO LOWER LEVEL MEETING ROOMS • INCREASE ACCOUNTABILITY OF FACILITY MANAGEMENT FOR MEETING BUDGET GOALS r • CREATE A RESERVE FUND FOR CAPITAL IMPROVEMENTS: HOTEL TAXES FROM NEW PROPERTIES TIF FUNDS OTHERSOURCES • CONDUCT A JOINT EDA/MANAGEMENT WORKSHOP TO CREATE "MISSION STATEMENT" FOR CENTER r • INCREASE PARKING AS FUNDS BECOME AVAILABLE o IMPORVE COMMUNICATION WITH BROOKDALE CENTER • IMPROVE HIGHWAY SIGNAGE /CONSIDER NAME CHANGE r 1 r r _- r r r r Page 6 1 i A C� M d1 01 0 W � � � r � � � � � � � � � � � � � � � Earle Brown Heritage Center Operational Study - August 1997 REVIEW OF 1993 STUDY In our 1993 study of operations and marketing at the Earle Brown Heritage Center, a number of recommendations were made to improve performance at the complex and ' improve communication between facility management, city management and the EDA. Our review of that study and of the current status of operations at the Heritage Center found that many of the recommendations had been implemented (indeed some were already in progress when the 1993 study was completed). However, others have either been implemented on only a partial basis or not at all. A variety of reasons exist for the incomplete implementation of the 1993 recommendations. Each of the major recommendations from the 1993 study is discussed below with a summary of its current status. City Payment for Facility Use Our 1993 report pointed out that certain "expenses" of the Earle Brown Heritage Center are effectively paper transfers within City accounts rather than actual cash costs. Only a fraction of the $52,832 overhead allocation budgeted for the complex for 1997 for City administrative services represents actual increased cash costs to the City. In other words, if the Center did not exist, City administrative costs would change very little. Any payment to the City or expense allocation not based on a cash outlay is a transfer only. The City is effectively covering a portion of its administrative costs from revenue generated by the Heritage Center. This is in ' addition to any positive income generated by operations as in 1996 or in partial substitution for any operating subsidy required in prior years. The accounting method is common and entirely appropriate. However, in evaluating the true incremental cash cost/benefit of the Center for City ' finances, this reality needs to be recognized. It remains true to this day. In 1993, usage of the Center by the City was treated in the opposite manner from the administrative allocations. The City did not then pay for use of space at the Center. Payment by the City for space used is essentially a paper transfer in the same manner as the costs described above. Money would only be moving from one City account to another. However, the lack of ' payment, was inconsistent with the way that intra -city expenses are handled. We recommended that consistency be established in dealing with transfers, either by eliminating them entirely or by charging the City for the use of space at the Center. The latter method has since been adopted, ' providing a more consistent and accurate picture of Center finances. Page 8 Earle Brown Heritage Center Operational Study - August 1997 Sale or Lease of the Inn or ffin Lng of a Live -in Mang er In our 1993 study, we determined that the Inn was not capable of operating at a ' break -even erformance level under City ownership due to the extremely low cost structure p tY p Y generally required for such a facility to be profitable. Most such facilities are family owned and operated, greatly reducing overhead payroll and providing compensatory benefits for other costs which cannot be duplicated. Sale or lease of the facility, assuming an interested parry could be found, was recommended as the only viable means of eliminating the losses at the Inn if such a goal ' was desired. An alternative recommendation we made which would allow the City to retain somewhat greater control would be a permanent live -in manager. This, however, would only reduce, but by no means eliminate operating losses. Since our 1993 study was completed, the City has not acted on the recommendations regarding the sale, lease or changed management structure at the Inn. It has since been determined that legal constraints relating to the bonds which financed the complex may make such a recommendation impossible to execute. However, significant strides have been made in ' improving the operating performance of the Inn. In the study we pointed out that successful boutique inns have restaurants which provide another source of revenue, in addition to room rental. Without a restaurant, the Inn could not compete effectively with boutique inns in the area which have fine restaurants that complete the "getaway" experience. A restaurant has since been added ' with a moderate degree of success, although it is small by competitive standards. Reallocation of marketing dollars and other cost containment measures recommended in our 1993 study have been implemented with positive results. Nevertheless, operating performance at the Inn remains below break -even levels. While further improvement may yet occur, that condition is not expected to change. While the Inn is not a money maker in its own right, it does provide benefits to the complex as a whole which enhance overall performance and mitigate the negative financial impact of Inn operations. In 1995 and 1996 combined, a total of 56 percent of the wedding functions accommodated by the Center also booked rooms at the Inn. The 56 weddings ' generated a combined total of $335,287 in catering and facility revenue for the Center, not including rooms revenue generated at the Inn itself. This amounts to 10 percent of total functions at the Center during that period and eight percent of total facility and catering revenue. ' During his same period, a total of 58 companies used rooms at the Inn while g P P holding functions at the Center. Functions held by these companies comprised nine percent of ' total functions with total facility and catering revenue from these functions equaled $1,582,788 or approximately 38 percent of all facility and catering revenue during the period. Of the 58 companies mentioned above, 29 first used the Inn at the complex before booking a ' catering /meeting function. The information described above is presented graphically on the following page. Page 9 (uul aq4 4e sem asn 4SJ1J) aaWaO a6e4!.iaH aqj of paanpo.ijui seu uul aqj sjuaila a4eaodao:D aa4uao u014uanuoO aq4 4e s}uana 6uipIoq al!qM suaooa uul asn oqm s}uaila a4eaodaoo swoo.i uul aqj loped ao Ike Guisn s6uippaM ■ 0 0� 0z 0c 0t 05 09 M VJ IHI NO t\INI ' Earle Brown Heritage Center Operational Study - August 1997 ' The total amount of facility and catering revenue tied to concurrent usage of Inn rooms amounted to 46 percent of total facility and catering revenue in 1995 and 1996 combined, ' according to statistics provided by management. While it is impossible to determine the number of weddings and corporate functions described above which would have not used the Center if the Inn had not been available, it is clear that the Inn is a valuable amenity and sales tool for the convention center. It also appears that functions which use Inn rooms are typically among the most lucrative since the proportion of revenue generated by such functions is much greater than their proportion of total functions accommodated. Reduction and Reallocation of Advertising Costs As alluded to above, our 1993 study recommended a reduction and /or reallocation of marketing expenditures. Specifically, a reduction in total marketing costs was recommended, particularly in the production cost of new material, and a reallocation of advertising expenditures away from the Inn which could receive no sufficiently commensurate benefit. Total marketing costs have been reduced by approximately $95,000 since 1993. During the same period, total ' facility revenue has increased and overall operating performance has significantly improved. ' Increase Sales Staff Efforts A related recommendation in the 1993 study was to place greater reliance on the then recently expanded sales staff and to focus in general more heavily on direct sales efforts and ' public relations events to build revenue. The effective implementation of this recommendation has been one of the primary reasons for the increased revenue despite decreased marketing ' dollars mentioned above. Improve Highway Si g nage ' The Earle Brown Heritage Center has good visibility from the highway system which carries thousands of cars past its facilities each day. Unfortunately, due to its name and outward appearance, it is not readily apparent exactly what types of facilities the Heritage Center has to offer. In our 1993 study, we discovered that awareness of the Center was relatively low, particularly outside of Brooklyn Center. We recommended that highway signage be improved on and around the property to enhance its visibility and recognition. Existing signage ordinances have restricted the ability of the Center and the City to act on this recommendation. Page 11 ' Earle Brown Heritage Center Operational Study - August 1997 ' Streamline Bookings and Create Package Prices ' Our 1993 study found that pricing at the Center was generally competitive. However, the need at that time for separate catering and function contracts and the policy of charging on an "a la carte" basis for virtually all AN equipment created a false perception of ' high prices and a significant deterrent to potential patrons used to dealing with the inclusive package pricing which is the norm for the industry. This was one of the most significant impediments to increased function business. We recommended consolidation of the contract ' process into a single document for both catering and function space and creation of several package pricing options. These recommendations have been fully implemented. ' Increase Meetings Business ' Our 1993 study identified additional capacity for function business, particularly from the corporate and social segments, and encouraged a focus on further building that business base. Through the increased sales staff efforts and improved booking policies previously described, along with the maturing of the Heritage Center's position in the competitive market, total function business has increased significantly. Indeed, increased function and catering business are the primary reason for the positive operating performance of the complex in 1996. ' The graph on the following page shows room rental income by month for the years 1993 through 1996. With the sole exception of December, 1996 was the strongest year in every month. ' Change the Name of the Facility A significant factor in the lack of awareness of the complex cited previously is the ' name Earle Brown Heritage Center. The name does nothing to suggest the primary facility offerings of the complex. Indeed it suggests a different type of facility entirely, a living history museum, an historic preservation site or a cultural center. Although we recognized that such a change could be a sensitive issue, we recommended consideration of a name change to more accurately reflect the facilities and services offered by the complex. No change in the name has yet been made. = - Budget Process ' Our 1993 study recommended improved formal communication during the preparation of the annual budget and subsequent monitoring of performance as the most effective means of identifying costs which can be reduced and ensuring appropriate margins as utilization increases. Informal communication takes place on a frequent basis within the full -time, on -site staff and between the staff and the City. However, because of the gap between the time the annual ' budget is first prepared, the time it is finalized and the actual operating year, specific formal communication policies were recommended: Page 12 966E 5666 ■ ti664 £666 00a noN 3o0 idaS 6ny Ainr aunt AeW ady aeW qaj uef On ogs _ � 3 0 3 09$ OL$ 08$ 9661 HINOW AS IVININ INOON ' Earle Brown Heritage Center Operational Study - August 1997 • Facility management should be fully responsible for developing an initial budget with an agreed upon bottom line performance level based ' upon all relevant data, including planned wage rates as well as hours • Facility management should formally present the budget to ' representatives of the City and Economic Development Authority, with full documentation for each major cost and revenue category and with sufficient time to allow the City and Economic Development Authority ' adequate time for review • Following review, comments, questions, required changes in overall ' targets and suggested adjustments in individual categories should be discussed between the City and facility management, prior to any actual changes in the proposed budget • Following final budget approval, facility management should prepare ' forecasts on a monthly basis, reflecting current conditions and adjust the operating profile of the facility based upon revised forecasts to ensure performance approximates overall budget goals as closely as possible ' • Development of budgets for the following year should expressly consider actual and forecasted operating performance Our recommendations were based upon the expectation that a clearer definition of bottom line responsibility for facility management and a more formalized process for budget ' development, adjustment and monitoring should aid both management and the City in achieving ultimate performance goals. ' Since our study was completed and, in particular, within the past year, several enhancements have incurred in the budget process along the lines of the 1993 recommendations. ' Budgets prepared -by management now have a specific facility profile, statement of departmental goals and description of personnel levels for each major department. A long -term capital needs budgeting process is also now in place. In addition, administrative costs, which are common to the ' complex as a whole, are now budgeted and tracked separately, rather than being allocated proportionally to each of the operating departments. These enhancements will not only improve the ability of facility and city management to identify and execute further cost savings programs, they 1 will allow the City and the EDA to make better more informed judgments during the budget approval process. Page 14 Earle Brown Heritage Center Operational Study - August 1997 In order to illustrate the value in identifying administrative costs separately, the graph on the following page shows the marginal operating performance by component for the ' complex using the 1997 budgeted expense figures, with administration broken out separately, set against actual revenue for 1996. Also shown for comparison purposes is actual 1996 performance for the various revenue centers for the complex, which includes allocated administrative overhead. ' Budget recommendations from the 1993 stud not full implemented include the g Y Y p development of formalized, on- going, forecasting and performance review and greater facility ' management accountability for setting and achieving specific line item budgetary goals within the overall parameters set by city management and the EDA. SUNEWA RY ' A number of recommendations made in the 1993 study have been fully implemented. Other enhancements have also been made by city and facility management. In L combination with the maturing market position of the complex, these various enhancements resulted in the first net operating profit in the history of the facility in 1996. Some recommendations from the 1993 study have been implemented only partially or not at all. Those ' which remain potentially valuable are incorporated in our Recommendations section at the conclusion of this report. Page 15 MARGINAL OPERATING PERFORMANCE BY COMPONENT $400 $300 $200 $100 3 -- ($100 ($200,000) 1997 Budget 1996 Actual vs. 1996 Revenue Convention Center Catering Inn ■ E arles Office Rental T otal � ANALYSIS OF COMMUNITY � INTERACTION 1 1 1 1 1 1 1 1 1 1 Earle Brown Heritage Center Operational Study - August 1997 ' ANALYSIS OF COMMUNITY INTERACTION ' In addition to updating our 1993 study, we were asked to explore the level of interaction between the Earle Brown Heritage Center and private commercial development in the ' City of Brooklyn Center. In particular, the general level of hospitality development in the City of Brooklyn Center was evaluated to explore the level of synergy with the Heritage Center and the market implications of additional lodging development in connection with the complex. Retail and Restaurant Interaction ' The Earle Brown Heritage Center appears to have a positive, if relatively limited impact on restaurants in the surrounding community. Since the complex makes a considerable proportion of its money from catering events, the positive impact is limited to non -food functions. Patrons at non - catered functions may eat at area restaurants before or after the function itself or even during breaks, although day -long meetings generally include catered lunches. Inn patrons also use area restaurants on occasion, particularly when Earle's is not open. ' Comments obtained from operators indicated no serious competitive impact from Earle's on area restaurants. Since local restaurants do not have substantial catering/banquet facilities, no serious competitive impact is felt from convention center functions either. In addition, to exploring interaction with local restaurants, we interviewed ' management at Brookdale Center to determine the degree of interaction between the two complexes. Brookdale Center management is unaware of any notable interaction between the two complexes, either positively or negatively. Consumer shows housed at the Heritage Center have not had a negative competitive impact on similar types of functions accommodated by the mall. Consumer shows at the mall are arranged through a national booking agreement with touring events that visit several malls around the region and around the country. Consequently, the mall and the Heritage Center do not compete to house the same events. While Brookdale Center management acknowledged the possibility that visitors to ' the Heritage Center may also visit the mall, there is no formal program in place to draw or track Heritage Center visitors and the volume to date has not been sufficient to be noticeable in the absence of such programs. Brookdale management has not actively pursued any joint or cross marketing efforts with the Heritage Center. However, they did express some degree of interest in the concept. Page 18 e ' Earle Brown Heritage Center Operational Study - August 1997 Interaction with Area Hotels ' Interviews with Brooklyn Center hotel managers indicate that the Earle Brown Heritage Center is a welcome addition to the community which provides a positive impact on the local lodging industry. Functions at the Heritage Center frequently generate overnight rooms ' demand at local hotels, including both limited service properties such as the Super 8 and the full service Hilton. While specific numbers or percentages of rooms business were not available, ' hotel managers were uniformly positive about the degree of impact. One function alone scheduled for October of this year was cited as providing 200 roomnights of demand for the Hilton. To put this one event into context, when Marquette Advisors conducts hotel feasibility studies, a demand source capable of generating even as little as 200 roomnights for an entire year ' is considered valuable. In no instance did any of the hotel managers interviewed indicate any negative competitive impact from the Inn. While it is likely that some Inn guests might otherwise stay at local hotels, particularly the Hilton, if the Inn did not exist, the size of the property and its unique ' market position are such that it does not detract from the performance of privately operated hotels in the community. For the Hilton, which has significant banquet/meeting space of its own, a certain degree of competitive interaction with the Heritage Center for banquets and meetings was identified, primarily for weddings and other social events. Again, however, differences in size and market position limit the overall degree of competition present. Hilton management was clear in indicating that the net impact of the Heritage Center was definitely positive toward their business. Market Implications of Additional Lodging Development Both the City of Brooklyn Center and the north -metro area in general have active lodging industries which are currently undergoing expansions in the competitive supply. In Brooklyn Country Inn & Suites , the opening of the 84 -roo n Center proper, 1997 brings the o Y P P g Pe g trY renovation and reopening of the former Days Inn as a Holiday Inn and a proposal to develop a new 80 -room Amer_icInn. Other proposed or newly opened developments in the region include a proposed Sleep Inn m Brooklyn Park, a new Hampton Inn and a new Extended Stay America in P P Maple Grove, a new Holiday Inn Express and proposed AmericInn in Coon Rapids along with ' the Fairfield Inn which opened in August of 1996, and an expansion of the Holiday Inn Express in Golden Valley. Altogether, these properties represent over 800 new rooms proposed, under construction or opened within the past year. Page 19 ' Earle Brown Heritage Center Operational Study - August 1997 Information on the occupancy and average rate performance of hotels in Brooklyn Center and in the north -metro area in generally was compiled by Marquette Advisors. Additional information was obtained from Smith Travel Research, a Tennessee company which is the leading source of lodging industry performance data in the United States. The graphs on the following two pages compare the estimated market wide occupancy level and average daily room t rate for Brooklyn Center hotels and for the entire north -metro area by quarter for the past three years. ' Although the supply of hotel rooms is growing in Brooklyn Center and the surrounding north -metro area, indeed, in large part because of such growth, overall marketwide occupancy levels have remained between 50 and 60 percent in Brooklyn Center and between 60 ' and 70 percent in the north -metro area on an annual basis. Supply growth has essentially outpaced growth in demand resulting in low overall occupancy levels. Typically, new hotel development or expansion is considered when occupancy levels surpass 70 percent on an annual basis, although there are numerous exceptions where individual projects make economic sense even when market occupancies are lower. There is no question that additional lodging development adjacent to the Heritage Center would have a positive impact on the financial performance of the Center itself. However, if such development were operated by the City it would also increase the negative impact of publicly operated ' businesses on surrounding P rivately operated competitors, while reducing the positive flow of rooms business to private hotels currently generated by the Center. If, as is more likely, such ' development were privately owned and operated, it would still have a competitive impact on existing Brooklyn Center hotels, even as it helped to increase the utilization of the Center. Given the current competitive environment, with a burst of private lodging development already in progress and a relatively low market wide occupancy, it is likely that a private developer would seek financial assistance from the EDA to complete a new hotel project adjacent to the Heritage Center. Carried one step further, it is very likely that the EDA would need to offer such assistance in order to generate interest in the private sector to under take such ' a development. __ - _ SLINEM ARY Interaction between the Heritage Center and the surrounding community is ' generally positive. Brooklyn Center hotels in particular receive benefits from conferences at the Heritage Center and do not generally experience any significant competitive impact from the Inn. Current market conditions, including already highly active private sector hotel ' development, would likely require use of city funds to effect development of significant additional lodging at or near the Heritage Center. Page 20 � ♦s aajuac) UApjooa8 96 lit) 4317 96 JVD PUZ 96 Aa 4417 96 4 0 PUZ 176 40 4317 176 J4a PUZ 96 440 PAC 96 40 4 SL 96 4 40 Pa£ 96 u rn 4S 4 176 40 Pa£ 176 4 0 4S6 0 0� OZ 0£ O C) -- - - - -- -- - - -- 0 70 oe, - - -- -- — — / 09 0 OL 06 ,&DNVdfIDDO 1110H 96 J1p 4117 96 40 PUZ S6 1 10 4117 36 a1D PUZ 176 J1O 4117 176 40 PUZ 96 40 Pa£ 96 a1O 1SL 96 lit) Pi£ 96 40 IS I, V6 40 PJ£ V6 a1C) Is 0 0� OZ 0£ 0v m OL 08 JLLV� aD VWaAV Ia .......... ............ ii . ......... i O [ C"� A W O � � � � � s � � ■� � � r s � � � � � � ' Earle Brown Heritage Center Operational Study - August 1997 RECONEMNDATIONS ' Based upon our analysis of the on -going operations of the Earle Brown Heritage Center and its various components, our review of the status of recommendations made in our ' 1993 study of the Center and our analysis of the interaction between the Heritage Center and other private sector businesses in Brooklyn Center, we have developed a series of recommendations which we believe will further enhance the performance of the complex, ' enabling it to more fully achieve the goals of the EDA and city management, within the context of the unique environment within which the complex operates, the benefits it provides to the community and the legal constraints imposed by the bonds used to finance its development. ' The Earle Brown Heritage Center has malt significant strides since our 1993 study, achieving better than break -even operations for the first time in 1996. Many of our ' 1993 recommendations have been implemented in some form and other changes /improvements have been made which have enhanced performance. The Inn remains unprofitable. However, it has a positive impact on the complex as a whole. Bond related legal restrictions limit options for changing the basic operating structure of the Inn. Interaction between the Heritage Center and the surrounding community is generally positive. Development of additional lodging at or near the Center would likely require financial support from the city to be ' successful at this time. Based upon these considerations and the other factors described in the previous sections we recommend the following: ' 1. MARKET CONDITIONS DISCOURAGE USE OF CITY FUNDS TO EFFECT DEVELOPMENT OF SIGNIFICANT ADDITIONAL LODGING AT OR NEAR THE ' HERITAGE CENTER: The same market conditions which make such funds necessary discourage their use at this time. The active level of privately sponsored development, low occupancy levels among existing properties and positive benefits produced by the Center ' for existing hotels would all experience a negative impact from further lodging development at the Center. If, as the result of a competitive market place, private entities seek such development, the negative impacts listed would be a natural and acceptable ' consequence: For the city to actively encourage such development, however, and to offer city assistance beyond that which is normally available would inject a new and unwelcome element into the marketplace which other projects likely would not have anticipated and may not be able to overcome. 2. CONTINUE TO PURSUE WAYS TO IMPROVE OPERATING PERFORMANCE AT THE INN AND EARLE'S UNDER THE CURRENT STRUCTURE: Although they are not expected to break -even under such a structure, there appears to be further room for 1 improving the combined performance of the Inn and Earle's restaurant. Options for further improvement include a reduction of labor costs by eliminating or altering night time desk coverage, consolidating other operating tasks amongst the manager and other staff to Page 24 ' Earle Brown Heritage Center Operational Study - August 1997 multiple staffing and closing of the facilities either during reduce periods of p g g g standard non - peak periods or on an ad hoc basis when advance bookings are insufficient. We consider ' the Inn and Earle's to be a valuable addition to the complex as a whole which warrant a degree of marginal operating loss in exchange for the enhancement of the convention/catering business. Within that context, the operating focus of the facility ' should shift from an attempt at independent success to the most cost effective means of achieving the desired benefits for the convention center. A degree on on -going regularly ' scheduled operations is likely to be necessary to maintain those benefits, even beyond periods when the specific beneficial functions occur. The key will be to find the proper balance between cost saving changes and continued beneficial and sustainable operation. ' 3. CONDUCT NEGOTIATIONS WITH THE HILTON OR OTHER AREA HOTEL FOR JOINT MANAGEMENT OF THE INN: Although the sale or lease of the Inn is ' restricted by bond related legal requirements, discussions with city officials indicated that a form of outside management for the Inn may be obtainable on a contractual basis which could reduce or possibly eliminate the marginal operating loss produced by the facility while maintaining its beneficial impact on the remainder of the complex. Whether there is interest from a private parry in such an arrangement and under what terms it can be negotiated remains to be determined. However, we consider it to be worth pursuing further. Care must be taken that such an arrangement preserves the ability of the City and Heritage Center management to ensure adequate quality control and smooth coordination and cooperation with patrons of the balance of the complex. 4. INCREASE AVAILABLE MEETING SPACE AS OFFICE SPACE BECOMES ' AVAILABLE: Certain office leases will soon expire which could free additional space for meetings and banquets with a relatively limited amount of renovation. The growth in meetings business at the Center over the past four years was discussed in our analysis of our 1993 study recommendations. In addition, catering business is the most profitable component of the complex as a whole. Based upon a review of denials due to lack of space /prior bookings, considerable additional demand could be accommodated with additional meeting space. Converting the vacated office space is the most cost effective means of adding such space. The graph on the following page presents a breakdown of denials due to prior booking of the desired space. 5. CO MPLETE IMPROVEMENT TO LOWER LEVEL MEETING ROOMS: Related to the same issue of increasing usable meeting /banquet space, improvements proposed for the ' lower level meeting rooms in the convention center will significantly increase the demand which that space can accommodate. The issue here is not the size of the space, which would not change, but its quality and appeal to the customer. In particular, the improvements will render the lower level space considerably more attractive for banquets and social functions which are among the most lucrative events held in the complex. Page 25 1 S8 Ve1 320 8HO `dHO ■ HO Ilb' 0 5 OL SL OZ 5l 0£ 5£ Oti s9NIMOOH NOINd OJL Ana SIVINJU ' Earle Brown Heritage Center Operational Study - August 1997 6. IMPROVE COMMUNICATIONS WITH BROOKDALE CENTER: Although improved communications with Brookdale Center are not expected to generate dramatic benefits for either complex, they also would not cost a great deal in terms of time or money and could easily produce some modest positive effect. Direct communication between the marketing staff at the mall and at the Heritage Center could evolve into cross marketing efforts, coupon or shopping package programs and other initiatives which could provide a small added amenity to patrons of the convention center and /or the Inn while increasing the likelihood that patrons of the Heritage Center would visit the mall. 7. IMPROVE HIGHWAY SIGNAGE AND CONSIDER NAME CHANGE: City regulatory restrictions notwithstanding, creative means of making improvements to the signage of the Center visible from the highway should still be explored to raise overall awareness. A change in the name of the complex would also aid considerably in improving awareness of the actual facilities and services the complex has to offer. An example of an alternative name is already in place: the "Inn on the Farm." A similarly descriptive name for the convention facility (i.e. "The Convention Center at Earle Brown Commons ") would call the attention of unfamiliar residents and businesses to the facilities available. 8. INCREASE ACCOUNTABILITY OF FACILITY MANAGEMENT FOR MEETING ' BUDGET GOALS: As discussed in the our review of the 1993 study, significant improvements have been made in the budgeting and accounting process. Added to these improvements, we recommend that facility management maintain on -going tracking of revenue and key expense items on a quicker turn around basis than is possible from the regular monthly statement produced by the City accounting department. The tracking mechanism should be coupled with on -going forecasting of performance for the remainder of the given operating year to allow for adjustments in the operating profile of the complex in the event of substantially better or worse performance than originally anticipated. ' Management should also be held accountable for the proper expenditure of monies within the limits approved by the EDA without continual recourse to City management on a case by case basis. City management should still retain direct oversight of expenditures for capital improvements and other large dollar items. 9. CONDUCT A JOINT EDA/MANAGEMENT WORKSHOP TO CREATE A ' "MISSION STATEMENT" FOR THE CENTER: The mission statement of the Earle Brown Center has never been explicitly defined. This is particularly difficult for the EDA whose composition changes over time, as new members are not familiar with the overall goals and objectives set in prior years. Although facility management has been stable for several years, the same would be true for management if changes occur in the future. A joint workshop between the EDA and facility management with effective facilitation by an independent parry could produce a mission statement to guide and inform all parties in the future, as well as the community as a whole. Page 27 ' Earle Brown Heritage Center Operational Study - August 1997 10. CREATE A RESERVE FUND FOR CAPITAL IMPROVEMENT: The Earle Brown Heritage Center finally achieved better than break -even operations in 1996. However, it is unlikely to ever be capable of independently supporting all of its on -going capital needs, particularly given the historic nature and alternative usage of the original buildings in which it is housed. This is not unusual for facilities of this type. Indeed, it is the norm. Rather than dealing with capital needs, which can fluctuate dramatically in cost on a year to year basis, as they arise, creation of a capital reserve fund is recommended which would receive a steady stream of payments to buttress against expensive capital projects in the i future. The long -term capital budgeting process already in place provides an ideal foundation to initiate such a fund. Excess operating profits from the complex can certainly be used to help fund such a reserve. However, additional funding is likely to be necessary. Other sources for such funding could include TIF funds, hotel taxes from the new properties opening in Brooklyn Center or other specifically designated funds. It is important to point out that the establishment of such a fund takes no more money from other areas of city government than will ultimately be needed in any case. It simply takes the money in a more steady, orderly and dependable manner to avoid unpleasant surprises. 11. INCREASE PARKING AS FUNDS BECOME AVAILABLE: Although not specifically covered by our review of the 1993 study or analysis of community interaction, additional parking at the complex is becoming of greater importance as meetings and banquet business increases. Disputes have occurred over parking areas used by the Center which have been taken by tenants of visitors to the neighboring office tower. For large scale functions, parking often spills on to the access road, which requires a long trek for patrons, particularly unpleasant in the winter. Additional parking will be of even greater importance if additional meeting space is added as previously recommended. Unfortunately, despite the need, cost and space constraints make further parking expansion difficult. However, further exploration of expanded parking options is recommended to prevent parking from becoming a serious obstacle to further revenue growth. i i 1 Page 28 Memorandum To: Michael J. McCauley, City Manager From: Tom Bublitz, Community Development Specialist Date: August 21, 1997 Subject: Resolution Approving Settlement Agreement for Acquisition of 610 -53rd Avenue North EDA Resolution No. 97 -04 authorized the action in eminent domain to acquire 610 -53rd Avenue North. Even with the approval of the eminent domain action, staff has continued to negotiate with the owners of 610 -53rd Avenue North. The value established for 610 -53rd Avenue North by the EDA's appraisal was $128,000. The owners of 610 -53rd Avenue North, through their legal counsel, obtained an opinion of value from a licensed appraiser in the amount of $134,000 for the property at 610 -53rd Avenue North. In addition to the $134,000 in appraised value, the owners initially requested compensation for lost rents on the property due to the 53rd Avenue Development and Linkage Project. The • amounts requested for lost rents was $7,000, which resulted in a total request of $141,000 ($134,000 plus $7,000). EDA staff proposed an offer of $135,000 for the property at 610 - 53rd Avenue North. The owner of the property countered with an offer of $138,500 for the property, and the EDA staff maintained its offer of $135,000. Ultimately, the EDA's position of $135,000 as compensation for the property was accepted. In addition to the $135,000, the settlement agreement would provide that the EDA pay one -half of the second half taxes for the property at 610 -53rd Avenue North, which would amount to $1,393.20. State statute also requires the EDA to pay $500 for the owners' appraisal. A summary of the total compensation breakdown contained in the settlement agreement is as follows: $135,000.00 Compensation for property acquisition 1,393.20 One -half of the second half taxes on the property 500.00 Statutory requirement for owners' appraisal costs $136,893.20 Total Staff recommends approval of the settlement agreement. The cost of $136,393.20 is likely to be less than the costs associated with the eminent domain hearing and the likely award made by the condemnation panel. The owner has indicated the settlement is acceptable. A copy of the settlement agreement (Stipulation to Award) and resolution approving the agreement are included with this memorandum. Commissioner introduced the following resolution and moved its adoption: EDA RESOLUTION NO. RESOLUTION APPROVING SETTLEMENT AGREEMENT FOR ACQUISITION OF 610 -53RD AVENUE NORTH WHEREAS, Economic Development Authority (EDA) Resolution No. 97 -04 accepted the appraised value of $128,000 for the real property located at 610 -53rd Avenue North and authorized the EDA Executive Director to make an offer to purchase the property at 610 -53rd Avenue North for the approved appraised value; and WHEREAS, the owners of the real property at 610 -53rd Avenue North have rejected the offer from the Brooklyn Center EDA to purchase the property at 610 -53rd Avenue North for the appraised value approved by the EDA in Resolution No. 97 -04; and WHEREAS, the EDA has commenced an action in eminent domain filed in Hennepin County District Court as Case No. CD -2444 to acquire the property at 610 -53rd Avenue North by quick take; and WHEREAS, the owners of 610 -53rd Avenue North have retained legal counsel to • represent their interests in the eminent domain action; and WHEREAS, the owners' legal counsel has indicated he has obtained an opinion of value from a licensed appraiser in the amount of $134,000 for the property at 610 -53rd Avenue North; and WHEREAS, a negotiated settlement agreement (Stipulation to Award) for the acquisition of the real property at 610 -53rd Avenue North in the amount of $136,893.20 has been prepared by the City Attorney; and WHEREAS, staff believes the cost of proceeding with the eminent domain action on the property is likely to exceed the cost of acquiring the property with the settlement agreement; and WHEREAS, the Economic Development Authority in and for the City of Brooklyn Center believes it is in the best interest of the City of Brooklyn Center to acquire the property at 610 -53rd Avenue North, pursuant to the terms and conditions of the settlement agreement (Stipulation to Award) which is hereby attached to and made part of this resolution. NOW, THEREFORE, BE IT RESOLVED by the Economic Development Authority in and for the City of Brooklyn Center that the settlement agreement (Stipulation to Award), prepared for the acquisition of 610 -53rd Avenue North, is hereby approved and payment is authorized pursuant to the terms and conditions of the attached settlement agreement (Stipulation to Award). EDA RESOLUTION NO. Date President The motion for the adoption of the foregoing resolution was duly seconded by commissioner and upon vote being taken thereon, the following voted in favor thereof: and the following voted against the same: whereupon said resolution was declared duly passed and adopted. • • Case Type: Condemnation • STATE OF MINNESOTA DISTRICT COURT COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT Economic Development Authority in and for the City of Brooklyn Center, a public body corporate and politic under the laws of the State of Minnesota, STIPULATION TO AWARD Petitioner, (PARCEL 9) VS. Court File No. CD -2444 Gordon NT_ Olsen, et a_l Respondents. • THIS STIPULATION is made as of , 1997 by and between the Petitioner Economic Development Authority in and for the City of Brooklyn Center and Respondents Selwin S. Ortega and Odelia Ortega (the "Respondents "), acting by and through their respective attorneys. WHEREAS, Respondents are the owners of the real estate located at 610 - 53rd Avenue North in the City of Brooklyn Center, legally described on the attached Exhibit A (the "Proper - ty "); and WHEREAS, the Petitioner commenced this action in order to acquire fee simple absolute title to the Property; and WHEREAS, the parties to this stipulation have negotiated a full and final settlement of the instant action as it pertains to the interests of Respondents. • NOW, THEREFORE, the parties agree as follows: 1. Respondents stipulate that the fair market value of the Property is 5136,393.20. CXU2 BR305 -6a 1 S/Z 30H19 @IsSLEEZIS :0I N'_ 3 AVl0 V 02NN9 N:1102!3 bb:SI 46- oZ -sny 2. Respondents agree that the court - appointed commissioners may enter an award with is respect to the Property, in the amount of $136,393.20 lus $500.00 for reimbursement Imbursement of appraisal fees, for a total award of $136,893.20. The award shall be apportioned as follows: $2,786.40 in favor of Hennepin County for 1997 real estate taxes; $0 in favor of Goldberg Bonding Co_ and the City of Brooklyn Center; $500.00 to Respondents for reimbursement of appraisal fees; and the balance of $133,606.80 jointly in favor of Respondents, First Nationwide Mortgage Corporation, Norwest Bank Minnesota, N.A., and Milton R. Carlson. It shall be Respondents' obligation to pay outstanding real estate taxes, special assessments, and mortgages, and liens, if any, against the Property. 3. The Respondents and petitioner waive their respective rights to appeal from the award of commissioners, provided the award is in the amount of $136,393.20. 4. The Respondents acknowledge that $128,000.00 of the award has been paid by • deposit with the P district court. The Respondents may make an appropriate motion to the district court to withdraw the funds on deposit for the Property, with notice to all persons holding interests in the Property. 5. Within 30 days following the filing of the commissioners' award, the petitioner agrees to pay the sums below, in the manner specified below. a. the balance of the just compensation amount, in the sum of $8,393.20, plus interest accruing from June 17, 1997 at the rate of five percent per annum, as Anther provided in the following paragraph 6; such payment shall be by check payable jointly to the Respondents and their mortgagees; provided, h w v o e er, that if petitioner provides evidence satisfactory to the petitioner that the mortgages in question have been satisfied, then the petitioner will omit such mortgagees as payees on the check; and b. the $500.00 appraisal reimbursement award; such payment shall be by check payable jointly to the Respondents. • CP,3127438 02305 -94 2 S/£ 30Vd O i ESGEEZ L S: Q I N311d2I0 8 AQ3NN3 W02i3 i�b = S L GS- OZ -Ofltf 6. The petitioner's obligation to pay the $8,393.20, plus interest, is subject to the • following conditions: a. Real estate taxes due and payable in 1997 must have been paid in full, together with all penalties and interest, if any. If said taxes have not been paid in full, petitioner may deduct from the just compensation balance an amount necessary to pay said taxes, together with penalties, and interest, if any, and pay said taxes on Respondents' behalf. b. Respondents must have removed from the Property all moveable personal property, including, without limitation, refrigerators, washers, dryers, containers of waste motor oil and any other similar substances, and all other moveable personal property of any land. If Respondents have not removed such personal property by September 1, 1997, the petitioner may deduct $1,000.00 of the balance due to Respondents and may use such funds to pay for disposal of all moveable personal property re ng on the Property. 7. This stipulation shall be null and void if, prior to September 8, 1997, the petitioner determines that the Respondents have disposed of any waste oil or other petroleum product or hazardous -substance on the Property. • KENNEDY & GRAVEN, CHARTERED By Corrine H. Thomson (149743) 470 Pillsbury Center Minneapolis, Minnesota 55402 Telephone: (612) 337 -9300 Attorneys for Petitioner CM12742S BR305 -64 3 a/R trInWA 0tP. A;'P— ZTq =nT N7AWNn 'SZ Xn7MN'4U:WON -4 Sb =ST GS- OZ -nnW PAUL R. CARLSON, ESQ. • By Paul R. Carlson ( ) 12700 Anderson Lakes Parkway, Suite 106 Eden Prairie, MN 55344 Telephone: (612) 942 -7269 Attorney for Respondents Selwin S. Ortega Odelia Ortega t • caai27o;a BR305 -64 4 n it -tnv i fAT rC7T /'7T �O Zr9 SmR17S7 m rlW -r CTS q EXHIBIT A • Parcel 9 (Abstract) (PID No. 01 118 21 43 0074) Property Address: 610 53rd Avenue North, Brooklyn Center Description of Property to be Taken The East 100 feet of West 199.32 feet of Lot 11, Block 2, Bellvue Acres, according to the plat on file in the office of the County Recorder, Hennepin County, Minnesota Name Nature of Interest Selwin S. Ortega Fee owner Odelia Ortega Fee owner First Nationwide Mortgage Corporation, a Mortgagee Delawwe corporation Norwest Bank Minnesota, N_ A., formerly Mortgagee known as First Minnesota Savings Bank, F.S.B. • Milton R Carlson Mortgagee Goldberg Bonding Co. Possible holders of an interest All other parties unknown having any right, Possible holders of an interest title or interest in the premises herein, to- gether with the unknown heirs or devisees, if any, of the parties that may be deceased, and including unknown spouses, if any City of Brooklyn Center Special assessments County of Hennepin Real estate taxes • C- M=7438 ZA3Q5 -64 q a /a q 0 i £6L££Z 1 9 Q I N3AVN^ V A03NN2U : WOaIA S b= S I Ls- 0Z -nnv