Agenda - Council Work Session - 10/11/2011

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CC Work Session 2.2. Meeting Date: 10/11/2011 By: Aaron Backman, Administrative Services Title: Proposed Lease & Fire Suppression System for City -Owned Property at 6701 Hwy 10 Background: The City of Ramsey acquired the property at 6701 Hwy 10 in September of 2005. The 28,000 sq. ft building includes 18,000 sq. ft. of cold storage that is utilized by Sharp & Associates to store boats, RVs, and other vehicles, and approximately 10,000 sq. ft of office space formerly occupied by NAU Country Insurance. In February of 2007, the city leased 4,820 sq. ft. of the east side of the office space to Youth First Community of Promise. Three years later, the lease was modified with the lessee being the Northwest Anoka County Community Consortium. Youth First continues to operate in the east side of the office space. The city constructed a demising wall dividing the office area in the middle and has undertaken other maintenance activities pertaining to the property. In July of 2011, the United Methodist Church of Anoka approached the Economic Development/Marketing Manager regarding leasing the western portion of the office space at 6701 Hwy 10. The Anoka church is interested in creating a new satellite church called Northern Light Church. On July 8th, the church provided a letter of intent to lease the office area. Following negotiations with representatives of the church, a lease was drafted that reflected an annual rent of $24,100 in the first year and $26,510 in the second year of the lease. The term of the lease would be for 30 months. According to the Building Official, since there is a change of use of the property that entails assembly activities, the city's building code requires the installation of a fire suppression system. Following discussions with the Building Official, Fire Marshal, and the church, it is clear that a fire sprinkler system would be required for a portion of the building, specifically for the office area on the south end of the property (see diagram of the building). This proposed project would provide fire safety for both sides of the office area. The proposed fire sprinkler project would entail a two -zone wet and dry pipe fire protection sprinkler system. The "wet pipe system" protects the heated office space and moves water through pipes in the ceiling. The "dry pipe system" protects the unheated attic truss space and is equipped with an air compressor. The total cost for both is $64,980. There is currently a two inch water service line that comes into the building which does not provide sufficient water pressure to support the fire protection system. Therefore, a six inch water line would need to be extended from the water main that runs along the south side of the BNSF railroad tracks. Public Works has provided cost estimates for two options (see site layout showing water main options). The 280 foot option is estimated to cost $53,585 and the 440 foot option $36,575. Both have a 25% contingency. Adding the cost of the sprinkler system with the lower cost water main option, the total project cost was assumed to be $101,555. Following the 9/27/11 Work Session, the Economic Development /Marketing Manager approached three local contractors for quotes to undertake the water service extension. Actual quotes came in less than the city's original estimates -- $23,950 and $34,450 for the lower cost option. Using the lowest quote for the water main project reduces total project costs to $88,930. City staff contacted the Anoka County Assessor's office regarding the tax status of the building. All of the office area is currently tax - exempt. The county's tax assessor indicated that the proposed lease with Northern Light would not change the tax exempt status. This would allow for more of the lease revenue to be used to amortize the costs of the fire safety project. Simultaneously, city staff talked to the church regarding a revised lease with a four -year term. The United Methodist Church of Anoka Board considered the revised lease term on 10/4/11 and approved a four -year lease. The attached lease outlines the yearly lease amounts -- $24,100, $26,510, $27,300, and $28,128. The total revenue for the four years would now total $106,038. The proposed revenue stream from the Northern Light Church revised lease would fully amortize the fire safety project and still cover administrative costs,