This year has been a busy one for the city’s south shore redevelopment project.

This year has been a busy one for the city’s south shore redevelopment project.

Already, city councilors have agreed to sell land for townhomes and a high-end apartment building in the area near the 3-year-old Sanford Center. But at the same time, they’ve sold that property for less than they once thought they could get.

City officials originally anticipated receiving $350,000 per acre for the 2.67-acre lot where the apartments are slated to be built. The Bemidji Economic Development Authority agreed June 17 to sell it for about $350,000 total, or $131,086 per acre.

Should that trend continue, councilors are faced with the possibility that revenue generated from south shore land sales will not be enough to make future bond payments, and that gap will have to be filled using other revenue sources. At the same time, they are confronted with market realities that influence how much money developers are willing to pay for the land.

“My worry is that we’re not going to have the money from land sales to cover our bond obligations,” said Councilor Reed Olson, echoing a concern shared by other councilors. “So, we need to figure out how we’re going to pay for our bonds without having to dramatically increase property taxes, which no one wants to do.”

A spreadsheet provided by city manager John Chattin in May, before the apartment deal was reached, showed that if the city sold the remaining nine lots for the full price they had anticipated, they would end up with a $1.3 million surplus. If they sold them at only 60 percent of that price, however, they would be faced with a $1.5 million deficit.

But councilors are not necessarily panicking yet. Even before the land for the apartments was tentatively sold, the city had enough for annual bond and interest payments through 2015. And some councilors pointed out there are other available city-owned sites that could help generate revenue.

And in the long-term, councilors are keeping in mind that they need to pay back about $7.5 million in bonds and interest by 2028 for the south shore land.

Mayor Rita Albrecht added that there are other things to consider besides bond payments.

“Although I know we have bonds to pay, I think it’s prudent for policymakers and City Council members to take a broad view of what is the neighborhood that we’re developing in our community, and how will that serve our community in the future,” she said.

The beach

While the city has plans for a swimming beach on the south shore, it’s not clear how that’ll be accomplished. Councilors will be presented estimates later this month on how much it will cost to clean the beach of wood chips and other debris.

“The problem is we don’t have the money to do it,” Olson said, in reference to the half-percent sales tax dedicated to park redevelopment that has since run out or been earmarked elsewhere.

Councilor Ron Johnson said having a redeveloped south shore beach could also increase offers and interest for nearby land.

“We can get a lot more if it’s cleaned up,” Johnson said.

One developer has already told councilors that the beach is essential to his business model.

Zorbaz on the Lake founder Tom Hanson came before the BEDA on Monday with a proposal to build a restaurant next to that future beach. But his offer was declined by councilors partly because of his request that the payment be deferred for five years or until the beach is developed — whichever scenario took longer. He offered about $350,000 for the land.

Hanson and Greater Bemidji Executive Director Dave Hengel told councilors a Zorbaz would generate more traffic on the south shore and with it, more development prospects would follow. That sentiment has been shared by Patrick Welle, a Bemidji State University economics professor, during a May 20 City Council work session.

“I think right now, you're more in a position of maybe you having a discount now, with the idea that people are going to see that growing value in subsequent properties that can be sold,” Welle told councilors.

Hengel said Wednesday another benefit of bringing in development sooner rather than later is generating property and sales tax within the city. Hanson estimated the Bemidji Zorbaz would have generated about $45,000 in tax revenue annually.

“But if you wait, perhaps land prices increase,” Hengel acknowledged, adding: “If we increase traffic, we increase land prices and we increase demand on the property. So, that’s been my goal.”

Johnson said having the Country Inn & Suites and Cowboy Jack’s restaurant attached to the Sanford Center would be a development catalyst for the area. The hotel is still pending, but Hengel told councilors Monday that he’s hearing “positive news” regarding the project.

Public interest

Councilor Nancy Erickson said she’s eager to hear from developers, but wants to consider their offers carefully.

“Of course we want to put city property into private hands as soon as possible,” Erickson said. “But it has to be a fair offer. Otherwise we are doing the public a disservice.”

But what constitutes a fair offer is somewhat unclear. Albrecht said that it may be time for an assessment of how much south shore land is worth.

“And I think that it’s perhaps something that we need to consider,” Albrecht said.

Aaron Chirpich, development director for the Headwaters Regional Development Commission, said in addition to price, the quality of the development should be considered as well.

“The first bar that you can get over and make you feel good as a community is ‘Do we like this project for this site?’” Chirpich said. “If you say yes to that, then it’s a lot easier to understand the market reality of the land sale piece.”

And while much of the focus has been attracting private development to the area, Olson said the south shore project is a public investment as well.
“We’re also doing a great deal of public good by having that trail there and having that water cleaned up,” Olson said. “But how we’re going to get it done is the big question.”