The URL can be used to link to this page

Home My WebLink AboutIV.C - Panache Cidery HEDRA MEMORANDUM To: HEDRA Commissioners From: Rusty Fifield, Economic Development Coordinator John Hinzman, Community Development Director Date: April 2, 2020 Item: Panache Cidery Request Action Requested No action recommended. Background On March 25, we received a detailed email from Ameeta Jaiswal. She requested that the full email be shared with the HEDRA Board. The complete text of the email can be found in Attachment A. In this email, Ms. Jaiswal challenges us to “think out-of-the-box” and proposes a three stage approach to undertake her project and work with the City. The intent of the email is to postpone the expiration of the Real Estate Option Agreement on April 30. This item has been placed on the agenda to allow the HEDRA Board to consider this request. Nothing in this email changes the staff position that Panache has failed to provide any indication that financing can be secured for the project and that there is a financially feasible business plan for the cidery. Ms. Jaiswal contends that staff is seeking the wrong information to properly evaluate a project like this. It is important to put this issue into context. HEDRA discussions with Ms. Jaiswal began more than 3-1/2 years ago. These discussions led to an agreement that gave Panache the option to purchase property at a fixed price with the provision that HEDRA could accept a lower price upon demonstration of need. To provide the basis for evaluating need for a reduced price, Panache was asked to provide a project budget with sources and uses of funds and a set of operating projections. Both items are very standard in evaluating requests for city financial assistance. The project budget serves several purposes: (1) The budget allows a determination that the uses of funds are reasonable and complete; (2) The sources of funds demonstrates Panache Request April 2, 2020 Page 2 owner equity into the project and allows evaluation of the reasonableness of other funding sources; and (3) This information is needed to ensure that project assumptions are not manipulated artificially show the need for reduced price. The operating projections are needed to demonstrate that the reduced price is needed to make the project financially feasible. Simply showing a figure in the project budget can be misleading. A more accurate assessment comes from the ability of projected operating revenues to cover costs and have sufficient funds remaining to pay debt and return on investment. Evaluating the projections at full price and at a reduced price shows the impact on the feasibility of the project. While Ms. Jaiswal disputes the validity of these “metrics”, they are universally used as part of the evaluation of the need for financial assistance. Even if there are better metrics, she has not provided an alternative basis for setting a lower price the property. The expiration of the option agreement does not change the basic situation. Block 1 is for sale at a price that has been determined by HEDRA. HEDRA has the ability to determine that the fair market value of the property is less than the established price. However, if a party requests that HEDRA reduce the sale price, we would determine that the lower price was necessary for the project to be financially visible or that the project served a public purpose sufficient to warrant the assistance provided by the lower price. The only thing that changes with the expiration of the option agreement is the exclusive right of Panache to purchase the property. Given the lack of progress in obtaining relevant and necessary information, we do not believe that our best interest to maintain that exclusivity. Recommended Action Staff recommends taking no action on the request and allowing the option agreement to expire on April 28. Panache Request April 2, 2020 Page 3 Attachment A Complete Text of March 25 Email Hello John, Hope you and your family are fine during these trying times of the covid‐19 pandemic. The contagion itself and the fallout from it will affect much more rapidly the changes in business operations already under way. Before you conclude on the Panache Cidery Proposal for Block 1, City of Hastings, by the April 30, 2020 deadline, please peruse this email, but more importantly, share it in its full detail with all members of HEDRA. 1) From day one, Panache intended to install and grow organically in Hastings. First step was to obtain grants for site cleaning. Second, to begin with a modest but scalable space to start business. This was the initial contained architectural concept plan Panache submitted to you. Finally, once the business matured, shows promising cash inflows, expanding the modest scalable unit to a more permanent and bigger business edifice. This way the City of Hastings is not left with a bankrupt business and an empty building scarring its shoreline. 2) However, soon after the site remediation grant was obtained, but before Panache could pursue plans to set up this scalable plan working alongside the City of Hastings and the City’s civil engineering contacts (Braun Intertec) already conversant with the site remedial work, Panache was directed to set up a duplicate parallel team of civil engineers/ architects/ lawyers/ contractors/ developers to propose a “cidery project”. 3) Against its better judgement, Panache pursued this traditional approach, set up a parallel team to reassure the City of Hastings. At a cost of $ 10 000 borne by Panache, this parallel team proposed a three story, capital intensive project. Because it could, because this is what they do, not because it makes good business sense! Moreover, the Economic Development office required nine years of cash flow projections for this capital intensive project. There is no definitive metric available to ensure correct nine year projections of ROI for this proposed capital intensive project. The ROIs may well be inadequate for profitable business operations (EBIT), all the more so in the present coronavirus climate and its aftermath. (Going forward, we will witness the failure of many such existing capital intensive projects in all sectors. Enormous start‐up costs that are often not recovered even after many years in operations.) Furthermore, the lack of support from the City of Hastings Economic Development Office, for permit(s), adds to the lack of robustness in the projected ROIs. 4) Returning to the initial plan of Panache with the City of Hastings makes even more sense now and for the future. ∙ First stage: Using grant funds and additional funds, clean up the site. Sale Price of land reflect all additional non‐grant funds for clean‐up and making the site ready of a staged installation of a viable business. ∙ Second Stage: Using the proposed three story building already proposed by Panache (as directed by the City of Hastings), set up an initial production facility for bottling the non – Panache Request April 2, 2020 Page 4 alcohol beverage while planning on the cider production and its distribution. This initial production facility, set up for example alongside the railway track / partially in the flood plain, is to be a low budget building using pre‐fabricated materials / containers but landscaped with apple trees providing event space. None of this needs be considered necessarily ugly or unprofessional. (See regional businesses now in Midway in St Paul; NE Mpls, and towns around the world reclaiming their old industrial sites at low costs.) ∙ Third Stage: Upon proving the success of Panache business, proceed with the capital intensive 3 story project submitted to the City of Hastings, (or a mutually agreed upon similar project) with a fancy cider bar incorporating fermentation on the ground floor with multi‐use spaces on other floors. If the business is not successful, by mutual agreement, Panache and the City can proceed with an alternative plan for Block 1 without having to add to more bankruptcy and empty buildings in the region. 5) The staged approach would entail that Panache and the City of Hastings think out of the box; trust each other; guide and promote each other, including going the extra mile for permits; work together as one unit rather than as “asset holder” and potential “purchaser/ developer”. Financial and other metrics for this three staged approach are available and will be more reliable, viable and easy to implement due to lower costs and shorter timelines. Thank you in advance. Best Wishes. Ameeta Jaiswal CEO and Founder PANACHE LLC Nourishment with Plant based functional Ingredients. Time‐Tested Heritage. Better Food Systems. 612.520.1301 panacheconnect@gmail.com www.panacheapple.com @panacheapple 67% of American's polled by Hartman Group's Health and Wellness 2017 Report reveal Mega Trend # 1: Healthy and socially conscious food choices Mega Trend # 2: Fresh food and beverages, rooted in time tested heritage, easy to digest Mega Trend # 3: Functional Ingredients, eating for good