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Developer questions Bemidji’s process to develop south shore townhomes

This image shows the location where B&B Enterprises plans to develop 30 high-end townhomes near Bemidji’s Sanford Center. A second phase of the project could bring as many as 20 additional units. Greta Lund | Bemidji Pioneer graphic

BEMIDJI – Was the process flawed?

A Grand Forks, N.D.-based development group is questioning the city’s process and decision-making in its recent agreement with Bemidji-based B&B Enterprises for a housing development in the south shore of Lake Bemidji.

“None of the answers that were given are very satisfactory to us,” said Monty Lund, one of three men who comprise Blue Star Investments in Grand Forks. “We’ve all been in business long enough where if a deal’s better, a deal’s better. Is this the best deal? We’re of the opinion, no.”

Blue Star, doing business as Hidden Pines Development, and B&B Enterprises competed to purchase the same land, both making offers to the city for land northeast of the Sanford Center that long has been targeted for high-end multi-family housing.

Both development groups made formal presentations Feb. 20 to a city committee, which recommended Bemidji pursue an agreement with B&B Enterprises instead of Blue Star.

But, Blue Star offered more money and Lund is questioning how the city arrived at its decision.

“We just feel that the process is flawed,” he said, “and it’s not transparent whatsoever.”

Lund sent a letter to the city council last week, protesting the decision and asking for reconsideration.

This week, members of the proposal review committee said the letter inaccurately portrays events and purports inaccurate figures.

“I was surprised to see (the letter) and I was disappointed to see some of the points that he brought out,” said John Chattin, city manager. “They simply weren’t true.”

B&B Enterprises, a limited liability corporation operated by local developers Brian Freeberg and Bob Whelan, accepted a counter-offer from the city to purchase 6.5 acres of land for $300,000 to develop 30 upscale townhomes. It also secured a five-year option on an adjoining 5-acre parcel to the south for no less than $100,000.

Lund’s letter states his development group offered $566,280 for the more attractive, 6.5-acre northern lot and $217,800 for the southern 5-acre lot.

But city officials said that is not what was presented.

They said the offer was $507,198 for the northern lot and $90,621 for a selection of the southern lot – they did not ask for the entire parcel which, Chattin says, would have left a virtually undevelopable section of land – for a total of $597,819.

Blue Star also was subtracting $140,000 to require the city to put in needed road and utilities.

“I question the information he put in the letter to us,” said Mayor Rita Albrecht, who as a member of the proposal review committee was there Feb. 20. “It doesn’t match what we recall from that discussion.”

If using the committee’s figures, that would mean the city left $57,000 on the table by going with B&B Enterprises.

Perhaps even more, Councilor Nancy Erickson, a member of the proposal review committee whose support leaned toward Blue Star, said there is no guarantee B&B Enterprises will actually purchase the second, southern lot. She believes the city left $157,000 on the table.

Nonetheless, Erickson said the committee did reach a consensus in support of B&B Enterprises.

“We are moving forward with this project because we believe it is in the best interest of our community and the city,” Albrecht said. “We are looking forward to a very successful project.”

‘local advantage’

Committee members praised Freeberg’s presentation on behalf of B&B Enterprises, which detailed plans for an active-living community of 30 townhomes complete with curb and gutter and sidewalks.

Freeberg was professional, presenting polished, bound materials with colored images and drawings, Erickson said.

“I think Brian certainly had a local advantage,” she said. “People have worked with him for years and they trust him.”

Freeberg developed the Irving Oaks subdivision and Whelan has developed 27 apartment complexes and five multi-tenant commercial buildings in Bemidji.

Freeberg retired in 2008 after two stints as the city’s engineer. A former member of the proposal review committee, he also was familiar with the city’s processes.

Chattin said he does not believe Freeberg and Whelan received any preferential treatments because of their locality or past working experience.

“Quite honestly, I don’t think so,” he said. “The only thing that came into play during the consideration was that B&B were guaranteeing that all their construction, road utilities, buildings, all their construction would be (done by) local contractors. The Grand Forks group may have suggested (using) some local contractors but they weren’t giving us assurance.”

Other considerations, according to officials, included that B&B Enterprises, with $10,000 down, will have until May 9 to pay off the balance for the 6.5 acres whereas Blue Star offered $25,000 down, planning to pay off the balance throughout three years.

“If they (the city) would have gone to us and said, ‘Here’s the thing. We like your deal but we want a $200,000 down payment,’ that would have been fine. We would have given that,” Lund said.

As for whether the group truly only offered $90,621 for a portion of the southern, less appealing lot, Lund said Blue Star would have been willing to consider buying the whole parcel had the city requested it.

Blue Star had planned on developing 38 townhomes and using the southern lot for storage units, where residents could store stow away golf carts, jet skis and boats.

Lund said Blue Star would have considered additional storage units to cover more of the southern lot if it had known the city was strongly opposed to selling only a portion of it.

“Our offer leaves a lot of money on the table for the city and the taxpayers,” Lund said, noting, too, that B&B Enterprises has secured a $250,000 loan from the city’s revolving-loan fund.

In Grand Forks, Blue Star is currently working on a 300-acre development, 1,350 homes, 80 apartments and a mall.

“They were not an inexperienced, fly-by-night developer,” Erickson said.

But, now, that developer is not sure if it is interested in developing in Bemidji.

As part of its proposal, Blue Star had asked for the “right of first refusal” on the city-owned Rako Street property. Lund said Blue Star envisioned apartments and four-plexes in the land that formerly served as the yard for the Minnesota Department of Transportation.

“We had future possibilities with him,” Erickson said. “Nothing against (Freeberg) or (Whelan), but new opportunities seemed to be out there.”