HomeMy WebLinkAboutItem 08May 31, 2011
Proposed Action
Service Agreement for
Liquor Store Economic Impact Study
Consideration of service agreement for Liquor Store Economic Impact Study - Phase 1,
with Shenehon Company.
Approval of this service agreement would allow a study to be completed regarding the
economic impact the Municipal Liquor Operations has on the community.
Overview
Per City Council direction the Liquor Department generated an all encompassing,
Request for Proposal for a comprehensive study and analysis regarding the impact
(pros and cons) of the Municipal Liquor Operations.
A written request for proposal was reviewed by the City Council at the March 25
Council Work Session. Proposals were forwarded to five firms, of which Shenehon was
the lowest responsible bidder.
The fees to complete the all inclusive study as proposed would have been $56,500.
City staff determined it would be more fiscally responsible to conduct this study in a
phases approach. The first phase will analyze the economic impacts the operation has
on the city and will provide City Council data to aid them in determining the need to stay
or vacate the Municipal Liquor Business based on the economic impacts of the
operation. The cost to complete Phase 1 of this study will be $25,000.
Primary Issues to Consider
o What happens after Phase 1 is complete,
o What is Phase 2, and is it necessary?
Supporting Information
• Service proposal with Shenehon Company
• Service agreement with Shenehon Company
Brenda L. Visnovec
Liquor Operations Director
Item No.
Financial Impact: unknown Reduction -from Annual Budget: N
Source: Related Documents (CIP, ERP,)
Notes:
Council Report
Page 2
Staff Analysis of Primary Issues
Consideration of Service Agreement for
Liquor Store Economic Impact Study
May 31, 2011
• What happens after Phase 1 is complete?
Upon receiving the proposals for the study, City Staff determined that the most fiscally
responsible manner would be to break this study into phases based on decisions made
by City Council along the way. (i.e: If City remains in the Liquor business, there would
not be a need for full asset appraisals. On the other hand, if vacating the business,
there would be no need to evaluate the current or future needs of the operation)
Phase 1 will review all economic impacts (pros and cons) of the Municipal Liquor
Operation. This should provide City Council the data necessary to determine if it is in
the City of Lakeville's best interest to remain in the Municipal Liquor Business or to
vacate the operation.
• What is Phase 2 and is it necessary?
Phase 2, if determined necessary by City Council, would be based on their decisions
from Phase 1.
If the Council determines that it is the best interest of the community to remain in
business, Phase 2 would consist of the following topics with an additional fee of
$11,750:
Item 1: Financial analysis of current operations.
Item 2: Factors impacting a potential store location in the vicinity of County Road
70 and 1 -35
Item 3: Appropriation of municipal liquor funds
Item 4: Review of legislative initiatives
Item 5: Analysis of leasing vs owning
If the Council determines that it is the best interest of the community to vacate the
business, Phase 2 would consist of the following topics with an additional fee of
$23,000:
Item 1: Valuation of assets
Item 2: Transition plan to vacate the business and assets
PROFESSIONAL SERVICES AGREEMENT
AGREEMENT made this Sixth day of June, 2011, by and between the CITY OF LAKEVILLE,
a Minnesota municipal corporation ( "City ") and SHENEHON COMPANY, a Minnesota corporation
( "Consultant ").
IN CONSIDERATION OF THEIR MUTUAL COVENANTS THE PARTIES
AGREE AS FOLLOWS:
1. SCOPE OF SERVICES. The City retains Consultant to furnish the services set forth in the
Contract Documents. The Consultant agrees to perform the services.
2. CONTRACT DOCUMENTS. The following documents shall be referred to as the "Contract
Documents," all of which shall be taken together as a whole as the contract between the parties as if they
were set verbatim and in full herein:
In the event of conflict among the provisions of the Contract Documents, the order in which they are listed
above shall control in resolving any such conflicts with Contract Document "A' having the first priority and
Contract Document "E" having the last priority.
3. COMPENSATION. Consultant shall be paid by the City for the services described in the
Contract Documents as follows: (1) Phase 1 - $25,000, (2) Phase 2 - Option A, if separately authorized
by the City Council, $11,750, (3) Phase 2 - Option B, if separately authorized by the City Council,
$23,000. Payment for each phase is inclusive of reimbursable costs. The not to exceed fee shall not be
adjusted if the estimated hours to perform a task, the number of estimated required meetings or any
other estimate or assumption is exceeded. Consultant shall request payment for services rendered
upon the completion of a phase
4. CHANGE ORDERS. All change orders, regardless of amount, must be approved in
advance and in writing by the Lakeville City Council. No payment will be due or made for work done in
advance of such approval.
5. DOCUMENTS. The City shall be the owner of all documents, reports, studies, analysis and
the like prepared by the Consultant in conjunction with this contract.
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A. This Professional Services Agreement.
B. Memorandum from Brenda Visnovec dated May 18 2011, Subject: Municipal
Liquor Study Proposal.
C. City of Lakeville Request for Proposals for a comprehensive study and analysis of
the Municipal Liquor Operations.
D. Consultant's response to Request for Proposals dated May 20, 2011.
E. Insurance certificate.
6. STANDARD OF CARE. Consultant shall exercise the same degree of care, skill, and
diligence in the performance of the services as is ordinarily possessed and exercised by a professional
consultant under similar circumstances. City shall not be responsible for discovering deficiencies in the
accuracy of Consultant services. Consultant shall be responsible for the accuracy of the work and
shall promptly make necessary revisions or corrections resulting from errors and omissions on the part
of Consultant without additional compensation.
7. COMPLIANCE WITH LAWS AND REGULATIONS. In providing services hereunder,
Consultant shall abide by all statutes, ordinances, rules and regulations pertaining to the provisions of
services to be provided.
8. INDEMNIFICATION. The Consultant shall indemnify and hold harmless the City, its
officers, agents, and employees, of and from any and all claims, demands, actions, causes of action,
including costs and attorney's fees, arising out of or by reason of the execution or performance of the work
or services provided for herein and further agree to defend at their sole cost and expense any action or
proceeding commenced for the purpose of asserting any claim of whatsoever character arising hereunder.
9. COPYRIGHT. Consultant shall defend actions or claims charging infringement of any
copyright or patent by reason of the use or adoption of any designs, drawings or specifications supplied
by them, and they shall hold harmless the City from loss or damage resulting therefrom.
10. INSURANCE. Consultant shall secure and maintain such insurance as will protect
Consultant from claims under the Worker's Compensation Acts, automobile liability, and from claims for
bodily injury, death, or property damage which may arise from the performance of services under this
Agreement. Such insurance shall be written for amounts not less than:
Commercial General Liability $1,000,000 each occurrence /aggregate
Excess /Umbrella Liability $2,000,000 each occurrence /aggregate
The City shall be named as an additional insured on the general liability and umbrella policies.
The Consultant shall secure and maintain a professional liability insurance policy. Said policy shall
insure payment of damages for legal liability arising out of the performance of professional services for the
City, in the insured's capacity as Consultant, if such legal liability is caused by a negligent act, error or
omission of the insured or any person or organization for which the insured is legally liable. Said policy
shall provide minimum limits of $1,000,000 with a deductible maximum of $125,000 unless the City agrees
to a higher deductible.
Before commencing work the Consultant shall provide the City a certificate of insurance evidencing
the required insurance coverage in a form acceptable to City. The certificate shall provide that such
insurance cannot be cancelled until thirty (30) days after the City has received written notice of the
insurer's intention to cancel this insurance.
11. INDEPENDENT CONTRACTOR. The City hereby retains the Consultant as an
independent contractor upon the terms and conditions set forth in this Agreement. The Consultant is not
an employee of the City and is free to contract with other entities as provided herein. Consultant shall be
responsible for selecting the means and methods of performing the work. Consultant shall furnish any and
all supplies, equipment, and incidentals necessary for Consultant' performance under this Agreement. City
and Consultant agree that Consultant shall not at any time or in any manner represent that Consultant or
any of Consultant agents or employees are in any manner agents or employees of the City. Consultant
shall be exclusively responsible under this Agreement for Consultant's own FICA payments, workers
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2
compensation payments, unemployment compensation payments, withholding amounts, and/or self -
employment taxes if any such payments, amounts, or taxes are required to be paid by law or regulation.
12. SUBCONTRACTORS. Consultant shall not enter into subcontracts for services provided
under this Agreement without the express written consent of the City. Consultant shall comply with
Minnesota Statute § 471.425. Consultant must pay Subcontractor for all undisputed services provided
by Subcontractor within ten days of Consultant's receipt of payment from City. Consultant must pay
interest of 1.5 percent per month or any part of a month to Subcontractor on any undisputed amount
not paid on time to Subcontractor. The minimum monthly interest penalty payment for an unpaid
balance of $100 or more is $10.
13. ASSIGNMENT. Neither party shall assign this Agreement, or any interest arising herein,
without the written consent of the other party.
14. WAIVER. Any waiver by either party of a breach of any provisions of this Agreement shall
not affect, in any respect, the validity of the remainder of this Agreement,
15. ENTIRE AGREEMENT. The entire agreement of the parties is contained herein. This
Agreement supersedes all oral agreements and negotiations between the parties relating to the subject
matter hereof as well as any previous agreements presently in effect between the parties relating to the
subject matter hereof. Any alterations, amendments, deletions, or waivers of the provisions of this
Agreement shall be valid only when expressed in writing and duly signed by the parties, unless otherwise
provided herein.
16. CONTROLLING LAWNENUE. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota. In the event of litigation, the exclusive venue shall be
in the District Court of the State of Minnesota for Dakota County
17. RECORDS. The Consultant shall maintain complete and accurate records of time and
expense involved in the performance of services.
18. MINNESOTA GOVERNMENT DATA PRACTICES ACT. Consultant must comply with the
Minnesota Government Data Practices Act, Minnesota Statutes Chapter 13, as it applies to (1) all data
provided by the City pursuant to this Agreement, and (2) all data, created, collected, received, stored,
used, maintained, or disseminated by the Consultant pursuant to this Agreement. Consultant is subject to
all the provisions of the Minnesota Government Data Practices Act, including but not limited to the civil
remedies of Minnesota Statutes Section 13.08, as if they were a government entity. In the event
Consultant receives a request to release data, Consultant must immediately notify City. City will give
Consultant instructions concerning the release of the data to the requesting party before the data is
released. Consultant agree to defend, indemnify, and hold City, its officials, officers, agents, employees,
and volunteers harmless from any claims resulting from Consultant' officers', agents', city's, partners',
employees', volunteers', assignees' or subcontractors' unlawful disclosure and /or use of protected data.
The terms of this paragraph shall survive the cancellation or termination of this Agreement.
19. TERMINATION. This Agreement may be terminated by the City with or without cause by
written notice delivered in person, by fax, email or mail to the Consultant at the following addresses:
Shenehon Company
88 South Tenth Street
Suite 400
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Minneapolis, Minnesota 55403
Fax: 612- 344 -1635
Email: Value @shenehon.com
Upon termination under this provision if there is no fault of the Consultant, the Consultant shall be paid
for services rendered until the effective date of termination as follows: full payment shall be made for a
satisfactorily completed phase, no payment will be made for a phase that has not been authorized by
the City Council, for a phase authorized by the City Council but not completed payment shall be on a
pro rata basis. If the City terminates the Agreement because the Consultant has failed to perform in
accordance with this Agreement, no further payment shall be made to the Consultant.
CITY OF LAKEVILLE SHENEH
BY: BY:
Mark Bellows, Mayor ^ obert . S
AND AND ! , et
Charlene Friedges, City Clerk William //Herber, Its Senior Vice President
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May 20, 2011
Ms. Brenda Visnovec
Liquor Operations Director
City of Lakeville
20195 Holyoke Avenue
Lakeville, Minnesota 55044
Dear Ms. Visnovec:
Sincerely,
SHENEHON COMPANY
William C. Herber, CBA
Senior Vice President
ENE HON COMPANY
BUSINESS & REAL ESTATE VALUATIONS
Re: Updated Phase I Fee Proposal to Provide an Economic Impact Study which Compares
Municipal Liquor Store Operations to Private Ownership Liquor Store Operations in
Lakeville, Minnesota
Updated Phase II Fee Proposal for Additional Work Under Option A: Continuation of
Municipal Liquor Store Operations; and /or Option B: Sale of Liquor Store Assets
Thank you for the opportunity to submit our qualifications along with a proposal to study the
advantages and disadvantages to the City of Lakeville of having municipal liquor store operations.
Enclosed you will find our proposal to provide the professional services as discussed in our meeting
with the City of Lakeville. As requested, we have included the following:
• Proposal demonstrating the qualifications, competence and capacity of our firm;
• Listing and experience of the project team;
• A description of similar projects completed by the team;
• Methodology for accomplishing the work with a detailed work plan, timeline, and statement
of the approach;
• A preliminary task list and time schedule to complete the work;
• A brief discussion of why our firm is the best value for this project; and
• Certification that the persons signing the proposal are entitled to represent the firm.
We will provide proof of insurance in the event a contract is awarded. If you require additional
information, please feel free to call us at 612.333.6533.
Robert J. Strachota, MAI, CRE MCBA, FIBA
President
88 SOUTH TENT 1 STREET SUITE 400 j MINNEAPOLIS j MIN I ESOTA 55403 611/333 -6533 FAX 612/344-1635
WWW.SH'NIHON.co )3f) ENEFI N.COM
Ms. Brenda Visnovec
Page 2
May 20, 2011
We are pleased to have the opportunity to submit a supplement proposal to provide professional
services related to the economic impact of Lakeville's Municipal Liquor Operations as described in
the Scope of Analysis section of the modified Request for Proposal. We understand the City of
Lakeville is our client in this matter. The valuation date for the economic impact study will be
current.
PHASE I: SCOPE OF ANALYSIS - ECONOMIC IMPACT STUDY
Shenehon Company will provide a scaled back analysis of Lakeville's Municipal Liquor Operations,
with supporting documentation, in a detailed written report. The analysis will include, at a
minimum:
1) Economic Impacts. Shenehon Company's analysis will address the economic impact of
municipal and private off-sale stores. Our facts and findings will include, but are not limited
to, a discussion of:
a. Specific businesses that will not locate in cities with municipal liquor operations.
b. Whether Municipal Liquor Operations inhibit non- liquor selling retail businesses
from locating to a community.
2) Comparison of Lakeville with Municipal Liquor Operations to the Alternative of
Licensed Private Liquor Stores. Shenehon Company will provide an overview of the City
of Lakeville's current Municipal Liquor Operations and compare it to the two scenarios that
assume Lakeville would relinquish its operations and commence licensure of off -sale liquor
stores. The alternate scenarios are as follows:
a. Scenario 1: Private off-sale stores spaced no closer than 3 4 miles apart in current
commercially zoned areas.
b. Scenario 2: Open licensure of private off -sale stores (no spacing restrictions), in
current commercially zoned areas.
Shenehon Company's analysis under Scenario 1 and Scenario 2 will include a
discussion of financial factors, non - financial factors, and a valuation of assets as
follows:
Financial Factors: At a minimum, our analysis and supporting documentation will
include:
a. Property taxes;
b. Payment -in -lieu of taxes;
c. Financial contributions to the community;
d. Philanthropic endeavors;
e. Licensing fees;
f Other financial factors; and
g. Calculation of the impact on property taxes for the average residential
property and commercial - industrial property.
Ms. Brenda Visnovec
Page 3
May 20, 2011
2) Continued
Non- financial Factors: Shenehon Company will present supporting facts and
analysis based on, but not limited, to the following:
a. Liquor control enforcement;
b. Jobs and employment;
c. Retail practices (i.e., pricing philosophy, product selection, amenities and
service).
c. Scenario 3: Provide an analysis of current net income (cash flow potential)
compared to a scenario of improved tax base with potential new development and
city net asset valuation cash flows (assuming liquidation of assets). The net asset
valuation will be on a modified basis of liquor assets.
3) Shenehon Company's Analysis will include an Executive Summary.
4) Shenehon Company's appraisers will be available to conduct two presentations of their
analyses to the Lakeville City Council.
PHASE II: SCOPE OF ANALYSIS - OPTION A
Continuation of Municipal Liquor Operations
1) Financial Analysis of Current Operations. Shenehon Company will provide a comparative
analysis of Lakeville's Liquor Operations as it relates to similar liquor operations, including,
but not limited to the following considerations:
a. Sales
b. Return on investment
c. Net income
d. Operational efficiencies
e. Debt analysis
E Wage and benefit comparison
g. Other performance factors
2) Factors Impacting a Potential Store Location in the Vicinity of County Road 70 and I-
35. Shenehon Company's analysis will consider at least the following variables:
a. Land availability and cost;
b. Building size and cost; and
c. Profitability/Timing considerations
Ms. Brenda Visnovec
Page 4
May 20, 2011
3) Appropriation of Municipal Liquor Funds: Shenehon Company's appraisal will address
the following items:
a. Legal Authorizations- Discussion of what Liquor Fund net income can/cannot be
appropriated for.
b. Historic Perspective - Historical data relating to the appropriation of Lakeville Liquor
Fund net income.
c. Other Municipal Liquor Operations -Data relating to how the ten largest municipal
liquor stores have appropriated Liquor Fund net income in the past five years.
4) Review of Legislative Initiatives. Shenehon Company's appraisal will include a discussion
of the status of current and recent legislation and initiatives, including an estimate of fiscal
impacts to the community if the legislation were to be approved. Legislative initiatives to
review include, but are not limited to, the following:
a. Wine in Grocery Stores;
b. Sunday Sales; and
c. Elimination of Municipal Exclusivity
i. Partial elimination of exclusivity by allowing competition in a portion of a
municipal liquor city (i.e., freeway zone).
5) Analysis of leasing vs. owning the facilities; which is cost beneficial.
6) Shenehon Company's Analysis will include an Executive Summary
7) Shenehon Company's appraisers will be available to conduct two presentations of their
analyses to the Lakeville City Council
PHASE II: SCOPE OF ANALYSIS - OPTION B
Sale of Liquor Store Assets
1) Valuation of Assets
Shenehon Company will provide written appraisals in a summary report format fo
the following stores:
• Lakeville Liquors Galaxie
• Lakeville Liquors Heritage
• Lakeville Liquors Kenrick
Shenehon Company's appraisals will present the values of the existing municipal liquor
stores' assets including, but not limited to, buildings, land, fixtures, inventory, and
goodwill under the aforementioned scenarios. The values of these assets will be
presented in a summary report format using all relevant approaches to value, and will
contain a summary of all information significant to the solution of the appraisal problem.
Ms. Brenda Visnovec
Page 5
May 20, 2011
1) Continued
All supporting data will be retained in our workfile and may be viewed by the client at
any time. The appraisal reports will comply with Uniform Standards of Professional
Appraisal Practice (USPAP) guidelines and Revenue Ruling 59 -60.
2) Transition Plan Shenehon Company will delineate the cost and process involved in getting
out of the municipal liquor store business.
3) Shenehon Company's Analysis will include an Executive Summary.
4) Shenehon Company's appraisers will be available to conduct two presentations of their
analyses to the Lakeville City Council.
THE PROJECT TEAM
Curriculum vitae and licenses for the real estate appraisers and business valuation analysts for this
assignment are attached. Team members, along with a brief summary of his /her experience, are
listed below:
Robert J. Strachota, MAI, CRE ® , MCBA, FIBA, President
• Accredited in both real estate appraisal and business valuation
• Certified General Appraiser, Minnesota License No. 4000882
• Thirty years of experience and National Chairman of the Board of the Institute of Business
Appraisers
William C. Herber, CBA, Senior Vice President & Treasurer
• Accredited in both real estate appraisal and business valuation
• Certified General Appraiser, Minnesota License No. 4000874
• Twenty -five years of experience and National Chairman of the Professional Responsibility
Board of the Institute of Business Appraisers
Scot A. Torkelson, CBA, Vice President
• Accredited in both real estate appraisal and business valuation
• Certified General Appraiser, Minnesota License No. 4000883
• Twenty -four years of experience
Andrew T Donahue, Managing Director
• Accredited real estate appraiser
• Certified General Appraiser, Minnesota License No. 20563302
• Six years of experience
Christopher) Stockness, Senior Real Estate Appraiser
• Accredited real estate appraiser
• Certified General Appraiser, Minnesota License No. 20458763
• Eight years of experience
Ms. Brenda Visnovec
Page 6
May 20, 2011
PRIMARY CONTACT
William C. Herber, CBA
Senior Vice President
Shenehon Company
88 South Tenth Street, Suite 400
Minneapolis, Minnesota 55403
Phone: 612.333.6533
Fax: 612.344.1635
Email: BHerber @Shenehon.com
SIMILAR PROJECTS COMPLETED BY SHENEHON COMPANY
Shenehon Company has a substantial amount of experience applicable to this assignment. During
many of our valuation assignments, the question of the economic impact of municipal ownership vs.
private development has been considered and answered. During the last 20 years we have regularly
valued the business and real estate assets of municipal and private liquor stores. We completed a
similar assignment for the City of Eden Prairie in 2003. Although less comprehensive, the Eden
Prairie assignment included many of the same elements specified in the current City of Lakeville
Request for Proposal.
METHODOLOGY FOR ACCOMPLISHING TASKS AND TIME LINE*
*Assumes engagement by June 9, 2011
PHASE I
1) Economic impacts.
• Research data
• Draft analysis
2) Comparison of Lakeville with municipal liquor operations to the alternative of licensed
private liquor stores.
• Research
• Draft analysis
3) Preliminary Report Draft to the Lakeville City Council 8/30/ 2011
PHASE II
OPTION A:
Continuation of Municipal Liquor Operations
OPTION B:
Sale of Liquor Store Assets
Draft to Lakeville City Council 9/30/2011
Draft to Lakeville City Council 9/30/2011
Ms. Brenda Visnovec
Page 7
May 20, 2011
QUALIFICATIONS OF SHENEHON COMPANY
Shenehon Company is well - suited for this assignment. Not only do we have the necessary
experience, we also understand the difference between municipal liquor stores and privately -owned
liquor stores. Additionally, we recognize the influence each has on the community in which it is
located. Our experienced senior staff members have accreditation in both real estate appraisal and
business valuation. We have the ability to handle complex assignments such as this. Additionally,
the financial analysis specified in the Scope of Analysis in the Request for Proposal is a routine
component of our business valuation assignments. We have a large enough staff to complete the
required tasks on a timely basis.
DESCRIPTION OF THE FIRM
Shenehon Company is a real estate and business valuation firm serving both the public and private
sectors. Our geographic concentration is in the Upper Midwest; however, our services continue to
expand throughout the country. We have worked in over 40 states and are qualified to work in any
state. Our appraisers have permanent licenses in Minnesota, Wisconsin, South Dakota, Arizona,
Colorado, and Florida. If a property is in a state where we are not permanently licensed, we can
secure a temporary license to appraise in that state. Shenehon Company is dedicated to providing its
clients with quality valuations prepared by knowledgeable appraisers and analysts. Staff members
incorporate extensive and ongoing education with practical experience performing a wide variety of
real estate and business valuations.
TECHNICAL QUALIFICATIONS
Several of our appraisers hold designations from the following organizations: The Counselors of
Real Estate (CRE The Institute of Business Appraisers (CBA, MCBA, and Fellow), the Appraisal
Institute (MAI), and the American Society of Appraisers (ASA). These designations are highly
regarded in the appraisal industry. Our appraisers are also members of various boards and trade
associations. Many of our appraisers have earned finance, business, and real estate degrees, as well
as master's degrees in real estate and business administration. Our senior appraisers serve as review
appraisers, arbitrators, mediators, commissioners, special magistrates, and lecturers. Over the years,
our appraisers have published articles in local and national trade journals.
BUSINESS VALUATION EXPERTISE
We are a multi - discipline valuation firm with expertise in the valuation of ESOP/ESOTs, companies
for sale /purchase, public /private offerings, dissenting shareholder interests, limited partnerships,
buy /sell agreements, and minority interests. We have a reputation for providing our clients with high
quality appraisals and a history of providing valuation analyses and testimony which withstand the
scrutiny of the courts. For example, in the Estate of Eugene Berg vs. Commissioner, the Federal Tax
Court accepted our discount methodology; this case is notable because it ultimately raised the
standards for industry experts and was included in the IRS Valuation Guide for Income Estate and
Gift Taxes to be used by agents when reviewing appraisals. We were equally successful in the Estate
of Ray A. Ford vs. Commissioner, which consisted of four real estate holding companies and one
Ms. Brenda Visnovec
Page 8
May 20, 2011
operating company; in that case, the court again relied on our methods for determining minority
discounts. We also testified in the Estate of Lucile McCormick vs. Commissioner valuing a minority
partnership interest in subdivided land using minority and lack of marketability discounts. Here, too,
we obtained a favorable outcome for our client.
REAL ESTATE VALUATION EXPERTISE
Our real estate valuation assignments encompass a variety of property types, such as commercial,
industrial, multiple- family, residential land, and special purpose properties. We are experienced in
appraising property for a variety of uses, such as financing /recapitalization, condemnation, marriage
dissolution, tax appeal, special assessment appeal, feasibility analysis, investment counseling,
potential sale and purchase, lease and rental analyses, bankruptcy, charitable donation, internal
management decisions, purchase price allocation, contamination impact studies, and railroad rights -
of -way. In real estate valuation, we also have a reputation for providing our clients with high quality
appraisals and a history of success in the courts. One of our areas of expertise is valuing the benefit
of special assessments, which are very difficult to win. In Sienna Corporation vs. City of Shakopee,
our valuation and testimony were relied upon by the Minnesota District Court, and our valuation was
subsequently reviewed and affirmed by the Minnesota Court of Appeals. Recently, the court relied
on our appraisal methodology and testimony in two other special assessment cases, Hillcrest
Development, LLLP vs. City of Minneapolis and SJC Properties LLC, et al. vs. City of Rochester.
Both cases resulted in favorable outcomes for our clients.
SPECIAL QUALIFICATIONS
We have previously valued municipal liquors stores similar to the subject businesses; therefore, we
have the knowledge and experience to meet the competency provision outlined in USPAP and
Revenue Ruling 59 -60. Shenehon appraisers have testified for many purposes, such as tax appeals,
condemnation proceedings, special assessments, marriage dissolutions, and the like. We have
provided testimony in Minnesota District Court, Federal Court, Federal Tax Court, U.S. Court of
Claims, Public Service Commissions, and numerous other courts throughout the United States.
Appraisal reports prepared for litigation purposes comprise a significant portion of our practice. Our
experience with the IRS allows us to work with the Department of Labor, which oversees ESOPs
from a credibility standpoint. Our methods are recognized and respected, and our analyses are
carefully considered by the courts.
WHY SHENEHON COMPANY SHOULD BE CHOSEN FOR THIS ASSIGNMENT
• We have valued both the real estate and business portions of municipal and private liquor stores
on a regular basis for the last 20 years.
• We completed a similar project for the city of Eden Prairie in 2003 (although not as
comprehensive).
• Shenehon Company can handle complex assignments like the proposed because of our senior
staff which is accredited in both the real estate appraisal and business valuation professions.
Ms. Brenda Visnovec
Page 9
May 20, 2011
• The financial analysis requested in the Scope of Analysis is a standard component of our business
valuation assignments.
• We understand the difference between municipal liquor stores and privately owned liquor stores,
and the influence each has on the community in which they are located.
• We have a large enough staff to complete the tasks required on a timely basis.
CONSULTING AND APPRAISAL FEE STRUCTURE
Shenehon Company bills on an hourly basis. Our rates range from $100 to $420 per hour. The fee
estimate below is based upon the number of hours we think will be necessary to complete the
assignment. We keep detailed timesheets for each job and that information is available to you upon
request.
Our fee estimate for this assignment is as follows:
PHASE I:
Written Economic Impact Analysis in a Consulting Report Format per Outlined Scope
TOTAL FEE - PHASE I (all inclusive maximum price for analysis not to exceed): $25,000*
*This fee includes all direct and indirect costs, as well as all out -of- pocket expenses.
PHASE II: OPTION A (Continuation of Municipal Liquor Operations)
Factors Impacting a Potential Store Location in the Vicinity of Cty Rd 70 & I -35 $ 5,000
Appropriation of Municipal Liquor Funds $ 6,000
Executive Summary $ 750
TOTAL FEE - OPTION A: $11,750
PHASE II: OPTION B (Sale of Liquor Store Assets)
Valuation of Assets:
a. Lakeville Liquors Galaxie ($3,250 /Real Estate; $3,750 /Business * *)
b. Lakeville Liquors Heritage ($3,250 /Real Estate; $3,750 /Business * *)
c. Lakeville Liquors Kenrick ($3,250 /Real Estate; $3,750 /Business * *)
Total Fee - Valuation of Assets:
$21,000
Transition Plan $ 1,500
Executive Summary $ 500
TOTAL FEE - OPTION B: $23,000
* *These fees may be excluded from the assignment; however, to determine the impact on the
City if closed, the business values of the liquor stores should be included.
Ms. Brenda Visnovec
Page 10
May 20, 2011
The assignment will be completed as outlined earlier in this fee proposal, assuming all requested
documents and information are received in a timely manner. We will send a document and
information request upon authorization to proceed with the assignment.
Thank you for considering Shenehon Company for your appraisal needs. If you have any questions
or comments, please call us at 612.333.6533. We look forward to the opportunity to be of service to
you.
Sincerely,
SHENEHON COMPANY
William C. Herber, CBA
Senior Vice President
License No. 4000874
Certified General Appraiser
Robert J. Strachota, MAI, CRE MCBA, FIBA
President
Minnesota License No. 4000882
Certified General Appraiser
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Enclosures
cc: Andrew T. Donahue, Shenehon Company
We, William C. Herber, Senior Vice President of Shenehon Company; and Robert J. Strachota,
President of Shenehon Company, certify that we are: 1) entitled to represent Shenehon
Company; 2) empowered to submit this bid; and 3) authorized to sign a contract with the City of
Lakeville.
CERTIFICATION
May 20, 2011
William C. Herber, CBA Date
Senior Vice President
Minnesota License No. 4000874
Certified General Appraiser
May 20 2011
Robert J. Strachota, MAI, CRE , MCBA, FIBA Date
President
Minnesota License No. 4000882
Certified General Appraiser
APPRAISAL CONTRACT CONDITIONS
Shenehon Company warrants that the services will be performed in a professional
manner, in accordance with established appraisal industry standards. The firm makes no
further warranty of any kind, expressed or implied.
2. Disclosure of the contents of this appraisal report is governed by the bylaws and
regulations of the professional appraisal organizations with which various appraisers in
the firm are affiliated. These include the Appraisal Institute, the Institute of Business
Appraisers, the American Society of Appraisers, and The Counselors of Real Estate ®.
Shenehon Company will preserve the confidential nature of information received from
the client, in accordance with established appraisal industry standards. The client agrees
to preserve the confidential format and content of the appraisal report. The report and the
appraiser's identity may not be used in whole or part, outside the client's organization,
without prior written approval, except for review by auditors and legal counsel, and by
the representatives of taxing authorities.
4. The persons authorizing the engagement on behalf of the client and Shenehon Company
are empowered to do so.
5. The client agrees that Shenehon Company does not, by entering into this contract or by
performing the services rendered, assume, abridge, abrogate, or undertake to discharge
any duty of the client to any other entity.
6. Any use of the appraisal report, by the client, is conditioned upon payment of all fees in
accordance with the agreed terms.
The fee charged for the appraisal is not contingent upon values concluded by Shenehon
Company or any future event such as the securing of financing.
8. The proposed delivery schedule indicated in the engagement letter (unless otherwise
stated) assumes that:
a. Written authorization and/or the retainer are received by a specified date or in a
timely manner.
b. All information requested by Shenehon Company is readily available or provided
by the client in a timely manner.
c. The appraisers employed by Shenehon Company will have ready access to the
property to be appraised.
9. All fees set forth in the engagement letter are due and payable upon completion of the
specified assignment regardless of whether the valuation conclusions reached coincide
with the client's expectations.
10. No opinion is intended to be expressed for matters that require legal or other specialized
expertise, investigation, or knowledge beyond that customarily employed by appraisers in
the evaluation of real estate or businesses.
11. Unless specific conditions are brought to the appraiser's attention, the appraiser will
assume that there are no hidden or unexpected conditions of the asset to be appraised that
would adversely affect or enhance the value.
12. Hazardous substances, if present within a property or business operation, may result in an
actual or potential liability that will adversely affect the marketability and value of the
asset. Such liability may be in the than of immediate recognition of existing hazardous
conditions or future liability that could stem from the release of currently known
hazardous contaminants.
In the development of the opinion of value, no consideration will be given to such
liability, or its impact on value, unless Shenehon Company is specifically retained to
perform or prepare an environmental or toxic contamination analysis. Nonetheless, in the
event that such a report is prepared, the client releases the appraiser from any and all
future environmental liability.
13. If Shenehon Company is compelled to produce documents or testify regarding work
performed, the client will reimburse the appraiser for all costs and expenses incurred.
14. In consideration for performing the services rendered at the fee charged, Shenehon
Company expressly limits its liability to five (5) times the fee amount paid or $100,000,
whichever is less.
15. Shenehon Company expressly disclaims liability as an insurer or guarantor. Any persons
seeking greater protection from loss or damage than is provided for herein should obtain
appropriate insurance.
16. The client will indemnify and hold Shenehon Company and its employees harmless
against all claims by any third parry or any judgment for loss or damage relating to the
performance or nonperformance of any services by the appraisal firm.
17. In the event of a dispute involving interpretation or application of this agreement, the
parties agree that this agreement will be govemed under the laws of the state of
Minnesota.
18. Shenehon Company reserves the right to assess interest charges on all unpaid accounts.
19. Shenehon Company reserves the right to refuse an assignment if a party other than the
addressee of the letter signs the engagement letter.
20. Shenehon Company reserves the right to assess for any collection time incurred.
21. Liability for appraisal fees is the responsibility of the party signing the appraisal contract
or the organization on whose behalf the individual is signing.
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22. Shenehon Company and/or the appraisers are not qualified to render expert opinions
regarding structural issues, water damage, environmental assessments (such as mold),
engineering /mechanical issues, ADA and/or building code compliance, land planning,
architectural expertise, soil conditions, audit/accounting opinions, legal opinions, credit
opinions, or federal /state tax matters. If requested, Shenehon Company will recommend
qualified experts in these fields to assist the client and /or advance the appraisal process.
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