KEDA hears about potential foreign trade zone project

After several years of searching for a client for the FTZ east of International Falls, the KEDA has interest from a new entity, comprised of yet-unnamed local residents, to further develop the site and work to secure tenants who could use the site once the land is build-ready.

“The whole idea is to get these sites ... ready for a tenant,” attorney Steve Shermoen said on behalf of his clients who offered the proposal.

KEDA Director Paul Nevanen said that this project would be “one more step in getting us there,” referring to attracting a client to use the tax-incentivized, rail-adjacent zone for its intended purpose.

“It would have been a challenge for the city, county, KEDA to pull this off,” Nevanen told The Journal, referring to making the site “shovel-ready.” He told the board that the project had hit a plateau, and this may be the next step in moving forward.

This may not be the type of project that many had envisioned for the site, but for several members of the board, interest was peaked as they heard the proposal made Wednesday by Shermoen.

The board voted to further consider the proposal by a committee consisting of KEDA board members Wade Pavleck, Tim “Chopper” McBride and Mike Fairchild. Other parties pertinent to the discussion will be invited to meet with the group, which will make a recommendation on how best to proceed.

Shermoen, who said he was familiar with the time it takes such proposals to pass through government agencies, explained that time is of the essence for his clients and said they are ready to begin work as soon as possible.

The portions of the FTZ being considered for development are known as Lot 3 and Lot 4, which comprise the eastern boundary of the site and run along the Canadian National Railway tracks.

“You’re actually going to have two lots that will be build ready,” Nevanen said. “That’s a huge advantage to have... I mean I would even hesitate to put a time table on how quick we could put someone in there .... that’s a significant challenge to overcome to get it shovel ready.”

In letter to the board, Shermoen proposed that the clients would purchase the two lots for $57,900. During his presentation Wednesday, Shermoen indicated his clients would also consider a long-term lease agreement that would allow them to do much the same project but would allow the KEDA to maintain ownership of the land.

Shermoen’s clients would work to get the site build-ready, leveling uneven terrain among other physical barriers to building on the 18-plus acres.

The estimated cost for the project is more than $5 million. Shermoen assured the board that funding was available to his clients. Labor, including wages and benefits, was estimated at $1.6 million for 39,600 hours of labor, creating essentially 19 full-time jobs for one year. Types of jobs slated include crushing and clearing machine operators, truck drivers, welders, supervisors and office staff. Additionally, equipment costs of around $4 million were anticipated.

“We’re talking high-income jobs that would be local,” Shermoen told the board.

Board alternate Soren Olesen said that even having the short-term jobs would help the local economy and may result in families staying in Borderland rather than moving elsewhere for work.

Whether leasing or purchasing the property, Shermoen’s clients would retain rights to an estimated 300,000 tons of rock that would be blasted from the site to level the ground. This would likely be turned into Class 5 aggregate, appropriate for road construction and other projects.

A time table of 28 months to prepare Lot 3 and 52 months to prepare Lot 4 was included in Shermoen’s proposal to the board, but he noted that the time could be shortened if a tenant was secured.

In addition, the proposal includes a stipulation that the KEDA will have a permanent 10-ton road constructed with water and sewer mains to the proposed lots within one year of securing a tenant.

Part of Shermoen’s written proposal included Koochiching County issuing all permits necessary for wetland mitigation, blasting and building. Pavleck said wetland permits may not be feasible, especially under time constraints. Shermoen said he expected his clients could come up with an alternative proposal if areas currently deemed wetlands in those two lots were not made available for development.

Built into the contract would be wording that would allow the KEDA to retain control over the types of future sub-letting, ensuring that the projects met with KEDA’s stated goals and plans for the FTZ use.

Shermoen said any tenants found by the new entity would be bound by the requirements of KEDA.

“And if KEDA finds a tenant, versus the new entity finding a tenant, they would work with KEDA to put that tenant in there.”

In this scenario, the new entity could sublet the property to tenants they find which would be interested in the improved space. However, Shermoen said his clients would not be able to commit to getting a client with a certain number of jobs.

“This company is not prepared, is not going to be in a position to commit, ‘We promise five years from now we’re going to have X number of full-paying jobs.’ That’s not the nature of the company. The company is going to be more of a construction-type company. They would like to work with the tenant to build their building, do other things, get the site exactly how they want it. It terms of future jobs, it’s not this company. This company would be looking at subleasing to somebody else that would come in here and put a project in.”

Once the site is build ready, if no clients had yet been located, there would be two groups — KEDA and the company — seeking a client for the FTZ, said Shermoen.

“... the more people that are searching the better,” Shermoen said. “I think another advantage is that sometimes companies would prefer to work with private entities rather than governmental entities because when you’re dealing with a governmental entity, there’s always at least the perception if it’s not true that there’s all kinds of red tape ... and everything is public and you read about it in the paper. And a lot of companies get turned off by that.”

With little time to react to the proposal, board members were unwilling to take action Wednesday, except to set up a committee. And while he understood the time constraints, Pavleck reiterated that certain steps need to be followed in considering the project.

“A committee would be the first step in that,” Pavleck said in moving to set up the group. “The end product is a developer’s agreement.”