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Memo- Consideration of Changes to the Commercial Rehab Loan & Facade Grant Programs PLANNING & ECONOMIC DEVELOPMENT Memorandum To: Honorable Mayor and City Council Copy: Steve Mielke, City Manager From: Jim Hartshorn, Economic Development Coordinator _ .~. Date: January 8, 1997 Subject: Consideration of Changes to the Commercial Rehab Loan & Facade Grant Programs I. PURPOSE OF MEMO To review possible changes to the Commercial Rehab Loan and Facade Grant Programs. 11. OVERVIEW At a joint meeting between the City Council and Planning Commission on October 8, 1996 it was requested of staff to review and revise the Commercial Rehab Loan and Facade Grant Programs. III. PRIMARY ISSUES TO CONSIDER Why make changes to the current programs? What are the changes that staff is considering? What are the basic guidelines of the present Commercial Rehab Loan Program? • Historical Analysis of the Commercial Rehab Loan and Facade Grant Programs? • What is the source of funding for these programs? • What future actions are required? PRIMARY ISSUES TO CONSIDER o Why make changes to the current programs? The primary reason for changing the Commercial Rehab Loan program is the reduction of the 1997 budget. The budget for this program was reduced from $100,000 in 1996 to $50,000 in 1997. Memo to the Mayor and City Council, January 8, 1997 -Page 2 The reason for changing the Facade Grant program is that staff feels the $5,000 maximum per applicant is too much for this type of program. Staff also feels that the Commercial Rehab Loan and the Facade Grant programs can oe more effective if they are managed as two separate programs. o What changes to the Commercial Rehab Loan Program is staff considering? • Maximum loan amount changed to $25,000 • Term changed to a maximum of 12 years • New application • More effective monitoring strategy • Loan documents (a list of loan documents will be added to the guidelines) o What changes to the Facade Grant Program is staff considering? Currently, the maximum grant amount equals $5,000. Staff is considering changing the maximum amount to $3,000. o What are the current guidelines of the Commercial Rehab Loan Program? Presently, the program guidelines are as follows: Maximum loan amount--$50,000, requires matching amount of funds from a private developer on adollar-for-dollar basis. Minimum loan amount is $5,000. Loan amount may not exceed eighty percent (80%) of the market value of the property upon completion of the rehab project. Interest rate is 3 percent below current prime rate. Terms of the loans are 15-year maximum for real estate and 1 to 7 years for equipment. o What are the historical analyses of Commercial Rehab Loan and Facade Grant programs? • Facade grants approved in 1996 & 1995 include: 1996 Boston Garden $ 5,000 1996 Stempel & Schmidt/Creative Lan $ 4,074 1995 Oid Republic National Title $ 5,000 1995 Apparel Master Cleaners/Hollers $ 5,000 1995 Hopkins Best Steak House $ 5,000 1995 Metro Elevator, Inc. $ 5,000 1995 Abe's Restaurant & Deli $ 5,000 Memo to the Mayor and City Council, January 8, 1997 -Page 3 a • Commercial Rehab Loans approved in 1996 & 1995 include: 1996 Lommen Partnership $200,000 1996 Ed Hanlon $ 67,539 1995 Dale Feste $ 15,000 o What is the source of funds for these programs? Tax increment is used to fund the Commercial Rehab Loan. The Facade Grant is funded through either the Economic Development Fund, or Tax Increment reserves. o What future actions are required? The HRA Board needs to review staff considerations at the work session on January 14, 1997, and schedule a future meeting for action. IV. CONCLUSION Staff is considering the above mentioned changes to the Commercial Rehab Loan and the Facade Grant programs. V. ATTACHMENTS List of loan documents that will be added to guidelines t Loan documents that will be added to the Commercial Rehab Loan Program Guidelines: Loan Documents. The following loan documents are to be executed by the Borrower and delivered to the HRA as a condition to funding the commercial rehabilitation loan. In appropriate instances, certain loan documents may be waived. but at the sole discretion of the HRA. All loan documents shall be prepared by legal counsel for the HRA and shall contain such terms, conditions and provisions as are required by the HRA and its legal counsel. The Borrower shall pay all attorneys' fees incurred by the HI2A in connection with the approval, processing and closing of the commercial rehabilitation Loan: 1. Promissory, Note. A Promissory Note in the full amount of the commercial rehabilitation loan. 2. Morteaee. A Mortgage, Security Agreement and Fixture Financing Statement. The Mortgage, Security Agreement and Fixture Financing Statement shall contain an environmental warranty and indemnification agreement whereby the Borrower indemnifies the HRA from any and all ::abilities associated with hazardous substances, contamination or environmental concerns affecting the security property. 3. Assignment of Leases. An Assignment of Leases assigning all leases affecting the security property as collateral security for repayment of the commercial rehabilitation loan. d. Estoppel Certificate. Subordination Agreement. Estoppel Certificate(s) and Subordination and Attomment Agreement(s) from each tenant of the subject property. 5. Guaranty Agreement. A Guaranty Agreement from each required Guarantor of the commercial rehabilitation loan. 6. Escrow Agreement. If the proceeds of the commercial rehabilitation loan are to be used to fund the cost of improvements to be completed after loan closing, Borrower shall execute an Escrow Agreement whereby the full amount of the loan proceeds will be escrowed with the title insurer providing the mortgagee's title insurance. The Escrow Agreement shall contain such terms and conditions as are acceptable to the HRA and the title insurer and shall provide that loan proceeds are to be released only upon evidence of completion of improvements satisfactory to the HRA and title insurer. 7. Intercreditor Agreement. If the commercial rehabilitation loan is to be subordinated to any prior mortgages, the Borrower, prior mortgage holder and the HRA shall execute an Intercreditor Agreement or Subordination Agreement containing such terms and conditions as shall be required by the HRA including, but not limited tc, the prior mortgage holders' consent to the commercial rehabilitation loan and such other provisions as shall be requested by the HRA to protect the security of the commercial rehabilitation loan. 8. Financing. Statements. Uniform Commercial Code Financing Statements perfecting the security interest granted to the HRA in any personal properpty to be pledged as collateral security for the commercial rehabilitation loan. 9. Security Agreement. If the collateral for the commercial rehabilitation loan is personal property, a Security Agreement granting the HRA a valid first security interest in such collateral. 10. Landlord's Agreement. If the collateral for the commercial rehabilitation loan is personal property located on premises owned by a party other than the Borrower, Borrower shall be required to provide a Landlord's Consent Agreement from the property owner acknowledging the HRA's rights in the collateral, including the right to enter the property on which the collateral is located for the purpose of assembling and repossessing such collateral. 11. Personal Guarantee. 12. Other documents. Other documents may be added as staff deems necessary.