CR 95-109 Subordination Agreement - Meadow Creek
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June 26, 1995
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Council Rpt #95-109
SUBORDINA TION AGREEMENT - MEADOW CREEK CONDOMINIUMS
Proposed Action
Staff recommends approval of the following motion: Adopt resolution number 95-51 approving a
subordination agreement for Meadow Creek Condominiums.
With this motion, the subordination agreement will be executed and forwarded to the lender.
Overview
The City of Hopkins has the authority to establish housing improvement areas under the Housing
Improvement Act (1994 Minnesota Laws, Chapter 587, Article 9, Section 22 through 31).
Within a housing improvement area, the City can sell bonds to pay for various improvements to
individual housing units and common areas. Those bonds are then repaid through fees imposed
on the owners of the units.
The City has held the necessary public hearings and has authorized the creation of the Meadow
Creek Housing Improvement Area and the fees. An executed development agreement between
the condominium association and the City gives the City a lien on all assets and receivables as
e security in the event of delinquencies.
Because the City will not be selling the bonds for the project until August, the Association is in
the process of securing interim financing through a private lender for the improvements which are
underway. The lender will then be paid back through proceeds of the bond sale. For security, the
lender has requested the City subordinate our lien on the Association's assets until their loan is
repaid.
Primary Issues to Consider
o What are the terms of the subordination agreement?
o How does this affect the City's security?
Supportine Information
o Resolution 95-51
o Subordination Agree
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Subordination Agreement
Council Rpt. 95-109
Page 2
Analvsis of the Issues
o What are the terms of the subordination agreement?
The following are the major conditions of the subordination agreement:
o Maximum loan to association of $800,000
o Subordination of the City's first position security interest in all assets of the Association
until the loan is repaid
o First payment of bond proceeds to be made payable to the Association and the lender
o How does this affect the City's security?
Because the lender will be repaid through the bond proceeds, there is little risk that the lender will
exercise their rights to the assets held by the Association. Legal and financial counsel have
reviewed the agreement and are satisfied with the terms.
Alternatives
The City Council has the following alternatives regarding this issue:
o Approve resolution 95-51 authorizing the execution of the subordination agreement
o Recommend modification of the agreement, subject to approval by the lender,
Association and legal counsel
o Do not approve the subordination request.
If the subordination request is not approved, the association will have to delay construction until
after the bonds are sold making it difficult to complete the project this year.
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CITY OF HOPKINS
Hennepin County, Minnesota
RESOLUTION NO. 95-51
RESOLUTION RELATING TO WESTBROOKE CONDOMINIUM ASSOCIATION;
DEVELOPMENT AGREEMENT; SUBORDINATION.
BE IT RESOLVED by the City Council of the City of Hopkins, Minnesota (City):
Section 1. Background: findings.
1.01. The City has entered into a development agreement between the City
of Hopkins, Minnesota, and Westbrooke Condominium Association (Association),
d/b/a Meadow Creek Condominiums, dated as of May 8, 1995 (Agreement)
relating to the construction of certain housing improvements (Housing
Improvements) on property owned by the Association.
1.02. Under Section 6.7 (f) of the Agreement the City has agreed to
subordinate its rights and interests in assets of the Association pursuant to the
Agreement to assist the Association in obtaining short-term financing for the
Housing Improvements subject to such reasonable terms and conditions agreed
upon by the City and any short-term lender.
1.03. A form of inter-creditor and subordination agreement (Subordination
Agreement) between the City, Association and Americana Bank has been
presented to the Council and is on file with the City Clerk.
1.04. It is found and determined that the terms and conditions of the
Subordination Agreement are satisfactory, consistent with the Agreement and in
the best interests of the City.
Sec. 2. Approvals: authorizations.
2.01. The form of the Subordination Agreement is approved.
2.02. The Mayor and City Manager are authorized and directed to execute
and deliver the Subordination Agreement on behalf of the City.
Adopted this
day of
, 1995.
Charles D. Redepenning, Mayor
ATTEST:
James A. Genellie, City Clerk
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INTER-CREDITOR AND SUBORDINATION AGREEMENT
This Inter-Creditor and Subordination Agreement ("Agreement") is made as of this
day of June, 1995, by and between Americana Bank, a Minnesota banking corporation
("Bank"), with its offices located at 5050 France Avenue South, Edina, Minnesota 55410,
Westbrooke Condominium Association d/b/a Meadow Creek Condominiums ("Association"),
823 Old Settlers Trail, Hopkins, Milll1esota 55343, and the City of Hopkins, Minnesota, a
Minnesota municipal corporation ("City"), with its offices located at City Hall, 1010 South 1st,
Hopkins, Milll1esota 55343.
WHEREAS, the City is a party to that certain Development Agreement between the
City and the Association dated May 8, 1995 ("Development Agreement"); and
WHEREAS, the Development Agreement contemplates the issuance of certain bonds
. by the City for the purposes of raising funds to construct certain housing improvements in the
City of Hopkins; and
WHEREAS, the Association is a Minnesota non-profit corporation, which administers
a statutory condominium, within the City of Hopkins, Minnesota. Pursuant to the terms and
conditions of the Development Agreement, in order to finance the costs of the Housing
Improvements, as defined therein, the City proposes to issue certain bonds as provided in 1994
Minnesota Laws, Chapter 587, Article 9, Section 22 through 31 and to disburse the proceeds
thereof to the Association pursuant to the Development Agreement; and
WHEREAS, as a condition of the Development Agreement, the City has taken a
security interest ("Security Interest") in all of the assets of the Association; and
WHEREAS, prior to the issuance of the bonds and disbursement of the proceeds as
. described above, the Association desires to begin construction of the Housing Improvements,
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as defined in the Development Agreement. As such, the Association has requested a loan from
the Bank in the amount of Eight Hundred Thousand ($800,000.00) Dollars CLoan") in order
to pay for the commencement of the Housing Improvements prior to disbursement of the
proceeds of the bonds pursuant to the Development Agreement; and
WHEREAS, as a condition precedent to making the Loan to the Association, the Bank
will require a fIrst position security interest in all assets of the Association and will require the
execution of this Agreement.
NOW, THEREFORE, for One ($1.00) Dollar and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Each of the above recitals is true and correct.
The City hereby subordinates the lien of its Financing Statement No.
and the Security Interest, as further described at Section 6.7 of the Development
Agreement to the security interest, granted to the Bank by the Association, and the lien of any
financing statement filed hereafter by the Bank, which fInancing statement and security interest
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shall secure a principal amount of not more than Eight Hundred Thousand ($800,000.00)
Dollars.
3. To the extent required pursuant to the Development Agreement, the City's
execution of this Agreement shall constitute consent to the Association for a pledge of the
Association's assets to the Bank in order to secure repayment of the Loan.
4. The parties hereto agree that the initial disbursement of proceeds pursuant to
Article III of the Development Agreement shall be made jointly payable to the Association and
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Bank and shall be used solely for purposes of repaying the Loan.
5. Upon such disbursement of the initial bond proceeds and payment in full of the
Loan, the subordination of the security interest as described herein shall terminate and shall be
of no further force or affect.
6. All the terms of this Agreement shall be binding upon and inure to the benefit
of and be enforceable by the successors and assigns of the parties hereto.
7. This Agreement is being executed in and is intended to be performed in the State
of Minnesota, and shall be construed and enforced in accordance with the laws of such state.
8. This instrument contains the entire agreement between the parties, with respect
to the covenants and promises contemplated herein, and may be amended only in writing,
signed by the parties.
9. All notices herein required shall be in writing and shall be considered given and
delivered personally or mailed by certified or express mail, postage prepaid, to the party to
whom notice is to be given at the addresses set forth below.
10. This instrument may be executed in counterparts, each of which shall be deemed
to be an original and all of which, when taken together, shall constitute one instrument.
11. If any of the terms hereof prove to be invalid or unenforceable under any of the
laws of the State of Minnesota., said invalidity or unenforceability shall not affect the validity
or enforceability of any of the other provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
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AMERICANA BANK, a Minnesota
banking corporation
By:
Its:
WESTBROOKE CONDOMINIUM
ASSOCIATION D/B/A MEADOW
CREEK CONDOMINIUMS
By:
Its:
CITY OF HOPKINS, a Minnesota
municipal corporation
By:
Its: Mayor
By:
Its: City Manager
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