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CR 99-79 Subordination Agreement - Westrbooke Patio Homes CITY OF ~ HOPKINS . April 27, 1999 Council Rpt #99-079 SUBORDINATION AGREEMENT - WESTBROOKE PATIO HOMES Pro Dosed Action Staff recommends approval of the following motion: Authorize the execution of the intercreditor and subordination agreement for Westbrooke Patio Homes. 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 Westbrooke Patio Housing Improvement Area and set the fees. An executed development agreement between the Patio Homes Association and the City gives the City a lien on all assets and receivables as 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? SUDDortin2 Information o ~tercredit~:;an~ s((.riction Agreement -If , . 'I ,', f f ' , I (I ' I ,.( -' -~- Ke....sten lverum Housi Coordinator . Subordination Agreement Council Rpt. 99-079 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$1,200,000 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 Authorize the execution of the intercreditor and 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 August. . - -- -- .-..--- . INTERCREDITOR Ai'fD SUBORDTNA nON AGREEMENT This IntercreditoI and Subordination Agreement (""Agreement'l) is made as of this _ day of , 1999, by and between Norwest Bank Minnesota, National Association, a national banking association ("Bank"), with offices located at 425 East Hennepin Avenue, Minneapolis, Minnesota 55414, Westbrooke Patio Homes Association, Inc_ CAssociation"), 1317 Wagon Wheel Road, Hopkins, Minnesota 55343, aDd the City of Hopkins, Minnesota, a Minnesota municipal corporation ("City"), with its offices located at City Hall, 1010 South First, Hopkins, Minnesota 55343. WHEREAS, the City is a party to that certain Development Agreement between the City and the Association dated April 20, 1999 C~Deve10pment 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 cOIporation, which administers a planned unit development organized WIder Chapter 550 of Minnesota . Statutes, 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 thereofto 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, as defined in the Development Agreement. As such, the Association has requested a loan from the Bank in the amount of One Million Two Hundred Thousand and Noll 00 Dollars ($1,200,000.00) ("Loanl') 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 requiTe a first position security interest in all assets of the Association and will require the execution of this Agreement. NOW, 1HEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: . . L Each of the above recitals is true and correct. 2. The City hereby subordinates its lien, 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 shall secure a principal amount of not more than $10200,000.00. " To the extent required pursuant to the Development Agreement, the City's -'. execution ofthis Agreement shall constitute consent to the Association for a pledge ofthe 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 Bank and shall be used solely for purposes of repaying the Loan. 5. Upon such disbursement ofthe 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 teITIlS of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the SLLccessors and assigns of the parries 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. . -2~ - - -.------.- --- --.---- ------ --- . IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. NORWEST BANK MINNESOTA, NATIONAL ASSOCIA nON By: Its: WESTBROOKE PATIO HOMES AS SOCIA TION, INC_ By: Its: CITY OF HOPKINS, a Minuesota municipal corporation By: Its: . tb1433hl . -3-