CR 91-61 Hopkins House - Economic Development
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February 28, 1991 o P K \ ';I. Council Report: 91-61
HOPKINS HOUSE
ECONOMIC DEVELOPMENT FUND APPLICATION
Proposed Action.
staff recommends adoption of the following motion: Approve
preliminary economic development account fund application by American
Hospitality Company r.e., Hopkins House Proiect. subiect to conditions
as recommended by Staff.
Approval of this action will allow the applicant to continue to pursue
undertaking a financing of the Hopkins House and allow for him to
submit a final application to the HRA for funding.
Overview.
Recently U.S. Life took posession of the Hopkins House through
foreclosure. On 2/21/91 the city was notified that a decision had
been made to not reopen the Hopkins House at this time.
American Hospitality Management Company was originally selected to be
the management firm for the Hopkins House if U.S. Life decided to
reopen this facility. Subsequent to U.S. Life decision to not reopen
this facility, representatives of American Hospitality Management
. Company submitted an offer to purchase this facility.
Part of the proposal submitted by American Hospitality Management
Company details a $150,000 loan to be provided by the City of Hopkins.
In conjunction with this proposal, they have now submitted an
application to the HRA for funding from the economic development
account fund. First step in securing funds from this account 1.S to
receive approval of a preliminary application.
Primary Issues to Consider.
0 What are the specifics of the project?
0 What is the amount of the funds being requested?
0 What will be the use of these funds?
0 What is the purpose of the Economic Development Fund?
0 Does this project meet the time lines of the Economic
Development Fund?
0 What are the terms being recommended by Staff?
0 Is there sufficient security?
0 What are the conditions recommended by Staff?
supporting Information.
0 Background information American Hospitality Management Co.
0 Economic Development Fund Guidelines
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, Planning &
ment Director
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Page 2
Primary Issues to Consider.
Based on the above information, the HRA has the following issues to
consider:
0 What are the specifics of the project?
The applicant is proposing to purchase the Hopkins House from the
present owner, u.s. Life. They would then undertake $420,000 worth of
improvements to reopen the hotel as a Quality Inn. It is anticipated
they would open the hotel four to SlX weeks after they completed
purchase.
0 What is the amount of the funds being requested?
The applicant is requesting $150,000 in loan assistance from the
City/HRA. A term of 6% interest with a 20 year amortization was
originally discussed.
0 What will be the use of these funds?
e The applicant is proposing to use these funds for refurbishing the
restaurant, lounge, pool area, lobby and one hall. Repairs, 1n
addition, will also be made to mechanical equipment. All of this work
is necessary for the structure to meet Quality Inn standards and
requirements.
0 What is the purpose of the Economic Development Fund?
The Economic Development Fund is a revolving fund maintained by the
city and HRA. The development account is intended to provide an
ongoing source of funds to facilitate the city's development
activities.
The primary use of funds from this account is to provide a financing
tool to facilitate development activities which do not have other
sources available. Monies from the fund is used to finance projects
that are difficult or not logical to undertake with other sources of
funding. This project would be the first funded through this program.
0 Does this project meet the guidelines of the Economic Development
Fund?
The proposed activity meets the objectives of the Economic Development
Fund as approved. The proposed use of such funds 1S eligible as
detailed under the defined guidelines.
e 0 Is there sufficient security?
The Staff has reviewed with its consultant the varlOUS financial
statements and proformas as submitted by the applicant for this
project. It is felt that should the HRA agree to provide funds for
this project, that there appears to be sufficient protection against a
loss of these funds. This opinion is based upon the following:
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Page 3
0 There is a 4-1 cash flow to debt ratio. Therefore the
applicants should easily be able to make all mortgage and
loan payments with income generated from the project.
0 The HRA would take a second mortgage in the property to
secure the loan. The assessor presently has an estimated
market value for the subject property of 2.5 million
dollars. American Hospitality Management Company would have
a mortgage of 1.4 million dollars. Therefore, there should
be more than sufficient collateral to secure both the first
and second mortgage positions.
0 What are the terms being recommended by staff?
Based upon a review of the proforma for this project, and meeting with
key staff people of American Hospitality Management Group, Staff would
recommend that if HRA is agreeable to providing public assistance, the
loan be structured in the following manner.
0 Principal amount, $125,000
0 Interest only payment for first twelve months
0 Fifteen year amortization with a five year call date. Loan
terms could be renegotiated after five years with approval
e of HRA. Payment would be based on fifteen year amortization
schedule.
0 Interest rate at Prime of 8 3/4
Staff has reviewed the above terms with a financial consultant and
based upon the proforma analysis, feels that the terms are acceptable.
The above terms are based upon the following:
0 The $125,000 will provide less exposure than the $150,000 as
originally proposed by the applicant.
0 The lower principal amount of the loan would reduce what is
required to be taken from the Economic Development Fund and
therefore leave more of these funds available for other
economic development activities.
0 The interest only payment the first year allows a lower loan
payment by the applicant during the time when cash flow 1S
limited.
0 The project has the ability to absorb the higher interest
rate following the first year of operation. The interest
rate that is being proposed is still below existing market
rates and allows the HRA to secure a reasonable return on
its .funds.
0 What are the conditions recommended by Staff?
Approval of the preliminary Economic Development Fund application for
the subject project is recommended to be conditioned upon the
. following:
1. Submission and approval of a final application. It is
proposed that this application would be considered on March
19 by the BRA.
2. Loan terms as detailed above.
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Alternatives.
The HRA has the following alternatives regarding this issue.
1. Approve the action as recommended by Staff. This will allow
the applicant to continue processing the possible purchase
of the Hopkins House from U.S. Life. It will also allow the
submission and consideration of a final funding application.
2 . Deny this request. Under this action, it will be assumed
that the HRA does not wish to provide any public assistance
for this project. This will require that if the applicant
wishes to pursue this project and they are unable to raise
these additional funds, the project would not proceed and it
is assumed that U.S. Life would close the Hopkins House
until a sale could be facilitated at some future date.
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