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CR 91-221 Prelim Application - Hopkins HouseY G A. ti 5 October 7, 1991 0 P K`� Council Report: 91 -221 PRELIMINARY APPLICATION ECONOMIC DEVELOPMENT FUND RE: HOPKINS HOUSE Proposed Action. Staff recommends adoption of the following motion: Move to approve preliminary economic development fund application by Hopkins House Hotel Corporation subject to staff conditions. With this action, the applicant will be able to submit a formal Economic Development Fund application if they so desire. overview. On October 1, the Hopkins House was sold by U.S. Life to Hopkins House Hotel Corporation. This is a newly formed corporation organized to purchase this property. Dave Hayes is the president, and there are a number of investors. In order to reopen the motel and bar /restaurant, the new owner is anticipating improvements at a cost of approximately $300,000. Mr. Hayes is proposing to finance these improvements basically as follows: o Equity - $100,000 o City loan - $125,000 o Equipment leasing - $75,000 If the City /HRA did decide to participate in financing the improvements for this project, the funds would come from 'the Economic Development Fund. The first step in this process is City Council review of a preliminary application. If approved, the applicant could submit a formal application for consideration and approval. Primary Issues to Consider. o What is the purpose of the preliminary application? o What are the specifics of the project? o What is the amount of the funds being requested? o What will be the use of these funds? o What is the purpose of the Economic Development Fund? o Does this project meet the guidelines of the Economic Development Fund? o What are the conditions recommended by staff? o Future action required? Supporting Documents. o Misc. application information o Economic Development Fund Policy J,Ames D. Kerr.�lgan, Planning and conomic Deve opment Director Council Report: 91 -221 Page 2 Primary Issu s to Consid r Based on the action requested, the City /HRA has the following issues to consider: o What is the purpose of the preliminary application? The preliminary application allows the Council /HRA to.review the concept of the project and the request to determine if there is an interest to have staff continue to work with the applicant to develop a formal application. o What are the specifics of the project? The applicant is proposing to refurbish' the hotel and bar /restaurant area in conjunction with the reopening of this facility. Approximately $300,000 in renovation work would be split approximately equally between the hotel and bar /restaurant areas. The applicant has already started some of this work in order to facilitate a hotel opening by the middle of October. He is anticipating the restaurant /bar area would be opening sometime, in mid- November. o What is the amount of funds being requested? The applicant is requesting $125.,000. This is the same amount proposed in the preliminary Economic Development Account Fund application approved by the City Council in February of this year for American Hospitality Company to undertake renovation of the - same facility. To date, no loan terms have been negotiated with the applicant. o What will be the use of these funds? The preliminary application as submitted by the applicant identifies the use of the Economic Development funds to help refurbish the rooms, pool area, bar /restaurant, and banquet rooms. Repair or replacement of the mechanical systems is also identified as a possible expenditure. o 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 financing tools to facilitate development activities which do not have other sources available. Monies from this fund are used to finance projects that are difficult or not logical to undertake with other sources of financing. This project would be the first funded through this program. Council Report: 91 -221 Page 3 n 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 is eligible as detailed under the defined guidelines. o What are the conditions as recommended by staff? If this action is approved, staff would recommend that the City Council /HRA specifically condition such approval on the fact that the City /HRA is not obligating itself to approval of a final Economic Development Fund application for this project. o Future action required. If the preliminary action is approved, the applicant will have the option to prepare and submit a formal application for consideration and approval. Prior to any consideration of a formal application, staff will need to review in more detail the financial statements of the applicant and the specific uses proposed for the public funds as requested. Specific concerns which staff has with the applicant's request for funds include: o The applicant's need for public assistance. The Hopkins House Hotel Corporation purchased this property for substantially less than what was being negotiated with previous possible purchasers. Also, they are proposing to undertake less improvements to the building than have been previously identified by other individuals that were interested in the property. Because of these two factors, there is a question as to whether public funds are necessary or at least the amount requested in order to make this a financially feasible project. The applicant has stated financial assistance due to with normal lending sources loan. that they need public the difficulty encountered in securing an improvement o, Ability to repay the loan. As a part of this issue, the staff will need to look at the following: o The proposed operating statement to determine if there will be sufficient cash flow for debt coverage. Council Report: 91 -221 Page 4 o If the City /HRA loan would be collateralized sufficiently should there be a loan default. o Determine the specific activities to be financed with Economic Development funds to ensure that they are eligible as identified within the program. If the applicant receives preliminary application approval, it is anticipated that the final application could possibly be provided to the City Council /HRA on November 5. Alternatives. The City Council /HRA has the following alternatives regarding this issue: 1. Approve the action as recommended by staff. 2. Continue for further information. With this action, it would potentially slow down the ability of the applicant to complete all of the necessary work anticipated to be undertaken. 3. Deny the application. Under this alternative, the applicant would have the following options: o Find another source of funding to complete the improvements to the subject building. o Undertake less improvements than was originally anticipated.