CR 91-234 Fund Application - Hopkins Housek
October 7, 1991 Council Report: 91 -234
ECONOMIC DEVELOPMENT FUND APPLICATION
RE: HOPKINS HOUSE
Proposed Action.
Staff recommends adoption of the following motion: Move to
approve economic development fund application by Hopkins House
Hotel Corporation subject to staff conditions.
Ov rview.
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 City Council /HRA has approved the
preliminary application. A formal application has now been
submitted for consideration and approval.
Primary Issues to Consider.
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 terms recommended by staff?
o Is there sufficient security?
o What are the conditions recommended by staff?
Supporting Documents.
o Misc. application information
Economic Development Fund Policy
Ja es . Kerr an, Planning and
Economic Devd1opment Director
Primary Issu s to Consider
Council Report: 91 -234
Page 2
Based on the action requested, the City /HRA has the following
issues to consider:
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.
o What will be the use of these funds?
The preliminary application as submitted by the applicant
identifies the use of the Economic Development Fund 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.
o 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.
Council Report: 91 -234
Page 3
o What are the terms recommended by staff?
Based upon a review of the financial information submitted with
the application, staff is recommending the following loan terms:
o Principal amount $100,000.
o Fifteen -year amortization with five year call date.
Loan term could be renegotiated after five years with
approval of HRA.
o Interest rate 8.5 percent.
In reviewing this application, it was felt by the staff that a
source of funds to undertake the improvements was more important
than the specific terms (i.e. low interest, long amortization).
At the present time it would be very difficult, if not
impossible, for the applicant to secure financing for the
proposed improvements from a private lending institution. A
principal loan amount of $100,000, rather than $125,000, is being
recommended by staff. This is 50 percent of the total fixed
improvements, minus equipment rentals, which conforms to the
Commercial Rehabilitation Program Guidelines.
o Is there sufficient security?
Staff feels comfortable that should the HRA agree to provide
funds for this project, there is adequate protection based on the
following:
o The debt coverage ratio is within an acceptable range.
o The HRA will take a second mortgage position in the
property to secure the loan.
o A personal guarantee by the principal shareholder,
David Hayes, as well as other Shareholders.
a
o What are the conditions as recommended by staff?
1. A liquidation appraisal be provided to the City of
Hopkins /HRA at the expense of the applicant. The appraisal
must be deemed acceptable to the City staff prior to formal
approval and any release of funds.
2. Hopkins House Hotel Corporation agrees to purchase and
maintain hazard insurance, including fire, extended
coverage, vandalism and malicious mischief on all real and
personal property on which liens are taken with a loss
payable endorsement in favor of the City of Hopkins /HRA.
Minimum acceptable coverage shall be: $1,264,500.
Land, building, machinery and equipment, furniture and
fixtures in the amount of full insurable value.
Council Report: 91 -234
Page 4
3. Hopkins House Hotel Corporation agrees to provide and
maintain liability and workers compensation coverage
covering the business operations in Hopkins.
4. Hopkins House Hotel Corporation agrees that, prior to first
disbursement, the City of Hopkins /HRA will be in receipt of
evidence that Hopkins House Hotel Corporation has injected
not less than $300,000 into the project as equity capital
exclusive of leasing contracts in a form acceptable to the
City /HRA staff.
5. Prior to disbursement, Hopkins House Hotel Corporation shall
furnish to the City of Hopkins written evidence that it has
obtained approval of its request for lease financing.
6. Hopkins House Hotel Corporation agrees that, in addition to
any default provisions contained in any other documentation
pertaining to the loan, the City of Hopkins shall have at
its option the right to declare the loan immediately due and
payable should the City of Hopkins deem itself insecure, or
upon Hopkins House Hotel Corporation's failure to comply
with any of the provisions contained above.
7. That the City of Hopkins retain all fees provided by Hopkins
House Hotel Corporation in conjunction with the Economic
Development Fund application to be used as a reimbursement
for administrative expenses.
8. That a personal loan guarantee be provided by Mr. David
Hayes.
9. Hopkins House Hotel Corporation submits a landscape plan
prepared by a registered landscape architect to the City of
Hopkins. Such plan shall be determined acceptable by
City /HRA staff.
10. Disbursements shall be made to Hopkins House Hotel
Corporation upon submission of invoice and lien waivers for
contractors or vendors.
11. Hopkins House. Hotel Corporation shall furnish the City of
Hopkins with a specific breakdown of both the improvements
to be undertaken with the City funds, a breakdown of the
cost estimate of each item, and these items shall be limited
to fixed improvements to the structure.
12. Execution of all documents by both Hopkins House Hotel
Corporation and the Hopkins Housing and Redevelopment
Authority in conjunction with this loan.
Alt rnatives.
The City Council /HRA has the following alternatives regarding
this issue:
Council Report: 91 -234
Page 5
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.
Draft -7/5/80
CITY OP HOPSINSIHOPSINS HOUSING AND REDEVELOPMENT
AUTHOR=
DEVELOPMENT ACCOUNT OUIDELIHES
_purpose:
The City of Hopkins ( "City ") and Hopkins Housing and Redevelopment
Authority ( "Authority") have established a Development Account to assist in
providing a source of fending to be used to foster and promote development
and redevelopment activities within the City of Hopkins. The Development
Account is a revolving fund established by the City and Authority, and
administered by the Authority. The Development Account is intended to
provide an on -going source of funding to be used to reduce the need for or
extend the long-term debt issued in connection with the Authority's
development activities. The Development Account also serves as a
centralized accounting system to provide financial overview and control in
connection with assisted projects and programs.
The purpose of these Guidelines is to set forth in general terms
requirements regarding the funding of the Development Account and use of
funds contained therein. The Authority may modi tY the terms of these
Guidelines at any time; provided,, that any change in Section 11 below shall
require the consent of the City Council
IL m
1?unding of velopent Accounts
The source of funds used to create and to maintain the Development
Account consists generally of the proceeds from the repayment of loans,
other project revenues including payments received from the sale of real
and personal property, reeycled federal and state grants and other funds as
designated from time to time by the City Council of the City and Board of
Commissioners of the Authority. In particular, the following sources of
funds will be used to fund and maintain the Development Account:
A. Interest earnings on various projects and program accounts;
B. Proceeds from the sale or resale of reel and personal property in
connection with development and redevelopment projects;
C. Income derived from the repayment of loans and grants under various
county, state and federal loan and grant programs, including the
Federal Economic Development Grant Program and the Federal
Community Development Block Grant Program;
D. Loan repayments and other program ineome from the following "
programs: Commercial Loan Program, the City's Sign Rehabilitation
Program, and ineome derived from rental properties owned by the
Authority.
1
Other may from • time to dine be .directed to. be aced Development Account by action of the City Council and Au hor; Into -are
of Commissioners. The City Manager and City staff and Ex y Board
and Authority staff are directed to take all actions necessary tVe Director
maintain the fund balance In the Development Account T t y °fund and
funds in the Development Account are subject to restrictions he extent that
by virtue of the source of such funds, the Development A to their use
sub- accounts to ensure that such restrictions as t r � rnet
ceount will met.
e of funds are
IIL Obtea ti vas:
As a matter of policy, the Development Account will only be use d
proposed projects which meet one or more of the following uses: to assist
S
A. To redevelop blighted or under - utilized areas of the community.
B. To meet the following housing - .related uses:
1. To provide a diversity of housing adjacent to the area, a Hopkins
2 . To provide a variety of housing ownership alternatives and
housing choices.
3• To promote affordable housing for low or moderate income
f ndividuab. m e
4 . To promote neighborhood stabilization and revitalization
the removal of blight and the by
stock in residential areas, upgrading in existing housing
C. To remove blight and encourage redevelopment
and industrial areas of the City in order to encourage high sans m levels
property maintenance and private reinvestment in those areas. of
D. To increase the tax base of the City in order to ensure
ability of the City to provide adequate services for its resident whi
Lessening the reliance on residential property tax whi
.
E. To retain Ideal jobs, increase the local ob
in that job base, j base and provide diversity
F. To increase the Iocal business and Industrial
City of Hopkins, market potential of the
G. To provide adequate short term business an
residential parking. and stopper parking and
H. T o encourage additional unsubsidized private development
either directly or through secondary "spinoff" developme .irt the area
To promote the potential future usage of a public tra ns�'
rail line . through maximizing the development t system light
'
adjacent to the sytem stations. Potential of parcels
J. To abet Increased costs of redevelopment over and above those
costs that a developer would incur in normal urban and suburban
development.
K. To accelerate the development process And to achieve development
on sites which would not be developed without this assistance.
L. To meet other uses of public policy, as adopted by the Authority from
time to time, including promotion oft quality urban design, quality
architectural design, energy conservation, decreasing the capital and
operating costar of local government, etc.
IV. Use of Development Acunt
co
The following general guidelines will be followed in connection with the use
of funds from the Development Accounts
A. The types of uses of the Development Account will include, but not
be limited to, the followings (I) the making of loans at interest rates
below or at market rates of interest In order to strengthen the
financial feasibility of proposed projects; (11) the guaranteeing of
loans; (iiii the provision of secondary or gap financing for particular
projects; (Iv) the financing of land acquisition and disposition and the
construction of public improvements and _utilities to aid proposed
projects; (v) administration of economic development programs; and
(vi) any other uses as permitted by applicable law.
13. To the extent possible, funds from the Development Account will be
allocated to a number of projects and programs, thereby reducing the
risk that funds to be repaid will not be available for future use.
C. The Development Account may be used to provide short-term
financing of the public cost of particular projects so as to allow the
sale of bonds to provide long-term financing of such costs at a time
and rate most economically beneficial to the City and Authority.
D. All fends from the Development Account will be adequately secured
by liens, tax increment, letters of credit and other forms of
reasonable security.
E. Every attempt will be made to ensure that all funds from the
Development Account will be repaid with interest at interest rates
established from time to time by the Authority.
3
r.
Mr. Jim Kerrican
Director of Economic Development
City of Hopkins
Hookins, Minnesota 55343
Dear Mr. KerriPan;
September 24,1991
Enclosed are answers to the six inouires on the
pre-apolication form. AIso our check for $100~
1. A mao showing t boundaries of the aroperty,
2. The orolect involves the repairs ant replacements
necessary to reooen a 163 unit hotel/motel and the indoor
pool and the bar and restaurant as well as the banquet
rooms. There are, over 300 parking spaces. The traffic
count is 39,000 cars a day. There is excellent' access from
all directions. We intend to open the hotel and pool tile
first week in Octooer and the bar and bancuet
rooms about November 15, 1991. We estimate the market value
at 1.'600,000 dollars after completion.
3. The site is zoned o rsoerly.
4~ • The Community Develooment funds will be used to help
refuroish the rooms,ocml area,bar,restaurant and the banquet •
rooms. Also the meChanicaI systems .be repaired• or
replaced as we deem necessary. We feel that the project
needs the assistance of Community Development • loan due to
the difficulty we have encountered with normal lendin
• sources in securznp an imorovmen• loan. We feel that the
• project deserves � the assistance because it w�Il he�p restore
an zmoortant amenity to the community and wilI provide many
:loOs to Hopkins residents.
5. • The empty hotel is not• a good advertisement for the
community. It is slowly becominc• an eyesore and is bein•
vandalized. • It •will'be •an improvement to the quality of •
life for resirents • of the area if it is reStored to.-
operation. As tine goes oy it increase in value and
add to the tax hase~ We estimate cross sales of 3,0o0,000
for 1992 which will all be subject to sales tax. When in
full operation we will have created 100 new jobs. Me
Hopkins House has oeen an asset to the City for 28 ysars.
We intend to once ar.ain. make it "the plaoe" for fun and
entertainment anc) clean affordable lodging for the whole
family,.
6. I am the president of the Hopkins House Hotel
Corporation. .I have put together a group of investors to
buy the Hopkins House. I have experience in the hotel
business having owned the HamIine Hotel in St. Paul and the
Holiday Isles Motel in Ft. Lauderdale Florida. Both of
these projects were successful. In addition I have owned
and operated several commercial properties including the 512
Nicollet Mall Bldg. inMpls. None of the investors own over
10 percent of the Corporate stock and none of them will be
adtive in the operation of the property. I have hired John
Okerstrom to assist me in this undertaking. He has 30 years
or more experience in the business includingtwgstints at
the Hopkins House.
I trust that this will suffice to start the process. If
you need anything additional I will supply it to you most
willingly.
Pres. Hopkins House