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02-26-03 agendaL~ CITY OF RICHFIELD WEDNESDAY, FEBRUARY 26, 2003 SPECIAL HOUSING AND REDEVELOPMENT AUTHORITY MEETING RICHFIELD CITY HALL COUNCIL CHAMBERS 7:00 P.M. AGENDA Call to order HRA approval of agenda 2. Consent Calendar contains several separate items which are acted upon by the HRA in one motion. Once the Consent Calendar has been approved, the individual items and recommended actions have also been approved. No further HRA action is necessary. However, any HRA Commissioner may request that an item be removed from the Consent Calendar and placed on the regular agenda for HI~A discussion and action. All items listed on the Consent Calendar are recommended for approval. A. Consideration of approval of agreement securing Minnesota Housing Finance - .Agency funds to continue HRA s Apartment Remodeling Program S.R. No. 15 Notes: 3. Consideration of "gap" financing for Lyndale Gateway West project; and, if such financing acceptable, consideration of supplemental agreement to Contract for Private Redevelopment with Lyndale Gateway, LLC Staff Report No. 16 Notes: Adjournment Auxiliary aids for individuals with disabilities are available upon request. Requests must be made at least 96 hours in advance to the Administrative Services Director at 612-861- 9702. AGENDA ITEM # 3 REPORT # 16 STAFF REPORT ~ HOUSING AND REDEVELOPMENT AUTHORITY MEETING FEBRUARY 26, 2003 REPORT PREPARED BY: JOxN STAN, COMMUNITY DEVELOPMENT MANAGER NAME, TITLE REPORT PRESENTER: JoxN STARK, COMMUNITY DEVELOPMENT MANAGER NAME, TITLE DEPARTMENT DIRECTOR REVIEW: SIGNATURE REVIEWED BY EXECUTIVE DIRECTOR: ITEM FOR HRA CONSIDERATION: Consideration of "Gap" Financing for the Lyndale Gateway West project; and, if such financing is acceptable, consideration of a Supplemental Agreement to the Contract for Private Development with Lyndale Gatewa , LLC. II. BACKGROUND On August 5, 2002, the Richfield Housing and Redevelopment Authority (HRA) entered into a Contract for Private Redevelopment (Contract) with Lyndale Gateway LLC for the redevelopment of the Lyndale Gateway West area. That Contract did not, however, establish the financing plan for the redevelopment project. This was because many costs (primarily site assembly costs) were not known at that time. In December 2002, the HRA and City Council each approved a funding concept for the project. This funding concept included the issuance of $6 million of bonds for the project, $3 million of which. would be paid off within 3 years using home sales proceeds that the developer would pledge to the HRA and the remaining $3 million in bonds would be paid through tax increment financing in 22 years or less. These bond proceeds had been identified as a funding source for this project area since 2000. The approved funding concepts also assumed a $610,000 grant to the project. The source of this grant was to be the existing bond proceeds that are being serviced by the tax increment financing (TIF) being generated by the Candlewood Hotel Since the initial approval, the developer informed the HRA that the extremely high costs to acquire the commercial property had resulted in a funding shortfall, or gap, of $1.1 million. At its February 18, 2003 meeting, the HRA directed staff and the developer to identify an additional funding mechanism to provide the needed funds for the project to go forward. Staff has identified a method for providing these funds in a manner by which the HRA would be repaid, with interest, for an infusion of $1.1 million into the project. This funding method (which is included as Exhibit A), contemplates that the HRA provide a loan to the project from its "Bonds of 1996" account. The funds in this account have always been intended as an additional funding source for redevelopment projects that otherwise might not be able to occur. The loan from the Bonds of 1996 account would be repaid in two primary ways; first, up to $500,000 from the developer and secondly, the remaining $600,000 (plus 5% interest on the entire $1.1 million) from the tax increment to be generated by the project. Even if the property never appreciates in value, there will be sufficient tax increment to cover the long term bonds and the loan obligations to the Bonds of 1996 -and even retire the TIF district a year early. There are risks to the HRA with the identified gap funding method that is being proposed. Every attempt has been made to minimize these risks where possible. The risks include the following: • The HRA would lose access to $1.1 million of its $1.8 million Bonds of 1996 account for a number of years and the HRA would not have full access to this account for other purposes until full repayment is made (in 22 - 24 years). The developer could potentially go bankrupt and would be unable to pay their $500,000 obligation to the Bonds of 1996. The TIF, however, would be sufficient to cover the developer's obligation within 24 years or sooner if the property were to experience any increases in market value as expected. • The property could depreciate in value. This is not a substantial risk, as the existing substandard property has shown at least minimal increases in market value (albeit at a lesser growth rate than other commercial property in the community). • The legislature reduces class rates, or otherwise disrupts the property taxes that can be collected on this property. This is a risk that all of the redevelopment projects in Richfield face and there would be no easy way to accommodate a large change in the state's property tax structure. If the HRA finds that the proposed gap financing method is acceptable, then the next step would be the consideration of a Supplemental Agreement to the Contract for Private Redevelopment with Lyndale Gateway, LLC (attached as Exhibit B). In addition to incorporating the gap financing that has been described herein, this agreement also spells out the mechanics of the issuance of bond proceeds to the Developer and the manner in which those bonds would be serviced (in conformance with the financing that the HRA. and City Council each approved in December 2002). There would be a number of "pros," or compelling reasons, for funding this project; the primary reason is that sites like this are the fundamental reason that redevelopment exists and if the redevelopment could be wholely self-funding, then there would be no need for an HRA. Other compelling reasons to provide the funding are: • The project itself has been well received by the community. • The project would provide over 100 units of new housing. • There is a definite and undeniable need to redevelop this area. • Without redevelopment this area will continue to decline and probably won't get any less expensive to acquire. • The developer has already received a great deal of interest from commercial tenants and residential buyers. • This funding would be consistent with the funding that was provided to Twin City Christian Homes across the street -they received a TIF note plus a grant of $880,000 plus aloes-interest loan of $330,250. • There is a strong likelihood that no other developer would be interested in attempting a project here for some time if the current proposal failed to occur; • Funding this project would eliminate the uncertainty that residential and commercial property owners have experienced for some time. • If the project didn't go forward, existing property owners have stated their desire fora "redevelopment moratorium" in this area for a set period of time; • If the project didn't go forward, there would be the inability, or impaired ability, to reconstruct this portion of Lyndale Avenue in order to accommodate for the new alignment needed for a reconstructed Lyndale Avenue Bridge. • The need for this funding would not exist if the state legislature hadn't cut property tax class rates (the development would have generated $1.6 million in additional TIF under the old class rates). • Housing .Fund money (being generated by the Urban Village and City Bella projects and hopefully by the Best Buy. project} wilt provide new funding reserves to help future redevelopment/housing projects elsewhere in the community. • The future sales proceeds from the lot adjacent to the Candlewood Hotel (apx. $450,000) plus the tax increment that a new development will generate there will provide new funding reserves to help future redevelopment/housing projects elsewhere in the community. On the other hand, there are a number of "cons," or compelling reasons not to provide the requested funding to the developer, among them are: • It would consume about 61 % of the HRA's Bonds of 1996 -which are designated for use as needed to facilitate redevelopment projects. • If a financing "need" is identified in future redevelopment projects, there would only be $700,000 in the Bonds of 1996 to help address that need. • There is still a possibility that, prior to the HRA actually providing any funds, the costs in the project could escalate and the project might ultimately fail to go forward. • The payback on the HRA's loan would not fully be realized for up to 24 years. • The commercial market has declined in recent times; thereby raising questions about the feasibility of the proposed commercial space and the high costs associated with purchasing the existing commercial property. The Supplemental Agreement contains a "look back" provision to ensure that the developer does not receive public assistance that, once the project is fully developed, exceeds the amount authorized by the HRA. This lookback provision is described in Section 6 of the Supplemental Agreement. In essence, this Section states that the HRA can draw on a $750;000 .letter of credit (established in Section 3.01) for a number of reasons, including: • to pay off any short term bond debt service that remains because the housing units are sold for less than the projected costs; • to withhold in the event that the developer's return on investment (ROt) exceeds 15% (primarily because houses sell for more than projected); • to cover other HRA costs that my be incurred but are not otherwise reimbursed by the developer (because acquisition or relocation costs are high, etc. In no foreseeable set of circumstances would the $750,000 be insufficient to cover these "look back" issues. There has also been a question regarding the return on investment (ROI) that the developer is anticipating in the project. The attached supplemental agreement requires that any ROI over 15% be returned to the HRA, but does not guarantee the developer any rate of return. A 15% ROI is the maximum rate that this same developer would be allowed to earn in their Hopkins redevelopment project and 15% is also the maximum ROI that the HRA is permitting to the Gramercy Corp. in their contract for the City Bella project. III. BASIS OF RECOMMENDATION A. POLICY On August 5, 2002, the HRA entered into a Contract for Private Development with Lyndale Gateway, LLC for the Lyndale Gateway West Area. The Contract, when approved, anticipated that the financing plan would be approved in a later action by the HRA. On December 16, 2002, the HRA approved a conceptual financing plan for the Lyndale Gateway West project. The City Council also approved this financing plan on December 10, 2002. The proposed Supplemental Agreement reflects the terms approved in the conceptual financing plan with the addition of the HRA provision of "gap" financing from the HRA. A decision not to fund the financing gap would probably lead to a situation in which this area continues to decline. B. CRITICAL ISSUES In order for the development to move forward, there must be a resolution to the financing needs within the next week or two. - C. FINANCIAL The HRA and City Council each approved a conceptual financing plan on December 10, 2002. The additional gap financing is necessary for this project to move forward. D. LEGAL Legal counsel has been involved in the gap financing discussions and drafted the attached Supplemental Agreement in cooperation with staff and the developer. IV. ALTERNATIVE RECOMMENDATION(S~ Reject the proposed gap funding. • Approve the gap funding but defer consideration of the Supplemental Agreement until the March 17, 2003 HRA meeting. • Approve the gap funding and approve the attached Supplemental Agreement with additional provisions. V. ATTACHMENTS Exhibit A: Lyndale Gateway West Proposed Gap Financing. • Exhibit B: A supplemental agreement to the Contract for Private Redevelopment with Lyndale Gateway, LLC. A draft agreement is attached; the final agreement to be provided at HRA meeting. VI. PRINCIPAL PARTIES EXPECTED AT MEETING • Colleen Carey, The Cornerstone Group • A representative of Ehlers & Associates • John Dean, Kennedy & Graven Exhibit A Lyndale Gateway West Proposed Gap Financing 1. The HRA would provide an interfund loan of $1.1 million from the Bonds of 1996 to the Lyndale Gateway West project at the time the developer closes on the purchase of properties (July 2003); 2. The HRA would then place a lien, in the form of a second mortgage, on the commercial portion of the property in the amount of $500,000 (less any excess construction funds available to the HRA) that the developer would pay off by December 31, 2016; 3. The stream of revenues from the tax increment would be used in the following order: a. To pay off the long term bonds; b. To pay off the initial $600,000 of debt plus 5 % interest to the Bonds of 1996; c. To pay 5 % of interest applied to the developer's lien to the Bonds of 1996; d. To pay any balance secured by the lien, due on the Bonds of 1996; e. To repay whatever portion of the developer's $750,000 letter of credit that was expended for other costs in the project and/or to bring them up to a 15 % ROI; 4. The developer lien would be reduced, dollar for dollar, with the tax increment payment made under 3d above; 5. The HRA could choose to issue debt against the tax increment, at any time, to pay off any of the remaining $600,000 of debt to the Bonds of 1996; 6. Assuming no market value increases, there would be sufficient TIF to pay all of the obligations (listed in point 3 above} within 25 years - at which time the district could be retired. If there were any annual inflation in the market values of the property, the TIF District could be retired early. Exhibit B ~~~r~ February 23, 2003 SUPPLEMENTAL AGREEMENT TO CONTRACT FOR PRIVATE REDEVELOPMENT THIS AGREEMENT, made and entered into this _ day of , 2003 is by and between THE HOUSING AND REDEVELOPMENT AUTHORITY IN AND FOR THE CITY OF RICHFIELD, MINNESOTA, a Minnesota public body corporate and politic (the "HRA"), and LYNDALE GATEWAY, LLC, a Minnesota limited liability company (the "Redeveloper"). WITNESSETH: WHEREAS, the HRA and Redeveloper entered into a Contract for Private Redevelopment (the "Contract") as of August 5, 2002 relating to the development of land within the Lyndale Gateway West TIF District; and WHEREAS, Section 3.0 of the Contract requires the parties to reach agreement concerning many of the economic issues presented by the project, including, without limitation, how the acquisition of parcels and the relocation of individuals will be financed, what will be the role of the HRA in such financing, and what preconditions and security will be required of Redeveloper for any undertaking of the HRA to provide such financing; and WHEREAS, the HRA, did on December 16, 2002 give approval to the terms of such a separate agreement; and WHEREAS, the Richfield City Council did on December 10, 2002 give concept approval to the issuance by it of $6,000,000 of tax increment backed general obligation bonds to finance the acquisition and relocation costs of the Development; and WHEREAS, subject to the conditions contained herein and in the Contract, the HRA is willing to provide up to an additional $1,710,000 for acquisition, relocation and site preparation costs. WHEREAS, in conformance with the requirements of Section 3.0 of the Contract, the parties wish to enter into this Supplemental Agreement, NOW, THEREFORE, in consideration of the mutual agreements and undertakings of the parties, the parties do hereby stipulate and agree as follows: DRAFT Section 1. Definitions. 1.01 Terms Defined in Contract. Unless the context clearly indicates otherwise, terms used in this Agreement shall have the meaning given to them in the Contract. 1.02 "Bonds" means the general obligation tax increment bonds (whether short or long-term) issued by the City to finance the acquisition and relocation costs of the development, in a net amount not exceeding $6,000,000. It is currently anticipated that two bonds will be sold. One in the net amount of $3,000,000, having a three year maturity and a one year call (Short-Term Bond); and one in the net amount of $3,000,000 having a 20 year maturity with an eight to ten year call (Long Term Bond) The term also includes any bonds issued to refinance the Bonds. 1.03 "HRA Funds" means up to $1,710,000 which will be provided to the Redeveloper by the HRA in accordance with the terms of this Agreement, and used first to pay relocation and acquisition costs in excess of the proceeds from the Bonds, and then to pay other qualifying site preparation costs. The HRA Funds will come from two sources: i). $1,100,000 from an interfund loan ("IFL"), and $610,000 of tax increment from another development ("RCTI"). Section 2. HRA Obligations. In addition to the obligations contained in the Contract, the HRA agrees as follows: 2.01 Financing. The HRA will utilize its best efforts to induce the City to issue the Bonds; and to make the proceeds and the HRA Funds available by not later than July 15, 2003. To that end, the HRA will enter into a tax increment agreement with the City, pledging tax increment from the TIF District to the repayment of the Bonds. The HRA will also pledge or otherwise assign to the City any proceeds it is to receive from the Redeveloper for the sale of housing units. 2.02 Acquisition and Relocation. On December 16, 2002, following a public hearing, the HRA adopted Resolution No. 875, which authorized the use of eminent domain proceedings to acquire certain parcels of land contained in the Development Property. The HRA has not provided relocation notification to any occupants of parcels to be acquired, but will promptly do so upon the written request to the Redeveloper accompanied with security in the form and amount pro vided for in Section 3.01 covering any relocation benefit claims in the event of discontinuance of the project. It is anticipated that such notifications will be made not later than April 15, 2003. ~eAFr Section 3. Preconditions. The HRA shall have no obligation to acquire any property, to request the City to proceed with the sale of the Bonds or use the proceeds from the Bonds or the HRA Funds to pay for acquisition costs or relocation benefits until all of the following have either occurred or been waived in writing: 3.01 Redeveloper Deposit. The Redeveloper's request to the HRA under Section 2.02 to provide relocation notification will be accompanied with a Letter of Credit in a form acceptable to the HRA, and in the amount of $250,000. ("LC#1 ").LC #1 will serve as security for Redeveloper's obligation to pay any claim based on discontinuance of the condemnation action, including claims for relocation benefits. Prior to the sale of the Bonds the Redeveloper will provide the HRA with a replacement Letter of Credit ("LC#2") in the amount of $750,000. LC#2 must be in a form acceptable to the HRA. If either LC#1 or LC#2 contains an expiration date, it must contain a provision that prohibits the issuer or surety from terminating the security without first giving 30 days advance written notice to the HRA of the proposed termination or expiration of the security. Redeveloper must also provide a substitute Letter of Credit within 10 days prior to expiration or termination of the Letter of Credit. Upon failure of Redeveloper to perform its obligations described above, or upon Redeveloper's failure to provide a substitute Letter of Credit, the HRA may immediately draw upon the financial guaranty provided in the Letter of Credit. The Letter of Credit will be applied, expended and released in accordance with Section 6. The HRA in its sole discretion may permit the Redeveloper to satisfy its obligations under this section through the use of a substitute form of security in an amount and in a form acceptable to the HRA. 3.02 Project Feasibility. The HRA, Redeveloper and. the Redeveloper's construction lender have entered into a written agreement on a minimum sale price for each of the residential units. No unit may be sold at a price below the agreed-upon minimum without the consent of the HRA. 2. A market analysis indicates that the units are marketable within a specified time period at not less than the projected minimum prices. 3. The HRA is satisfied that there will be sufficient net proceeds from sales to fully pay the housing portion of the construction loan by the sale of not more than 80% of the housing units. 4. The HRA is satisfied that upon payment of the housing portion of the construction loan to the construction lender, the net proceeds from the remaining unsold units together with the Available Tax Increment from the Development will be sufficient to fully pay the DRAFT Bonds. The formula and assumptions to be used by the HRA in making the calculation are contained in Exhibit A of this Agreement. 5. The HRA is satisfied that the net proceeds from the Bonds and the HRA Funds will be sufficient to pay all of the acquisition and relocation costs. 3.03. Construction Contracts. Redeveloper has entered into binding and enforceable contracts for the construction of all of the Minimum Improvements, and has obtained, or can demonstrate to the reasonable satisfaction of the HRA that it will timely obtain, all necessary permits and approvals for construction of the Minimum Improvements. 3.04 Redeveloper Financing. The HRA is unwilling to expend either the Bond proceeds or the HRA Funds until and unless it is fully satisfied that upon the making of such expenditures, construction of all the Minimum Improvements comprising the Development will be promptly commenced and prosecuted, without delay, to completion. Consequently, the parties agree that the HRA may, without limitation, require, as a precondition to providing any proceeds or funds, that the Redeveloper i) has obtained entered into contracts for the construction of the Minimum Improvements, ii) has closed on financing sufficient for the construction of the Minimum Improvements, iii) that the terms and conditions of such financing relating to funding and disbursement of the construction loan account, and the lender's rights with respect to proceeds from sales of housing units do not impair the interests of the HRA hereunder. 3.05 Assessment Agreements. The parties have entered into an assessment agreement for the residential portion of the Development, and an assessment agreement for the commercial portion of the Development. The combined minimum market values contained in the assessment agreements will be used to make the determination described in section 3.02 (4) above. The commercial assessment agreement will remain in effect for the term of the TIF District, or until the Bonds are paid, whichever occurs first. Individual housing units will be removed from the residential assessment agreement upon the sale of such unit by the Redeveloper to a bona fide good faith purchaser. [Sid: Amounts.] 3.06 Agreements for Other Properties. The Redeveloper has obtained valid agreements for the purchase of all parcels not subject to eminent domain. All such agreements must permit closing not later than the date on which the HRA intends to acquire title to the parcels under condemnation. 3.07 Title Issues. The Redeveloper has provided the HRA with evidence in the form of a commitment for title insurance, or other evidence acceptable to the HRA, to the effect that upon the acquisition of the parcels through QS2~F d condemnation or purchase, that the Redeveloper will have marketable fee simple title to the Redevelopment Property. 3.08 Personal Guarantee. The HRA has received a personal guarantee from the chief manager of the Redeveloper equal to dollar amount equal to the total debt service on the Short-Term Bond.. The Personal Guarantee will be released once the HRA has received all payments due it from the sale of the residential units in accordance with the agreed-upon schedule. 3.09 Other Approvals. Any approvals required pursuant to Section 7 have been obtained. Section 4. Failure of Preconditions. If all of the preconditions have not been met, or waived by the HRA in writing by not later than the date the City approves the sale of the Bonds, but in no event later than June 1, 2003, either party may declare this Supplemental Agreement null and void, and upon such declaration, the Contract will also terminate. Upon such declaration, the Redeveloper's obligation to the HRA shall be limited to the obligation contained in Section 3.2 n of the Contract ("Redeveloper Liabili ."), and Section 3.01 of this Agreement. QRA.Ev Section 5. Proceeds from Unit Sales. 5.01 HRA's Right to Proceeds. The HRA is willing to expend the proceeds from the Bonds and the HRA Funds only if i) it is satisfied that the precondition of paragraph 3.02(4) has been met; and, ii) it has assurances from the redeveloper and Redeveloper's construction lenders that, subject only to the deductions contained in paragraphs 5.02 and 5.03 of this section,, all sales proceeds from the sale of residential units after the housing portion of the construction loan has been paid in full, will be paid over to the HRA and used only to pay principal and interest on the Short Term Bonds. The parties agree, and the Redeveloper's construction lender will be required to agree, that housing unit sales proceeds will never be utilized or pledged to make any payment of principal or interest on the construction loan other than on the housing portion of the construction loan. Unless the parties, and the construction lender agree otherwise, the construction loan documents will contain an allocation of the amount to the construction loan between the housing portion and the commercial portion. .Sales proceeds from the housing unit sales will be expended or placed in a fund to pay principal and interest on the housing portion of the construction loan until the combination of payments and housing sales proceeds in the fund are sufficient to defease the housing portion of the construction loan. Once that point has been reached, and subject to the deductions contained in paragraphs 5.02 and 5.03, all housing unit sales proceeds will be paid over to the HRA to be placed in an account and applied to make scheduled payments of the Short Term Bonds. 5.01 Before Payoff of Housing Portion of Construction Loan. In making the determination provided in Section 3.02 (3) the parties will agree to the allowable deductions that can be taken by Redeveloper from the sales proceeds. Prior to the full payment of the housing portion of the construction loan, the Redeveloper may not retain any further deductions. 5.02After Payoff of the Housing Portion of Construction Loan. Following payment of the full housing portion of the construction loan, the Redeveloper shall be entitled to take additional deductions from the sale proceeds if the remaining amount available to the HRA from a unit sale is equal to 80% of the minimum sale price for the unit agreed to pursuant to Section 3.02 (1), and the following conditions are present: DRAFT 1. The additional deduction is not needed to cover a shortfall in the funds available to make debt service payments on the Bonds which shortfall results from a reduction in the anticipated Available Tax Increment below the amount determined under Section 3.02 (4). Section 6. Allocation of Funds From Letter of Credit. The Letter of Credit will be expended as provided below: 6.01. If the project is discontinued prior to the sale of the Bonds, the Letter of Credit will be applied to cover any relocation or condemnation claims arising out of such discontinuance. The remaining balance of the Letter of Credit will be released once such claims have been resolved. 6.02. Following the sale of the Bonds, the Letter of Credit will be applied first to cover relocation benefits and condemnation awards above the aggregate amount of Bond proceeds and HRA funds available for such purposes ($7,710,000 minus any amounts expended for site preparation). Pending the final determination of all such benefits and awards, the HRA may reserve within the Letter of Credit amounts equal to the amount of the claims. 6.03. Within 10 days following the date that $2,250,000 sales proceeds from housing unit sales have been paid to the HRA, the HRA will __ provide the Redeveloper with an accounting: 1. Showing the total sales proceeds received by the HRA, and the amount, if any of payments made therefrom on the Short Term Bonds. 2. Showing any deviation between the sales proceeds actually received by the HRA and the projections based on Exhibit A. 3. Showing the additional amount of sales proceeds needed, which together with the Letter of Credit will be necessary to fully pay the Short-Term Bonds. 4. Showing the impact on the Long Term Bonds, if any, of any reduction in market values below the sales prices projected in Exhibit A. 5. Showing the amount of reserves remaining under paragraph 6.02. 6. Showing the amount by which the Redeveloper's "Profit Margin" exceeds fifteen percent. Profit Margin means the percentage by which the total funding of the development exceeds the total development costs. 7. Showing the amount of the Letter of Credit that will be applied to: i) reduce the Profit Margin to fifteen percent, ii) to - eliminate the impact of a reduction, based entirely on a reduction in the purchase prices of housing units below the DR.!°~E anticipated minimum market values, in the anticipated taxes needed to pay the. Long Term Bonds and iii) the amount of any deductions to cover reserves remaining in paragraph 6.02, and showing that the remaining amount of the Letter of Credit will be used to make payments on the Short Term Bonds. 8. Showing the amount of sales proceeds in the hands of the HRA that will be released to the Redeveloper. (The amount of Letter of Credit used to pay the Short Term Bonds minus the amount of any negative deviation in subparagraph 2 or the amount of Letter of Credit used to pay the Short Term Bonds plus the amount of any positive deviation in subparagraph 2) Redeveloper` will have 10 days to review and comment on the accounting. And the HRA will present the Redeveloper with a final accounting within five days thereafter. 6.04 Substitution of Funds. During the 10 day comment period described above, the Redeveloper shall also notify the HRA that the Redeveloper will furnish cash to cover all or part of the draw. The Letter of Credit will be released in an amount equal to the substitute cash provided. 6.05 Miscellaneous. 1. Amounts of the Letter of Credit that remain reserved in accordance with Paragraph 6.03(6)iii, beyond the date of the draw made in accordance with paragraph 6.03, and are not used for those purposes will be released. 2. Redeveloper will be issued a limited revenue tax increment note equal to the amount of any payments from the Letter of Credit in accordance with Paragraph 6.03 (6) ii. Payments will begin and interest will accrue on the note only after the payments described in paragraph 7.03 have all been made. The note will not run longer than [22 years from the date of first receipt of tax increment]. Section 7. Additional Provisions-Interfund Loan Proceeds. 7.01 Preconditions. The IFL will be made available to pay acquisition, relocation and site preparation costs only when the preconditions to providing the Bond proceeds and the RCTI have been met. In addition, the Redeveloper will provide the HRA with a mortgage on the commercial portion of the redevelopment property. 7.02 HRA Mortgage. The HRA Mortgage will be in the principal amount of $500,000, will bear interest at the rate of 5% per year from the date of execution. Interest will accrue on the HRA Mortgage until the earlier of: i) December 31, 2016, ii) the date the Redeveloper sells or refinances the Commercial portion of the Redevelopment Property at which time the ~~~' ~p principal balance and all accrued interest will be due and payable; unless the HRA in its sole discretion elects to defer all or a portion on the principle and/or interest. The HRA Mortgage will be subordinate to the lien of any construction financing for construction of the Minimum Improvements, and the mortgage placed on the commercial portion by Redeveloper to finance payment of the construction financing. 7.03 Mortgage as Security. The HRA Mortgage is intended as security for repayment of the IFL. To that end, if the Available Tax Increment generated by the Redevelopment and paid to the HRA is not sufficient, by not later than , [22 -year date ] to: i) pay the Long-Term Bonds, ii) pay principal and interest (_%) on the IFL, and, iii) to pay interest on the HRA Mortgage, then the HRA will be entitled to use so much funds payable under the HRA Mortgage as are required to cover all such deficiencies. Section 8. Additional Approvals. 1. HRA Funds. Availability of $1,200,000 of the HRA Funds may require a modification of a tax increment financing plan, and, if so, will require the approval of both the City and the HRA. 2. Business Subsidy. The parties will comply with any applicable requirements of the Minnesota Business Subsidy Act. Section 9. Notices and Demands. Except as otherwise expressly provided in this Agreement, a notice, demand, or other communication under this Agreement by either party to the other shall be sufficiently given or delivered it if is dispatched by registered or certified mail, postage prepaid, return receipt requested, or delivered personally: As to the HRA: Housing and Redevelopment Authority 6700 Portland Avenue South Richfield, MN 55423 Attention: Executive Director With Copy to: As to the Redeveloper: John Dean Kennedy & Graven 470 Pillsbury Center Minneapolis, MN 554302 Lyndale Gateway, LLC The Cornerstone Group, Inc 7661 Bush Lake Drive - a t' ,~Q- .." Bloomington, MN 55438 Attention: Colleen M. Carey, Chief Manager With Copy to: Winthrop & Weinstine, P.A. 3000 Dain Rauscher Plaza 60 South Sixth Street Minneapolis, MN Attention: Joanne L. Matzen or at such other address with respect to either such party as that party may, from time to time, designate in writing and forward to the other. ~~~~~~ ~~ IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of the day and year-first above written. THE HOUSING AND REDEVELOPMENT AUTHORITY OF THE CITY OF RICHFIELD, MINNESOTA By: Its: Chairperson By: Its: Executive Director LYNDALE GATEWAY, LLC By: Its: STATE OF MINNESOTA ss.. COUNTY OF HENNEPIN The foregoing instrument was acknowledged before me this 2003, by and the Vnairpersvn ana ~xecuuv~ Director of The Housing and Redevelopment Authority in and for the City of Richfield, Minnesota. day of Notary Public STATE OF MINNESOTA ss.. COUNTY OF HENNEPIN The foregoing instrument was acknowledged before me this 2003, by of a limited company under the laws of Minnesota, by and on behalf of said company. day of _ the liability Notary Public AGENDA ITEM # REPORT # STAFF REPORT ~ HOUSING AND REDEVELOPMENT AUTHORITY MEETING FEBRUARY 26, 2003 BRUCE NORDQUIST, HOUSING AND REPORT PREPARED BY: REDEVELOPMENT MANAGER NAME, TITLE BRUCE PALMBORG, COMMUNITY REPORT PRESENTER: DEVELOPMENT DIRECTOR NAME, TITLE DEPARTMENT DIRECTOR REVIEW: `~ ~~~ REVIEWED BY EXECUTIVE DIRECTOR: ITEM r ux tlxr~ ~,v~~TSIDERATION: Consideration of an agreement securing funds to continue the Housing and Redevelopment ,4i,thoritv's Apartment Remodeling Program. I. RECOMMENDED ACTION: By Motion: Authorize an Agreement between the Housing and Redevelopment Authority and Minnesota Housing Finance Agency for an Apartment Remodeling Program with deferred loan funding from Minnesota Housing Finance Agency. II BACKGROUND I Minnesota Housing Finance Agency (MHFA) has committed $250,000 to the Richfield Housing and Redevelopment Authority (HRA) to continue an Apartment Remodeling Program. The key program elements are summarized in an attachment. The Apartment Remodeling.. Program was first created in 1998. The Metropolitan Council Livable Communities Program provided the funding. The Center for Energy and the Environment (CEE), a Metropolitan Area experienced nonprofit housing lender, processed apartment owner applicants seeking the HRA and MHFA rehabilitation financing that was available. To date, HRA deferred loans totaling 022603Apartment Remodeling $222,024 improved 159 apartment units in 16 buildings scattered throughout the City. The HRA's financing leveraged $720,789 of additional apartment owner investment. The new funding committed by MHFA continues the program effort. For several months MHFA staff changes and rules imposed in statute hindered finalizing the program. To the extent possible, MHFA has responded to the challenge of not placing burdensome requirements on the funds that would affect marketability. An "Agreement for Administrative Assistance" between MHFA and the HRA has been prepared. The Agreement requires the HRA to: • Identify participants: existing apartment owners interested in improving apartment buildings. • Facilitate the applications for and closing of deferred loans that meet MHFA underwriting requirements. Qualify tenants for income eligibility and perform Section 8 housing quality inspections. • Commit funds by February, 2008 (within five years) The funding does not include administrative sources. The owner/borrower or a portion of the remaining balance of Livable Communities funding would cover marketing and CEE loan placement expenses. Staff would provide a small amount of time as an in-kind contribution to facilitate the program. Section 8 staff, as part of their ongoing responsibilities, would perform income qualifying and inspection work. III. BASIS OF RECOMMENDATION A. POLICY The HRA submitted an application for Apartment Remodeling Program funding to MHfA and MHFA approved of funding. The HRA wants existing apartments to be improved. It has been demonstrated that small amounts of public resources leverage large amounts of private capital. B. CRITICAL ISSUES MHFA would like to complete this agreement quickly to ensure that the commitment of funds is not lost in the state budget balancing process. C. FINANCIAL No funds must be advanced by the HRA. MHFA will release funds at time of closing to the borrower. • Staff costs are minimal with CEE primarily responsible for loan program administration. The agreement between CEE/HRA is in the process of being prepared for HRA consideration prior to beginning the program. D. LEGAL The HRA is a qualified "local administrator" which is required by the agreement. IV. ALTERNATIVE RECOMMENDATION(S~ The HRA could decline to participate and cancel the commitment of funds. V. ATTACHMENTS • Program Summary • Agreement for Administrative Services VI. PRINCIPAL PARTIES EXPECTED AT MEETING . N/A Richfield HRA Richfield Rediscovered Apartment Remodeling Program 2003 Program Summary • MHFA provides $250,000 for deferred loans. • Zero interest deferred loans are due upon sale of property or after 15 years. • Maximum amount of $2,500 per unit must be owner matched by a similar amount. • Maximum of $30,000 in MHFA funds is allowed per property. • Funds are sufficient to remodel 100 apartment units. • HRA Remodeling. Advisor assistance is available. • Center for Energy (CEE) will arrange for additional financing sought by the owner/borrower. CEE is an approved MHFA lender. • Luxury improvements are not allowed. (Most common improvements: windows, doors, siding, heating system, roofing, electrical, parking lots.) • Apartment residents must have incomes at or below 80 percent of median for the Metropolitan area for 15 years (approximately '$43,000 for atwo-person household). The income check occurs one time, at time of funding, and owners are required to perform income checks as new tenants move-in and report that information to the HRA so that it can be monitored. 022603Apartment Remodeling Minnesota Housing Finance Agency Affordable Rental Investment Fund Program AGREEMENT FOR ADMINISTRATIVE ASSISTANCE This Agreement is entered into on this day of , 200_, by and between the Minnesota Housing Finance Agency, a public body corporate and politic of the State of Minnesota (the "MHFA") and (the "Local Administrator"). WITNESSETH: WHEREAS, the MHFA, pursuant to the authority granted by Minn Stat. § 462A., as amended, has created and implemented a Affordable Rental Investment Fund Program (the "Program"), the purpose of which is to assist in the rehabilitation of rental housing; and WHEREAS, under the Program the MHFA will make loans to qualifying individuals and entities (the "Applicant") to assist them in the rehabilitation of rental housing; and WHEREAS, the MHFA is seeking entities to assist the MHFA in the administration of the Program, and in the location and selection of the Applicants and the processing, closing and servicing of the loans under the Program; and WHEREAS, the Local Administrator wishes to assist the MHFA in the administration of the Program, and in the location and selection of the Applicants and the processing, closing and ~. servicing of the loans under the Program, and has submitted to the MHFA an Application for Administrative Authority (the "Local Administrator's Application"), which is hereby incorporated by reference into this Agreement; and WHEREAS, the Local Administrator desires to enter into an agreement pursuant to which it will perform certain specific administrative functions relating to the Program, all of which will be performed in accordance with the terms and conditions of the Local Administrators Application and written directives issued by the MHFA from time to time. NOW THEREFORE, in consideration of the covenants contained herein and the mutual benefits to be derived therefrom, it is hereby agreed as follows: 1. Participation in Program. The MHFA hereby agrees and consents to the Local Administrator's participation in the Program. Under such participation the Local Administrator agrees to assist the MHFA in the administration of the Program and to assist in the location and selection of the Applicants and the processing, closing and servicing of the loans under the Program, all of which shall be done and performed in accordance with the provisions, terms, conditions, limitations and requirements set forth and contained in this Agreement, the Local Administrator's Application, and any and all written directives issued by the MHFA from time to time (this Agreement, the Local Administrator's Application, and the MHFA's written directives are hereinafter cumulatively referred to as the "Program Documents"). 2. Duties of Local Administrator. The Local Administrator shall perform the following duties and functions and any and all other duties and functions imposed thereon by the Program Documents: - A. Assist the MHFA in finding projects eligible for funding under the Program _ (hereinafter referred to as "Eligible Projects") in accordance with the provisions contained in the Program Documents. Affordable Rental Investment Fund Program I Ver 7/1!02 Agreement for Administrative Assistance B. Assist Eligible Projects in the processing of applications for funding under the - Program in accordance with the provisions contained in the Program Documents. C. Process and evaluate applications for funding under the Program in accordance with the provisions contained in the Program Documents. D. Assist the MHFA in the selection of projects to receive funding under the Program in accordance with the provisions contained in the Program Documents. In such selection process the Local Administrator shall only select projects which will increase the availability of decent, safe, and sanitary rental units that are affordable to lower income families, and shall give priority to (i) projects that benefit dwelling units that are currently occupied, or will be initially occupied after completion of the rehabilitation, by families with incomes that are primarily at or below eighty percent (80%) of area median income adjusted for family size and (ii) projects that will result in dwelling units being made accessible to and usable by individuals with handicaps. E. Assist the MI-iFA is closing the loans and the execution, delivery and filing and any and all documents relating to the closing of the loans all in accordance with the provisions contained in the Program Documents. E. Assist projects which receive funding under the Program in the implementation and completion of the rehabilitation work to be performed thereon. F. Assist the MHFA in the disbursement of loan funds under the Program in accordance with the provisions contained in the Program Documents. G. Assist the 1VII~A in any other duty or function related to the Program which the MHFA may reasonablyrequest the Local Administrator to perform. In the performance of such duties and functions, the Local Administrator shall comply with all of the terms and conditions as set forth herein and with all applicable federal, state and local laws, rules and regulations now or hereinafter in effect pertaining to the duties performed. 3. Reservation of Funds. The MHFA shall reserve and set-aside Dollars ($ ) of Program funds (hereinafter referred to as the "Set-Aside Amount") for use by the Local Administrator under this Agreement. The Local Administrator shall not make, or commit to make, any loans under the Program in excess of the Set-Aside Amount. That portion of the Set-Aside Amount which has not been committed for use, by way of a fully completed and executed commitment agreement, prior to the day of , may be canceled and rescinded by the MHFA and reallocated under the Program to some other entity or for some other use. In addition, that portion of the Set-Aside Amount which has been committed prior to such date and is subject to a commitment agreement but is not used in accordance with the terms and conditions of such commitment agreement may also be canceled and rescinded by the MHFA and reallocated under the Program to some other entity or for some other use. 4. Term. This Agreement shall effective as of the date that the last signature is placed hereon and shall continue in effect, unless sooner terminated in accordance with the provisions contained herein, until the _ day of , 20_. 5. Termination. This Agreement may be terminated at any time by either party upon ten (10) days prior written notice to the other party. In the event of such termination, each party shall be required to carry out the terms of the Program Documents with respect to any loans that have been approved by the MHFA prior to receipt of the notice of cancellation by the affected party. Affordable Rental Investment Fund Program 2 Ver 7/1/02 Agreement for Administrative Assistance 6. Warranties of Local Administrator. The Local Administrator specifically represents, warrants and certifies to the MHFA as follows. A. Each project selected by the Local Administrator and submitted to the MHFA for a loan under the Program shall comply with all of the provisions, terms and conditions contained in imposed by the Program Documents, and all provisions contained in federal, state and local statutes, rules, regulations and guidelines, associated with the accepted use of loan funds to be disbursed under the Program. B. It will perform all of the duties delineated herein in conformance with the provisions contained in the Program Documents. C. It will fully and completely comply with all of the provisions, terms and conditions contained in the Program Documents. D. It has the full and complete authority and legal ability to enter into and execute this Agreement and any and all other documents referred to herein, and possesses the legal authority and ability to implement the Program in accordance with the provisions contained in the Program Documents. 7. Rights and Obligations. The rights and obligations of the MHFA and the Local Administrator shall be subject to and governed by the Program Documents. 8. Assignment. Neither party hereto may assign its rights or obligations under this Agreement. 9. Binding Effect. No change or modification of the terms or provisions of this Agreement shall be binding on the MHFA unless such change or modification is in writing and is signed by an authorized official of the MHFA. 10. Strict Compliance. Neither the failure by the MHFA in any one or more instances to insist upon the observance or performance of any term of provisions hereof, nor the failure of the MHFA to exercise any right, privilege, or remedy conferred hereunder or afforded by law, shall be construed as waiving any breach of such term, provision, or the right to exercise such right, privilege or remedy thereafter. 11. Entire Agreement. This Agreement and the Program Documents embody the entire agreement between the MHFA and the Local Administrator, and there are no other agreements, either oral or written, between the parties on the subject matter hereof. 13. Applicable Law and Venue. All matters, whether sounding in tort or in contract, relating to the validity, construction, performance, or enforcement of this Agreement shall be determined according to the laws of the State of Minnesota, and the Local Administrator agrees that any action brought under this Agreement shall be venued in the Minnesota District Court for the County of Ramsey, State of Minnesota. (THE REMAINING PORTION OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.) 3 Ver 7/1/02 Affordable Rental Investment Fund Program Agreement for Administrative Assistance IN WITNESS WHEREOF, the parties have executed this Minnesota Housing Finance Agency Affordable Rental Investment Fund Program Agreement for Administrative Assistance on the day and year shown immediately below their respective signatures. MINNESOTA HOUSING FINANCE AGENCY Dated this day of > 200_• LOCAL ADMINISTRATOR (Administrative Entity) (Signature of Authorized Official) Dated this day of , 200_ Include additional signature below if required by the Local Administrator's Bylaws. (Signature of Authorized Official) (Name and Title -Typed) Dated this day of , 200_. Affordable Rental Investment Fund Program 4 Ver 7!1/02 Agreement for Administrative Assistance