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11-14-94 agendaCITY OF RICHFIELD SPECIAL HOUSING AND REDEVELOPMENT AUTHORITY MEETING MONDAY, NOVEMBER 14, 1994 6:30 P.M. COUNCIL CHAMBERS AGENDA CALL TO ORDER I. CONSIDERATION OF SUBORDINATION AGREEMENT BETWEEN HOUSING AND REDEVELOPMENT AUTHORITY INTEREST IN PHASE I, CSM SHOPS AT LYNDALE AND NORWEST BANK HRA LETTER N0. 75 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 861-9702. HOUSING AND REDEVELOPMENT AUTHORITY BRA Letter No. 75 November 14, 1994 Issue Statement: Subordination of HRA interest in Phase I, CSM Shops At Lyndale to Norwest Bank. Background: CSM has been financing the redevelopment of Phase I internally. In preparation for the redevelopment of-Phase II, they are seeking to refinance Phase I construction through a lender. The construction loan would strengthen their ability to undertake Phase II. CSM has been negotiating a Phase I construction loan of up to $5 million with Norwest Bank. The Contract For Private Development between the HRA and CSM Corporation Section 3.2 obligated the HRA to obtain title and possession of the Phase I property. In return CSM was obligated to provide certain types of security to reduce the financial risk to the HRA should CSM be unable to .perform. The forms of security included mortgages against all of the Phase I property in favor of the HRA. Those liens have been obtained and are of record. Because Norwest. is now considering providing financing to CSM and assuming the debt of redevelopment, they are requesting the HRA to subordinate all of its position in the project including that provided by the lien noted above to that of Norwest Bank. If CSM would default, payments due CSM from the HRA under the tax increment note would be paid to the lender. The lender would be free to complete the project in any way it deemed appropriate. Attached is the most current draft of the agreement. If any changes are considered they will be reported to the HRA at the November 14 meeting. Recommended Motion: Adopt a motion approving the Subordination Agreement between the HRA and Norwest Bank. Basis of Recommendation: 1. The likelihood of a default by CSM diminishes each day as Phase I nears completion. 2. Best Buy, the major tenant, has already accepted their building and is fixturing it for an opening within the next few days. 3. Both Norwest and the HRA the project completed. 4. The HRA has subordinated projects in the past. 5. If CSM defaults in its o' HRA can use the payments made to CSM to cover any have a similar interest in having its interest in other redevelopment ~ligations under the contract,. the which otherwise would have been financial exposure. Alternative Recommendation: 1. Delay action. 2. Refuse to accept the subordination. Discussion/Decision Mode: Closing on the construction loan within the next few days is likely with HRA approval of this Agreement on November 14, 1994. Respectf y submitted, James Prosser Execu e Director JDP:ds .!'p ~V Fj.3 ' ~-ti lE ~ 18 FHE~~FE .:: 6Er +~vr ~ DRAFT (~] 11 94 rpeQRDINATION AGREEMENT This~Agreement is made effective as of the [~} 15th day of C"} ~^vPmber, 1994, by and among. THE HOUSING AND REDEVELOPMENT AUTHORITY~IN AN'D FOR THE CYTY OF RICHFIELD, MINNESOTA {the "Authority") C } NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION {the "Lender") and CSM INVESTORS INC. innesota cor oration (~• L, a 11 T1eavA ~ AY)P_Y'~ RECITALS The Authority and CSM Corporation t"CSM Corporation") entered into a Contract For Private Redevelopment dated April 29, 1994 (the "Development Contract"), whereby the Authority agreed to provide certain aid and assistance to the developer under the Development Contract through use o£ public funds to finance certain costa of development of the Phase I Property and the Phase II Property (as defined in the Development Contract). [mil - Pursuant to an Assignment and Assumption dated as of August 1, 1994 ithe "Assignment Agreement°), CSM Corporation assigned all of its rights and interests in the Development Contract to .the Developer and the Developer assumed all of CSM Corporation's obligations under the Development Contract. To secure the Developer's obligations to the Authority under the Development Contract, the Develoger has executed and delivered the following in favor of the Authority: (i) a Mortgage securing a principal debt of $1,500,000, dated August 2, 1994, and recorded on ["} Aount94R co deruoenHenne in, X322375 in the Office of [ l t e Counw~~nne of , {ii) a Mortgage securing a principal debt of $400,000, dated August ^, 1994, and recorded on [ ) Au s , 1994, as Document No. [ } 6~2~ in the Office of [ ] the County o Henne in Count Minnesota, {iii) a Mortgage securing a principal debt of X100,000, dated August 4, ].994, and recorded on ["l ~t~cr,~~ st ~. 1994, as Document No. [~} 326 in the Office o£ [''] the County Recorder of Henne in Count ~ Msnn~es~, and tiv) a Mortgage securing a principal ebt of $SZ3,000, dated August 9, 1994, and recorded on Au uc~ st l2, 1994, as Document No. [^~ 6325228 in the Office of (mil the County Recorder of Hennepin 1^n,mrv neaota tcollectively, the "Authority Mortgages"). Pursuant to the Development Contract, the Authority has .executed and delivered to the Developer a Lmitedrsuantuto which Increment Note (Phase i> (the Revenue Note ), p the Authority will make installment payments to the Developer as therein provided. rrOV t~-t ~•..~ 10~ 1~ Fr,E~~Ft x EEr,S~:r, • -- .The Lender has entered into a Construction Loan Agreement dated as of (''] November i5, 1994 with the Developer (the "Lender Loan Agreement") under which the Lender has agreed to make advances to the Developer in an aggregate amount of up to $5,000,000 tthe "Lender Lea " to finance the construction of a retail shopping center facility located on the land described in Exhibit A attached hereto ("] and any other land acauired__bv the and easements are cal~.ed the "Land"); Collectively, Lne L J retail a o~plna centerfacility a ~d anw ot,~ improvements now existing or to a constructed [ ] on the Land are called the "Project"). Each advance under the Lender Loan Agreement is evidenced by the Developer's promissory note, dated as of ["1 November 15, 1994, payable to the order o£ the Lender (the "Lender Note"}. 1^he Aeveloper's obligations under the Lender Note and the Lender Loan Agreement are secured, among other things, .pursuant to a Combination Mortgage, Security Agreement and Fixture Financing Statement dated as of [~] Nov~R~~ 1994 (the "Lender Mortgage") and by an Assignment of Rents and Leases -dated as of [~] November 15, 1994 (the "Lender Assignment of Rents" [~]~ collectively, the Lender Note. the Lender Loan_t .,..~.... " As a condition to entering into the Lender Loan Agreement and making any advances to the Developer under the Lender Loan Agreement, the Lender has required that the Authority (i) fully subordinate all of the terms, covenants, conditions and restrictions contained in the Development Contract and all rights and interests of the Authority in or to the Project or the Land (col~.ectively, the Project and the Land ax~__called the "Premises") of any kind whatsoever. under the Development Contract, under the Authority Mortgages or otherwise to the lien of the Lender Mortgage and the Lender Assignment of Rents and to any other lien or security interest at any time hereafter acquired by the Lender in all or any portion of the Premises and {ii} upon receipt of written notice from the Lender certifying that an ["J Event of [~] Def,~,~~ as defined in the Lender Loan Agreement or he Lender Mortaaae'has occurred and has riot been cured by the Developer within any applicable cure period, make alI future payments becoming due and payable under the Revenue Note to the Lender or to any transferee of the Lender. -3- I {~. v ~ 1-1 -+-1 1 r,.:'~ h HE~,~=~E FEE ({~_.~al { r , _ Accordingly, the Authority, the Developer and the Lender hereby agree as follows: 1. The Authority acknowledges and agrees that all rights and interests of the Authority under the Development Contract, under the Authority Mortgages .or otherwise in or to the Premises are and shall remain fully subordinate and subject to the liens of the Lender Mortgage and the Lender Assignment of Rents and all liens or security interests now held or at any time hereafter acquired by the Lender to secure other loans or ' extensions of credit made by the Lender to facilS.tate completion of the Project in accordance with the Lender Loan Agreement. In further clarification of. the subordination accomplished by the preceding sentence, and not in limitation thereof, the Authority acknowledges and agrees that (i3 any right which the Authority has under Section 3.2 of the Development Contract or otherwise to utilize or sell the Premises after default by the Developer is fully subardinate to and subject to the lien of the Lender Mortgage and the Lender Assignment of Rents, (ii) any right which the Authority has under Sect~.on 6.2 to receive insurance proceeds or to require the Premises to be rebuilt in the event of a casualty to the Premises is fully subordinate to and subject to the rights of the Lender under the Lender Mortgage and Che Lender Assignment of Rents, ~ (iii) notwithstanding the provisions of Sections 8.3 and I0.2 of the Development Contract, either before or after foreclosure by the Lender or action in lieu thereof, the Lender or the Lender's assignee may, without assuming any of the obligations of the Developer under the Development Contract and. without any consent from the Authority, undertake to continue to complete construct~.on of the Project with such changes to the Project as the Lender deems necessary or appropriate, and (iv) notwithstanding the provisions of Section 8.~ of the Development Contract, the Lender shall have no obligation to provide to the Authority any notice of [^J anv Event of Default on the paxt_ of the De 3el~op~ under the Lender Loan Agreement or r.AP Y~P.n pr Mc~rtrsacfe f except as provided in t~aracxraDh 7 below? and the Authority shall have no right to cute any t""1 Eve Def_ ult on the pm of the Developer under the Lender Agreement or he Lender Mo: sae. 2. The Authority hereby acknowledges that the Revenue Note will be pledged, endorsed and assigned to the Lender as additional collateral for payment of the [^J Lender Loan made by the Lender to the Developer under the Lender Loan Agreement. Yf in the future there is [ J an Event of Default by the Developer [^) un~ the Lender Loan Agreement or the Lender Morta~aa_e, the Lender, at its option may require that all subsequent payments due under the Revenue Note be paid solely and directly to tha Lender or to the Lender's assignee. Upon the Authority's receipt of any such notification to that effect, the Developer hereby authorizes and directs the Authority, and the Authority hereby - ~! f b `•.•' v-+ ' `~~ 2 c ~ c'U FrlE~oi~E ~:: act i ~~:~' 1 ~. 1J agrees, that all subsequent payments due to the Developer under the terms and conditions of the Revenue Note will be paid solely .and exclusively to the Lender or to any such assignee, as the case may be. The Developer further agrees that this Agreement shall constitute an irrevocable direction and full grant of authority to the Authority to pay all such amounts to the bender upon receipt of notice from the Lender directing the Authority to do so, without proof of the ["] Event~of,~ Dew„ fault relied upon i.n any such notice. The Authority is hereby krzevocably authorized to rely upon and comply with (and shall be fully protected in so doing) any notice or demand by the Lender for the payment to the Lender of any amounts due to the Developer under the Revenue Note and the Authorit~ shall•have no duty or obligation to inquire as to whether any [.] Event of Default. under .the Lender Loan - Agreement ar the Lender Mortaaae has actually occurred or is then existing. The Developer agrees to indemnify and.hol~i the 3: The Authority ("] and the Developer each ~~ ~, z-= acknowledcLe that the Development Contract is ["] i.~ valid, legal, bYnding and enforceable obligation ["]~ and, as of the date hereof, has not been assigned ,~excent to the Devel.oper_as described in the Recitals), modified, supplemented or amended. 4. To the best of the Authority's knowledge and to th of he D velo er's knowled e, no Event of Default (as defined in the Development Contract or event, which with the passage of time or the giving of notice, or both, would be such an Event of Default, has occurred and is continuing under tip Development Contract as of the date hereof. 5. If an Event of Default (as defined in the Development Contract) shall occur under the Development Contract, the Authority shall give written notice thereof to the Lender and the Lender shall have the right, but no obligation, to cure such Event of Default within a reasonable time thereafter. Any notice given to the Lender pursuant to this paragraph 5 shall be sent by certified or registered mail to the Lender at the following address: -5- f JC~''~ i~ '~-; i r", : ~ 1 Ft~E';F-'E - F,E~ i'= - ~ I F . i.: Norwest Bank Minnesota, National Association 425 East Hennepin Avenue Minneapolis, Minnesota 55479-2060 Attention: Winston B. Dolland 6. The Authority acknowledges. receipt of copies of the Lender Mortgage, the Lender Assignment of Rents and the Lender Loan Agreement and acknowledges that the Lender Mortgage ["3,~, the Lender Assignment of Rents.,. the Lender Loan Agreement and the development contemplated by the Lender Loan Agreement are authorized by and approved under the Development Contract. The_Housna and Redeve2onment Authori in and_ for_ tl~e City of Richfield 6700 Portland Avenue South Richfield. Minnesota 55423 Attention: Executive Direc~.or -6- ~t~~. ~-3 =~ ;~~_i ~HE:~E s LGIi'C'_'i1 r`. 1- t"l ~. If, following any Event of Default (as defined under the Fender Loan Agreement or the Lender Mortgage) under the Lender Loan Agreement or the Lender Mortgage, the Lender obtains title to the Premises through foreclosure or by accepting a deed to the Premises from. the Developer, the Authority agrees that upon expiration of ["1 a~ redemption ["] eriods i. the case of a fore losure or upon the recording of suc ee in the case o in l' u of foreclosure as the case may be, a rig to and [ l interests of the Authority under the Development Contract and in and to t e Premises under the Development Contract, under the Authority Mortgagee or otherwise, including, without limitation, all restrictive covenants contained therein, shal], be automatically null and void without the .need for the execution or recording of any other document. ["].1,~1. The Authority represents to the Lender an e DeveloD~ that the making, delivery and performance of this Agreement have been duly authorized by all necessary action and this Agreement, when executed, shall be the valid and binding obligation of the Authority, enforceable in accordance with its terms. ["] .~ The- ["] Developer represents to the Authority and,~he_Lender that the making, delivery and performance of this Agreementnave been duly authorized by all necessary action, and when executed and delivered will constitute the legal, valid and binding .obligation of the ["] De~~ enforceable in accordance with its terms. ["] 14. 'the Authority,___the Developer, and the Lender acknowledge that the Lender is not a party to .the Development Contract and that this Agreement contains the entire Agreement between the Authority and the Lender with respect to any rights or obligations either might otherwise have with respect to L J other under the Development Contract and under the Authority -7- Mortgagee, and that this Agreement may be amended only in writing signed by (mil ~, parties hereto. By executing and delivering this Agreement, the Lender Shall not incur any obligations to the Authority or to the Develooer_ of any kind whatsoever, except those to the Aut ority which are expressly set forth herein, and the Lender may administer its extension of credit under the Le~~ Loan ("~ ~ocu~ in such manner as it shall deem appropriate without env notice_~o.or consent from the Authority. ("~ t,.~,. The Authority agrees that the Lender, at any time and from time to time, may extend the maturity, modify the a.nterest rate or agree to alter any of the terms of payment of the ("] Lender Loan evidenced by the Lender ("~ Loan Documents, or release parties liable for payment thereof, or alter ,~ amend [~~ ~ waive o ~,p~le~e~, i.n any way, any of the terms and provisions of the Lender Loan Agreement, the Lender Mortgage, the Lender Assignment of Rents and all related documents, all without any notice to or consent of the Authority. -8- E"] .~. This Agreement shall be binding upon and inure to the benefit of the Authority t"}~, the Lender and~t~ ev to ~ and their respective successors and assigns. Executed as of the day and year first above written. THE HOUSING AND REDEVELOPMENT AUTHORITY ZIJ AND FOR THE CITY 0~' RICHFIELD By Its Chairperson By Its Executive Dzrector NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By ~~- -- It CSM INVESTORS. INC. By Its -9- I av':' ri-t ' ~?~ 10 ~ ._" FHE~~FE ~ BEt ;_,~:~~ ~ r . - _ STATE OF MINNESOTA) ss. COUNTY OF ) The foregoing instrument was acknowledged before me this day of 1994, by , the. Ch ~ person an the Executive Director of The Housing and Redevelopment Authority in and for the City of Richfield,. Minnesota, on behalf of said Authority. Notary Public STATE OF MINNESOTA) as. COUNTY OF ) The foregoing instrument was acknowledged before me this day of 1994, by , a of N4rwest Bank Minnesota, National Association, a national banking association, on behalf of said bank. .Notary Public STATE OF MINNESOTA). ss. COUNTY OF ) Notar lic MKK1215A.WP5 -10- '• - - P ,;~~_ EXHIBIT A TO SUBORDINATION AGREEMENT DEgCRxPTxON OF i,AND NSKK1215A.WP5 -11-