010890 EDAOfficial
File Copy
CITY OFNEWHOPE
4401 XYLONAVENUENORPH
HENNEPIN~, MINNESOTA 55428
Jarg~ry 8, 1990
City Hall
President Edward J. Erickson
Commissioner Gary L'Herault
C~t,,,~ssioner W. Peter Enck
Commissioner Gerald Otten
Commissioner Marky Williamson
2.
3.
4.
Call to Order
Roll Call
Approve Minutes of December 26, 1989
Consideration of Request by Autohaus/Thcmas Boettcher to Assist in
Financing the Acquisition of Property Located at 7675 42nd Avenue North
(New Hope Animal Hospital)
6. Adj ou~].L~_nt
CITY OF N~ ~DPE
4401 XYIi~ AV~FOE ~
~ (IK~, ~ 55428
~ 26, 1989
City ~ll, 7:25 P.M.
APPROVE
M/]FOTESOF
[~C. 11, 1989
President Erickson called the meeting of the Economic Development
Authority to order at 7:25 p.m.
Present: Erickson, L'Herault, Otten, Enck
Absent: Williamson
Motion by Cu~L~ssioner Otten, seconded by Cu~ssioner Enck to
approve the EDAminutes of December 11, 1989. All present voted in
favor.
Motion byCcmmissionerEnck, seconded byc~mL~ssionerOttento
enter anEDAExecutive Session for discussion regarding eminent
dcmain proceedir~s for the property east of North Park Plaza, City
of New Hope, Minnesota. All present voted in favor.
Motion was made by Co~.~,~ssioner Otten, seconded by Commissioner
Enck to adjourn the meeting. All present voted in favor. The New
Hope EDA adjourned at 7:35 p.m.
Respectfully submitted,
Valerie Leone
City Clerk
New Hope EDA
Page 1
December 26, 1989
EDA
i
Originating Department Approved for Agenda Agenda Section
Management Assistant EDA
1-8-90
[,' Item No.
By: Jeannine Dunn By: 4
/
CONSIDERATION OF REQUEST B~AUTOHAUS/THOMAS BOETTCHER TO ASSIST
IN FINANCING THE ACQUISITION OF PROPERTY LOCATED AT 7675 42ND
AVENUE NORTH (NEW HOPE ANIMAL HOSPITAL)
Mr. Thomas Boettcher is requesting that the city assist in
financing the acquisition of the New Hope Animal Hospital at 7675
42nd Avenue North.
The acquisition would allow Mr. Boettcher to expand his existing
business, and would also eliminate a non-conforming property.
The EDA considered this request on November 13, and December 11,
1989, and asked staff to develop a loan package which would have
adequate security.
Staff has prepared a memorandum which addresses Mr. Boettcher's
request.
MOTION BY ~//~/C~ SECOND BY ~~%~2
Review: Administration: Finance:
RFA-O01 ~
City of New Hope
Memorandum
Date:
January 4, 1990
To:
Dan Donahue, City Manager
From:
M. Jeannine Dunn, Management Assistant/
Community Development Coordinator
Subject: Summary of Autohaus Financing Request
The EDA has reviewed a request by Thomas Boettcher and Autohaus for
assistance with financing the acquisition of the property located
at 7675 42nd Avenue North (New Hope Animal Hospital). The purpose
of this memorandum is to summarize the proposed transaction.
Mr. Boettcher has a purchase agreement with the Randy Herman for
the Animal Hospital property. The proposed sale price is $157,500.
In addition, Mr. Boettcher is hoping to purchase property from the
school district. My understanding is that Mr. Boettcher would like
to buy the school district property for an amount ranging between
$8000 and $12,000. The school district had an appraisal done and
would like $40,000 for the property.
Mr. Boettcher has requested the City to assist in financing the
acquisition of the Animal Hospital property. He has proposed the
following loan structure:
-$25,000 down payment
-$132,500 loan from the City for a term of 8 years at the rate
to be determined when the bonds are sold (approximately 9 1/2
percent)
The options for security of the loan are as follows:
-Corporate and personal guarantee
-Life insurance policy
-Do not plat the Animal Hospital property so that the City
can claim title to the property if Mr. Boettcher defaults on
the loan. The market value of the vacant property is
$52,000 according to the City's appraisal.
-Consider the tax increment generated by the project as
security. The County Assessor's office has given a range of
value for the Autohaus property after the lot combination.
The current market value is $594,100 for the two properties.
After the lot consolidation and removal of the Animal
Hospital, the value increases to a range of $616,000 to
$868,000. The value is dependent upon the amount of the
property used for auto sales. The annual increment
generated by the property will range from $1124 to $14,038.
If the City sold bonds to finance the transaction, the City's
payments would be $24,000 for eight years. If Mr. Boettcher
defaulted on his loan, and the City had no other security,
the City would have an exposure ranging from $9962 - $22,876.
-Require a second or third mortgage~on the Autohuas property.
Mr. Boettcher has explained that he does not want to give the
City a second mortgage because he needs to raise additional
revenue to finance the improvements. The value to a third
mortgage is questionable.
I have attached the memorandums from Rebecca Yanisch which provide
further detail and an analysis of the debt. If you have questions,
please call.
DE:-OS-i'aS9 11:36 ~z'SM -~ ~ISLiC ~l'l. SY'STEI'4S TO SSS~S' -~ ' -.
TEr~IPHOIq~ (61,~) .~J].~177 ~AX: (6~2) :~42-2.~47
DATE:
TO:
FROH:
RE:
December 8, 1989
Dan Oonahua, City of New Hope
Rebecca Yanisch, Public Financial Systems, Inc.
Response to EDA Concerns Regarding Autohaus Financings Request
On Monday, November 13, the New Hope EDA met to consider the Autohaus expan-
sion issues, which Included a request for financial assistance. After review-
ing the financial request, the EOA stated that the current proposal was
unacceptable and that any Involvement financially by the EDA must be fully
collateralized.
I contacted Mr. Boettcher to relay the EOA concerns and comments. I stated
that the financial statements submitted by him show an equity amount in the
commercial butlding that would be adequate to fully secure the City's finan-
cial exposure. Mr. Boettcher responded that he would be unable to provide a
second mortgage for security to the City since he intended to use that
financing source for the expansion, acquisition of the land currently owned by
the school board and site improvements. Mr. Boettcher suggested the following
arrangement:
· Increase the cash up front from SZO,O00 to $25,000.
i Shorten the loan term from IS years to 8 years.
· Add a corporate guarantee in addition to the personal gugrantee.
· Carry a life insurance policy for Mr. Boettcher in the amount of the
City loan.
· OD not replat the clinic parcel. The City would then have first lien
on the property to be acquire4.
With the additional cash up front, the City loan would amount to 84 percent of
the acquisition cost of the parcel. However, the amount of the City loan
would stt11 be 2 tlmes the value of the land after clearing the existing
building. By shortening the term of the loan, a much more significant amount
of principal would be paid in the earlier years of the loan. The third point
of Mr. Boettcher's proposal, the addition of the corporate guarantee, may be
the most significant improvement in the proposal. Currently, the stock-
holder's equity in Autohaus is 3 times the requested loan amount. Since Mr.
Boettcher is key to the success of the Autohaus, it seems logtcal that a life
Insurance policy in the amount of the-City loan be in place. The final issue,
that of the City holding a lien on the property to be acquired, raises a
conflict with the current zoning code. The conditional use permit for outdoor
dtsplay of automobiles requires one parcel of property.
DEC-OS-i'~8'D 11:57 FROM PUBLIC FIN. 'SYSTEMS TO ~556~I0~ P,DZ
Memorandum
December 8, 1989
Page Two
Another optton not suggested by Mr. Boettcher would include a third mortgage
on the commercial property. However, the third mortgage would be of question-
able value in tams of enhancing the security for the Ctty loan. The third
mortgage wou~d have mo~e of a negative impact on use of the building
........... = .... ~..-~-. [n my o~inion- the negative drawbacks ~ou~d
more than t~e additional posttlve security provlde~ ~y the ~n~re mortgage. ~s
a final point, ~r. Boettcher does sttll anticipate that the City would incu~
the cost o~ demolishing the current building on the site.
Hopefully this memorandum helps clarif~ the tssues and will enable the EDA to
add,ess the poltcy questions that are associated with the financing request.
The inclusion of the corporate guarantee, the &ddltlonal cash payment, and the
reduction tn the ;ease term should be sufficient to a]l~y ~uch of the concerns
on the co;latera;tzatton. ]t is difficu;t to provide more security without
constricting the growth and future success of the Autohaus business.
If ~ou need any further clarification on these points, feel ~ree to contact
me.
NOU-09-1989 10:57 FROM PUBLIC FIN. SYSTEMS TO 9~56910~ P.03
PUBLIC FIN,4NCZ4L SYSTEMS
~l,~ NICC~I.~ET MAI.I, SUI~ 5~0 · MINN~A~S, MINN~OTA 55402
2739 SECOND AVEN~E $,~, · CEI)A/~, RAP]I:~, IO~,;t 52.403
DATE:
TO:
FROH:
RE:
November 8, 1989
Dan Donahue, City of New Hope
Rebecca Yantsch, Public Financial Systems, Inc.
Response to Autohaus Request Dated October 19, 1989
The purpose of this memorandum is to provide an analysis of the request for
financial assistance submitted by Tom 8oettcher for expansion of his business,
Autohaus of Minneapolis, located at 7709 42nd Avenue North. In his letter of
October 19, 1989, Mr. 8oettcher proposed that Autohaus make a $20,000 down
payment on the acquisition of the veterinary clinic, whi]e the City finances
the remaining $137,000 over 15 years at market interest rates. The payments
on the City financed share would be secured by Mr. Boettcher~s personal
guarantee. He has also requested that the City pay the cost of removing the
existing building on the site.
Our analysis of the Autohaus request focuses primarily on the risk to the City
in providing the requested financial assistance. In analyzing the risk and
preparing our recommendation on the structure fop the financing, we have
reviewed the corporate financial statements of Autohaus for the first year of
business, 1988, and through September 30, 1989. Mr. Boettcher has also
provided his personal financial statements for review. Finally, we have
relied on the appraisal for the veterinary clinic property which was prepared
in April of 1988 by BCL Appraisals.
The constraints and assumptions we considered in formulating our recommenda-
tions were as follows:
m
While the Autohaus expansion lies within the 42nd Avenue tax incre-
ment redevelopment district, the expansion itself will not generate
additional increment for the district. Our to the demolition of the
existing building, initially the value of the district will be
decreased. There will be no incremental taxes available to assist in
financing the acquisition.
While the Autohaus corporate financial statements reflect a net
income in the first year of operations, and double that income amount
in the first nine months of 1989, it is important to Keep in mind
that it is a young, expanding business. It would be difficult to
obtain private financing for such a young company. It would also be
difficult to provide letters of credit or other costly credit
enhancement mechanisms to secure the City's financing for the
expansion.
By acquiring the veterinary clinic, clearing the site, and providing
it for development, the City is removing a noncomforming use and
taking an action that fits with the public purpose in establishing
the 42nd Avenue redevelopment area.
TOTAL P.05
95369184 P.OZ
NOU-09-1989 11:50 FROM
PUBLIC FIN. SYSTEMS
TO
Memorandum
mr. Dan Donahue
Page Two
Based on these constraints and assumptions, we recomend that the City of New
Hope acquire thevetertnary clinic at the price negotiated by Hr. Boettcher of
$157,000. The City should then demolish the building and lease the property
to Mr. Boettcher. lhe lease term would assume a $20,000 initial payment by
Mr. Boettcher, with the remainder of the $137,000 in cost financed over either
10 or 1S years, lhe City may offer Mr. Boettcher an option to purchase the
site at the end of the lease term. The option price should be equivalent to
the cost of demolishing the existing building on the site, plus accrued
interest. A final point would tm that Autohaus would pay property taxes on
rate of 9 percent, the
the site as lease holder. A~sumtng a taxable bond
lease payments and purchase price would be as follows:
10 $22,75S $20,360
15 17,668 31,325
The option price shown above assumes a demolition cost of $8,600 with interest
accruing at the assumed bond rate of 9 percent.
The financial exposure to the City of New Hope is measured by the amount of
financing requested, plus the cost of demolition, less the current value of
the land. Assuming a financing amount of $137,000 plus $8,600 in demolition
costs, and assuming current land value of SSS,O00, the financing gap or
exposure to the City would be $90,600. If Mr. Boettcher defaults on the lease
payments, the first step would be to call on the personal guarantees he will
be providing to cover the lease payments. If Mr. Boettcher is in bankruptcy
or otherwise unable to perform on the personal guarantees, the next option
available to the City would be to sell the site. If the City sold the site
for an alternative use, the assumption would be that additional development
would be constructed on the site, creating incremental taxes that could be
used to continue amortization of the lease costs. This option is only
available to the City if it retains title to the site.
In su~m~ary, we feel that the land lease approach to financing the acquisition
of the veterinary clinic is the most cost effective approach and minimizes the
risk as best possible to the Ctt~ of New Hope. The proposal raises policy
s re ardtn the city or HRAs ownership of land for lease to private
issue g g he lease and the
tttes which includes consideration of the term of t , ....
ant , of both the lO ana
structure for future option prices. By showing the impact makers to
15 year lease, we have presented information for your policy
consider in establishing their goals for the ttmtng and level of Involvement
in the transaction.
Please feel free to contact me if you have any questions on any of the above
information..
TOTAL P.02