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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