Loading...
121090 EDAOFFICIAL FILE COPY Agenda #11 CITY OF NEW HOPE 4401XYLON AVENUE NORTH HENNEPIN COUNTY, MINNESOTA 55428 EDA Regular Meeting #11 President Edward J. Erickson Commissioner W. Peter Enck Commissioner Gary L'Herault Commissioner Gerald Otten Commissioner Marky Williamson December 10, 1990 City Hall 2. 3. 4. Call to Order Roll Call Approval of Minutes of September 10, 1990 Discussion Concerning Proposal by Autohaus; Acceptance of Report by Springsted Other Business 6. Adjournment Approved EDA Minutes Meeting #10 CITY OF NEW HOPE 4401Xylon Avenue North Hennepin County, Minnesota 55428 September 10, 1990 CALL TO ORDER ROLL CALL APPROVE MINUTES OF AUGUST 27, 1990 RESOLUTION EDA #90-6 Item 4 TWIN WEST EXPO MOTION ADJOURNMENT President Pro Tem Enck called the meeting of the Economic Development Authority to order at 9:46 p.m. Present: Enck, L'Herault, Otten, Williamson Absent: Erickson Motion by Commissioner L'Herault, seconded by Commissioner Williamson to approve the EDA minutes of August 27, 1990. All present voted in favor. Commissioner L'Herault introduced the following resolution and moved its adoption: "RESOLUTION APPROVING DEVELOPMENT AGREEMENT FOR WINNETICA WEST BARRIER-FREE HOUSING COMPLEX AND AUTHORIZING THE PRESIDENT AND EXECUTIVE DIRECTOR TO SIGN". The motion for the adoption of the foregoing resolution was seconded by Commissioner Otten, and upon vote being taken thereon; the following voted in favor thereof: Enck, L'Herault, Otten, Williamson; and the following voted against the same: None; Absent: Erickson; whereupon the resolution was declared duly passed and adopted, signed by the president which was attested to by the executive director. Mr. Dan Donahue, Executive Director, informed the EDA that the City plans on participating in the Twin West Expo on September 26. He explained that all cities are invited to staff a booth and promote their city. He requested authorization for the expenditure of funds to purchase expo literature. Motion was made by Commissioner L'Herault, seconded by Commissioner Williamson approving an expenditure up to $2,500 for the Twin West Expo. All present voted in favor. Motion made by Commissioner Otten, seconded by Commissioner L'Herault to adjourn the EDA meeting as there was no further business to come before the Council. All present voted in favor. The New Hope EDA adjourned at 9:50 p.m. Sincerely, ~ City Clerk New Hope EDA Page i September 10, 1990  EDA I REQUEST FOR ACTION Originating Department Approved for Agenda Agenda Section EDA Manager 12-10-90 Dan Donahue Item No. By: By: 4 DISCUSSION CONCERNING PROPOSAL BY AUTOHAUS; ACCEPTANCE OF REPORT BY SPRINGSTED The EDA is considering assisting the Autohaus owner to expand his business, Such an expansion fits the City's policy on 42nd Avenue as Autohaus is proposing to take over a substandard adjacent property, The assistance would be in the form ofalow-interest loan. The City's financial consultant has issued a report and advised that the City could expect to recover the loan and Autohaus should be able to meet its financial commitments. MOTION BY ~ SECOND BY '~~~"l ~ TO: ~ ~ Review: Administration: Finance: RFA-O01 ~ SPRINGSTED PUBLIC FINANCE ADVISORS 500 Elm Grove Road Suite 101, RO. Box 37 Elm Grove, WI 53122-0037 (414) 782-8222 Fax: (414) 782-2904 2739 Second Avenue S.E. Cedar Rapids, IA 52403-1434 (319) 363-2221 Fax: (319) 363-6999 85 East Seventh Place Suite 100 Saint Paul, MN 55101-2143 (612) 223-3000 Fax: (612) 223-3002 512 Nicollet Mall Suite 550 Minneapolis, MN 55402-1017 (612) 333-9177 Fax: (612) 333-2363 135 North Pennsylvania Street Suite 2015 Indianapolis, IN 46204-2498 (317) 684-6000 Fax: (317) 684-6004 6800 College Boulevard Suite 600 Overland Park, KS 66211 (913) 345-8062 Fax: (913) 345-1770 November 30, 1990 Mr. Dan Donahue, City Manager City of New Hope 4401 Xylon Avenue North New Hope, MN 55428 Re: Autohaus Financing Request Dear Mr. Donahue: At its meeting of June 25, 1990 the New Hope EDA discussed the current proposal by Autohaus for an expansion involving the Animal Hospital property on 42nd Avenue. The Commissioners expressed their concern regarding security for the financing and other finance issues related to that transaction. In response to their concerns, Springsted Incorporated has worked with Tom Boettcher of Autohaus to further evaluate his proposal. A response has been delayed due to a lack of a private financing commitment obtained by Autohaus. Mr. Boettcher has just recently provided documentation on the financing terms. It has been impossible to comment on the City's position without knowing the security, terms and amounts for the private financing. The documentation on the private financing was submitted to us by Autohaus on November 19. The documentation includes Tom Boettcher's personal financial statements, the Autohaus corporate balance sheet and income statements through September, 1990, an SBA loan application, and a letter of understanding from the Security Bank Northwest of Maple Grove. Public Financing Request The request for assistance from the City includes acquisition costs of the Animal Hospital and school properties, drainage expense, cost of demolishing and clearing the former clinic building and financing fees. Land acquisition assumes a cost of $140,000 for Herman's building, $45,000 for the school property, for a total of $185,000, less $25,000 in cash deposit for a balance of $160,000. We have assumed that the existing special assessments against the Animal Hospital would continue to be paid by the new owner, Autohaus. Other expenses were estimated at $15,000 for correcting drainage problems on the school property (other drainage and site improvement costs will be paid by Mr. Boettcher), an estimated cost of $8,600 for clearing the former clinic building and approximately 3.4% or City of New Hope, Minnesota November 30, 1990 Page 2 $6,400 for financing fees associated with the bond issue. The total costs are summarized below: Acquisition Cost $160,000 Drainage Expense 15,000 Demolition 8,600 Financing 6,400 Total City Request $190,000 We have assumed that the costs will be financed through a taxable bond sale with a term of either six or eight years. Assuming a six year term, the interest rate based on today's market conditions would be approximately 8.8%. Annual payments for the six year term would be $41,435. If the financing is spread over an eight year term, the interest rate would be slightly higher or approximately 9%, and the annual payments would be $33,826. Private Financing Mr. Boettcher has secured three private loans to assist in the expansion of his business and improvements to the property. The objective of the loans will be to increase the floor plan financing for acquisition of used vehicles, provide working capital for the company, and provide the down payment for acquisition of the properties and $100,000 in funds for site improvements. The details for each of the three financing components are shown below: Used Car Floor Plan Financing Loan Amount - $600,000 Interest Rate - 2.5 point over prime (prime is currently 10%) Security - Title to vehicles and blanket security in all assets of the borrower Guarantee - Mr. Boettcher's personal guarantee and a third mortgage on personal residence Annual interest cost if fully used - $75,000 per year SBA-Insured Loan Loan Amount - $540,000 Interest Rate - 2.5 points over prime Loan Term - Seven year full amortization Security - Secured by business assets and second mortgage on business property Guarantee - Mr. Boettcher's personal guarantee Annual Payment - $115,258 Home Equity Loan Loan Amount - $125,000 Interest Rate - 11.5% Term - 36 months Collateral - Second mortgage on residence and collateral assignment of leases on the business property Loan will be shown on the corporate statements as paid in capital to the business Annual payment - $49,464 City of New Hope, Minnesota November 30, 1990 Page 3 The three components of financing have been incorporated into the operating projections for Autohaus in 1991. Operating Projections The Small Business Administration application shows a 1991 revenue projection of $8,280,100, with a profit margin of 2.8%. The year-to-date financial statements, as of September 30, 1990, show sales of $4,262,400 which may result in sales of $5,683,000 on an annualized basis. Profit to date has been 3.7% of sales. While the actual profit to date is $156,580, on an annualized basis Autohaus would be generating $208,770 in profit this year. The 1991 projection shows a profit of $232,800 after paying the additional expenses due to the expansion. The additional expenses to be incurred due to the new financing and expansion include the following: SBA loan payment City Loan (6-year) $115,258 41,435 Subtotal $156,693 FlOor Plan interest (Average balance $450,000) 56,250 Total $212,943 The pro forma reflects additional interest expense and rent expense of approximately $152,000 in 1991. The difference between the pro forma expenses and the expenses shown above are due to additional principle payments on loans. The SBA loan application indicates of the $232,000 in profit, the loan principle would amount to approximately $53,000, resulting in a net cash flow of $179,000. The net profit shown in 1991 provides a three times coverage on the SBA financing. In summary, the cash flow projections from operations will cover all additional loan obligations. Security Concerns In the event of business failure, the question to be asked by New Hope EDA is what security measures would be available to repay the $190,000 in City financing. Following is a summary of the equity in' the business property owned by Tom Boettcher at 7709 - 42nd Avenue North and his home residence in Minneapolis. Business Home Market Value Existing Debt Current Equity Second Mortgages (SBA and Home Equity) Equity following Second Mortgage Third Mortgage (City Loan & Floor Plan) Total Equity $ 925,000 $ 400,000 $ 475,000 $158,000 $ 450,000 $ 242,000 $ 540,000 $125,000 $ (90,000) $117,000 $190,000 $ 600,000 $(280,000) $(483,000) City of New Hope, Minnesota November 30, 1990 Page 4 The analysis of prior liens shown above assumes that there is no value to the Autohaus business or assets remaining in case of foreclosure. As shown above, the liens against the business would result in a shortfall of $280,000, based on the current value of $925,000. Assuming that the floor plan financing is secured by the third mortgage on Mr. Boettcher's home and that the inventory is sold without repaying the floor plan, the home shows a negative equity of $483,000. Tax Increment One area of security to the City in addition to a third lien on Mr. Boettcher's property would be the incremental taxes generated by the expansion of Autohaus. In our earlier memorandum, we had indicated that there would be a negligible amount of increment generated by the expansion. Since that time, the plans have been preliminarily reviewed by the Hennepin County Assessor's office which indicated a new value after expansion in the range of $616,100 to a high of $868,800. These values should be compared to a current appraisal obtained by Mr. Boettcher of $925,000 for his current business property, in updating the values and calculating the increment based on the 1990 tax capacity rates and the revised commercial industrial class rates, the range of potential increment will from $1,1 52 to a high of $14,454 per year. Assuming that the increment will be generated at the high end of the range, we also calculated the present value of the future tax increment receipts. Assuming the increment is collected over the remaining 14-year life of the Redevelopment District, and using a 7% discount rate, the present value of the future stream of increments if $100,267. This assumes that the first increment is available in 1993 and the last increment is collected in the year 2004. The present value of the future increment is less than the $190,000 being requested of the City of New Hope. However, this amount together with possible excess increments in the remainder of the District would be sufficient to cover the City's exposure. Summary In our previous letter to you dated December 8, 1989, we had questioned the value of the third mortgage as security to the City's position. At that time, we had no financial commitments or details on possible loan amounts and security requirements for Mr. Boettcher's private financing. With the clarification of the loan information we now have, it is clear that the business property value must rise to $1.2 million to be able to totally secure the City's exposure on a third lien position. The cash flow projections for the Autohaus expansion are quite strong. There is a good likelihood of continuing profitable operations and an ability to meet the new debt obligations. The advantage to the City in the current structure of their assistance is the short-term nature of the City loan. In the event of difficulties with business cash flow, the City's position is secured by the personal guarantees of Mr. Boettcher, the Autohaus corporate guarantee and the third mortgage lien on the property. In any event, the tax increment generated by the project would cover slightly more than half of the City's exposure. We would also recommend that the City continue to require life insurance policies on Mr. Boettcher in the amount of the loan to the project. ~ City of New Hope, Minnesota November 30, 1990 Page 5 I hope the information presented in this letter will be helpful to you in your considerations of Mr. Boettcher's request. Please feel free to contact us if you need any further clarification on our analysis. Sincerely, SPRINGSTED Incorporated mli cc: Kirk McDonald