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