051595 EDA Agenda//8
Page
CITY OF NEW HOPE EDA
4401 Xylon Avenue North
Hennepin County, Minnesota 55428
EDA May 15, 1995
Special Meeting #1 City Hall, 8:30 P.M.
President: Edward J. Erickson
Commissioners: W. Peter Enck
Pat LaVine Norby
Gerald Otten
Terri Wehling
1. CALL TO ORDER
2. ROLL CALL
11. UNFINISHED AND ORGANIZATIONAL BUSINESS
11.1 Universal Color GAP Loan, 7700 42nd Avenue North (Project 539)
12. OTHER BUSINESS
13. ADJOURNMENT
'~ II EDA
) REQUEST FOR ACTION
Originating Department Approved for Agenda Agenda Section
City Manager EDA
._.4 -24-95
Kirk McDonald ; ) Item No.
By: Management Assistant By/?/ 5
DISCUSSION RE~ARDING REQUEST ByUNIVERSAL COLOR, INC. FOR ~AP FINANCIN~
LOAN FOR ACQUISITION OF/IMPROVI]MENTS TO KUPPENHEIMER BUILDING, 7700 42ND
AVENUE NORTH ;~ ,.6'"~q ·
The owners of Universal Color, Inc. will be present at the April 24th EDA meeting to request
consideration for a gap financing loan for the acquisition of the Kuppenheimer Building located at 7700
42nd Avenue North and related building improvements. Universal Color, Inc.. has been located in New
Hope for 15 years and is presently leasing space at the Autohaus site at 7709 42nd Avenue. Universal
Color has been trying to locate a suitable building for purchase in New Hope along 42nd Avenue for
the last several years. The Kuppenheimer business is located directly across 42nd Avenue (north) from
the Autohaus/Universal Color site and Kuppenheimer has determined that they will not be renewing their
lease with the owner of the building, which expires at the end of July, 1995. Universal's lease with
Autohaus expires on November 30, 1995, and Autohaus has indicated they do not wish to extend the
lease. Therefore, Universal Color is pursuing acquisition of the Kuppenheimer building so that they
can remain in New Hope where their customer base is established.
Per the enclosed letter, Universal Color has negotiated a purchase agreement and has obtained a bank
commitment, as well as a cOmmitment for the SBA (Small Business Administration) portion of the loan.
However, the SBA loan program is limited to providing financing for up to 90% of the appraised value
of the property and the building improvements necessary do not add to the appraised value of the
building. The total use of funds (for land/building acquisition, building improvements, equipment
purchase, ere) are $764,250. However, with the bank and SBA commitments and owners equity of
$75,600, a gap of $140,000 in the source of funds remains. This is the loan amount Universal Color ·
is requesting that the EDA consider. (The EDA provided Autohaus a $187,500 loan in 1991, and over
3/4 of that loan has now been repaid.)
One benefit to the City if Universal Color completed the acquisition would be additional employment,
as they would add five new full-time positions in the next two years. A future planned improvement
to the building would be a drive-up window for photo drop off/pick up. The acquisition would eliminate
the possibility of a vacant building on 42nd Avenue and the move would also allow Autohaus to
complete their improvements to the front of their property, as originally planned.
,qtnff i~ .~o.~.kint) elite, etlon from the, F, DA on how to nroce`ed with thi.q remm..qt
MOTION BY SECOND BY
Review: Administration: Finance:
I RFA-O01 ~
BRIDGEWATER
FINANCIAL GROUP
May 4, 1995
Mr. Bob Thistle
Springsted
85 East 7th Place
Suite 100
St. Paul, MN 55101
RE: 7700 PARTNERSHIP, L.L.P.
UNIVERSAL COLOR, INC.
Dear Bob:
Enclosed please find financial information on the above-referenced company for your
review. Universal Color is requesting a $140,000 loan from the City of'New Hope
to be amortized over 20 years with a balloon payment in 10 years at an interest rate
of 8 percent.
It is my understanding that this request may be considered at a special meeting of the
City Council on May lSth. Therefore, I believe that Kirk McDonald needs to'receive
your recommendation no later than Thursday, May 14th.
Please feel free to give me a call if you have questions regarding any of this
information.
Sincerely,
BRIDGEWATER FINANCIAL GROUP, INC.
Deborah L. Gustafson
President
DLG'Ist .
Enclosure . -. -
cc: P. Anderson & M. Diederichs, UniVersal Color
K. McDonald, City of New Hope
4205 Lancaster Lane North, Suite 1000, .Minneapolis. MN 55441 , {612)550-9030, {800)642-6258 · (6121550-9221 FAX
.... 05,'15/95 16:02 FA~ 812 223 3002 SPRINGSTED INC, ~002/006
85 E. SEVENTH PLACE, SUITE 100
SAINT PAUL, MN
612-223-3000 FAX: 612-223'3002
SPRINGSTED
Pu~ Financ~ Adviso,'s
7700 PARTNERSHIP, L.L.P. I UNIVERSAL COLOR, INC.
REVIEW OF REQUEST FOR FINANCIAL ASSISTANCE
Request
The Partnership is requesting a $140,000 loan from the City of New Hope at a rate of 8%, with
a 20-year amortization period and a balloon at the end of year I0.
Reason for Request
The Project's '~'alue" utilized in the Loan To Value Ratio (the "LTV") calculation is less than the
total project cost, This difference can be attributed to a combination of factors. First, the
Partnership paid a premium for the property. Second, the Company needs to make
improvements which are essential to their business but would not be necessary for most other
,~,m, mercial businesses. The cost of these improvements are not recognized as adding dollar-
!'~?~do{{ar value to the property, and this issue creates a difference in the "Cost" vs. '~/alue."
~!"~i,~-d. the "as completed" appraisal arrives at an LTV below what is required for the Project to
be entirely financed under an SBA 504 structure.
Background
7700 Partnership, L. LP. (the "Partnership'] is proposing to purchase and renovate the
Kuppenheimer building located at 7700 42nd Avenue North and to relocate Universal Color, Inc.
(the "Company") from across 42nd Avenue into the new{y acquired and renovated building (the
"Project").
The Partnership was formed to acquire, renovate and own the building. The two partners are
the two owners of the Company.
The Padnemhip ia currently proposing to finance the Project by using an SBA 504 loan
structure. Under this structure, s bank provides up to 50% of the LTV of the project, the SBA
provides 40% of the LTV, and the remaining 10% of the LTV is provided by borrower equity.
In an acquisition/renovation as is proposed for this project, the '%/slue" of the project is based
on a combination of the follOWing elements:
A. . "Market Value Appraisal" done by an MAI Appraiser,
B. Cost of the Improvements and Equipment;
C. Value of the existing equipment;
D. Reasonable transaction costs.
SAINT I%UL, MN M1NNI~AI,.'OLIS, MN · BROOKFTELD, W! OVER[AND PARK, KS · WASHINGTON, DC IOWA Cfi'Y,
~$:95 16:02 FAX 612 223 3002 SPRINGSTED INC. [~003/006
;'C:O C-a~nership, L.L.P. I Universal Color, Inc., Minnesota
The fact that the Company has been in the City of New Hope for 15 years and has been
seeking a new location in the nearby vicinity for 5 years, coupled with a desire by the Autohaus
to expand into the remainder of its building, are important intangibles which do not readily
incorporate into the SBA 504 underwriting analysis.
ANALYSIS
The Project
Land and Building Acquisition $487,500
Building Improvements 155,600
Equipment Purchase 85,000
Soft Costs/Contingency
Subtotal $755,000
SBA Debenture Pricing 9.25_0
Total Uses of Funds
Sources of Funds
Marquee Bank $269,750
SBA 504 279,000
City of New Hope 140,000
Owner's Equity 7S.50t3
Total Sources of Funds ~
Based on the above amounts, the '~/atue" of the project can be calculated by applying the
SBA 504 underwriting guidelines. (See Attachment A.) This calculation results in a '~/alua" of
$624,250 compared to a total project coat of $764,250, resulting in a "Gap" of $140,000.
The Company
Universal Color. tnc. is a C-Corporation which was established in 1973. The Company started
out in leased space in Crystal. In 1980 the Company moved to its current location at 7701 42nd
Avenue in New-Hope. Fifty percent of the Company is Gurrently owned by Paul Anderson
(President), and the other fifty percent is owned by Mike Diederichs (Vice President).
The real estate will I:)e held in 7700 Partnership, L.L.P. (the "Company") in which Mr. Anderson
and Mr. Diederichs are also equal partners.
The Company is a commercial and retail film processor, it procesee~ film, including color, black
and white and slides. It has the in-house capabilities to make enlargements up to poster size.
In addition, it sells film, photo albums, frames and miscellaneous accessories on a retail basis.
In 1994, the Company started providing custom framing service for photographs. The
Company currently employs 12 full-time employees.
,~$.'15,'95 16:03 FAX 612 223 3002 SPRINGSTED INC. [~004/006
7700 PartnershiP, L.L.P. I Universal Color, Inc., Minnesota
Page 3
The Company has established a unique niche in the market. It is a full service photo lab, while
mOst of its competitors specialize in only a few services. This Project will enable the Company
to further expand its services to include print-from-slide service and a photography studio. The
new building will give the Company better customer visibility and access from 42nd Avenue, a
drive-up window, a more efficient work space and state-of-the-art technology. In addition to
retaining the 12 full time employees, the Company will add 5 new positions within the next two
years.
Through the SBA 504 program, the Company's historical and projected financial statements
~v-e been underwritten by the SBA, the lender, and the Company's consultant (Bridgewater
l:i~a~ci~l Group). In addition, Springsted reviewed the Company's financial information,
ic,.ciuding the historical operating results and projected budgets, to confirm the financial strength
~.~f the Corrlpany and to verify for consistency with the narrative portion of the request.
The Company appears to have grown at a steady, manageable pace throughout its history. In
the recent past, it appears to have retained its market position and experienced a steady
growth in sales in the +1-4% range. The Company's financial ratios are healthy when compared
to industry standards and indicate that the Company has the financial strength to pursue this
Project. The projected financials appear to factually incorporate the impacts of the Proje..ct on
the Company's future financial performance.
City Poll~ Questions -
Should the City provide assistance to this project?
How does this request ffi into current City Policy?
,, What has been historical practice of the City?
· What precedent is being set for other commercial properties in New Hope?
· How much assistance should the City provide to the project?
- What terms and conditions should the City attach to the assistance?
Are there other sources of funds available to the Company?
· Who will pay for the City's costs of providing the assistance?
:SUMMARY AND CONCLUSIONS
The Company has operated successfully at its present location in New Hope since 1980. It
employs 12 full-time employees and will add another 5 full-time employees over the next two
years. The Company's unique market niche will be improved and expanded after this Project is
completed. Financially, the Company is sound, and it appears to have realistic, ally projected the
future impact of this Project on operations.
Based on the information provided by the Company and reviewed by our firm, it appears that
the City would be making a good investment in promoting economic development if the request
fits within the City's policy framework and there is careful consideration given to the terms and
conditions attached to the assistance.
~.15/Z5/95 16:03 FAX 6~2 223 3002 SPRINGSTED INC, ~005/006
7700 Partnership, L.L.P. / Universal Color, Inc., Minnesota
Page 4
~-~ ~articular, the City needs to be comfortable with the level of security being offered by the
~::.-.m~y. The quality and amount of collateral being offered should be reflective of the
,~.'-_~c!~ted ri~k. The collateral should be as near liquid as possible and the value upon
i~,~ui.dation should contemplate not only repaying the loan but have enough cushion to cover
~ssoc~ated costs and fees. If personal guarantees are being offered, the City needa to be sure
there is specific collateral pledged only to their loan in addition to other assets of the guarantor.
Respectfully,
SPRIN~
FAX 612 223 3002 SPRINGSTED INC. ~006/006
Attachment A
NEW HOPE, MINNESOTA
UNIVERSAL COLOR, INC.
UN.DERWR/TIN(9 ! C=AP WORKSHEET
Land and Building Acquisition S467,500
Building Improvement' (+) $155,600
Equil~ment
Soft Co~tslCantlngancy (+) .,
SU B'FOTAL
SBA Debenture Prioing (+) $9,250
TOTAL PROJECT COST =- $794,250
Aoprai~ect value o~ ren~v~d building
(x): ~A eligible coat fa~r X
SBA value of building
~ =rice of new equipme~
(x): SBA ellgib~ goer fe~ X
SBA Value ~ new equipme~ = $76,~
Appraised ~1~ ~ ex~a~ equtpmem
SBA ~1~ of ex~6ng equipm~t
Net SBA ~1~ ~ exl~na ~ulpme~ ' ~6~1alI
Pmje~ V~
SBA UND~ITING
~: _ ..... , .. __. _.
To~l Proje~ C~t
Lander- (SO%)
SBA Debefl~re Pri~i~ $9,2~
SBA To~l $~11
Awilable De~ Financing $6~,750
Minimum Required Equt~- (10~) $7S,~D
~BA - [49,1 ~4~) ~E~,7~
SBA To~l
Minim~ ~equ~ E~u~ - (Fram Abo~)
T~I Avi~ble 5~r~ 5~4~
FINANCING GAP ~
SOURCE: Bridgewater Ftne~iel ~'oup