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7.3. SR 12-15-2014 City of Elk=' Request for Action River To Item Number Mayor and City Council 7.3 Agenda Section Meeting Date Prepared by General Business December 15, 2014 Jeremy Barnhart,Deputy Director, CODD Item Description Reviewed by Stonesthrow Properties,LLC (Coin-tainer) Tax Cal Portner, City Administrator Abatement and Microloan Review Reviewed by Action Requested Open public hearing to consider business subsidy in the amount greater than $150,000 for Stonesthrow, LLC (Coin-Tainer). Background/Discussion The City Council must hold a public hearing and invite comments for any business subsidy in the amount greater than$150,000. Stonesthrow application for the Jobs Incentive Microloan,if approved by the EDA,would amount to $200,000. As of this writing,the EDA will review the application at their meeting on December 15. Final agreements are expected to occur in January,the public hearing held tonight would allow any comments to be incorporated into the final agreement. Attachments • EDA Staff Report • Springsted Analysis P a w E A E U a r NaA f RE] City of Elk - Request for Action River O. To Item Number Economic Development Authori 5.1 Agenda Section Meeting Date Prepared by General Business December 15, 2014 Jeremy Barnhart,Deputy Director, CODD Item Description Reviewed by Stonesthrow Properties,LLC (Coin-tainer) Tax Abatement and X icroloan review Reviewed by Action Requested Consider Stonesthrow,LLC (Coin-Tainer) N icroloan application. Background/Discussion The Finance Committee has reviewed Stonesthrow application for the Jobs Incentive N icroloan. They are requesting$200,000, the maximum available. Stonesthrow proposes to use the microloan to assist with the financing of the purchase of the building at 17834 Industrial Circle through a contract for deed. A major tenant of the building is Coin-Tainer. Coin-Tainer and Stonesthrow Companies share a common owner,Dave Walters. The Finance Committee supported the application,but wanted to ensure that 5 issues were addressed in the final agreements: • That both Coin-Tainer and Stonesthrow maintain responsibility for the loan repayment and job creation. • There must be lease continuity. • City must maintain a subordinate position with the option to take over the Contract for Deed at its discretion in the event of default. • Repayment maintain a 20 year amortization with 5 year balloon payment. • The City must be provided 6 month notice in the event of a default. Based on these issues, the FDA attorney has begun the development of the agreements. The FDA will see these agreements for approval in January, unless they wish to delegate approval authority to the FDA attorney. The goal of the Jobs Incentive microloan program is to encourage the growth of new jobs and the retention of existing jobs. The $200,000 requested will support the long term investment in the building, ultimately retaining the 26 jobs on site,and adding 10 more jobs in the near term future. Attachments • Springsted Analysis • Finance Committee Packet P a w E A E U s r NaA f RE] Springsted Incorporated 380 Jackson Street, Suite 300 p $ Saint Paul,MN 55101-2887 Tel: 651-223-3000 Fax: 651-223-3002 www.springsted.com MEMORANDUM TO: Members of the EDA Members of the City Council Jeremy Barnhart, Community Operations and Development-Deputy Director FROM: Mikaela Huot,Vice President/Consultant Julian Bradshaw,Analyst DATE: December 15, 2014 SUBJECT: Stonesthrow Companies, LLC and Coin-Tainer Co., LLC.—Microloan Fund Application Review Summary The City of Elk River initially received a request for assistance in the form of a loan from the City's Economic Development Microloan Fund from Stonesthrow Companies, LLC and Coin-Tainer Co., LLC for the anticipated acquisition of an existing building. At the request of the City of Elk River, Springsted has undertaken a review of the company's application and request. The purpose of this review is to understand (based upon the provided information) if the applicant meets the guidelines set forth by the City of Elk River's Economic Development Microloan Fund policy. Stonesthrow Companies, LLC will be the entity acquiring the building through a contract for deed and therefore the applicant for the Microloan. The Contract for Deed terms, as illustrated in the supplements to the developer's application,will be for a term of five years(amortized over 25)at an interest rate of 5.5%. The agreement is contingent upon the receipt of a microloan from the City of Elk River. Coin-Tainer Co., LLC is a coin, currency, and raffle ticket roll manufacturer and wholesale/retail distributor and will occupy a portion of the existing building. The remaining space will remain leased to existing tenants. As a part of the project, Coin-Tainer Co., LLC proposes to finish installing new equipment to restore production capability lost due to damage caused by a fire in another community. In order to aid in achieving the proposed redevelopment and permanent relocation in the City, the company has requested a microloan in the amount of$200,000 through the Jobs Incentive Program of the City of Elk River's Economic Development Microloan Fund program. Springsted has reviewed the following materials with regard to the above referenced project: • Coin-Tainer Co., LLC Microloan application, submitted to the City on August, 28 2014 • Balance sheets &profit and loss statements from 2012 through October 2014 Public Sector Advisors City of Elk River, Minnesota Stonesthrow Companies, LLC and Coin-Tainer Co., LLC Microloan Fund Application Review December 15, 2014 Page 2 Background The City of Elk River's Economic Development Microloan Fund Policy & Guidelines and Application was initially established to stimulate private sector investment into manufacturing and certain commercial facilities and equipment in order to create new jobs, boost productivity and retain existing jobs for local residents. The program was amended several times since implementation with the most recent approved amendment on November 17, 2014. The purpose of the recent amendment was to incorporate a 41h microloan fund program named Jobs Incentive Program. The purpose of the 41h program was to assist existing businesses with expansion and attract new businesses to the City to encourage the creation of high paying and qualify jobs to the city. The loan amount is up to $200,000 with a fixed interest rate of 2%. Funds may be used for those described in the Microloan Fund Policy including building construction, land acquisition, machinery,furniture,fixtures and equipment, renovation and modernization of buildings, exterior renovation of industrial buildings, public infrastructure and investment real estate. Funds may not be used for restaurants, retail businesses, casinos, or sports facilities. The applicant has indicated the Microloan Fund would be used to assist with acquisition of a commercial-industrial building in the City in which a large portion is currently leased to existing tenants. The applicant has requested the maximum amount available of$200,000 to assist with the acquisition. Approach Stonesthrow Companies, LLC has provided Springsted, through the City, with its microloan application and related materials. The goals of the City's Economic Development Microloan Fund program, as stated in the policy guidelines, is to provide low interest, long-term (i.e. greater than one year) loans as incentives for new industrial and commercial development within the City of Elk River and to encourage commercial and retail business owners in the Downtown District to rehabilitate their existing buildings. The following review will outline the loan eligibility criteria as presented in the Economic Development Microloan Fund Policy and identify if the applicant meets those guidelines. Springsted's initial determination that the applicant has fulfilled the necessary criterion is based upon the available information (application information and related materials provided by the applicant and the City) and the City's current policy guidelines. We have focused specifically on the project eligibility, loan security and guarantee requirements, eligible activities, business eligibility, and financial feasibility requirements as stated in the guidelines. The review is meant to provide a snap shot of the above referenced information and should be used as a tool to enable the City to form an opinion as to the applicant's suitability for the microloan program and ability to proceed with the project and honor any commitment made to the City of Elk River. Project Eligibility Requirements under Jobs Incentive Program For a project to qualify under the Jobs Incentive Program of the City of Elk River Economic Development Microloan Fund policy an applicant must meet certain criteria: Must create one new full-time job for each $20,000 loaned, retain one new full-time job for each$10,000 loaned,or combination of retainage and creation to meet the requirements: According to the applicant, Stonesthrow Companies, LLC, Coin-Tainer Co., LLC plans to create 70 new_jobs and retain 26 current_jobs. City of Elk River, Minnesota Stonesthrow Companies, LLC and Coin-Tainer Co., LLC Microloan Fund Application Review December 15, 2014 Page 3 All new jobs must be created within 2 years and retained for the period of the loan: According to the applicant, the project would result in the creation of 70 new_jobs. Created and retained jobs must pay greater than $15.00 per hour or 150%of State or Federal minimum wages (whichever is greater): According to the applicant, the pro_ject plans to create 70 new_jobs at$75.00 per hour. Any loans shall meet the City of Elk River Business Subsidy Policy for the creation of new jobs as well as a 5 year location requirement: The minimum wage for a_job to be considered anew or retained job shall be the greater of$75.00 per hour or 750%of state or federal minimum wage, whichever is greater, exclusive of benefits required by law. According to the applicant, the project would result in the creation of 70 new_jobs at$75.00 per hour. Eligible costs must be used for costs related to job creation and retention: Funds will be used to acquire the building on a contract for deed which will facilitate the creation of new_jobs and retainage of existing jobs in the community. 3. Permitted Fund Uses of Microloan (Page 6 of Policy) To qualify for receipt of a microloan, the applicant must utilize the funds for the specific purposes outlined in the City's Economic Development Microloan policy. Funds may be used by the borrower for costs related to job creation and retention as a result of the project. According to the policy, loans may be used for the following activities: 1. Building construction 2. Land acquisition 3. Machinery 4. Furniture,fixtures, and equipment(FF&E) 5. Renovation and modernization of buildings 6. Exterior renovation of retail, commercial and industrial buildings 7. Public infrastructure needed for economic development expansions 8. Investment real estate with a minimum of 50%of the space pre-leased According to the applicant, the microloan funds would be used to aid in the purchase of the existing building on a contract for deed basis and therefore would meet the eligibility criteria of#2. 4. Business Eligibility (Page 7 of Policy) In addition to having an eligible project a business must also meet certain criteria before it is deemed eligible to receive forgivable loan funds. According to the Economic Development Microloan Fund Policy, to be eligible for a microloan a business must meet the following Business must be a for-profit corporation, partnership or sole proprietorship: The applicant is a for-profit corporation. City of Elk River, Minnesota Stonesthrow Companies, LLC and Coin-Tainer Co., LLC Microloan Fund Application Review December 15, 2014 Page 4 Business must be a small business as defined by the small business administration: The applicant meets the definition of a small business, as defined by the small business administration. Business must have a positive net worth: The most recent full year's financial statements provided by the company are for the year ending December 37, 2073 with partial year information provided through October 2074. As such this determination is being made based upon the available information. Based upon a review of the financial information submitted by the company, the applicant had a positive net worth in December of 2072, a negative net worth as of December 37, 2073, and a positive net worth as of October 2074. Business must be an industrial, manufacturing, or technology-based industry: A review of the application materials confirms that the company fits into the description of an industrial, manufacturing, or technology based industry. Religious, political, casino, sports facilities and pornographic enterprises are not eligible to use the Economic Development Forgivable Loan Program: The applicant is not a religious, political, casino, sports facilities or pornographic enterprise. 5. Microloan Fund Terms & Conditions (Page 7 of Policy) To be determined if loan terms approved by the EDA. 6. Regulation for New Construction and Improvements (Page 7 of Policy) To be regulated if funding is approved and determined to be used for any improvements of the existing building. 7. Loan Security and Guarantee Requirements (Page 8 of Policy) The City's Economic Development Microloan Fund policy states that prior to the City granting a loan to a proposed business, that the proposed project must meet certain loan security requirements. These requirements are: Applicant must be able to secure the loan by providing the EDA with a minimum of a subordinate mortgage upon the building and/or assets or other approved collateral: According to the applicant, the EDA is welcome to a second mortgage after the building is purchased by Stonesthrow Companies, LLC on a contract for deed. The microloan funds are being used as a down payment to begin the contract for deed. Applicant must demonstrate the financial means to repay the loans, as determined by the Economic Development Authority: The property cash flows as is, fully rented, and the applicant anticipates the building will remain fully leased providing sufficient cash flow to repay the loan. City of Elk River, Minnesota Stonesthrow Companies, LLC and Coin-Tainer Co., LLC Microloan Fund Application Review December 15, 2014 Page 5 Whenever possible, personal guarantees will be made part of any loan agreement: The applicant agrees to provide a personal guarantee, if requested. Key person life insurance may be required as determined by the EDA Finance Committee based on loan amount and company ownership partners: The applicant does not plan to add additional life insurance, but already has$3.5 million dollar policy and would add the EDA as a beneficiary ahead of his wife, if requested. B. Timing of Project Expenses (Page 8 of Policy) To be regulated if funding is approved and determined to be used for any improvements of the existing building. 9. Procedural Guidelines for Application and Approval (Page 8 of Policy) To be regulated if funding is approved and determined to be used for any improvements of the existing building. The EDA Finance Committee is asked to evaluate the project application based on the following criteria a. Project design: evaluation of project design will include review of proposed activities, time lines and a capacity to implement b. Financial feasibility: availability of funds, private involvement,financial packaging and cost effectiveness • Appropriate ratio of private funds to microloan funds: Stonesthrow Companies, LLC is intending to acquire the existing building that Coin-Tainer Co., LLC is currently occupying and continue leasing that facility to Coin-Tainer Co., LLC and the other existing tenants. Acquisition of the building is estimated to be$2.6M and Stonesthrow Companies, LLC is planning to finance the purchase through a contract for deed with the microloan funds of$200,000 used to assist with the purchase. The applicant would use private funds to finance of$2.4M and microloan funds of$200,000 to acquire the building, with a ratio that meets the minimum criterion(50 96)of the City's policy. • Sufficient cash flow to cover proposed debt service as demonstrated by financial statements and projections: Stonesthrow Companies, LLC has requested assistance from the City of Elk River to assist with acquisition of the facility and reduce the amount of acquisition costs to be financed through the contract for deed. The contract for deed is amortized at a higher interest rate than the City microloan; therefore the microloan provides a lower interest alternative for a portion of the acquisition costs. Reducing the annual debt payments through the lower-interest loan provides adequate cash flow to cover debt service over the first 5 years. The applicant anticipates refinancing and/or selling the building at the time the obligations are due to provide sufficient capital for full repayment. • Ability to demonstrate positive net worth: As stated previously, the applicant has positive net worth as of October 2074 and has indicated relocation of business operations to Elk River and consolidation of certain operations following the fire in Milaca will result in long-term positive net worth for the company. City of Elk River, Minnesota Stonesthrow Companies, LLC and Coin-Tainer Co., LLC Microloan Fund Application Review December 15, 2014 Page 6 • Letter of commitment from applicant pledging to complete the project during proposed project duration: The applicant has provided a letter of commitment stating that receipt of the microloan funds will secure the ability to acquire the facility and locate in the City of Elk River. • Letter of commitment from other financing sources stating terms and conditions of their participation: The applicant has proposed acquisition of the building through a contract for deed as a means of pro_ject financing. The microloan funding provides additional resources to invest in the project. • Sufficient collateral: The applicant has stated it has sufficient collateral. c. All other information as required in the application and/or additional information as may be requested by the Economic Development Authority d. Project compliance with all city codes and policies e. Program Objectives: In addition to quality job and wage creation/retention requirements, the applicant must meet all Microloan Fund criteria and demonstrate how the proposed activities will meet at least one of the following objectives: • The project contributes to the fulfillment of the city's approved and adopted economic development and/or redevelopment plans • The project prevents or eliminates slums and blight • The project increases the local tax base • The project brings a structure into compliance with an existing building code violation If the project for which loan funds have been requested is completed as presented the company has estimated it would retain 26 and create 70 newJobs in the City. The project would maintain long-term occupancy in a partially vacant building and value of the property has been estimated to increase as a result of increased occupancy. This should result in fulfillment of the city's economic development plans of increased jobs within the community and an increase in the local tax base resulting from the market value growth. Conclusion After examining the micro loan application materials submitted by Stonesthrow Companies, LLC and Coin-Tainer Co., LLC and reviewing in conjunction with the Economic Development Micro Loan Program guidelines, Springsted concludes that the applicant and project appear to be in compliance with the program eligibility requirements (for which information was provided) as outlined in this memo and at the time of review. We note, however, that the information we were provided represents a snapshot in time, and therefore subject to change if unknown or unanticipated events may occur.