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4.14. SR 01-20-2015 Request for Action To Item Number Mayor and City Council 4.14 Agenda Section Meeting Date Prepared by General BusinessJanuary 20, 2015Jeremy Barnhart, Deputy Director, CODD Item Description Reviewed by Resolution Approving Loan Agreement (Coin-Cal Portner, City Administrator Tainer Project) Reviewed by Action Requested Approve, by resolution, the $200,000 microloan for Coin-Tainer. Background/Discussion The EDA is expected to approve the $200,000 jobs incentive microloan for Coin-Tainer at their meeting on January 20, 2015. Because microloan is considered a business subsidy, the City Council must hold a public hearing and approve the subsidy via resolution, in addition to those same actions completed by the EDA. The city held a public hearing on December 15, 2014. No comments for or against the application were received. The resolution states that the Council authorizes the EDA President, Executive Director, and attorney to approve changes to our standard loan agreement. Attachments  Resolution  Council packet dated December 15, 2014 Resolution 15-__ A Resolution of the City of Elk River Elk River Approving Loan Agreement (Coin-Tainer Project) WHEREAS , the City Council (the “Council”) of the City of Elk River (the “City”) has received a proposal from Stonesthrow Properties, LLC (the “Borrower”) that the Economic Development Authority of the City of Elk River (the “EDA”) enter into Loan Agreement (the “Loan Agreement”) and related documents in connection with a loan to the Borrower in the amount of $200,000 (the “Loan”) pursuant to the EDA’s Microloan Program (the “Program”). WHEREAS , the EDA has approved the Loan and the Loan Agreement on this same date and a copy of the Loan Agreement is on file with the City Clerk. NOW THEREFORE, BE IT RESOLVED by the City Council of the City of Elk River as follows: Section 1. Business Subsidy. 1.01. The Loan constitutes a business subsidy within the meaning of Minnesota Statutes, Section 116J.993 to 116J.995 (the “Business Subsidy Act”), and the Loan Agreement includes a “business subsidy agreement” as required under the Business Subsidy Act. 1.02. The City has adopted a Business Subsidy Policy (the “Subsidy Policy”), which sets the general criteria for all types of subsidies granted by the EDA, all as required under the Business Subsidy Act. 1.03. The City has previously held a public hearing on the Loan in accordance with the Business Subsidy Act. Section 2. Consent. 2.01 In accordance with Section 116J.994, Subd. 3(d) of the Business Subsidy Act, the City hereby approves the Loan Agreement consents to the EDA entering into the Loan Agreement and related documents with the Borrower. 2.02 The City hereby approves the Loan in accordance with the Loan Agreement in substantially the form submitted to the Council together such modifications thereof, deletions therefrom and additions thereto as may be necessary and appropriate and approved by legal counsel to the EDA and by the President and Executive Director of the EDA prior to executing said documents and the City further; and said officers are hereby authorized to approve said changes on behalf of the EDA. The execution of any instrument by the President and Executive Director shall be conclusive evidence of the approval of such document in accordance with the terms hereof. 455493v1 JSB EL185-29 Passed and adopted by the City Council of the City of Elk River this 20th day of January, 2015. John J. Dietz, Mayor ATTEST: Tina Allard, City Clerk 455493v1 JSB EL185-29 Request for Action ToItem Numbe r Mayor and City Council 7.3 Agenda SectionMeeting DatePrepared by General BusinessDecember 15, 2014Jeremy Barnhart, Deputy Director, CODD Item DescriptionReviewed by Stonesthrow Properties, LLC (Coin-tainer) Tax Cal Portner, City Administrator Reviewed by Abatement and Microloan Review 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 th 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 Springsted Incorporated 380 Jackson Street, Suite 300 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 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 4 microloan fund program named Jobs Incentive Program. The th purpose of the 4 program was to assist existing businesses with expansion and attract new businesses to the City to th 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 req According to the applicant, Stonesthrow Companies, LLC,Coin-Tainer Co., LLC plans to create 10 new jobs and retain 26 c 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 10 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 project plans to create 10 new j 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 a new or retained of $15.00 per hour or 150% of state or federal minimum wage, whichever is greater, exclusive of benefits required by . law. According to the applicant, the project would result in th Eligible costs must be used for costs related to job creation an 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 on a contract for deed basis and therefore would meet the eligib 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 theEconomic 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 busine The applicant meets the definition of a small business, as defined by the small business 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 31, 2013 with partial y such this determination is being made based upon the available i information submitted by the company, the applicant had a positive net worth in December of 2012, a negative net worth as of December 31, 2013, and a positive net worth as of Oc 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 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 To be regulated if funding is approved and determined to be used 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 microloan funds are being used as a down payment to begin the co 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 a remain fully leased providing sufficient cash flow to repay the 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, bu has $3.5 million dollar policy and would add the EDA as a beneficiary ahead of his wife, if requested. 8. Timing of Project Expenses (Page 8 of Policy) To be regulated if funding is approved and determined to be used 9. Procedural Guidelines for Application and Approval (Page 8 of Policy) To be regulated if funding is approved and determined to be used 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 curre 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 t deed with the microloan funds of $200,000 used to assist with th private funds to finance of $2.4M and microloan funds of $200,00 that meets the minimum criterion (50%) 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 the contract for deed. The contract for deed is amortized at a h therefore the microloan provides a lower interest alternative for a portion of the acquisition costs. Reducing the annual debt payments through the lower-interest loa 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 capita Ability to demonstrate positive net worth:As stated previously, the applicant has positive net worth as of October 2014 and has indicated relocation of business oper certain operations following the fire in Milaca will result in l 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 r 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 means of project financing. The microloan funding provides addi 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 compl would retain 26 and create 10 new jobs in the City. The project vacant building and value of the property has been estimated to should result in fulfillment of the city’s economic development increase in the local tax base resulting from the market value g 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. Request for Action ToItem Numbe r Economic Development Authority 5.1 Agenda SectionMeeting DatePrepared by General BusinessDecember 15, 2014Jeremy Barnhart, Deputy Director, CODD Item DescriptionReviewed by Stonesthrow Properties, LLC (Coin-tainer) Tax . Reviewed by Abatement and Microloan review Action Requested Consider Stonesthrow, LLC (Coin-Tainer) Microloan application. Background/Discussion The Finance Committee has reviewed Stonesthrow application for the Jobs Incentive Microloan. 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 pa The City must be provided 6 month notice in the event of a defau Based on these issues, the EDA attorney has begun the development of the agreements. The EDA will see these agreements for approval in January, unless they wish to delegate approval authority to the 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 job Attachments Springsted Analysis Finance Committee Packet