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6.2 EDSR 02-17-2015 Request for Action To Item Number Economic Development Authority 6.2 Agenda Section Meeting Date Prepared by General BusinessFebruary 17, 2015Jeremy Barnhart, Deputy Director, CODD Item Description Reviewed by Distinctive Iron Microloan review . Reviewed by Action Requested Approve, by resolution, the Jobs Incentive microloan for Distinctive Iron in the amount of $126,000 Background/Discussion Distinctive Iron proposes to use the $126,000 microloan requested to support the acquisition of the building at 19128 Industrial Blvd. Distinctive Iron is a growing metal design and fabrication business serving Minnesota. Distinctive Iron is currently located in Nowthen. In addition to the purchase of the building, the Microloan would help facilitate the purchase necessary equipment and onsite improvements, including a 20,000 sq.ft. outdoor storage area. The Land Use approval of the outdoor storage area is th pending, expected February 17. The goal of the Jobs Incentive microloan program is to encourage the growth of new jobs and the retention of existing jobs. The $126,000 requested will support Distinctive Irons investment in Elk River, bringing 8 jobs to town, with anticipated growth of 5 more full time jobs in the next two years. 7 jobs are necessary to receive the funding level requested. th The Finance Committee reviewed the application on January 27, and recommends approval. The application meets the Microloan requirements of use, job growth, and private financial participation. Attachments  Summary sheet dated Feb. 15, 2015  EDA Resolution  Finance Committee Staff report 1/27/15  Springsted Summary February 12, 2015 Summary of Terms 1. Borrower: Hemmer Companies L.L.C., a Minnesota limited liability company 2. Project: Acquisition and renovations to existing facility at 19128 Industrial Blvd, Elk River, MN 55330 and acquisition of equipment. Facility will be leased to and operated by Distinctive Iron, LLC. Total project cost is $630,000, Microloan amount is $126,000, Borrower equity is $63,000, senior debt is $441,000. 3. Microloan Terms: a.Principal: $126,000 b.Interest: 2% per annum c.Amortization: $107,100.00 (85%) for property acquisition and renovations is amortized over a 20-year period with a balloon payment at 5 years; and $18,900.00 (15%) for the purchase of equipment shall be amortized over a 5-year period. 4. Documents: a.Loan Agreement between EDA and Borrower sets forth terms and conditions for Microloan b.Promissory Note from Borrower to EDA sets out repayment amounts and dates c.Mortgage from Borrower to EDA secures Borrower’s repayment obligation with a 2nd position interest in the facility at 19128 Industrial Blvd d.Certificate and Request for Notice gives the EDA notice of a foreclosure under the first lien mortgage e.Security Agreement from Distinctive Iron to EDA secures Borrower’s repayment obligation with a security interest in the new equipment f.Personal guaranties of Steven Michael Hemmer and Cynthia Mae Hemmer to EDA secures Borrower’s repayment obligation by making the owners personally liable for the debt g.Corporate guaranty of Distinctive Iron to EDA secures Borrower’s repayment obligation by making the tenant and operating entity liable for the debt h.Lease from Borrower to Distinctive Iron passes through the job creation obligations to Distinctive Iron as the operating entity [we need have not prepared this agreement and the Borrower will be required to provide it for review] 5. Subordination: Microloan will be subordinate to a first lien mortgage in favor of The Bank of Elk River in the amount of $441,000 for the project cost not paid by Borrower equity or the Microloan. 6. Jobs: The Borrower is required to cause Distinctive Iron to relocate or create in Elk River 7 jobs at an hourly wage equal to the greater of $19.00 per hour or 150% of the state or federal minimum wage. The provisions of the Business Subsidy Act, Minnesota Statutes, Section 116J.993 to 116J.995, apply to the Microloan. DOCS-#4058089-v2 Resolution 15-03 A Resolution of the City of Elk River Economic Development Authority, County of Sherburne, State of Minnesota, Approving Loan Agreement and Related Documents (Distinctive Iron Project) WHEREAS, the Board of Commissioners (the “Board”) of the Economic Development Authority of the City of Elk River (the “EDA”) has received a proposal from Hemmer Companies L.L.C. (the “Borrower”) that the EDA assist in financing the Borrower’s acquisition certain real property by providing a loan to the Borrower in the amount of $126,000 (the “Loan”) pursuant to the EDA’s Microloan Program (the “Program”). WHEREAS, the EDA has caused to be prepared a Loan Agreement (the “Loan Agreement”) with the Borrower setting forth, among other things, the terms and conditions under which the EDA will make the loan, a copy of which is on file with the Executive Director. NOW, THEREFORE, BE IT RESOLVED by the Economic Development Authority : of Elk River, Minnesota, as follows 1.01. The Loan Agreement as presented to the EDA, together with all related documents necessary in connection therewith, including without limitation, a Promissory Note from the Borrower evidencing the Loan, a Mortgage in certain real property, a Security Agreement in certain equipment and entity guaranty from Distinctive Iron, LLC, and personal guaranties from Cynthia Mae Hemmer and Steven Michael Hemmer, (all as defined in and described in the Loan Agreement) (collectively, the “Loan Documents”) are hereby in all respects approved, in substantially the form submitted and the President and Executive Director are hereby authorized and directed to execute the Loan Agreement and any Loan Documents to which it is a party on behalf of the EDA and to carry out, on behalf of the EDA, the EDA’s obligations thereunder. 1.02. The approval hereby given to the Loan Documents includes approval of such additional details therein as may be necessary and appropriate and 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 prior to executing said documents; 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. In the event of absence or disability of said officers, any of the documents authorized by this Resolution to be executed may be executed without further act or authorization of the Board by any duly designated acting official, or by such other officer or officers of the Board as, in the opinion of the City Attorney, may act in their behalf. th Passed and adopted this 17 day of February, 2015. President ATTEST: Executive Director Request for Action To Item Number Economic Development Authority Finance Committee 4.1 Agenda Section Meeting Date Prepared by General BusinessJanuary 27, 2015Jeremy Barnhart, Deputy Director, CODD Item Description Reviewed by Distinctive Iron Microloan review . Reviewed by Action Requested Provide recommended response to the EDA regarding the Jobs Incentive Microloan application. The Finance Committee may recommend approval, approval with conditions, or denial of the application. Background/Discussion The City has received an application from Distinctive Iron for a $126,000 Jobs Incentive microloan. Distinctive Iron is proposing to purchase the property at 19128 Industrial Blvd to house their growing metal design and fabrication business serving Minnesota. Distinctive Iron is currently located in Nowthen. The Microloan would help facilitate the purchase of the building, necessary equipment and onsite improvements, including a 20,000 sq.ft. outdoor storage area. The Land Use approval of the th outdoor storage area is pending, expected February 17. The building is 13,000 sq.ft. Their current location offers 4,800 sq.ft. The goal of the Jobs Incentive microloan program is to encourage the growth of new jobs and the retention of existing jobs. The $126,000 requested will support Distinctive Irons investment in Elk River, bringing 8 jobs to town, with anticipated growth of 5 more full time jobs in the next two years. Analysis Staff’s analysis is shown in Bold, alongside the applied policy. Purpose: To assist existing businesses with expansion and attract new businesses to the City whose local operations will help expand the City’s economy through job retention and creation and maintain/grow the City’s tax base. The purpose of the Jobs Incentive Program is to encourage the creation of high paying and quality jobs to the city. Distinctive Iron will bring 13 jobs to Elk River within 2 years, paying between $15-$22 per hour. Amount: Up to $200,000 of secondary financing not to exceed 20% of the project cost. The $126,000 requested is 20% of the project cost. Equity: Must have private-sector commitments for 50% of the project cost. Borrower must provide 10% or more of project financing. The applicant provides the minimum 10% ($63,000) as equity contribution. Assuming receipt of the full microloan requested amount of $126,000 (20% of project cost), private-sector financing provides the remaining 80% through debt and equity. Criteria: Borrower 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. All new jobs must be created within 2 years and retained for the period of the loan. Said jobs must pay greater of $15.00 per hour or 150% of state or federal minimum wage, whichever is greater, exclusive of benefits required by law. 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. Historically, a business moving into Elk River brings ‘new’ jobs. The 8 jobs at opening and 5 additional jobs provides up to $260,000 as qualifying maximum loan amount, subject to other requirements being met. If approved, the loan agreement will reflect the requirement to provide 7 new jobs (7 * $20,000 = $140,000 < $126,000 eligible/ requested) Summary For the $126,000 requested, the application meets the minimum job creation, wage, and financial participation required by Policy. Uses of the funds as proposed are eligible expenses. Attachments  Submitted Application materials  Application 12/17/14  Financial Statements  Summary of projections  Response to preliminary comments 1/14/15  Springsted summary 1/23/15 N:\Departments\Community Development\Economic Development\EDA\Administrative\Agenda\EDA Agenda Packets\2015\2-17-2015\6.2 at3 Distinctive iron Staff 1-27-15.docx Springsted Incorporated 380 Jackson Street, Suite 300 Saint Paul, MN 55101-2887 Tel: 651-223-3000 Fax: 651-223-3002 www.springsted.com DRAFT MEMORANDUM TO: Jeremy Barnhart, Community Operations and Development-Deputy Director FROM: Mikaela Huot, Vice President/Consultant Julian Bradshaw, Analyst DATE: January 23, 2015 SUBJECT: Distinctive Iron, LLC. – Microloan Fund Application Review Summary The City of Elk River received a loan request from Distinctive Iron, LLC (the applicant) through the Economic Development Microloan Fund. The applicant has indicated the funds would be used to aid in the acquisition and remodeling of an existing building. At the request of City staff, Springsted has undertaken an initial review of the company’s application and request to determine that, based upon the provided information, the applicant meets the guidelines as set forth by the City of Elk River’s Economic Development Microloan Fund policy. The purpose of this memo is to outline the components of the Microloan Fund Policy and Application including the requests for additional information that is necessary for review as it relates to the application submitted to the City by Distinctive Iron: 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 All new jobs must be created within 2 years and retained for the period of the loan: Created and retained jobs must pay greater than $15.00 per hour or 150% of State or Federal minimum wages (whichever is greater): 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: Eligible costs must be used for costs related to job creation an The application received by the City includes a requested loan a relocation to the City and 5 additional new jobs created within City of Elk River, Minnesota Distinctive Iron, LLC January 23, 2015 Page 2 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 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: Business must be a small business as defined by the small business administration: Business must have a positive net worth: Business must be 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: Based on the submitted application, the business is a for-profit industrial, manufacturing or technology-based industry and is no pornographic enterprise. The two most recent full years of fina net worth. Through the 3 rd quarter 2014 the submitted information shows positive net worth 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 City of Elk River, Minnesota Distinctive Iron, LLC January 23, 2015 Page 3 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: Applicant must demonstrate the financial means to repay the loans, as determined by the Economic Development Authority: Whenever possible, personal guarantees will be made part of any loan agreement: Key person life insurance may be required as determined by the EDA Finance Committee based on loan amount and company ownership partners: 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 $504,000/$126,000 Appropriate ratio of private funds to microloan funds: Sufficient cash flow to cover proposed debt service as demonstrated by financial statements and projections:information regarding operating performance and ability to support debt service will be provided to the EDA Finance Committee meeting while review under Ability to demonstrate positive net worth: information regarding ability to maintain positive net worth will be provided to the EDA Finance Committee meeting with revie Letter of commitment from applicant pledging to complete the project during proposed project duration:Provided Letter of commitment from other financing sources stating terms and conditions of their participation. Provided Sufficient collateral: c.All other information as required in the application and/or additional information as may be requested by the Economic Development Authority City of Elk River, Minnesota Distinctive Iron, LLC January 23, 2015 Page 4 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 Thank you for the opportunity to be of assistance to the City of Elk River. I will be prepared to discuss in greater detail at the EDA Finance Committee scheduled for Tuesday, January 27, 2015. I can be reached at 651.223.3036 and mhuot@springsted.com with any questions or for additional information.