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7.2 HRSR 06-01-2015 Request for Action ToItem Numbe r Housing and Redevelopment Authority 7.2 Agenda SectionMeeting DatePrepared by General BusinessJune 1, 2015Amanda Othoudt, EDD Item DescriptionReviewed by HRA Blighted Properties Forgivable Loan program Cal Portner, City Administrator Reviewed by Action Requested Approve, my motion, the HRA Blighted Properties Forgivable Loan Policy and Application. Background/Discussion Staff crafted the attached Blighted Properties Forgivable Loan Policy and Application at the direction of the HRA at the April 6 meeting. The city attorney, Springsted, and the finance department have reviewed the policy and application. The policy addresses commercial, industrial, and retail properti engineer as structurally substandard according to Minnesota Statutes Section 117.025, subdivision 7. Properties can qualify for up to $200,000 in the form of a forgivable loan. The purpose of the program is to reinvest in blighted properties to preserve or enhance local tax base and create permanent, private- sector jobs to stimulate above-average economic growth. It is intended to leverage private investment to ensure economic renewal and competitiveness, improve employment and economic opportunity for citizens, create a reasonable standard of living, and stimulate of productivity growth through improved commercial, retail, manufacturing or new technologies. Applications will be accepted on an ongoing basis and reviewed monthly. The forgivable loan program is based upon the following criteria: 1.Creation of new jobs shall be the greater of $15.00 per hour or 150% of state or federal minimum wage, whichever is greater, exclusive of benefits required by law; 2.The project can demonstrate that investment of public dollars induces private funds; 3.The project results in the sale and/or redevelopment of properti substandard; 4.Increase in tax base; 5.The project provides higher wage levels to the community or will add value to current workforce skills; 6.Whether assistance is necessary to retain existing business; and 7.Whether assistance is necessary to attract out-of-state business A Blighted Properties Forgivable Loan must meet Clauses 1.), 2.), and 3.). A loan cannot be made solely on findings 1.), 2.) and 3.). A finding must be made that at least two of the remaining conditions also exist. Blighted Properties Forgivable Loans are awarded to businesses that meet all project and job requirements as outlined within. Projects are evaluated on a first -come, first - served basis and awarded based upon meeting program criteria. Other requirements of the loan include: • Businesses receiving a principal amount greater than $75,000 shall comply with subsidy law reporting requirements. • Business shall be commercial, retail, industrial, manufacturing, or technology -based industry. • The applicant shall provide 50% of funding from a different source. • Shall retain created jobs for at least two years. • Shall comply with all city code and policies. • Shall demonstrate project financial feasibility. • Applicants shall conduct an environmental review. The loan will become forgivable after five years upon the completion of the job requirements. To receive maximum loan amount of $200,000, applicant would need to reinvest in the blighted properties project site including acquisition and site preparation at 100 percent or more of the assessor's current year's estimated market value. The Blighted Properties Forgivable Loan terms are set by the HRA. Projects which don't meet the terms may be required to repay all or a portion of the loan as determined in the loan agreement. Repayment terms will vary depending on the use of funds and collateral securing the loan. Specific repayment terms will be defined in the loan agreement in the event repayment of part or the entire Blighted Properties Forgivable Loan is required. However, all loans will become due and payable in full if a business relocates outside of the City of Elk River prior to the maturity date of the loan or if the jobs created are not maintained for a period of 2 years from the date of closing. A extension may be granted upon review of the Housing and Redevelopment Authority on a case -by -case basis, except as otherwise required by law. The application fee is a non - refundable fee set at $2,000 to cover processing the application. In addition, to the non - refundable processing fee, all legal and filing fees shall be paid by the borrower at closing. The time between application and approval of the loan is expected to take 6 -8 weeks. Staff will review applications submitted for compliance with program requirements. The application will then be submitted to and reviewed by the city's financial advisor, and may be subject to further review by the Small Business Development Center. Upon approval from the city's financial advisor and /or the SBDC, the EDA Finance Committee will review the application to ensure compliance with applicable goals, policies, and ordinances. Once a recommendation has been given, the HRA will review and ultimately approve or deny the loan. Loan proceeds will be disbursed upon proof of expenditures Financial Impact None Attachments ■ DRAFT HRA Blighted Properties Forgivable Loan program Housing and Redevelopment Authority Blighted Properties Forgivable Loan Policy Guidelines & Application City of Elk River Housing and Redevelopment Authority 13065 Orono Parkway Elk River, MN 55330 763.635.1040 www.elkrivermn.gov ELK RIVER HOUSING AND REDEVELOPMENT AUTHORITY BLIGHTED PROPERTIES FORGIVABLE LOAN POLICY GUIDELINES & APPLICATION I. OVERVIEW The Housing and Redevelopment Authority for the City of Elk Rive recognizes the need to stimulate private sector investment to he construction, create and retain employment opportunities and promote the sale and redevelopment of blighted or structurally substandard properties The focus is on commercial, retail, industrial, manufacturing, and technology-related industries to increase the local and state tax base and improve program can be used toward the purchase of and reinvestment in properties deemed blighted or structurally substandard. II. TO APPLY Applications will be accepted on an ongoing basis. Projects will be scored based on the attached Application Review Worksheet. The applicant shall complete and submit the attached application to the city, along with a processing fee of $2000 to cover processing expenses. Once application is deemed complete, by the EDA Finance Committee and HRA (process may take up to six weeks) for approval consideration. III. PURPOSE The Blighted Properties Forgivable Loan funds are to be used for expansions, and relocations where blighted properties are being are created and tax base is generated. This can be accomplished by the following means: 1.Reinvestment in blighted properties to preserve or enhance local tax base; 2.Creation of permanent private-sector jobs in order to create above average economic growth; 3.Stimulation or leverage of private investment to ensure economic renewal and competitiveness; 4.Improvement of employment and economic opportunity for citizens in the region to create a reasonable standard of living; and 5.Stimulation of productivity growth through improved commercial, manufacturing or new technologies. IV. PROJECT ELIGIBILITY AND REQUIREMENTS The Blighted Properties Forgivable Loan must be based on the fol 1.Creation of new jobs shall be the greater of $15.00 per hour or 150% of state or Blighted Properties Forgivable Loan Policy & Guidelines Page 2 of 15 federal minimum wage, whichever is greater, exclusive of benefits required by law; 2.The project can demonstrate that investment of public dollars induces private funds; 3.The project results in the sale and/or redevelopment of properti structurally substandard; 4.Increase in tax base; 5.The project provides higher wage levels to the community or will add value to current workforce skills; 6.Whether assistance is necessary to retain existing business; and 7.Whether assistance is necessary to attract out-of-state business A Blighted Properties Forgivable Loan must meet Clauses 1.), 2.), and 3.). A loan cannot be made solely on findings 1.), 2.) and 3.). A finding must be made that at least two of the remaining conditions also exist. Blighted Properties Forgivable Loans are awarded to businesses that meet all project and job requirements as outlined within. Projects are evaluated on a first-come, first-served basis and awarded based upon meeting program criteria. V. ELIGIBLE ACTIVITIES 1.Blighted Properties Forgivable Loan may be used for the following activities: a.Property acquisition, demolition, soil prep, infrastructure, or construction. b.Purchase furniture, fixtures, and equipment (FF&E) along with ne construction. VI. BUSINESSES ELIGIBILITY Any project meeting the above criteria, and located or proposed to be located within the city limits of Elk River as defined by this program, may be eligible for the Housing and Redevelopment Authority Blighted Properties Forgivable Loan program as further defined herein: Business must be a for-profit corporation, partnership, or sole . proprietorship Business must be a small business as defined by the Small Business Administration (SBA). Business must have a positive net worth. non-profit corporations, casino, sports facilities and sexually businesses are noteligible to usethe Housing and Redevelopment Authority Blighted Properties Forgivable Loan Program. VII. BLIGHTED PROPERTIES FORGIVABLE LOAN TERMS & CONDITIONS Loan Amount 8.There is a maximum of $200,000 per Blighted Properties Forgivable Loan. To receive maximum loan amount of $200,000, applicant would need to blighted properties project site including acquisition and site preparation at 100 Blighted Properties Forgivable Loan Policy & Guidelines Page 3 of 15 percent or more of the assessorÔs current yearÔs estimated marke Loan Structure All Housing and Redevelopment Authority Blighted Properties Forgivable Loans shall be structured as direct loans. Applicant must provide at least 50% of project cost through other means. Equity down payment requirements may vary depending on project and prim institution. Blighted Properties Forgivable Loan funds may be u approval of primary lending institution The HRA may require additional agreements to be signed by the bo (i.e. mortgage, promissory note, security agreement, personal gu subsidy agreement). Other HRA Incentives Projects can combine the Blighted Properties Forgivable Loan with all other incentives (i.e.: Micro Loan Program, Tax Abatement, TIF, etc.) Evaluate Building(s) Existing Condition An evaluation must be conducted to determine if the building(s) substandard by a licensed structural engineer with experience in facility assessment projects. Structurally substandard shall mean containing defects in structural elements or a combination of deficiencies in essential utilities and facilities, light and ventilation, fire protection including adequate egress, layout and condition of interior partitions, or similar factors, which defects or deficiencies are of sufficient total significance to justify substantial renovation or clearance. Deliver a written narrative analysis of the property describing why the property does or does not meet the criteria as Ñstructurally substandardÒ as e Minnesota Statutes Section 117.025, subdivision 7. Call of Loan Blighted Properties Forgivable Loan terms are set by the HRA. Projects which donÔt meet the terms may be required to repay all or a portion of the the loan agreement. A extension may be granted upon review of the Housing and Redevelopment Authority on a case by case basis, except as otherwise required by law. Repayment terms will vary depending on the use of funds an securing the loan. Specific repayment terms will be defined in the loan agreement in the event repayment of part or the entire Blighted Properties Fo required. A loan shall become due and payable in full if a busi of the city of Elk River prior to the maturity date of the loan are not maintained for a period of 2 years from the date of clos VIII. LOAN SECURITY AND GUARANTEES Applicant must secure the loan by providing the HRA with a mini subordinate mortgage upon the building and/or assets or other ap Blighted Properties Forgivable Loan Policy & Guidelines Page 4 of 15 Personal guarantees and entity guarantees may be made part of all loan agreements. Key person life insurance may be required as determined by the H amount and company ownership partners. VIII. TIMING OF PROJECT EXPENSES/PROJECT TIMELINE No project should commence until the Elk River Housing and Redev Authority has approved the loan application. Any costs incurred approval of the loan application are generally not eligible expe must submit project timeline with application; timeline will assist in determining job creation goal deadlines. The applicant will be responsible for all legal, recording, and other fees required for protection of a security interest in the loan, payable by a non-refundable $2000 processing fee, which is paid at the time of application. In addition to the non-refundable $2000 processing fee, all legal and filing fees shall be paid by the borrower at loan closing. X. PROCEDURAL GUIDELINES FOR APPLICATION AND APPROVAL 1.All applicants shall first contact a primary lending institution to determine if additional equity is needed, and if so, how much. 2. The applicant and the primary lender (if applicable) shall Staff to obtain information about the Housing and Redevelopment Authority Blighted Properties Forgivable Loan program, discuss the project, and obtain application forms. 3. The applicant shall complete and submit an application for with a non-refundable processing fee of $2000. The applicant must provide evidence of their ability to meet the equity requirements or provide a letter of commitment for conventional financing from the primary lending institution if applicable. 4. The HRA is a governmental entity and as such must provide public access to public data it receives. Data deemed by Applicant to be nonpublic data under State law should be so designated or marked by Applicant. See M Sections 13.59, Subd. 1, respectively. 5. The application will be reviewed by the City staff to determine if it conforms to all City policies and ordinances and to consider the following: a. The availability and applicability of other governmental gr loan programs. b. Whether the proposed project will result in conformance with building and zoning codes. c. Whether it is desirous and in the best interests of the pub funding for the project. Blighted Properties Forgivable Loan Policy & Guidelines Page 5 of 15 6. With written permission granted by the applicant, the appl submitted by City Staff to the Small Business Development Center advisory consult for staff and EDA Finance Committee. Applicant asked to execute a Release of Information form with SBDC. 7.The EDA Finance Committee and HRA Commissioners will review each application in terms of its consistency with the goals of the Ci Comprehensive Plan and Housing and Redevelopment Authority Strategic Plan and in relation to the projectÔs overall impact on the community EDA Finance Committee will evaluate the project application in terms of the following: a. Project Design - Evaluation of project design will include review of proposed activities, time lines and a capacity to impl b. Financial Feasibility - Availability of funds, private involvement, financial packaging and cost effectiveness. Appropriate ratio of private funds to the Blighted Properties Forgivable Loan funds. Sufficient cash flow to cover proposed debt service as demonstra by financial statements and projections. Ability to demonstrate a positive net worth. Letter of Commitment from applicant pledging to complete the project during proposed project duration, if the loan applicatio approved. Letter of Commitment from other financing sources stating terms and conditions of their participation in the project if applicab Sufficient collateral. Certificate of Good Standing from the Minnesota Secretary of Sta c. All other information as required in the application and/or additional information as may be requested by the Housing and Redevelopment 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 of the Blighted Properties Forgivable Loan Program criteria and demonstrate how the proposed activities will meet at least twoobjectives listed on page two of this application. 8.The EDA Finance Committee will recommend the approval, denial, or request a resubmission. A recommendation from the Finance Committee will forwarded to the HRA for final action. 9.Loan proceeds will be disbursed upon execution of the Blighted P Blighted Properties Forgivable Loan Policy & Guidelines Page 6 of 15 Forgivable Loan documents. A closing to execute the Blighted Properties Forgivable Loan documents will only occur upon the following: E ApplicantÔs portion of project funds have been disbursed or escrowed; or written confirmation from the primary lender that Applicant has met equity requirements for the project and primary Lender has either funde of the project; Lender has fully funded the project and is seeki financing by HRA for HRAÔs portion of the project; or Lender is simultaneous closing for the funding of the project. XI. LOAN POLICY REVIEW The above criteria will be reviewed on an annual basis to ensure that the policies reflected in this document are consistent with the Housing and R Authority goals set forth by the City. XII. RIGHT OF REFUSAL The Elk River Housing and Redevelopment Authority may deny any project which it deems inappropriate according to the guidelines established in t XIII. COMPLIANCE WITH MN BUSINESS SUBSIDY LAW Each company receiving assistance in the principal amount of $75,000 or more from the HRA Blighted Properties Forgivable Loan Program shall be sub provisions and requirements set forth by Minnesota Business Subs 116J.993 and the City of Elk River Business Subsidy Policy. All applicants will be required to submit annual progress reports to the Housing and Redevelopment Authority until job creation requirements are met. Blighted Properties Forgivable Loan Policy & Guidelines Page 7 of 15 ELK RIVER HOUSING AND REDEVELOPMENT AUTHORITY FORVIABLE LOAN APPLICATION I. CONTACT INFORMATION Legal Name of Business: Project Site Address: City / State / Zip Contact Person(s) Business PhoneFax Home Phone Email Check One:Proprietor CorporationPartnership Social Security No. Federal ID #State ID # II. NATURE OF LOAN REQUEST Does your project involve the redevelopment of structurally subs Yes No Amount Requested: $Total Project Cost: $ Project timeline: Please give a brief summary of your business and its products or Blighted Properties Forgivable Loan Fund Application Page 9of 15 DRAFT Please give a brief summary of the project and how it complies to the criteria for approval of the blighted properties forgivable loan program: Please describe how this loan will impact your project: III. FINANCING Project Costs $ Land $ Site improvements $ Buildings (attach plans & costs) Equipment/Machinery/Fixtures $ (attach list and estimated costs) $ Remodeling $ Industrial Inventory/Working Capital $ Other (attach description) Total Costs $ Comments: Proposed Sources of Financing SOURCE NAME TERMS AMOUNT Bank Loan __________ $_________ Blighted Properties Forgivable Loan Fund Application Page 10of 15 DRAFT Bank Loan __________ $_________ Other Private Funds __________ $_________ Applicant Contribution $_________ Other __________ $_________ Fed Grant/Loan __________ $_________ State Grant/Loan __________ $_________ HRA Blighted $ Properties Forgivable Loan Program Tax Increment Financing $ Tax Abatement $ Total Financing $_________ Collateral Assignments Lien Description of Collateral Position To Bank 1 To Bank 2 To Private Sources To Other Sources To State To HRA Micro Loan HRA Blighted Properties Forgivable Loan Value of Collateral Book Value Cost Existing Liens Land $_________ $___________ $__________ Buildings $_________ $___________ $__________ Machinery & Equip. $_________ $___________ $__________ Blighted Properties Forgivable Loan Fund Application Page 11of 15 DRAFT Other__________ $_________ $___________ $__________ Other__________ $_________ $___________ $__________ IV. JOB & WAGE GOALS How many employees do you currently have? Jobs To Be Created* Please provide the following information on jobs you expect to create Within 2-years. Average Are the Jobs Expected Number Hourly Annual Permanent or Hiring Job Title of Jobs Wage Salary Temporary? Date Program Objectives (Check all that apply) _____ The project contributes to the fulfillment of the cityÔs approved and adopted Housing and Redevelopment Authority 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. Blighted Properties Forgivable Loan Fund Application Page 12of 15 DRAFT V. PROJECT CONTACTS Attorney Name Address Phone ______ Accountant Name ______ Address Phone Financing Sources (lenders, partners, etcÈ) Name ______ Address Phone Name ______ Address Phone Parent Company Name ______ Address Phone Others Name ______ Address Phone ______ Name Address Phone Blighted Properties Forgivable Loan Fund Application Page 13of 15 DRAFT VI. ATTACHMENTS CHECK LIST Please attach the following: ______A) Written Business Plan: 1. Description of Business 2. Ownership 3. Management 4. Date Established 5. Products/Services 6. Future Plans _______B) Financial Statements for Past Two Years _______C) Financial Projections for Two Years _______D) Resume of Owner/Management _______E) Personal Financial Statements of Proprietor, Partners, Guarantors _______F) Letter of Commitment from Applicant Pledging to Complete During the Proposed Project Dura _______G) Letter of Commitment from the Other Sources of Finan Stating Terms and Conditions of Project _______H) Processing Fee of $2000 _______I) Certificate of Good Standing VI. AGREEMENT I / We certify that all information provided in this application of my/our knowledge. I / We authorize the City of Elk River and to check credit references and verify financial and other information. I / We agree to provide any additional information as may be requested by the City and the Finance Committee. APPLICANT SIGNATURE _______ BY DATE Blighted Properties Forgivable Loan Fund Application Page 14of 15 DRAFT APPLICATION REVIEW WORKSHEET TO BE COMPLETED BY CITY STAFF In the event of multiple applicants, and limited funds dedicated to the program, the attached worksheet will be used to determine how the funds will be allocated. The project meets the criteria set forth in Section IV of the Blighted Properties Forgivable Loan Policy. Check those which apply. Must meet first four to score 20 point points if any of the first four boxes are unchecked. Creation of new jobs shall be the greater of $15.00 per hour or 150% of state or federal minimum wage, whichever is greater, exclusive of benefits required by law. Increases tax base. The project can demonstrate that investment of public dollars induces private funds. The project provides higher wage levels to the community or will add value to current workforce skills. The project results in the sale and/or redevelopment of structur properties as determined by a licensed structural engineer. (additional 100 points given) Subtotal Section 1 (maximum 120 points) 2. Consideration of Capacity. Check those which apply. Must meet all four to score 20 points. points if any boxes are unchecked. Applicant included a realistic implementation /project schedule. Applicant has the ability to administer and monitor project. Applicant has the ability to conform to city, state and federal Applicant has agreed to annual progress reports and submission of salary surveys for all new hires. Subtotal Section 2 (maximum 20 points) Points 3. Impact : Number of new jobs as a result of the project: *Award five points per job created up to 150 points Ratio of loan funds to jobs created/retained $15,000 or less/job 80 points $15,001-$24,999/job 60 points $25,000-$34,999/job 40 points $35,000 and over/job 20 points Blighted Properties Forgivable Loan Fund Application Page 15of 15 DRAFT Increase in the local real estate tax base >$500,000 20 points $250,000 to $500,000 15 points <$250,000 10 points Immediacy of Impact *20 points awarded if project will begin within 6 months Subtotal Section 3 (maximum 320 points) *minimum of 60 points must come from this section in order for project to be considered Points 4. Wage Level of new jobs created Minimum hourly wage of jobs created/retained: Over $21/ hour 5 points $18-21 / hour 4 points $14-17 / hour 3 points $11-13 / hour 2 points Below $11/ hour application disqualified 5. Project size: The project will result in the construction of square feet. 80,000+ 50 points 65,000+ 40 points 50,000+ 30 points 35,000+ 20 points 25,000+ 10 point Subtotal Sections 4-5 (maximum 55 points) Sub - Total Points: of a possible 465points. Blighted Properties Forgivable Loan Fund Application Page 16of 15 DRAFT