8.4. SR 09-21-2015 EOty1� ,.,�� Request for Action
River
To Item Number
Mayor and City Council 8.4
Agenda Section Meeting Date Prepared by
General Business September 21, 2015 Amanda Othoudt,EDD
Item Description Reviewed by
HRA Blighted Properties & Forgivable Cal Portner, City Administrator
Commercial/Industrial Loan Program Reviewed by
Action Requested
Approve,by motion, the HRA Blighted Properties Forgivable Commercial/Industrial Loan program
policy and application.
Background/Discussion
Staff crafted the attached Blighted Properties Forgivable Commercial and Industrial Loan Policy at the
direction of the HRA after several discussions and workshop meetings over the past few months. The
city attorney, our financial advisor, and the finance department have reviewed both the residential and
commercial policies and applications.
At the September 7 meeting, the HRA reviewed the Blighted Properties Forgivable Commercial and
Industrial Loan Program and recommended approval of the policy to the City Council.
Blighted Properties Forgivable Commercial/Industrial Loan Program
The policy addresses commercial,industrial, and retail properties identified by a licensed structural
engineer as structurally substandard according to Minnesota Statutes Section 117.025, subdivision 7.
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 productivity
growth through improved commercial, retail, manufacturing or new technologies. Applications will be
accepted on an ongoing basis and reviewed monthly.
Financial Impact
Upon approval from the City Council, the HRA would appropriate a predetermined amount of reserves
from the HRA fund balance. As of August 31, 2015, the HRA has a fund balance available for Housing
and Redevelopment purposes of approximately$1 million.
Attachments
■ DRAFT HRA Blighted Properties & Forgivable Commercial/Industrial Loan program
POWERED 6T
AR
City of
ver
Housing and Redevelopment Authority
Blighted Properties Forgivable
Commercial/Industrial Loan Policy
Guidelines & Application
Cit,of Elk River
Housing and Redevelopment Authority
13065 Orono Parkway
Elk River,MN 55330
763.635.1040
-,vww.elkrivermn.gov
rP0 W E R E O 0 Y
NAfUif
p0WIe10 er
WA N Irl Ir%1w
ELK RIVER HOUSING AND REDEVELOPMENT AUTHORITY
BLIGHTED PROPERTIES FORGIVABLE
COMMERCIAL/INDUSTRIAL LOAN POLICY
GUIDELINES & APPLICATION
I. OVERVIEW
The Housing and Redevelopment Authority for the City of Elk River (HRA)
recognizes the need to stimulate private sector investment to help spur new
construction, create and retain employment opportunities and promote the sale and
redevelopment of 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 economic vitality. The
program can be used toward the purchase of properties deemed structurally
substandard.
II. TO APPLY
Applications will be accepted on an ongoing basis. Projects will be scored based on
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,it will be reviewed by the
cities Financial Advisor, Executive Director and HRA (process may take up to six
weeks).
III. PURPOSE
The Blighted Properties Forgivable Commercial/Industrial Loan funds are to be
used for business start-ups, expansions, and relocations where jobs are created and
tax base is generated. This can be accomplished by the following means:
1. Creation of permanent private-sector jobs in order to create above average
economic growth;
2. Stimulation or leverage of private investment to ensure economic renewal
and competitiveness;
3. Increase local tax base;
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, retail,
manufacturing or new technologies.
IV. PROJECT ELIGIBILITY AND REQUIREMENTS
The Blighted Properties Forgivable Commercial/Industrial Loan must be based on
the following criteria:
Blighted Properties Forgivable Commercial/Industrial Loan Policy&Guidelines P D W E H E D D Y
Page 2 of 15 -4AUR
1. Creation of new jobs must equal a minimum of$12.19/hr. including benefits.
2. Increase in tax base
3. The project can demonstrate that investment of public dollars induces private funds;
4. The project provides higher wage levels to the community or will add value to current
workforce skills;
5. The project results in the sale and/or redevelopment of properties deemed structurally
substandard;
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 Commercial/Industrial Loan is required to meet clause
5.). A loan cannot be made solely on a finding that the conditions in clause 5.), 6.) or 7.)
exist. A finding must be made that a condition in clause 1.), 2.), 3.), or 4.) also exists.
Blighted Properties Forgivable Commercial/Industrial 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 Commercial/Industrial Loan may be used for
the following activities:
a. Property acquisition, demolition, soil prep,infrastructure, or building
construction.
b. Purchase furniture, fixtures,and equipment (FF&E) along with new
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 a Housing
and Redevelopment Authority Blighted Properties Forgivable Commercial/Industrial
Loan 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 oriented
businesses are not eligible to use the Housing and Redevelopment
Authority Blighted Properties Forgivable Loan Program.
VII. BLIGHTED PROPERTIES FORGIVABLE
COMMERCIAL/INDUSTRIAL LOAN TERMS & CONDITIONS
Loan Amount
There is a maximum of$75,000 per Blighted Properties Forgivable
Commercial/Industrial Loan. Federal guidelines require a minimum of one job to be
Blighted Properties Forgivable Commercial/Industrial Loan Policy&Guidelines P D W E H E D D Y
Page 3 of 15 -4A f URS
created for every$15,000 requested. To receive maximum loan amount of$75,000,
applicant would need to create five new FTE positions. Wage and benefits must be
equal or greater than $12.19/hr.
Loan Structure
All Housing and Redevelopment Authority Blighted Properties Forgivable
Commercial/Industrial 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 primary lending
institution. Blighted Properties Forgivable Commercial/Industrial Loan funds may
be used as equity upon approval of primary lending institution
The HRA may require additional agreements to be signed by the borrower
(i.e. mortgage,promissory note, security agreement,personal guarantees, business
subsidy agreement).
Other HRA Incentives
Projects can combine the Blighted Properties Forgivable Commercial/Industrial
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) is structurally
substandard by a licensed structural engineer with experience in inspection and
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 "structurally substandard" as established in
Minnesota Statutes Section 117.025, subdivision 7.
Call of Loan
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.A job creation 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 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 Commercial/Industrial Loan is required. A loan shall 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. Jobs created must be maintained for a period of 2 years
from the date of closing.
Blighted Properties Forgivable Commercial/Industrial Loan Policy&Guidelines P D W E H E D D Y
Page 4 of 15 -4A f URS
VIII. LOAN SECURITY AND GUARANTEES
Applicant must secure the loan by providing the HRA with a minimum of a
subordinate mortgage upon the building and/or assets or other approved collateral.
Personal guarantees and entity guarantees may be made part of all loan agreements.
Key person life insurance may be required as determined by the HRA based on loan
amount and company ownership partners.
VIII. TIMING OF PROJECT EXPENSES/PROJECT TIMELINE
No project should commence until the Elk River Housing and Redevelopment
Authority has approved the loan application. Any costs incurred prior to the
approval of the loan application are generally not eligible expenditures. Applicant
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 $2,000
processing fee,which is paid at the time of application. In addition to the
non-refundable $2,000 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 then meet with City
Staff to obtain information about the Housing and Redevelopment Blighted
Properties Forgivable Commercial/Industrial Loan program,discuss the project,
and obtain application forms.
3. The applicant shall complete and submit an application form to the City, along
with a non-refundable processing fee of$2,000. 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 Minn. Sat.
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 grants and/or
loan programs.
b. Whether the proposed project will result in conformance with building
and zoning codes.
Blighted Properties Forgivable Commercial/Industrial Loan Policy&Guidelines P D W E H E D D Y
Page 5 of 15lotv'AfUR
c. Whether it is desirous and in the best interests of the public to provide
funding for the project.
7. The HRA Commissioners will review each application in terms of its consistency
with the goals of the City's Comprehensive Plan and Housing and
Redevelopment Authority Strategic Plan and in relation to the project's overall
impact on the community's economy and 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 implement.
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 demonstrated
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 application is
approved.
• Letter of Commitment from other financing sources stating terms
and conditions of their participation in the project if applicable.
• Sufficient collateral.
• Certificate of Good Standing from the Minnesota Secretary of State
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 one of the following
objectives listed on page two of this application.
8. The Housing and Redevelopment Authority will recommend the approval,
denial, or request a resubmission.
9. Loan proceeds will be disbursed upon execution of the Blighted Properties
Forgivable Commercial/Industrial Loan documents. A closing to execute the
Blighted Properties Forgivable Commercial/Industrial Loan documents will only
occur upon the following: Evidence of Applicant's portion of project funds
Blighted Properties Forgivable Commercial/Industrial Loan Policy&Guidelines P 0 W E H E D 0 Y
Page 6 of 15 [itv'AfUR
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 funded their portion of the project;Lender has fully funded
the project and is seeking take out financing by HRA for HRA's portion of the
project; or Lender is requesting 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 redevelopment
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 this document.
XIII. COMPLIANCE WITH MN BUSINESS SUBSIDY LAW
Each company receiving assistance in the principal amount of$75,000 from the
HRA Blighted Properties Forgivable Commercial/Industrial Loan Program shall be
subject to the provisions and requirements set forth by Minnesota Business Subsidy
Law Statute 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 Commercial/Industrial Loan Policy&Guidelines P D W E H E D D Y
Page 7 of 15 -4A f URS
ELK RIVER HOUSING AND REDEVELOPMENT AUTHORITY
FORVIABLE COMMERCIAL/INDUSTRIAL LOAN
APPLICATION
I. CONTACT INFORMATION
Legal Name of Business:
Project Site Address:
City/ State / Zip
Contact Person(s)
Business Phone Fax
Home Phone Email
1411W
Check One: Proprietor Corporation Partnership
Federal ID # State ID #
II. NATURE OF LOAN REQUES '
Does your project involve the redevelopment of structurally substandard property?
Yes
No
Amount Requested: $ Total Project Cost: $
Project timeline:
Please give a brief summary of your business and its products or service:
Blighted Properties Forgivable Commercial/Industrial Loan Fund Application Page 9 of 15
DRAFT
Please give a brief summary of the project and how it complies to the criteria for approval of
the blighted properties forgivable commercial/industrial loan program:
Please describe how this loan will impact your project:
III. FINANCING
Project Costs
Land
Site improvements $
Buildings (attach plans & cost
Equipment/Machinery/Fixtures
(attach list and estimated costs)
Remodeling $
ndustrialnve tory/Working Capital.' $
r (attach description) $
Tot is $
Comments:
Proposed Sources of Financing
SOURCE NAME TERMS AMOUNT
Bank Loan $
Blighted Properties Forgivable Commercial/Industrial Loan Fund Application Page 10 of 15
DRAFT
Bank Loan $
Other Private Funds $
Applicant Contribution $
Other $
Fed Grant/Loan $
State Grant/Loan $
HRA Blighted $
Properties Forgivable Commercial/Industrial Loan Program
Tax Increment Financing $
Q
Tax Abatement $
Total Financing
Collateral Assignments
Lien
Descri tion of Collater Position
To Bank
To Bank 2
Priva ources
Other Sources
To State
To HRA Micro Loan
HRA Blighted Properties Forgivable C/I loan
Value of Collateral
Book Value Cost Existing Liens
Land $ $ $
Buildings $ $ $
Machinery&Equip. $ $ $
Blighted Properties Forgivable Commercial/Industrial Loan Fund Application Page 11 of 15
DRAFT
Other 5 $ $
Other 5 $
IV. JOB & WAGE GOALS
How many employees do you currently have?
Guidelines require a minimum of one job created for every$15,000 requested.
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 coot `u "s,", 0,,the illment of the city's 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 Commercial/Industrial Loan Fund Application Page 12 of 15
DRAFT
V. PROJECT CONTACTS
Attorney
Name
Address
Phone
Accountant
Name
Address
Phone
Financing Sources lenderspartners, et
Name
Address
Phone
Name
Address
Phone
Parent Corn an
Name
Address
Phone
Others
Name
Address
Phone
Name
Address
Phone
Blighted Properties Forgivable Commercial/Industrial Loan Fund Application Page 13 of 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 Yea
C) Financial Projections for Two Years
D) Resume of Owner/Management
E) Personal Financial Statements of Prop tor,Partners,
Guarantors
IWNWI
F) Letter of Commitment from Applicant Pled ing to Complete
During the Proposed Project Duration
G) Letter of Commitmentfio Elie Other Sources of Financing,
Stating Terms and Conditions of their Participation in
Project
�H) Fee of$2,000 of amount of loan request
I) Certif to of Good Standing
VI. AGREEMENT
I /We certify that all information provided in this application is true and correct to the best
of my/our knowledge. I / We authorize the City of Elk River Housing and Redevelopment
Authority to check credit references and verify financial and other information. I /We
agree to provide any additional information as may be requested by the HRA.
APPLICANT SIGNATURE
BY
DATE
Blighted Properties Forgivable Commercial/Industrial Loan Fund Application Page 14 of 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 Commercial/Industrial Loan Policy. Check those which apply. Must meet first
four to score 20 points. 0 points if any of the first four boxes are unchecked.
❑ Creates new jobs with wages and benefits equal to at least $12.19/hr
❑ 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 structurally substandard
properties as determined Vas ctural engineer, (additional 100pointsgiven)
btotal Section 1(maximum 120points)
2. Consideration of Capacity. Check those which apply. Must meet all four to score 20 points. 0
points if any boxes are unchecked. Ilk
`
r
❑ 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 requirements
Applicant has agreed to„annual pro rens reports and submission of salary surveys for
all new hires
Subtotal Section 2(maximum 20 points)
3. Impact Points
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
Increase in the local real estate tax base
>$500,000 20 points
Blighted Properties Forgivable Commercial/Industrial Loan Fund Application Page 15 of 15
DRAFT
$250,000 to $500,000 15 points
<$250,000 10 points
Immediacy of Impact
*20 points awarded ifproject will begin avitbin 6 montbr
Subtotal Section 3(maximum 320 points)
*minimum of 60 points must come from this section in order for project to be considered
4. Wage Level of new jobs created Points
Minimum hourly wage of jobs created/retained:
Over $21/ hour 5 points
$18-21 / hour 4 points
$14-17 / hour 3 poin
$11-13 / hour 2 point
Below$11/ hour application disqualified
5. Project size: tohllt-,
The project will result in the construction of squ t.
80,000+ 50 points ':f
65,000+ 40 points
50,000+ 30 points
35,000+ 20 points
25,000+ 10 point
=,Subtot ,Sections 4-5(maximum 55points)
Sub -Total Points: of a possible 465 points.
Blighted Properties Forgivable Commercial/Industrial Loan Fund Application Page 16 of 15
DRAFT