6.3. HRSR 12-05-2022
Request for Action
To Item Number
Housing and Redevelopment Authority 6.3
Agenda Section Meeting Date Prepared by
General Business December 5, 2022 Brent O’Neil, Economic Development Director
Item Description Reviewed by
HRA Loan at Jackson Place Cal Portner, City Administrator
Reviewed by
Action Requested
Approve, by motion, a statement concurring with the Joint Finance Committee (JFC) recommendation on
the loan proposal received.
Background/Discussion
In an effort to facilitate the development and construction of Jackson Place, the HRA entered into a $400,000,
30-year maturity loan agreement with owner-developer Metro Plains in 2006 at 1% annual compound interest
deferred until maturity in 2036. The funds were from a federal Community Development Block Grant program
which requires the 32 apartment units meet an affordability standard for 30 years. When the grant is satisfied, the
funds remain with the city upon repayment.
Metro Plains recently proposed an early loan pay off with a present value discount on the $400,000 principal. The
original total principal and interest repayment is $540,000. They proposed an annual discount rate of 9%.
On November 29, 2022, the Joint Finance Committee discussed the proposal and issued a recommendation to
the HRA stating that any early pay off agreement be on par with the original principal value and without any
present value discounting.
Financial Impact
Accepting the JFC recommendation would not have a financial impact. Accepting any repayment of the loan on a
discount basis would provide immediate funds to the HRA, but at a reduction of the full principal value.
Mission/Policy/Goal
The goal of the HRA is to promote certain housing and redevelopment projects.
Attachments
Proposal (email)
Summary of Present Value Calculation
Loan Documents
Notes from 11/29/2022 JFC Meeting
The Elk River Vision
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From:Larry Olson
To:O"Neil, Brent
Cc:Peggy Bonicatto ; Jason Moore; Larry Olson
Date:Friday, November 18, 2022 12:20:12 PM
Attachments:Copy of PV CDBG 400000 11-11-22 (1).xlsx
Brent – Thank you for your response to our meeting last summer.
Your CDBG funds allocated to Jackson Place were structured as a subordinate loan to allow Jackson
Place to utilize more housing tax credits from the State. We brought in a tax credit investor in 2007
to provide equity for Jackson Place. The Federal restrictions for the tax credits have a 15 year
compliance period after which the investor often elects to be bought out. Tax credit restrictions for
the state last 30 years. We purchased the investor’s interest in January 2022. Prior to this it was not
possible to restructure the debt on affordable housing projects.
This is the reason we met with you last summer. Our plans are a long term hold for Jackson Place.
When we settle subordinate debt for less than face value we have a taxable event adding to the cash
outlay by 40 to 45% in Minnesota. For this reason our offer to you is based on a 9% discount rate.
The offer is $160,000 per the attached calculation. If you have a high priority City initiative that this
fits into it may be an attractive opportunity. If not we are happy continuing our current relationship
until maturity in 2036.
Let us know how you want to proceed.
Thanks, Larry
Larry Olson
LWO Properties, LLC
MetroPlains Management, LLC
1600 University Ave. #212, St. Paul, MN 55104
651-523-1246 (Direct) 612-747-3728 (Cell)
metroplains.com
Our Values Inspire Our Vison
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MDI #70 ‐ CDBG Loan
Due: Septemer, 2036
Rate: 1%
Cumulative
Amount: Principal Interest Interest TOTAL
Present
Value Cash Flows
Dec‐22 400,000 70,494 470,494
Dec‐23 400,000 4,705 75,199 475,199 ‐
Dec‐24 400,000 4,752 79,951 479,951 ‐
Dec‐25 400,000 4,800 84,750 484,750 ‐
Dec‐26 400,000 4,848 89,598 489,598 ‐
Dec‐27 400,000 4,896 94,494 494,494 ‐
Dec‐28 400,000 4,945 99,439 499,439 ‐
Dec‐29 400,000 4,994 104,433 504,433 ‐
Dec‐30 400,000 5,044 109,478 509,478 ‐
Dec‐31 400,000 5,095 114,572 514,572 ‐
Dec‐32 400,000 5,146 119,718 519,718 ‐
Dec‐33 400,000 5,197 124,915 524,915 ‐
Dec‐34 400,000 5,249 130,164 530,164 ‐
Dec‐35 400,000 5,302 135,466 535,466 ‐
Sep‐36 400,000 4,016 139,482 539,482 539,482
PV Rate 9%
Present Value 161,438
Rounded 160,000
Meeting Summary – Preliminary (unapproved) Minutes of the Joint Finance
Committee on November 29, 2022.
The committee, along with financial advisor Mikaela Huot of Baker Tilly reviewed the proposal.
There was discussion over current funding levels of the HRA, and that currently there isn’t a need to
supplement the existing balances of the HRA by receiving loan repayment funds early.
The committee discussed the discount rate of 9% and that it has a correlation relative to the present
interest rate environment. However, the committee felt the rate is considerably high given the
original terms of the loan agreement and its potential reduction of the principal balance.
Ms. Huot suggested that in the event the borrower was seeking this adjustment to reinvest in the
property, there may be more merit to considering the proposal. O’Neil indicated though, that the
borrower had not indicated such an intent.
A question was raised about whether receiving the payoff early mitigated the risk of a future default.
Because of the existing mortgage on the property, the committee determined that to be a very small
risk and would not justify a substantial discounting of the loan.
The committee agreed that in some circumstances this proposal would make sense, but under the
current circumstances it does not offer enough advantages. There was also discussion on whether to
offer a modified proposal back to Metro Plains. The committee did not feel that offering a new
proposal was necessary. However, the committee felt the committee and HRA should continue to
be receptive to considering any early repayment offers and to communicate to Metro Plains the
factors important in an early loan payoff.
Motion by Ovall and seconded by Gromberg providing to the HRA a
recommendation that any early settlement of the loan should not apply present value
discounting to the $400,000 principal balance. Motion carried 6-0.