8.1 SR 08-19-2024 - Laserfiche WebLink

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The Elk River Vision A welcoming community with revolutionary and spirited resourcefulness, exceptional service, and community engagement that encourages and inspires prosperity Request for Action To City Council Item Number 8.1 Meeting Date August 19, 2024 Prepared By Brent O'Neil, Economic Development Director Item Description Resolution 24-49 Amending Development Assistance Agreement and Approving Subordination Agreements - Heritage Millwork Project Reviewed by Cal Portner Action Requested Approve, by motion, Resolution 24-49 amending the Development Assistance Agreement (DAA) for the Heritage Millwork project and authorizing execution of subordination agreements with First Bank Elk River and Twin Cities-Metro Community Development Corporation (TCM). Background/Discussion Following the City Council's approval of the Heritage Millwork project, including the sale of land and approval of a tax increment financing (TIF) district and the execution and delivery of a Development Assistance Agreement (DAA), the city has been asked to subordinate its position to the primary lenders for the project. The city approved the sale of the property, valued at $1,378,019, under an arrangement in which the city would be compensated for the full property value, plus five percent annual interest, through the tax increment generated from the TIF district once the project is constructed and supplemental shortfall payments from the project owners, if needed, over a nine-year schedule of TIF payments. In addition, the DAA provides that the shortfall payments are secured by a minimum assessment agreement, a mortgage, corporate guaranty, and the personal guaranties of certain owners of Heritage Millwork. First Bank Elk River (“First Bank”) is the lead lender on the project and TCM is participating through a federal small business loan program. They are collectively financing approximately $18,000,000 of the project with a total budget in excess of $20,000,000. It is relatively common in situations in which TIF is utilized for the TIF portion of the project to be subordinate to senior lenders. Both lenders have requested that the city subordinate its interests to the senior lenders. Staff and counsel have reviewed the requests and have worked with both lenders on terms of the subordination agreements to strengthen the city's position in considering and accepting these agreements. The TCM request is regarding the property mortgage and is in line with past practice. It does not take effect until construction is complete. First Bank's request is a comprehensive subordination including the mortgage, security guarantees, minimum assessment agreement, reverter provision, shortfall payments, and DDA including the payment and construction requirements set forth therein. The city has included in the proposed Amended and Restated Development Assistance Agreement provisions that require pay-off of the city portion in the event of a sale of the company or refinancing of the senior loans that puts the city behind a larger loan, Page 212 of 327