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Cooper Development Company, LLCTHE CITY ©F DUbUgU@ DLTB E AR-Amaica City Masterpiece on the Mississippi 2007 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Cooper Development Request for Loan Payment Deferment DATE: February 24, 2009 In a letter dated December 18, 2008, the Cooper Development Company, LLC noted that, "due to poor economic conditions and circumstances beyond our control..." they were requesting a deferment of payments on the existing loans and the 2008 parking lot agreement. Based on 1) current economic conditions, 2) the efforts by the local investors to hire an outside management firm, 3) the bank's willingness to reevaluate the financing for this project, 4) the City's collateral (second mortgage), Economic Development Director Dave Heiar recommends that the City Council authorize the deferment of principal and interest payments as requested by the Cooper Development Company, LLC, until January 1, 2010 on • Downtown rehabilitation loan 241 6069 with a monthly payment of $1,288.52 • Community Development Commercial/Industrial loan with a monthly payment of $2,071.74 • Agreement dated November 3, 2008 with a monthly payment of $1,000. I concur with the recommendation and respectfully request Mayor and City Council approval. Mic ael C. Van Milligen MCVM/jh Attachment cc: Barry Lindahl, City Attorney Cindy Steinhauser, Assistant City Manager David J. Heiar, Economic Development Director THE CTTY OF Dubuque --~... DAB E Masterpiece on the Mississippi 2007 February 19, 2009 TO: Michael C. Van Milligen, City Manger FROM: David J. Heiar, Economic Development Director RE: Cooper Development Request for Loan Payment Deferment BACKGROUND In 2003, the City partnered with several local investors to rehabilitate the 4 story brick structure located at the intersection of 3~d and Main Streets (299 Main Street). The former Cooper Wagon building was converted into arestaurant /bar known as Bricktown, with a reception room on the 2"d floor. This high profile building is located at the entrance of the Port of Dubuque, and was a major part of the Lower Main transformation which occurred in the early part of the decade. The City made two loans to the local investors to assist with this project. One loan from the Downtown loan program was for $300,000. The other loan was a CDBG loan for $100,000. As security for these loans the City has a 2"d mortgage on the building. In 2008, major changes occurred in the ownership/management of the building and the business. The local investors bought out two of the partners who had been primarily responsible for management of the business. In an effort to assist in the transition, the City Council approved the purchase of the parking lot to the west of the building. In turn the Cooper Development Company, LLC, agreed to pay the City $1,000 per month for 2 reserved parking spots and for the assurance that the City would return this lot as a municipal parking area for 10 years. During this time period, the remaining local investors were required to contribute additional personal funds to keep the business open. DISCUSSION In a letter dated December 18, 2008, the Cooper Development Company, LLC noted that, "due to poor economic conditions and circumstances beyond our control..." they were requesting a deferment of payments on the existing loans and the 2008 parking lot agreement. On February 17, 2009, Aaron DeJong and I met with Bill Callahan of Dubuque Bank and Trust, and three of the local investors including James. Miller, Thomas Geisler, and Rick Ackley, to discuss their request and future plans. The local investors, with the help of the bank are pursing options to hire a management firm to re-brand the business and look at ways to better utilize the entire building. Currently, the third and fourth floors are not being utilized. Certainly, one of the options under discussion is to create some housing opportunities on these upper floors. A final discussion on that matter will depend on the management firm, and the direction this firm sees as most viable for the business. Despite the ongoing operating loss, the management firms have advised against closing the business. This is a real challenge for the local investors. The building has an appraised value of over $3 million; the remaining first mortgage is approximately $2.4 million. It should be noted that appraisals reflect fair market values, not distressed market values. Cooper Development is current with their loan payments to the City of Dubuque. As of February 2009, the remaining balance on the downtown loan is $272,928 and the CDBG loan balance is $48,989. As part of the downtown loan program, the company has the opportunity to provide the City with employment documentation which would entitle them to forgiveness of a portion of this loan. The loan agreement provides for a $2,000 credit to the principal for every FTE created in the first three years and retained for two years. Despite several requests from our office to the previous management, we never received any documentation on job creation. The current investors have asked their auditors to review the financials and employment records to create this documentation. Upon receipt of this documentation, the city will forgive a portion of the downtown loan as originally promised. The parking lot payments ($1,000 per month) per our 2008 agreement are in default. As of this month, the company is approximately $5,500 in arrears. The request would postpone these payments until 2010. Dubuque Bank and Trust is working with Cooper Development, LLC to evaluate refinancing of the primary loan. RECOMMENDATION/ACTION STEP Based on 1) current economic conditions, 2) the efforts by the local investors to hire an outside management firm, 3) the bank's willingness to reevaluate the financing for this project, 4) the City's collateral (second mortgage), I recommend that the City Council authorize the deferment of principal and interest payments as requested by the Cooper Development Company, LLC, until January 1, 2010 on • Downtown rehabilitation loan 241 6069 with a monthly payment of $1,288.52 • Community Development Commercial/Industrial with a monthly payment of $2,071.74 • Agreement dated November 3, 2008 with a monthly payment of $1,000. F:\USERS\DHeiar\Bricktown Parking Lot\Request for deferment memo.doc Michael Van Milligen Dubuque City Manager City Hall 50 West 13th Street Dubuque ,Iowa 52001 December 18, 2008 Dear Mr. Van Milligen, I am writing this letter on behalf of the investors in Cooper Development. Due to poor economic conditions and circumstances beyond our control we are asking the City of Dubuque to allow up to a six month deferment on two existing loans and a newly developed agreement regarding the parking lot adjacent to our property. The investors of Cooper Development are working diligently to overcome this financial difficulty. We are working with the bank, local realtors and developers to increase the property's use and functionality. The loans being referred to in this request are: ^ Downtown Rehabilitation Loan 241 6069 with a monthly payment of $1,288.52 ^ Community Development Commercial/ Industrial with a monthly payment of $2,071.74 ^ Agreement dated November 3, 2008 with a monthly payment of $1,000 Sincerely, The Cooper Development Company, L.L.C. P.O. BOX 1005 299 Main Street, D ue, Iowa 520 1 By /~~ es A. Miller By omas Geisler By ick ckley CC: David Heiar