Second Amendment to Development Agreement_40 Main LLC2007
TO: The Honorable Mayor and City Council Members
FROM: Michael C. Van Milligen, City Manager
SUBJECT: Resolution Authorizing the Second Amendment to the Development
Agreement with 40 Main, LLC
DATE: July 29, 2009
Economic Development Director Dave Heiar is recommending an amendment to the
Development Agreement for the 40 Main project.
The first change is a request from the developer to convert the Economic Development
grant to a forgivable loan. This change would have no impact on the City, but has
positive tax implications for the developer.
The second change would eliminate interest on the $300,000 TIF loan. As City staff
continues to review the pro forma for this project, it becomes more and more apparent
that the developer will have a very marginal cash flow. The City's best interest is served
by helping the developer fill the financing gaps to make this downtown market-rate
residential project a success.
concur with the recommendation and respectfully request Mayor and City Council
approval.
Mic ael C. Van Mi igen
MCVM:jh
Attachment
cc: Barry Lindahl, City Attorney
Cindy Steinhauser, Assistant City Manager
David Heiar, Economic Development Director
THE CITY OF
DuB E
Masterpiece on the Mississippi
TO: Michael Van Milligen, City Manager c
FROM: David Heiar, Economic Development Directo? f-~
J
Dubuque
~~~~~
,,!-~
2007
SUBJECT: Resolution authorizing the Second Amendment to the Development
Agreement with 40 Main, LLC
DATE: July 28, 2009
INTRODUCTION
This memorandum presents for City Council adoption a resolution approving an
amendment to the Development Agreement with 40 Main LLC., a mixed use
redevelopment of the building at 40 Main Street.
BACKGROUND
On January 15, 2009, the City Council approved a Development Agreement with 40
Main, LLC. That Agreement set the terms for the redevelopment of property located at
40 Main Street. The Agreement stipulates the City will provide an Economic
Development Grant and loan to 40 Main, LLC in an amount estimated at $600,000 (half
loan, half grant). The City's intention is to use the Tax Increment revenues from the 40
Main rehabilitation project to retire debt on the Urban Renewal Tax Increment Revenue
Note, which is being used as the tool to provide the Economic Development Grant and
Loan to the Company. The Development Agreement also provides fora $300,000
UDAG 0% loan to 40 Main, LLC.
On June 15, 2009, the City Council held a public hearing on the proposed issuance of
bonds to pay the costs of an urban renewal project in the Greater Downtown Urban
Renewal District, specifically funding an economic development grant and loan to the 40
Main, LLC. 40 Main, LLC negotiated the purchase of the bonds with Premier Bank at
an annual interest rate of 6.5%.
The City has required that the Company execute a Minimum Assessment Agreement,
and the City pledges only the taxes generated from the new value of the project. There
is no City Guarantee involved.
DISCUSSION
The 40 Main, LLC project is one of the redevelopment projects that we anticipate will
provide the much needed residential mix to our downtown. This is the first market rate
residential project in which the City has partnered. As the project continues to evolve, it
is necessary to make certain changes to the Development Agreement. The attached
resolution proposes two changes.
The first is a request from the developer to convert the Economic Development grant to
a forgivable loan. This change would have no impact on the City, but has positive tax
implications for the developer.
The second change would eliminate interest on the $300,000 TIF loan. As we continue
to review the pro forma for this project it becomes more and more apparent that the
developer will have a very marginal cash flow. The City's best interest is served by
helping the developer fill the financing gaps to make this market-rate residential project
a success in our downtown.
RECOMMENDATION/ACTION STEP
I recommend that the City Council approve a resolution authorizing the Second
Amendment to the Development Agreement with 40 Main, LLC.
Attachment
The First Amendment to Development Agreement, dated for reference purposes
the 18t" day of May, 2009, is made and entered into by and between the City of
Dubuque, Iowa (City) and 40 Main, LLC (Developer).
Whereas City and Developer previously entered into a Development Agreement
dated the 15t" of January, 2009 (the Development Agreement) and later amended on
May 18, 2009; and
Whereas the Development Agreement provides in Section 2.1 for Minimum
Improvements less than four million dollars ($4,000,000) to improve the Property
creating eighteen (18) apartments for market-rate rental and seven thousand eight
hundred (7,800) square feet of retail space.
Whereas City and Developer have agreed to amend the Development
Agreement to revise the grant and loan agreements; and
Whereas the parties desire to amend the Development Agreement to set forth
such amendment in writing.
THEREFORE, in consideration of the mutual terms and covenants contained
herein, the parties agree as follows:
1. Section 3.2. Section 3.2 is hereby amended by striking such provision and
placing in lieu thereof the following:
First Economic Development Loan to Developer. For and in consideration
of Developer's commitments as provided herein, City agrees (subject to
the conditions set forth in this Section) to make an Economic Development
Loan to Developer on the Closing Date or such other date as the parties
shall mutually agree upon in writing ("Funding Date"). The Economic
Development Loan shall be in the amount of $300,000.00. The interest
rate on the loan shall equal the rate of interest on the Urban Renewal Tax
Increment Revenue Bonds or Notes as described in Section 3.4. This
loan shall be funded solely and only from the proceeds of the sale of
Urban Renewal Tax Increment Revenue Bonds or Notes by City as
described in Section 3.4 hereof, and not from any other source. The loan
shall be repayable in 120 installments, paid monthly on the first day of
each month with the first such payment due on the 1St day of the 36t"
month following execution of the Loan documents. The loan shall be
secured by a mortgage and personal guaranties in a form acceptable to
City. There shall be credited against Developer's obligations for
payments of principal and interest due under the loan, each payment of
principal and/or interest made by City to the holder of the Urban Renewal
and Tax Increment Revenue Bonds or Notes, with the same force and
effect as if such payments were made by Developer under this loan, it
being agreed that all such payments under the Urban Renewal and Tax
Increment Bonds or Notes shall be deemed to be and constitute payments
on account of the loan.
2. Section 3.3. Section 3.3 is hereby amended by striking such provision and in
lieu thereof placing the following:
Second Economic Development Loan to Developer. On the Funding
Date, City shall provide Developer a second Economic Development Loan
in the amount of $300,000.00. These loan funds shall not accrue interest.
This loan shall be funded solely and only from the proceeds of the sale of
Urban Renewal Tax Increment Revenue Bonds or Notes by City as
described in Section 3.4 hereof, and not from any other source. The loan
shall be repayable in 120 installments paid monthly on the first day of
each month with the first such payment due on the 1St day of the 36tH
month following execution of the Loan documents. The loan shall be
secured by a mortgage and personal guaranties in a form acceptable to
City.
3. Section 3.4 Section 3.4 is hereby amended by striking the reference
therein to "... six hundred thousand and no/100 dollars ($600,00000)..."
and replacing such language with the following: "...seven hundred
thousand and no/100 dollars ($700,000.00) ...".
4. Except as modified herein, the Development Agreement shall remain in full
force and effect.
40 MAIN, LLC
By: 40 main MM, LLC
Its managing member
By:
Christopher A. Miller
Its managing member
Prepared/Return to: David Heiar, Economic Development, 50 W. 13t" Street, Dubuque, IA 52001 (563) 589-4393
RESOLUTION NO. 279-09
RESOLUTION APPROVING THE SECOND AMENDMENT TO THE 40 MAIN LLC
DEVELOPMENT AGREEMENT
Whereas, a Development Agreement (the Agreement), dated January 15, 2009,
was entered into by and between the City of Dubuque, a municipal corporation of the
State of Iowa (City), and 40 Main LLC (Developer); and
Whereas, this Development Agreement was amended (First Amendment) on
May 18, 2009; and
Whereas, City and 40 Main LLC now desire to amend the Development
Agreement as set forth attached Second Amendment.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF DUBUQUE, IOWA:
Section 1. That the Second Amendment of the 40 Main LLC Development
Agreement is hereby approved.
Section 2. That the Mayor is hereby authorized and directed to execute said
Second Amendment on behalf of the City of Dubuque and the City Clerk is authorized
and directed to attest to his signature.
Section 3. That the City Manager is authorized to take such actions as are
necessary to implement the terms of the Second Amendment as herein approved.
Passed, approved and adopted this 3rd day of Aught, 2009.
Roy D. Buol, Mayor
Attest:
eanne F. Schneider, City Clerk
Drake & Freund, Pc.
ATTORNEYS
D. Flint Drake*
fdrake@drakefreund.com
1005 Main Street, Suite 200
Dubuque, IA 52001
www.drakefreund.com
John D. Freund
jfreund@drakefreund.com
Both admitted in Iowa
*Also admitted in Wisconsin
VIA ELECTRONIC MAIL
Mr. David Heiar
Economic Development Director
City of Dubuque
City Hall
50 West 13`~ St.
Dubuque, Iowa 52001
VIA ELECTRONIC MAIL
Mr. Barry A. Lindahl, Esquire
Corporation Counsel
300 Main St. Suite 330
Dubuque, Iowa 52001
July 27, 2009
Telephone: (563) 582-2000
Facsimile: (563) 583-5225
RE: 40 MAIN, LLC /CITY OF DUBUQUE DEVELOPMENT AGREEMENT
Dear Gentlemen:
We represent 40 Main LLC in connection with, among other things, that company's
Development Agreement with the city of Dubuque dated January 15, 2009 and amended by First
Amendment to Development Agreement dated May 18, 2009. With this letter we request that you
place on the agenda for the first City Council meeting of August, 2009 a proposed Second
Amendment to Development Agreement. The purpose of the Second Amendment would be to
convert the Economic Development Grant contained in paragraph 3.2 of the agreement to a loan
from the city to 40 Main. We will provide a proposed Second Amendment for your review prior to
11 am on Wednesday, July 29. Should you require further information to place this matter on the
applicable agenda, please advise. Thank you.
Best Regards,
DRAKE & FREUND, P.C.
~~,~J~~
By
D. Flint Drake
cc City Manager (via electronic mail)