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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)