Gronen Main St Property LoanMEMORANDUM
November 11,2003
TO:
The Honorable Mayor and City Council Members
FROM: Michael C. Van Milligen, City Manager
SUBJECT: Downtown Rehabilitation Loan to Gronen Properties: Main Street
Mr. Gronen has requested financing through the City's Downtown Rehabilitation Loan
program. These funds ($300,000) would be available in the years after the Heartland
Financial USA (former Walsh store) project is completed and funded. The City's policy
has been to provide a 20-year, 3% loan for renovation projects in the Downtown Urban
Renewal Area. The first five years require interest payments only. Additionally, each
borrower is eligible to receive forgiveness of $10,000 for design/architect services, and
for every new housing unit provided, $2,000 is forgiven.
Mr. Gronen and his consultant working on the financial package for this project have
asked for a 2% 30-year loan. The pro-formas provided indicate that this project is
probably not feasible without this modification in the standard loan structure.
This project is very unique, in that Mr. Gronen is attempting to arrang~e financing for the
rehabilitation of 6 buildings on both sides of Main Street between 10"' and 11th Streets.
The buildings are in dire need of restoration. The estimate cost for the renovation is
over $4,000,000. Because this area is critical in the redevelopment of Main Street, and
because the developer has provided documentation of the need for a lower interest rate
with a longer term, Economic Development Director Bill Baum recommends the City
agree to structure the Downtown Rehabilitation Loan for this project as requested by the
developer (2% for 30 years). A more formal loan agreement will be entered into with
the City at a future date. All of this is subject to the developer obtaining tax credit
application approval in 2004.
I concur with the recommendation and respectfully request Mayor and City Council
approval.
Michael C. Van Milligen ~
MCVM/jh
Attachment
cc: Barry Lindahl, Corporation Counsel
Cindy Steinhauser, Assistant City Manager
William J. Baum, Economic Development Director
CITY OF DUBUQUE, IOWA
MEMORANDUM
November 11, 2003
TO:
FROM:
SUBJECT:
Michael Van Milligen, City Manager
William J. Baum, Economic Development Director ~
Downtown Rehabilitation Loan to Gronen Properties: Main Street
INTRODUCTION
David Harris has prepared a memo to you concerning a request for City Council
endorsement of a tax credit application for John Gronen's redevelopment project on
Main Street. The purpose of this memo is to explain the Downtown Rehab Loan
request of Mr. Gronen, and ask for approval of an unusual structuring of the loan.
DISCUSSION
Mr. Gronen has requested financing through the City's Downtown Rehabilitation Loan
program. These funds ($300,000) would be available in the years after the Heartland
Financial USA (former Walsh store) project is completed and funded. The City's policy
has been to provide a 20-year, 3% loan for renovation projects in the Downtown Urban
Renewal Area. The first five years require interest payments only. Additionally, each
borrower is eligible to receive forgiveness of $10,000 for design/architect services, and
for every new housing unit provided, $2,000 is forgiven.
Mr. Gronen and his consultant working on the financial package for this project have
asked for a 2% 30-year loan. I requested documentation that this project would not be
feasible if the City loan was not structured per their request. They have provided me
with two pro-formas, and an explanation of the need for the assistance. They insist they
will be unable to complete the financing of this project if our loan is not structured as a
30-year term at 2%.
RECOMMENDATION
This project is very unique, in that Mr. Gronen is attempting to arrange financing for the
,01 th
rehabilitation of 6 buildings on both sides of Main Street between 10 and 11 streets.
The buildings are in dire need of restoration. The estimated cost for the renovation is
over $4,000,000. Because this area is critical in the redevelopment of Main Street, and
because the developer has given us documentation of the need for a lower interest rate
with a longer term, I recommend the City agree to structure the Downtown
Rehabilitation Loan for this project as requested by the developer (2% for 30 years). A
more formal loan agreement will be entered into with the City at a future date. All of this
is subject to the developer obtaining tax credit application approval in 2004.
NOV-07-2OO3 FRt 01:30 P~ CO~UNITY HOUSING F~× NO. ~?12282~92 ?, OI
Here arc some thoughts I have as to why it is critical tha! wc gC~ Oxe City $300,000 at 2%
for 30 yea~ (inste~ of 3% ~tt 20 yen~s).
Bntezlnt~c Social Investment Co~poration, the investor for the project, rc~tuircs that thc
project maintain at or very n~f a 1.1 $ debt coverage ratio. 'fhis is commonplace in thc
~x credit imlusk, y. We werc able to achicvc this ~.quiv~ment w~th a 3%, 20-yca~ lo~n if
$120,000 of thc loan was forgivc~ On Momtay, wc were informed thax only $52,000 of
tb~ $300,000 loan could be forgivcu. In addition, o~ Tuesday. we ~ to im:~ea.sc our
bud~c~ for ~ertalo opcrating expcns~ (utilities end insurance). Thc low~ amount of loan
for~vcnCss, coupled with higha~ opcra~g expenses, rcquired ~o do two ~s to make
this project work. First, wc have to request the Ci~ to lower ~hc interest rate to 2% and
increase thc term to 30 years. ~ pu~s the paymcnts on gvtis loan to within a $1,000 or
so of where they were a~ $120.000 forgtvem-ss end a~ 3% for 20 yca~ Sccond. wc
incurporaXed a short-t~mn $70,000 loan from fire ba~k. Wc are able to pay this off in thc
early years because of thc 10-year ~x abe~a~mt and thc fact that only interest i~ ~equircd
to be paid on thc City loan for the fi~st five years.
~Arc h~vc pretty much exhausted our opfion~ for s~atct'm'i~g ~ lrfOjeot to bc fmanCtally
viablc for the long-tc~m. If thc City will not consider 2% for 30 years on the $300,000
loan, I am not sum we will bc able to get our fmencing gap closed prior to thc application
deadline of November 24.
~'~l O'[OLLSiC:l~gc: uauo,J~ ~19~1:0 I~0 LO AON
~5.YEAR CASH FLOW PROFORMA - AGGREGATE
Upper Maln Revitalization
(Init[alYr. 100.00% )
IDED HOME (interest only):
Tax Abatement Loan;
Deferred Fee;
7%
Year Yeer Year Year Year
1 2 3 4 5
2006 2007 2008 2009 2010
69,380 158,055 162,006 166,057 170,206 ~74,463 178,825 183,295
3,391 5,996 6,146 6,300 6,457 6,619 6,784 6,984
(11,484) (11,771) (12,065) (12,3677 (12,6767 (12,9937 (13,317)
92,771 152,508 156,382 160,291 164,299 168,406 172,616 176,932
1,500 1,500 1,553 1,607 1,663 1,721 1,782 1,544
7,60~ 4,639 7,628 7,519 8,015 8,215 8,420 8,631
10,000 10,000 10,350 10,712 11,087 11,475 11,877 12,293
1,8oo 1,800 1,863 1,928 1,996 2,066 2,138 2,213
1,ooo 1,000 1,035 1,071 1,109 1,148 1,188 1,229
12,ooo 12,000 12,420 12,855 13,305 13,770 14,252 14,751
7,920 7,920 8,197 8,484 8,781 9,088 9,406 9,736
2,400 2,400 2,484 2,571 2,661 2,754 2,850 2,950
1,ooo 1,000 1,035 1,071 1,109 1,148 1,t88 1,229
187,878 192,575 197,389 202,324 207,362 212,566 217,881
7,128 7,306 7,488 7,676 7,868 8,064 8,266
(13,6507 (13,992} (14,341) (14,700} (15,0677 (15,444) (15,830}
181,355 185,889 190~536 195,300 200,182 205,187 210,316
1,908 1,975 2,044 2,116 2,190 2,267 2,346 2,428
8,847 9,668 9,294 9,527 9,765 10,009 10,259 10,516
12,723 13,168 13,626 14,106 14,600 15,111 15,640 16,187
2,290 2,370 2,453 2,539 2,628 2,720 2,815 2,914
1,272 1,317 1,363 1,411 1,460 1,511 1,564 1,619
15,267 15,802 16,355 16,927 17,520 18,133 18,767 19,424
10,076 10,429 10,794 11,172 11,563 11,968 12,387 12,820
3,053 3,160 3,271 3,385 3,504 3,627 3,753 3,885
1,272 1,317 1,363 ~,411 1,460 1,511 1,564 1,6t9
13,5oo 13,500 13,973 14,462 14,968 15,492 16,034 16,595 17,176 17,777 18,399 19,043 19,710 20,399 21,113 21,852
~,00o 1,000 1,035 1,071 1,109 1,148 1,188 1,229 1,272 1,317 1,363 1,411 1,460 1,511 1,564 1,619
22,ooo 22,000 22,770 23,567 24,392 25,246 26,129 27,044 27,990 28,970 29,984 31,033 32,119 33,244 34,407 35,611
Per ached. 2,500 5,000 5,075 5,151 5,228 5,307 5,386 5,467 5,549 5,632 5,717 20,494 20,801 21,113
2,609 2,617 3,043 3,286 3,549
25,920 25,711 25,466 25,242 24,980
28,529 28,529 28,529 28,529 28,529
6,000 6,000 6,000 6,600 6,000
6,000 6,000 O,O00 6,000 6,000
3,633 4,140 4,471 4,829 5,215 5,632 6,083 6,569 7,095 7,662
24~696 24,389 24,068 23,700 23,314 22,897 22,446 21,959 21,434 20,866
28,529 28,529 28,529 28,529 28,529 28,529 28,529 28,529 28,529 28,529
6,113 6,235 6,360 6,487 6,617 6,749 6,884 7,022 7,163 7,306
4,960 4,838 4,713 4,586 4,466 4,324 4,189 4,051 3,911 3,767
11,073 11,073 11,073 11,073 11,073 11,073 11,073 11,073 11,073 11,073
10,432 10,432 ~0,432 10,432 10,432 10,432 10,432 10,432 10,432 10,432
3,000 1,000 1,000 2,000 10,000 10,000
f5-YEAR CASH FLOW PROFORMA -AGGREGATE
Upper Main Revitalization
Net Rental Income
Operating Expenses=
Advedlsing
7%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
89,380 158,055 162,008 166,057 170,208 174,463 178,825 183,295 187,878 192,575 197,389 202,324 207,382 212,566 217,881
3,391 8,996 6,146 6,300 6,457 6,619 6,784 6,954 7,128 7,306 7,468 7,676 7,868 8,064 8,266
- (11,484) (11,771) (12~065) (12~367) (12,676) (12,993) (13,317) (13,650) (13,992) (14,341) (14,700) (15,067) (15,444) (15,830)
92,771 152,5~6 156,382 160,291 164,299 168,406 172,616 176,932 161,388 185,889 190,536 195,300 200,I82 205,187 210,316
1,8oo 1,500 1,653 1,607 1,663 1,721 1,782 1,844 1,908 1,975 2,044 2,116 2,190 2,267 2,348 2,428
7,609 4,639 7,628 7,819 8,015 8,215 8,420 8,631 8,847 9,088 9,294 9,527 9,765 10,009 10,259 10,516
10.00o 10,000 10,350 10,712 11,087 11,475 11,877 12,293 12,723 13,168 13,629 14,108 14,600 15,111 15,640 18,187
1,8oo 1,800 1,863 1,928 1,996 2,066 2,138 2,213 2,290 2,370 2,453 2,539 2,628 2,720 2,815 2,914
1,o0o 1,000 1,035 1,071 1,109 1,148 1,188 1,229 1,272 1,317 1,363 1,411 1,480 1,511 1,564 1,619
12,ooo 12,000 12,420 12,855 13,305 13,770 14,252 14,751 15,267 15,802 15,355 16,927 17,520 I5,133 18,767 19,424
7.S2O 7,920 8,197 8,484 8,781 8,088 9,406 9,736 10,076 10,429 10,794 11,172 11,563 11,968 12,387 12,820
2,400 2,400 2,484 2,571 2,661 2,754 2,850 2,950 3,053 3,160 3,271 3,385 3,504 3,627 3,753 3,885
1,00o 1,000 1,035 1,071 1,109 1,148 1,188 1,229 1,272 1,317 1,363 1,411 1,460 1,511 1,564 1,619
13=5o0 13,500 13,973 14,462 14,968 15,492 16,034 16,595 17,176 17,777 18,399 19,043 19,710 20,399 21,113 21,852
1,o0o 1,000 1,035 1,071 1,109 1,148 1,188 1,229 1,272 1,317 1,363 1,411 1,460 1,511 1,564 1,519
22,000 22,000 22,770 23,567 24,392 25,246 26,129 27,044 27,990 28,970 29,984 31,033 32,119 33,244 34,407 35,611
Per Sc~ed 2,500 5,000 5,075 5,151 5,228 5,307 8,386 5,467 5,549 5,632 5,717 20,494 20,801 21,113
IDED HOME (interesl only):
Tax Abatement Loan:
Deferred Fee:
Operating Cash Flow
2,?24
78,759 86,843 92,218 95,268 88,420 101,680 105,050 108,534 112,137 115~862 119,713 123,695 142~503 146,981 I51,607
14,012 65,725 64,164 65,024 65,878 66,726 67,566 68,397 69,218 70,027 70,823 71,605 57,679 58,206 58,710
2,609 2,817 3,043 3,288 3,549 3,833 4,140 4,471 4,829 5,215 5,632 6,063 6,569 7,095 7,882
25,920 25,711 25,486 25,242 24,980 24,696 24,389 24~058 23,700 23,314 22,B97 22,446 21,959 21,434 20,866
28,529 26,529 28,528 28,528 28,529 28,529 28,529 28,629 28,529 28,529 28,529 28,529 28,528 28,529 28,529
9,229 9,506 9,792 10,085 10,388 10,700 11,021 11,351 11,592 12,042
9,000 9,000 9,000 9,000 9,000 7,440 7,163 6~878 6,5B4 6,282 5,970 5,649 5,318 4,978 4,627
9,000 9,000 9,000 9,000 9,000 15,669 16,669 16,669 16,669 16,669 16,669 16,689 16,669 16,669 16,669
10,432 10,432 10,432 10,432 10,432 10,432 10,432 10,432 10,432 10,432
3,000 1,000 1,000 9,000 10,000 10,000
300 9,000 9,180 9,364 9,551 9,742 9,937 10,135 10,338 10,545 10,756 10,971 11,190 11,414 11,642 11,875
(42,948) 5,584 5,839 6,512 6,176 1,159 1,800 2,429 3,043 3,641 4,654 5,216 1,066 1,365 1,636
92,052 99,477 107,305 115,964 124,45B 128,/o7 132,469 137,547 143,341 149,849 157,500 165,866 170,250 175,020 180,156