CARADCO Building LLLP_Iowa Finance Authority LoanMasterpiece on the Mississippi
Dubuque
bitd
All- America City
II1'
2007
TO: The Honorable Mayor and City Council Members
FROM: Michael C. Van Milligen, City Manager
SUBJECT: Collateral for $4.5 Million IFA Loan to Caradco Building, LLLP, now
Caradco Landlord LLLP
DATE: August 11, 2011
Economic Development Director Dave Heiar is recommending a modification in the
collateral provided by Caradco Building, LLLP, now Caradco Landlord LLLP, for the
$4.5 million IFA loan. The investment documents for the North Cascade Road
developer's LLC do not allow this investment to be used.
The developers will still be providing $4,508,211 of collateral on the $4.5 million. loan.
I concur with the recommendation and respectfully request Mayor and City Council
approval.
Mi hael C. Van Milligen
MCVM:jh
Attachment
cc: Barry Lindahl, City Attorney
Cindy Steinhauser, Assistant City Manager
David J. Heiar, Economic Development Director
Masterpiece on the Mississippi
TO: Michael Van Milligen, City Manager
FROM: David J. Heiar, Economic Development Director
SUBJECT: Collateral for $4.5 Million IFA Loan to Caradco Building, LLLP
DATE: August 10, 2011
Dubuque
Aq- anedcaCity
2007
PURPOSE
The intent of this memorandum is to provide updated information relating to the required
collateral for the $4.5 million loan provided by the Iowa Finance Authority to the City of
Dubuque which will be loaned by the City to Caradco Building, LLLP. The Development
Agreement was between the City and Caradco Building, LLLP since Cardadco Building,
LLLP owned the real estate where the project is located. For tax credit purposes,
Caradco Building, LLLP is transferring the real estate to Caradco Landlord, LLLP.
Cardadco Building, LLLP has requested that the City approve assignment of the
Development Agreement to Caradco Landlord, LLLP.
BACKGROUND
On July 18, 2011, the City Council approved a combination of real property and liquid
assets as collateral for the $4.5 million IFA backed loan for the Caradco Building, LLLP,
now Cardaco Landlord, LLLP, project.
The list of approved collateral was as follows:
Business Investments (Real Estate).
Gronen Properties, LLC
Rouse & Dean Foundry Building, LLC
North Cascade Road Developers, LLC
Pine Box, LLLP
Gronen Restoration, Inc.
Upper Main Commercial
Interstate Building, LLLP
Caradco Building, LLLP
Address
1056 Main Street
990 Washington Street
(Timber Hyrst Subdivision)
1789 Elm Street
1056 Main Street
1042 -1098 & 1069 -1091 Main St.
131 W. 10th Street
900 Jackson Street
Type of
Mortgage
Cash /money market
1 s` mortgage
Lien'
2"d mortgage
Cash /money market
2 "" mortgage
2 "d mortgagee
1 n mortgage'
Existing Estimated Net
First Market Value
Mortgage Mav 1, 2011
N/A $140,000
N/A $92,400
N/A $807,540
$176,229 $1,009,107
N/A $595,000
$456,719 $834,046
$972,943 $712,029
$677,611 $1,125,629
$5,315,751
Special Notes:
1). 20% owner of Timber Hyrst Subdivision
2). 50% owner of Interstate Building, LLLP
3). With Intercreditor Agreement
Attached is the July 12, 2011 memorandum which provides more details about the
project and the financing.
DISCUSSION
The developers are working toward closing on the financing package for this project. As
we have been reviewing all the legal documents and agreements associated with
closing on the package, it has been called to the City's attention that it is not possible to
get a lien on North Cascade Road Developers, LLC (Timber Hyrst Subdivision). The
operating agreement for Cascade Road Developers does not allow ownership
interested to be pledged as security. This removes $807,540 from the total pledged
collateral of $5,315,751. The remaining collateral is valued at $4,508,211 which is
slightly more than their proposed $4,500,000 loan value.
RECOMMENDATION /ACTION STEP
To have the City Council acknowledge and approve the change in the collateral for the
Caradco Building, LLLP, now Caradco Landlord, LLLP, project by removing the
Gronen's interest in North Cascade Road Developers, LLC from the collateral list.
attachment
F: \USERS \Econ Dev \CARADCO \IFA Loan Collateral\20110810_Updated Collateral Memo IFA Loan to Caradco_1.docx
2
Masterpiece on the Mississippi
TO: Michael Van Milligen, City Manager
FROM: David J. Heiar, Economic Development Director
SUBJECT: Collateral for $4.5 Million IFA Loan to Caradco Building, LLLP
DATE: July 12, 2011
Dubuque
kitlid
aannerica city
11111!
2007
PURPOSE
The intent of this memorandum is to provide information relating to the required collateral for
a $4.5 million loan provided by the Iowa Finance Authority to the City of Dubuque which will
be loaned by the City to Caradco Building, LLLP. The City held a public hearing on this loan
on June 21, 2010.
BACKGROUND
The City Council has prioritized the redevelopment of the Historic Millwork District for mixed
use with an emphasis on downtown housing options. The Millwork District would be a large
scale project able to fulfill much of the needed demand for rental housing.
Housing has become a significant issue in Dubuque since IBM decided to locate its 1,300
employee Global Service Delivery Center. In addition, tighter lending requirements have
increased the demand for rental units. A lack of rental housing has caused trouble for new
residents to find a place to live. In June 2010, the Greater Dubuque Development
Corporation (GDDC) discovered approximately 170 vacant rental units, or about a 2%
vacancy rate within Dubuque.
A study was conducted for IFA in November 2009 to determine the additional need for
housing within Dubuque. The study showed an additional 556 housing units are needed in
the area, noting the most desirable units being in the downtown core area. The Millwork
District would be a large scale project able to fulfill much of the needed demand for rental
housing.
Even prior to the IBM announcement, the City had studies that indicated a need for
additional downtown housing. The consultants who prepared the Master Plans for the Port
of Dubuque, the Downtown and the Historic Millwork District emphasized the need for
downtown housing.
A solution is needed soon for this housing shortage because other companies in Dubuque
are also starting to increase their employment numbers. Companies have started to see
1
challenges in recruiting a qualified workforce because housing is unavailable in the area.
This loan program from IFA would provide additional funding for these projects.
The City received a $5.6 million federal TIGER grant to assist in infrastructure upgrades for
the Millwork District. This grant will replace underground utilities and reconstruct complete
streets for the District.
City staff has worked with Caradco Building LLLP to formulate a funding package to
redevelop the property located at 900 Jackson Street.
The Carr, Ryder & Adams Company Main Plant Building (Caradco), a former millwork
factory, occupying an entire city block, was built between 1880 and 1906. The renovation of
this building is expected to act as a catalyst for the revitalization of the Historic Millwork
District. With its foundation of historic, architecturally unique warehouses, the district will
become an urban mixed -use development containing mixed - income housing, commercial
space, and public gathering places, incorporating sustainable and energy- efficient
technologies.
The project includes the creation of 72 apartments on the second and third floors of the
building. In addition to the residential units, the Caradco Building will feature approximately
35,000 square -feet of first -floor commercial space to attract and support new downtown
businesses. The developer is also exploring the use of 12,000 square -feet of lower level
space for community service projects. The project plans also include an environmentally
sensitive HVAC system and other measures to enhance the building's energy efficiency.
At the January 18, 2011 meeting, the City Council approved a Community Development
Block Grant (CDBG) Housing Disaster Recovery Fund Contract between the Iowa
Department of Economic Development and the City of Dubuque on behalf of the Caradco
Building project. The amount of the award was $8.9 million. The CDBG financial assistance
will be a 10 -year forgivable loan (non- receding), forgiven in full at the end of the 10 -year
compliance period. If the assisted rental project is sold or transferred, or converted to an
alternate (non - residential) use during the 10 -year period following completion and
acceptance, the entire amount of the CDBG forgivable loan must be repaid by the
developer.
In September 2010, the City Council approved an offer to purchase the former Eagle
Window and Door office building site for $698,973 to accommodate the anticipated parking
needs in the Historic Millwork District. This property is located between Elm and
Washington Streets south of 10th Street. Since that time, the existing block building has
been deconstructed and the City has acquired this property.
In March 2011, a Development Agreement for the redevelopment of the Caradco property
was approved by the City Council. Some of the key elements of the Development
Agreement include the following:
1) The City is committing to complete the street reconstruction project funded by the
TIGER Grant from the Federal Highway Administration.
2) The project will receive $720,000 in incentives through the Downtown Housing
2
Incentive Program ($10,000 per new housing unit).
3) Caradco Building, LLLP will receive a 15 year TIF incentive on the value of the
assessable improvements. This can be taken as an up -front TIF with a minimum
assessment agreement or as a 15 year TIF rebate.
4) Contingent upon sufficient collateral acceptable to the City, the project will receive the
proceeds from a $4,500,000 loan from the Iowa Finance Authority. This will be a 20
year loan at 3% interest.
5) Contingent upon a subrecipient agreement and loan documents, an $8.9 million
CDBG award from the State of Iowa to assist in the creation of workforce housing in
the building.
6) Developer will spend approximately $28 million to create 72 residential units at 900
Jackson Street. This renovation will also include approximately 35,000 square feet of
commercial space on the main floor.
DISCUSSION
Major elements of the loan agreement between the IFA and the City are as follows:
• The $4.5 million loan has an upfront commitment fee of .5% payable from the first
draw of funds.
• Loan terms: 20 year loan first 10 years interest only at 3 %; second 10 years
principal and interest at 3 %, 20 year amortization.
• Dubuque loan pool would be loaned to Millwork developers on terms negotiated
by the City. Loan repayments can be used by the City to make additional loans
during the 20 year term.
• At least 50% of the completed units developed with loan proceeds will be rented
to families whose annual income is no more than 120% of the area median
income (today that equates to $52,560).
• The IFA loan is directly to the City and would be secured by the full faith and
credit of the City's general obligation bonding authority.
• The loan can be repaid at any time without penalty.
It should be noted that there is always some risk to the City when providing a loan
guarantee. The City has previously accepted grants and /or loans to assist local projects,
but not on this scale. The City previously agreed to a $500,000 loan from the IFA to assist
the White Street condominium project. This was also a loan to the City, from which the City
in turn loaned $250,000 to the developer. The City also assisted the Dubuque County
Historical Society with the National Mississippi River Museum expansion project. The
federal government committed $5 million of National Scenic Bylaws /SAFETEA -LU funding
toward this expansion. The City was required to provide this funding upfront and was
reimbursed by the federal government. In the event of a default, the City was obligated to
repay the grant. The Dubuque County Historical Society provided satisfactory collateral.
The principals of Caradco Building, LLLP, John and Mary Gronen, are proposing to borrow
from the $4.5 million loan pool. They offer to use their interests in cash, money markets and
3
real estate holdings in the City of Dubuque as their collateral to secure this loan from the
City.
Business Investments (Real Estate)
Gronen Properties, LLC
Rouse & Dean Foundry Building, LLC
North Cascade Road Developers, LLC
Pine Box, LLLP
Gronen Restoration, Inc.
Upper Main Commercial
Interstate Building, LLLP
Caradco Building, LLLP
Address
1056 Main Street
990 Washington Street
(Timber Hyrst Subdivision)
1789 Elm Street
1056 Main Street
1042 -1098 & 1069 -1091 Main St.
131 W. 10th Street
900 Jackson Street
Type of
Mortgage
Cash /money market
15f mortgage
Lien'
2nd mortgage
Cash /money market
2nd mortgage
2nd mortgagee
1st mortgage3
Existing Estimated Net
First Market Value
Mortgage May 1. 2011
N/A $140,000
N/A $92,400
N/A $807,540
$176,229 $1,009,107
N/A $595,000
$456,719 $834,046
$972,943 $712,029
$677,611 $1,125,629
$5,315,751
Special Notes:
1). 20% owner of Timber Hyrst Subdivision
2). 50% owner of Interstate Building, LLLP
3). With Intercreditor Agreement (see memo for details)
The Gronen's have consulted with Tom Kane, a local appraiser and real estate broker, to
determine values on these properties. It is estimated that the net value of their interests in
two business ventures and 'six properties is approximately $5.3 million. The business
ventures (Gronen Properties, LLC and Gronen Restoration, Inc.) will provide $735,000 of
liquid collateral in the form of cash and money markets. These values and estimates have
also been reviewed for accuracy by Honkamp Krueger prior to submittal to City staff.
The City would receive a 2nd mortgage on three of the properties, a 1st mortgage on the
Rouse and Dean Foundry Building, a lien on 20% of the North Cascade Road Developers,
LLC and a joint 1st mortgage with American Trust on the Caradco Building, LLLP. Some of
these properties are jointly owned with other business partners. The City would be placing a
lien on the Gronen's portion of the properties. While some of their assets are not extremely
liquid, the City would recover its money over time if there was a default by the Gronens. The
most liquid assets are the cash /money markets. First mortgages provide solid equity
positions and puts the City in control of the assets. A second mortgage would require the
City to buyout the 1st mortgage to have control of the property.
There will also be an intercreditor agreement between the American Trust and the City to
allow the bank to have a priority lien. Based on the proforma for this project, federal and
state historic tax credits will be utilized to repay American Trust. Historic Tax Credits are
brought into the project upon completion of the rehabilitation and final approval by SHPO
and the National Park Service. Based on completion of this project by December 2012, we
anticipate these funds will be brought into the proforma by the end of 2013 or early 2014. At
that point, the mortgage to American Trust should be paid in full.
The real risk period for the City would appear to be the time between the closing on the
loan, and the recovery of the tax credits (2013 or early 2014). During this window, much of
the City's collateral will be in the form of a 2nd mortgage on three properties. Upon the
completion of the Caradco Building, LLLP project, it is anticipated that the market value of
the property should be between $5 and $6 million. When the Historic Tax Credits are
received (2013 or early 2014), the City will automatically have the sole first mortgage on the
Caradco Building, LLLP, which should more than cover the City's loan, staff will recommend
that we release the mortgages on the other seven properties.
4
The loan terms between the City and Caradco Building, LLLP have not yet been finalized,
but I anticipate the terms to be the same or very similar to the terms the City has with IFA.
Caradco Building, LLLP will also be responsible for any administrative costs associated with
this loan which includes the upfront commitment fee to IFA and bond counsel costs incurred
by the City.
RECOMMENDATION /ACTION STEP
Is to have the City Council approve a $4.5 million loan utilizing the funding from IFA to
Caradco Building, LLLP secured by the cash, money markets and real estate holdings noted
in this memorandum and to authorize the City Attorney to prepare the required liens and
mortgages and authorize the City Manager to execute the same.
Attachment
F: \USERS\Econ Dev \CARADCO \IFA Loan Collateral\20110705IFA Loan Collateral Caradco Memo 3 .docx
5