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German Bank Building_Transfer of LoanMasterpiece on the Mississippi TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager Dubuque kital All- America City II 111! 2012 SUBJECT: Assignment of German Bank Building, LLLP Development Agreement and Downtown Rehabilitation Loan Agreement DATE: November 28, 2012 Economic Development Director Dave Heiar recommends City Council approval of the assignment of a Development Agreement and Downtown Rehabilitation Loan Agreement from German Bank Building, LLLP to James Madison, Inc. for the German Bank Building located at 342 Main Street. I concur with the recommendation and respectfully request Mayor and City Council approval. brit44 krt., italy, Michael C. Van Milligen MCVM:jh Attachment cc: Barry Lindahl, City Attorney Cindy Steinhauser, Assistant City Manager Teri Goodmann, Assistant City Manager David J. Heiar, Economic Development Director Masterpiece on the Mississippi Dubuque bierd All-America City 1 2007 DATE: November 27, 2012 TO: Michael Van Milligen, City Manager FROM: David J. Heiar, Economic Development Director SUBJECT: Assignment of German Bank Building, LLLP Development Agreement and Downtown Rehabilitation Loan Agreement INTRODUCTION This memorandum presents for City Council consideration a Resolution approving the assignment of a Development Agreement and Downtown Rehabilitation Loan Agreement from German Bank Building, LLLP to James Madison, Inc. (Matt and Sarah Kluesner). BACKGROUND On May 21, 2007, the City Council approved a Development Agreement with German Bank Building, LLLP outlining an incentive package for the rehabilitation of the German Bank Building located at 342 Main Street. German Bank Building, LLLP invested $1,500,000 to renovate the building into a restaurant on the first floor and two apartments on the above floors. The Development Agreement included a commitment for a Downtown Rehabilitation Loan /Grant to encourage private investment and rehabilitation efforts in the City's Greater Downtown Urban Renewal District. The loan /grant program, capitalized with funds available through the City's tax increment financing district, provides for a maximum of $300,000 in attractive low- interest loan monies. The program also includes a forgivable loan element whereby qualifying applicants may have up to the full amount of the loan forgiven as an incentive for the creation of new employment and housing opportunities in the district. The Development Agreement also provided for a 10 year tax increment property tax rebate, which extends through May of 2019. DISCUSSION The German Bank Building, LLLP Downtown Rehabilitation Loan Agreement for $300,000 at 3% interest was finalized on August 19, 2008. The City has a 1st mortgage on the building to secure the loan. According to the terms of the loan, the developer pays interest only for the first 5 years, and begins principal and interest payments in year 6. Therefore, principal payments on this loan would begin on August 2013. Prior to the start of principal payment, the project is eligible for a $2,000 credit for each job created within 2 years of the loan and retained for 3 years, and for each new residential unit created in the downtown area. On this project, there will be no credits for job creation since the first floor restaurant has opened and closed under two different management groups. The project is however eligible for a $4,000 credit for the two new residential units created on the 2nd and 3rd floors of this building. In October, the German Bank Restaurant which has been operating in this building, closed its doors. The current building owner, German Bank Building, LLLP, has an offer to sell the renovated building to another restaurateur, James Madison Inc. (Matt and Sarah Kluesner) and has asked the City to approve the assignment of the Development Agreement and Downtown Rehabilitation Loan Agreement to the new owner which will assume the loan. Obviously, the renovation of this previously fire stricken building in the core of lower main was a critical investment in 2007 — 08. Today, this location is still very central to the overall sustainability of lower main. Generally, the City accepts 2nd mortgages on our downtown loans so that local financial institutions can have a first mortgage. In this project, Premier Bank has a second mortgage. The City Assessor has the property valued at $392,670, although a 2008 appraisal valued the building at $1.2 million. City Staff have reviewed the proforma and financial documents submitted by James Madison, Inc. The Kluesners already operate two other restaurants in Dubuque, The Star and Crust, and have demonstrated their ability to generate fine eateries. RECOMMENDATION I recommend that the City Council adopt the attached Resolution approving the assignment of the German Bank Building, LLLP Development Agreement Downtown Rehabilitation Loan Agreement to James Madison, Inc. and the assumption of the $300,000 loan, by James Madison, Inc. ACTION STEP The action step for the City Council is to adopt the attached Resolution. F: \USERS \Econ Dev \German Bank - Silver Dollar \Loan Transfer \20121127 Memo to MVM - Loan Transfer.doc RESOLUTION NO. 335 -12 AUTHORIZING THE ASSIGNMENT OF THE GERMAN BANK BUILDING, LLLP (342 MAIN STREET) DEVELOPMENT AGREEMENT AND DOWNTOWN REHABILITATION LOAN AGREEMENT TO JAMES MADISON, INC. Whereas, the City of Dubuque, Iowa, has created a Downtown Rehabilitation Loan /Grant Program for the purpose of stimulating reinvestment in the Greater Downtown Urban Renewal District; and Whereas, the City of Dubuque, Iowa is encouraging the use of this loan /grant program to finance code compliance activities and to spur job creation activities; and Whereas, the Development Agreement with German Bank Building, LLLP approved by resolution 298 -07 committed to a $300,000 Downtown Rehabilitation Loan for the renovation of the German Bank Building located at 342 Main Street; and Whereas, German Bank Building, LLLP desires to transfer the building to James Madison, Inc. with the intent of reopening a restaurant on the first floor of the building; and Whereas, German Bank Building, LLLP further desires to assign the Development Agreement and Downtown Rehabilitation Loan Agreement to James Madison, Inc.; and Whereas, the City Council finds that it is the best interests of the City of Dubuque to approve the assignment, subject to the conditions set forth herein. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF DUBUQUE, IOWA: Section 1. That the City Council approves the assignment of the German Bank Building, LLLP Development Agreement and Downtown Rehabilitation Loan Agreement to James Madison, Inc., subject to approval of the terms and conditions, of the assignment by the City Manager, including the assumption by James Madison, Inc. of all obligations and responsibilities of German Bank Building, LLLP under the Development Agreement and Downtown Rehabilitation Loan Agreement. Section 2. That the City Manager is hereby authorized to execute, on behalf of the City of Dubuque, Iowa, all necessary documents to complete such assignment. Passed, approved and adopted this 3rd day of December, 2012. Attest: Kevin 'Ir stahl, City Clerk Roy D. Buol, Mayor F: \USERS \Econ Dev \German Bank - Silver Dollar \Loan Transfer\20121128 Loan Transfer Resolution_2.doc