HomeMy WebLinkAbout01-20-1998 Meeting
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REAL ESTATE
MEETING
COMMITTEE ROOM
January 20, 1998
PRESENT: Hons. Larry Sconyers, Mayor; Todd, J. Brigham,
Mays, Kuhlke, H. Brigham, Shepard, Beard, Handy and Bridges,
Commissioners; Jim Wall, Attorney; Randy Oliver, Administrator
and Lena Bonner, Clerk of Commission.
Mr. Oliver: You asked that we bring back a contract on
Olde Town Properties by the end of January'. We met twice with
the State and developer last week and the State was able to
finalize their participation in this transaction. We believe we
have an agreement. If you want to study it a few days, that's
fine because I think everyone should understand it. There are
about 50 properties in Olde Town that are divided into about 121
rental units. They are in disrepair and require renovation. We
currently owe about $2.7 million. To finance these properties
there was a mortgage taken with Knox as well as Regents Bank and
some of our CDBG money was pledged and in the pledging of that
CDBG money it was pledged with bonds and those bonds bear an
interest rate of 9%. These bonds cannot be repaid until 2005.
As a result of that, we're going to be investing some money at
something less than 6% but we're going to have to pay 9% interest
on them until 2005.
Mr. Handy: Who owns the bonds?
Mr. Oliver: There will be outside bond people; it was done
through the federal government. There are certain payments that
come due during the year but there is a big payment due in 2005
which is a million ten. On my agenda item it lists the various
payments due and then I have a gross payoff. We are making an
assumption here when I say less interest earnings that we take
the money we collect on this project, put it in an interest
bearing account and that's what we project we will earn as
interest. So our net payoff is about $2.7 million. The property
was appraised by William Hollingsworth and there was a review
appraisal. HUD required a review appraisal but they agreed with
the $1,240,000. The White Oak Development Corporation has agreed
to pay us $1,730,000 and there are tax credits involved as well
as a $2 million dollar home mortgage loan from the State at 1% at
just over 20 years. The Community Development Department is
telling us that next year, because of changes made in the State
Legislature, they would not even consider this deal because
they're not going to use any HOME money in entitlement areas.
Mr. Todd: I think you need to explain what an entitlement
area is.
Mr. Oliver: An entitlement area means that we get an
allocation in this case of HOME money directly from the federal
government and the State is now taking the position starting next
year that the remaining money that goes to the State should be
used in jurisdictions that don't get any of that money. The top
of page two shows what the various sources of funding are. The I
partnership will put in in the equity about $4.6 million, the
State is putting in $2 million and we're being requested to put
in 1.37 in our HOME money. However, we negotiated it so that
they're going to pay what's called the average federal rate which
is 6.65%. So we're going to get 6.65% on our money which can be
used to reloan to qualified borrowers after the repayment has
occurred. But the total project costs about $7.7 million. About
40% of that is coming from loans and 60% from partnership
equities. An issue that has come up is this a total syndication
deal which means they're not putting any cash into it but rather
they're going out to the outside and it would be like any of us
getting a mortgage loan and going out on a personal note and
signing a personal note for a down payment. And that's
effectively what these people are doing. I feel we're better off
doing this than we are now because we're in a very poor position.
The contract says that they will pay us $1.7 million and out of
that $1.7 we have to payoff Regents which is about $230,000. We
then have to payoff Knox which is $678,000. We approached Mr.
Knox about potentially writing down part of the balance. I don't
think he's going to do it for us. They're trying to get him to
write it down to $500,000 and we're proposing to split that with
them 50/50 to give them some incentive to try to get this written
down. That would be $89,000 and we're proposing to take that
from CDBG funds which would be recaptured from the down payment
and closing costs assistance program recaptured by HUD. Those I
funds aren't going to come back to us like they were originally.
The million dollars will go into escrow which means we have a .
balloon that is coming up in 2005 and at that time everything
will be paid off. But in order to do this the payment for 1998
which is $200,000 which is budgeted will still have to be made to
the 108 loan and then in '99 through 2004 we'll take $90,000 a
year and go towards the CDBG loan and in 2005, $45,000. We have
asked HUD for approval on this and I think the best we will get
is a letter of no objection. This money comes out of our CDBG
allocation, regardless. The final component of this is the HOME
money; we're proposing to take $500,000 of HOME money in '98 and
the same amount in '99 for a total of $1,137,000. The loan will
be repaid over 20 years at a 6.65% interest rate and that will
mean that people on the waiting list for that program will have
to wait a little longer. When the repayments start coming in,
we'll be able to make those loans. There is no impact the way
this is proposed on the general fund; our alternatives are to
continue to operate at a substantial loss, which we are doing, or
sell to another party.
After further discussion, it was the consensus of the
Commission that Mr. Wall proceed with this.
Mr. Wall: I would like to add another item to the agenda.
It involves an old City loan to Angie and Carter Morris and they
pledged some property at 258 Reynolds street for a loan. It
involved the Princess Augusta and as part of that they bought an
ice cream shop on Reynolds Street. They financed the property in
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'89 and refinanced it in '94. We've got a second mortgage on
there and they've got a purchaser who will buy and payoff the
first mortgage. There is no equity but they need a release from
us in order to close it out, just a release on the real estate.
If we don't, then the effect will be that they go through the
foreclosure on the first mortgage and we'd either have to step up
to the plate to buy it or we'd be cut off anyhow.
Mr. Kuhlke: How much is the second mortgage?
Mr. Wall: The whole second mortgage is about $500,000 they
owe. They paid it from about $700,000 down to about $500,000.
There is no equity in this property and I think we should release
it. I'll get a copy of the closing statement to verify that
they're not getting anything out of it but if we can convey title
and get it back into productive use, then I think we benefit from
it and allow them to clear out the first mortgage.
Mr. Todd: Before I make a decision, I would want to know
whether it's a public use for the property and where it is.
Mr. Oliver: How much is the first mortgage?
Mr. Wall: $30,000. Are you okay with adding it or do you
want me to bring it back?
Mr. Todd: Bring it back and if it puts them in a severe
financial situation I think you can pick up six signatures.
Mr. Wall: All right. I'll find out where it is. That's
all I have.
ADJOURNMENT: There being no further business, the meeting
was adjourned.
Lena J. Bonner
Clerk of Commission
NWM