HomeMy WebLinkAboutMN-IURAED-2010-07-13Ithaca
Urban
Renewal
Agency
Approved September 21, 2010
108 East Green Street
Ithaca, New York 14850
(607) 274-6559
(607) 274-6558 (fax)
MINUTES
Economic Development Committee
3:30 PM, Tuesday, July 13, 2010
Present: Leslie Ackerman, Martha Armstrong, Doug Dylla, Jennifer Tegan
Staff: Nels Bohn, Alice Vargo
Others: Avi Smith, Unity Inn LLC
I. Call to order
The meeting was called to order by Chairperson Dylla at 3:34 P.M.
II. Additions to or deletions from the agenda ‐ none
III. Public comment (3 minute maximum per person) ‐ none
IV. Review of Minutes for June 8, 2010 meeting
Armstrong moved, seconded by Tegan, to approve the June 8, 2010 minutes.
V. Community Development Lending
A. Community Development Revolving Loan Fund – Request by Unity Inn LLC for loan
assistance to start‐up and operate the Argos Inn, an 11‐room Inn with bar/lounge at 408 E.
State/MLK Street
Avi Smith described the project and discussed his business plan. Smith indicated he is
seeking SBA 504 funding. He noted that a local bank has indicated strong interest in the
project, but would limit the loan amount to no more than 80% of finished appraised value.
Members raised questions about the following elements in the business plan:
assumed revenues per night (RevPar), especially during shoulder seasons
room rates for those rooms with shared baths
lack of capital or maintenance reserve account in the pro forma
lack of operating expense for breakfasts
time period to ramp up to targeted occupancy
lack of payroll expense in pro forma
need for business vehicle
status of the liquor license application
IURA EDC Minutes
July 13. 2010
Page 2 of 10
Smith responded that he was comfortable with the RevPar, room rates and ramp up period,
that were developed in conjunction with Cornell Hotel School graduate students and Fred
Bonn of the Tompkins County Visitors Bureau. He indicated that a number of the items
questioned as excluded from the pro forma were actually incorporated into his net
numbers, but not called out specifically. For instance, his average labor costs at $15/hour
included a payroll expense, so the average take‐home pay of employees would be
somewhat less than $15/hour. He indicated that his primary lender was concerned about
reserves and contingency accounts and that he was in negotiations on these matters.
Regarding his liquor license, Smith reported that he has retained Attorney, Scott Miller, who
has strong experience in liquor license applications. Smith indicated he would revise his
pro forma to specify assumed operating expenses.
The committee discussed how the IURA could best support this venture. Bohn noted that
the applicant’s loan application for primary financing is still under review. Without
understanding the structure or collateral requirements of a primary lender, it is difficult for
the IURA to structure a gap financing loan for this project, Bohn said.
Armstrong moved, seconded by Tegan, the following resolution:
CD‐RLF – Loan Assistance to Unity Inn LLC for Start‐up & Operation of Argos Inn
Whereas, on June 11, 2010, Unity Inn LLC applied for $100,000 of loan assistance for a
$1.645 million project to acquire and renovate the historic McCormick‐Cowdry house
located at 408 E. State/MLK Street to an 11‐room inn with a public bar/lounge to be known
as the Argos Inn, and
Whereas, Avi H. Smith (Smith) is the sole member of Unity Inn LLC, and
Whereas, the McCormick‐Cowdry house is a contributing property to the national and local
East Hill historic district and renovation plans are being developed to meet Secretary of
Interior standards for historic rehabilitation to be eligible for historic tax credits, and
Whereby, all exterior modifications to the property must be approved by the Ithaca
Landmarks Preservation Commission (ILPC), and
Whereas, the primary objectives of the Community Development Revolving Loan Program
(CD‐RLF) is provision of direct financing for economic development activities to create
employment opportunities, facilitate the expansion of business activity within the City of
Ithaca and expansion of the City’s commercial and industrial tax base, and
Whereas, CD‐RLF financing policy establishes maximum loan amount of $40,000 for a retail
business and $75,000 for a non‐retail business except where the IURA determines that the
project will result in an extraordinary degree of public benefit, and
Whereas, the project is projected to create eight (8) full‐time equivalent (FTE) employment
positions, of which at least 51% will be filled by low‐ and moderate‐income persons, thereby
IURA EDC Minutes
July 13. 2010
Page 3 of 10
meeting the CDBG public benefit test to generate at least one FTE job for every $35,000 of
assistance, and
Whereas, all new full‐time positions are projected to receive at least $12.11/hour thereby
providing local living wages to all full‐time employees, and
Whereas, Unity House LLC has acquired the project property for $350,000 and invested
$70,000 in structural upgrades and interior demolition to date, and
Whereas, the proposed uses of project funds are:
$ 350,000 property acquisition
$1,003,000 renovations
$ 131,000 furnishings, fixtures & equipment
$ 35,000 professional fees
$ 16,000 bar inventory
$ 62,000 working capital
$1,597,000 Total, and
Whereas, the proposed sources of project funds are:
$1,077,000 bank
$ 420,000 equity
$ 100,000 IURA
$1,597,000 Total, and
Whereas, the project is in the process of qualifying for historic tax credits that could attract
over $200,000 of additional equity to the project, and
Whereas, Smith is seeking primary financing through the Small Business Administration
(SBA) 504 program whereby a private sector lender loans up to 50% of the project cost
secured by a senior lien, an SBA504 lender loans up to 30% of the project cost secured by a
junior lien (& backed by a 100% SBA guarantee) and the borrower provides the remaining
20% of project cost, and
Whereas, underwriting on primary lender financing has not been completed yet, and
Whereas, a funding gap of at least $100,000 in project financing is projected, and
Whereas, the project implements IURA policy to strengthen the vitality of the downtown,
encourage in‐fill development over sprawl development, promote renovation of historic
structures and create jobs paying living wages, and
Whereas, at their July 13, 2010 meeting, the IURA Economic Development Committee
reviewed the loan application, a credit analysis report prepared by Robert Deemer, Jr. of H.
Sicherman & Co., and considered applicable provisions of the IURA Economic Development
Policy Guidelines and Operating Plan, and recommended the following; now, therefore, be it
RESOLVED, that the IURA hereby finds that it is premature to issue a binding loan
commitment for this project at this time as primary lender financing terms and collateral
IURA EDC Minutes
July 13. 2010
Page 4 of 10
have not yet been solidified, however, should primary financing be secured to undertake the
project this is an appropriate project for an IURA gap financing loan subject to final
underwriting, and be it further
RESOLVED, that a letter of strong interest for a possible loan, including possible loan terms,
be issued for the project for a potential gap financing loan from the Community
Development Revolving Loan Fund, subject to the following terms:
Borrower: Unity Inn LLC, a NYS limited liability company formed in 2009
Possible Loan Amount: Up to $100,000
Project: Start up and operation of Argos Inn, an 11‐room inn and
bar/lounge located at 408 E. State/MLK Street, Ithaca, NY
Total Project Cost: $1,597,000
Projected Use of IURA Funds:Non‐construction project costs such as FF&E, inventory,
professional fees and/or working capital
Term: To be determined
Interest Rate:
4% annually, reset to 3% upon submission of satisfactory job
reports documenting that job creation goals have been
achieved for two consecutive quarters and borrower is in
compliance with all other terms of the loan agreement.
Repayment: To be determined
Collateral: Satisfactory collateral sufficient to secure the loan – subject to
negotiation.
Guarantor(s): Personal guarantees of Avi H. Smith, individually.
Possible additional guarantors subject to negotiation on
collateral.
Conditions: 1. Creation of at least eight (8) full‐time equivalent
employment positions of which at least 51% must be held
by low‐ and moderate‐income persons.
2. Payment of living wages to all full‐time employees.
3. Satisfactory review of 2009 income tax returns.
4. Satisfactory progress to secure a liquor license
5. Site plan and ILPC project approval.
6. Annual submission of balance sheet and profit and loss
statements for Unity House LLC.
And be it further
IURA EDC Minutes
July 13. 2010
Page 5 of 10
RESOLVED, that the IURA hereby waives the maximum $75,000 loan amount from the CD‐
RLF for this application in recognition of exceptional public benefits resulting from the
project, including:
renovation of a historic building in the local East Hill historic district;
Establishment of business that will pay a living wage to all full‐time employees;
Strengthening the vitality of the downtown and reducing the need for visitors to travel
by automobile;
Match fund leveraging exceeding 10:1, and be it further
RESOLVED, that the Director of Community Development for the IURA is authorized to issue
a letter of interest and term sheet, including clarification that the letter does not constitute
a binding loan commitment, in accordance with this resolution.
Approved Unanimously 4‐0
B. Gateway Loan Proceeds – request by Plantation Building LLC for bridge loan assistance in
anticipation of receipt of Restore NY grant funds for downtown Commons upper story
mixed‐use project, including affordable housing, at 130‐132 E. State/MLK Street
Bohn reported that the sponsor is waiting to access Restore NY grant funds, but they won’t
be received prior to December which will delay construction necessary to protect the fragile
building through the winter. The delay in accessing grant funds is due to the 6‐month
stalemate on adopting the State budget, according to Bohn. He noted that Lex
Chutintaranond of Plantation Building LLC is unavailable to attend the meeting due to pre‐
arranged family business in California.
Bohn reported that the sponsor has expended over $300,000 of his own money into the
project to date and has completed removal of lead and asbestos materials, which has left
the building in a precarious condition. The IURA short‐term loan funding will be repaid upon
accessing Restore NY grant funds that are awarded to the City of Ithaca.
Armstrong moved, seconded by Tegan, the following:
Gateway Proceeds – Short‐Term Loan Assistance to Plantation Building LLC
Whereas, on June 25, 2010, Sunit “Lex” Chutintaranond, managing member of Plantation
Building LLC, requested a short‐term bridge loan of $512,000 until Restore NY grant funds can
be accessed from the Empire State Development Corporation (ESD) for the comprehensive
rehabilitation project of the Plantation Building located at 130‐132 E. State/MLK Street, and
Whereas, the amount of loan assistance requested is equal to approximately three months
of project construction expenditures, and
Whereas, Lex Chutintaranond and Flaminia Cervesi are each 50% owners in both ItalThai
LLC, the owner of the Plantations Building, and Plantation Building LLC, the operating
company that will undertake the redevelopment project and syndicate historic tax credits,
and
IURA EDC Minutes
July 13. 2010
Page 6 of 10
Whereas, the City of Ithaca was awarded $900,000 in Restore NY grant funds to assist in the
$2.47 million redevelopment of the vacant Plantation Building to create a 4,000 SF
restaurant, 1,200 SF of commercial office space, six market‐rate, one‐bedroom apartments
and two affordable one‐bedroom apartments, and
Whereas, the City authorized the Ithaca Urban Renewal Agency (IURA) to administer and
implement the Restore NY grant, and
Whereas, Restore NY grant funds can be accessed via a Grant Disbursement Agreement
(GDA) per the following process:
(1) submit proof of project readiness to ESD, including proof of completion of
environmental review, state historic preservation office review and site plan review;
a final project budget, including an independent construction estimate; and
documentation that all project funding is committed, including bank financing
(2) ESD Board approval
(3) Public Authorities Control Board (PACB) approval
(4) Completion of ESD public hearing
(5) Issuance of a GDA, and
Whereas, during the three month impasse to adopt the 2010‐2011 New York State budget,
no GDAs for Restore NY projects were approved by the PACB, and
Whereas, with adoption of a significant portion of the NYS 2010‐2011 budget in early July,
the PACB has resumed approval of new GDAs for Restore NY projects, and Whereas, the
Plantation Building Restore NY project is scheduled for ESD Board review in September
2010, which is expected to result in issuance of a GDA in October 2010, and
Whereas, proposed use of project funds are:
$435,000 acquisition of building
$159,000 demolition, site preparation & environmental remediation
$1,444,000 construction
$164,000 architecture/engineering
$178,000 developer fees
$ 33,000 construction interest & insurance
$ 57,000 soft costs, reserves & leasing costs
$2,470,000 Total, and
Whereas, the proposed sources of project funds are:
$900,000 Restore NY grant
$391,000 loan #1 M&T Bank – building acquisition
$359,000 loan #2 M&T Bank ‐ project
$80,000 loan #3 IURA – affordable housing
$156,000 equity – managing member
$367,000 equity – Federal rehabilitation (historic preservation) tax credits
$217,000 equity – NYS rehabilitation (historic preservation) tax credits
$2,470,000 Total, and
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July 13. 2010
Page 7 of 10
Whereas, the construction project has been bid out with pricing that is on‐budget, and
Whereas, the interior demolition, site preparation and asbestos removal has been
completed, leaving the structure in fragile condition and developer equity exhausted, and
Whereas, bank construction financing is contingent upon final approval of the Restore NY
grant, and
Whereas, it is imperative that the construction project advance in a timely manner to install
the HVAC system and make the building weather tight to prevent the existing “wet”
sprinkler system from freezing in cold weather, and to avoid increased project costs, and
Whereas, shutting down the project to wait for access to Restore NY funds in late October
imperils project feasibility and substantially increases project costs, and
Whereas, all project funding sources are committed except for equity to be generated from
sale of rehabilitation tax credits, and
Whereas, rehabilitation tax credits are made available at the Federal and State level to
encourage rehabilitation of historic properties by providing a tax credit equal to 20% of the
cost basis of the project that can be sold to an investor through syndication to generate
equity for the project, and
Whereas, the New York State budget process and related legislation has delayed access to
Restore NY funds and destabilized the market for purchase of rehabilitation tax credits, and
Whereas, NYS law, unlike many states, requires the purchaser of the Federal rehabilitation
tax credit to also be the purchaser of any NYS rehabilitation tax credit, thereby effectively
limiting the market to sell tax credits for this project to entities with NYS tax liabilities, and
Whereas, a technical error in the 2009 NYS rehabilitation tax credit law inadvertently
prohibited banks and insurance companies from purchasing tax credits, and
Whereas, nationwide, banks and insurance companies are the top buyers of tax credits, and
Whereas, the NYS Senate and Assembly have passed legislation correcting this technical
error, but the bill has not been signed into law by the Governor even though the Governor’s
office supported the initial legislation, and
Whereas, as part of the 2010‐2011 budget process the NYS Assembly, in support of an
initiative by the Governor, passed legislation to defer 50% of a wide variety of tax credits,
including rehabilitation tax credits, for 3 years and also capped the total amount of tax
credits received by any single purchaser to $2 million per year, and
Whereas, the NYS Senate has not passed companion legislation to defer and cap tax credits,
and
IURA EDC Minutes
July 13. 2010
Page 8 of 10
Whereas, the legislative status of NYS rehabilitation tax credits is still unresolved, resulting
in a poor financial climate to sell NYS tax credits, which are projected to generate $217,000
in equity for the project in a stable market that includes banks and insurance companies
who can utilize such credits in the current tax year, and
Whereas, the project’s development consultant, Port City Preservation LLC, strongly
recommends against the sale of tax credits to investors in the current unstable market and
indicates that sale of the tax credits can be completed within 60 days of initiation, and
Whereas, tax credits must be sold by the date the project is put into use (certificate of
occupancy), which is projected for March 2011, and
Whereas, use of CDBG funds for the requested loan is problematic because use of CDBG
funds for construction activities requires compliance with the Davis‐Bacon Act which would
require re‐bidding the construction project, and
Whereas, the IURA holds “Gateway” proceeds on behalf of the City of Ithaca, which were
derived from the sale of City‐owned real estate to Eddygate Park Associates in 1986 to
facilitate the Eddygate Park Apartment mixed‐income 64‐unit rental housing project in
Collegetown for which sales proceeds were realized in 2002, and
Whereas, in 2002 “Gateway” proceeds were loaned to Gateway Plaza Associates, LLC to
facilitate the Gateway Center project located at 401 E. State/MLK Street with repayments
earmarked by the City of Ithaca Common Council for affordable housing activities, and
Whereas, the Gateway loan was fully repaid in 2007, and
Whereas, the balance of “Gateway” proceeds is approximately $595,600 as of June 30,
2010, of which $100,000 has been earmarked as a contribution to the Housing Fund, and
Whereas, the Plantations Building project includes affordable housing, and
Whereas, use of “Gateway” proceeds requires approval from the City of Ithaca Common
Council, and
Whereas, on July 13, 2010, the IURA Economic Development Committee reviewed this
matter and recommended the following action subject to City of Ithaca Common Council
approval; now, therefore, be it
RESOLVED, that the IURA hereby approves, subject to approval by the City of Ithaca
Common Council, a loan to Plantation Building LLC in accordance with the loan application
and the following terms:
Borrower: Plantation Building LLC, a NYS Limited Liability Company
formed in 2009
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July 13. 2010
Page 9 of 10
Loan Amount: Up to $490,000, not to exceed 100% of collateral value
Project: Bridge loan for redevelopment of the Plantations
Building at 130‐132 E. State/MLK Street, Ithaca, NY
Source of Loan Funds: “Gateway” proceeds
Projected Use of Funds: Construction phase project expenses
Term: Up to 8 months
Interest Rate: 3.5%
Repayment: The loan shall be repaid from Restore NY grant funds disbursed
by the Empire State Development Corporation to the City of
Ithaca.
Monthly interest‐only payments shall be accrued.
Repayment of the loan balance plus accrued interest is due
upon receipt by the City of Ithaca of Restore NY grant funds or
maturity of the loan, whichever is earlier.
Collateral: 2nd mortgage on the property and building owned by ItalThai
LLC located at 622 Cascadilla Street, Ithaca, NY (ZaZa’s Cucina
restaurant building), behind only a 1st mortgage held by M&T
Bank with a balance of $440,000.
2nd mortgage on property and building owned by Sunit
Chutintaranond and Flaminia Cervesi located at 20 Rosina
Drive, Ithaca, NY (residence), behind
only a 1st mortgage held by M&T Bank with a
balance of $380,000.
Guarantor(s): Sunit Chutintaranond and Flaminia Cervesi, each
individually.
Corporate guarantee of ItalThai LLC
Corporate guarantee of Za Za’s Cucina, Inc.
RESOLVED, that the IURA hereby recommends City of Ithaca Common Council approval of
the use of Gateway proceeds to fund this bridge loan, and be it further
RESOLVED, that upon approval by the City of Ithaca Common Council, the Director of
Community Development for the IURA is authorized to issue a loan commitment in
accordance with this resolution, and be it further
IURA EDC Minutes
July 13. 2010
Page 10 of 10
RESOLVED, that IURA Chair, upon the advise of the Executive Director and IURA Attorney, is
hereby authorized to execute all necessary and appropriate documents to implement this
resolution, including, but not limited to, executing loan agreement documents.
Carried Unanimously 4‐0
VI. High‐Tech Business Loan Guidelines, amendment to IURA Economic Development
Financing Policy Guidelines and Operating Plan
Bohn reported that an IURA member expressed a concern that the high‐tech loan program may
dilute the IURA’s historic interest in assisting low/mod income persons and the higher risks
associated with high‐tech start‐ups could reduce resources available to assist more traditional
business activities hiring low/mod income persons, such as ‘blue collar’ jobs, if there is no limit
on percentage of the IURA loan portfolio invested in high‐tech businesses. Another concern was
that marketing of a high‐tech loan program could provide a mixed message to the public about
the IURA’s target beneficiaries. A question was raised whether high‐tech businesses could be
accommodated within the CD‐RLF if the maximum loan amount was raised and special
underwriting criteria were established for high‐tech businesses. The IURA referred the high‐
tech loan program back to the EDC for discussion.
VII. Draft IURA Economic Development Goals for 2010–2012
Dylla reviewed the draft EDC goals with committee members. Dylla noted that he would
incorporate comments received and work with staff to develop performance measures to revise
the document.
VIII. Staff Report
A. June 2010 loan repayment report
Bohn reported that all loans are current, except Diane’s State Street Auto who is one month
in arrears, who is scheduled to meet with staff once her 2009 financials are available.
B. Loan application pipeline
Bohn reported that he has sent out a few loan applications for retail business start‐ups, but
does not expect to receive any complete loan applications in the near future.
C. Project updates
Bohn noted that the Slate restaurant project has been unable to secure financing and the
IURA loan commitment has expired.
IX. Old and Other Business ‐ none
X. Next meeting date: August 10, 2010
XI. Adjournment
The meeting was adjourned by consensus at 5:20 p.m.
END
Minutes prepared by A. Vargo, edited by N. Bohn
j:\community development\admin files\minutes\edc\2010\7july\minutes edc 7‐13‐10 nb edit.doc