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HomeMy WebLinkAboutMN-IURAED-2011-04-12108 East Green Street Ithaca, New York 14850 (607) 274-6559 (607) 274-6558 (fax) DRAFT MINUTES IURA Economic Development Committee 3:30 PM, Tuesday, April 12, 2011 Council Chambers, 3rd Floor, City Hall, Ithaca, NY Present: Leslie Ackerman, Doug Dylla, Jennifer Tegan Excused: Martha Armstrong Staff: Nels Bohn, Alice Vargo Guest: Gary Weissbrot, owner of Buffalo Street Books Public: Brendon Callahan from WHCU I. Call to order The meeting was called to order by Chair, Doug Dylla at 3:30 p.m. II. Additions to or deletions from the agenda Bohn requested to delete IV. Review of February 10 and February 15, 2011 minutes. III. Public comment (3 minute maximum per person) - None IV. Review of minutes for February, 10 and February 15, 2011 meeting Minutes were not included in packet V. Community Lending A. Request to assign IURA loan from Gary Weissbrot d/b/a Buffalo Street Books to Buffalo Street Cooperative, Inc. to facilitate community buy-out of the bookstore (project #9, 2004 CDBG) - resolution Bohn gave an update on selling the book store to the co-op on condition that the IURA loan is assigned to the coop and our mortgage on Gary's residence released. Gary wants to use sales proceeds to repay his unsecured creditors (friends and family @ $67K) and accounts payable. Our underwriter considers that a secured creditor (IURA) should be repaid before unsecured creditors in what is essentially a loan workout, but the assignment request results in the opposite outcome with the IURA remaining as a lender with only a security lien on inventory and FF&E. There is an alternative proposal to have Gary pay off most of the IURA loan from the proceeds of his sale of the business to the coop and allow him to become the lender to the coop. To help Gary to payoff most of the loan rather than liquidate, we are recommending that the IURA accept $80K as full payment on the $90K loan. Ithaca Urban Renewal Agency ED Minutes 4-12-11 Page 2 of 6 Weissbrot stated that he was disappointed that the IURA has denied his request for a loan. He also stated that he understood and that the IURA has helped him many times in the past, and he plans to pay the full amount the IURA is asking. Weissbrot added that he feels there is a real community desire to keep the bookstore open; he will continue to try to do so. Motion by Ackerman, seconded by Tegan Request to Assign loan from Gary Weissbrot d/b/a Buffalo Street Books (formerly known as the ‘Bookery II’) to Buffalo Street Cooperative, Inc. to facilitate community takeover of the bookstore (project #9, 2004 CDBG) Gary Weissbrot Whereas, on March 4, 2011 Gary Weissbrot d/b/a Buffalo Street Books submitted a request, pursuant to proposal for a community buy-out of the bookstore, to reassign the IURA loan to Buffalo Street Cooperative, Inc., and discharge of a mortgage lien on property located at 825 Hector Street, Ithaca, NY, and Whereas, on May 3, 2006 the IURA issued a loan of $110,000 to Gary Weissbrot for a $285,000 project to acquire and reopen the Bookery II independent bookstore located at 215 N. Cayuga Street, and create 7.5 FTE jobs at living wages, and Whereas, on October 2, 2009 the IURA approved a loan modification to reduce monthly loan payments down from approximately $1,190 to $400 until 2014 to allow full repayment of all non-IURA business debt, and Whereas, beginning in January 2014 the loan is scheduled to revert back to principal and interest loan repayments at 4% interest based on a 10-year amortization schedule on the remaining outstanding balance (projected to be $80,000, resulting in loan payments of approximately $810/month), and Whereas, as of March 31, 2011 the loan is current with an outstanding principal balance of $88,900.99, and Whereas, the IURA loan is secured by the following: • 1st security lien on all business assets of Buffalo Street Books, including inventory and furniture, fixtures and equipment (FF&E) • 2nd mortgage on residential property located at 825 Hector Street, Ithaca, NY • Assignment of $100,000 face value life insurance on Gary Weissbrot • Personal guarantees of Gary Weissbrot and Elizabeth Weissbrot, and Whereas, in February 2011, Gary Weissbrot announced his intention to close the business, and Whereas, a community appeal was issued by Assistant Manager Bob Proehl for a community buy-out of this last independent, full-service bookstore in the community, and ED Minutes 4-12-11 Page 3 of 6 Whereas, as of April 11, 2011, the community appeal resulted in pledges of over $300,000 of which $223,604.42 in cash has been received, and Whereas, pledges were received from over 600 individuals of which approximately 400 persons have paid their pledge amount, and Whereas, on March 24, 2011 the Buffalo Street Cooperative, Inc. (BSC) was incorporated at the New York State Department of State as a domestic cooperative corporation, and Whereas, the directors of BSC until the first annual meeting are: • Bob Proehl • Aaron Sacks • Nina Miller • George Sapio • Asha Sanaker, and Whereas, Weissbrot has reached a conceptual agreement to sell Buffalo Street Books to BSC for $170,000 (including inventory, FF&E and other business assets and with no liabilities except the IURA loan), contingent upon assignment of the IURA loan to BSC and IURA discharge of the 2nd mortgage lien on property located at 825 Hector Street, Ithaca, NY, and Whereas, funds raised by BSC are insufficient to buy the business, fund a $50,000 permanent working capital fund account, and pay off the IURA loan, and Whereas, Weissbrot plans to use sale proceeds to retire all non-secured business debt of $67,000 and accounts payable, and Whereas, Weissbrot has been tentatively hired by BSC as General Manager of the cooperative bookstore, and Whereas, acting as General Manager, Weissbrot has developed a 12-month profit and loss projection that increases both revenues and expenses by approximately 19%, retains all current employment positions and adds an additional ½ FTE position, resulting in a breakeven budget before debt service, and Whereas, projected increased revenues include the following: $54,000 – increase sales of books by 10% to $597K (customer loyalty and growth of “1st class” program) $25,000 – annual fundraising by For Books’ Sale, Inc., a New York State not-for- profit corporation created in 2010 $12,000 – annual new coop members @ $250 each $ 7,000 – new café $ 2,400 – room rental to art gallery, and ED Minutes 4-12-11 Page 4 of 6 Whereas, projected increased expenses include the following: $75,000 – new GM position & ½ FTE cashier, salary increase to Asst. GM, and $0.40- $0.65/hour wage increases to all other employees WHEREAS, the Borrower fulfilled all original job creation goals and continue to pay living wages to all employees, and WHEREAS, the IURA underwriter, H. Sicherman & Co., Inc. has identified a number of concerns with a loan assignment that reduces loan security to a 1st lien on inventory and FF&E, and WHEREAS, contemplated recommendations to address underwriting concerns for the requested loan assignment include: • professional appraisal of inventory • documentation of collateral value of inventory • approval of salary and wage levels until business performance goals accomplished • semi-annual submission of independently audited financial statements to verify inventory value and financial health of the business • review and approval of projected pro forma and the business decision-making process for the cooperative • placement of net proceeds from the business sale into an escrow account requiring IURA authorization for withdrawal until full repayment of the IURA loan or retention of the 2nd mortgage lien and personal guarantees from the original loan, and Whereas, an alternative approach to facilitate the community buy-out of the bookstore is to deny the requested assignment, but approve a discounted payoff of the loan from the proceeds of the sale of the business, thereby allowing Gary Weissbrot to become the lender to the BSC, and Whereas, a discount is appropriate to induce Gary Weissbrot to make a substantial pay off of the $88,900.99 outstanding principal balance on the IURA loan, avoid other IURA expenses of a complicated loan assignment, and facilitate the on-going operation of the bookstore under a cooperative ownership, and Whereas, continued operation of the bookstore will retain 8 FTE jobs, generate over $7,000/year in sales tax revenue to the City, prevent the loss of a downtown anchor retail business and avert a prominent vacant storefront, and Whereas, IURA staff in consultation with the IURA independent underwriter estimate that fulfilling due diligence obligations to structure and monitor a loan assignment will require the IURA to incur initial expenses that exceed $10,000 for IURA staff time, IURA legal counsel, IURA underwriter consultant services, not counting out-year monitoring, and ED Minutes 4-12-11 Page 5 of 6 Whereas, the Economic Development Committee reviewed this matter at their April 12, 2011 meeting and recommended the following; now, therefore, be it RESOLVED, that the IURA hereby denies the request from Gary Weissbrot d/b/a Buffalo Street Books to reassign the IURA loan to Buffalo Street Cooperative and discharge the 2nd mortgage lien on 825 Hector Street, Ithaca, NY due to the reduction in the quality of loan collateral, and be it further RESOLVED, that the IURA hereby finds that facilitating transfer of ownership and continued operation of the last remaining locally-owned independent full-service bookstore in the community will improve the social, physical and economic characteristics of the City of Ithaca, and be it further RESOLVED, that to facilitate continued operation of the business and repayment of 90% of the IURA loan, the IURA hereby recognizes receipt of $80,000 as fully satisfying all IURA loan obligations of Gary Weissbrot and agrees to discharge the 2nd mortgage lien on property located at 825 Hector Street and release the UCC-1 security lien on business assets, and be it further RESOLVED, that the IURA recognizes a loan loss of up to $8,900.99, and be it further RESOLVED, that the IURA Chairperson is authorized, subject to advice of IURA legal counsel, to execute any and all agreements to implement this resolution. Carried Unanimously 3-0 VI. Public Authorities Accountability Law compliance A. Review of IURA mission statement - discussion Bohn introduced the new Mission Statement, just adopted by the Agency, but they are also open to change. This was written by the NI Committee, the Agency would also like to have input from the ED Committee. B. IURA Performance measurements – possible recommendation to IURA Bohn requested that the Committee to fill out the Authority Mission Statement and Performance Measurements form. The Committee requested a spreadsheet with information on loan amounts, the length of loans and where projects are located. This would give them an overview of where money is being concentrated on. Ackerman stated it would be helpful if they could get information on the history of past loans, who the IURA helped, their payment history and where they are now. Bohn will have the spreadsheet for the next meeting. VII. Other New/Old business A. Staff report • Bohn reported there was a meeting with eLab. They wanted to know where they were in the grant process. This was not a project that has been chosen to be ED Minutes 4-12-11 Page 6 of 6 funded. Bohn spoke with them about meeting with staff to help with the grant process and trying to stay on focus. Bohn feels they will be reapplying. The Committee suggests that they take on one venture at a time and stay focused. • Bohn updated committee on the status of the Audit. Unfortunately the IURA cannot send in the Audit, because they need to wait for the City to complete its audit. The State will not accept the IURA loan without the City’s Audit. • The City is going to be audited by the State Department • Restore NY grant funding finally coming through B. Other Financial - Bohn gave an update on the following loans: • Diane’s Auto - she keeps promising to bring in financial information, and to talk, but hasn’t followed through. This loan is in serious arrears. The committee suggested that a formal letter to go out to her. • The Cayuga Wine Center - They are going through a slow period, which they expected, otherwise they are holding their own. • The P&C Building - This is on hold until they know more of what is going on. The hopes are to open by late summer. VIII. Next meeting date: May 10, 2011 IX. Adjournment Meeting adjourned at 4:48 p.m.