HomeMy WebLinkAboutMN-IURAED-2015-03-10Approved: 5/21/15
108 E. Green Street
Ithaca, New York 14850
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MINUTES
ITHACA URBAN RENEWAL AGENCY
Economic Development Committee (EDC)
3:30 PM, Tuesday, March 10, 2015
Common Council Chambers, City Hall, Ithaca, NY
Present: Chris Proulx, Heather Filiberto, Leslie Ackerman, Jennifer Tegan
Excused: Doug Dylla, Heather Harrick
Staff: Nels Bohn, Lynn Truame, Charles Pyott
Guests: Randy Marcus, Barney, Grossman, Dubow, Marcus, Orkin, & Tesi, LLP
I. Call to Order
Vice Chair Proulx called the meeting to order at 3:31 P.M.
II. Agenda Additions/Deletions
None.
III. Public Comments (3‐minute maximum per person) ― None.
IV. Review of Meeting Minutes: February 13, 2015
Filiberto moved, seconded by Ackerman, to approve the February13, 2015 minutes, with
no modifications. Carried Unanimously 4‐0.
V. Urban Renewal Project
A. Redevelopment of Property Located at 320‐324 E. State/E. M.L.K., Jr. Street ―
Authorize Purchase Agreement with Lighthouse Hotels, LLC
Bohn explained that the changes highlighted in red on the draft resolution reflect recent
discussions by the IURA attorney and the Committee. Bohn noted the most significant
change is probably the purchase financing, which Bohn consulted the City Controller about.
The Controller’s principal concern is to ensure the interest rate is sufficient to compensate
the City for its cost of borrowing, so the current proposal sets the interest rate at the City’s
cost of borrowing, plus 20 basis points. Bohn also noted that after speaking with the
owner he is proposing a slightly longer term of 255 months.
Ithaca
Urban
Renewal
Agency
IURA EDC Minutes
March 10, 2015
Page 2 of 7
Ackerman asked what would happen if the construction schedule turns out shorter or
longer than projected. Bohn replied the terms would not change.
Bohn remarked that the interest rate would be modified every five years, using the City’s
index rate (which it has used for 20 years). The rate would begin as a 20‐year rate, but
would then decrease to a 15‐year rate. Bohn noted the proposed collateral includes a
second mortgage lien on the property, as well as the owners’ personal guarantees. The
enforcement mechanism in the event of a default would be a 100 basis point increase in
the interest rate, until the default is remedied.
Proulx asked about the status of the purchase agreement. Bohn replied, it has been
drafted and would initially move forward as a term sheet. Additional language and
safeguards would be included in the final agreement.
Proulx observed that the resolution states the IURA Chair would execute the agreement,
without Common Council or the IURA Board being required to see the final document.
Bohn replied, that is correct.
Marcus remarked that most of the revisions look acceptable to him; however, he has
concerns about a few items. Regarding the “Employment & Wage Reporting” section, he
reviewed his notes from the last EDC meeting and they indicated that the consensus of the
Committee appeared to be that the reporting period should be two years, not three. He
asked the Committee to reconsider the three year requirement.
Regarding the loan terms, Marcus indicated his notes state the agreement at the last
Committee meeting was that the rate would be set at the cost of funds, so that the City
would not profit from the transaction and as part of the City’s/IURA’s accommodation for
the appraisal being so much higher than anyone had anticipated. The project team left
that meeting and discussed the loan terms with that underlying assumption. Marcus
conceded that the 20 basis points above the cost of funds is relatively low, but the project
team only ever be expected to repay the loan at the cost of funds rate.
Marcus noted the project team would also like it stated there would be no prepayment
penalty. He would also like the final bullet about the default interest rate to read: “In the
event of a default, after issuance of a default notice and cure period, the interest rate will
increase by 100 basis points until the default is remedied.”
Finally, Marcus noted, in the second‐to‐last bullet, he would ask that the personal
guarantees be limited in proportion to each individual’s percentage ownership in the hotel.
IURA EDC Minutes
March 10, 2015
Page 3 of 7
Proulx responded he does not believe the Committee would have any objection to Marcus’
suggested language about (1) there being no prepayment penalty and (2) the reference to
the default notice and cure period.
Proulx noted he reviewed the Committee’s last meeting minutes to see if they
documented any agreement to a two‐year reporting period, but he found no reference to
it. Ackerman recalled agreeing to a three‐year reporting period. Filiberto indicated her
own notes also reflect the three‐year reporting period. Proulx noted the Committee’s
collective recollection appears to be that it agreed to a three‐year reporting period.
Regarding the interest rate issue, Bohn observed there are several other aspects of the
loan terms that help make it affordable, to accommodate for the appraisal being so much
higher than anticipated. It is a longer term loan, resulting in lower monthly payments.
Also, the interest rate is typically tied to the degree of risk and the IURA’s being the second
mortgage lien holder places it at a higher risk. There is also the cost of managing the loan
to account for. The City Controller did not believe it to be realistic to set the rate at the
cost of funds only. In order to assure the agreement moves forward, the City Controller
wants to be able to argue it is not costing the City any money, and includes a small margin
to reflect the risk.
Ackerman observed the additional 20 basis points would be compensated for by the
eventual reduction in the rate. Marcus responded there is no assurance what the the bond
rate would be, several years from now.
Filiberto noted she believes the interest rate is more than fair. It is also worth noting the
IURA is giving up the availability of the funds to lend to other projects.
Proulx remarked that the applicant’s request for personal guarantees that are proportional
to each individual’s ownership stake seems reasonable to him.
Bohn explained that IURA legal counsel has actually recommended against that particular
arrangement in the past. Loan recipients are always free to create their own arrangements
among themselves. Furthermore, collecting on personal guarantees can be complicated
with out‐of‐state parties. (All but one of the owners live out‐of‐state.) The IURA has always
relied on loan recipients to negotiate their own degree of exposure.
Marcus respectfully disagreed with Bohn. While the owners could certainly negotiate their
own degree of exposure, each owner would still ultimately be obligated for the full extent
of the debt. From a liability perspective, any private agreement among the owners would
not have any legal merit. The owners would prefer not to have the personal guarantee for
the full extent of the debt included on their personal financial statements.
IURA EDC Minutes
March 10, 2015
Page 4 of 7
Bohn responded that while it is a large project, he does not see that $1,375,000 would
make a significant difference in the liability amounts of the particular parties involved. He
recommended the Committee reject the applicant’s request. If need be, he could certainly
discuss the issue further with the IURA underwriter and attorney.
Tegan asked why it is so difficult to collect on personal guarantees with out‐of‐state
parties. Bohn replied that the IURA would have to serve notice under the laws of multiple
states, and possibly hire separate legal counsel in each state. It is not infeasible, but it
would add several more steps to the process.
Tegan noted she is sympathetic with the applicant, but she would defer to the IURA
underwriter and attorney on the matter.
Proulx suggested perhaps the applicants could come up with an acceptable alternative
prior to the final negotiation. Bohn noted they would be appearing before the IURA Board
in two weeks, at which time they could make a proposal.
VI. Community Lending
A. Request from The Art & Found, LLC for Loan Modification #2 (CD‐RLF #33)
Bohn explained that the owner moved her business to SewGreen and is therefore
requesting her loan payment be reduced to reflect the smaller footprint and lower‐profile
location. It would require extending the loan payment period. The Art & Found is moving
towards more production, rather than straight retail sales.
Moved by Tegan, seconded by Ackerman:
Modification #2 to IURA Loan to The Art & Found, LLC (CD‐RLF #33)
WHEREAS, on March 1, 2015, the Art and Found submitted a request for a loan
modification to reduce monthly loan repayments and extend the term of the loan,
and
WHEREAS, on August 29, 2012, the IURA issued a 5‐year, $15,000 loan at 3% interest
to The Art and Found, a Limited Liability Company (LLC) formed by Heidi Brown and
Olivia Ashline‐Royale to start‐up and operate a retail clothing business at 171 The
Commons, Ithaca, NY, and
WHEREAS, the monthly loan payment is $270.49, and
IURA EDC Minutes
March 10, 2015
Page 5 of 7
WHEREAS, the IURA loan is secured by a 1st security lien on all business assets
including inventory, and personal guarantee of Olivia Ashline‐Royale, and
WHEREAS, on November 29, 2012, the IURA approved a request to modify the loan
agreement to facilitate a split between the two founding members with Olivia
Ashline‐Royale becoming the sole member of the LLC, and
WHEREAS, The Art and Found business has been operating since September 2012, a
time period when the Commons has been under reconstruction, and
WHEREAS, the business has not achieved financial projections contained in the initial
business plan, and
WHEREAS, The Art and Found lost its lease effective March 1, 2015 and has relocated
the business to 110 N. Cayuga Street, and
WHEREAS, The Art and Found is current on loan payments through January, 2015, but
owes February and March payments, and
WHEREAS, The Art and Found requests reducing the loan repayment to $125 per
month and extending the term to amortize the debt and resuming repayments
beginning April 1, 2015, and
WHEREAS, a revised business plan projects modest profitability after making monthly
IURA loan payments of $125, and
WHEREAS, at their March 10, 2015 meeting, the IURA Economic Development
Committee reviewed this matter and recommended the following; now, therefore,
be it
RESOLVED, that the IURA hereby approves the request from the Art and Found LLC
for a 2nd modification to the IURA loan as follows:
1. Convert loan payments due in February and March 2015 to deferred interest‐
only payments
2. Capitalize outstanding interest due (and waive late fees);
3. Revise the loan payment due to $125/month beginning April 1, 2015;
4. Extend the term of the loan to fully amortize the debt (approximately 80
payments), and be it further
RESOLVED, that the IURA Chairperson, upon the advice of IURA legal counsel, is
hereby authorized to execute any and all necessary and appropriate documents to
implement this resolution.
Carried Unanimously 4‐0
IURA EDC Minutes
March 10, 2015
Page 6 of 7
B. IURA Loan Repayment Report
Bohn reported that the Art & Found loan is past due, which he anticipated. The State
Theatre made one payment, but remains one month behind. The Bandwagon Brew Pub
is also one month late (although typically an e‐mail from IURA staff results in a
payment).
VII. Development of 2015 Action Plan
A. Review of Economic Development Project Proposals Submitted for Funding in
2015 Action Plan ― Recommendation to IURA
Truame indicated two funding applications fall under the economic development
category: Work Preserve Job Training Program and the Hospitality Employment Training
Program (HETP). She asked the Committee to recommend one of the applications to
the Neighborhood Investment Committee (NIC). Lynn explained this is the first year the
IURA received guidance from HUD about requiring creation or retention of at least one
full‐time equivalent permanent job per $35,000 of CDBG funds used, so it will be
particularly important to get the Committee’s feedback.
Bohn explained that the HUD guidance makes it clear that job readiness programs are
not necessarily automatically eligible to be classified as economic development
activities. In considering Work Preserve and HETP, the Committee should assess
whether the programs would be likely to achieve the goal of at least one job placement
for every $35,000 in funding.
Ackerman asked why Finger Lakes ReUse’s ReSET Job Training Expansion program is not
considered an economic development activity. Truame replied because Finger Lakes
ReUse is not a Community‐Based Development Organization (CBDO).
Proulx observed the Work Preserve program would not have qualified last year, according
to the $35,000/placement threshold.
Regarding HETP, Proulx asked if there is measurable local demand for hospitality‐oriented
jobs. If so, the program’s partners could provide some funding for a match. Truame
replied the hospitality industry was definitely identified as a demand center; and HETP has
been aiming to obtain funding from its partners.
Bohn noted the economic development benefit of the HETP program is represented by the
jobs being filled by local residents, who would otherwise have encountered barriers to
getting those jobs.
IURA EDC Minutes
March 10, 2015
Page 7 of 7
Filiberto remarked that even though the tourism/hospitality industry only represents 2% of
the local economy, it is very important in terms of establishing a quality of life threshold for
the community. The program provides a greater benefit to the community than the jobs
being filled; and she has heard some excellent feedback about the program so far.
Filiberto suggested HETP be recommended for the economic development activity.
Ackerman noted that moving Work Preserve into the public services category would force
all those programs to compete for the same funds and receive less.
Tegan remarked that Work Preserve has been operating for many years, but she does not
see the kind of measurable impact to reflect that. She agreed with Filiberto about
recommending HETP. Ackerman agreed.
Truame mentioned that the Youth Farm Project is a new application.
Tegan indicated she liked the focus of the program. It has some interesting potential and
the application was well‐written. Regarding the Challenge Career Pathways program, she
assumes Challenge has a good understanding of the needs of the population it serves; and
she thought it probably demonstrated the best matching funds.
Proulx indicated he would prefer to fund fewer programs, fully, rather than more
programs, with less funding. Filiberto agreed.
Bohn asked if the Committee would like to highlight any of the public services applications
as having more economic development merit than the others. Filiberto replied, the RESET
program, Challenge Career Pathways program, and Youth Farm Project. She added it
would be helpful to know if those programs could be scaled down at all.
B. Staff Report
Bohn reported that Carpenter Business Park has just changed hands. The property
owner’s financer took back the property and it is now being listed for sale.
VIII. Adjournment (Next Meeting Date: 3:30 PM, Tuesday, April 14, 2015)
The meeting was adjourned by consensus at 4:43 P.M.
— END —
Minutes prepared by C. Pyott, edited by N. Bohn.