Item 5: PH: Use of 108 Funds for Construction Financing

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Repayment/Security: Repayment of HUD 108 funds would be supported by project-specific cash flow and collateral, along with a debt service reserve from the Downtown Urban Renewal District. Local governments that borrow HUD 108 funds must also pledge their current and future CDBG allocations as a secondary source of repayment for the borrowing. However, the City does not anticipate utilizing future CDBG allocations as a source of repayment for this project given the collateral package. The BEDI grant may be used to offset risk by providing for loan loss reserves. Section 108 loans will not be secured by the City’s general fund or any other general resources. Collateral and and security mechanisms are outlined as follows: a)Centre Court Cash Flow – Beam need only achieve approximately 50% occupancy in the building to cover the interest-only payments that will be required during the first two years of the loan. Cash flow from the building will cover principal and interest payment once occupancy is stabilized. b)Debt Service Reserve – A $600,000 debt service reserve funded through urban renewal is established in the event cash flow is unable to cover the loan repayment at any given period. This amount is enough to cover principal and interest payments for loan #1 and #2 for one year, which would provide time for Beam or the City to solve occupancy problems contributing to the cash flow problems. c)Real Estate Collateral – The URA has positions on the Washburne Building and the Centre Court and adjacent property as part of the existing Section 108/BEDI financing (loan #1). The URA would seek expanded positions on the properties for loan #2. d)Beam Owners’ Guarantees – Personal guarantees of the owners of Beam Development will be required. e)Other collateral as required by HUD In the event that the primary sources to repay the HUD 108 loan are not realized, there are some alternative strategies. As part of the agreement with Beam, failure to make a loan payment would enable the URA to reclaim the Centre Court building. The URA could then: f)Address any tenanting issues and sell the building to a private party g)Work with other institutions to lease the space (e.g. an educational institution), or h)Occupy the building with City offices and payoff the HUD 108/BEDI funds (because City occupancy is not an allowable use under HUD regulations. Note: funds have not been identified to pay off the Section 108/BEDI funds under this scenario.) Next Steps There are three remaining steps in the process to access and use HUD 108/BEDI funds for Beam’s rehabilitation of the Centre Court Building: 1) public participation, 2) council approval to access (authority to borrow) the funds, and 3) council action related to the Beam project to use the funds. Step 1 – Public Participation: The public participation component includes a comment period, application draft review, Loan Advisory Committee review, CDBG Advisory Committee review, and a public hearing. To ensure that funds would be ready to use by the desired construction start date, the 30-day public comment period officially began on November 30, with an advertisement in the Register Guard. The ad explained the potential use of Section 108/BEDI funds and the process for commenting. Staff is gathering written comments and comments via phone or email through December 31. As of December 7, no comments had been received. In addition, a draft of the Section 108 individual application was available at the reception desk of the Atrium Building starting on December 4; the availability of the application materials was included in the Register-Guard advertisement. The Loan Advisory Committee Z:\CMO\2009 Council Agendas\M091214\S0912145.doc