HomeMy WebLinkAboutItem 5: PH: Use of 108 Funds for Construction Financing
ECC
UGENE ITY OUNCIL
AIS
GENDA TEM UMMARY
Public Hearing: Use of 108/BEDI Funds for Construction Financing
Meeting Date: December 14, 2009 Agenda Item Number: 5
Department: Planning and Development Staff Contact: Nan Laurence
www.eugene-or.gov Contact Telephone Number: 682-5340
ISSUE STATEMENT
The council is conducting a public hearing on the use of Federal Housing and Urban Development
Section 108 Loan Guarantee Program (HUD 108) funds in combination with the Brownfield Economic
Development Initiative (BEDI) grant to provide construction financing to Beam Development to
rehabilitate the Centre Court building in downtown Eugene (See Attachment A: Property Location Map.)
BACKGROUND
In January 2006, the City was awarded a $2 million BEDI grant to assist redevelopment projects within
the City's two urban renewal districts. BEDI funds must be used in conjunction with projects financed by
HUD 108 funds. HUD 108 is the loan guarantee provision of the federal Community Development Block
Grant (CDBG) program. Section 108 allows cities to borrow up to five times their annual CDBG
allocation. In July 2006, HUD approved the City’s HUD 108 application to create a loan pool, to be used
with the BEDI grant, for redevelopment projects within the Downtown and Riverfront urban renewal
districts. Eugene’s approved HUD 108 loan guarantee is $7,895,000.
On February 26, 2007, the council approved an ordinance (No. 20376) authorizing the use of HUD 108 as
a financing tool. The ordinance established the City’s general ability to borrow for HUD 108 projects
with the stipulation that individual projects be approved by council resolution only after a public hearing
conducted by the council.
Individual Project Approval Process
To spend the HUD 108/BEDI funds, HUD requires that the specific project funding request be approved
by the council following a public comment period and a public hearing. Citizen participation involves a
30-day public comment period, review by the CDBG Advisory Committee, and a public hearing
conducted by the council. Final action will include council review and a financing resolution followed by
HUD approval.
Projects that receive HUD 108/BEDI funds must meet project preference criteria, as follows: a) meet a
CDBG national objective of benefiting low- or moderate-income persons or eliminating conditions of
slums or blight, b) lead to economic revitalization in connection with brownfields, c) be financially
feasible, d) be within reasonable risk, e) be likely to be repaid, and f) provide permanent, full-time
employment for low- and moderate-income individuals. The project preference criteria are designed to
provide an objective evaluation of the project’s ability to produce an effective and timely outcome.
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The City has focused use of the HUD 108/BEDI funds on the Beam Development project at the heart of
downtown. The City has an agreement with Beam Development to transform the important intersection
of Willamette and Broadway into a vital area with restaurants, retailers, and office space. The project
assumes the use of HUD 108/BEDI funds in two stages: loan #1 for acquisition of the properties and loan
#2 for rehabilitation of the Centre Court building.
Individual Project #1
The Urban Renewal Agency (URA) acting on behalf of the City of Eugene utilized a combination of
federal and local funds for acquisition of properties at Willamette and Broadway (the Centre Court
building, adjacent vacant lot, and Washburne Building). The City received approval from HUD in
August 2007, to acquire up to five downtown properties along West Broadway as the first individual
Section 108 project. Due to unanticipated changes in the development financing and plan for the West
Broadway redevelopment area, the City revised the individual project application in March 2008, and
received field office approval in June 2008. In July 2008, t
he City acquired two properties with $2.5
million in Section 108 loan funds and $685,000 in BEDI grant funds. Beam purchased the properties from the
URA with financing provided by the URA. (See the December 14 Agenda Item Summary (AIS) on Beam
The national objective for loan #1 was the
Development for more information on the financing.)
elimination of slums and blight. Benefit is determined by the ultimate development and use of the
property acquired with HUD 108 funds; the loan for acquisition of the properties met this objective.
Proposed Individual Project #2
The proposed individual project #2 loan would draw down the remaining HUD 108/BEDI funds to
provide construction financing for Beam to use on the Centre Court Building. The proposed
rehabilitation would cost approximately $9.5 million. The financing is proposed to consist of $5,189,000
HUD 108 and $1,315,000 BEDI. The remainder would be financed with a combination of other funds,
including tax credits and private investment. A summary of the financing sources and uses is included as
Attachment B; a copy of the Proposed Individual Project #2 application is included as Attachment C.
Section 108 is a loan guarantee program that generally follows the same regulations as the CDBG
program. Public benefit is determined by the ultimate development and use of the property acquired or
rehabilitated with Section 108 funds. The majority of the funds for the proposed project would be used to
benefit low-income persons through job creation. Potential end uses for the property acquisition would
include retail and office, consistent with the signed Purchase and Sale Agreement between the URA and
Beam Development. Based on industry employment standards for office and retail, an estimated 234
permanent jobs will occupy the completed building. This amount is more than adequate to meet the
public benefit requirement ratio of one job per $35,000, with a total of 186 jobs. Consistent with CDBG
requirements, a minimum of 51% of the jobs will be available to low- or moderate-income individuals.
Brownfields are vacant and underutilized properties whereredevelopment is complicated by actual or
perceived environmental contamination. The Centre Court building has been vacant for years and is
located along a two-block stretch of West Broadway that has been characterized by high vacancy rates
and depressed market conditions for over 20 years. The building was most recently used as commercial
office, but was vacated in advance of a planned-housing development project. However, significant
asbestos contamination and seismic-related structural problems halted redevelopment of the site for that
project. The building currently has environmental issues including mold and asbestos. Given the long-
term vacancy and history of asbestos the project meets the brownfield requirement.
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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
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will review credit underwriting on December 7. The CDBG Advisory Committee will review the HUD
underwriting on December 8. Recommendations from both meetings will be shared with the council on
December 14. The City Council public hearing is scheduled for December 14.
Step 2 – Council for Access to Funds (Bond Approval): Prior to entering into any borrowing for an
individual project, the City Council must approve a project bond resolution. Action is scheduled for
January 11, 2010. If the council approves the item, the City will then submit the individual project #2
loan application for HUD review.
Step 3 – Council Approval for Use of Funds: The City will only have the ability to use the HUD
108/BEDI funds after the council takes additional actions related to the Beam project. Specifically, the
City Council will need to approve the overall project by reviewing the Beam agreement and approving
needed amendments to the existing Purchase and Sale Agreement (scheduled for December 14).
RELATED CITY POLICIES
The proposed project is consistent with the policies and implementation strategies included in the Eugene
Downtown Plan, including:
• Downtown development shall support the urban qualities of density, vitality, livability and
diversity to create a downtown, urban environment.
• Actively pursue public/private development opportunities to achieve the vision for an active,
vital, growing downtown.
• Use downtown development tools and incentives to encourage development that provides
character and density downtown.
• Promote multi-story, mixed-use structures downtown through financial incentives or code
amendments.
In addition, the proposed project is responsive to the following Growth Management objectives:
Policy 1: Support the existing Eugene Urban Growth Boundary by taking actions to increase
density and use existing vacant land and under-used land within the boundary more
efficiently.
Policy 2: Encourage in-fill, mixed-use, redevelopment, and higher density development.
Policy 3: Encourage a mix of business and residential uses downtown using incentives and
zoning.
Policy 4: Improve the appearance of buildings and landscapes.
Policy 10: Encourage the creation of transportation-efficient land use patterns and
implementation of nodal development concepts.
Policy 14: Development shall be required to pay the full cost of extending infrastructure and
services, except that the City will examine ways to subsidize the costs of providing
infrastructure or offer other incentives that support higher-density infill, mixed use,
and redevelopment.
Policy 16: Focus efforts to diversify the local economy and provide family-wage jobs
principally by supporting local and environmentally-sensitive businesses. Direct
available financial and regulatory incentives to support these efforts
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COUNCIL OPTIONS
No action is needed at this time regarding the public hearing. If the council chooses to place the
resolution authorizing the use of the HUD 108/BEDI funds for Beam’s rehabilitation of the Centre Court
building on the consent calendar, the following draft motion is provided:
Move to place the resolution authorizing the use of the HUD 108/BEDI funds for Beam’s rehabilitation of
the Centre Court Building on the consent calendar for January 11, 2010.
CITY MANAGER’S RECOMMENDATION
No action is needed at this time regarding the public hearing, so there is no City Manager
recommendation. The City Manager does, however, recommend placing the resolution approving the use
of the HUD 108/BEDI funds for Beam’s rehabilitation of the Centre Court building on the consent
calendar.
SUGGESTED MOTION
No motion is required for the public hearing, but the following motion is suggested regarding the
resolution authorizing the use of the HUD 108/BEDI funds for Beam’s rehabilitation of the Centre Court
building on the consent calendar:
Move to place the resolution authorizing the use of the HUD 108/BEDI funds for Beam’s rehabilitation of
the Centre Court building on the consent calendar for January 11, 2010.
ATTACHMENTS
A. Property Location Map
B. Summary of Financing Sources and Uses
C. Proposed HUD Section 108 Individual Project #2 Application
FOR MORE INFORMATION
Staff Contact: Nan Laurence, Senior Planner
Telephone: 682-5340
Staff E-Mail: nan.laurence@ci.eugene.or.us
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ATTACHMENT A
ATTACHMENT B
Summary of Financing Sources & Uses:
Preliminary Development Financing Plan
Rehabilitation of the Centre Court Building
SOURCES OF FUNDS
Private Investment $ 735,000
BEDI Grant $1,315,000
Section 108 Loan (#2) $5,189,000
Urban Renewal Cash $ 65,000
DLRP funds $ 350,000
TOTAL SOURCES
$7,654,000
USES OF FUNDS
Hard Costs $6,064,000
Soft Costs $1,300,000
Financing $ 290,000
TOTAL USES
$7,654,000
ATTACHMENT C
Individual Project #2 Application for HUD Section 108
City of Eugene, Oregon, Funds to Rehabilitate Centre Court Building
DRAFT for Review: December 4, 2009
Background
The City received approval for its first individual Section 108 project for the acquisition of
downtown property from the Portland field office in August 2007. The individual project
application was revised in March 2008 and approved by the Portland field office in June 2008
(Loan #1).
The City utilized a combination of federal and local funds for the first step to support the
redevelopment of properties at the heart of downtown, on Broadway and Willamette Street. The
City has an agreement with Beam Development, who has since purchased two properties from
the City, to redevelop the important intersection of Willamette and Broadway into a vital area
with restaurants, retailers, and office space. The national objective for the first individual
Section 108 project was the elimination of slums and blight. The Individual Project #2
Application is to provide construction financing to Beam for the rehabilitation of the Centre
Court building.
The City has worked with Beam since May 2007 and formalized a partnership with a Purchase
and Sale Agreement in May 2008. The City purchased the property with BEDI/108 funds and
subsequently sold it to Beam in July 2008. Based on the Purchase and Sale Agreement, Beam is
committed to the rehabilitation of the existing five-story, vacant building located at the southwest
corner of Broadway and Willamette Street. See Property Location Map, Exhibit A.
1. Project Description
The City of Eugene proposes to utilize a combination of federal and local funds to assist the
redevelopment of the Centre Court building. The City of Eugene seeks to provide construction
financing to Beam ($5,189,000 from Section 108 and $1,315,000 from BEDI). Rehabilitation of
the Centre Court building will contribute approximately 60,000 gross square feet. Net square
feet assumptions are 10,000 square feet of retail and 43,000 square feet of office space.
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2. Sources & Uses:
Preliminary Development Financing Plan for Rehabilitation of the Centre Court Building
SOURCES OF FUNDS
Private Investment $ 735,000
BEDI Grant $1,315,000
Section 108 Loan (#2) $5,189,000
Urban Renewal Cash $ 65,000
DLRP funds $ 350,000
TOTAL SOURCES
$7,654,000
USES OF FUNDS
Hard Costs $6,064,000
Soft Costs $1,300,000
Financing $ 290,000
TOTAL USES
$7,654,000
Urban Renewal Cash: The cash balances in the urban renewal funds, plus cash that becomes
available over the next few years, would be used to pay for transaction costs associated with
BEDI/108 project #2.
Downtown Revitalization Loan Program: The Downtown Urban Renewal District has a loan
program called the Downtown Revitalization Loan Program (DRLP). A $350,000
predevelopment loan to Beam has already been committed from this program.
3. Project Structure & Participants
a. Principal Developer:
Beam is responsible for the rehabilitation of the Centre Court building. The Purchase and Sale
Agreement fully delineates the obligations of the developer including the form and character of
the development, timing, the mix of uses, private financing and equity, and other obligations
including those associated with federal program compliance.
b. Developer’s Contractor & Leasing Agency:
Beam’s contractor is John Hyland Construction, Inc., a local and reputable general contractor.
Beam will be responsible for securing leases for the building and is currently working with
Evans, Elder and Brown, Inc., local commercial real estate brokers.
c. Private Funds Source:
Beam equity will originate from company cash and Business Energy and Historic tax credits, as
applicable.
d. Asset Ownership Upon Completion:
Beam will maintain ownership of the Centre Court building during and after rehabilitation.
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e. Borrower:
The City of Eugene will act as borrower for the Section 108 loan funds. The City has entered
into an agreement with the URA to carry out the project. (The URA would lend Section
108/BEDI funds to Beam for the rehabilitation of the building.)
4. Repayment Schedule
YearPrincipal RepaymentYearPrincipal Repayment
1$ -11$ 288,000
2$ -12$ 288,000
3$ 288,000 13$ 288,000
4$ 288,000 14$ 288,000
5$ 288,000 15$ 288,000
6$ 288,000 16$ 288,000
7$ 288,000 17$ 288,000
8$ 288,000 18$ 288,000
9$ 288,000 19$ 288,000
10$ 288,000 20$ 293,000
Total$ 5,189,000
5. Collateral
The URA has positions on Washburne Building and the Centre Court and adjacent property as
part of the existing Section 108/BEDI financing (loan #1), assignment of which were used to
secure the HUD borrowing. The URA would seek expanded positions on the properties for loan
#2 and provide expanded assignments to HUD. The value of the Centre Court Building at
stabilization is projected to be $8,659,679. The appraised value of the Washburne building is
$1,721,000. The combined value of the Centre Court and Washburne buildings is $10,380,679.
The combined debt on the two properties will be $8,649,000, resulting in a loan to value ratio of
81%. Additional collateral may include assignment of leases for the Centre Court, expanded
assignment of Washburne leases, and personal guarantees from the Beam owners.
6. Project Implementation
a. Estimated Project Schedule & HUD 108 Timing:
Several required Federal processes have already been completed to enable the use of Section 108
funds for construction financing. The target date for the dispersal of funds to Beam is the end of
February 2010.
Environmental Review
The City of Eugene completed an Environmental Assessment for the West Broadway project
area in September 2007, which included acquisition and rehabilitation of the Centre Court
Building. Subsequently, the HUD Regional Office signed the Request for Release of Funds on
September 24, 2007.
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Project Specific – December 2009 through 2011
Amended Purchase and Sale Agreement – December 2009
Permitting – March 2010 through June 2010
Construction – July 2010 through March 2011
Individual Project Application – Loan #2 (loan to developer)
Internal review (including Loan Advisory Committee, CDBG Advisory Committee, 30-day
public comment, public hearing at City Council, and City Council resolution) – December 2009
through January 2010
HUD Portland Field Office Review – Mid January 2010
Loan documents between City-HUD, City-URA, and URA-Beam signed, issue obligations –
Late February 2010
7. Eligible Activity
BEDI/108 funds will be used for the eligible activity described at 24 CFR 570.703(i)(1)
economic development activities eligible under 570.203 (specifically, 570.203(b) provision of
assistance to a private for-profit business). Uses of BEDI funds will qualify under 24 CFR
570.703(i)(1) economic development activities (570.203(b) provision of assistance to a private
for-profit business).
8. National Objective
The proposed BEDI/108 project will qualify for compliance with national objective 24 CFR
570.208(a)(4) job creation and retention activities for low- and moderate-income persons.
Beam is actively recruiting retail and office tenants. Based on industry employment standards
for office and retail, an estimated 192 permanent jobs will occupy the completed building. A
minimum of 51% of the created jobs will be available to low- to moderate-income individuals.
The City/URA will require Beam to enter into a Memorandum of Understanding with
the Oregon Employment Department for the outreach and recruitment of low- to moderate-
income persons for the permanent jobs made available by the project.
9. Public Benefit Standards
The total amount of Section 108 and BEDI funds to be used in the project: $6,504,000
o
The total number of permanent full-time-equivalent jobs to be created or retained as a
o
result of the project (at a minimum): 186
The cost per job created: $35,000
o
10. Brownfield Conditions
Brownfields are vacant and underutilized properties where redevelopment is complicated by
actual or perceived environmental contamination. The Centre Court building was most recently
used as commercial office, but was vacated in advance of a planned housing development
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project. However, significant asbestos contamination and seismic related structural problems
halted redevelopment of the site for that project. The Centre Court building has been vacant for
years and is located along a two-block stretch of West Broadway that has been characterized by
high vacancy rates and depressed market conditions for over 20 years. The building currently
has environmental issues including mold and asbestos. Given the long-term vacancy and history
of asbestos the project meets the brownfield definition.
11. City Contact
Michael C. Sullivan
Community Development Division Manager
th
99 West 10 Avenue
Eugene, OR 97401
541-682-5448
541-682-5572 (fax)
mike.c.sullivan@ci.eugene.or.us
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Exhibit A: Property Location Map
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