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EDA Minutes 09-28-1990 ~ . MINUTES MONTICELLO ECONOMIC DEVELOPMENT AUTHORITY Friday, September 28, 1990 - 7:00 AM City Hall MEMBERS PRESENT: Chairperson Ron Hoglund, Barb Schwientek, Harvey Kendall, and Fair Fair. MEMBERS ABSENT: Warren Smith, Bob Mosford, and A1 Larson. STAFF: Rick Wo1fste11er and Ollie Koropchak. GUESTS: Mike Muller, President of the Muller Theatre. Kevin Doty, Commercial Lender, Wright County State Bank. Tom Hayes, EDA Attorney. 1. CALL TO ORDER. Chairperson Ron Hoglund called the EDA meeting to order at 7:03 AM. 2. APPROVAL OF THE JULY 24, 1990 EDA MINUTES. Barb Schwientek made a motion to approve the July 24, 1990 EDA minutes, seconded by Fair Fair, the minutes were approved as written. . 3. CONSIDERATION TO HEAR UPDATE ON GMEF LOAN APPLICATION FOR JEFF EASTEY ENTERPRISES, INC. Koropchak reported the SBA 7(a) loan application requesting bank participation was denied by Wright County State Bank. Charlie Rogers, Attorney for the Jeffrey Eastey Enterprises, Inc., informed Koropchak of the bank's notification to the company. The company will submit applications to First National of Monticello, Norwest of Maple Grove, and a lending institution in Young America. Until the Eastey Company receives SBA bank participation will the EDA receive the company's formal GMEF application for consideration and will the preliminary application for the Central Minnesota Initative Fund be submitted. 4. CONSIDERATION TO REVIEW PRELIMINARY AND FORMAL GMEF APPLICATION FOR MULLER THEATRE EXPANSION. . EDA Chairperson Ron Hoglund called upon Mike Muller, President of the Muller Theatre, to explain the theatre expansion project. The project to begin this fall, after receiving adequate funding, will enlarge the present theatre from two screens with seating capacity of approximately 500 to a total of four screens with seating capacity of approximately 1000. The lobby area will be expanded into one large area to serve the entire complex inclusive of a large chandelier which will illuminate through the glass floor length panels of the new lobby area. The show times will be staggered to control traffic. With the demolition . EDA Minutes 9/28/90 Page 2 4. CONTINUED. of the Stoke's Marine Service building and the demolished National Bushing building by Wright County State Bank, the bank and theatre will share the use of the parking lot through a lease agreement. Parking lot plans have been approved by the Planning Commission and the City Council. Demolition of the Stoke's building and the beginning theatre construction should occur simultaneously with the hard surfacing of the parking lot not to occur until the frost is out of the ground in the spring. To remain competitive in the theatre business, a theatre must offer several choices to its customers with the most current releases, therefore, if the theatre is unable to expand customers will be drawn to the multi screens in Elk River or planned theatre expansion in Buffalo. Mr. Muller has gone out for three different bids in effort to reduce the expansion cost. Originally, the theatre plans consisted of two stories, the second and third bids consisted on one story plans. rhe building construction costs were reduced from $405,000 to $310,000. . Kevin Doty, Lending Officer, told the EDA members that the total appraisal of the completed theatre (expanion plus existing) as determined by Jack Maxwell was $900.000. The project cost was outlined as: Project Cost: $ 69,500 310,000 175,500 $555,000 Land Cost Construction Cost M&E Total Project Cost USES: $555,000 Project Cost 112,000 Muller Family Existing Mortgage $667,000 TOTAL SOURCES: $360,000 35,000 112,000 50,000 110,000 $667,000 Wright County State Bank Other Bank Muller Family Existing Mortgage Remortgaged GMEF * EQUITY (M&E) TOTAL 54% 5% 17% 8% 16% 100% . The total debt service is $557,000 of which the existing Muller Family mortgage will be remortgaged ($112,000) along with the new mortgage at $445,000. Anticipated plans call for the Muller Family to deed the property to the bank through a warranty deed thereafter Mike Muller and his wife will deed through an assignment deed or quick claim deed the existing remortgaged loan back to the Muller Family. Kevin Doty reported that Wright County State Bank was willing to participate at 50%, however, at 60% would be the possibility of a no go. It is anticipated to ask another lending institution for partial funding, amount and lending institution yet to be determined. This amount will be determined upon the * To be determined EDA Minutes 9/28/90 Page 3 . 4. CONTINUED. EDA's willingness to participate and if so, the dollar amount of participation. The business currently owns and operates two theatres in Delano and Waconia, and anticipates the construction of a theatre in East Bethel. Kevin Doty recommended to the EDA, to the best of his ability and expertise, that the Michael and Robert Muller Partnership to be a credit-worthy informal partnership and stated the EDA loan would be a Companion Direct Loan. As included in the EDA agenda, the present theatre's EMV for 1990 is $232,100 and the estimated EMV for the theatre expansion as per Doug Gruber, County Assessor, is $269,100. Estimated new total EMV for the theatre is $501,200. With the planned expanion, the total projected new jobs as per Mr. Muller is two full time and eight part-time for a total of six full time jobs. Present employment is two full time and nine part-time for a total of six point five full time. Alternative recommendations for EDA participation ranged from $30,000 to $50,000. Koropchak outlined how the loan application meets the GMEF Policy Criteria. . A. PUBLIC PURPOSE: Must comply with four or more of the six public purpose criteria (creation of jobs being a must.) . 1. Creates new jobs: Two full time and eight part-time for a total of six new full time jobs. 2. Increases community tax base: Estimated net gain of annual taxes, $8,350. 3. Assists an existing non-competitive commercial business to improve or expand its operation. The Muller Theatre is a business in no direct competition with existing business within the City of Monticello (no other theatre.) 4. Used as a secondary source of financing to a conventional bank. Conventional banks of Wright County State Bank and one other. 5. Used as gap financing. Due to Legislative TIF restrictions effective May 1, 1990, this project does not meet the requirements for the establishment of a Redevelopment or Renovation District nor the TIF definition of blight or substandard buildings. Additionally, a theatre expansion does not qualify for SBA or State financing programs. Thirdly, the developer made an effort to and did reduce his construction cost from $405,000 to $310,000 by going out for three bids. Finally, due to the country's economy, commercial lending is more difficult to secure. 6. Does not assist in obtaining other funds such as SBA, federal or state grants. (Theatres do not qualify under these programs.) Therebye.the loan application meets five out of the six public purpose criteria inclusive of job creation and meets the purpose to encourage EDA Minutes 9/28/90 Page 4 . 4. CONTINUED. economic development. In addition, the Muller Theatre expansion is an eligible business as it is non-competitive business which enhances the community, the business is located in the city of Monticello, the business has been determined to be a credit-worthy informal partnership, the business is an existing business, and the business qualifies for a loan amount of $60,000 (6 jobs X $10,000) or $67,275 ($5,000 per every $20,000 increase in property market evalution, $269,100) whichever is higher. The project will also assist in maintaining a more vibrant downtown, supports Streetscape, would increase the utilization of the property, would encourage the demolition of an adjoining substandard site, would eliminate the potential of business leaving town, and enhances the Business Retention and Expansion Program. . Koropchak further outlined that in accordance with the GMEF guidelines and the loan under discussion to be a Companion Direct Loan means that the GMEF loan will be in the subordinated position to the primary lenders and collateral is required. The GMEF would be in second position to the banks on fixed real assets and machinery and equipment (UCC Filings). Presently, the maximum dollar amount of GMEF available to a business is $56,000. Prime rate as of October 24, 1990, National Bank of Minneapolis (former First Banks) is 10%. Mr. Muller informed the EDA members that he anticipates completion of the 5,775 sq ft theatre expansion on Lot 4 plus W 24 inches of Lot 3, Block 53, City of Monticello, and the remodeled present theatre to be in the spring of '91. The EDA agreed that the Muller Theatre expansion was a good project for the city and for it's people, saw efforts on the part of developer to close the financial gap, and agreed that a good use of the GMEF was to assist in a project that would encourage elimination of a substandard site and encourage the development of a new appealing aesthetic structure ,.rhich has a $30,000 glass front. . Attorney Tom Hayes agreed with the EDA and agreed that the project meets the EDA public purpose criteria and guidelines as outlined by Koropchak, and recognized this as a difficult time for a developer to secure full conventional financing. He was very comfortable with the creditability of the developers. He recommended that EDA loan secure title insurance on both properties the same as the bank requirements and to obtain as much collateral as possible to protect the GMEF. EDA Minutes 9/28/90 Page 5 . 5. CONSIDERATION TO APPROVE OR DENY CMEF LOAN FOR MULLER THEATRE EXPANSION. 6. After the review and discussion of the Muller Theatre expansion as recorded under Item 4., EDA member Barb Schwientek made a motion to approve a Creater Monticello Enterprise Fund (CMEF) loan of $50,000 to Michael and Robert Muller, an informal partnership, for the Monticello Theatre expansion. Loan terms of an 8% fixed interest rate to be amortized over twenty years with ballon payment in five years for real property acquisition, real property rehabil- itation (expansion or improvements), and machinery and equipment. Loan fee was set at not too exceed 1% of the total loan project or $500 ($50,000 X 1%). Attorney Tom Hayes to draft the necessary documents for protection of the CMEF loan. Harvey Kendall seconded the motion and without further discussion, the motion passed 4-0. The loan was approved because the application and the project met the general purpose of the CMEF, the public purpose criteria of the CMEF, the business eligibility of the CMEF, and the overall guidelines of the CMEF. The business was analyzed as credit-worthy and was further determined by the EDA to be a good project for both the city and it's people, it would assist a project with gap financial needs, and it would assist a project which will increase the aesthetic value of downtown, therebye, in a domino affect will encourage another developer to demolish a substandard structure on the adjoining property. The City Council to receive notification of EDA loan approval. OTHER BUSINESS. Koropchak suggested to the EDA members that at their next quarterly meeting the public purpose criteria and guidelines be reviewed. The CMEF being in existance for about a year may need some general housekeeping or further defining in the area of new jobs created, possible penalty if jobs are not created, leveraging of loan or project, etc. . 7 . ADJOURNMENT. Chairperson Ron Hoglund adjourned the EDA meeting at 8:25 AM. ~ ,<no-\! j ~ Ollie Koropchak EDA Secretary .