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HomeMy WebLinkAboutR-2003-096 Housing & Urban Development (HUD) Section 108 Loan Guarantee Program Application re: Pepper’s Restaurant (Helen & SeongRESOLUTION NO. R-2003- 96 A RESOLUTION Authorizing the City Manager to submit an application for funding from the Section 108 Loan Guarantee Program of the United States Department of Housing and Urban Development (HUD) m the amount of $330,000 for Pepper's Restaurant. WHEREAS, the City of Yakima has been awarded a $1 million Economic Development Initiative (EDI) grant from the U.S. Department of Housing and Urban Development (HUD); and WHEREAS, the grant award from HUD is conditioned upon the usage of a $4 million loan from the HUD Section 108 loan guarantee program; and WHEREAS, the EDI grant has been awarded for the capitalization of a Commercial Development Loan Fund; and WHEREAS, the City has worked with the National Development Council (NDC) in developing the guidelines for the program that at provides more flexibility and opportunity for development; and WHEREAS, a request for financing from Pepper's Restaurant was determined to meet the program eligibility criteria and was ready to proceed; and WHEREAS, the NDC has reviewed the application and determined that Pepper's application meets the criteria for this type of loan, demonstrates a good plan for expanding its business, and possesses sufficient collateral to back this loan in case of default; and WHEREAS, economic development is a priority for the City of Yakima, and the City intends to approach economic development on an inclusive, comprehensive basis which involves public, private and community-based efforts to achieve new investment and redevelopment m the City; and WHEREAS, under Section 108 of the Housing and Community Development Act of 1974, federal loans are available for the purpose of funding property rehabilitation for economic development activities that will create new and stable jobs for low and moderate -income residents; now therefore BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF YAKIMA: The City Manager is hereby authorized to submit an apphcation for funding from the Section 108 Loan Guarantee Program of the United States Department of Housing and Urban Development (HUD) in the amount of $330,000 for Pepper's Restaurant. The City Manager is hereby designated as the official representative of the City to act m connection with that funding application and is authorized to take such additional actions as may be necessary and prudent to complete the apphcation process. ADOPTED BY THE CITY COUNCIL this 24th day of June, 2003. ATTEST: City Clerk ley My Place, Mayor CITY OF YAKIMA APPLICATION FOR SECTION 108 LOAN GUARANTEE FROM U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT FOR PEPPER'S FAMILY RESTAURANT IN THE AMOUNT OF $330,000 JUNE 20, 2003 PEPPER'S FAMILY RESTAURANT — A SECTION 108 LOAN FUND LOAN YAKIMA, WASHINGTON Project Description The purpose of this Section 108 application is to assist with economic and community development activities in the City of Yakima. The proceeds will be drawn from the previously approved Yakima Economic Development Loan Fund. The borrowers will be Helen and Seong Kim, husband and wife. The Kim's will use the proceeds to refinance the purchase of the vacant restaurant adjacent to their Ramada Limited Motel, refurbish the restaurant, acquire necessary equipment and furnishings and for operating capital. The loan will be the third loan within this loan fund. The loan is for $330,000 including fees and closing costs. The City of Yakima will use the $82,500 in EDI funds associated with the loan as a loan loss reserve. In January 2002, Helen and Seong Kim purchased the Red Lion Inn at 818 North First Street in Yakima, Washington renaming it the Lion's Inn. They have successfully operated this motel since that time. In October of 2002 they entered into a franchise agreement with Ramada to operate the motel as a Ramada Limited. The franchise agreement required the Kim's to improve the existing motel to the Ramada standards. These improvements totaling $187,000 were made and in May of 2003 the motel began operating as a Ramada Limited. In February 2003, the Kim's purchased an adjoining commercial property for $230,000 with the sellers carrying a note for $184,000. The property had previously been operated as a Denny's restaurant before closing in November of 2002. Their motel guests had frequently patronized the Denny's before its closing and have been inconvenienced by the current lack of a restaurant close to the motel. The Kim's plan to renovate the vacant restaurant building and open and operate it as new family restaurant for the benefit of their motel patrons, as well as the business and residential communities surrounding the site. The new restaurant will be called Pepper's Family Restaurant and will be open for breakfast, lunch and dinner. The menu will consist of traditional breakfast items as well as signature breakfast dishes, homemade soups, large entree salads, hot and cold sandwiches, steaks and seafood. The restaurant will serve microbrews, domestic and imported beers and local wines as well as a variety of soft drinks and homemade milk shakes. Both the motel and restaurant are located in Yakima's Renewal Community. The loan will allow the company to open a new business and create 25 full time jobs, 21 of which will be available to low -moderate income persons. Use of Proceeds Refinance existing purchase note and Other related credit card debt 214,000 POS System 20,000 Kitchen equipment and silverware 20,000 New signage 8,000 Remodel 25,000 (Including exterior and interior painting, new bathroom and new and table and counter tops) Food and wine supplies 15,000 Working capital 12,000 Legal, appraisal and closing costs 16,000 Total $330,000 2 PEPPER'S FAMILY RESTAURANT — A SECTION 108 LOAN FUND LOAN YAKIMA, WASHINGTON Section 108 Submission Requirements A. Community Development Objectives The Section 108 loan fund was established to promote economic and community development in the City of Yakima's Renewal Community. A loan to Pepper's Family Restaurant will further the City of Yakima's Economic Development Goals as listed in the City's 2000 — 2004 Consolidated Plan. The Strategic Plan section of the Consolidated Plan states that: "The City of Yakima is committed to combating poverty on all fronts. The chief weapon in this battle is economic development. This has been identified by our city council as our number one priority. We are actively engaged in fostering and pursuing new partnerships with both public and private organizations to create new employment opportunities and better utilize our limited resources to meet community needs." Stated in the Strategic Plan is the expectation that the City of Yakima will directly assist businesses and development projects with Section 108 loans. B. Description of how the Proposal meets one of the Criteria in 24 CFR 570.200(a)(2) - National Objectives. Section 570.200(a)(2) lists the National Objectives that must be met by all Community Development Block Grant and therefore Section 108 projects. This section requires that all funded activities meet one of three national objectives. These objectives are: 1) benefit to low and moderate income families; 2) aid in the prevention or elimination of slums or blight; and 3) meeting other community development needs having a particular urgency because existing conditions pose a serious and immediate threat to the health or welfare of the community where other financial resources are not available. Section 570.208 defines the criteria under which an activity may meet the requirements of Section 570.200(a)(2). Each project funded through the Section 108 loan fund will meet one of the National Objectives listed in Section 570.200(a)(2) as detailed in Section 570.208. The loan to Pepper's Family Restaurant will allow the company to create an additional 21 new jobs for low- and moderate -income persons. The loan will specifically meet the requirements of Section 570.208(a)(4) and (a)(4)(iv). Section 570.208(a)(4) defines activities that meet the requirements of 570.200(a)(2) through the creation or retention of jobs. The subsection states that to qualify as a job creation or retention activity the project must "create or retain permanent jobs where at least 51 percent of the jobs, computed on a full time equivalent basis, involve the employment of low -and moderate -income persons." Sections 570.208(a)(4)(i) & (ii) specify that to qualify under Section 570.208(a)(4) the jobs created or retained must be either held by or be available to low- and moderate -income persons. Section 570.208(a)(4)(iv) lists minimum standards for the presumption that jobs will be "held by or made available to low- and moderate -income persons." Finally Section 570.208(a)(4)(v) states that a census tract will qualify for the presumption permitted under paragraph (a)(4)(iv) if it meets the following criteria: A: It has a poverty rate of at least 20 percent as determined by the most recently available decennial census information; B: It does not include any portion of a central business district, as this term is used in the most recent Census of Retail Trade, unless the tract has a poverty rate of at least 30 percent as determined by the most recently available decennial census information; and, C: It evidences pervasive poverty and general distress by meeting at least one of the following standards. (1) All block groups in the census tract have poverty rates of at least 20 percent; (2) The specific activity being undertaken is located in a block group that has a poverty rate of at least 20 percent; or (3) Upon written request of the recipient, HUD determines that the census tract exhibits other object determinable signs of general distress such as high incidence of crime, narcotics use, homelessness, abandoned housing, and deteriorated infrastructure. 3 PEPPER'S FAMILY RESTAURANT — A SECTION 108 LOAN FUND LOAN YAKIMA, WASHINGTON Pepper's Family Restaurant is located in census tracts with over 40 percent poverty and within a block group with greater than 20 percent poverty the project will qualify for the presumption test available under 570.208(a)(4)(iv). C. Community Development Block Grant Eligibility In addition to furthering a National Objective, all Section 108 loans must also meet the eligibility requirements of the Community Development Block Grant program. All activities funded through the City of Yakima's Section 108 loan fund will meet the program eligibility requirements as set forth in Sections 570.201,202,203 or 204. The loan to Pepper's Family Restaurant meets the eligibility requirements of Section 570.203(b). Under 24 CFR 570.203 (b) the City can provide assistance to private for-profit business, including, but not limited to, grants, loans, loan guarantees, interest supplements, technical assistance, and other forms of support, for any activity where the assistance is appropriate to carry out an economic development project, excluding those described as ineligible in Section 570.207(a). In addition, all activities funded under Section 570.203 must the guidelines provided in Section 570.209 (Guidelines for evaluation and selecting economic development projects). Section 570.207(a) excludes: buildings or portions thereof, used for the general conduct of government, general governmental expenses and political activities. Proceeds of the Section 108 loan to Pepper's Family Restaurant will not be used for the general conduct of government, general governmental expenses, nor for political activity. Section 570.209 Guidelines Guidelines and Objectives for Evaluating Project Costs and Financial Requirements. All activities eligible under Section 570.203 must meet the requirements of Section 570.209. This section outlines guidelines for ensuring that a proposed project carries out an economic development objective in an appropriate manner. These guidelines under 570.209(a) are not mandatory but serve as a framework for financially underwriting economic development projects. In evaluating proposed projects benefiting from the Section 108 Economic Development Loan Fund the City of Yakima uses the following criteria. Project Management The City of Yakima, Department of Community and Economic Development (DCED) administers the fund. DCED will underwrite all loans and uses the National Development Council (NDC) to advise on project feasibility. NDC has a more than 35 -year track record of assisting local governments in structuring and implementing economic development and housing projects. Underwriting Standards for City of Yakima EDI / Section 108 Loan Fund 1. National Objective All loans must meet a national objective as specified in 24 CFR 570.208. No loan shall be approved without verification of compliance with the national objective requirements, specified in 24 CFR 570.208, by the Washington State Office of the United States Department of Housing and 4 PEPPER'S FAMILY RESTAURANT — A SECTION 108 LOAN FUND LOAN YAKIMA, WASHINGTON Urban Development. 2. Eligibility In addition to meeting one of the program's National Objectives all projects assisted through the loan fund must fall within one of the eligible activities listed in 570.703. 3. Guidelines for evaluating and selecting economic development projects For all activities eligible under 570.703(i), economic development activities, the project will be required to meet the guidelines listed under 570.209: Guidelines for evaluating and selecting economic development projects. No loan shall be approved without verification of compliance with the public benefit standards as specified in 24 CFR 570.209(b) by the Washington State Office of the United States Department of Housing and Urban Development. 4. Financial Underwriting In loan underwriting the City shell adhere to the follow criteria. A. Real Estate Loans Real Estate Loan shall be evaluated based on: Ability to Repay Collateral Development Team Capacity and Experience Developer Commitment Character of the Developer Ability to Repay Projects to be funded will have at least a 1.1 projected debt coverage ratio. If the project includes more than a small percentage of its rental income from start- up or financially weak tenants then a higher debt coverage ratio shall be required. Collateral Projects to be funded should have a loan to value ratio of not greater than 80 percent. This value must be supported by an appraisal prior to funding. If greater than an 80 percent loan to value ratio is proposed, outside collateral sufficient to provide an 80 percent loan to value shall be required. In certain cases outside guarantees may suffice for additional collateral. Development Team Capacity and Experience Projects funded shall have a development team that has both the capacity and experience to complete the project as demonstrated by past projects and financial strength. Developer Commitment 5 PEPPER'S FAMILY RESTAURANT — A SECTION 108 LOAN FUND LOAN YAKIMA, WASHINGTON Developer commitment can take many forms. While each project is likely to be different the forms of developer commitment that can be expected include: adequate equity, guarantees of completion, guarantees to fund shortfalls or guarantees of minimum cash flow. Character Projects to be funded should have developers with good credit histories, demonstrated integrity, and quality references. B. Business Loans Business Loans shall be evaluated based on: Ability to Repay Collateral Guarantees Financial Strength Management Experience Character of the Principals Ability to Repay All businesses funded with the program shall have existing cash flow (profits after tax, plus deprecation, plus excess officers income, plus rent savings if applicable) sufficient to repay the loan. Projections must be supported by strong evidence that they will materialize. Collateral All business loans must be supported by collateral. Real Estate must be supported by an appraisal and will be generally accepted up to 80 percent of its value. Machinery and equipment depending on its nature will be accepted from 40 percent to 60 percent of its fair market value. Accounts receivable and inventory will normally be used to secure operating debt and will generally not be taken as collateral. Outside collateral such as personal residences shall be valued up to 90 percent of their fair market value. Guarantees All principals with 20 percent or more or a controlling interest, if less than 20 percent, shall provide personal guarantees. Financial Strength Three years of financial statements on the business plus a personal financial statement on all principals of the business shall be analyzed to determine if the company is well run and has the ability to manage its accounts and pay its obligations. PEPPER'S FAMILY RESTAURANT — A SECTION 108 LOAN FUND LOAN YAKIMA, WASHINGTON Management Experience The management must have experience in the business or in a similar business, be able to demonstrate an ability to manage and have the depth in management to withstand unforeseen transitions. Character of the Principals The personal financial statements and credit history of the principals must demonstrate honesty and trustworthiness. D. Eligibility under 24 CFR 570.703 Each of the projects to be assisted with Section 108 guaranteed loan funds and Economic Development Incentive grant funds must meet one of the eligibility requirements listed in 24 CFR 570.703. The initial two projects detailed in this application are eligible under 570.703(i), - economic development activities eligible under Section 570.203. Other projects to be funded under the program may also qualify under 570.703(a)(b)(c)(d)(e)(f)(h)&(1). E Project Evaluations 1. Project Underwriting - Pepper's Family Restaurant a. Ability to Repay This loan to the Kim's is to refinance their existing purchase note on the Pepper's Family Restaurant property, to invest in refurbishing that property and to finance the operating capital needed to open and operate the restaurant. Since this is a new business venture it must be considered speculative in that it relies on income derived from the operation of a currently vacant property. The speculative nature of the request is offset by a well thought out business plan, an experienced restaurant manager and a purchase price well below the proposed listing price. In addition, the property should operate with synergies derived from its location adjacent to the Ramada Limited motel operated by the borrowers. The business plan projects positive cash flow from operations based on a purchase and operating debt with higher payments than those anticipated with the Section 108 financing. Finally the Kim's will operate both the motel and restaurant as a unified operation with both facilities contributing to repayment. As such the existing motel operation will mitigate the start-up nature of the restaurant. b. Collateral The loan will be collateralized by a first security interest in the restaurant property including UCC's on all restaurant equipment. The loan will be additionally secured by a second position interest in the motel. The combined value of the project and the motel net of existing debt must exceed $412,500, as supported by an appraisal ordered and acceptable to the City of Yakima. 7 PEPPER'S FAMILY RESTAURANT — A SECTION 108 LOAN FUND LOAN YAKIMA, WASHINGTON c. Guarantees The Kim's will borrow personally. d. Financial Strength In evaluating the loan consultants to the City reviewed the business plan, personal financial statements, tax returns, credit reports, projections, reviewed the collateral and have evaluated the site. A copy of the business plan for the restaurant is attached. It includes projections on the restaurant showing a strong ability to repay The plan is based on solid assumptions. Also included in the loan package are copies of the Kim's resumes and personal financial statements. Supporting the restaurant's operation will be that of the motel which the Kim's have owned for slightly over 1 year. While the motel operation experienced a modest loss in 2002, its income before taxes, depreciation and amortization was slightly over $50,000 positive. The 2002 statements do not reflect the full benefit of the Kim's investment of $187,000 in motel improvements nor the added room bookings derived from the Ramada Limited franchise fully implemented in May of this year. One potential red flag is the Kim's credit report which shows a number of credit cards with balances at their limits. In addition a number of their accounts show slow pays. Derogatory accounts include $8,400 that the borrowers claim is owed by Helen Kim's former husband as stipulated in the divorce agreement and $5,400 owing on a repossessed ATM machine from the borrower's previous business. While these derogatory accounts cause concern, they are not seen as overshadowing the positive elements of the loan application. e. Management Experience The restaurant will be owned and operated by the Kim's, who are successful business owners. In addition, the restaurant will be managed by an experienced restaurant manager. A copy of the manager's resume is attached. f. Character of the Principals The company's principals have shown dedication and commitment to the operation of their existing Yakima business and can be expected to continue this level of commitment in their new venture. 2. Section 570.209 Guidelines for evaluating project costs and financial feasibility a. Reasonableness of the Proposed Project Costs Each use of loan funds shall be evaluated to ensure the reasonableness of proposed project costs. The scope of this evaluation shall depend on the size and nature of each project. Care will be taken to use third party evaluations of costs wherever appropriate, and particular attention will be exercised when an activity involves a non -arms -length transaction. Staff and consultants to the City have reviewed the proposed project costs for the Pepper's Family Restaurant loan. The loan proceeds will be used for operating capital, rehabilitation and refinancing a portion of the acquisition. The costs associated with the 8 PEPPER'S FAMILY RESTAURANT — A SECTION 108 LOAN FUND LOAN YAKIMA, WASHINGTON use of proceeds are reasonable. b. Commitment of all Sources of Funds. The City and its consultants shall review every project to verify that all sources of funding are committed and available prior to approval of an activity to be funded by the Section 108 / EDI fund. The project as proposed will be fully funded by the Section 108 loan fund. The borrowers earlier contributed $46,000 in equity when they purchased the property in February. c. Substitution of CDBG funds for Private Sources. City staff, assisted by consultants, will review all projects to insure that each loan minimizes the use of CDBG funds. It is in the City of Yakima's self interest to insure that there is no substitution of CDBG funding for non-federal funding. Given the limited availability of federal funds, the city staff will work diligently to maximize the use of private, non-federal funding in all projects. All projects will be reviewed to insure that private sources of financing have been maximized and that the rate of return on equity is reasonable and within general standards. The Section 108 funds, while refinancing a private seller note, are not being used to substitute for private sources. The seller financing must be refinanced to provide the Section 108 loan with a first security interest in the property. Without a first lien the Section 108 financing would not be feasible. In addition the project needed the overall rate available through the Section 108 program to give greater certainty to its success. d. Feasibility of the Project. All projects seeking assistance under the Section 108 / EDI loan fund shall be evaluated as to project feasibility. The scope of each evaluation will depend on the nature of prospective projects. For existing businesses, three years of financial statements will be reviewed and analyzed, projections evaluated and project costs verified. For business start-ups, projections will be compared to industry averages and evaluated by others experienced in the line of business. In addition, at risk capital will be required on the part of the borrower. For real estate projects, appraisals will be required and reviewed, appropriate pre -leasing levels will be set and prospective tenants' credit worthiness will be evaluated. In some cases formal market feasibility studies will be required. In other cases less formal evaluations will be sufficient. In all cases the prospective borrowers' experience and capacity to perforin will be reviewed. Please refer to the discussion under project underwriting above. e. Return on owner's equity. Staff will evaluate all projects to determine the owner's return on equity and compare this projected return to industry norms. The loan fund will seek to participate in projects where its participation will help secure the owner a return commensurate with the risk. Projects where the return on equity is high will need to demonstrate why the fund's PEPPER'S FAMILY RESTAURANT — A SECTION 108 LOAN FUND LOAN YAKIMA, WASHINGTON involvement is necessary, or why its participation should not be lessened. Projects where the return on equity is low will need to further justify feasibility and accuracy of costs. It shall be the goal of the fund to maintain a viable portfolio of loans with the minimum fund involvement. The projections for Pepper's Family Restaurant do not show returns on equity that are either unreasonable or excessive. f. To the extent practicable the Section 108 funds should be disbursed on a pro rata basis It shall be a goal of the fund to disburse funds on a pro rata basis with other funds being used in specific projects. In those situations where pro rata disbursement is not followed, staff will justify the procedure and seek alternative means to mitigate risk. The City will fund based on invoices and cost reimbursement. 2. Standards for evaluating public benefit All projects eligible under Section 203 and Section 204 will be required to comply with Section 570.209. Section 570.209(b)(1) establishes the standards for evaluating public benefit in the aggregate, Section 570.209(b)(2) applies those standards and 570.209(b)(3) establishes the standards for individual activities. All projects funded through the Section 108 / EDI loan fund will comply with the standards of subsections 570.209(b)(1), (2) & (3). All projects funded through the loan program will be required to meet the individual standard of Section 570.209(b)(3). The City of Yakima anticipates qualifying projects under both 570.209(b)(3)(i)(A) & (B) - the creation or retention of at least one full-time equivalent permanent job for every $50,000 of CDBG assistance and the provision of goods and services to low- and moderate -income persons where the CDBG assistance does not exceed $1,000 per low- and moderate -income person to which goods or services are provided by the activity. The Pepper's Family Restaurant will create approximately 25 full time equivalent jobs. This represents a ratio of 1 job for every $16,500 in combined Section 108 and EDI funds. Projects assisted with the loan fund will be located within the federally designated Renewal Community. Within this area all census tracts have levels of poverty exceeding 40 percent. Section 570.209(b)(2)(v)(F) exempts activities from meeting the aggregate standard for public benefit if the activity provides assistance to businesses that operate within a census tract that has at least 20 percent of its residents who are in poverty. If a project should fall outside of this area, it will be required to meet the aggregate standard as well as the individual standard. The Pepper's Family Restaurant is within the Renewal Community boundary. As such it can be exempted from the aggregate standard. Because of the number of jobs created by the project, it will not be necessary to exempt the project from the aggregate standard. The project expects to exceed the minimum individual job creation standard. D. A Description of the Pledge of CDBG Guarantee The City of Yakima understands that if the participants in this Section 108 loan fund fail to make timely payments and the City of Yakima therefore fails to make a required payment on its notes, HUD will deduct that payment from the City of Yakima's CDBG Letter of Credit and in accepting this loan guarantee, the City of Yakima has pledged its CDBG funds and all other applicable grants as security for the guarantee. (Please refer to Attachment A - Certifications.) 10 PEPPER'S FAMILY RESTAURANT — A SECTION 108 LOAN FUND LOAN YAKIMA, WASHINGTON E. Schedule of Loan Repayment Principal repayments will be due monthly from the borrowers reflecting an annual principal payment due HUD on August 1 of each year as follows: Date Principal Amount Date Principal Amount August 1, 2003 $ 0 August 1, 2009 $ 33,000 August 1, 2004 28,000 August 1, 2010 34,000 August 1, 2005 29,000 August 1, 2011 35,000 August 1, 2006 30,000 August 1, 2012 37,000 August 1, 2007 31,000 August 1, 2013 41,000 August 1, 2008 32,000 11 poppersrest City of Yakima Helen & Seong Kim Digital Color Orthophotography flown 08/01/2002 Subject Properties 801 N 1st Street oi Yo*, � •• • 040 Scale —lin = 200ft 0 100 200 Created: June 19, 2003 AQP« OEM' 0 ,466 Z6 11111111 9&IN DEV Vp rTh Ci": . cF An 4 l 2003 Lcw CITY 11tI.Al'aAGEl'i 08/31/2003 U.S. Department of Housing and Urban Development Washington State Office Seattle Federal Office Building Office of Community Planning & Development 909 First Avenue, Suite 300 Seattle, WA 98104-1000 www.hud.gov/washington.html MR. RICHARD ZAIS, CITY MANAGER CITY OF YAKIMA 129 NORTH 2ND STREET YAKIMA, WA 98901 Dear Mr. Zais: SUBJECT: Authority to Use Grant Funds for Pepper's Family Restaurant We have received the Request for Release of Funds and Certification submitted with your signature on 07/15/03. The activity listed on the enclosed Authority to Use Grants Funds (HUD Form 7015.16) has received satisfactory environmental clearance. Enclosed is an Authority to Use Grant Funds for activities requiring a release of funds by HUD under the Environmental Review Procedures at 24 CFR Part 58. You are hereby authorized to incur costs for the activity listed above and on the enclosed form as of 07/31/03, provided there are no other conditions that must be removed or cleared. If you have any questions please call Dana Buckner at (206) 220-5150 ext. 5377. Sir erely, '----\ Donald A Phillips NC Deputy Director Office of Community Planning and Development Authority to Use Grant Funds U.S. Department of Housing and Urban Development Office of Community Planning and Development To: (name & address of Grant Recipient & name & title of Chief Executive Officer) Richard Zais, City Manager City of Yakima 129 North 2nd Street Yakima, WA 98901 Copy To: (name & address of SubRecipient or Secondary Contact) Marvin Miller, ONDS Operations Supervisor Dept. of Community & Economic Development Yakima 129 No. 2nd Street Yakima, WA 98901 We received your Request for Release of Funds and Certification, form HUD -7015.15 on 07/15/03 Your Request was for HUD/State Identification Number B -02 -MC -53-0008 All objections, if received, have been considered. And the minimum waiting period has transpired. You are hereby authorized to use funds provided to you under the above HUD/State Identification Number. File this form for proper record keeping, audit, and inspection purposes. Prolect/Activity: Loan for renovation work, working capital and refinance costs for Pepper's Family Restaurant. Location: 822 N. First Street, Yakima Typed Name of Authorizing Officer: Donald A. Philips, Deputy Director, Office of Community Planning and Development Signature of Authorizing Officer [(1 Effective Release Date: 07/31/2003 Action Number: 51-03 form HUD -7015.16 (2/94) ref. Handbook 6513.0 BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No. -Yr1 3 For Meeting Of: June 24, 2003 ITEM TITLE: Resolution authorizing submission of an application for a $330,000 Section 108 Loan to Helen and Seong Kim to the U. S. Department of Housing and Urban Development (HUD) SUBMITTED BY:ichael Morales, Grants Officer CONTACT: Michael Morales, 575-3533 SUMMARY EXPLANATION: Attached is an application to the U. S. Department of Housing and Urban Development for a $330,000 loan to Helen and Seong Kim. Funding for the loan will come from the City of Yakima's Economic Development Initiative grant and Section 108 loan from the U.S. Department of Housing and Urban Development. Pepper's Family Restaurant is a new business locating in a former Denny's restaurant building at 801 North 1st Street. The restaurant will create 25 full-time equivalent jobs. The requested loan amount is $330,000, and will be used to refinance existing acquisition debt, make repairs to the building, and provide working capital. The principals of the business are Sean and Helen Kim. The Kims are owners of the Ramada Limited Hotel (formerly Lions Inn), located adjacent to the restaurant. The restaurant building has been closed for over a year, and its re -opening is important to the success of the Ramada Hotel and revitalization of the North 1st Street corridor. In addition to a Loan Agreement and Promissory Note, the loan shall be secured by personal guaranties signed by the borrowers. The parties have also agreed to provide the City a security interest lien on their Ramada Limited Hotel. The National Development Council (NDC) has reviewed the application and determined that the Pepper's Family Restaurant application meets the criteria for this type of loan, demonstrates a sound plan for reopening this business, and provides sufficient security to secure this loan in case of default. Resolution _X_ Ordinance Contract _ Other: Loan Application Funding Source: U.S. Department of Housing and Urban Development Approval for Submittal: STAFF RECOMMENDATION: Staff recommends approval of the resolution. BOARD RECOMMENDATION: Economic Development Committee recommends approval. COUNCIL ACTION: Resolution adopted. RESOLUTION NO. R-2003-96