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01/08/2019 08 Section 108 Loan Guarantee Assistance Program with HUDBUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEM ENT 1 Item No. 8. For Meeting of: January 8, 2019 ITEM TITLE: Resolution authorizing the City of Yakima to participate in the HUD public offering as part of the Section 108 Loan Guarantee Assistance Program to refinance two existing notes SUBMITTED BY: Joan Davenport, AI CP, Community Development Director SUMMARY EXPLANATION: On November 27, 2018, the City of Yakima received a notice from HUD of the opportunity to participate in a federal refinancing of two Section 108 Loans approved by the City of Yakima in 2004. These loans supported the development of the Hilton Gardens Inn project by Morrier Hotel, LLC. The original loan from HUD for the project was $3,560,000. In 2004, all loan costs were paid by Morrier Hotel LLC. The private company (Morrier Hotel LLC) makes monthly payments on the loan directly to the financial institution. This loan was an economic development project in 2004 and available within the City of Yakima due to our participation in the Economic Development Initiative (EDI) Program of HUD. The opportunity to refinance the loan at a lower interest rate came unsolicited to the City of Yakima. We shared this information with the loan recipient (Morrier Hotel LLC). They have indicated a desire to participate in the loan refinance to a lower interest rate and will cover all costs including those incurred by the city of Yakima and the closing costs. Upon approval by the City of Yakima, final documents will be prepared and submitted to HUD. ITEM BUDGETED: NA STRATEGIC PRIORITY: Economic Development APPROVED FOR SUBMITTAL: City Manager STAFF RECOMMENDATION: Adopt resolution 2 BOARD/COMMITTEE RECOMMENDATION: ATTACHMENTS: Description Upload Date Type • resolution rah 12/26/2019 Culver Memo Letter in HUD luIrut In Risfluaire, roar' B -02 -MC -53- D 12,'2117N1H [Ick up Material 0008 Letter in HUD luIrut In Risflualsr, I nail B -04 -MC -53- D 12,'2117N1H [3[7.k up Material mins • R -2C04-173 1212712018 Ceuer Memo • 2004 coudiLiorni apprmal 12/27/2l1a Cover Memo A RESOLUTION RESOLUTION NO. R-2019- 3 authorizing the City of Yakima to participate in the HUD public offering as part of two Section 108 Loan Guarantee Assistance Program to refinance two existing notes or other obligation in the original principal amount of $2,417,000, for the Morrier Hotel LLC project of the Hilton Gardens Inn and a second note for $341,000 for the Hilton Gardens Inn. WHEREAS, the City of Yakima, by Resolution R-2004-173, adopted November 16, 2004, authorized an application seeking loan guarantee assistance under Section 108 of the Housing and Community Development Act of 1974, as amended, from the United States Department of Housing and Urban Development ("HUD"), and did authorize City Manager, Richard R. Zais to execute the documents necessary to accomplish the transaction, and did accept HUD's guarantee of Section 108 note numbers B -02 -MC -53-008 and B -04 -MC -53-008 for the Hilton Garden Hotel Project under a Section 108 Contract for Loan Guarantee Assistance dated September 14, 2006; and WHEREAS, the assistance provided by HUD was the guarantee of a note in the original principal amount of $3,560,000, plus interest thereon; and WHEREAS, HUD has notified the City of Yakima that a public offering will occur in February, 2019, which will reduce and solidify the interest rate on the notes, and to participate, the City of Yakima must immediately notify HUD of its intention to refinance all or a portion of its existing Section 108 commitment through the public offering; and WHEREAS, HUD may require, as a condition of participation in the public offering, that City of Yakima execute documents related to the transaction, and whereas Morrier Hotel, INC has previously agreed to pay the City of Yakima's share, as determined by HUD, of the customary and usual issuance, underwriting, legal, and other costs related to the public offering and future administration of the Note and the trust certificates, in addition to Morrier Hotel Inc.'s obligation to pay the note principal and interest; and WHEREAS, it is economically sound and in the best interest of the City of Yakima to accept more favorable fixed rates of interest under the Section 108 Loan Guarantee program offered by HUD under the public offering; now, therefore, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF YAKIMA: 1. That the City Manager, Cliff Moore, or his duly authorized agent, shall notify HUD of the City's and Morrier Hotel, Inc.'s desires to participate in the February, 2019, public offering by HUD through the loan guarantee assistance program under Section 108 of the Housing and Community Development Act of 1974, as amended, for the existing obligation of $2,758,000 in the original principal amount of $3,560,000, and to refinance the original principal amount of $3,560,000 at such rates of interest that will be determined by HUD at the time of the public offering. 2. That the City Manager, Cliff Moore, is authorized to execute the necessary documents as required by HUD to refinance the existing guaranteed Section 108 Note, and to execute such other documents, contracts, amendments and agreements with HUD, 4 and to authorize payment of any required fees, as may be necessary to effectuate this refinancing transaction. ADOPTED BY THE CITY COUNCIL this 8'h day of January, 2019. Kathy Coffey, Mayor ATTEST: Sonya Claar Tee, City Clerk December 11, 2018 CO ITY DEVELOPME DEPARTME Joan Davenport, AICP, Director 129 North Second Street, 2nd Floor Yakima, Washington 98901 Phone (509) 575-6183 • Fax (509) 575-6105 www.yakimawa.gov/services/community-development Ms. Kerry S. Zombeck Vice President The Bank of New York Mellon Trust Company, N.A. AIM 1554-1270 500 Ross Street, 12th Floor Pittsburgh, PA 15262 5 Subject: Optional Redemption of Note Issued in Connection with Section 108 Government Guaranteed Participation Certificates, Series HUD 2006-A Note Number: B -02 -MC -53-0008 Dear Ms. Zombeck: Pursuant to Section 3.03 of the Trust Agreement governing the Section 108 Government Guaranteed Participation Certificates, Series HUD 2006-A, the City of Yakima (the "Borrower"), hereby provides notice of its election to redeem as of February 1, 2019, the Note that it issued as part of the Series HUD 2006-A Participation Certificates ("Optional Redemption"). The Trust Agreement was executed on January 1, 1995, by the Secretary of Housing and Urban Development (the "Secretary") and Chemical Bank as Trustee, and Series 2006-A Supplement to the Trust Agreement was executed on September 14, 2006, by the Secretary and The Chase Manhattan Bank as Trustee. Amendment No. 1 to the Trust Agreement was executed on June 30, 2004, by the Secretary and JP Morgan Chase Bank as Trustee. The Borrower recognizes that The Bank of New York Mellon is the successor to the foregoing trustees and has assumed all of the obligations of the Trustee under these agreements. Capitalized terms used in this letter and not defined herein shall have the same definition as in the Trust Agreement as amended. The Note and its Principal Amounts to be fully redeemed on February 1, 2019, are identified below: Note Number: B -02 -MC -53-0008 Maturity Date August 1, 2019 August 1, 2020 August 1, 2021 August 1, 2022 Total Principal Amount (in Dollars) Interest Rate Participation Certificate CUSIP Number $ 80,000 84,000 87,000 90,000 $ 341,000 5.45% 5.51% 5.57% 5.62% 911759 JA 7 911759 JB 5 911759JC3 911759 JD 1 Code Ad 'ni.5frallean (509) 575-6126 Planning (509) 575-618. ° 0 o Neighborhood & Develop ,nt Services (509) 575-6I0 2015 1994 6 The Borrower recognizes that its Optional Redemption of the listed Note requires payment of the full Principal Amounts thereof, and accrued interest to February 1, 2019. Accrued interest must be remitted to the Trustee no later than January 23, 2019. The Borrower hereby authorizes the Trustee to give notice of this Optional Redemption to the Holders of the Participation Certificate in accordance with the Trust Agreement. If you require additional information regarding this transaction please contact Joan Davenport at the following address: City of Yakima, Department of Community Development 129 North 2' Street, Yakima, WA 98901 Office: (509) 576-6417 joan.davenport@yakimawa.gov cc: Paul Webster, HUD oan Davenport, AICP, Community Development Director Authorized Representative of the Borrower 2 *PCM.A;1140 " December 11, 2018 COMM ITY DEVELOPME DEPARTME Joan Davenport, AICP, Director 129 North Second Street, 2nd Floor Yakima, Washington 98901 Phone (509) 575-6183 • Fax (509) 575-6105 www.yakimawa.gov/services/community-development 7 Ms. Kerry S. Zombeck Vice President The Bank of New York Mellon Trust Company, N.A. AIM 1554-1270 500 Ross Street, 12th Floor Pittsburgh, PA 15262 Subject: Optional Redemption of Note Issued in Connection with Section 108 Government Guaranteed Participation Certificates, Series HUD 2006-A Note Number: B -04 -MC -53-0008 Dear Ms. Zombeck: Pursuant to Section 3.03 of the Trust Agreement governing the Section 108 Government Guaranteed Participation Certificates, Series HUD 2006-A, the City of Yakima (the "Borrower"), hereby provides notice of its election to redeem as of February 1, 2019, the Note that it issued as part of the Series HUD 2006-A Participation Certificates ("Optional Redemption"). The Trust Agreement was executed on January 1, 1995, by the Secretary of Housing and Urban Development (the "Secretary") and Chemical Bank as Trustee, and Series 2006-A Supplement to the Trust Agreement was executed on September 14, 2006, by the Secretary and The Chase Manhattan Bank as Trustee. Amendment No. 1 to the Trust Agreement was executed on June 30, 2004, by the Secretary and JP Morgan Chase Bank as Trustee. The Borrower recognizes that The Bank of New York Mellon is the successor to the foregoing trustees and has assumed all of the obligations of the Trustee under these agreements. Capitalized terms used in this letter and not defined herein shall have the same definition as in the Trust Agreement as amended. The Note and its Principal Amounts to be fully redeemed on February 1, 2019, are identified below: Note Number: B -04 -MC -53-0008 Maturity Date August 1, 2019 August 1, 2020 August 1, 2021 August 1, 2022 August 1, 2023 August 1, 2024 Principal Amount Interest Rate (in Dollars) $ 83,000 89,000 97,000 105,000 5.45% 5.51% 5.57% 5.62% 206,000 5.66% 1,837,000 5.70% Participation Certificate CUSIP Number 911759 JA 7 911759JB 5 911759 JC 3 911759 JD 1 911759JE9 911759JF 6 Total $ 2,417,000 Code Administration (509) 575-6126 • Planning (509) 575-6183 • Office of Neighborhood & Development Services (509) 575-6101 Yakima 2015 1994 8 The Borrower recognizes that its Optional Redemption of the listed Note requires payment of the full Principal Amounts thereof, and accrued interest to February 1, 2019. Accrued interest must be remitted to the Trustee no later than January 23, 2019. The Borrower hereby authorizes the Trustee to give notice of this Optional Redemption to the Holders of the Participation Certificate in accordance with the Trust Agreement. If you require additional information regarding this transaction please contact Joan Davenport at the following address: City of Yakima, Department of Community Development 129 North 2nd Street, Yakima, WA 98901 Office: (509) 576-6417 joan.davenport@yakimawa.gov cc: Paul Webster, HUD Sincerely, o avenport, AICP, Community Development Director Authorized Representative of the Borrower 2 9 RESOLUTION NO. R-2004- 173 A RESOLUTION authorizing the City Manager to submit an apphcation for $3,560,000 from the Section 108 Loan Guarantee Program of the United States Department of Housing and Urban Development (HUD) for Yakima Hotel, LLC to construct a Hilton Garden Inn Hotel. 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 was conditioned upon submittal of a $4 million application to the HUD Section 108 Loan Guarantee Program; and WHEREAS, HUD approved the use of EDI and Section 108 loan funds for the City of Yakima Economic Development Loan Fund m 2002; and WHEREAS, the City has requested and was approved for an additional $2,945,000 of Section 108 loan funds m 2004; and WHEREAS, the City has worked with the National Development Council in developing underwriting guidelines for the program; and WHEREAS, the City's Economic Development Loan Fund ("EDLF") meets the ehgibihty requirements of the Section 108 Loan Guarantee Program; and WHEREAS, the City has provided $3,310,000 m EDLF financing to three projects over the past two years; and WHEREAS, portions of the City of Yakima have been designated a federal Renewal Community by HUD, providing numerous federal tax incentives and priority for federal funding; and WHEREAS, under Section 108 of the Housing and Community Development Act of 1974, federal loans are available for the purposed of funding property rehabilitation for economic development activities that will create new and stable jobs for low and moderate -income residents; and WHEREAS, Yakima Hotel, LLC and JEM Development, LLC, represented by Joseph R. Morrier, Sr., have requested a $3,560,000 Section 108 loan to partially finance construction of a Hilton Garden Inn Hotel, and WHEREAS, the National Development Council has determined that the borrower and the proposed project can fulfill the requirements of the City's Economic Development Loan Fund; and WHEREAS, the project will leverage $5,966,000 in private financing and equity contributions; and 10 WHEREAS, the project will create 71 new jobs m Yakima's Renewal Community; 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 mvolves public, private and community-based efforts to achieve new investment and redevelopment m the City; now, therefore, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF YAKIMA: The City Manager is hereby authorized and directed to submit an application for $3,560,000 from the Section 108 Loan Guarantee Program of the United States Department of Housing and Urban Development (HUD) for Yakima Hotel, LLC to construct a Hilton Garden Inn hotel. The City Manager is hereby designated as the official representative of the City to act in connection with that funding application and is authorized to take such additional actions as may be necessary and prudent to complete the application process, including the execution of all related documents ADOPTED BY THE CITY COUNCIL this 16`h day of November, 2004 ATTEST: Paul P. George, Mayor >21 /'' j-.) City Clerk 11 9 MAS C BANCORP October 1, 2004 Mr. Joseph R. Morrier, Sr. JEM Properties, LLC and Morrier Hotel, LLC as Co -Borrowers dba Hilton Garden Inn, Yakima, Washington 402 East Yakima Avenue, Suite 1400 Yakima, WA 98901 Re: Conditional Approval Letter Dear Mr. Morrier: We are pleased to inform you that the Loan Committee of Matrix Capital Bank ("Lender") has granted Conditional Approval of a financing package that will meet your company's needs. The package is presented to you in three separate loans: (1) Lender's conventional permanent loan in the amount of $3,000,000 ("Loan"), and (2) $3,560,000 HUD Section 108 loan ("HUD Loan"), offered through the City of Yakima, WA ("HUD Loan Lender"), and (3) a $3,000,000 interim construction loan ("Interim Loan") offered through Lender, which will convert to the $3,000,000 permanent loan mentioned above upon completion of construction. Borrower: JEM Properties, LLC and Morrier Hotel, LLC (collectively, "Borrower") Guarantors: Joseph R. Morrier, Sr., Elizabeth L. Morrier, Joseph R. Morrier, Jr., Michael D. Morrier, and Elizabeth A McGree. Business Location: 339 East Yakima Avenue, Yakima, WA Purpose: The purpose of the Loan is to provide a portion of the interim and permanent financing for the proposed Hilton Garden Inn in Yakima, Washington. Estimated Sources/Uses of Funds: USES AMOUNT SOURCES AMOUNT Matrix Land/Construction/Contingency $ 8,001,000 Conventional $ 3,000,000 FFE/Property Management Systems 1,020,000 HUD Section 108 3,560,000 Interest Reserves/Loan Fee 208,000 Equity Injection 2,966,000 Closing Costs/Franchise Fees/WC 297,000 12 JEM Properties, LLC and Morrier Hotel, LLC as Co -Borrowers dba Hilton Garden Inn Conditional Approval Letter Page 2of14 TOTAL $ 9,526,000 TOTAL $ 9,526,000 Equity: The Borrower will contribute $2,966,000 of the total project costs in equity. Of that amount, $2,500,000 is allocated toward the contribution of the existing land and building, $244,000 is allocated toward payment of the construction soft costs, $22,000 is allocated toward payment of the cost of the appraisal, Phase I Report, and survey, $20,000 is allocated toward payment of legal fees, $24,000 is allocated toward payment of estimated closing costs, $76,000 is allocated toward payment of the loan origination fee, $20,000 is allocated toward payment of the pre -opening expenses associated with the hotel, and $60,000 is allocated toward payment of the franchise fee. Proof of the equity injection and the source of these funds must be provided prior to the closing of the Interim Loan. Closmg costs related to the Interim Loan, the :Loan, and the HUD Loan will be paid at or prior to closing of the Interim Loan. Any changes to this allocation of the equity injection will require Lender approval and could delay closing of the Interim Loan. Proof of equity must be provided five days prior to estimated closb7g date. Proof of equity must be supported by, but not limited to, cancelled checks (or a copy of the check and supporting bank statements reflecting the cancelled check), paid invoices, a cashier's check for funds not yet spent, or other means as determined only by Lender. Fees: Fees and closing costs for all the above-mentioned loans approximating $161,000 are part of the total project. That consists of estimated closing costs of $25,000, a loan origination fee of $76,000, and the franchise fee of $60,000. This is only an estimate of fees and may not be inclusive of all fees charged for the Interim Loan and the Loan. Portions of these fees are due at the time this Conditional Approval letter is signed. The :remaining closing costs will be due at closing and are the responsibility of the Borrowers. If the Interim Loan and/or the Loan are prepared for closing and does not close, a portion of these fees may still be due and payable to Lender or there may be amounts that have not been spent and which would be refunded. In the event that the Loan does not close, all costs and fees, to the extent they have been incurred, will be the responsibility of the Borrower. LENDER (MATRIX) CONVENTIONAL LOAN Amount: The amount of the Loan will be $3,000,000. Term: The maturity of the Loan will be twenty-five (25) years from the closing of the Loan. The Loan will be amortized over a twenty-five (25) year tern after completion of 12 months of interest -only payments. Payment terms are interest -only for the first 12 months and then. principal and interest payments due monthly based upon a twenty-five (25) year amortization period. Interest Rate; (Loan): The interest rate on the Loan will fluctuate based on the "Prime Rate", as published in the Wall Street Journal, plus 1.25%. The interest rate at the current prime rate of 4.75% would be 6.00% per year. The initial prime rate is set five (5) days prior to closing of the Loan. Rate Adjustment Period: Lender will adjust the interest rate for the first time on the first day of the calendar quarter following the initial disbursement of the Loan and on the first day of each calendar quarter thereafter. All dates of adjustment become effective on the first day of 13 JEM Properties, LLC and Morrier Hotel, LLC as Co -Borrowers dba Hilton Garden Inn Conditional Approval Letter Page 3 of 14 the calendar quarter, based on the prime rate in effect for the first business day of the adjustment period. The change in interest rate is effective on that day whether or not Lender gives Borrower notice of the change. Payment: The payments are estimated at $19,472 per month during the amortized period. The principal and interest payments on the Loan will be calculated based upon the prevailing Prime Rate + 1.25% at the time the Loan's amortization period begins (12 months after closing of the Loan). The payment may go up or down, no more frequently than quarterly, based on the remaining principal balance and the interest rate, as needed to amortize principal over the remaining term of the Loan. The first payment will be due on the fifth day of the month after the Loan is closed and on the same day each month thereafter until paid in full. Lender will apply each installment payment first to pay interest accrued to the day Lender receives the payment, then to bring principal current, then to pay any late fees, and will apply any remaining balance to reduce principal. Prepayment Penalty: The Loan is subject to a five (5) year flat prepayment penalty of five percent. (5%) Late Fee: If a payment on the Loan is more than 10 days late, Lender may charge Borrower a late fee of up to 5% of the unpaid portion of the regularly scheduled payment. HUD SECTION 108 LOAN NOTE: The following information regarding the HUD Loan is provided for informational purposes only. The terms and conditions associated with the HUD Loan will be disclosed at the time the HUD Loan is approved by the appropriate approval authority for HUD and funding is committed. Amount: The amount of the HUD Loan will be $3,560,000. Term: The maturity of the HUD Loan will be twenty-five (25) years from the closing of the HUD Loan. The HUD Loan will be amortized over a twenty-five (25) year term. Interest Rate (Loan): The interest rate on the Loan will be disclosed upon approval by the appropriate approval authority for HUD. For purposes of analysis, a fixed rate of 5.50% has been assumed. Rate Adjustment Period: The interest rate for the HUD Loan is estimated to be a fixed rate for the full term of the HUD Loan. The fixed rate will be determined when the funds for the HUD Loan have been committed. Payment: The principal and interest payment on the Loan is estimated to be $16,317 per month on an interest -only basis. The payment terms on the HUD Loan are anticipated to be interest -only for at least the first two years, after which the HUD Loan will begin monthly principal and interest payments based upon the amortization period set for the HUD Loan 14 JEM Properties, LLC and Monier Hotel, LLC as Co -Borrowers dba Hilton Garden Inn Conditional Approval Letter Page 4 of 14 (anticipated at this time to be twenty-five (25) years). The payment may go up or down based on the remaining principal balance and the interest rate, as needed to amortize principal over the remaining term of the HUD Loan. The first payment will be due on the fifth day of the month after interest -only period has matured and will continue thereafter on the same day each month thereafter until paid in full. The HUD Loan Lender will apply each installment payment first to pay interest accrued to the day HUD Loan Lender receives the payment, then to bring principal current, then to pay any late fees, and will apply any remaining balance to reduce principal. Prepayment: Penalty: To be determined by the HUE) Loan ]Lender. Late Fee: To be determined by the HUD Loan Lender. LOAN CONDITIONS: The Loans are subject to and contingent upon the following: Collateral: LENDER CONVENTIONAL LOAN • Lender being able to secure a First Deed of Trust (or its equivalent) in the real property, including furniture and fixtures, located at 339 East Yakima Avenue, Yakima, WA. • Receipt, review, and approval, by Lender, at its sole discretion, of the real estate appraisal reflecting a value of at least $9,000,000 (+/-5%) by a Lender -approved appraiser for the real property and FF&E located at 339 East Yakima Avenue, Yakima, WA. • Receipt, review and approval of an ALTA title policy (or its equivalent) in form and substance satisfactory to Lender its sole discretion, insuring Lender as to its first priority lien on the subject property at 339 East Yakima Avenue, Yakima, WA. • Lender being able to secure a 1JCC-1 and Security Agreement perfecting a 1st lien position in all fixtures, equipment, inventory, accounts, general intangibles, chattel paper, documents, and instruments now owned and hereafter acquired for the business assets of the Hilton Garden Inn. • Review and approval by Lender of a satisfactory Phase i[ Environmental Site Assessment for the property located at 339 East Yakima Avenue, Yakima, WA. • Personal guaranty of Joseph R.. Monier, Sr. • Personal guaranty of Elizabeth L. Morrier. JEM Properties, LLC and Morrier Hotel, LLC as Co -Borrowers dba Hilton Garden Inn Conditional Approval Letter Page 5 of 14 Insurance: • Personal guaranty of Joseph R. Morrier, Jr. • Personal guaranty of Michael D. Morrier. • Personal guaranty of Elizabeth A. McGree. • Personal guaranties of the spouses, if any, of Joseph R. Morrier, Jr., Michael D. Morrier, and Elizabeth A. McGree if required by legal counsel since Washington is a community property state. • Assignment of the leases and rents between JEM Properties, LLC, as Lessor, and Morrier Hotel, LLC, as Lessee. The lease must be for at least the term of the loan, including options exercisable by Morrier Hotel, LLC. • Assignment of the parking rights for the proposed Hilton Garden Inn held by JEM Properties, LLC and/or Morrier Hotel, LLC. The number of parking spaces and the parking rights must comply with the requirements set forth by the City of Yakima. • Assignment of the management contract between Morrier Hotel, LLC and Hilton Hotels (or its designated affiliated company) for the management of the proposed Hilton Garden Inn. The management agreement must have a termination provision allowing Lender to terminate the contract if the loan were in default. • The Borrower obtaining and providing proof of Workers' Compensation Insurance in an amount meeting state law requirements and with an insurance company satisfactory to Lender. • Lender receiving a copy, satisfactory in its own discretion, of the fire and extended coverage on the business real property is required in the amount of full replacement cost with Lender named as first mortgagee for the property at 339 East Yakima Avenue, Yakima, WA. • The Borrower obtaining and providing proof of Business/Personal property insurance coverage is required in the amount of full replacement cost, or for the maximum insurable amount if full replacement value cannot be obtained, for the personal property located at 339 East Yakima Avenue, Yakima, WA. 15 JEM Properties, LLC and M Conditional Approval Letter Page 6 of 14 Financials: Documentation: osier Hotel, LLC as Co -Borrowers dba Hilton Garden Inn • Lender receiving proof of Dram Shop/Host liquor liability insurance in an amount and from an insurance company acceptable to Lender. • The Borrower obtaining and providing proof of Business Interruption and Extra Expense coverage. • Lender will advise you as to whether the business property or personal residences are in a Flood Plain. If so, then Flood insurance covering the Loan collateral will be required prior to closing of the Loan. • Receipt, review and approval of financial statements and all supporting schedules, as requested, are to be within 120 days of closing the Loan. The approval for all loans addressed in this Conditional approval Letter is contingent upon receipt and review of the 2003 tax returns :for all entities involved as well as the fiscal year end statements for those entities having a September 30 fiscal year end. • Lender being supplied with proof of purchase of the required liquor license prior to closing. • Lender will require that all payments on the Loan to be made through Automatic Funds Transfer (ACH debit). • • • Franchise approval from the Franchisor. Copy of the lease between JEM Properties, JJC and Morrier Hotel, LLC for the real property to e occupied by the proposed Hilton Garden Inn. Lease must be for at least the term of the Loan, including options exercisable by Morrier Hotel, LLC. Landlord's consent and/or landlord's consent to improvements. Copy of the parking agreement providing parking rights to JEM Properties, LLC and/or Morrier Hotel, LLC for the parking to meet the requirements set forth by the City of Yakima. • If applicable, copies of the A/R and A/P listings and agings for all entities. The A/R and A/P listings and agings must be of even date with the most recent financial statements provided to Lender. 16 17 JEM Properties, LLC and Morrier Hotel, LLC as Co -Borrowers dba Hilton Garden Inn Conditional Approval Letter Page 7of14 Other Conditions: • Copy of the HUD commitment to fund $3,560,000 of the project cost at the origination of construction. • Review and approval of the $2,966,000 equity injection by the principals to the proposed transaction. • Copies of the restructured notes extended by Key Bank to Yakima Mall Shopping Center Corporation showing the actual terms of the debt restructuring are substantially the same as provided verbally by the Key Bank Loan Office handling the transaction. The Loan is subject to any and all other conditions required by HUD, HUD Loan Lender, and Lender and its counsel to document, secure, and close the proposed financing request. All conditions are required to be satisfied prior to funding of the Loan. Special Condition: The Loan is subject to Lender obtaining tax credits under the New Markets Tax Credits Program. If the tax credits are not obtainable by Lender, this Conditional Approval Letter is null and void. HUD SECTION 108 LOAN NOTE: This information is provided for informational purposes only. Lender assumes that the HUD Loan Lender will require a second lien position in the real property and business assets of JEM Properties, LLC and Morrier Hotel, LLC, which may not be the case. The HUD Loan Lender will advise you of the conditions of approval for the HUD Loan in a separate Conditional Approval Letter upon approval by them. • HUD Loan Lender being able to secure a Second Deed of Trust (or its equivalent) in the real property, including furniture and fixtures, located at 339 East Yakima Avenue, Yakima, WA, subject only to the First Deed of Trust in favor of Lender in the amount of $3,000,000. • Receipt, review, and approval, by HUD Loan Lender a at its sole discretion, of the real estate appraisal ordered by Lender, reflecting a value of at least $9,000,000 by a Lender -approved appraiser for the real property and FF&E located at 339 East Yakima Avenue, Yakima, WA. • Receipt, review and approval of an ALTA title policy (or its equivalent) in form and substance satisfactory to HUD Loan Lender in its sole discretion, insuring HUD Loan Lender as to its JEM Properties, LLC and Morrier Hotel, LLC as Co -Borrowers dba Hilton Garden Inn Conditional Approval Letter Page 8 of 14 Insurance: second priority lien on the subject property at 339 East Yakima Avenue, Yakima, WA, subject only to Lender's first lien position. • HUD Loan Lender being able to secure a UCC -1 and Security Agreement perfecting a second lien position in all fixtures, equipment, inventory, accounts, general intangibles, chattel paper, documents, and instruments now owned and hereafter for the proposed Hilton Garden Inn. • Review and approval by HUD Loan Lender of a satisfactory Phase I Environmental Site Assessment for the property located at 339 East Yakima Avenue, Yakima, WA. • Personal guaranty of Joseph R. Morrier, Sr. • Personal guaranty of Elizabeth L. Morrier. • Personal guaranty of Joseph R. Monier, Jr. • Personal guaranty of Michael D. Monier. • Personal guaranty of Elizabeth. A. McGree. • Personal guaranties of the spouses, if any, of Joseph R. Morrier, Jr., Michael D. Morrier, and Elizabeth A. McGree if required by legal counsel since Washington is a community property state. • Assignment of the leases and rents between JEM Properties, LLC, as Lessor, and Morrier Hotel, LLC, as Lessee. The lease must be for at least the term of the loan, including options exercisable by Monier Hotel, LLC. • Assignment of the parking rights for the proposed Hilton Garden Inn held by JEM Properties, LLC and/or Morrier Hotel, LLC. The number of parking spaces and the parking rights must comply with the requirements set forth by the City of Yakima. • Assignment of the management contract between Monier Hotel, LLC and Hilton Hotels (or its designated affiliated company) for the management of the proposed Hilton Garden Inn. The management agreement must have a termination provision allowing Lender to terminate the contract if the loan were in default. • The Borrower obtaining and providing proof of Workers' Compensation Insurance in an amount meeting state law 18 19 JEM Properties, LLC and Morrier Hotel, LLC as Co -Borrowers dba Hilton Garden Inn Conditional Approval Letter Page 9 of 14 Financials: Documentation: Other Conditions: requirements and with an insurance company satisfactory to HUD Loan Lender. • HUD Loan Lender receiving a copy, satisfactory in its own discretion, of the fire and extended coverage on the business real property is required in the amount of full replacement cost with HUD Loan Lender named as second mortgagee for the property at 339 East Yakima Avenue, Yakima, WA. • The Borrower obtaining and providing proof of Business/Personal property insurance coverage is required in the amount of full replacement cost, or for the maximum insurable value if full replacement cost cannot be obtained, for the personal property located owned by TEM Properties, LLC and/or Morrier Hotel, LLC dba Hilton Garden Inn. • The Borrower obtaining and providing proof of Business Interruption and Extra Expense coverage. • HUD Loan Lender will advise you as to whether the business property or personal residences are in a Flood Plain. If so, then Flood insurance covering the Loan collateral will be required prior to closing of the HUD Loan. • Receipt, review and approval of financial statements and all supporting schedules, as requested, are to be within 120 days of closing the HUD Loan. The approval for all loans addressed in this Conditional Approval Letter is contingent upon receipt and review of the 2003 tax returns for all entities involved, as well as the fiscal year end statements for those entities having a September 30 fiscal year end. • As determined by HUD Loan Lender. This loan is subject to any and all other conditions required by the HUD, HUD Loan Lender, Lender and its counsel to document, secure, and close the proposed financing request. All conditions are required to be satisfied prior to funding of the HUD Loan. (3) INTERIM LOAN: Lender proposes to provide to JEM Properties, LLC and Morrier Hotel, LLC as Co -Borrowers ("Borrower") an Interim Loan to fund the project through Certificate of Occupancy. Terms are provided below: Loan Amount: $3,000,000 broken down as follows: JEM Properties, LLC and Monier Hotel, LLC as Co -Borrowers dba Hilton Garden Inn Conditional Approval Letter Page 10 of 14 Interest Rate: Payments: Term: Prepayment and Exit Fee: Collateral: Land and existing building Construction, including contingency FF&:E Construction Softcosts Interest Reserves Appraisal, Environmental, Survey Origination/Monitoring/Closing Costs Bonding Estimate Property Management Systems Working Capital, Franchise Fee, Legal Total Less: HUD Loan &Equity Injection * Total $ 1,500,000 6,172,000 945,000 244,000 132,000 22,000 126,000 60,000 75,000 250,000 $9,526,000 6,526,000 $3,000,000 *See "Equity Injection" section page 1 for additional information regarding equity injection. Prime plus 1.25%, currently 6.00%, variable rate adjustable daily. Interest will be computed on the basis of a 360 -day year for the actual number of days elapsed. Interest only payments due monthly during construction through an interest reserve account. 12 months. The Borrower may prepay the Interim Loan at anytime subject to an exit fee of $1.50,000 (5% of the loan amount) Should the Borrower accept the permanent financing offered through Lender as substantially contemplated in this letter, this exit fee will be waived.. The loan is subject to the Lender securing its loan with a First Deed of Trust on Borrower's interest in the land and buildings to be constructed at 339 East Yakima. Avenue, Yakima, WA. Receipt, review and approval of an ALTA title policy (or its equivalent) in form and substance satisfactory to Lender its sole discretion, insuring Lender as to its first priority lien on the subject property at 339 East Yakima Avenue, Yakima, WA. Lender being able to secure a UCC -1 and Security Agreement perfecting a 1st lien position in all fixtures, equipment, inventory, accounts, general intangibles, chattel paper, documents, and instruments now owned and hereafter acquired for the business assets of the Hilton Garden Inn. 20 21 JEM Properties, LLC and Morrier Hotel, LLC as Co -Borrowers dba Hilton Garden Inn Conditional Approval Letter Page 11 of 14 UCC -1 and Security Agreement perfecting a 1s` lien position in all collateral - fixtures, equipment, inventory, accounts, general intangibles, chattel paper, documents, materials, work in progress, and instruments now owned and hereafter acquired. Receipt, review, and approval, by Lender, at its sole discretion, of the real estate appraisal reflecting a value of at least $9,000,000 (+/-5%) by a Lender -approved appraiser for the real property and FF&E located at 339 East Yakima Avenue, Yakima, WA. Review and approval by Lender of a satisfactory Phase I Environmental Site Assessment for the property located at 339 East Yakima Avenue, Yakima, WA. Personal guaranty of Joseph R. Morrier, Sr. Personal guaranty of Elizabeth L. Morrier. Personal guaranty of Joseph R. Morrier, Jr. Personal guaranty of Michael D. Morrier. Personal guaranty of Elizabeth A. McGree. Personal guaranties of the spouses, if any, of Joseph R. Morrier, Jr., Michael D. Morrier, and Elizabeth A. McGree if required by legal counsel since Washington is a community property state. Assignment of the leases and rents between JEM Properties, LLC, as Lessor, and Morrier Hotel, LLC, as Lessee. The lease must be for at least the term of the loan, including options exercisable by Morrier Hotel, LLC. Assignment of the parking rights for the proposed Hilton Garden Inn held by JEM Properties, LLC and/or Morrier Hotel, LLC. The number of parking spaces and the parking rights must comply with the requirements set forth by the City of Yakima. Assignment of the management contract between Morrier Hotel, LLC and Hilton Hotels (or its designated affiliated company) for the management of the proposed Hilton Garden Inn. The management agreement must have a termination provision allowing Lender to terminate the contract if the loan were in default. Monitoring Fee: $25,000 (estimated) Construction Bonding: $60,000 (estimated) Origination Fee: $76,000 22 JEM Properties, LLC and Monier Hotel, LLC as Co -Borrowers dba Hilton Garden Inn Conditional Approval Letter Page 12 of 14 Contractor Information: 1) AIA Qualification Statement 2) Final detail cost information for the construction on the subject property. 3) Contractor financial statements 4) Other information as required ori attached closing needs list Survey: A copy of the property Survey for 339 East Yakima Avenue, Yakima, WA. The final terms of the Interim Loan are subject to approval by Lender and HUD. The Interim Loan must be closed in compliance with all requirements set forth by HUD. All legal and financial documents deemed necessary by Lender in order to close the Interim Loan must be provided and executed to the satisfaction of any or all of the parties listed above prior to closing of the Interim Loan. GENERAL NOTES: Required Documents: As mentioned above, Lender's Loan Committee has granted its Conditional Approval of the Interim Loan and the Loan.. The final approval of the Loan Committee and Lender's commitment to extend credit and advance funds under the Interim Loan and the Loan will be contingent upon, among other things, Lender's review and approval of each and every one of the items detailed herein, none of which may be waived except in writing from an authorized representative of Lender, specifically referring to this letter and the particular item being waived. This letter is not intended to set forth all of the material terms and conditions :for the Interim Loan and the Loan, all of which will be set forth in formal loan documents to be executed and delivered by Borrower, Lender, HUD (if necessary), third party guarantors and others, as applicable. In addition, if (and only if) the Interim Loan and the Loan are approved by Lender, the funding of the Interim Loan and the Loan will be contingent upon Lender's receipt (some if not all of which Lender will require) of the following: (a) evidence of no environmental hazards on the property through a Phase 1 or other means acceptable to Lender, and (b) title insurance with endorsements required by Lender. All of the aforementioned items shall be provided to Lender in a reasonably prompt manner. Lender will have the right to terminate this Conditional Approval in the event that any of the above items are unsatisfactory to Lender. Conditional Approval: Please be aware that the final terms and conditions of the proposed financing are subject to approval by the Lender and HUD. Also, all legal and financial documents deemed necessary by Lender in order to close the Interim Loan and the Loan must be provided and executed to the satisfaction of any or all of the parties listed above. No verbal statements to Borrower concerning this application by any employee or agent of Lender shall have binding effect. Lender's Conditional Approval is only applicable if the HUD Section 108 Loan materializes and the Interim Loan and the Loan quality for the New Markets Tax Credits. In the absence off either of the above-mentioned conditions materializing, Lender's Conditional Approval of the Loan is null and void. 23 JEM Properties, LLC and Morrier Hotel, LLC as Co -Borrowers dba Hilton Garden Inn Conditional Approval Letter Page 13 of 14 The Borrower provided the information used in granting this Conditional Approval in majority. If such information is found to be a misrepresentation, intentional or unintentional, this Conditional Approval shall become null and void. Any legal description, encumbrances and ownership are subject to verification and should not be relied upon as accurate in this Conditional Approval. Material Adverse Change: If at any time there is a material adverse change in the financial or any other condition, or the business prospects, of Borrower or any Guarantor, Lender will have no obligation to advance any funds whatsoever. To indicate your understanding and agreement with the terms and conditions contained in this Conditional Approval, please return an executed copy of this Conditional Approval to Lender, along with your check for $23,000 for payment of the $1,000 Lender Loan Packaging Fee, which is earned upon issuance of this Conditional Approval Letter, and a $22,000 deposit toward payment of the estimated costs of an appraisal, environmental report, and survey for the Interim Loan and the Loan. Upon execution of this Conditional Approval Letter and by signing below, Borrower acknowledges and agrees that this Conditional Approval Letter shall also constitute an authenticated record pursuant to the Uniform Commercial Code authorizing Lender to file a UCC -1 financing statement covering the following collateral: furniture, fixtures, equipment, machinery, inventory, accounts, general intangibles, chattel paper, documents, materials, work in progress, and instruments now owned and hereafter acquired. Lender further agrees to terminate such financing statement in the event the Loan is not closed and funded This Conditional Approval is valid until October 15, 2004. If this acknowledged letter is not received by October 15, 2004 Matrix will have no further obligation or responsibility in connection with the Loans, and the Conditional Approval will be considered null and void. Furthermore, if the Interim Loan does not close by January 15, 2005, this Conditional Approval Letter will be considered null and void, unless extended in writing by Lender. If you have any questions, please contact us. We look forward to working with you further and thank you for the opportunity to be of service to your business. Respectfully, JOR: Craig Kaffenberger — SBA Chief Operations Officer Matrix Capital Bank THIS COMMITMENT SUPERCEDES AND VOIDS ANY PRIOR LOAN APPROVALS, COMMITMENTS OR PROPOSALS. 24 JEM Properties, LLC and Monier Hotel, LLC as Co -Borrowers dba Hilton Garden Inn Conditional Approval Letter Page 14 of 14 ACKNOWLEDGED AND AGREED BY: JEM Properties, LLC Managing Member LLC Date (c/ der Managing Metnbe Date Guarantors Date Elizabeth L. Monier Date Joseph R. Mother, Jr. Date Michael D. Morrier Date Elizabeth A. McGree Date A RESOLUTION Distributed at the44. Meeting g-iq RESOLUTION NO. R -2019 - authorizing the City of Yakima to participate in the HUD public offering as part of two Section 108 Loan Guarantee Assistance Program to refinance two existing notes or other obligation in the original principal amount of $2,417,000, for the Morrier Hotel LLC project of the Hilton Gardens Inn and a second note for $341,000 for the Hilton Gardens Inn WHEREAS, the City of Yakima, by Resolution R-2004-173, adopted November 16, 2004, authorized an application seeking loan guarantee assistance under Section 108 of the Housing and Community Development Act of 1974, as amended, from the United States Department of Housing and Urban Development ("HUD"), and did authorize City Manager, Richard R. Zais to execute the documents necessary to accomplish the transaction, and did accept HUD's guarantee of Section 108 note numbers B -02 -MC -53-008 and B -04 -MC -53-008 (the "Notes") for the Hilton Garden Hotel Project under a Section 108 Contract for Loan Guarantee Assistance dated September 14, 2006 (the 'Contract"); and WHEREAS, the assistance provided by HUD was the guarantee of the Notes in the original principal amount of $3,560,000, plus interest thereon, and WHEREAS, HUD has notified the City of Yakima that a public offering will occur in February, 2019, which will reduce and solidify the interest rate on the Notes, and to participate the City of Yakima must immediately notify HUD of its intention to refinance all or a portion of its existing Section 108 commitment through the public offering; and WHEREAS, HUD may require, as a condition of participation in the public offering, that City of Yakimatexecute documents related to the transaction, and whereas Morrier Hotel, INC has previously agreed to pay the City of Yakima share, as determined by HUD, of the customary and usual issuance, underwriting, legal, and other costs related to the public offering and future administration of the Notes and the trust certificates, in addition to Morrier Rotel, INC's obligation to pay the principal and interest on the Notes; and WHEREAS, it is economically sound and in the best interest of the City of Yakima to accept more favorable fixed rates of interest under the Section 108 Loan Guarantee program offered by HUD under the public offering, now, therefore, BE IT RESOLVED BY THE CITY COUNCIL OF THE cirtr OF YAKIMA: 1. That the City Manager, Cliff Moore, or his duly authorized agent, shall notify HUD of the City s and Morrier Hotel, INC's desires to participate in the February, 2019, public offering by HUD through the loan guarantee assistance program under Section 108 of the Housing and Community Development Act of 1974, as amended, for the existing obligation of $2,758,000 issued in the original principal amount of $3,560,000, and to refinance the loan and the related Notes at such rates of interest that will be determined by HUD at the time of the public offering. Payment of the principal of and interest on the Notes (including any refinancing obligations) shall be as provided in the Contract and related documents. Such Notes (and obligations issued to refinance such Notes) are not general obligations of the City of Yakima, and shall not be included in the debt capacity calculations of the City of Yakima for either constitutional or statutory debt capacity purposes. 2. That the City Manager, Cliff Moore, is authorized to execute the necessary documents as required by HUD to refinance the existing Notes and to execute such other documents, contracts, amendments and agreements with HUD, and to authorize payment of any required fees, as may be necessary to effectuate this refinancing transaction. ADOPTED BY THE CITY COUNCIL this 8th day of January, 2019: Kathy Coffey, Mayor ATTEST: Sonya Clear Tee, City Clerk 2