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HomeMy WebLinkAbout10/12/2004 Adjourned Meeting 2 • 3 ADJOURNED MEETING OCTOBER 12, 2004 - 5:30 P.M. - 7:00 P.M. YAKIMA CITY HALL - COUNCIL CHAMBERS 1. Roll Call Present: • Council: Mayor Paul George, presiding, Council Members Ron Bonlender, Dave Edler (until 6:40 p.m.), Bernard Sims, and Susan Whitman Staff: City Manager Zais, Community and Economic Development Director Cook, and City Clerk Roberts Absent: Council Members Neil McClure and Mary Place (both excused) 2. Study Session regarding JEM Development Application for Department of Housing & Urban Development Section 108 Loan Funds — Yakima Hilton Garden Inn City Manager Zais introduced Jem Development's proposal for Section 108 Loan Funds that has been pending for some time. Jem Development and Joe Morrier were responsible for the first proposal many years ago that led to the initial application to HUD for Section 108 Loan Ffunds. These grant loan funds are set up under federal law to help encourage private and public investment in partnerships looking to create • jobs and opportunities in the future. They must be paid back by the private entrepreneur. The intent of this study session is to give a complete overview of the project. He emphasized that it is a loan to be repaid, not a gift, nor a grant. There is public investment as well as another loan from a private bank and a personal investment by the developer /owner. Mr. Zais gave some history of the original proposal and how, although Jem Development was not able to use the funds at that time, the first phase of those loan funds continued to be held available to us. The process was opened to others and Trailwagons, Yakima Cellars Winery, and Peppers Restaurant took advantage of it. Then Jem Development came back with another proposal. Assistance has been provided through John Finke, a consultant with National Development Corporation, a critical partner to help evaluate and analyze the programs and work with the financial institutions. Mr. Zais spoke about the desire to see downtown reinvigorated. There are public and private investors working to improve it. The Downtown Association is looking to the future and creating a new source of energy, as well as the Capitol Theatre, the Front Street Association, and the Westside Merchants Association. This project could be a catalyst for additional investment opportunities. There are risks that have to be weighed and balanced by all involved; public /City /HUD /investor. Hotels have a higher risk factor and that has been considered. A loan evaluation of 70% or less is what we have established as our safest level of risk. This proposal deserves serious consideration if all the safeguards can be met. There will be a public hearing on November 2nd and, hopefully, it will be on the November 16 Council Agenda for final consideration. 374 ADJOURNED MEETING — MORRIER HOTEL OCTOBER 12, 2004 — 5:30 P.M. Mr. Zais then gave the history of the Convention Center and its success. The Tourist Promotion Center has a keen interest in a new hotel downtown. Bill Cook, Community and Economic Development Director, described the process the City went through to participate in the Section 108 Loan Program with the U.S. Department of Housing and Urban Development (HUD). The City of Yakima applied through competitive application in July of 1998, ironically with a hotel submission from Mr. Morrier. That original project paved the way for others. This money cannot be used for general government operations, but must be used for projects creating new jobs. How it works is the City loans dollars to private investors to buy, build or renovate projects. The developer must repay the City who in turn repays HUD. The key issues the City should use in their selection is how to maximize the economic impact and community benefit of a particular project while minimizing risk. This study session will focus on the proposed Yakima Hilton Garden Inn with underwriting by John Finke of NDC. Michael Morales, Economic Community Specialist, gave details about the funds and how the loan portfolio works. We have made four loans to date that were 100% financed by the City. This proposal is a more complicated transaction dealing with a third party lender and a new equity program. A very positive point about this funding is when the City obtains it, puts it to use in a good project, and then repays HUD, all we have to do to bring it back into the city is submit another eligible project through the Economic Development Initiative Program. So the initial million dollars could guarantee more and more projects. Another point is, while this request depletes the $4 million pool, the City made a request for more money. Because of debt service repayment there will be approximately $300,000 available for application by additional projects. John Finke, NDC, assured Council that a thorough job of underwriting was done and then walked through the details of the Hilton Garden Inn project. • 104 room hotel • 6 -8,000 sq. ft. of retail space • Parking underneath • Project cost of $9.5 million + ($1.5 land, $8 hard /soft costs combined) • Financing — $3 million 1 mortgage loan with Matrix; HUD $3.56 million, land value at $2.966 million of equity (land, cash equity, and market tax credits) Mr. Finke explained, in detail, the very complicated new market tax credit program. He also spoke about the feasibility study.done by a Seattle based hospitality firm. The pro forma on the project shows a good projected cash flow. He said, in looking at the details, it is a very good package. He did note that a number of things must happen before the loan is closed. The loan is conditioned on an appraisal of at least $9 million. If it doesn't achieve that figure, additional equity will be required. Also, HUD has to approve the Section 108 Loan, and the new markets tax credit has to be finalized. Mr. Finke said he strongly recommends the project and it is ready for the Council's consideration. 2 i ADJOURNED MEETING — MORRIER HOTEL 375 OCTOBER 12, 2004 — 5:30 P.M. By request, Mr. Finke discussed what a personal guarantee is. He said it is the gold standard in lending. When you have a personal guarantee, all the assets owned by the individual are subject to collection. Don Boyd, counsel for the City with Carlson, Boyd, and Bailey, spoke about research they are doing to ensure there is no conflict of interest with NDC. They are working with HUD general counsel and expect to have the question resolved within a week. Joe Morrier said he is excited about the project and hopes it will reinvent downtown. He showed an illustration of the hotel and said he hopes, in the future, it will be a mixed -use project with office, retail, entertainment, and possibly housing. Hopefully, this is a catalyst for having the private and public working together. He said they are ready to go. In response to questions, he advised: • Entrance will be underneath. • Parking will also be underneath, 104 parking spaces • Hilton is making this an urban hotel rather than a suburban hotel • He is partnering with Hilton and they are going to be the principal manager • There are parties interested in the hotel retail • Two restaurants, the hotel has one, and then another one at the other end. • Will be about a 30' atrium • Height will be three stories above the existing building • Hilton would hire the management team • Hope for an opening date of early spring 2006 Don Boyd spoke about risk management. In the event something bad happened, the City would get a second mortgage on the hotel itself. The land underneath is leased from another entity and we are looking for an assignment of that lease. We are also looking for assignments of all contracts with Hilton, and the potential management company. In this way, if the loan did default, we could go in, take over the operation and hire someone to operate it. Another potential would be to foreclose, take it over and sell it to a third party. The other major component of debt recovery is the personal guarantee of Joe and his wife. Matrix would also share in that. HUD would be repaid. The loan loss reserve would be in place to make payments while the City makes the decision. • Audience Comments Earl Lee, 2705 Palatine Avenue, expressed concern regarding the plan and procedure • I/ and questioned safeguards to ensure it doesn't have the same fate as the Yakima Mall. He also claimed Mr. Morrier was given opportunities that others were not. George Pechtal endorsed the project and said it is in line with what they are trying to do on Front Street. He complimented the process. He then spoke about the need for quality hotel rooms in order to give Yakima a competitive edge when competing with , Seattle and the Tri Cities. 3 376 ADJOURNED MEETING — MORRIER HOTEL OCTOBER 12, 2004 — 5:30 P.M. Lynne Kittelson, 305 North 9 Street, said it looks like a viable project but expressed concern about the facade of the building fitting in with Yakima's style of architecture. She also wanted to make sure that the siting of the hotel would accommodate the flow of pedestrians without putting them at risk from the vehicular traffic. Joe Mann, local businessman, thanked Mr. Morrier for taking on this huge endeavor, and for taking the risk many years ago to bring this money to Yakima. He endorsed the project. City Manager Zais advised that a public hearing is set for the afternoon of November 2, 2004. 4. Adjournment SIMS MOVED AND WHITMAN SECONDED TO ADJOURN. The motion carried by unanimous voice vote; McClure and Place absent. The meeting adjourned at 7:05 p.m. . / I READ AND CERTIFIED ACCURATE BY 4t : / ,, ��� CO °' EMBER DATE 1/44, �4 / - 23 --4 COUNCIL MEMB DATE ATTEST: A v.. , .,, ,„‘ ,,,, '_ _..., ',. -AL. g 91-1- ,4a7N6 CITY CLERK PAUL P. GEORGE, MAYOR Minutes prepared by Linda Watkins. An audio and video tape of this meeting are available in the City Clerk's Office. 1 4