Title
Approval of the April 10, 2013 HRA meeting minutes.
Body
ROLL CALL
Present: Commissioners Bostrom, Brendmoen, Carter, Lantry, Stark, Thune
Absent: *Commissioner Tolbert
CONSENT
1. Approval of the March 27, 2013 HRA meeting minutes.
Commissioner Stark moved approval.
VOTE: Yeas - 6 Nays - 0
2. Resolution Authorizing the Issuance of Revenue Bonds for Twin Cities German Immersion School Project under Minnesota Statutes, Sections 469.152 through 469.1651 and Approving Related Documents, District 6, Ward 5
Commissioner Stark moved approval. Approved as set forth in resolution RES 13-536
VOTE: Yeas - 6 Nays - 0
DISCUSSION
*Commissioner Tolbert arrived.
3. Resolution Approving and Authorizing Execution of a Loan Payoff in Full in the Amount of $25,000, by Hmong American Partnership of the Loan to D & N, Inc., dba Mai Village Restaurant located at 394 University Avenue, and to Charge Off the HRA Loan and add Borrowers to the Adverse Lending List, District 8, Ward 1
Ms. Cecile Bedor, Executive Director for the HRA, stated that in April 2003 the HRA, along with Western Bank and the US Small Business Administration (SBA), provided financing to D & N, Inc. to acquire and construct the Mai Village Restaurant at 394 University Avenue. Ms. Bedor explained that there are three mortgages on the property; Western Bank in first position; SBA in second, and the HRA in third position. The original HRA loan was in the amount of $400,000. Terms included deferral provisions. The first amendment to the loan deferred, but did not forgive, repayment from May 2008 to December 2008 with payments scheduled to begin January 2009. Payments were made from January 2009 through March 2010. The HRA Board approved a second amendment in March of 2010 that deferred, but did not forgive, repayment from April 2010 through March 2011.
The second amendment was part of a 2010 work out plan for the borrower in response to the bank initiating foreclosure. As part of the workout plan, the bank agreed to stop foreclosure proceedings. Even though D & N, Inc. lowered operating costs as part of the workout plan, sales have not reached levels sufficient to repay the debt on the property, including the HRA loan. Thus, the HRA Board approved a third amendment to the HRA note in December 2011 that deferred payments from April 2011 through June 2015.
Despite these attempts, the borrower did not make payments on the debt, and Western Bank initiated foreclosure again in September 2012. The redemption period expires April 25, 2013; if the workout plan is not agreed to by that time, the property will revert to Western Bank. The HRA mortgage will be extinguished, and the HRA will receive no payment whatsoever.
Efforts have been made by Hmong American Partnership (HAP) to figure out a way to salvage the situation, and provide an opportunity for the restaurant to continue operations. HAP has offered to pay the HRA $25,000 to obtain the HRA's full release of its mortgage and security. They have also made offers to the other lenders. If all three lenders accept HAP's proposal, the SBA will write off $780,000 of their $880,000 loan; Western Bank will write off $310,000 of its $1,860,000 loan.
Ms. Bedor stated that ultimate control lies with the first mortgage holder, Western Bank. Western Bank has notified the HRA that if HRA does not approve the proposal, they will take title of the property upon expiration of the redemption period and extinguish the SBA and HRA junior mortgages. She noted that the only way to protect the HRA loan is to pay off the senior mortgages; this is infeasible, given that the combined total of the debt is more than the value of the property. She noted that staff worked with Mai Village for several years, and this is an unfortunate situation. The proposal before the Board does two things: it provides the HRA with a small payment, provides an opportunity for Mai Village to stay in business, and provides HAP some space for its programing needs.
Commissioner Carter agreed that it is unfortunate that the HRA cannot collect the full amount of the loan, but that the action before the Board is far more desirable than all the other possible outcomes (e.g., no payment, vacant property, etc.).
Commissioner Stark agreed with Commissioner Carter and asked if this action was independent of the decisions of SBA and the Bank, or if the action connected to their decisions. Ms. Bedor explained that the Hmong American Partnership has made an offer to all three lenders, and all parties must agree. Western Bank and the SBA have already agreed to the offer. If any lender rejects the offer, Western Bank will foreclose on the property. Once the Board takes this action, or, in the alternative, Western Bank forecloses, the HRA will no longer have a financial interest in this property.
Commissioner Bostrom stated that this business was having financial trouble before the Light Rail development ever began. Commissioner Lantry stated that the debt on this property is $3.252 million; after this action today the debt will be $2.675 million, which should make the payments (rent) more manageable for the restaurant.
Commissioner Brendmoen stated that she was also concerned about helping out a business that has been in substantial financial trouble, and asked Ms. Bedor to elaborate on some of the other benefits of this action. Ms. Bedor stated that Hmong American Partnership is getting their financing from a large commercial bank, which presumably completed thorough underwriting of the borrower (HAP) and its tenant (Mai Village), which most likely required a new business plan. HAP would not take on the debt unless they knew that changes in the operation were going to be made to ensure rent payments could be made. As Commissioner Lantry pointed out, cutting occupancy costs (mortgage or rent) in half is tremendously helpful.
Commissioner Tolbert asked if this situation would lead staff to reconsider subordination of HRA debt, personal guarantees, etc. Ms. Bedor stated that the HRA underwriting is aggressive, and that write-offs on commercial loans are not common. If the HRA wants to be first position (and not subordinate), it needs to provide the majority of the debt (i.e., provide the level of financing that Western Bank provided). The HRA usually provides the last, relatively minor, piece of financing needed to close a deal, essentially taking that last bit of risk that the private sector is not willing to take. As with all HRA actions, the HRA provides funding, subordinates loans, etc. based on an identified public purpose.
Mr. Craig O'Brien from PED has been project manager for the duration of this project. Bao Vang from Hmong American Partnership was present at the meeting.
Commissioner Carter moved approval. Approved as set forth in resolution RES 13-533
VOTE: Yeas - 7 Nays - 0
ADJOURNMENT
Commissioner Lantry moved adjournment. The HRA meeting was adjourned.