BY COUNCILOR STAUBER:
RESOLVED, that the city of Duluth hereby accepts the assignment of a mortgage and allonge to promissory note substantially in the form of that on file in the office of the city clerk as Public Document No. ____________, which mortgage and note were dated August 5, 2005, and executed by Central Hillside Development Limited Partnership, LLLP (developer) in favor of the HRA;
FURTHER RESOLVED, that the city of Duluth hereby accepts funds in the amount $212,000 payable into Fund ______.
FURTHER RESOLVED, that the proper city officials are hereby authorized to enter into a loan agreement, note and mortgage modification agreement, substantially in the form of that on file in the office of the city clerk as Public Document No. ____________, with Hillside Business Association (HBA) and developer.
STATEMENT OF PURPOSE: The project known as Village Place, located on Fifth Street and Sixth Avenue East, is completed and currently 53 of the 55 units are leased, which is ahead of projections. The permanent financing on the Section 108 loan guarantee, which is secured with community development block grant (CDBG) funds and a general obligation pledge of the city, was set at a treasury bond offering on September 14, 2006. It was anticipated in the project financial proformas that the HUD offering would take place in July or August of 2005 and, therefore, the permanent interest rate would be lower. As a result of the delayed offering and climbing interest rates, it was determined during the financial reconciliation between the interim financing and permanent financing the project proforma was not going to cash flow for the entire period of the loan. The interim interest amount was $102,000 higher than anticipated. These funds were covered by the CDBG line of credit at the permanent financing date on September 14, 2006.
The Housing and Redevelopment Authority of Duluth (HRA) was provided the interest escrow funds as security to the project as part of the overall HOPE VI program. Therefore, it was concluded that the city should handle the interest escrow account to recoup part of the interim interest deficit of $68,000 and the remainder of $34,000 was to be paid by the developer. The Duluth HRA has no objections to this financial decision. Also, the city will provide a cash infusion from CDBG funds on the front end of the permanent financing to project a positive cash flow for the 20 year permanent loan term. The CDBG funds provided in 2007 ($65,000) and 2008 ($50,500) would come from program income, which are lien repayments and/or reprogrammed funds, that being funds not utilized in prior year’s projects. In previous years the city has received about $120,000 in lien repayments and around $150,000 in reprogrammed funds. The CDBG cash infusion into the interest escrow account balance enables the city to underwrite a positive cash balance in the year 2025. The developer, as a result of this financial reconciliation, will have to finance a larger balloon in 2025, than originally anticipated to meet the city’s Section 108 loan repayment obligation.