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HomeMy WebLinkAbout9/1/1999 - STAFF REPORTS (5) DATE: SEPTEMBER 1, 1999 TO: CITY COUNCIL FROM: ECONOMIC PROGRAMS MANAGER APPROVAL OF THE SUBMISSION OF AN APPLICATION FOR HUD SECTION 108 ASSISTANCE IN THE AMOUNT OF$1,000,000 FOR PROPERTY IMPROVEMENTS AT VIP MOTOR CARS,INC.,4095 EAST PALM CANYON DRIVE RECOMMENDATION: That the City Council Approve the submission of an application to the U.S.Department of Housing and Urban Development in the amount of$1 million for a loan guarantee for VIP Motor Cars,Inc. BACKGROUND: Since June, staff has been working on a HUD 108 application from VIP Motor Cars,to help facilitate a significant expansion of their facility in Palm Springs. The dealer is under new ownership and has an aggressive growth plan,which is good for the entire community. VIP has requested a loan of$1 million,to be repaid through a portion of the additional sales tax they produce, and proposed the creation of about 30 jobs. (The job creation count makes them eligible for a loan of$1,000,000, based on HUD's"one job per $35,000 in assistance"dictum.) The HUD 108 application requires a public hearing. This proposed assistance package combines the resources of the City of Palm Springs (using its access to HUD 108 funding)and the Community Redevelopment Agency,which is negotiating an Owner Participation Agreement(OPA)with VIP for some of the financial assistance terms. The Agency approved a conceptual agreement with VIP on July 28;the OPA will come before the Agency later in September or in October. The actual HUD application has been analyzed by Mark Tigan at Community Capital Group(CCG), the City's HUD 108 consultant. CCG had some concerns about the original structure of the loan,which was proposed to be a direct"take-out"loan of a portion of the dealer's construction financing;mostly, that a direct 108 loan would trigger Davis-Bacon(the Federal prevailing wage law)and increase the$2 million project cost by $300,0004400,000. Since the maximum amount the City can lend is capped by the job creation numbers,we could not make up the additional cost through a larger loan. VIP confirmed that Davis-Bacon was a deal killer. However, a forward commitment of a loan guarantee does»511:trigger Davis-Bacon,though it does slightly increase the cost of funds. VIP will now look for a$1 million private loan with our guarantee;we are submitting the application to HUD as a loan guarantee application. What this means is that the loan application submitted to HUD is for a fairly conventional loan: a guarantee of a$1 million loan for expansion of the dealership. While the Agency's proposed assistance package will be acknowledged in the application, the application will be evaluated by HUD based on its own merits—the financial strength of the dealership, ability to repay, etc.. (Their request asks the City/Agency to share sales tax or to directly repay the loan from sales tax on their behalf. Their projections support such a deal,but it will be structured in a way that they bear the risk for shortfalls.) 3a4;k VIP will be responsible for the debt service on the loan(which will be paid to whichever private lender they use)and will request reimbursement from the City/Agency. The terms of that deal will be covered in the OPA,which will go to the Agency for approval at a future date. Staff is still evaluating potential sources of financial assistance, such as tax increment, sales tax increment, and CDBG funds. The financial impacts of the financial assistance deal will be discussed more fully in the Owner Participation Agreement;however, the strict financial impact of this loan guarantee on the City should be minimal, since the business is currently quite solid and on a growth trend, with a financially solid ownership team. Only if the dealership were to defimh the private loan would the City's guarantee be exercised. In that event, since the HUD 108 program is secured by the City's Community Development Block Grant Commitment,the City could use CDBG to cure the default,rather than suffering an impact to the General Fund. Because this is a significant project within the City's Community Development Block Grant Program, staff will also need to amend the City's Consolidated Plan and submit it to HUD for approval. That amendment will be done over the next few months. "4z , JgHN I AAYMOiU-- B"MicPrograms Manager "" 4 f ib,,pp, APPROVED: fivz,City Manager ATTACHMENTS: 1. Resolution 2. Summary of Loan Application—to be handed out at meeting VIP MOTOR CARS, LTD. APPLICATION FOR DEVELOPMENT ASSISTANCE HUD Section 108 Loan Descriplion VIP Motor Cars,Ltd. has requested a loan of$1 million from the City of Palm Springs or the Community Redevelopment Agency of the City of Palm Springs,to assist with the expansion and remodel of their facility at 4095 East Palm Canyon Drive. The dealership changed hands in October, 1998 and the new owners of the dealership are committed to improving the aesthetics and the functionality of the facilities in order to meet the rigorous standards ofBMW and Mercedes-Benz, among the most demanding manufacturers in the industry. Improved facilities will lead to a higher allocation of vehicles and greater sales volume, which benefits the dealer and the City. The HUD 108 application to the City is for$l million. The City received a HUD 108 allocation of$2 million in September 1995;this is the first application that has made it to the public hearing stage. HUD uses the 108 program for economic development purposes;therefore, a key criterion in the application will be the job creation numbers. HUD limits assistance to$35,000 per job created,with at least 51%ofthe jobs to be targeted to low or moderate-income families. VIP has proposed 30 new jobs,technically making there eligible for$1,050,000 in assistance. Nevertheless,HUD measures job creation commitments against industry benchmarks and VIP's proposed increase in sales, and could potentially reduce the loan amount by the$35,000 per job for each job it felt VIP could not produce. The application is actually for a loan guarantee for a$l million loan that VIP will seek from private sources. During the analysis by Community Capital Group(CCG),the City's HUD 108 consultant, CCG had concerns that the original structure of the loan(proposed to be a direct"take-out"loan of a portion of the dealer's construction financing)would trigger Davis-Bacon(the Federal prevailing wage law)and increase the$2 million project cost by$300,0004400,000. Since the maximum amount the City can lend is capped by the job creation mumbers,we could not make up the additional cost through a larger loan. However, a forward commitment of a loan guarantee does W trigger Davis-Bacon, though it does slightly increase the cost offends. VIP will now look for a$l million private loan with our guarantee;we are submitting the application to HUD as a loan guarantee application. Thus, the loan application submitted to HUD is for a conventional loan guarantee of a$1 million loan for expansion of the dealership,with the application being evaluated by HUD on its own merits—the financial strength of the dealership, ability,to repay, etc.. The difference in the cost of funds between a City-made loan at 6.5%(we had originally proposed 6%, but our own cost of funds has risen recently)vs. a private, prime-rate loan at 8.25%,is shown in the following spreadsheet. The relatively favorable rate will be based on the dealer's own strength and the City/Federal guarantee. VIP Motor Cars, Ltd. Debt Serpice on HUD 108 Direct Loan vs. Market Rate Loan with Guarantee O1-Sep-99 Debt Service Debt Service on 6.5%Loan on &25%Loan Fiscal from City from Lender Annual Year Year (51.000.000) ($1.000.0001 Difference 1 1999-00 2 2000-01 S 139,105 $ 150,714 $ 11,610 3 2001-02 $ 139,105 $ 150,714 $ 11,610 4 2002-03 $ 139,105 $ 150,714 S 11,610 5 2003-04 $ 139,105 S 150,714 $ 11,610 6 2004-05 $ 139,105 $ 150,714 $ 11,610 7 2005-06 $ 139,105 $ 150,714 $ 11,610 8 2006-07 $ 139,105 $ 150,714 $ 11,610 9 2007-08 $ 139,105 $ 150,714 $ 11,610 10 2008-09 $ 139,105 S 150,714 $ 11,610 11 2009-10 $ 139,105 S 150,714 $ 11,610 $ 1,391,047 $ 1,507,143 $ 116,096 Loan&P0,vment VIP had requested the City and/or Agency to share sales tax or to directly repay the loan from sales tax on their behalf: While their projection of steadily increasing sales supports such a deal, it will be structured in a way that they bear the risk for shortfalls. Any loan repayment schedule, or other form of financial assistance to the dealership or property owner(separate but related companies)will be negotiated through an Owner Participation Agreement(OPA)with the Community Redevelopment Agency,which has more(but not unlimited)power tp provide development assistance to private entities,the OPA will come before the Agency later this W. This HUD Section 108 Loan application is not affected by any repayment agreement, since the dealer will secure its own financing and be responsible for the debt service payments. The guarantee will reduce its cost of funds, thereby saving it money;and payment from the Agency will be based on two performance measures: 1. Progress in meeting their job creation commitments, to keep the City's HUD 108 Program in compliance with HUD regulations, and 2. Sufficient increases in sales tax over the base year to create"increment." 16 g is s$ cElog oL S � W $ �� ms E PROOF OF PUBLICATION This a spue for County Clerk's Riling Skimp (2015.5.C.C.P) OF pALMSA�Z E33 DEC 151999 RECEIVED c��1'CLEQ� STATE OF CALIFORNIA County of Riverside I am a ddm of the United States and a resident of Proof of Publication of the County aforesaid;I am over the age of eighteen years,and not a party to or interested in the 3384 crry of PALM SPnnsoa above-entkled matter.I am the principal clerk of a WAR OF PUBM HEAFUNG printer of the,DESERT SUN PUBLISHING ftlyfM IS HEFBY oriel.that the Community, of 1M Cny of Palm COMPANY a newspaper of general circalatioR, �of slangs ail hold at printed and published in the city of Palm Springs, 3200�Caryar w ,Perm seprnsn 5 Caffo- Connty of Riverside,and which newspaper has been o snr�x� ^^1.�W ar. adjudged a newspconsider the folowing: aper of general circulation by the An otoa.,tl t Supperior Court of W e County of Riverside,State of wtgr yr P•� °M California under tits date of March 24,1988.Case for Southw*skT9rar�f;ertyorrere Road and Number 191236;that the notice,of which the Fat8�Pyaelma,Gat 1912 254 annexed is a printed copy(set in not smaller The Comm�yty�Ag of the than non parcel,has been publishai br each regular a Para qpene Y1 Pat= n and entire issue of said newspaper rR Aprearem aC 10V. approve ewsp per and not ig any n� Lt anndd and En rises, Inc.To supplement thereof on the following dates,to wit: u�Aareenxm% te Community s;am required qumsm antl 1M of ppursat,sprite am Health and to.Safetyy Code flM December fitly 8th,13th 334211.11. 33433anand and and �to waking those fintl rags. a Public Hearkp a IMtl to receive nprrt on the mater. nature of the Amendment is Out the Agency wrl Ieaea the Inc. =property tram FDH Entarym- All in the year 1999 the dealership with the wpm VIP f4dtora � btitaflon and expansionof ue daderahp.such as- astance to be provided over a period of up to I certify(or declare)ender penalty of perjury that the twelve years. foregoing Istrue and correct. All interested persons are invited to attend the Pubic =na and nione c r the roam 13th setae above.R you d Z name of the pm> Dated at Palm SpciuM California thris day � action n court,you may be Ymited to ra e December av Hass rues ar aomsana else raised of a Pu�c d In thie notice,or a /yI 1999 at the heten tonsilf°° above,at or�too the Pub City ' f71 U., /ram p '' �'� Members of.the public may view this document " (& J �•. g antl alglonadnecvroneed docurenb m the Redevelop- Signature eo�mmwritten e�is To Msy�Com nun eaHedeoebp m oery pdor toOthe Commurav Redepveboa he, daetrl 's Yintmk nen�fleaPnor fo tM ubl _wd FuRher Intwmetion, melutling a co of the dFenoe vdM FI M r tl Sa(MYIe�Sectlorin 39 99. Olace of tle Cay CNnc, at 1M PATRICN'A 8ANDER3,City Clerk Pll� Uec.4, 8, 18,'lgaa PROOF OF PUBLICATION This is space for County Clarks Filing Stamp (2015.5.C.C.P) � 9 / OCC 15 M9 STATE OF CALIFORNIA County of Riverside I am a ddm of the United States and a resident of Proaf of Publication of the County aforesaid;I am liver the age Of eighteen No.33s4 years,and not a party to or Interested In the CITY OF PALM SPFMGS above-ebtkled matter.I am the principal clerk of a Npncu le TICE OF PPiv�nHFAFat the Community printer of the DESERT SUN PUBLISHING j and mRa e°�C"°"tot�"Oalm�•e�ngGauy� ho a"a o COMPANY a newspaper otgeneral drealatio (at�be�, printed and published in the city of Palm Springs b car C Wy.Pakn Sprinoo atedarat County of Riverside,and which newspaper has been " �� 1i,9�att .000 PM i'foaowrr"�g ay' adjudged a newspaper of general circulation by the j An Dapaeaan and oavalord A�nam.nt Supperior Court of the County of Riverside,State of I Aim YPDRI M Of lom Califorola under the date of March 24,1"S.Case for Soriano east Road and Number 191236;that the notice,of which the ive pal,,, sees annexed is a printed copy(set In type not smaller The Comty�Agency of the than non padel,has been published in each regular Of Planlion and��9 w°p°a°c V. P Agreareard cosh an and entire lame Of said newspaper and not In any Cara Ltd. and OH rises, Inc.To a supplement thereof on the following dates,to wit a'cot` Disposition caquinty de°Adaw wnrvwpn�An thethe w Palm Springs are retiulred to make oerWr fl� December 4th,Still,13th pwsuant to Health and code Sectlawe 33621.1, 33433 and 93445 and prior to making arose andYge, a Public Hearktg N bald to raceWe Dublin Input on the natter. Theme a of On Amendment Is that the Agency will eG property from FON EMertais- as, Ina. and the to YIP Motors Car Ltd.in order ro aaow tla to assist with AO In the yenr 1999 the dealership with the cost ntw retwbilitatron and expansion of the tw I certify(or declare) to be provided over a period of up toare)ender penalty of perjury that the twelve years• foregoing is true and correct. aP�I� persons wgra�nstomptn �muanad� cnmarrpa me rretvs of ore pro- Dated at Palm Springs,Califernin this- day �M va onsari you may „tee raised rais- December written C egn�r in deftered to rnqN Of ,1999 Ili thatldddress Rated above,at or prlat to a Prrb- ..�ih _ Members of the pubic: may view he document and all references d public may v m the docu lent mart Agency oafcea, OtyNas,and sWnntt written Signature Anopemrwmys tt or Comeau nca RY Neadrevelopment moot Agency MeebnOp at or p fo the pub ro hwng deaanbed in mIs nonce. Further Infonmebon, including a on y of the scour- dance with Hnt ealth and Sit on.�in aocor_ Is on 33433. a a�tithe Office Sa WHthe gpr t.'lerk, at the PATNICbt A.SANDERS,City.Ckutt PUB: Des.4.8, 13. 1999 „ RESOLUTION NO. 19634 APPROVING THE SUBMISSION OF AN APPLICATION FOR SECTION 108 PROGRAM FUNDS IN THE AMOUNT OF$1 MQ LION($1,000,000)FOR PROPERTY IMPROVEMENTS AT VIP MOTOR CARS,INC. AT 4095 EAST PALM CANYON DRIVE WHEREAS, the City of Palm Springs is eligible to receive Community Development Block Grant funds as an entitlement city under the Department of Housing and Urban Development regulations, and therefore eligible for funding under the Section 108 Loan Guarantee Program; and WHEREAS,under the Section 108 Program,the funds must be used for eligible activities which principally benefit low and moderate income people or eliminate slum and blight;and WHEREAS,the City received approval of a generic HUD 108 loan from HUD in September, 1995,but has not made a loan from that commitment as of this date; and WHEREAS, according to federal regulations the City must conduct a public hearing to receive input on the proposed use of the loan funds; and WHEREAS, the City Council desires to assist VIP Motor Cars to expand and upgrade their automobile dealership at 4095 East Palm Canyon Drive, in order to retain the business in Palm Springs, make it a more profitable facility for the dealer and the City, and increase the level of employment;and WHEREAS, expansion of the dealership will create on-site jobs for documented low and moderate income households, therefore improving overall living conditions for low and moderate income households in the City. NOW THEREFORE BE IT RESOLVED by the City Council of the City of Pahn Springs, as follows: Section 1. That the submission of a HUD Section 108 application, in the amount of$1 million and in the form of a loan guarantee,to the U.S.Department of Housing&Urban Development is hereby approved. Section 2. That the City Manager is authorized to file said applications, and any amendments thereto, and all understandings and assurances contained therein in a form acceptable to the City Attorney, and to provide any additional information or documents requested by HUD, and to execute any agreements pertaining to said loan guarantee. ADOPTED this 1st day of September 1999. AYES: Members Barnes, Hodges, Oden, Reller-Spurgin and Mayor Kleindienst NOES: None ABSENT. None ATTEST: CITY OF PALM SPRINGS, CALIFORNIA, By City Clerk �q City Manages. REVIEWED&APPROVED AS TO FORM 3 - �