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HRA 09/03/2015 WORKSHOP September 3, 2015 HRA Workshop Workshop Meeting Agenda 5:00 p.m. 1.Potential Municipal Center and Public Works Sites 2.Discussion of Proposed Changes to Loan Programs K:\HRA\Agenda Packets\2015 Agenda Packets\2015 09 03\September-2014 Agenda Outline.docxK:\HRA\Agenda Packets\2015 Agenda Packets\2015 09 03\September-2014 Agenda Outline.docx INFORMATIONAL ITEM HRA WORKSHOP SEPTEMBER 3, 2015 Date: August 24, 2015 To: Wally Wysopal, Executive Director From: Paul Bolin, Asst. Executive HRA Director Subject: HRA Workshop Proposed Changes to Existing Programs th On July 16 staff, legal counsel, and CEE provided the background necessary to discuss loan programs. The workshop provided rental inspection program, current loan prog. Proposed Changes to Current Loan Programs In meeting with CEE last month, we learned that our loan program is, and has been, one of the more successful programs in their portfolio of City loan programs. That does not make changes to make our program even more successful, in terms of loan dollars and number of properties improved. We also heard how market trends, interest rates, demographics of the community, and even weather can have an impact on our programs. You were also provided with summary of all loan / property improvement programs offered by a number of our neighboring communities, as well as a summary of all programs currently offered by the Authority. After listening carefully to the A submitted since the July workshop, staff worked with CEE to develop changes to our existing loan programs. These changes are meant to make the program more appealing and useful to all Fridley homeowners, and be flexible enough to cover a range of loans offered by other communities. Following is a summary of the changes made to each of our existing loan programs (a large spreadsheet is also attached summarizing much of the following information). Single family revolving loan program: In order to make the program available to more homeowners and avoid creating a number of smaller specialized programs that generate few loans, we are recommending adding a great deal of flexibility to this existing program. First and foremost, we propose to eliminate the income limits and raise the maximum loan amount from $35,000 to $50,000. These changes will allow those with higher incomes to qualify for the loans and borrow enough money to complete larger/higher cost improvements (kitchens/bathrooms/additions, etc.). These changes, combined with the 115% loan to value ratio, also provide the ability for new families to purchase older homes and update/fix them immediately after moving in to the home. (This is a message we will need to get out to our local realtors, upon approval). loan program: The purpose of this program is really to provide, those with no other options, a means to make emergency/life safety/health required improvements to their homes. The loan is due upon sale of the home or a time period of 20 years, whichever happens first. The change to this program is to simply change the interest rate from 2% to 0%, as compounding the 2% interest over 20 years may result in the Authority being accused of being In the example of a $10,000 loan coming due after 20 years, with the compounding interest that has accrued, the payback is just shy of $15,000. Other cities with a similar program have also dropped their interest rate to 0%. Proposed New Loan Programs Not all of the holes in our loan program could be addressed through changes to our existing loan products. In order to encourage reinvestment throughout the entire community, staff is recommending creating new loan products to make improvements to mobile homes, limited improvements to 12-unit and smaller multi-family units, and commercial properties. Mobile Home revolving loan program: Currently there are 400 mobile home units in the City. Mobile homes do not qualify for our standard single family loans as the owners rent the land on which the home is located. Because of the ownership structure, second mortgages cannot be filed against property. Rather than the protection of a second mortgage, our interests would be protected through a lien filed through the Department of Public Safety. CEE has had success running this program in Blaine. Multi-family revolving loan program: Currently there are a number of duplexes and smaller apartment buildings (2-4 units) that were built between 1955 and 1970. These units are typically owned by an individual or family. The small size of these buildings provides fewer rentable units to share in the costs of making improvements. As these buildings continue to age, owners generate less rent, which then leads to less reinvestment, which then leads to lower Rental Inspectors, it is these smaller buildings that would benefit the most from a low interest loan. We are proposing that the improvements be limited to items that correct code violations or are done to the exterior of the property. Commercial loan program: While CEE administers commercial loan programs in different neighborhoods around Minneapolis, they also offer low interest loans for businesses that are making improvements to reduce their energy usage. The energy loans are funded through CEE, while the commercial loan programs (for building improvements) would need to be funded by the Authority. Fridley businesses As staff has been out meeting with local businesses, as part of our business retention and expansion efforts, we have heard from a number of small business owners that there is a need for low interest money to make improvements to their buildings. Due to their age, we have many smaller retail and office spaces that are in need of new investment. Staff is proposing that the Authority provide low interest loans to eligible businesses through a partnership with CMDC (Central Minnesota Development Company). CMDC is a non-profit, certified development company that consistently ranks in the top 20 SBA (Small Business Administration) lenders in Minnesota. Business assistance would meet with CMDC to review their project. If Authority assistance is needed, CMDC would do the underwriting and provide a credit memo, for review by the Authority, for approval. CMDC would not only manage the loan fund, they would also provide the loan servicing. medium sized companies needing less than $150,000, as that is the minimum amount necessary to make SBA loans feasible, or for those expansions that are not SBA eligible. A proposal letter from CMDC, attached, provides more detail on how the partnership would work. Funding: The Authority has adequate resources in its current loan fund to issue more diverse are recommending placing a cap on the total amount of funds that can be loaned out. After the programs have been in operation for a year or more, we can evaluate which programs should be allocated more or less funding. Summary Last month, we reviewed all of the offered by other communities. We listened to your comments, as well as comments from City Staff, homeowners, business owners and rental property owners to make changes to and develop the programs described in this memorandum. Because there is so much information, we wanted to give you a chance to discuss and ask questions We will bring the st proposals to you, for formal action, at your October 1 meeting. , �i INFORMATIONAL ITEM ; ��a,, HRA WORKSHOP �: Fridley SEPTEMBER 3, 2015 � Date: August 24, 2015 To: Wally Wysopal, Executive Director From: Paul Bolin, Asst. Executive HRA Director Subiect: HRA Workshop — Proposed Chanaes to Existinq Proarams On July 16�' staff, legal counsel, and CEE provided the background necessary to discuss potential changes/additions to the HRA's ongoing loan programs. The workshop provided information on the City's rental inspection program, current loan programs, and the HRA's cash balances. Proposed Chan�es to Current Loan Pros�rams In meeting with CEE last month, we leamed that our loan program is, and has been, one of the more successful programs in their portfolio of City loan programs. That does not mean that we shouldn't make changes to make our program even more successful, in terms of loan dollars and number of properties improved. We also heard how market trends, interest rates, demographics of the community, and even weather can have an impact on our programs. Yot� were also provided with summary of all loan / property improvement programs offered by a number of our neighboring communities, as well as a summary of all programs currently offered by the Authority. After listening carefully to the Authority's discussion, and considering comments submitted since the July workshop, staff worked with CEE to develop changes to our existing loan programs. These changes are meant to make the program more appealing and useful to all Fridley homeowners, and be flexible enough to cover a range of loans offered by other communities. Following is a summary of the changes made to each of our existing loan programs (a large spreadsheet is also attached summarizing much of the following information). Sin_q/e familV revolvin_q loan pro_qram: In order to make the program available to more homeowners and avoid creating a number of smaller specialized programs that generate few loans, we are recommending adding a great deal of flexibility to this existing program. First and foremost, we propose to eliminate the income limits and raise the maximum loan amount from $35,000 to $50,000. These changes will allow those with higher incomes to qualify for the loans and borrow enough money to complete larger/higher , CEE, while the commercial loan programs (for building improvements) would need to be funded by the Authority. Fridley businesses are eligible for CEE's energy loans As staff has been out meeting with local businesses, as part of our business retention and expansion efforts, we have heard from a number of small business owners that there is a need for low interest money to make improvements to their buildings. Due to their age, we have many smaller retail and office spaces that are in need of new investment. Staff is proposing that the Authority provide low interest loans to eligible businesses through a partnership with CMDC (Central Minnesota Development Company). CMDC is a non-profit, certified development company that consistently ranks in the top 20 SBA (Small Business Administration) lenders in Minnesota. Business' seeking assistance would meet with CMDC to review their project. If Authority assistance is needed, CMDC would do the underwriting and provide a credit memo, for review by the Authority, for approval. CMDC would not only manage the loan fund, they would also provide the loan servicing. The Authority's funds would be used to help small to medium sized companies needing less than $150,000, as that is the minimum amount necessary to make SBA loans feasible, or for those expansions that are not SBA eligible. A proposal letter from CMDC, attached, provides more detail on how the partnership would work. Fundinq: The Authority has adequate resources in its current loan fund to issue more diverse loans. In the event that one or more of these programs become "too successfuln, we are recommending placing a cap on the total amount of funds that can be loaned out. After the programs have been in operation for a year or more, we can evaluate which programs should be allocated more or less funding. Summarv Last month, we reviewed all of the City's current loan programs, as well as programs offered by other communities. We listened to your comments, as well as comments from City Staff, homeowners, business owners and rental property owners to make changes to and develop the programs described in this memorandum. Because there is so much information, we wanted to give you a chance to discuss and ask questions about the proposed programs during Thursday's work session. We will bring the proposals to you, for formal action, at your October 1 S' meeting. BUSINESS FINANCING � ,-_. SBA Loans� Financial Packaging � Federal,State and Local Financing� Incentive Financing� Revolving Loan Funds August 13, 2015 Paul Bolin . Assistant Executive Director, HRA City of Fridley 6431 University Ave. NE Fridley, MN 55432 Dear Paul: It was a pleasure to meet with you this morning to discuss the needs of the City of Fridley's Economic Development Program. CMDC is a provider of Revolving Loan Fund Management Services for units of government. You requested that I provide you and the City of Fridley with a proposal for this type of service to help you launch a Revolving Loan Fund for Fridley's business community. Below is a proposal for your review and consideration that outlines how we might work more closely with you and the City to achieve your desired economic development objectives. RLF Mana�ement • The Revolving Loan Fund would be governed by appointed representatives of The City of Fridley or its assigns as determined by the City Council or HRA. All credit decisions would be made by the City or its assigns. • Fund Management services will be provided by Central Minnesota Development Company,a locally based nonprofit SBA Certified Development Company and an "SBA Premier Certified Lender". • CMDC will provide all loan packaging, underwriting and related marketing services for the Fund. As part of the underwriting process CMDC will prepare all credit memos for distribution to the governing body. The Credit Memo will senre as the foundation for making sound credit decisions. • CMDC will also provide ongoing loan servicing including quarterly servicing reports to the City of Fridley. Whv CMDC? • Sound business and investment practices are important when managing public funds. CMDC has the professional staff,sophisticated investment analysts and seasoned management to give it the unique capacity to manage revolving loan funds for local economic development programs. This is why CMDC is the Certified Development Company that has been selected to manage the Urban Initiative Fund for the State of Minnesota and the Minnesota Department of Employment and Economic Development. 1885 Station Parkway NW Andover, MN 55304 763.784. 3337 � f: 763.784.3338 I www-cmdcbusinessloans.com August 13, 2015 Paul Bolin Page Two • CMDC has over 37 years of experience as a small business lender in the Northwest Metro and Greater Minnesota market. • Revolving loan funds are often managed by volunteers and/or local government staff. Many are inexperienced in economic development lending. CMDC supports local governments by providing continuity and consistency with professional experience. • Through CMDC's network and expertise,other funding programs may be available to the City to be used in conjunction with the local revolving loan fund. What are the Costs? • CMDC will assess an administrative fee to help defray costs incurred while providing program marketing services, meetings with clients, meetings with staff and the governing body. The monthly administrative f�e witf be 1/12 of 2%of the balance of atl luans outstan�}ing in the portfolio on the�rst day of each month. • CMDC will package, process and service all loans on behalf of the City of Fridley Revolving Loan Fund. A loan packaging/processing fee of 1.5%of the loan amount or$1,500,whichever is greater,will be charged on all loans plus an ongoing(.5%)servicing fee. These costs are typically passed on to borrowers as their loans are processed. This fee structure is consistent with the SBA 504 Loan program. • The City and the Fund will retain all principal and interest earnings associated with the loan portfolio net of CMDC fees. The City in conjunction with CMDC will determine the depository for loan payments received from borrowers. Loan Amounts• • To be determined by the City—Minimums and maximums are recommended in the early stage depending on fund capitalization and community needs. • The Revolving Loan Fund should be designed to leverage other financing programs as well as . private financing provided by the commercial banking community. Eli�ible Proiects: • All projects must be located in The City of Fridley. • Borrowers must be a "for-profit" business. • Business must be complimentary to the existing business community. • It is recommended that at least 50%of the project financing come from a private lender, private equity or both. • Borrowers must have equity injection as determined by fund management and the City of Fridley. August 13,2015 Paul Bolin Page Three Allowable Use of Proceeds: • Loan proceeds would be used for fixed assets, including land, building machinery and equipment. Working capital will not be provided by the Fund. Interest Rates• • Fixed rate loans will be available,with rates determined by market conditions at loan closing. Management will determine rate structure at the time of the establishment of the fund. Loan Term Len�th• • The term of each loan will be commensurate with the life of the asset being financed. Fees and Charaes Summarv: • The monthly Fund management fee will be 1/12 of 2%of the balance of all loans outstanding in the portfolio. • A 1.59�0 loan packaging/processing fee payable to CMDC by the City and/or borrowers at the time of loan application submission. • A servicing fee of.59�0 of the outstanding loan balance payable to CMDC will be charged on an ongoing basis and will be incorporated into the"effective" rate charged to the borrower. • Borrowers are responsible for paying all legal and other loan closing costs. Additional Services In addition to Fund Management,CMDC can assist the City with the design of effective underwriting guidelines-standard operating procedures and capitalization of the Fund. The estimated cost for this service would be$4,950. Fund raising assistance if needed would be billed at the rate of 109�0 of the capital raised. Mileage expenses would be billed at the annual prevailing rate established by the IRS which is currently set at$.575 per mile. Paul,we look forward to growing our relationship with you by providing RLF Management Services to The City of Fridley. Please feel free to contact me if you have any questions regarding our proposal. Best regards, 'i��-�� ��2��� G� Michael J. Mulrooney President CMDC REFERENCES FOR RLF MANAGEMENT SERVICES • The Minnesota Department of Employment and Economic Development Bart Bevins Senior Loan Officer Minnesota Department of Employment and Economic Development 1st National Bank Bldg 332 Minnesota Street Suite E200 St. Paut, MN 55101-1351 (651)259-7424 • The City of Coon Rapids Matt Brown Economic Development Coordinator City of Coon Rapids 11155 Robinson Dr. Coon Rapids, MN 55433 (763)767-6460 • The City of Brooklyn Park Alisha Gray The City of Brooklyn Park 5200 85th Avenue N Brooklyn Park, MN 55443 (763)493-8145 CMDC MANAGEMENT RESUMES Michael Mulroonev, President. Prior to his selection as President of CMDC, Mr. Mulrooney served under two governors as the Director of the Minnesota Department of Economic Development. He is the founder of CMDC and has been associated with the company since 1978. Mr. Mulrooney has over 40 years of extensive development consulting experience. He has also served on the Board of Directors of several trade organizations as well as technology and manufacturing companies in Minnesota. He has earned undergraduate and graduate degrees in finance from St. Cloud State University and from the University of St.Thomas. Scott Schake.Senior Vice President. Prior to joining CMDC, Mr.Schake worked for several banks in key management positions. He has previously been employed as a bank examiner for the FDIC and has served as the Chief Credit Officer for a major lender in Central Minnesota. His current responsibilities include serving as CMDC's Senior Vice President in charge of lending operations. Mr.Schake is a graduate of St.Cloud State University with a degree in economics. Kevin Weeres,Vice President. Kevin joined CMDC in the summer of 2007. He was previously employed for over 10 years as a Vice President with the First National Bank of Elk River. He has significant commercial lending experience and a background in Mortgage Banking. Mr.Weeres is a graduate of the Minnesota Bankers Association Commercial Lending School and St. Cloud State University with a Bachelor of Science degree in Real Estate.