HomeMy WebLinkAboutR04-Economic Development Agency
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DEVELOPMENT DEPARTMENT
OF THE CITY OF SAN BERNARDINO
ECONOMIC DEVELOPMENT AGENCY
RF.oU&'lT FOR COMMISSION/COUNCIL ACTION
FROM: KENNE'IH J. HENDERSON
Executive Director
SUBJECI': HUD SECTION 108 LOAN
APPLICATION - 4O'IH STREET
SHOPPING CENTER
DATE: October 25, 1994
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SVDo.pnt; of Previous CnmmiMionlCoonclllCommittee Action(s):
On October 17, 1994, the Mayor and Common Council set Thursday, October 27, 1994 at 9:00 a.m., in the-City Council
Chambers as the date, time, and place to hold a Public Hearing to meet the citizen participation requirements established
by the U. S. Depar1Jllent of Housing and Urban Development (HUD) relative to the filing of a Section 108 Loan
application for the 40th Street Shopping Center.
On October 20, 1994, the Community Development Citizen Advisory Committee (CDCAC) reviewed the Section 108
application for the 40th Street Shopping Center and recommended approval of said application to the Mayor and
Common Council
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Recommended Motion{~):
OPEN PUBLIC HEARING
CLOSE PUBLIC HEARING
(Mavor and Common Cnuow)
MOTION: That the Mayor and Common Council approve the U. S. Deparbnent of Housing and Urban Development
(HUD) Section 108 Loan Application for the 40th Street Shopping Center project, and authorize the
Mayor and Executive Director to execute all necessary documents and further authorize staff to su broil
said application to HUD..
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'If) L:}LZ {,<L<<'~c ;;" SR If)
Administrator KENNETH J. HENDERSON
Executive Director
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Contact Person(s): Stafford W. ParKer/Laura J. MlrnA_' ~nnA
Phone: 5081
Project Area(s): Nooe
Ward(s): Four (4)
Supporting Data Attacbed: Staff Report: mID 108 Loao Al!Jllication
FUNDING REQUIREMENTS: Amount: $ N/A
Source:
CDBG LOC
Budget Authority:
Reqp.ested
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Commi.sionlCouncil Notes:
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COMMISSION MEETING AGENDA
MEETING DATE: 10/27/1994
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Agenda Item Number: 1'1
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DEVELOPMENT DEPARTMENT
ECONOMrrCDEVELOPMENTAGENCY
STAFF REPORT
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HUD SECTION 108 LOAN APPLICATION - 40TH STREET SHOPPING CENTER
BACKGROUND
Section 108 of the Housing and Community Development Act of 1974, as amended, authorizes a
program of community development loan guarantee assistance (HUD 108 Loan). Under this
program, the Housing and Urban Development (HUD) Department provides cities that receive
entitlement grants with front-end fmancing for large scale community and economic development
projects that cannot be fmanced from annual grants. As with all Community Development Block
Grant (CDBG) program activities, the projects fmanced under the Section 108 Program must
either principally benefit 10w-and-moderate income persons, aid in the elimination or prevention of
slums and blight, or meet other community development needs having a particular urgency.
The 40th Street Shopping Center project principally and directly benefits low-and-moderate
income persons through its provision of goods and services as well as the retention and creation
of jobs, and therefore, is an eligible project for a HUD 108 loan. Further, the project provides a
physical structure of considerable size that assists in eliminating, reducing or, certainly,
neutralizing slum and blighting conditions within the surrounding community. The 40th Street
Shopping Center is located in a low income block group no. 614 in census tract no. 51. This
activity benefits low-and-moderate income persons pursuant to Section 570.208 (a)(4) in that it
will retain ninety-one (91) full time jobs as well as sixty-five (65) part time jobs that are currently
ftl1ed by 100% low-and-moderate income persons. Of that total, approximately 70% of the
employees are of very low income.
In addition to the Section 108 loan, staff prepared and submitted an application for a Economic
Development Initiative (EDI) grant for the 40th Street Shopping Center. The EDI grant is to be
used in conjunction with the proceeds from a Section 108 loan. One principle goal of the
program is to stimulate use of the Section 108 program by providing EDI grant funds to reduce
the debt service associated with the Section 108 loans and to enhance the security and viability of
projects assisted with Section 108 guarantee funds. On October 11,1994, the Agency received
written notification that grant assistance under the EDI grant program in the amount of $344,000
had been approved for the City relative to the 40th Street Shopping Center. The EDI grant funds
will ouly be released upon the approval of the Section 108 loan application by HUD.
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COMMISSION MEETING AGENDA
MEETING DATE: 10/27/1994
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Agenda Item Number: LI
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DEVELOPMENT DEPARTMENT STAFF REPORT
40th Street Shopping Center - HUD Section 108
October 19, 1994
Page Number -2-
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The attached Section 108 loan application requests $2,295,000 at eight percent (8%) interest,
amortized over twenty (20) years. The annual debt service for loan at the terms described is
$230,355.
ANALYSIS
The 40th Street Shopping Center is located in the north end portion of the City of San
Bernardino. Specifically, the shopping center is located on 40th Street between Waterman
Avenue (Highway #18) and Sierra Way. The 40th Street Shopping Center is comprised of
127,180 square feet and is situated on 14.11 acres of prime property, as it is located along a major
state highway leading to mountain resorts. Development of the Center began in 1959 with the
construction of the former Alpha Beta store, and continued eastward to the Stater Bros. grocery
store, which was built in 1969. The funding will allow for a significant revitalization to take place
which will address the following conditions that have plagued the shopping center and accelerated
its deterioration: congested access from 40th Street; poor internal traffic circulation; poor site
maintenance and cleaning; a variety of non-uniformed signage; lack of center identification; worn
and weathered facades; and increased criminal activity due to lack of security and proper lighting.
Due to conditions of the shopping center, the businesses are continuing to lose customers and in a
domino-like effect are forced to close their businesses. The Section 108 Loan, in conjunction
with the ED! Grant, will allow the City and property owners to make a substantial investment in
the shopping center and rehabilitate the center. The rehabilitation will serve as a catalyst to
increase customer traffic flow and provide for the remaining lease up of the shopping center.
The shopping center is owned by eight (8) different property owners which has complicated
previous efforts to revitalize the entire shopping center. The multiple ownership has also
restricted the individual property owner's ability to seek fmancing to complete individual
rehabilitation improvements, as fmancing institutions look collectively at the overall viability of
the shopping center. The successful revitalization of the shopping center is dependent upon a
public entity such as the City providing the necessary foundation and support. Approval of the
project will provide the City with the fmancial means to engage in a public - private partnership
which will ultimately result in the revitalization of the shopping center.
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COMMISSION MEETING AGENDA
MEETING DATE: 10/27/1994
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Agenda Item Number: .{
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DEVELOPMENT DEPARTMENT STAFF REPORT
40th Street Shopping Center - HUD Section 108
October 19, 1994
Page Number -3-
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The architectural team working on the design and revitalization plan of the 40th Street Shopping
Center has developed preliminary cost estimates by property owner for the project as follows:
PROPERlY FACADE MISC. CONST. CON'IRACTOR CON'IRACIOR CITY LANDSCAPE TOTAL
OWNER IMPROVEMENT IMPROVEMENT SUPERVISION PROFIT PROI. SIGNAGE,
ATI(J<JI, ATI(J<JI, AT''''' ATI(J<JI, UGHIlNG, ETC
StalerBroe. $164,412 $16,442 $16,442 $3,216 $20,614 $193,877 $420,003
Sieve Sala.patM $274,284 $27,429 $27,429 $13,710 $34,146 $ 97,'61 $474,"9
I. Zaharopouloo $ 96,300 $ 9,630 $ 9,630 $ 4,81' $12,016 $ 30,547 $162.938
Richard Filanc $ 32,722 $ 3,272 $ 3,272 $ 1.636 $ 4,048 $130,498 $11',448
Best CAGes $ 3',200 $ 3,'20 $ 3,'20 $ 1,760 $4,428 $ 26,183 $ 74,611
Sophia Salapatas $170,303 $11,030 $11,030 $ 8,'24 $21,374 $145,668 $379,929
Ben Fnmklin $235,524 $23,5'2 $23,552 $11,776 $29,467 $217,463 $541,334
American Stores N1A N1A N1A N1A N1A IDLW IDLW
TOTAL $1,008,745 $100,875 $100,875 $50,437 $126,093 $1,039,000 $2,426,025
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Although the total project cost identified in the table is $2,426,025, staff anticipates the necessary
funding requirements to be approximately $2,639,000. The additional $212,975 will be used to
address cost overages for this project, since the estimates are preliminary. Additional unforeseen
expenses may include asbestos abatement, acquisition and or demolition of structures as deemed
necessary and appropriate.
Each property owner's share of expenses identified above, result in the following percentage share
of total expenses and annual debt service.
PROPERTY TOTAL PERCENTAGE SHARE OF ANNUAL
OWNER COST OF COST DEBT SERVICE
Stater Bros. $420,003 17.3% $39,851
Steve Salapatas $474,559 19.6% $45,150
J. Zaharopoulos $162,938 6.7% $15,434
Richard Filanc $175,448 7.2% $16,586
Best CA Gas $74,611 3.0% $6,911
Sophia Salapatas $379,929 15.7% $36,166
Ben Franklin $541,334 22.3% $51,369
American Stores $197203 8.1% $18659
TOTAL $2,426,025 100% $230,355
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COMMISSION MEETING AGENDA
MEETING DATE: 10/27/1994
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Agenda Item Number: ~
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DEVELOPMENT DEP ARTMENT STAFF REPORT
40th Street Shopping Center - HUD Section 108
October 19, 1994
Page Number -4-
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The Agency is using standard underwriting guidelines to include review of fmancial statements
and income tax returns to substantiate fmancial capacity, review of equity position, security in the
form of deeds of trust on subject property and any applicable guarantees and/or letters of credit.
At this juncture, staff is obtaining firm commitments of fmancial assistance from the property
owners regarding participation in the project Notification of the government award was received
October 11,1994. Due to the narrow timefrarne for the submission of the HUD 108 application
to HUD (deadline is October 30, 1994), staff anticipates that further financial analysis of the
property owners' fmancial capacity will be completed after the HUD deadline. Upon the
completion of the additional fmancial analysis, staff will forward the information to HUD for
consideration.
RECOMMENDATION
A HUD-108 Guaranteed Loan to the City of San Bernardino of $2,295,000 at eight percent (8%)
interest over a twenty (20) year tenus will make a significant difference in the overall quality of
life for residents in the northend of San Bernardino. The HUD 108 Loan will make the
rehabilitation of the 40th Street Shopping Center feasible. This fmancing will provide the
opportunity for the retention of 156 existing jobs and the additional creation of 50 new jobs. The
rehabilitation of the 40th Street Shopping Center will allow for the individual property owners to
lease up the remaining available and currently vacant space and provide an enhanced quality of
life for the residents of the northend of San Bernardino.
The Community Development Citizen Advisory Committee (CDCAC) reviewed the attached
application on October 17, 19944, and unanimously recommended approval of said application to
the Mayor and Common Council for consideration at its special public hearing on the October 27,
1994.
Based on the foregoing, staff recommends adoption of the form motion.
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LL &l<A(~' /. ryfu;( ~
KENNETH J. HENDERSON, Executive Director
Development Department
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COMMISSION MEETING AGENDA
MEETING DAlE: 10/27/1994
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Agenda Item Number: -----L-
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HIm SECTION 108 GUARANTEED LOAN APPLICATION
APPLICANTIENTlTLEMENT PUBLIC ENTITY:
City of San Bemardino
Development Department
201 North "E" Street, Third Floor
San Bernardino, California 92401
PROJECT ACTIVITY/LOCATlON:
40th Street Shopping Center
171 - 277 East 40th Street
San Bernardino, California 92404
LOAN REQUEST:
The City of San Bemardino is requesting a HUD Section 108 Guaranteed Loan in the amount of
$2,295,000 over a term of twenty (20) years. These funds will be used to assist eight (8) property
owners with a rehabilitation loan of $2,295,000 at the prevailing Section 108 interest rate
amortized fully over twenty (20) years. The use of the Economic Development Initiative (EDI)
Grant ($344,000) in conjunction with the Section 108 loan is necessary to make this project
viable. The combination of a write down and offer of a lower interest rate (not to exceed 8%)
will effectively reduce the anticipated annual debt service down to $230,355, which appears
fInancially feasible based upon a current review of the market internal rents and the fmancial
capacity of the shopping center owners.
MEETING THE COMMUNITY DEVELOPMENT OBJECTIVE:
The 40th Street Shopping Center is located in a low income block group (#614 in Census Tract
#51). This activity benefIts low and moderate income persons pursuant to Section 570.208 (a)(4)
in that it will retain ninety-one (91) full time jobs as well as sixty-fIve (65) part time jobs that are
currently filled by 100% low and moderate income persons. Of that total, approximately 70% of
the employees are of very low income.
ELIGIBLE ACTIVITIES:
Pursuant to Section 570.701 (i), this project qualifies under Section 570.203 (b) as a Special
Economic Development Activity. The City will provide the Section 108 loan to the 40th Street
Shopping Center owners for the rehabilitation of the shopping center. The project represents a
private-public partnership which will be can:ied out jointly. TIle City has additionally contribute
to the design and engineering of the shopping center rehabilitation.
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The assistance to the for-profit businesses is based upon our determination that the assistance is
necessary and appropriate to carry out business retention and creation activity.
PROGRAM INCOME:
The project is projected to generate the following program income:
Year 1 through Year 20
$230,256 per year
Total Estimated Program Income for Twenty (20) Years: $4,605,120
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Program Income per year represents a monthly debt service of $19,188.
An assessment district will be created consisting of the eight (8) ownership interests. Proceeds
from the assessment district will be structured to meet or exceed the annual debt service on this
loan.
BACKGROUND OF THE EXISTING PROJECT:
The 40th Street Shopping Center is located in the north end portion of the City of San
Bernardino. Specifically, the shopping center is located on 40th Street between Waterman
Avenue (Highway #18) and Sierra Way. The 40th Street Shopping Center is comprised of
127,180 square feet and is situated on 14.11 acres of prime property, as it is located along a major
state highway leading to mountain resorts. Development of the Center began in 1959 with the
construction of the former Alpha Beta store, and continued eastward to the Stater Bros. grocery
store, which was built in 1969. The funding will allow for a significant revitalization to take place
which will address the following conditions that have plagued the shopping center and accelerated
its deterioration: congested access from 40th Street; poor internal traffic circulation; poor site
maintenance and cleaning; a variety of non-uniformed signage; lack of center identification; worn
and weathered facades; and increased criminal activity due to lack of security and proper lighting.
Due to the conditions of shopping center, the businesses are continuing to lose customers and in a
domino-like effect are forced to close their businesses. The Section 108 Loan, in conjunction
with the EDI Grant will allow the City and property owners to make a substantial investment in
the shopping center and rehabilitate the center. The rehabilitation will serve as a catalyst to
increase customer traffic flow and provide for the remaining lease up of the shopping center.
Within the north end area where the shopping center is located, distress is evidenced by the
blighted conditions of the area. Approximately 70% of the parcels within the surrounding area
(an approximate three mile radius of the shopping center) are blighted as defmed by state law.
More than 60% of the parcels within the summnding area are characterized by aging,
obsolescence and deterioration. Lastly, over 50% of the buildings within the surroundm.g area are
characterized by conditions such as deferred maintenance, weathered and wom facades, structural
deterioration, and in some instances structurally unsound buildings with nonexistent maintenance
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C (typically these strUctures are candidates for demolition),
TIle shopping center is owned by eight (8) different property owners which has complicated
previous efforts to revitalize the entire shopping center. The multiple ownership has also
restricted the individual property owner's ability to seek financing to complete individual
rehabilitation improvements, as fmancing institutions look collectively at the overall viability of
the shopping center. The successful revitalization of the shopping center is dependent upon a
public entity such as the City providing the necessary foundation and support. Approval of the
project will provide the City with the fmancial means to engage in a public - private partnership
which will ultimately result in the revitalization of the shopping center.
Approval of this project ensures that no further low and moderate income jobs will be lost.
Closure of the entire shopping center would result in the lost of 91 full-time low and moderate
income jobs and 65 part-time very low income jobs. 100% percent of the jobs at the shopping
center are held by low and moderate income individuals, and of that amount approximately 70%
are held by very low income individuals. In the last two years, the shopping center has lost
approximately 24 low and moderate income jobs. It is anticipated that approximately 50 full-time
low and moderate income jobs will be created as a result of the shopping center renovation and
full lease up of the shopping center including the current vacant store fronts.
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The City has shown its commitment to revitalization of the 40th Street Shopping Center by
already investing approximately $57,000 in architectural and engineering design fees. To date, the
architectural team working on the project has developed various facades, common area
improvements, completed renderings of the proposed shopping center improvements, and
identified preliminary costs estimates for the shopping center improvement costs.
DESCRIPTION AND FINANCIAL ANALYSIS OF THE PROPOSED PROJECT:
The architectural team working on the design and revitalization plan of the 40th Street Shopping
Center has developed preliminary cost estinlates by property owner for the project as follows:
PROPERTY FACADE MISC. CONST. CONTRACTOR CONTRACTOR CITY LANDSCAPE, TOTAL
OWNER IMPROVEMENT IMPROVEMENT SUPERVISION PROFIT PROI. SIGNAGE,
ATIO% AT 10% AT 5% AT 10% LlGIITING, ETC
Stater Bros. $164,412 $16.442 $16,442 $ 8,216 $20.614 $193.877 5420,003
Steve Salapatas $274,284 $27,429 $27.429 $13,710 $34,146 $ 97.561 5474,559
J. Zaharopoulos $ 96.JOO $ 9.630 $ 9,630 $ 4,815 $12,016 $ 30,547 $162,938
Richard Filanc $ 32,722 $ 3,272 $ 3.272 $ 1,636 $ 4,048 $130,498 $175,448
Best CA Gas $ 35.200 $ 3.520 $ 3,520 $ 1,760 $ 4,428 $ 26,183 $ 74.611
Sophia Salapatas $170,303 $17.030 $17,030 $ 8,524 $21,374 $145.668 $379,929
Ben Franklin $235,524 $23,552 $23.552 $11.776 529.467 $117.463 $541.334
American Stores t!IA t!IA !:iIh !:iIh !:iIh U21..W U21..W
TOTAL $1,008,745 $100,875 $100,875 550,437 5126.093 $1.039,000 52.426.025
Although the total project cost identified in the table is $2,426.025. staff anticipates the necessary
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funding requirements to be approximately $2,639,000. The additional $212,975 will be used to
address cost overages for this project, since the estimates are prelinlinary. Additional unforeseen
expenses may include asbestos abatement, acquisition and or demolition of structures as deemed
necessary and appropriate.
Each property owner's share of expenses identified above, result in the following percentage share
ohotal expenses and annual debt service.
PROPERTY TOTAL PERCENTAGE SHARE OF ANNUAL
OWNER COST OF COST DEBT SERVIC~_
Stater Bros. $420,003 17.3% $39,851
Steve Salapatas $474,559 19.6% $45,150
J. Zaharopoulos $162,938 6.7% $15,434
Richard Filanc $175,448 7.2% $16,586
Best CA Gas $ 74,611 3.0% $ 6,911
Sophia Salapatas $379,929 15.7% $36,166
Ben Franklin $541,334 22.3% $51,369
American Stores $197203 8.1% $18.659
TOTAL $2,426,025 100% $230,355
The Agency is using standard underwriting guidelines to include review of financial statements
and income tax retums to substantiate fmancial capacity, review of equity position, security in the
form of deeds of trust on subject property and any applicable guarantees and/or letters of credit.
The HUD Section 108 Loan Guarantee in conjunction with the ED! grant will provide the
property owners and the City with a funding source to bring about the revitalization of the 40th
Street Shopping. The project will also provide the following benefits:
1. Provide for the retention of 91 full-time low and moderate income jobs and 65 part-time
very low income jobs. 100% percent of the jobs at the shopping center are held by low
and moderate income individuals, and of that amount approximately 70% are held by very
low income individuals. In the last two years, the shopping center has lost approximately
24 low and moderate income jobs.
2. Provide for the creation of approximately 50 full-time low and moderate income jobs as a
result of the shopping center renovation.
3. Serve as a catalyst to foster growth which will ultimately result in the full lease up of the
shopping center including the current vacant store fronts.
4.
The spin-off benefits of the project as identified above include, but are not limited to, the
prevention of the demise of the shopping center that will once again become a major
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stabilizing factor within the community: the increase of job opportunities and employment
for low to moderate income residents due to the heighten competitiveness and
marketability of the shopping center: and lastly, a long term catalyst to promote and
attract attendant businesses and services within the surrounding community. Further, the
increased pedestrian traffic and customers will serve to deter criminal elements, which are
a serious problem within the shopping center and by extension parts of the community.
A HUD-I08 Guaranteed Loan to the City of San Bernardino of $2,295,000 at eight percent (8%)
interest over a twenty (20) year terms will make a significant difference in the overall quality of
life for residents in the northend of San Bernardino. The HUD 108 Loan will make the.:o
rehabilitation of the 40th Street Shopping Center feasible. This fmancin~ will provide the
opportunity for the retention of 156 existing jobs and the additional creation of 50 new jobs. The
rehabilitation of the 40th Street Shopping Center will allow for the individual property owners to
lease up the remaining available and currently vacant space and provide an enhanced quality of
life for the residents of the northend of San Bernardino.
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