HomeMy WebLinkAboutRS2-Economic Development Agency
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City of San Bernardino
ECONOMIC DEVELOPMENT AGENCY
INTEROFFICE MEMORANDUM
December 19, 1994
TO: Chairman Tom Minor and Members of the
Community Development Commission
FROM:,~ VTimothY. C Steinhaus, Agency Administrator
\ Econormc Development Agency
SUBJECT: SUPPLEMENTAL AGENDA ITEM NO. RS-2
Attached please find the following updated information regarding Harris' 108 loan request to HUD:
I. Excerpt of minutes from the Citizens Advisory Committee's unofficial meeting of
December 15, 1994;
2. Citizens Advisory Committee's recommendations from their meeting of December 2,
1994;
3. Comments by Scott Rodde, consultant to the Agency; and
4. Legal opinion from Sabo & Green, Agency Counsel, regarding the function of the
Citizens Advisory Committee,
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Attachment
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City of San Bernardino
ECONOMIC DEVELOPMENT AGENCY
INTEROFFICE MEMORANDUM
December 19, 1994
TO: Timothy C. Steinhaus, Agency Administrator
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FROM: Deborah Enay, Administrative Secretary, /
Development Department
SUBJECT: COMMUNITY DEVELOPMENT CmZENS ADVISORY COMMITTEE
UNOFFICIAL MOTION OF DECEMBER 15, 1994
COPtES: Project Manager Wong; Development Specialist Muna-Landa; File
The Community Development Citizens Advisory Committee, selected EDA and City staff. and
representatives from Harris' and Carousel Mall met on Thursday, December 15, 1994. l11e topic
for discussion was the fmancing plan for the acquisition of the Harris' building in the Carousel
Mall; specifically, the Section 108 Loan application submission to the U.S. Department of
Housing and Urban Development (HUD). An "unofficial" motion was made as follows:
CDCAC Member Douglas Rowand made a motion, seconded by CDCAC
Member Pat,y McDaniel to amend the original recommendations to HUD to
read, "A ~ operating covenant will be required of Harris' as long as other
ma.jor department stores in the Carousel MaD remain open (JC Penneys,
Montgomery Ward)."
Motion passed and carried by votes as follows: Ayes: Freeman, HOllgh, Lusk,
McDaniel, and Rowand. Noes: None. Absent: Abraham, Brue, Berry-Foster,
Calvert, Feller. Lien and Johnson.
The CDCAC previously met on December 2, 1994, and approved the submission of the Section
108 Loan contingent on a schedule of reconunendations (copy attached). One of the contingent
recommendations noted that they would like to see a" lO-year" operating covenant. Hauis'did
not feel this was a prudent or reasonable stipulation. Basically, the abovementioned amendment
was a change from 10-years to 3 years relative to the operating covenant of other major
department stores in the Carousel Mall.
Attachment
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COMMUNITY DEVELOPMENT
CITIZENS ADVISORY COMMITIEE
The Citizens Advisory Committee met on December 2, 1994, and recommended approval
of a financing plan for the acquisition of the Harris building in the Carousel Mall according to the
schedule outlined below:
Property Acquisition
USES
$10,500,000
HUD 108 Loan
CDBG Float Loan
SOURCES
$7,350,000
3150000
$10,500,000
. The security for the 108 Loan is a first trust deed at a 70% loan to value ratio.
An MAl appraisal acceptable to the City of San Bernardino, in its sole
discretion will be required.
An Environmental Phase I Report acceptable to the City of San
Bernardino, in its sole discretion will be required.
. In addition, Harris Corporation will execute financial covenants identical to the financial
covenants contained in their private line of credit agreement.
. A 10-year operating covenant will be required of Harris as long as other major department
stores in the Carousel Mall remain open (IC Penneys, Montgomery Ward).
. In the event that Harris Department Store ceases to operate as a department store at the
property location, then the Section 108 Loan is immediately due and payable.
. Harris will prov.ide a minimum of$l,OOO,OOO of physical improvements to the property
within 12-months of the close of the acquisition financing for the property according to
the following'Scbedule:
AMOUNT
MONTHS FROM
DATES OF CLOSE
$333,000
$333,000
$333,000
o - 4 months
5 - 8 months
9 - 12 months
. The securityfor'the CDBG Float Loan will be an "A" rated Letter of Credit which is
irrevocable, cli1Iable on demand, and directly payable to the City of San Bernardino.
The Float Loan will be for a one-year term with annual renewals for up to a
total loan term of five years, interest will be charged at the prime rate at
closing (currently 8.5 %), adjustable annually. Interest payments shall be set
.aside in a sinking fund account, for the benefit of Harris, but under City
.control, and shall be credited to the final repayment of any outstanding
.:principle balance for the loan as of the final maturity date for the loan.
HARRISDLE
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MEMORANDUM
TO:
FROM:
Tim Stelnhaus - Fax No. 909-384-5135
Scott Rodde - 707-257-1020
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Dec. 13 1994 05:21PM P01
[1J!t] ~
DATE: 12/13/94 .
The Impact of a CDBG Float Loan and a HUD 108 Loan on the Future
Operations of the City of San Bernardino's Community Development Block
Grant program
RE:
The impact of 8 CDBG Float loan on the Community's bloc\( grant program Is directly
related to the security for the CDeG Float loan. In the case of the. Harris Joan, securJIy
will be a single A raled letter of. credit from Bank of America. In the event that sufficient
funds are nol available to fund normal operaling needs of the COBG program, the Bank
of America letter of credills called upon to deliver necessary funds. 11118 .\nsures lhat
there will be no gaps In available fund'ing for the City of San Bernardino's CDBG
program with the Harris Company Float loan.
The Impact of a HUD 108 loan on the Communlly'S CDBG program depends upon the
credit of the borrower. In the case of the Harris Company, the borrower's net worth is
far in excess of the amount of the loan by a factOr of more than ten tlrnes. We,
therefore, view.the risk 01 the proposed HUD 108 loan to the Harris Company to be
minimal. In the event that there was a problem In Obtaining orderly paymenls from tha
Harris Company, the only requirement that HUD p1a0El8 upon the. City is that debt
service payments be made when due. It Is Important to real.ize that the entfre amount
of the Hue 108 lOan Is not due and payable In the event of an undBrlying deUl'lquenpy
on the loan from the borrower. HUD merely requires that debt serv1ce .payment be made
.. from any llouroe that the CIIy deems appropriate.
Please contaot me at your convenience to elaborate on these matters as you see fit.
iSM Third SUM.. alii..: u
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SABO & GREEN
A PROFESSIONAL CORPORATION
ATTORNEYS AT LAW
201 NORTH "E" STREET
SUITE 206
SAN BERNARDINO, CALIFORNIA 92401
(909) 383-9373
FAX (909) 383-9378
CALABASAS
(818) 704-0195
FAX (818) 704-4729
December 14, 1994
Timothy C. Steinhaus
Agency Administrator
Redevelopment Agency of the
City of San Bernardino
201 North "E" Street, Third Floor
San Bernardino, California 92401-1507
Dear Tim:
You have requested our opinion with regard to the
function to be performed by the Community Development Citizens
Advisory Committee ("CDCAC") and the involvement by said committee
in the processing of HUD Section 108 loan guaranty applications.
In 1975, the Mayor and Common Council adopted a Citizen
Participation Plan in furtherance of the Community Development
Block Grant Program as administered by the City. I have reviewed
the most recent version of said plan which bears the revision date
of August, 1993. Said Plan is designed to ensure citizens'
participation in developing and implementing community programs to
be funded by Community Development Block Grant Funds. This Plan
also provides a process for citizen participation in the monitoring
and evaluation of activities and a method by which comments from
the citizens may be received in the review of ongoing and proposed
community development activities. It is this Plan that creates the
CDCAC as a method to accomplish the stated objectives for the Plan.
The CDCAC consists of fifteen members, seven of whom are
recommended by the individual councilmembers and eight recommended
by the Mayor subject to confirmation by the entire Council. The
Plan further provides that the CDCAC "serves as the advisory group
to the City on community development matters." It is further set
forth under the section entitled RESPONSIBILITIES, Paragraph (a)
through (h) that the role of the CDCAC is to assist in identifying
community development needs; receive and review citizens' comments;
receive and review community development proposals; prepare
recommendations to the Mayor and Common Council concerning
priorities, programs and resource allocation; assist in monitoring
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Timothy C. Steinhaus
December 14, 1994
Page 2
and evaluating ongoing activities; review and prepare
recommendations to the Mayor and Common Council on proposed program
changes, revisions or amendments; and receive and answer citizen
complaints regarding community development.
The HUD Section 108 Loan Guaranty provides in CFR Section
570.704 the criteria for citizen participation.
Section 570.704(a) (2) requires that a public entity develop and
follow a detailed "citizen participation plan" which must be
completed and available before the Section 108 application is
submitted to HUD. The Plan may be the same Plan required for the
Community Development Block Grant Program. This Section further
states that the public entity must hold a minimum of two public
hearings at different stages of the application process and at
least one must be conducted prior to the submission of the
Section 108 application. Said Section further requires providing
affected citizens with notice and an opportunity to comment on
certain proposed activities; a process for responding to citizens'
complaints and grievances regarding the public entity's activities;
and to encourage citizen participation by individuals who reside in
areas where the Section 108 loan funds are proposed to be used.
The Section 108 regulations do not require any type of an
advisory committee for the review of any Section 108 applications.
It does require citizen participation in several forms including a
citizen participation plan. Provided that a citizen participation
plan complies with the requirements of the Section 108 regulations
and the other required public hearing procedures and the review
processes are followed by the public entity applying for the
Section 108 loan guaranty, there is no requirement under federal
law that an advisory committee be formed to review any Section 108
application. The formation and the continued establishment of the
CDCAC is a voluntary action by the Mayor and Common Council as
originally initiated in 1975 and continued through this date as one
vehicle to allow citizen participation and implementation of the
required citizen participation plan.
The CDCAC is an advisory body to the Mayor and Common
Council and is charged with reviewing certain proposals and
activities and making recommendations to the Mayor and Common
Council. The Section 108 regulations provide that the public
entity shall prepare its final application after the public hearing
has been held and the public entity has considered any comments and
views received.. It is the role of the public entity to determine,
based upon such comments and views as received, whether to modify
the proposed application. Although the public entity is not
required to follow any recommendations received by the citizens at
a public hearing or by the CDCAC, any such comments made by the
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Timothy C. Steinhaus
December 14, 1994
Page 3
citizens would likely carry great weight during the HOD review
process in determining whether the national objective will be met
and whether there has been sufficient citizen participation in the
application process.
CONCLUSION
It is our conclusion from review of the most recent
version of the City's adopted Citizen Participation Plan and the
applicable federal regulations in connection with the HOD
Section 108 Loan Guaranty Program that a citizen advisory committee
is not a requirement and has only been created as a vehicle to
implement the City's Citizen Participation Plan. The role of the
CDCAC is advisory to the Mayor and Common Council which shall
consider the recommendations of the CDCAC and take appropriate
action as the Mayor and Common Council may deem necessary.
Very truly yours,
SABO & GREEN,
A Professional Corporation
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DEVELOPMENT DEPARTMENT
OF THE CITY OF SAN BERNARDINO
ECONOMIC DEVELOPMENT AGENCY
REOUEST FOR COMMISSION/COUNCIL ACTION
FROM: BARBARA J.llNDSE1H
Acting Director
SUBJECf:
INTERIM FINANCING FOR
HARRIS'DEPARTMENTSTORE
DAlE: December 15, 1994
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SVnQPsL"I of Previous CommiR<lilion/Council/Committee Action{~\:
On December 5, 1994, tbe Community Development Commission approved staff submission of a Section 108 Loan
Guarantee to the Department of Housing and Urban Development to acquire the Harris Department Store for
$10,500,000.
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Remmmended Motion(s):
(Communi" Develonment Commis~on)
MOTION: That the Community Development Conunission approve in concept the providing of an interim conduit
fwancing in a principal amount not to exceed $7,350,000 to the Harris' Company to acquire the Harris'
Store Building upon the following conditions baving been satisfied:
Af(~
. trator
(Motion continued on next page) /J
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BARBARA J. LINDSETH
Acting Director
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Contact PeJSon(s}: TImothv C SIPinhSllusIBarbara J T int1!IiIP.th
Phone:
5081
Project Area(s): Gmtral Cilv
Ward(s):
One (!)
Supporting Data Attached: Staff R~rt: Letter from Harris ComPIll1Y Dated 1218/1994
FUNDING REQUIREMENTS: Amount: $ N/A
Source:
N/A
Budget Authority: N/A
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Commi""""ion/Council Note.41:
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TCS:BJL:harris.cdc
COMMISSION MEETING AGENDA
MEETING DATE: 12/19/1994
Agenda Item Numbert!d--
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REQUEST FOR COMMlSSION/COUNCIL ACTION
INTERIM FINANCING FOR HARRIS' DEPAR1MENT STORE
December 15. 1994
Page 2
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Recommended Motion Continued:
(Community Development Commission)
1. HUD has issued the HUD Section 108 Loan Guarantee approval letter containing such
tenns and conditions acceptable to the City, the Community Development Conunission and
the Harris' Company and approved in writing by all such parties; and
2. Such other terms and conditions as may hereafter be identified by Staff and successfully
negotiated by and between Staff and the Harris' Company subject to final Community
Development Commission acceptance of such negotiated terms and conditions in its sole
discretion; and
3. The interim funding source consists solely of private lenders or commercial banks seeking as
the primary source of collateral the Harris' Store Building and any other collateral as may be
agreed upon between such lenders or banks with the Harris' Company without any City or
Community Development Commission liability, expense or cost whatsoever; and
4. Harris' Company shall have agreed to pay all costs associated with the interim conduit
fmancing and the HUD Section 108 Guaranteed Loan including closing costs,loan
origination fees, title reports, lender fees, and all principal and interest payments required on
both the interim conduit fmancing and the HUD Section 108 Guaranteed Loan; and
5. The fmalloan documents for the interim conduit fmancing are submitted to the Mayor and
Common Council or the Community Development Conunission, as appropriate, for
consideration and fmal approval at their sole discretion at a public meeting.
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TCS:BJL:harris.cdc
COMMISSION MEETING AGENDA
MEETING DATE: U/19/1~
Agenda Item Number: t?
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DEVELOPMENT DEPARTMENT
ECONOMIC DEVELOPMENT AGENCY
STAFF REPORT
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INTERIM FINANCING FOR HARRIS' DEPARTMENT STORE
The Harris' Company presented the attached letter to the RDA Committee on December 8, 1994,
for consideration by the RDA Committee of an interim loan request to expedite the close of
escrow for the Harris' Company acquisition of the Harris' Store Building. On December 5, 1994,
the Mayor and Common Council authorized the submission of a loan application for a HUD
Section 108 Loan Guarantee to assist the Harris' Company in fmancing the acquisition of the
Harris' Store Building. The maximum amount of said loan would be in an amount equal to
$7,350,000 amortized for a period of twenty (20) years. Additionally, it is contemplated that a
Community Development Block Grant (CDBG) float loan of approximately $3,150,000 secured
by an acceptable bank letter of credit to be obtained by the Harris' Company would be utilized to
fund the remaining balance of the $10,500,000 purchase price. The City approved application has
been forwarded to the Los Angeles office of HUD for processing and approval.
The Harris' Company is seeking to fmalize the negotiations of the sale and purchase agreement
with the owner of the Harris' Store Building. The Harris' Company has represented that the
present owner of the Harris' Store Building is seeking a commitment from the City that the close
of escrow can be accomplished shortly after the issuance of a HUD approval letter rather than
waiting upwards of six to nine months for the final processing of the HUD loan docwnents and
the funding of the HUD Section 108 guaranteed loan.
The RDA Committee on December 8,1994, accepted the letter from the Harris' Company and
approved the submission of the interim loan request to the full Commission for consideration.
Staff anticipates undertaking extensive negotiations with the Harris' Company during the
following weeks to determine what additional issues must be addressed after intensive
negotiations commence. Issues raised both by the public during the public hearing on December
5,1994, and the items recommended by the Community Development Citizens Advisory
Committee on December 2, 1994, will be considered during the negotiation phase with the Harris'
Company. The fmal agreements, including loan documents, promissory notes and deeds of trust
will be brought forward to the Mayor and Common Council and the Community Development
Commission, as necessary, to obtain the fmal approval of the negotiated documents after such
time as the interim loan docwnents are in final form and the HUD approval letter has been issued.
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TCS:BJL:barris.cdc
COMMISSION MEETING AGENDA
MEETING DATE: U!1911994
Agenda Item Number: L
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DEVELOPMENT DEP ARTMENT STAFF REPORT
Interim Financing for Harris' Department Store
December 15, 1994
Page 2
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Staff has commenced discussions with commercial banks interested in providing a conduit
fmancing source through the Economic Development Agency to fund the loan agreement to the
Harris' Company. Any such borrowing and the loaning of funds to the Harris' Company would be
without any risk, cost or other liability to the City or the Economic Development Agency.
Additionally, the Harris' Company must agree to pay all costs associated with both the interim
conduit financing and the HUD Section 108 guaranteed loan. It is quite possible that the interim
lender may require additional covenants and restrictions that would additionally be negotiated
during the ensuing weeks.
Staff recommends approval of the form motion.
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BARBARA J. LINDSETH, Acting Director
Development Department
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TCS:BJL:barris.cdc
COMMISSION MEETING AGENDA
MEETING DATE: U/I9/1994
Agenda Item Number: L
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President, Chief Executive Officer
300 NORTH 'E' STREET. SAN BERNAROINO.CA 92416 (714) 889-0444
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Valerie pope-Ludlam
Chairperson
Ralph Hernandez
Edward V. Negrete
RDA committee
City of San Bernardino
201 North E Street, Third Floor
San Bernardino, CA 92401
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Re: Interim Financing/Section 108 Loan/Purchase of San
Bernardino Store Building by Harris'
Dear Ms. Pope-Ludlam, Mr. Hernandez and Mr. Negrete:
Harris' and UBS are presently finalizing the Purchase
Agreement with respect to the SB Store Building. The
Purchase Price is not an issue: $10,500,000, all cash,
due and payable at closing.
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The obligation of Harris' to close will be dependent upon
obtaining approval by HUD of a section 108 loan with
conditions that are acceptable to Harris' (and can be met
by Harris'). Once HUD approval is obtained, and, Harris'
consents to any conditions that might be imposed by HUD
(and Harris' advises that it can meet the conditions),
Harris' will be obligated to close--five (5) business
days after HUD approval.
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Funding of any approved Section 108 loan would not occur
for several months, likely, six (6) to nine (9) months
after approval, and, may be longer. That would be a
function of HUD's practice and Procedures. Accordingly,
Harris' needs interim financing to close the Escrow to be
opened upon execution of the Purchase Agreement. Escrow
is expected to be opened shortly at Chicago Title in San
Bernardino.
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Harris' has no source of funds for the interim financing
required to close the Escrow other than from the city of
San Bernardino. It has been intended from the beginning
that the City of San Bernardino provide the interim
financing to close the Escrow.
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THE FASHION DEPARTMENT STORE
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President. Chief Executive Officer
300 NORTH 'E' STREET, SAN BERNARDINO, CA 92416 (714)889-0444
RD Committee
Page Two
December 8, 1994
The commitment to provide interim financing should be
made contingent up the obtaining of HUD approval for the
Section 108 loan with conditions. If HUD approval is not
obtained, or, Harris' rejects conditions imposed by HOO
(or can not meet conditions imposed by HUD), then,
neither the Section 108 loan nor the interim loan would
be made. The purchase of the SB Store Building would not
occur due to an inability to obtain the funds necessary
to close the Escrow.
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The interim loan would be subject to the same conditions,
whatever those are ultimately determined to be, as the
permanent Section 108 loan. The commitment to provide
the interim financing needs to be in place before Harris'
executes the Purchase Agreement--because of the
obligation to close within Five (5) business days of HUD
approval.
It is clear that the terms and conditions of the Section
108 loan would need to be satisfactory to the City of San
Bernardino. If not, then, there would not be any HUD
approval. It is expected that the city of San Bernardino
will be intimately involved with the HUD approval process
and that any conditions that are requested by the city of
San Bernardino will be adopted by HUD. In the absence of
HUD approval with respect to the Section 108 loan, no
interim financing would be required.
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A copy of the "letter agreement" signed by Harris' and
the City of San Bernardino Economic Development Agency
dated November 30, 1994 is enclosed for your reference.
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An MAl appraisal is underway, and, expected
available for distribution on December 15, 1994.
of the appraisal will be made available to the
San Bernardino as soon as received by Harris'.
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Very truly yours,
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Thomas H. McPeters
General Legal Counsel
THE FASHION DEPARTMENT STORE
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City of San Bernardino
ECONOMIC DEVELOPMENT AGENCY
Timothy C. Steinhaus
Agency Administrator
November 30, 1994
. Development Depanment
. Redevelopment
- Community Development
- Housing
, San Beman:llno Downtown
Main Street, Inc.
. ConvenUon and Visitors
Bureau
. Office 01 Business
Development
Mr.lorge Pont, President and CbiefExccutive Officer
The HmriJ Company
300 North "E" Street
San Bernardino, CA 92416
Dear Mr. Pont:
Pursuant to the meeting of November 14, 1994, my staff is proceeding with developing an application for a
Section I 08 loan as weD as processing a CDBG float loan to assist The HmriJ Company in acquiring the
subject property located at 300 North "E" Street. This IranSaction wiD be based upon the foDowing
understanding and conditions:
1.
The HUD Section 108 application wili be in the amount of $7,350,000 over 20 years at HUD
prevailing intere.,t rotes. The loan amount is based upon a purchase price and appmi.,cd value of
$10.500,000 (70% loan to value ratio). The City's future Community Development Block Grant
(CDBG) will be pledged as security for this loan. In addition, the agency will require a first trust
deed on the subject property.
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2. A CDBG float loan proposal in the amount of between $3,150,000 and $3,500.000 wiII be procc.,scd
to fund the 30% gap. subject to Communily Development Block Groot regulations. The CDBG 110al
loan will be for a term of 365 days (one year) with annual renewals up to a total term of five (5)
years. The Harris Company will provide an irrevocable, direct pay.leller of credit, due on demand,
for 460 days (one year plus 95 days), which will be renewed annually. Interest will be charged at the
prime rate at closing (currently 8.5%), adjustable annually. lntere.,t payments shall be sel aside in a
sinking fund account, under City control. and shaD be credited to lite fmal repayment of any
outstanding principal balance for the loan as of lite fmal maturity date of the loan.
3. The Harris Company will provide, at their cost, an agency approved MAl appraisal on the subject
property.
4. The HmriJ Company agrees to negotiale an operating covenant with the City for a maximum period
of 20 years, subject to successful negotiations with the parties (and/or lIteir successor in interest)
identified in the REA with respect to the Mall (recorded December 24, 1970, Book 7580, page 280,
et. seq.. Official Records. San Bernardino County). In the event that an operating covenant is not
concluded, and, Harris' Department Store ceases to operate as a retail store at the subject location,
then, the Section 108 loan is immediately due and payable.
c.
. 201 North E Street. Third Floor. Sen Bernardino. California 92401.1507 . (909) 384-5081 . (800) 232-1267 . FAX (909) 384-5135
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C: Mr.JorgePoot
November 30. 1994
Page Number Two
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5. Per HUD's request, The Harris Company will provide a letter indicating the gravity of the situation
and its intention to close its operation in San Bernardino if no assistance is received and it is not
successful in acquiring the subject propmy.
Based upon your review of Ibis letter and signature of approval, staff intends to introduce Ibis item to our
Community Development CitizCIIS Advisory Committee 00 November 29. 1994. followed by a Public
Hearing and City Council action scheduled for December 5. 1994.
The Agency is utilizing its best efforts 10 facilitate Ibis transaction expeditiously. As a valued business
concern in this community. we look forward to CODSnmmnli'lg this public privale partnership.
IMW~"'.
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