HomeMy WebLinkAboutR10-Economic Development Agency
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DEVBLOPMEBT DEPAImIUT OF TJIB
CITY OF SO BEDARDIRO
REOUBST FOR COMMISSIOR/COURCIL ACTIOR
From:
ICENNBTH J. HENDERSON
Executive Director
Subject:
CBl'ITRAL CITY PROMBlWlE
SCIIlJRGIR DEVBLOPMEBT
Date:
May 28, 1991
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Synopsis of Previous Commission/Council/Committee Action:
On December 17, 1984, the Mayor and Common Council adopted Resolution
Number 84-547 providing for the issuance of Industrial Development
Revenue Bonds, Series 1984A, Central City Promenade Project.
On November 30, 1989, the Mayor and Common Council approved Amendment
Number One to the Loan Agreement and Supplement Number One to the
Indenture.
On February 19, 1990, the Mayor and Common Council approved Amendment
Number Two to the Loan Agreement and Supplement Rumber Two to the
Indenture.
(Synopsis Continued to Next Page)
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Recommended Motion:
(Mavor and Common Council)
THAT THE MAYOR AND COMMON COUNCIL DENY TJIB REQUBST SUBMITTED
BY SCHURGIN DEVELOPMENT RELATIVE TO TJIB ISSUANCE BY TJIB
DEVELOPMENT DEPARTMENT OF A CREDIT ENHANCEMENT FOR THE
CBl'ITRAL CITY PROMENADE BONDS.
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JCERRBTH ~ Bltecutive Director
Development Departllent
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Contact Person:
Ken Henderson/Barbara Lindseth
Phone:
5065: 5081
One (1)
Project Area:
Central Citv (CC)
Ward(s):
Supporting Data Attached:
Staff ReDort
FUNDING REQUIREMENTS:
Amount: ~
N/A
N/A
Source:
Budget Authority:
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Commission/Council Rates:
KJH:BL:1ab:1428A
COMMISSIOR MEBTIRG
Meeting Date: 06/03/1991
Agenda Item Ro. JD-
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DBVELOPMBIIT DBPAIl1'JoJu:r
REQUEST FOR COUl'fCIL/COIMISSION/ACTION
CBImIAL CITY PROMKlWlB (Schurain Deve1oplllent)
May 28, 1991
Page -2-
On August 23, 1990, the Mayor and Common Council approved Amendment
Number Three to the Loan agreement and Supplement !lumber Three to the
Indenture.
On April 18, 1991, the Redevelopment Committee recommended denial of
the request of Schurgin Development for a credit enhancement baCking.
On May 6, 1991, the Community Development Commission continued the
item until June 3, 1991.
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KJH:BL: lab: l428A
COMMISSION MEETING
lIeeting Date: 06/03/1991
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DEVELOPMU'l DEPAR'rhMa
STAFF REPORT
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Central Citv Prom~.de/SchurRin Deve100ment
On December 17, 1984, the Mayor and Common Council approved Resolution
Number 84-547 providing for the issuance of Industrial Development
Revenue Bonds, Series 1984A, Central City Promenade Project, along with
approving the Trust Indenture, Loan Agreement, Bond Purchase Agreement
and other related documents.
In December 1984, the Central City Promenade Bonds were issued in the
amount of $7,200,000, with a maturity date of December I, 2024 to
assist the Best/Marshall development. Chase Manhattan Bank, the sole
purchaser of the Bonds, exercised its riaht to csuse s mandstory
redemption of the Bonds on December I, 1989, pursuant to Section 3.01
(d) of the Trust Indenture dated December 15, 1984.
On November 30, 1989, Amendment Number One to the Loan Agreement and
Supplement Number One to the Indenture extending the December I, 1989
date to February I, 1990 to provide Central City Promenade the
necessary time to discuss, negotiate and further amend the Loan
Agreement were approved by the Mayor and Common Council.
Subsequently, on February 19, 1990, August 23, 1990 and February 18,
1991, Amendments numbered Two, Three and Four to the Loan Agreement and
Supplements numbered Two, Three and Four to the Indenture were approved
by the Mayor and Common Council. At the time each Amendment was
approved, there was a corresponding extension of the Loan Agreement.
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Now, Schurgin Development Corporation has brouaht their note payments
current throuah April 16, 1991, with the May 16, 1991 payment now due.
The terms on these notes are as follows:
Amount:
Date of Note:
Interest Rate:
Payments Commenced:
Monthly Payment:
All Due:
$150,000
March 19, 1985
Ten Percent (lOX)
April 5, 1990
$1,611. 91
April 5, 1995
$540,000
September 16, 1985
Ten Percent (lOX)
September 16, 1990
$5,802.88
September 16, 1995
Additionally, no interest accrued for the first two (2) years and
interest accrued for years three (3) through five (5) at the rate of
ten percent (lOX) to be paid upon the maturity date.
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KJH:BL:lab:1428A
COMMISSIOII MBETIIIG
Meeting Date: 06/03/1991
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DEVELOPMDT DBPAhIu5.ln: STAFF upon
Central City Proaenade/Schurgin Develox-ent
ltay 28, 1991
Page -2-
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Because Chase will not extend the bond again unless a significant
change is made in the overall credit arrangement, SChurgin Development
is requesting that the Development Department guarantee the full amount
of the bonds by issuing a credit enhancement, whereby the project could
then obtain a stand by letter of credit from a commercial bank to
facilitate a "low-floater" refinancing of the bonds.
Mark Schurgin has stated that his only alternative will be to declare
Chapter 11 Bankruptcy if the bonds are not renewed, although it appears
that sufficient dollars could be raised by the bankruptcy trustee to
repay all of the creditors.
The Redevelopment Committee reviewed this matter at its April 18, 1991
meeting and voted unanimOUSly to recommend to the Mayor and Common
Council denial of the request for a credit enhancement for the bonds
submitted by SChurgin Development.
On May 6, 1991, at the request of the developer, this item was
continued until June 3, 1991. Mr. Gene Wood met with Mark Schurgin and
Nick Bush on May 14, 1991, wherebY Mr. Schurgin again stated his desire
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for the Development Department to guarantee or enhance the bonds held
by Chase Bank, with Chase discounting the bonds by 10-15% of the
current face value. If Chase agrees to discount the bonds, Mr.
Schurgin suggested that the savings of approximately $750,000 be used
either to pay the notes held by the Development Department, be used for
low/income housing, or be used for any other project the city deemed to
be appropriate. Currently, Mr. Wood is meeting today with Chase Bank
to determine if any possible alternative courses of action exist, but
without any substantial change in scenarios, staff recommends that the
request for a credit enhancement by Mr. Schurgin be denied.
I recommend adoption of the form motion.
~~OW' Executive Director
Development DeparUlent
KJB:BL:lab:1428A
COIllISSIOW MBBTIltG
lIeeting Date: 06/03/1991
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RECElVEjj
TOI
Date:
Kenneth J. Henderson
San Bernardino Redevelopment Agency
Eugene H. Wood
E. H. Wood I Associates
March 27, 1991
Update Analysis on Schurgin Development Companies
~/)I', 191
From:
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/'" "HOPMENT OEPARTME
Subject:
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BACKGROUND
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Central City Promenade is financed wi th a tax-exempt bond in the;, ill
outstanding principal amount $7,200,000. The bonds are held by I
Chase Manhattan Bank, N.A. The bonds have matured and a temporary: II
extension to 6/1/91 has been granted by Chase. Chase no longer .
has need of tax-exempt income and has indicated that the bonds need t
to be refinanced or otherwise placed elsewhere and that no 10n9- .
term.extension or renewal beyond 7/1/91 will be forthcoming. Chase 1
has indicated that they may grant a short-t,rll extension to il!~;'
facilitate 'refinancing by 5/15/91 (45 day;notice date). ;"\.1
The Redevelopment Agency of'San Bernardino ("Agency") also holds ',: j
a subordinate mortgage in the original principal amount of $54Q,OOO:'~
plus accrued interest ~ehind the Bonds. Additionally, The Agency 1.~;'I~
holds a subordinate mortgage in the original principal amount of., "'1
in the aP.proximate principal amount of $49~; 758 on the C.entral . 'If'
City West~ parcel of the proj ect 'i' ~. _ ::,:
The contr.ctual debt service on both the Bonds and on the Central '\rr
City West. first mortgage is current. The debt service on the ;,'.','"
Agency Notes has not been paid pending a re.olution of the renewal i:j ~~
and exte~.ion or refinancing issues with re.pect to the Bonds. ,.' 'j;;.
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Given tha'state of the credit markets and particularly the current ~~~~
"credit crunch" in real estate finance, it does not seem likely :'l:r~
that .a refinancing can be accomplished without sOlDe form of ',;I,h
addition~,~ credit enhancement. "._.' 'I~';;~
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CURRBR'l' ~UBST or SCRURGIN DEYELOPMEII'l' , :;i ~;il'
We met wi'th Mr. Schurgin, Mike Issa (financial con.ultant I and ! :t~!
Nick Bush' (Investor) on March 8, 1991 and were pre.ented with', .\'IJ:
a "Financing proposal" on the overall project. Schurgin suggested ~:~m
that a guarantee from the Redevelopment Agency would SUbstantially :i~i:;i'
facil,itate a "low-floater" refinancing of the Bond...;'ll;
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E.H. WCDD
& ASSOCIATES
To: Kenneth J. Henderson
San Bernardino Redevelopment Agency
From: Eugene H. Wood
E. H. Wood & Associates
May 14, 1991
Subject: $7,200,000 Industrial Revenue Bonds
Central City Promenade
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A discussion was held, via conference call, on Monday May 13, 1991
between Barry Schumacher of Chase Bank, New York and Susan
Noonoo in Los Angeles regarding the status of the Schurgin project
and current status of the RDA'S second trust deed.
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I stated that I was meeting with Schurgin on Tuesday, May 14, 1991
to discuss any options that may be available between Chase, the RDA
and Schurgin and would call them with the results of the meeting on
Tuesday afternoon.
On Tuesday morning I met with Mark Schurgin and Nick Bush in La
Puente, to discuss the possible options on the subject project.
Schurgin presented eight financial scenarios that they would like
presented to the RDA, but seven of the eight appeared to be
unacceptable becuase of the additional funds that would be required
by the agency.
FINANCIAL PLAN
Schurgin would like the RDA to guarantee or enhance the bonds held
by Chased Bank. This enhancement would be accomplished by an',
LIC with the cost to be paid by Schurgin Development. The bonds
would then be re-issued by Miller and Schroeder at a lower rate than
their current issue. In order to "make this work" Chase would need
to discount the bonds by 10-15% of current face value. This discount
o would provide $750,000 cash and sufficient income to cover the
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E.H. WmD
& AS50CIATES
bond underwriting cost. Schurgin proposes the 750,000 be given to
the RDA for one of the following purposes:
(A) Pay-off RDA second T.D.
(B) Use $ for low income housing
(C) A.JJ.y project the city deemed appropriate
Schurgin would commit to. pay all fees for enhancement from the
interest saved on the reduced principal amount. Their would be
sufficient cash flow to continue current principal payments.
RECOMMENDATION
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Based on my discussions with Schurgin, I am certain that he will file
for blUlkruptcy if Chase begains foreclosure on their bonds. He has
placed four of his other shopping centers into bankruptcy and he
assures me he will do the same to this project. The effect of the
bankruptcy should be discussed with the RDA'S council, but it
appears he would be left to manage the centers with both Chase and
the RDA waiting three to five years for the disposition of the
bankruptcy. This allows Schurgin time to refinance or sell the center
should the real estate market become stronger.
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I would recommend the RDA not negotiate any enhancement and let
Chase began their foreclosure proceedings which would then began
Schurgin's bankruptcy proceedings.
I have reviewed a preliminary title report on the subject property
and will ascertain the RDA is still in second position.
E. H. Wood & Associates
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05/13/91 15: JO 02130 3820 SCHl"RGI:-: 0
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0 . CENTRAL CITY PROMENADE
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Vl.a Fax ad If!IL Vafl
May 13, 1991
Mr. GeM Wao4
E.H. Wood ~ ,,--'-
1811 N. "D" Street
SaIl.BemudIDo. CA. 92404
Re: $7,200,000 IDdllltdlI DPeIopmat ~ Baads
CeIltn1 Qt,y p\ . .....d... SaIl BeiJIardIDo. CA.
Dear Geae:
In mticipa1loJ1 of oar meetlDg tomorrow, May 14, 1991 It Mlml's Cafe. 17919 Gale A'ft:Illle, City of
Industry. 8:30 am, I am IiIdDg me fonowfDa ftD8Dda11ll8D1.r1os that _ sboaId diVOt"" conl:ClDina
the first mongaae IDB uull8COlld IIlOItP.P to the Cty of SaIl BemardiDo:
1. CIly of SaD. ~ .to ~ Lecter of Q'e4itlO that the BoIIds c:au be told as a low
floater. aw. IIe11It ~ or It . cJiscoWlt.
. 2. Qty of SIl1 ..........cIIno to pu.rcIIase IDDs uul hold them in their portfoUo. 'l'he Oty wo11l4
purchuo the boa4s It par or It a diIco1mt.
3. aty of SaD. BemIrdlno to poviASe to aw. :U"'''.tqn Bmk. fbwu:llIl paramyto IDduce
Chue to UleIId bonds lit __ or lower InteteSt late.
4. CIty of SaIl s-oudJno ~ pr~ from Owner md provides 0wDer with mteIeSt
. bearlD& Dote. at)' either ~ the aw. boDda or pays off the bonds.
5. at)' of San BerD&rdlno to pnmde a pudal fiDlmcilll paranty uulIor pllIChase a pordon
of boIIds tram aw. ad suhordIDate thole to aw. in cmIer to pt Chase to extend.
6.. Clty of SaD. Bemud.Ino laAiuce 0JIe of thefr Lellders to pun:1we bonds OIl a ux-fta: basis
uul have I....del clw'a& same or lower rate as aw. is c:orremly chaqlDg.
7. Clty of SaIl Bemard.fDo to p1I1'C1we boIIds with the intentiOA of _nina th_ either in
bulk or RUI1 de:nCl"'lft.nfou, wtth or withollt ftIIaoce guaranties.
aae. Illease review tho above mggesdCIU IDcl1et me kilo... either toda)' or tomorrow at our Dleedng
If you haft 8ll)' othor _ .
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I'm mre that tIwe will be _y permmadoDs to tho above md it is Dl)' hope that we caD. CODle up
with OlIO or _llIgat1'D11S that wm ~ 1110 Oty.
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342S Mt:LIlIlgMla ~ Los Angelu. CA 90066
(213) 391-1200 Fu: (213) ~366D
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