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Home My WebLink AboutR40-Economic Development Agency ECONOMIC DEVELOPMENT AGENCY OF THE CITY OF SAN BERNARDINO FROM: Gary Van Osdel Executive Director SUBJECT: PROPOSAL TO PROVIDE A CDBG LIMITED LOAN GUARANTEE TO THE TOTALLY KIDS, INC. PROJECT DATE: November 5, 2004 Synopsis of Previous Commission/Council/Committee Action(s): On March 16, 2004, Redevelopment Committee Members Estrada, Longville and McGinnis considered the Mayor's request for the City/Agency to provide a loan guarantee for the Totally Kids, Inc. Project and unanimously voted to forward this matter to the Community Development Commission for further direction. On April 5, 2004, the Community Development Commission directed staff, upon receipt of the County ECD Loan documents and a formal request for a $1.5 million loan guarantee for the Totally Kids, Inc. Project, to prepare the requisite guarantee documents for subsequent consideration and approval by the Mayor and Common Council. Synopsis Continued to Next Pal!e..... Recommended Motion(s): (Community Development Commission) MOTION THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO (1) AUTHORIZE A $1 MILLION LIMITED LOAN GUARANTY FROM THE CITY'S COMMUNITY DEVELOPMENT BLOCK GRANT PROGRAM (CDBG) ($250,000 COMMENCING 2005/2006 FISCAL YEAR AND THEREAFTER ANNUALLY, FOR 3 FISCAL YEARS, ONLY UPON THE OCCURRENCE OF A DEFAULT), AND (2) AUTHORIZE THE PREPARATION FOR CONSIDERATION BY THE MAYOR AND COMMON COUNCIL A LIMITED GUARANTY AGREEMENT AND CORRESPONDING DOCUMENTS, BY AND BETWEEN GROW SAN BERNARDINO FUND, TOT ALLY KIDS, INC., AND THE CITY - TOTALLY KIDS, INC. PEDIATRIC SUBACUTE CARE FACILITY. Contact Person(s): Proj ect Area( s) Gary Van Osdel Phone: (909) 663-1044 3 IVDA Ward(s): Supporting Data Attached: 0 Staff Report 0 Resolution(s) 0 Agreement(s)/Contract(s) 0 Map(s) 0 Letters FUNDING REQUIREMENTS Amount: $ 1 Million Source: CDBG SIGNATURE: Budget Authority: Commission/Council Notes: P:\Agcndas\Comm Dcv Conunission\CDC 2004\04-11-1 5 TKI CDBO Limited Loan Guarantee SR.doc COMMISSION MEETING AGENDA Meeting Date: 11/15/2004 Agenda Item Number: -'!I...D- Economic Development Agency Staff Report TKI CDBG Limited Loan Guarantee SR November 15, 2004 Svnopsis of Previous Commission/Council/Committee Action(s): On August 17, 2004, the Redevelopment Committee (Members Estrada and McGinnis present) considered a proposal to provide a $1.5 million CDBG Float Loan for the Totally Kids, Inc. Project and voted to move the matter forward, without recommendation, for consideration by the Mayor and Common Council. On September 7, 2004, the Mayor and Common Council tabled a proposal to provide a $1.5 million CDBG Float Loan for the Totally Kids, Inc. Project upon being advised of the City's lack of capacity to provide such a loan and of the inability of Totally Kids, Inc. to secure a single "A" letter of credit. On November 1,2004, the Mayor and Common Council considered the Totally Kids, Inc. proposal, and after the discussion, Staff was requested to return with the proposal for reconsideration. P:\Agcndas\Comm Dev Commission\CDC 2004\04-11-15 TKl CDBG Limited Loan Guarantee SR.doc COMMISSION MEETING AGENDA Meeting Date: 11/15/2004 Agenda Item Number: a ECONOMIC DEVELOPMENT AGENCY STAFF REPORT PROPOSAL TO PROVIDE A CDBG LIMITED LOAN GUARANTEE TO THE TOTALLY KIDS INC. PROJECT BACKGROUND: At the Council Meeting of September 7, 2004, in considering the possibility of providing a HUD CDBG Float Loan for the Totally Kids, Inc. Project (the "Project"), it was noted that the City had zero ($0.00) Float Loan capacity because unlike years prior to 1999, virtually 100% of the annual CDBG funds are spent in the year received, and that in order to fund a CDBG Float Loan, the City would be required to delay the timely receipt of at least $1.5 million of 2004-05 CDBG funds (presently earmarked for various City functions: e.g., fire truck leases, code compliance and demolition) until on or after July 1 st of the next fiscal year, thereby creating the necessary Float Loan capacity. At that time, the Mayor and Council were advised of the inability of Totally Kids, Inc., to meet the "A" rated letter of credit requirements of a Float Loan and that the City Administrator and City Finance Director had indicated that the City General Fund budget required all the CDBG funds designated for City projects/activities be paid to the City by June 30 of each fiscal year. Thus, it was determined that a Float Loan for the Project was not feasible. For fiscal year 2004-2005, the City was awarded $4,274,000 in CDBG funds and the Mayor and Common Council allocated the funds in the manner shown in the Attachment 1. These expenditures represent either long- term financial commitments such as fire truck leases, code enforcement, on-going economic development programs and one time funding like for the EDA "F" Street Parking Lot improvements. Prior to requesting that the matter be tabled, Staff advised the Council that efforts would be made to assist Totally Kids, Inc. in obtaining the necessary $2 million loan needed for the project through the Grow San Bernardino Fund and that Staff would return to the Council if some form of CDBG guarantee of a Grow San Bernardino Fund loan was required. CURRENT ISSUE: Staff has been advised by Scott Rodde, National Development Council consultant to the City/ Agency, that the Grow San Bernardino Fund will provide a $2 million loan, 25 year term, at prime, plus 2 Y2 points on a floating rate basis, to SVCC Properties, LLC, an affiliate of Totally Kids, Inc., (SVCC) to finance, in part, the $13.2 million expansion of the Totally Kid's facility. The Totally Kid's business, has in some form or another, been in operation, for at least 30 years, serving children both within the City and the County of San Bernardino, and outside the County. The expansion consists of development of 3 new additional buildings, which includes 30 new beds for the pediatric sub-acute care facility, 90-unit expansion for the Kid Ship Medical Day Care facility, and educational offices with an estimated total of20,000 square feet ("Project"). The loan is however, subject to the City and IVDA providing limited guarantees of $1 million each ($2 million total). According to Mr. Rodde's review of the organization, they have been consistently profitable for the last four (4) years, and the managing partners, who have a combined net worth in excess of $25 million, will be providing personal guarantees for the loan. The Totally Kids, Inc., Owners have also invested $1 million of their own cash to purchase the project land consisting of 3.5 acres at 1720 Mt. View Avenue, City of San Bernardino. The financing structure for this public/private partnership is such that all parties are making reasonable contributions to fund the $13.2 million Project as follows: Private Lender: $7.5 million (56.6%), public lenders, $2.5 million (City, IVDA, County)(18.9%); and new market tax credit private equity investors P:\Agendas\Comm Dcv Commission\CDC 2004\04-11-15 TKJ COBG Limited Loan Guarantee SR.doc COMMISSION MEETING AGENDA Meeting Date: 11/15/2004 Agenda Item Number: R!JL Economic Development Agency Staff Report TKI CDBG Limited Loan Guarantee SR November 15,2004 Page Number 2 of $3.2 million (24.5%). Although the Owners have additional back-up resources as stated above, in the form of cash, notes receivables and real estate equity, it would not be prudent for them to invest more of their funds into the Project at this time. This is because they must maintain sufficient liquidity to back-stop short-term cash flow swings in the operations of the Project and other related businesses. Finally, his analysis concludes that SVCC has a very strong operational cash flow and because of this, and amongst other financing factors, he is optimistic that SVCC will repay the loan prior to the 25-year loan term. For this reason, the Grow San Bernardino Fund is requesting that the City and IVDA provide limited guarantees of the $2 million loan needed for the Project. The Project is also expected to add an additional 150 jobs to the existing jobs of 275 and will provide nurses an opportunity to train in a unique pediatric program. As such, the Project exceeds the mandatory public benefit analysis, that for every $35,000 of CDBG funds that are used in the Project, at least one full-time equivalent, permanent job is created or retained. The City's guarantee of the $2 million Grow San Bernardino Fund loan would be limited to $1 million and to payment, only in the event of default, in an amount of $250,000 per year for a total of four (4) years, payable from the City's annual Community Development Block Grant (CDBG). The timing of the payments under the guarantee require the appropriation of the first $250,000 within the City's 2005-2006 CDBG Application to HUD which would be held in a restricted, interest bearing account with the Grow San Bernardino Fund ("Fund"). Thereafter, for a period oftime not too exceed three additional fiscal years; the City would have to make similar appropriations, but only upon default. Subsequent to HUD's approval of the City's 2005-2006 CDBG Application, the funds for the initial $250,000 payment would be drawn down by the City and placed in the Fund. Thereafter, absent any default by SVCC, the City's first $250,000 would remain in the Fund for the 25 year term of the loan or until the loan is fully repaid, whichever occurs first. In the event of a default, the City's guaranteed payment would be made from the Fund and, depending on the outstanding balance of the loan, the City would appropriate up to $250,000 in CDBG funds per year for each of the following three (3) years to fulfill its $1 million guarantee obligation. It should be further noted that the Mayor and Common Council has previously authorized Agency Staff to seek approval of a $10 million HUD Section 108 Loan Guarantee, and has pledged $500,000 from the annual CDBG allocation, for 20 years, for the repayment of said loan which is not noted as a budgeted item in Attachment 1. Just recently, Staff learned that a written commitment for $7.5 million would be forthcoming to the City from HUD. This $7.5 million is to facilitate development of the Mercado Santa Fe and Arden Guthrie Retail/Commercial Shopping Center. The Inland Valley Development Agency ("IVDA") will be asked to provide a similar limited guarantee on the balance of the $2 million Grow San Bernardino Fund loan. The IVDA previously approved, in concept, the guarantee of a portion of a loan from the County of San Bernardino for the Project. However, the facts and circumstances with respect to the previous approval in concept are now irrelevant. Thus, the limited guarantee requested of the IVDA for the proposed Grow San Bernardino Fund loan for the Project, will have to be considered by the IVDA Board of Directors. The first opportunity for the IVDA to consider the modified request for a limited loan guarantee for the Project is at the meeting of the IVDA Board on November 17, 2004, as an adjourned regular meeting of which the outcome of that meeting is unknown at the time of this writing. If approved, Staff will return to the Mayor and Common Council with the appropriate implementing agreements and corresponding documents on December 6, 2004. ENVIRONMENTAL IMPACT: None. P:\Agendas\Comm Dev Commission\CDC 2004\04-11-15 TKI COBO Limited Loan Guarantee SR.doc COMMISSION MEETING AGENDA Meeting Date: 11/15/2004 Agenda Item Number: ~/) Economic Development Agency Staff Report TKI CDBG Limited Loan Guarantee SR November 15,2004 Page Number 3 FISCAL IMPACT: The fiscal impact on the City's CDBG Program will commence in 2005-2006 in the amount of $250,000 as described above. RECOMMENDATION: The Mayor and Common Council adopt the Motion. ~J'V\~ ~ ') G"Y V"" O,dd, Ex=tivo Di"oto, P:\Agendas\Comm Dcv Commission\CDC 2004\04-11-15 TKI CDSO Limited Loan Guarantee SR. doc COMMISSION MEETING AGENDA Meeting Date: 11/15/2004 Agenda Item Number: ML , ECOl'iOMIC DEVELOPMENT AGEl'iCY OF THE CITY OF SAN BER"IARDlNO ORIGINAL FRO\-1: GJfY Van Osdel E.xecutlve Director SCBJECT: PROPOSAL TO PROVIDE LIMITED LOA:'\ Gl'ARA:'\TEE TOT ALL Y KIDS. I:'iC. PROJECT A CDBG TO THE DATE: October '. 2004 ______n__n___________________u________nn_n___u_.unn________u.n______________________________________________________________n_______n_______n___n_________________________n______n_________________ Smopsis of Previous Commission/Council/Committee Action(s): On March 16. 2004 Redevelopment Committee Members Estrada. Longville and McGinnis considered the Mayor's request for the City/Agency to provide a loan guarantee for the Totally Kids. Inc. Project and unanimously voted to forward this matter to the Community Development Commission for further direction. On April 5. 2004. the Community Development Commission directed staff. upon receipt of the County ECD Loan documents and a formal request for a S 1.5 million loan guarantee for the Totally Kids. Inc. Project. to prepare the requisite guarantee documents for subsequent consideratIOn and approval by the Mayor and Common Council. On August 17.2004. the Redevelopment Committee (Members Estrada and McGinnis present) considered a proposal to provide a S 1.5 million CDBG Float Loan for the Totally Kids. Ine. Project and voted to move the matter forward. without recommendation. for consideration by the i'vlayor and Common Council. On September 7. 2004. the \-Iayor and Common Council tabled a proposal to provide a S 1.5 million CDBG Float Loan for the Totally Kids. Inc. Project upon being advised of the City's lack of capacity to provide such a loan and of the inability of ..I_o_~~}.\::.!5:~~~.,_~~!::.!.~__~~<:..~~~.~.~.~r.:g!~_::~_::.~~~~~~__~.~..l:_~!:~!!:__mm._m.n_.nh..__m____m.mm_m.m.__m_.__hmmnmm__m.m____mnmnm.m_._.._____. Recommended "'otion(s): (Mavor and Common Council) :\IOTIO:\: THE MAYOR A!\:D COMMON COUNCIL OF THE CITY OF SA!\: BERNARDINO (I) AUTHORIZE A S I MILLION LIMITED LOAN GUARANTY FROM THE CITY'S COMMUNITY DEVELOPMENT BLOCK GRA,NT PROGR.-\M (CDBG) ($250.000 PER YEAR FOR 4 YEARS. COMMENCING 2005/20(6). AND (2) AUTHORIZE THE PREPARATION FOR CONSIDERATION BY THE MAYOR A0iD COMMON COUNCIL A LIMITED GUARANTY AGREEMENT AND CORRESPONDING DOCUMENTS, BY AND BETWEEN GROW SAN BERNARDINO FUND. TOTALLY KIDS. INe., AND THE CITY. TOT ALL Y KIDS. INe. PEDIATRIC SUBACLTE CARE FACILITY. ~n_~__n____d__________n____u________n___nn__n__________________d_n_____________u____n_________nh__U________n______n___________h____________________________________________n_______.____________" Contact Person( s): Gary Van Osdel Phone: (909) 663-1044 Project Area( s) Supporting Data Attached: FUNDING REQl'IREMENTS IVDA Ward(s): Third o Staff Report 0 Resolution( s) Amount: $ I Million Source: CDBG SIGNA TURf: Budget Authority: See Fiscal Impact Maggie Pacheco, Deputy Director ----------------------------------------------------------------------------------------------------------------------.----------------- Commission/Council Notes: /) .~ dMi.-rtN II/t/ol/ #((3 ~ / I ./ ~ ~ /.. ~ 1:' n__.______ 11 a~/.(I1:. t. ~ ~ COMM SiON MEETING AGEN Meeting Date: 1/- f S-- -at.( P \Agendas'CorT1m Dev COmrTllSSlonlCDC ~004\04_II_O I TKJ CDBG limited Loan Guarantee doc Agenda Item Number: Ryo ECONOMIC DEVELOPMENT AGENCY STAFF REPORT Proposal to Provide a CDBG Limited Loan Guarantee to the Totallv Kids Inc. Proiect BACKGROUND: At the Council Meeting of September 7, 2004, in considering the possibility of providing a HUO COBG Float Loan for the Totally Kids, Inc. Project (the "Project"), it was noted that the City had zero ($0.00) Float Loan capacity because unlike years prior to 1999, virtually 100% of the annual COBG funds are spent in the year received, and that in order to fund a COBG Float Loan, the City would be required to delay the timely receipt of at least $1.5 million of 2004-05 COBG funds (presently earmarked for various City functions: e.g., fire truck leases, code compliance and demolition) until on or after July 1 sl of the next fiscal year, thereby creating the necessary Float Loan capacity. At that time, the Mayor and Council were advised of the inability of Totally Kids, Inc., to meet the "A" rated letter of credit requirements of a Float Loan and that the City Administrator and City Finance Director had indicated the City General Fund budget required that all the COBG funds designated for City projects/activities be paid to the City by June 30 of the fiscal year. Thus, it was determined that a Float Loan for the Project was not feasible. Prior to requesting that the matter be tabled, Staff advised the Council that efforts would be made to assist Totally Kids, Inc. in obtaining the necessary $1 to $2 million loan needed for the Project through the Grow San Bernardino Fund and that Staff would return to the Council if some form of COBG guarantee of a Grow San Bernardino Fund loan was required. CURRENT ISSUE: Staff has been advised by Scott Rodde, National Development Council consultant, that the Grow San Bernardino Fund will provide a $2 million loan, 25 year term, at prime, plus 2 Y2 floating rate, to SVCC Properties, LLC, an affiliate of Totally Kids, Inc., (SVCC) to finance, in part, the Project, subject to the City and IVOA providing limited guarantees for the $2 million loan. According to Mr. Rodde's review of the organization, they have been consistently profitable for the last four (4) years, and the managing partners, who have a combined net worth in excess of $25 million, will be providing personal guarantees for the loan. Furthermore, his analysis concludes that SVCC has a very strong operational cash flow and because of this, and amongst other financing factors, he is optimistic that SVCC will pay the loan off prior to the loan term. For this reason, the Grow San Bernardino Fund is requesting that the City and IVOA provide limited guarantees of the $2 million loan needed for the Project. The City's guarantee of the $2 million Grow San Bernardino Fund loan would be limited to $1 million and to payment, only in the event of default, in an amount of $250,000 per year for a total of four (4) years, payable from the City's annual Community Development Block Grant (COBG). The guarantee would require the appropriation of $250,000 within the City's 2005-2006 COBG Application to HUO. Subsequent to HUO's approval of the City's 2005/2006 COBG Application, the funds would be drawn down by the City and placed in a restricted, interest bearing account. Thereafter, absent any default by SVCC, the City's $250,000 would remain in the restricted account for the 25 year term of the loan or until the Fund loan is paid in full, whichever occurs first. In the event of a default, the City's guaranteed payment would be made from the restricted account and, depending on the outstanding balance of the loan, the City would appropriate up to $250,000 in COBG funds per year for each of the following three (3) years to fulfill its $1 million guarantee obligation. P:\Agendas\Comm Dev Commission\CDC 2004\04.11.01 TKI CDBG Limited Loan Guarantee _doc COMMISSION MEETING AGENDA Meeting Date: 11/01/2004 Al!enda Item Number: P35 Economic Development Agency Staff Report TKI CDBG Limited Loan Guarantee Page 2 The Inland Valley Development Agency ("IVDA") will be asked to provide a similar limited guarantee on the balance of the $2 million Grow San Bernardino Fund loan. The IVDA previously approved, in concept, the guarantee of a portion of a loan from the County of San Bernardino for the Project. However, the facts and circumstances with respect to the previous approval in concept are now irrelevant. Thus, the limited guarantee requested of the IVDA for the proposed Grow San Bernardino Fund loan for the Project, will have to be considered by the IVDA Board of Directors. The first opportunity for the IVDA to consider the modified request for a limited loan guarantee for the Project is at the meeting of the IVDA Board on November 10, 2004. If approved, Staff will return to the Mayor and Common Council with the appropriate implementing agreements and corresponding documents on November 15, 2004. ENVIRONMENT AL IMPACT: None. FISCAL IMP ACT: The fiscal impact on the City's CDBG funds has been described above. RECOMMENDATION: P:\Agendas\Comm Dev Commission\CDC 2004\04-11-01 TKI COBG Limited Loan Guarantee _doc COMMISSION MEETING AGENDA Meeting Date: 11/01/2004 A.(Jpncl~ Itpm Nllmh~r~ ti~C:;-