HomeMy WebLinkAboutR05-Economic Development Agency
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RBOUBST FOR ClMIISSIOll/COUIICIL ACTIOll
From:
KENNETH J. HENDERSON
Executive Director
Subj ect: SUBAIllJIVOLVO
COllSOLIDATIOll
Date:
March 9, 1992
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SvnoDsis of Previous Commission/COUDCil/Committee Action(s):
3/5/92
The Redevelopment Committee recommended that the Community
Development Commission approve a $400,000 loan to Subaru of
San Bernardino, in connection with its consolidation with
Volvo of San Bernardino at the Auto Plaza.
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RecoMMPnded Motion(s):
(Co_ftv Develo_ent Co-fssion)
IIOTIOll
That the Community Development Commission approve a loan
to Subaru of San Bernardino based upon the deal points
set forth in the Staff Report, authorize and direct
Agency Counsel to prepare the appropriate Owner
Participation Agreement and increase the Development
Department budget by $400,000.
~
Administrator
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Contact Person(s):
Ken Henderson/John Wood
Phone:
5081
Project Area(s):
N/A
Ward(s) :
Three(3)
Supporting Data Attached:
Staff ReDort: Site MaDS
FUNDING REQUIREMENTS:
Amount: $ 400.000
Tax Increment
Source:
Budget Authority:
Beilll! Soull.ht
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Commission/COUDCil lIotes:
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KJH:JMW:lag:06l5E
COMMISSIOll MEBTIlIG AGBImA
lIeeting Date: 3/16/1992
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Agenda Item BuIIIber:
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DEVELOPMEBT DEPARTMEBT
OF TIIB CIn OF SAB BEJllIIARDIBO
STAFF REPORT
SubarulVolvo Consolidation
Subaru of San Bernardino (Subaru) is attempting to purchase Volvo of
San Bernardino (Volvo) and consolidate the two (2) dealerships at
Volvo's facility in the Auto Plaza. This transaction is vital because,
should it not be completed, Volvo will very likely go out of business.
Such an event would deal a harsh blow to the continued viability of the
Auto Plaza.
Subaru has requested a $400,000 loan to purchase Volvo's assets and
relocate to the Auto Plaza. Staff and consultant Mr. Gene Wood of E.H.
Wood and Associates have reviewed financial statements for both
dealerships and recommend a loan along the following terms:
1) Adequate collateral must be posted. Staff is in the process of
evaluating real estate which will serve as collateral. The loan
will not fund unless sufficient equity is present in the real
estate.
2) Loan to be personally guaranteed by Subaru principals.
3) At present, Subaru leases a facility on South "E" Street for
$7,050 per month. As they will need these funds to service the
proposed loan payments, Subaru must first sublet the South "E"
Street facility. The loan will not fund until this condition has
been met.
4) Loan funding also contingent upon approval of the consolidation by
both Subaru and Volvo parent companies.
5) A one and one-half percent (1.5X) loan origination fee will be
charged.
6) Loan term - nine (9) years.
7) Interest rate - Agency investment earning rate plus five (5)
points, floating - adjusted annually; currently estimated at nine
percent (9X).
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KJH:JMW:lag:06l5E
COIK[SSIOB MlBTIBG AGDDA
Meeting Date: 3/16/1992
Agenda Itea __ber: l
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DEVELOPMBll'l DBPAR'J.'Iouuon: STAFF IlBPOIlT
SubarulVolvo Consolidation
March 4, 1992
Page l'rumber -2-
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8) The first year's interest will be accrued and added to principal;
projected balance at the end of first year - $436,000.
9) Interest only monthly payments during the second year.
10) Prinicipal and interest payments fully amortized over remaining
seven (7) years, with monthly payments of approximately $7,000.00.
11) Call provision requiring loan to be reviewed at end of first year
for continuing viability, based on dealership performance and
financial statements.
In terms of benefits to the City, we would retain Volvo in and relocate
Subaru to the Auto Plaza. As with Chuck Obershaw Toyota, this will
hopefully both increase Subaru's sales and the sales of the other
dealers in the plaza. Subaru has provided projected sales figures for
the combined dealerShip, which would result in sales tax revenue to the
City of $145,901 for 92/93, $164,983 for 93/94 and $177,883 for 94/95.
It should be noted that to arrive at new sales tax revenue, one should
first subtract projected sales tax revenue if this relocation should
for any reason not take place. In addition, twenty-two (22) Volvo jobs
would be retained, along with twenty (20) Subaru jobs. Seven (7) new
jobs would also be created. The total of the job creation and
retention would be forty-nine (49). Finally, since Subaru must find a
subtenant for its present facility before the loan can fund, the City
would be assured that a vacant building will not result from this
transaction.
In summary, the proposed loan would assist Subaru in purchasing Volvo
and relocating to the Auto Plaza. The resulting economic multiplier
effect should provide badly needed support to existing Auto Plaza
dealers, while retaining a Volvo presence in San Bernardino. Given the
continuing depressed state of the automotive industry and its
importance as a sales tax generator for cities, an Agency loan to
assist this consolidation would give a much-needed boost to the San
Bernardino Auto Plaza.
Staff is in the process of verifying the proposed collateral. Such
information will be provided to Agency Counsel for incorporation into
the Owner PartiCipation Agreement, which will be submitted to the
Commission for final approval. In addition, because the Volvo
dealership technically lies outside of the Southeast Industrial Park
Redevelopment Project Area, mutual benefit resolutions will be
required. These two (2) documents will be prepared and attached when
this item is brought back before you for authorization.
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KJH:JMW:lag:06l5E
COIIfiSSIOlt MDTIlIG AGEImA
Meeting Date: 3/16/1992
Agenda Itell lf1aber: ~
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DBVELOl'IIDr DBPAJmown: STAFF REPORT
SubaruIVo1vo CODBoliclation
Karch 4, 1992
Page __ber -3-
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Attached for your reference are site maps of the Auto Plaza and
Subaru's present facility.
Staff and the Redevelopment Committee recommend adoption of the form
motion.
KJH:JMW:lag:06l5E
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COIIIISSIOlf MBETIlfG AGBlfDA
Meeting Date: 3/16/1992
Agenda Itea lflmber: ~
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