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HomeMy WebLinkAbout06-Comunity Development Cly(.~ OF SAN BERNARDII ) - REQUEr T FOR COUNCIIIlib"Ir'N From: Kenneth J. Henderson, Director Subject: DECLARATION OF DEFAULT STATUS FOR BELCO DEVELOPMENT COMPANY CDBG LOAN ($187,458.34) Dept: Comrrunity Development Date: November 17, 1986 Synopsis of Previous Council action: In September and October of 1983, the Mayor and Common Council approved three (3) separate Disposition and Development Agreement (DDA's) for $63,000; $77,000; and $25,000, respectively, for the acquisition and development of Mt. Vernon and Spr~ce and Mt. Vernon' and Vine (total $165,000). In October, 1985, the Mayor and Common Council approved the restructuring of the three (3) Disposition and Development Agreements into one (1) loan agreement totaling $187,458.34 (principal plus accrued interest). In January of 1986, a Declaration of Default status for Belco Development Company CDBG loan ($187,458.34) was brought before the Mayor and Common Council. This item was tabled at that time as Belco Development had made payment of the full amount in arrears just prior to the meeting of the Mavor and Common Council on January 21, 1986. Recommended motion: FORM MOTION: MOVE TO DECLARE BELCO DEVELOPMENT COMPANY IN DEFAULT OF ITS COMMUNITY DEVELOPMENT BLoCK GRANT LOAN AGREEMENT OF $187,458.34. Signature Contact person: ---1{.pnnpt'h T Hpnnpr!':on Phone: 383-5065 Supporting data attached: YES Ward: 1 FUNDING REOUIREMENTS: Amount: N/A Source: Finance: Council Notes: 75-0262 Agenda Item No. ~. CIT( OF SAN BERNARDU- ') - REQUE'"'T FOR COUNCIL ACT.~N STAFF REPORT In September and October of 1983, the Mayor and Common Council approved three (3) separate Disposition and Development Agree- ments (DDA's) with Belco Development Company for $63,000; $77,000; and $25,000 for the acquisition and development of properties located at Mt. Vernon Avenue and Spruce and and Mt. Vernon and Vine. Terms of the DDA's required Belco to make an annual payment of $13,000(+) on or before August thirty-first of any given year until the total of the three (3) DDA's ($165,000) was repaid. Belco missed the first annual payment and when the second annual payment was due, they approached Agency staff regarding the restructuring of their agreements. In October, 1985, the 11ayor and Common Council considered and approved the consolidation of the three (3) DDA's into one (1) loan agreement, bearing interest at seven percent (7%) per annum, added the accrued interest to the principal and amortized the loan over thirty (30) years with the total loan due and payable in fifteen (15) years. The payments for the first year were $1,247.17 per month, with payments to begin November 1, 1985. Belco had failed to make the monthly payments for the months of November, December and January which totaled $3,741.51. In December, 1985, staff brought this matter to the attention of the Redevelopment Committee. Staff was instructed to send a payment demand letter to Belco and if payment was not forthcolliil'C) to bring the matter before the Mayor and Common Council. Payn~nt vIaS not received ilnd tbi.s malter wa~: brolJght befcle lhee riayol ane: Common Council. However, just prior to the meeting of the Mayor and Common Council, Belco paid the full amount in arrears. The matter was tabled in view of this action. Belco continued to make monthly payments for the next three (3) months until May of 1986. At present, loan payments for the months of May, 1986 through November 1986 remain unpaid. v7ith loan payments of $1,247.17 per month, the total amount in arrears to date is $8,730.19 plus accrued interest. Staff again received a request for loan re$tructuring from Belco. Staff responded to Belco's five (5) part request and indicated insufficient information was provided by Beleo to make a detailed analysis and to assure the Mayor and Common Council that the City's interest would be adequately protected. Belco was also advised to bring their loan payments current. No response was forthcoming from Belco. Staff contacted Belco directly on November 3, 1986 to advise the of the pending Declaration of Default status. Belco advised staff that they were attempting to secure refinancing of their loan and could pbssibly make payment of the full amount in arrears within a week. As a result of the foregoing, staff recommends that the loan be decl~red in default and that the City Attorney's office be 75-0264 instructed to take any and all appropriate legal action to secure repayment and to protect the City's interest. ~~~ G. ~k~~ Kenneth J. Henderson, Directo~ Community Develoment Department KJH:LRD: Ib attachment file: belcostaffrept / tic (c, ERN ARDINO 300 NORTH "0" STREET, SAN BERNAROINO. CALIFORNIA 92418 RAYMOND D. SCHWEITZER ACTING CITY ADMINISTRATOR October 2, 1986 William Collazo 739 North Mt. Vernon, Suite 300 San Bernardino, CA 92411 Re: COMMUNITY DEVELOPMENT BLOCK GRANT LOAN ($187,458.34) Dear Bill: I received your initial request and follow-up correspondence regard- ing the above referenced subject. I apologize for the delay in responding. However, please be advised that immediately after your follow-up correspondence was received, the Mayor and Common Council took an action separating the housing and community development functions from the Redevelopment Agency (Community Development Division) and incorporated same into the City Administrator's Office. In view of the fact your loan proceeds came from the City's Community Development Block Grant (CDBG) program, the responsibility for administering and servicing the loan rests with this department. Before I respond to the specifics of your request, I feel a review of certain background events is appropriate. On September 15 and October 20, 1983, the Mayor and Common Council approved three (3) separate loans to Belco for $25,000, $63,000 and $77,000, respect- ively (total of $165,000), for the acquisition and commercial deve- lopment of two (2) sites located at Mt. Vernon and Vine and Mt. Vernon and Spruce Streets. As part of the repayment provisions, Belco was to make annual payments of roughly $13,700 on or before August 31 of the affected year. Belco missed the first annual payment and when the second annual payment was due and payable, approached staff and inquired as to whether the three (3) disposition and development agreements could be restructured. After negotiating with staff, the Mayor and Common Council took action to consolidate the three (3) DDA's into one (1) loan agreement, added accrued interest of approximately $32,000 to the principal of $165,000 and authorized the Mayor to execute the loan agreement with Belco totaling $187,000. The loan agreement is secured by a promissory note and deed of trust bearing interest from July 1, 1985 at a rate of seven percent (7%) per annum. The note provides for monthly payments over fifteen (15) years, with payments commencing November 1, 1985. Additionally, the monthly payment increases by two percent (2%) on the first of Novem- ber each succeeding year until the note becomes due and payable. Currently, Belco is five (5) months in arrears on its loan payments, which equals $6,235.85 plus accrued interest. Given Belco's repay- ment performance on the original DDA's and the present status of loan, the serious consideration by staff of another request to restructure the loan agreement becomes increasingly difficult, especially in light of certain aspects of the request. For instance, no documentation (such as pro forma, maintenance costs, etc.) or cash-flow analyses have been submitted supporting your assertions relative to your difficulties in meeting ongoing financial obligations~ the difference between market rents and your current lease agreements and your current maintenance costs versus the "market norm". Moreover, when the original DDA's were consolidated into the current loan agreement, staff was assured that Belco's then current lease agreements provided for graduated payments which would allow Belco to meet its obligation to the City (also on a graduated basis) . As to your five-part request noted as items "A" through "E" in your original letter, the following is the department's response: A. Limited Partnership: Staff has serious doubts as to the legality of the City entering into a limited partnership with Belco. The City Attorney's office indicated research would be required before any such concept was approved. No California city nor any other city that I know of has entered into the type of contractual arrangement that is suggested. B. Loan pavments ($25,000): As a result of the consolidation of the three (3) DDA's, there is no $25,000 loan. There is, however, a loan agreement of $187,000 in which Belco is five (5) months in arrears. Any payments made would be applied to the loan agreement currently in effect. C. ForGiveness of Interest: A similar request was made and denied at the time the agreement consolidation took place. It is difficult to determine the justification for this request in the absence of pertinent information/documentation. However, in light of the interest savings Belco has already accrued (the difference between the seven-percent (7%) interest rate and market rate at the time the original loans were made -- 13%) and the fact that a below market rate took into account the difficul- ties of developing commercial properties along Mt. Vernon Avenue, staff could not, at this time, support forgiveness of the accrued interest. D. Sale of proiect: Your letter indicates the City's original investment was $140,000. Actually, the investment was for $165,000. With respect to your definition of net profits, I do not believe land investment should be a part of the definition inasmuch as the City financed the land acquisition, soils test- ing, compaction and related fees. E. Participation in Cash-Flow: As stated earlier, there are potential legal problems surrounding the limited partnership issue that would appear to preclude participation in the positive cash-flow by the City. It is doubtful in view of statements made in your letter that a positive cash-flow is possible if your current financial situation is as described. This would place the City in the position of not receiving any payments until such time as the buildings were sold. Although the discussion above may appear to you that staff is unwilling to assist, be advised that we are prepared to assist in making this project financially viable. I must inform you, however, that every effort should be made to bring your account current. As stated in earlier correspondence to you, if your account is not brought current, I am obligated to bring this matter before Council in accordance with the City's Default/Noncompliance Policy. Your early attention to this matter will be appreciated and please call me at 714/383-5065 if you have any questions. S~CerelY , Ke~~ f H~~~J, Community Development Director Department cc: Councilwoman Estrada Ray Schweitzer Allen R. Briggs Lisa Dickey File KJH: Ib file: belcocdbgloan 1 RESOLUTION NO. 4847 2 RESOLUTION OF THE COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF SAN BERNARDINO DIRECTING REDEVELOPMENT AGENCY STAFF TO 3 ENFORCE ALL AGREEMENTS INVOLVING OR ADMINISTERED BY THE REDEVELOPMENT AGENCY, INCLUDING INSTITUTION OF DEFAULT ACTIONS. 4 THE COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF SAN 5 BERNARDINO HEREBY RESOLVES: 6 1. It shall be the responsibility of the staff of the 7 Redevelopment Agency of the City of San Bernardino to continuallY 8 monitor for full and complete compliance all agreements entered 9 into by the Community Development Commission of the City of San 10 Bernardino or by the Redevelopment Agency of the City of San 11 Bernardino, and all other agreements administered by Agency 12 staff. 13 2. In the event Agency staff finds that any party to an /. f~; 14 agreement with the Agency, the Commission or the City fails to 15 fully perform each and every obligation in a timely manner under 16 any such agreement administered by the staff of the Redevelopment 17 Agency, the Executive Director of the Redevelopment Agency shall 18 have the authority and be responsible to take immediate 19 corrective action in accordance with the terms of the specific 20 agreement involved, and, if no such specific corrective action is 21 specified in the agreement itself, the Executive Director shall 22 take other appropriate action to require that any noncompliance 23 be cured immediately. 24 3. At the time of taking any corrective action or any 25 action to notify a party to any such agreement that a status of 26 noncompliance has arisen, the Executive Director shall notify all 27 members of the Community Development Commission of the City of 28 / / / / / / 1 1 San Bernardino and the Mayor and Common Council by written 2 memorandum of the action taken, and of the proposed date by which 3 a formal default will be taken, in the event corrective action is 4 not promptly completed. 5 4. If full and complete compliance is not secured within 6 thirty days, or such longer period of time as may be granted by 7 the specific terms of the agreement, the Executive Director shall 8 be authorized to implement all provisions of the agreement 9 providing for default, forfeiture, foreclosure, termination, or 10 any other provisions relative to remedies in event of breach, 11 and, if no such specific provisions are included, shall take such 12 action as is authorized by law to terminate the agreement 13 involved. ~ 14 5. The Executive Director is hereby authorized specifically 15 to take all such actions as are appropriate under the terms and 16 conditions of the respective agreements being enforced, unless 17 the Mayor and Common Council, as a body, or the Community 18 Development Commission of the City of San Bernardino, as a body, 19 by formal action entered upon the minutes of such body, directs 20 otherwise. 21 Dated: F..hrll"ry 17 191\(, 22 AGENCY COUNSEL 23 24 By t2t6"l -/( 62~~ Allen R. Briggs v 25 26 The foregoing resolution was duly adopted by the following 27 / / / 28/// / / / / / / 2 . 1 2 3 4 5 6 7 8 9 10 11 12 13 () 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 vote, to wit: AYES: NAYS: ABSENT or ABSTAIN: Members Estrada, Rei 11y, Hernandez, Hark~ Quiel, Frazier. Strickler 3