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Home My WebLink About5D SAC Deferral Program Subordination Report 4646 Dakota Street SE Prior Lake, MN 55372 CITY COUNCIL AGENDA REPORT MEETING DATE: FEBRUARY 13, 2017 AGENDA #: 5D PREPARED BY: CASEY MCCABE, COMMUNITY DEVELOPMENT SPECIALIST PRESENTED BY: DAN ROGNESS, COMMUNITY & ECONOMIC DEVELOPMENT DIRECTOR AGENDA ITEM: CONSIDER APPROVAL OF A RESOLUTION AUTHORIZING THE MAYOR AND CITY MANAGER TO EXECUTE TWO SUBORDINATION AGREEMENTS RELATED TO A SAC DEFERRED PAYMENT AGREEMENT DISCUSSION: Introduction The purpose of this agenda item is to consider approval of a resolution authorizing the Mayor and City Manager to execute two subordination agreements related to a SAC Fee Deferred Payment Agreement as requested by Lakers Holdings, LLC. The City of Prior Lake has received a request form Lakers Holdings, LLC to sub- ordinate the City of Prior Lake’s lien position related to a Sewer Availability Charge (SAC) Deferred Payment Agreement. History On February 11, 2013, the Prior Lake City Council adopted the Metropolitan Coun- cil SAC Deferral Program which allowed for the deferment of SAC fees for small businesses that receive SAC determinations of 10 units or less. On May 27, 2014, the City Council adopted an updated SAC Deferral Program which allows for the deferment of SAC fees for small businesses with determinations of 25 units or less. The City of Prior Lake entered into a SAC Deferred Payment Agreement with Lak- ers Holdings, LLC (Owner) and Water Street Restaurants Group, LLC (Operator) on August 8, 2015 for the Charlie’s on Prior project. Lakers Holdings paid $18,943.00 (20%) of SAC fees when the building permit was issued and a total of $75,772.00 (80%) has been deferred at 2.25% interest with equal monthly pay- ments of $1,336.42 for 60 months. Lakers Holdings is current on their monthly payments. As of January 31, 2017, Lakers Holdings has made 16 payments to- taling $21.382.72; the final monthly payment will be due on September 1, 2020. The SAC Deferred Payment Agreements are secured with the city’s ability to as- sess any outstanding balances to the property in the event of default. Current Circumstances City staff received a request from Lakers Holdings, LLC and FSA Title Services, LLC to subordinate the city’s Deferred Payment Agreement lien position to facili- tate a Lakers Holdings refinancing application. The deferred payment agreement is secured with the city’s ability to assess the property for monies owed in the event of default. The city’s agreement is not secured with a mortgage on the prop- erty. 2 Section 4.2 (Unpaid Local SAC) of the Master SAC Deferral Agreement between the Metropolitan Council and the City of Prior Lake states, “If a Business ceases operations or moves from the Site and does not require the incremental wastewater capacity represented by the SAC deferral, the Community may exer- cise one of the following two options: a) Continue SAC Payments. The Community may continue to make its payments to the Council under the payment schedule. If the Community elects this op- tion it will accrue SAC Credits for the Site in accordance with the SAC Credit provisions of the SAC Procedure Manual. b) Discontinue SAC Payments. The Community may discontinue making its pay- ments to the Council on the Community’s SAC Deferral Amount for the Site. The Community must notify the Council if the Community elects this option and it must verify to the Council that the incremental capacity no longer is needed at the Site. The Community is responsible for making all SAC pay- ments on the SAC Deferral Amount that were due prior to the notice. The Site will not be credited with the portion of the wastewater capacity not paid (for future SAC Determinations), but will receive Credit for actual SAC paid (includ- ing partial units). No Community SAC deferral payments to the Council will be refunded. Net Credits will be available to the Community for Community-Wide Credits only if a new SAC Determination establishes a permanent reduction of capacity demand.” If Charlie’s on Prior were to cease operations, the City of Prior Lake would have the ability to discontinue SAC payments to the Met Council and the site would be credited for the actual SAC fees paid. Conclusion The City of Prior Lake was previously in a second lien position to the mortgage with Citizens Bank in the amount of $3,500,000. If the Subordination Agreement is approved, the city would remain in a similar position behind two mortgages with Venture Bank in the total amount of $4,892,500. The property owners, Lakers Holdings, LLC, have already executed the mortgage agreements with Venture Bank and have escrowed funds to satisfy the outstanding SAC deferral balance in the event the city does not subordinate its position. The City of Prior Lake Economic Development Authority reviewed this request during their January 25, 2017 meeting and approved a motion recommending the City Council authorize the Mayor and City Manager to execute the two Subordina- tion Agreements as requested by Lakers Holdings, LLC. ISSUES: To date, the City of Prior Lake has entered into three SAC Deferred Payment Agreements for the Honest-1 Auto Care, Artisan Coffee Bistro and Charlie’s on Prior projects. It is very likely that the City of Prior Lake will receive similar re- quests to subordinate its position for the agreements already entered into or future agreements. FINANCIAL IMPACT: There should be no additional financial impact related to the subordination re- quest. 3 ALTERNATIVES: 1. Motion and second, as part of the Consent Agenda, to approve a Resolution authorizing the Mayor and City Manager to execute two subordination agree- ments as requested by Lakers Holdings, LLC. 2. Motion and a second to remove this item from the consent agenda for addi- tional discussion. RECOMMENDED MOTION: 1. Alternative #1 ATTACHMENT: 1. Subordination Agreements 4646 Dakota Street SE Prior Lake, MN 55372 RESOLUTION 17-___ A RESOLUTION AUTHORIZING THE MAYOR AND CITY MANAGER TO EXECUTE TWO SUBORDINATION AGREEMENTS RELATED TO A SAC DEFERRED PAYMENT AGREEMENT Motion By: Second By: WHEREAS, The City of Prior Lake entered into a Deferred Payment Agreement with Water Street Restaurants Group, LLC (“Operator”) and Lakers Holdings, LLC (“Owner”) on August 8, 2015; and WHEREAS, The Owner is subject to charges for sewer and water from the Metropolitan Council Environmental Services Division and the City of Prior Lake based on Sewer Availability Charge (“SAC”) units related to the development of a restaurant on the property located at 3950 Green Heights Trail SW, Prior Lake, Minnesota; and WHEREAS, City Code Section 704.500 allows qualified property owners to defer the payment of water connection charges and water tower charges and City Code Section 705.600 allows qualified property owners to defer the payment of sewer connection charges; and WHEREAS, Said Deferred Payment Agreement deferred 80% of SAC payments with interest at an annual rate of 2.25% due in equal monthly payments over a term of 60 months; and WHEREAS, Lakers Holdings, LLC has requested the City of Prior Lake subordinate the city’s Deferred Payment Agreement lien position to facilitate a Lakers Holdings, LLC refinancing application; and WHEREAS, The City of Prior Lake Economic Development Authority reviewed the request to subordinate during their January 25, 2017 meeting and approved a motion recommending the City Council authorize the Mayor and City Manager to execute the two Subordination Agreements as requested by Lakers Holdings, LLC; and WHEREAS, The Prior Lake City Council considered the request and approved a motion authorizing the Mayor and City Manager to execute two subordination agreements as requested by Lakers Holdings, LLC during their February 13, 2017 meeting. NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, MINNESOTA as follows: 1. The recitals set forth above are incorporated herein. 2. The Mayor and City Manager are hereby authorized to execute the two Subordination Agreements on behalf of the City. 2 Passed and adopted by the Prior Lake City Council this 13th day of February, 2017 VOTE Briggs McGuire Thompson Braid Burkart Aye ☐ ☐ ☐ ☐ ☐ Nay ☐ ☐ ☐ ☐ ☐ Abstain ☐ ☐ ☐ ☐ ☐ Absent ☐ ☐ ☐ ☐ ☐ ______________________________ Frank Boyles, City Manager