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Staff Report March 19, 2020 Page 2 Explanation: New Brighton Commons, LLC (Ryan Companies US, Inc.) has notified the City that it intends to sell the building at 200 5th Avenue NW. The prospective purchaser, NB Commons, LLC (Buyer) is seeking financing from Bremer Bank (Lender) for the purchase of the property. As part of this process, the Lender has requested two things from the City: 1) Subordination of the City's interest in the redevelopment contract to a new first mortgage; and 2) An amendment to the existing redevelopment contract. Subordination Agreement The existing redevelopment contract (Amended and Restated, June 25, 2007) contemplates that the City will subordinate its interests to a lender providing construction financing. The subordination provisions are delineated in Section 6.4 of the agreement (see pages 26 and 27). Among the City's rights was a reverter, which allowed the City to re -take title and possession in the event the redeveloper was unable to construct the building. The reverter terminated upon completion of the minimum improvements and issuance of the certificate of completion. As a practical matter, the City's rights under the redevelopment contract are now mostly related to ensuring that the redeveloper adequately maintains and insures the building. The redevelopment contract terminates in 2018, which coincides with the end of Tax Increment Financing (TIF) District #26. Based on advice from George Hoff (redevelopment counsel), the City is under no obligation to subordinate its interests to that of another lender (except for construction). The redevelopment contract is essentially silent on the issue of any subsequent mortgages. Nonetheless, the Buyer and their Lender have made it clear that financing cannot be obtained unless the City subordinates its interests. The Buyer's legal counsel (Barna Guzy & Steffen) described their request in a letter dated March 5, 2010 (see attached). At the time the letter was drafted, we had indicated that the City would not agree to the subordination request because of the proposed terms and conditions. However, after several rounds of negotiations, staff has worked with Mr. Hoff to review the requests and find language that is consistent with what is contained in the current redevelopment contract. In other words, the City is not giving up anything more or less than what was contemplated under the original redevelopment agreement. Under the proposed agreement the City would: • Subordinate its rights under the redevelopment contract to the mortgage lien of Bremer Bank. I:\COUNCIL\REPORTS\2010\Community Development\3-23-2010\Bremer Bank (Contract Amendment and Subordination Request).docm