CCP 01-25-2011 - Laserfiche WebLink

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January 11,2011 Page 4 of 6 of the Development Agreement to the developer's construction lender. Accordingly the Development Agreement was unsigned by the developer. In order for the developer to get financing, the lender must be in a first lien position with their mortgage. By subordinating the Development Agreement, the City is in a second lien position behind the lender. The previously approved Developer Agreement had a provision stating the we would negotiate in good faith to reach an agreement on Subordination by January 12, 2011, or there would be no deal. The developer has requested a template of an agreement, the basic provisions of the agreement include: •The City is consenting to the execution and recording of the mortgage, and assignment of the development agreement as collateral. •The lender would have the option to assume the obligation of the developer in the event of default. •The City is essentially fully subordinating it's rights under the development contract of the lender. •The City could have an option to cure the default •A number of rights the lender has listed. Director Femelius reported City Staff was comfortable with the provisions. A second issue was addressed related to tax exempt status. The City requested this provision from the developer,described as standard language,used in previous agreements. The language states the developer cannot transfer the property to a tax exempt entity while there is an outstanding amount on the forgivable note(ten years.) A third issue is the developer may want to prepay the note. If the developer sells the property within the ten year time frame,they would be required to pay back any unforgiven amount. The City's concern is if the developer would sell to a tax exempt entity. Director Femelius suggested the following two options;accept the updated language,along with the Developer's request modifying the note allowing prepayment,or tabling the item and direct Staff to work towards a possible agreement. Councilmember Phillips stated he would not vote for a subordination agreement that allows default prior to the project completion,to trigger a forgiveness of the$550,000,that would only be forgiven if the project is completed. George Hoff,redevelopment counsel for the City explained the requested subordination agreement would put the City in second position to both the real estate and the personal guarantee. Councilmember Phillips clarified he is not in support of the bank getting possession of the property without paying the$550,000 to the City in the event of default. Mr.Hoff reported he has had discussions with the bank and it is the bank's position to include the personal guarantee as secondary position. Councilmember Burg questioned if the item can be tabled or if the City is bound to the January 12th date. Mr.Hoff stated that because the original agreement was not signed by Mr.Nolan,that agreement is not enforceable. Mr.Stuart Nolan offered a$550,000 letter of credit to guarantee payment of the note for a few years. Mr.Nolan expressed his dissatisfaction with the limitations on the possible transfer of ownership;as he has never been asked to restrict sales in the past. City Manager Lotter stated what is important to the Council is the property tax generated from the project,as the City has made a significant investment in the Northwest Quadrant Manager Lotter suggested arriving at an agreement that will assure the City will continue collecting the anticipated$230,000 proposed annual tax into the future. Mr.Nolan stated he would not invest money is a project he would loose control over. Councilmember Bauman stated the City is also making a substantial investment in using TIF dollars. Mr.Nolan expressed concern that the tax exempt portion of the amended agreement was not part of the first agreement that was approved in December,and that he has no intention of agreeing to a stipulation that no other