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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 Fernelius 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, descarbed as standard language, used in previous agreements. The language states the developer cannot transfer the property to atax exempt entity while there is an outstanding amount on the forgivable note (ten years.) A third issue is the developermay want to prepay the note. Ifthe developer sells the property within the ter year time frame, theywould be regoired to payback anyunforgiver amount The City's concern is ifthe developer would sell to atax exempt entity. Director Fenelius 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 apossible agreement Councilmember Phil* 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 Hod 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. Councihmember Phillips clarified he is not in support ofthe bank getting possession of the pmpety without paying the $550,000 to the City in the event ofdefault Mr. Hoffreported he has had discussions with the bank and it is the bank's position to include the personal guarantee as secondaryposition. Councdmember Burg questioned ifthe item can be tabled or ifthe City is bound to the January 12°i 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 ofcredit to guarantee payment ofthe note for a few years. Mr. Nolan expressed his dissatisfaction with the limitations on the possible transfer ofowneship; 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 asignificant 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 n#o the f inum Mr. Nolan gated he would not invest money is aproject he would loose control over Councilmenber Bauman stated the City is also malting a substantial investment in using TIF dollars. Mr. Nolan expressed concern that the tax exempt amended agreement was not part ofthe first agreement that was approved in Decernbe, and that he has no intention ofagreeingto a stipulation that no other