HomeMy WebLinkAbout1993-11-08 94-7 ORDERCouncil Action
Date Noaemiaere 1993 Item No. 94-7
Itam/SubjeCt AumonzaHon to Welve Accelemem Fights and to SubaNinam Mortgage to Maine Stam Housing
Authority Mortgage- Hengor Development Aewcides - Schoolhouse ProjM
Responsible Depadment: community and economic Development
Commentary:
See dmchad Memorandum from glamor of Community Dewlopnent mme! Ddoaer 29,1999
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Awigned to Cow dm Sullivan November 8, 1993
CITY OF BANGOR
(TITLE.) tg thr Authorization toWaive Acceleration Rights and to
a-""""SUbOnd ate City Mortgage to Maine State Housing
Authority Mortgage - Bangor Development Associates,
Schoolhouse Project
By tha City Coned of W City of Baader:
ORDERED,
THAT WHEREAS, loans made to fund the renovation and reuse of
the former Bangor High School building located at 183 Harlow Street
n Bangor are secured by a first mortgage on the property given by
Bangor Development Associates to the Maine State Housing Authority;
and
WHEREAS, the City of Bangor holds a second mortgage o
the property in the amount of $160,000 given by Bangor Development
Associates on December 4, 1985 to secure payment of funds due the
City for improvements made to the Abbott Square parking lot located
opposite the 183 Harlow Street "Schoolhouse" Project; and
WHEREAS, the Maine State Housing Authority has foreclosed
on the mortgage given by Bangor Development Associates for failure
to pay s wed under the Maine State Housing Authority mortgage
when due; and
WHEREAS, a workout Agreement between the Maine State
Housing Authority and Bangor Development Associates has been
proposed and Bangor Development Associates has requested the City
of Bangor waive its rights of acceleration of payment due under the
terms of the mortgage given by Bangor Development Associates and
agree to subordinate the mortgage to additional £Lancing proposed
to be provided Bangor Development Associates by the Maine State
Housing Authority,
NOW THEREFORE, BY THE CITY COUNCIL OF THE CITY OF BANGOR,
BE IT ORDERED THAT the City Manager is hereby authorized, in a form
r forms to be approved by the city Solicitor, to acquiesce to the
request of Bangor Development Associates for the City to waive its
rights of acceleration of payment due under the terms of the
mortgage given the City by Bangor Development Associates dated
December 4, 1985 and,
BE IT FURTHER ORDERED THAT the City Manager i9 hereby
authorized, in a form or forms to be approved by the City
Solicitor, to subordinate the mortgage given the City by Bangor
Development Associates dated December 4, 1985 to additional new
financing provided to Bangor Development Associates by the Maine
State Housing Authority secured by a first mortgage on the property
located at 183 Harlow Street in the City of Bangor; and
BE IT FURTHER ORDERED THAT the above authorization is and
will not be effective until all real estate taxes, special
assessments, and parking lease amounts due by Bangor Development
Associates related to 183 Harlow Street are paid in full.
96-7
DR DER
IN CITY MUNCIL
8, 1993
VNxocvember
Title,
Title,
Vo Slo[ Hsldacci Abstained
to Waive Acceleration
Rigbta and to Subordinate City Mortgage
CI.1•Y mux
to Meier State Housing Authority Mortgage-
Bangor Development Associates, Schoolhouse Project.
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Councilman
lman
94-0
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TO: Community and Economic Development Committee
FROM: Rodney G. McKay, Director of Community Development
OATS: November 1, 1993
SUBJECT: Request to Subordinate City Mortgage
Bangor Development Associates
Schoolhouse Project, 183 Harlow Street
"The City of Bangor holds a deferred mortgage on the former
Bangor High School building located at 183 Harlow Street. The
mortgage is not related to any loan made by the City, but resulted
n agreement s part of a related to an Urban Development Action
Grant (MAG)) received by the City in 1985 to assist the developer
in converting the property to apartments and commercial apace. The
city's mortgage is subordinate to a 1st mortgage held by the Maine
State Housing Authority (MSHA) securing two loans to the developer
totaling $1,]]4,112. The MSHA loans are now
in default and the
developer, Bangor Development Associates (BDA)has requested the
City agree to further subordinate its mortgage to new MSHA
financing amounts proposedrthe attached Workout Agreement
between the developer and the MSHA.
'In 1985 Bangor Development Associates requested that the City
provide 30 parking spaces needed to support the parking needs of
the Schoolhouse Project which could not be provided on site. since
the City, at that time, did not have a surplus of parking spaces i
the area to provide to a developer, and the Abbott Square parking
lot was in need of extensive improvements, the City applied for and
received $166,000 in MAG funds from the U.S. Department of Housing
and Urban Development (HUD) to fund the rebuilding and expansion of
the Abbott Square parking lot. This expansion resulted in the
creation of 30 additional parking spaces needed by the Schoolhouse
Project, and avastly improved Abbott Square parking facility. (At
the request of BUS, the location of 12 of the parking spaces was
later transferred from the Abbott square lot to the upper level of
the Atler Lot located across from the Federal Building.)
In addition to requiring. that HDA lease the parking spaces at
the going City rate for surface parking permits, the MAG Agreement
also required BDA repay the City the cost of the Abbott Square
improvements. This repayment obligation is secured by the mortgage
held by the City. The mortgage requires repayment of $160,000,
interest free, at the end of 30 years, $50,000 of which is
mediately due if sale or refinancing of the project takes place
before the end of the 30 year period. The norefinancing proposed
n the Workout Agreement requires payment to the City under the
terms of its mortgage.
94-7
It should be noted that the City's participation in the
project was quite beneficial to the City in that it received
federal BDAG funds to pay for the Abbott Square improvements, the
City is scheduled to receive reimbursement for the cost of the
improvements from the developer (although as much as 30 years
later), and the City receives revenue from leasing the 30 new
parking spaces created by the expansion of the parking lot.
In February of this year the City received notice that the
MSHA had initiated foreclosure action as Bangor Development
Associates had defaulted on the terms of the Mortgage and Security
Agreement " .in that itfailedto pay principal and interest when
due under both Notes; it failed to fund the tax and insurance
reserve; it failed to pay real estate taxes due on the project and
it failed to keep the project clear of all liens and attachments".
In lieu of foreclosure, Bangor Development Associates and the MSBA
have negotiated the attached proposed Workout Agreement.
The Workout Agreement, in addition to lowering the interest
rate on the MSBA notes to 6E, appears to shift all but $735,000 of
the balance due under the First Promissory Note to the proposed
allonge to the Second Promissory Note. The reduced amount due
under the First Note would be paid off over the original term of
the First Note. Apparently the shift from amounts due under the
First Note to the Second Note would result lenient
repayment provisions under the Second Note. The Second Note would
also accommodate additional funds to convert the Schoolhouse from
electric heat, costs incurred by MSNA in the collection of the
notes, and any amounts advanced by MSNA to pay taxes or other coats
necessary to protect its security.
What should be ofconcern
to the City, in terms of its
$160,000 mortgage, is the
ma amount of MSHA loans it is and would be
subordinate to. The City's mortgage was originally subordinate to
$1,774,112 4n loans secured by the MSBA mortgage. On March 1,
1991, both promissory notes were amended (without knowledge of the
City) which increased the principal balance of the loans to
$2,288,368. The Workout Agreement indicates that the outstanding
balance (principal, accrued interest, late fees and advances) of
the MSHA loans was $2,463,694.51 as
of August 31, 1993 and interest
is ruing at the rate of $472.56 each day. Although the proposed
Workout Agreement doesn't indicate the total amounts that would be
due MSBA under the Agreement, it appears that the new amount
secured by the MSHA mortgage would be in excess of $2.6 million.
The City suggested to the developer that, as a condition to
any City waiver of BDA's current default BDA either (1) begin
amortizing the $160,000 principal balanceover
the 22 years
remaining in the original 30 year term, or (2) pay the City the
present value of the $160,000 mortgage owed, which at an investment
rate of 6t would require a current year payment of approximately
"M,a,m Page 2 of 3 Pages
$45,000, payment of which would extinguish BDA'a current obligation
to the City. Neither approach was acceptable to the developer a
evidenced by the attached response from the developer's attorney
dated June 4, 1993.
The priority of estimated debt secured by the property is as
follows:
(1) City of Bangor - $133,478.66 plus lien charges and per
diem interest of $30.82 for 1992-1994 real estate taxes and
development district assessments owed.
(2) Maine State Housing Authority - approximately $2,491,575
plus per diem interest of $472.56 from October 29, 1993 owed under
MSSA's 1st mortgage.
(3) City of Bangor -.$160,000 in satisfaction of the City's
30,year deferred mortgage.
Any action taken by the City which would result in a
foreclosure sale would require a bid in excess of $2.8 million upon
sale. The City's assessed value of the property is $1,938,200.
EECOMMSMDATIOM: It would appear that the City has little
option but to agree to the request to waive the current default,
provided that all other amounts due the city related to the
Schoolhouse project, including real estate taxes, special
assessments and parking lease fees, are paid. The City's interest
would remain no lees secured with no less likelihood and perhaps an
improved possibility of future payment. The workout Agreement
would preclude foreclosure and the resultant acertainty of the
properties continued operation. Staff thereforer ends that
the request for a waiver of default be granted with the stipulation
all other amounts due the City be paid.
c: Edward A. Barrett, City Manager
John Quartararo, Finance Director
Ken Gibb, Director of C&ED
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