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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 Oev mW tl Manager's Comm'entap�, ®�-� � � � ���� act�� tj} N [J4nn�uq vvu , J d e�a��SAIIIA-mn�n �Au mw wi 4P 4. w) 04 to (aPa i d^W^Jdu wMan Asaonated IMormatlon:[7 , YYd+AA . Budget Approval: Homers Direcmr Legal Approval: U M�'f• I' o'ry sdmim. Introduced For ❑% Passage O First Reading Page of_ O Referred 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. ../...I.,..I.�.....�.... `... .... .. ..... .�/, U A(eyFeeddtoo Y.WZXW. UIn/Rvs"�Counc Councilman lman 94-0 r.^[T3i eft 7 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 ..emm.s. Page 3 of 3 Pages