Ramsey HRA to consider loan for luxury apartments
by Tammy Sakry
Staff Writer
Because of a hesitant banking industry, the city of Ramsey is considering how it can help the Flaherty and Collins Properties luxury apartments project become a reality.
Because its bank is willing to put up only 50 percent of the $27 million loan amount for the construction of the 230-unit luxury apartment project, named The Residence, Flaherty and Collins Property is asking the Ramsey Housing and Redevelopment Authority (HRA) to make it a loan to make up a portion of the remaining cost to construct the project in The COR. The HRA will be considering its options later this month.
The Ramsey Housing and Redevelopment Authority (HRA) agreed May 10 on a 4-3 vote to research possible loan options for the project.
HRA Chairman David Jeffrey and members Randy Backous and Jason Tossey voted against.
Flaherty and Collins needs a $27 million loan to move ahead with the $37 million project.
But given the economy and the former Ramsey Town Center project’s history, the developer’s bank, PNC Bank of Pittsburgh, is only willing to lend 50 percent of the loan amount, not 75 percent, said COR Development Manager Darren Lazan.
Flaherty and Collins plans to contribute a portion of the loan amount needed, but has asked the HRA to pick up the balance.
The HRA eliminated the options of becoming a partner in the project as well as an equity option (similar to a letter of credit) and said it would consider a loan to help with the necessary financing for the 230-unit luxury apartment/townhome project to reach the June 30 $250,000 land closing, Lazan said.
Stages
The actual numbers are still being hashed out on how much the project would need from the city to proceed, Lazan said.
Although the numbers are not set, the HRA was presented with three loan steps May 10 using the maximum cost.
The first step would be a three-year tax increment financing (TIF) general obligation (GO) temporary bond for $7,995,000.
The city would issue a temporary bond, on which the developer would be required to pay interest, and the city’s obligation would be bought out by PNC after three years, said Deputy City Administrator Heidi Nelson.
If the project cannot pay off the loan in three years, the city would issue a second three-year TIF GO bond for $8,075,000.
While it would also be for three years, it could eliminate the city’s previous approval of $1.3 million from its TIF districts to subsidize the project, according to the presentation by Ehlers and Associates, the city’s financial consultant.
With the second bond, Flaherty and Collins would be paying on the loan for six years before PNC would buy out the city.
If the developer can still not pay off the loan, the city’s third loan stage would be to issue a long-term TIF GO bond for $8,260,000.
The HRA would be in the project long term and would need to issue a permanent TIF bond in the seventh year, according to the presentation.
The $1.3 million in project subsidies would also not be needed from the city’s TIF districts under this scenario.
According to Ehlers & Associates Financial Adviser Stacie Kvilvang, there are risks to using this funding mechanism, including reduced cash flow from the project to pay debt service on long-term bonds if the vacancies are higher than 7 percent, if the rents were lowered to fill vacancies and the project’s inability to increase rents in any given year to make up the difference.
While most TIF GO bonds are used for public projects, “it is not uncommon for the bonds to be used for private projects,” Kvilvang said.
If the HRA does go forward with the bond, it will initiate immediate construction, it will secure the federal Congestion Mitigation and Air Quality Improvement (CMAQ) funding the city plans to use for the 300-stall parking ramp expansion, which is required for the apartment project; the apartment project will increase The COR visibility from Highway 10 and validate the city’s efforts to revitalize The COR project, Lazan said.
The residents will also be protected because the apartment project – the Flaherty and Collins Properties company as well as the individual partners, David Flaherty and Jerry Collins – will be responsible for the loan debt, he said.
If those steps fail, the city could use TIF District 14 earnings to pay the loan, Lazan said.
If there is no income from TIF District 14, the city could use income from other TIF districts or other city revenues before considering levying the debt to taxpayers, he said.
“I don’t anticipating it getting to the point that taxpayers are paying,” Lazan said.
Getting it moving
When the project’s $37 million appraisal came in, PNC Bank, which has worked with Flaherty and Collins in the past, did research on the area and decided against giving the entire loan amount, Lazan said.
Although bank officials were excited about the project, once they talked to local banking representatives things changed, he said.
The reputation of previous Ramsey Town Center project, under developer Bruce Nedegaard, combined with the fact this project is the first of its kind in the area made PNC hesitant, according to Lazan.
There is nothing comparable in the area for the bank to determine if the project could achieve its rental and occupation rates, Lazan said.
There is also no set date for the parking ramp expansion or the commuter rail station construction, which are integral to the apartment project, he said.
In general, banks, especially out of town banks, love The COR project and want to be part of it until they begin researching and contact local banks about the project, Lazan said.
“The bank is only willing to lend the project $18.5 million for construction and Flaherty and Collins needs $27 million (to start construction),” he said.
City’s risk
“We are going too far on the limb with this if we are the lender,” Backous said.
While he ran for office on a platform of keeping The COR momentum going and has agreed on everything that has been done up to this point, there are a lot of reasons the city needs to back away from the Flaherty and Collins project, he said.
“We need to cut bait on this and go a different direction,” Backous said.
The city needs to trust the professionals on this. There are a lot of smart people that have weighed in on the financing of this project and if they are not willing to finance it, “then we shouldn’t,” he said.
If the HRA financed it, the loan would increase the city’s risk from $2 million to more than $7.6 million, Backous said.
Ramsey has never written a loan of this magnitude and the city has also never been this accommodating to a businesses moving in, Jeffrey said.
“If they can’t make this deal fly – I’m not in,” he said.
HRA member Jeff Wise said he is leaning toward getting something done.
“It will be taxable,” he said.
The city would be fronting a chuck of change, but if it’s successful, “we go from looking like idiots to heroes,” Wise said.
The project is not considered workforce housing, rather it is geared to people with disposable incomes, he said.
The city gave subsidies to a restaurant people said they wanted and he is interested in seeing more information, said Mayor Bob Ramsey.
The HRA has an obligation to push the project, said HRA member Colin McGlone.
If it was a good market, the city would not own The COR project, he said.
“This is government manipulation of the free market at its worst and principally is no different than the federal government’s TARP (Troubled Asset Relief Program) and bailout plans, only on a smaller scale,” said Tossey in an e-mail to the Anoka County Union.
“It is my opinion that we should take a deep breath, avoid any irrational expenditures and re-evaluate this development. I am just not willing to mortgage the taxpayers’ levy with a high risk bonding plan for a private residential development.”
If the bank will not lend to Flaherty and Collins, “why should we,” said resident and former HRA chairman John Dehen.
“I am requesting you don’t risk taxpayer money for a private project,” he said.
Banks are not loaning right now and Flaherty and Collins is not asking the city for the full project amount, said HRA member David Elvig.
“I don’t have a problem with the city (being) a lender, but no more subsidies,” he said.
The HRA will discuss the financing options May 31.
Tammy Sakry is at tammy.sakry@ecm-inc.com
A very good report. Asking about the situation, and reporting what the replies were. Writing something people can read, to then have a better understanding of what to them seems sensible or wrong-headed; or good or bad as a policy and as a spending of public money.
I do think, however, that Bruce Nedegaard is blamed far too much and used as an excuse by others for things now that may have little or nothing to do with events and conduct during his lifetime.
That should stop. It is unconvincing. Leave the dead in repose.