by Tammy Sakry
Ramsey Housing and Redevelopment Authority (HRA) has given its approval to a 10-year general obligation bond issue for The Residence luxury apartment project.
The HRA voted 4-3 Feb. 28 to sell the $7.45 million bond April 24 to help fund the Flaherty and Collins Properties (F&C) project to build a 230-unit market rate luxury apartment complex, which will wrap around the newly expanded parking ramp west of the municipal center.
HRA members Randy Backous, Jason Tossey and Sarah Strommen voted against the motion.
The project will be receiving $20.45 million in private financing from PNC Bank.
Because there are two entities providing funding for the project, the HRA and PNC Bank had to negotiate and approve a subordination agreement to outline what rights each party has in the project.
The agreement limits how the HRA can enforce the guaranties, the developers agreement and the right of reverter.
PNC Bank did what a lead bank is supposed to do – lock everyone out, said HRA member David Elvig.
The staff has been working with F&C for two and a half years on this deal and while he doesn’t like it, this is the best deal the HRA will get with PNC Bank, he said.
Although the agreements were approved with F&C in September 2011, Elvig said he wants the staff to go back to F&C and “emphatically try to get more equity into the project from the developers.”
With the city’s investment in the project, Elvig wants staff to ask F&C to improve the HRA’s position and improve the payments to pay off the debt sooner, he said.
While the HRA can ask for more assurances from F&C, there is a limited amount that can be renegotiated at this point as the F&C documents were approved by the HRA last fall, said Darren Lazan, The COR development manager.
HRA member Randy Backous said he loves the apartment project, but he has concerns.
The HRA is too far into this financially and he does not like the subordination agreement with PNC Bank, he said.
Tossey said he does not like government being involved with the financial support of projects like this.
Even though the HRA has a contract with F&C and the parking ramp was expanded for the project, Tossey could not support the bond issue or the subordination agreement, he said.
The apartment complex was a large part of the pitch the city used to find $14 million in funding for the rail station, said HRA member Jeff Wise.
“Ramsey would lose all creditability if we don’t move forward with this,” he said.
If he had any doubts about this apartment project getting done, Mayor Bob Ramsey said he would not have approved expanding the parking ramp.
“In this country, a contract needs to be honored,” he said.
While she also does not oppose the project, this is just not in her comfort zone, Strommen said.
The bonds are expected to be sold April 24.
F&C is expected to close on the property it is buying from the city March 23.
Land sale proceeds for the HRA will be $750,000.
According to City Attorney Tom Bray, the debt subordination agreement does not change the HRA’s ability to use the right of reverter (a court order to transfer the property title and improvements to the HRA), enforce the development agreement or the membership pledge agreement with F&C, but it does limit its abilities to do so.
The agreement puts conditions on the right of reverter.
“With the right of reverter, the HRA must redeem the property from foreclosure by paying off the PNC mortgage if PNC forecloses its mortgage and the developer does not redeem the property or the HRA would lose the right of reverter,” Bray said.
“In the debt subordination agreement, the HRA agrees that the HRA’s enforcement of the right of reverter is a non-curable default under the terms of the PNC Mortgage.
“The HRA also agrees that if F&C Apartments defaults in the performance of its obligations to PNC under the PNC loan documents, the HRA will not oppose PNC’s efforts to have a receiver appointed for the property and will not seek to have the receiver discharged unless PNC fails to commence foreclosure proceedings within six months following the appointment of the receiver, PNC commences a foreclosure but fails to schedule a sheriff’s sale within a reasonable period of time or the HRA redeems the property from a foreclosure of the PNC mortgage.”
Tammy Sakry is at email@example.com