 |
AGENDA RECOMMENDATION |
Consent Calendar 6.K.
City Council Regular Meeting
- Meeting Date:
- 08/12/2024
Agenda Item:
Resolution authorizing the City Manager to enter into a Severance and Surrender Agreement on behalf of the City of Mankato with KMKT, LLC, North Star Aviation, North Star Companies, and Frandsen Bank.
Recommendation/Action(s):
Adoption of the attached resolution.
Summary:
On August 9, 2021, the City Council authorized the City Manager to enter into a ground lease with North Star Aviation, Inc., for construction of a new hangar. The hangar has since been constructed and the Council subsequently authorized the City Manager to enter into an amended lease agreement by adding additional tenants and a legal description of the lease premises on August 8, 2022.
The 2022 amendment accomplished two items requested by the current tenant. First, it added KMKT as a tenant to the lease as an affiliate of North Star Aviation. The amendment also added North Star Companies because it is a parent company of KMKT and North Star Aviation. Second, the amendment added a legal description to the ground lease. The original lease agreement referred to an exhibit that had no legal description. The ground lease area did not change, it was just described.
In 2022, the addition of the tenants and legal description was required as part of the permanent mortgage for the construction of the new hangar. KMKT was the borrower. At the time, staff also received a letter from the lender stating that they had reviewed the financials of all the tenants and were confident that the tenants can perform under the lease along with paying the debt obligations of the mortgage.
Financing of improvements through mortgages and loans is permitted under the original lease. The provisions of the lease were reflected in the mortgage documents and the City was not subordinating their fee interest to the tenant’s mortgage.
North Star Aviation is currently constructing an office addition to their hangar and has obtained an additional mortgage to cover the costs of the addition, which requires another Severance and Surrender Agreement to be entered into between the City, the tenants, and Frandsen Bank and Trust ensuring all improvements made by the tenants upon the land become property of the City upon termination of the ground lease, free and clear of all liens and encumbrances during the ground lease, except liens and encumbrances of the lender.
Staff has also received a letter from the lender stating that they had reviewed the financials of all the tenants and are confident that the tenants can perform under the lease along with paying the debt obligations of the mortgage.
Staff recommends approval of the 2024 Severance and Surrender Agreement between the City, the tenants, and Frandsen Bank and Trust.
The 2022 amendment accomplished two items requested by the current tenant. First, it added KMKT as a tenant to the lease as an affiliate of North Star Aviation. The amendment also added North Star Companies because it is a parent company of KMKT and North Star Aviation. Second, the amendment added a legal description to the ground lease. The original lease agreement referred to an exhibit that had no legal description. The ground lease area did not change, it was just described.
In 2022, the addition of the tenants and legal description was required as part of the permanent mortgage for the construction of the new hangar. KMKT was the borrower. At the time, staff also received a letter from the lender stating that they had reviewed the financials of all the tenants and were confident that the tenants can perform under the lease along with paying the debt obligations of the mortgage.
Financing of improvements through mortgages and loans is permitted under the original lease. The provisions of the lease were reflected in the mortgage documents and the City was not subordinating their fee interest to the tenant’s mortgage.
North Star Aviation is currently constructing an office addition to their hangar and has obtained an additional mortgage to cover the costs of the addition, which requires another Severance and Surrender Agreement to be entered into between the City, the tenants, and Frandsen Bank and Trust ensuring all improvements made by the tenants upon the land become property of the City upon termination of the ground lease, free and clear of all liens and encumbrances during the ground lease, except liens and encumbrances of the lender.
Staff has also received a letter from the lender stating that they had reviewed the financials of all the tenants and are confident that the tenants can perform under the lease along with paying the debt obligations of the mortgage.
Staff recommends approval of the 2024 Severance and Surrender Agreement between the City, the tenants, and Frandsen Bank and Trust.