Adopt Resolution #21-277 Approving SAC and WAC Loan for Stories Foundation

Purpose / Background:
The purpose of this case is to review the proposed request for SAC and WAC payment assistance   Feedback from residents, businesses, visitors, and elected/appointed officials states that attracting more restaurants is a priority for Ramsey.  On February 8, 2021 the City of Ramsey adopted a new SAC/WAC Assistance program.   This Restaurant Subsidy Program is only for "new for-profit restaurants" but does have the ability to consider exceptions for existing businesses that are relocating or expanding.  The city has received an application from Stories Foundation to utilize the Restaurant Subsidy Loan relating to SAC and WAC Fees for a mixed use project. The Restaurant Subsidy Program would need to be amended to allow for non-profit applicants or a rationale for an exception on why this project should be considered for the program.

City staff has been working with the applicant for over a year.  They have received preliminary site plans approvals and are working toward obtaining financing for the project.  Financing has been challenging due to the non-profit status of this business but the applicant is optimistic that they will be able to get the financing and fundraising they need done. 

The SAC Charge (Metropolitan Council) is estimated to be $37,275 and the WAC Charge (City of Ramsey) is estimated to be $19,965.  These fees total $57,240. Stories Foundation is requesting to utilize the 70% Restaurant Subsidy Program.  Staff supports the application and consideration for financial assistance.

N/A

Observations:
Project costs for this proposed mixed use project are approximately 2.2M.  The current financing structure calls for 1.15M in owner equity, 650K in bank financing and 40K from the City is the form of a SAC and WAC Loan,  Staff supports approval of a 70%, 0% interest loan, forgivable loan for the SAC an WAC Fees in the amount of $40,068; subject to satisfactory underwriting which is summarized below.  The applicant would also be required to pay $17,172 (30%) for the SAC and WAC charges upfront and closing costs estimated to be $500-$750.  The financing of this deal would  include a loan agreement, and a subordinated mortgage against the real estate.   

The EDA met on July 8, 2021 to review this project. An excerpt of the minutes are provided summarizing the discussion and identifying the formal recommendation for approval.  The EDA did not recommend amending the Restaurant Subsidy Policy to include non-profit restaurants.  The EDA  referenced the need for more restaurants in the COR and the fact that it involved a city owned land sale as rationale to allow a Non-Profit to apply for the SAC and WAC Deferral in this instance. 

CMDC Summary of Credit Memo and Recommendations:
Building a startup cafe and coffee house from scratch is difficult for the most seasoned entrepreneurs. Working within a traditional nonprofit launching a social enterprise adds significant complexity to an already challenging environment.  The Board of Directors has raised $400,000 for this endeavor through a capital fund drive. Ideally, they intend to raise the full $1,300,000 needed to complete this project. If so, the organization will be able to cash flow SAC/WAC loan of $8,900 in annual debt service. The attached projections from the Board has included debt service for a $650,000 loan from a local lender/benefactor. Staff included debt service coverage on $650,000 with the following terms; 20 years at 5.25% with annual payments of $52,600.
Projections indicate a 1:1 debt service coverage in year one. Year two indicates a 1.4:1, which allows the organization to start building cash reserves. Staff recommends approval, assuming borrower meets criteria to have some or all of the debt forgiven over a period of five years.

The SAC and WAC Deferral Agreement is will only be entered into the by the City if adequate financing is obtained.  The underwriting identifies the need for a substantial capital raise of over 1M dollars by Stories Foundation.  As noted above, the Board has already raised 400K and is working hard to bridge the gap.  If the financing is unable to be obtained the SAC and WAC Deferral is moot and the City would not have any exposure due to a building permit not being pulled. 

The current Restaurant Subsidy Program doesn't identify non-profits as an eligible business to apply.  However, the EDA reviewed this item and recommends that due to the fact that this is a restaurant in the COR and it involves the sale of City land (both City Council priorities) that this project should be approved to utilize the program 

Alternatives:

1. Adoption of Resolution #21-277 Approving SAC and WAC Loan for Stories Foundation as presented. (Staff recommendation) Terms would include approval of 70%, 0% interest loan, forgivable loan for both the SAC and WAC Charges in the amount of $40,068 for Stories Foundation 
    
2. Adoption of Resolution #21-277 Approving SAC and WAC Loan for Stories Foundation with changes; subject to City Attorney review
    
3. Something else

Funding for financial assistance would come from the City's EDA Cash Balance.  The EDA Cash Balance is estimated to be $1.137M.

 

The EDA recommends approval of of 70%, 0% interest loan, forgivable loan for both the SAC and WAC Charges in the amount of $40,068 for Stories Foundation and Resolution #21-277 as presented.

Motion to adopt Adopt Resolution #21-277 Approving SAC and WAC Loan for Stories Foundation; subject to City Attorney review.