Adopt Resolution #18-250 Amending Approved Right of Re-Entry Agreement; Case of Centra Homes

The City of Ramsey has negotiated an agreement with Centra Homes (the "Developer") and is prepared to close. This agreement involved the platting and development of 40 single family residential lots located at the southwest corner of Bunker Lake Boulevard and Ramsey Boulevard. As with any city land transaction project, a Right-of Re-Entry agreement (the "Agreement") was executed with the Developer on May 8, 2018.  The Agreement called for the the construction of 15 housing units and corresponding certificates of occupany to be issued according to the Construction Deadline Schedule by October 1, 2021.  Per the standard city right of re-entry agreement the City has the ability to take back the undeveloped land if the terms and conditions of the Agreement are not met, which in this case is not obtaining the required amount of certificates of occupancy per the Construction Deadline Schedule.  The City also has the right to specially assess $5,000 on lots for each certificate of occupancy that is not obtained according to the Construction Deadline Schedule. 
 
Prior to the scheduled closing the Developer contacted the City and indicated that their lender would not finance the project due to the language contained in the Agreement. 

After the Developer reviewed Paragraph 4 of the Right of Re-Entry Agreement with the lender, it was determined that this paragraph would not allow the Developer to borrow any money for the development in this neighborhood.  the Developer would not be able to 'self-finance' the entirety of the development and construction of 40 homes without the help of a lending institution.  

The Developer utilizes a Line of Credit financing option with its lenders that allows borrowing a percent of value to financing the development and construction of neighborhod developments.

Since the Right of Re-Entry will be recorded prior to any mortgage, the City would be able to exercise the Right of Re-Entry and clear any subordinate mortgages/liens on the property.The Developer has indicated that their lender is not willing to take that risk.

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The City and Developer have been working to find a solution that would allow the project to move forward.  A summary of the proposed financing structure is outlined here.  The Developer will spend in excess of $1,500,000 in land development work (defined as "Stage I Improvements" from the Development Agreement).  The Developer now intends to self-finance the purchase price of the land as well as the Stage I Improvements resulting in $1,500,000 in development equity.  There will be an additional $3,000,000 in home construction needed before the Right of Re-Entry is released.  The Developer will be providing 20% of the home construction costs and the lender will provide 80% of home construction costs.  This results in a total equity cost investment by the Developer of $2,100,000 for the initial 15 housing units constructed.

Under the newly proposed terms and language in the amended Right of Re-Entry Agreement ( the "New Agreement"), the Developer will have over $2,100,000 invested into the neighborhood development before any Re-Entry rights by the City are released. 

The revised penalty of $20,000 (can be special assessed) per lot undeveloped by the Developer under the Construction Deadline Schedule gives the City up to $300,000 in security (revenue) rather than the $75,000 under terms of the executed Agreement. 

The Developer has indicated that without this modification and the ability to use the equity in the construction of homes in their Line of Credit, the Developer would likely not be able to perform according to the terms of the current Agreement.

The proposed material changes by the developer to the Agreement are as follows:

Current:

1) The City has the Right of Re-Entry  for all undeveloped lots and has the ability to put a special assessment of $5,000 on up to 15 lots that have not recived a certificate of occupany according to the Construction Deadline Schedule.

Proposed:

1) The City has the right of Re-Entry for all undeveloped lots until the Stage I Improvements are completed and the City has conducted an inspection of those improvements and found them to be satisfactory.

2) The City has the ability to put a $20,000 special assessment on up to 15 lots that have not received a certificate of occupancy according to the Construction Deadline Schedule.

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Consider adoption of Resolution #18-250 Amending Approved Right of Re-Entry Agreement

Motion to adopt Resolution #18-250 Amending Approved Right of Re-Entry Agreement subject to City Attorney approval as to legal form.