Committee Minutes

Growth Fund Committee Meeting
Monday, March 6, 2006, 8:00 a.m.
Urban Development Conference Room


Roll Call: Chairman Doug Christensen called the meeting to order. Present were Eliot Glassheim, Doug Christensen, Gerald Hamerlik, Jon Ramsey, and Terry Smith. Also present were Keith Lund, Klaus Thiessen, Hal Gershman, Jonathan Fu, Connie Mangan, Greg Hoover, and Peggy Kurtz.

LM Glasfiber Expansion:

Keith recapped the project for the Committee. He stated that LM Glasfiber is proposing to expand their production capacity and is looking for additional space. At the same time, Amazon.com has asked to be released of 75,000 square feet of warehouse space in their building due to a decrease in their need for this space. LM Glasfiber has secured the services of EAPC to do some preliminary design work of the warehouse space in the Amazon building and provide some cost estimates. They estimate that this phase of their expansion would cost about $2.65 million. Through several negotiations of which this committee discussed in executive session, staff offered LM assistance in providing $1,987,500 towards their $2.65 million capital project. We also will require them to sign a 3-year lease for the 75,000 sf in the new building at $7.66/square foot, which is the lease rate that they pay at their original facility. Their monthly rent would be $47,875. If the Growth Fund retained the dollars that are now received from Amazon ($17,188/month) and applied the balance to debt service ($30,688/month), the loan balance after three years would be $996,000. Although this is a 3-year lease with no option to renew, staff is optimistic that they will secure additional orders and sign another lease. This offer was presented to Blake Seas, LM General Manager, who in turn submitted it to the parent company in Denmark and they have accepted the offer and are moving forward in good faith with EAPC doing further design of the project. Doug asked where the money would come from and Keith replied that it is our recommendation, similar to the Cirrus project, that we ask for proposals from local lenders to secure a loan. We estimate that this loan would be at somewhere around 7½ to 8%. We also would apply for a PACE buydown from BND which we estimate would buy the interest down to about 2.5% and our contribution would most likely be less than the $135,000 cap. Doug asked if we will have to put a mortgage on the building. Keith stated we have discussed this with EDA, who holds a first mortgage, and they will not subordinate, so we would offer a second mortgage position and have the lenders make their proposal on any additional collateral that might be necessary. Doug asked about the first mortgage held by EDA and Keith replied this was a mortgage placed on the building because we received a $5 million grant from EDA for its construction but that there was no debt service on the building. Hal asked about the PACE loan and Keith replied we are proposing a 7 year amortization. Doug asked if staff had discussions with any local banks. Keith replied we’ve discussed the project with Wells Fargo who was involved in the financing of the original facility. Keith stated that once the project is approved by the JDA, we will most likely send out the request for proposals this week. Keith stated the last response time was about a week and Doug stated he would rather see a 2-3 week response time. Doug asked about an option on the rest of the building and Keith replied that the staff report to the JDA requests, and we’d like this committee’s concurrence, to offer LM a “first right of refusal” on the balance of the manufacturing and office space if that becomes available. This entails 50,000 sf of warehouse space and 41,000 sf of office space. Keith stated that there is a possibility that LM would add an additional two molds. If this occurs and the entire Amazon facility is available, LM’s current facility would be used for manufacturing and they would move the pre and post molding work and administrative offices to the Amazon building. Doug asked how much money are we getting from Amazon for the office and warehouse space. Keith replied they are paying $2.75/sf for warehouse space and a blended average of $3.60/sf for office space. Doug stated he didn’t want us to go backwards in this building so that we have more debt. Wind energy is a hot topic right now but it could wane so it doesn’t hurt to be careful. Keith replied that LM did in fact ask for an offered term if they renewed after three years for the balance of the space if it became available and we feel we would be able to negotiate this at that time. Keith stated, of the proposed lease rate of $7.66/sf, the Growth Fund would retain $2.75/sf of this (or $206,250/year) to provide a positive cash flow, and the balance ($368,250/year) would be applied to the JDA loan. Jon stated our risk is mitigated somewhat because a good portion of the funds will be used to transform the space from warehouse to manufacturing. Klaus stated the building will be fit-up with a ventilation system that is generic for all types of uses plus doors for truck access which could also be used for other applications.

Mr. Hamerlik asked about the number of jobs, wages, and benefits. Keith replied that LM has approximately 340 current employees and they plan to add 130 new jobs. The starting wage for new employees will be $10.00/hr with a 50¢ raise every three months for one year. At the end of one year, each employee will earn a minimum of $12.00. Annual reviews are conducted with raises provided based on performance and funds availability. There is a $1.00 premium for “cut and trim” employees and for working alternate shifts. The pay range minimum and maximum for an hourly manufacturing employee is $10.00 - $15.00 per hour, not including the premiums. Employees are provided a full benefit package that includes health and dental insurance, disability insurance, 401K, paid time off, holiday pay, life insurance, employee assistance program, funeral leave, military service, jury duty, and family medical leave. The benefit package is calculated at 32% of wages. Mr. Hamerlik asked what happens if they don’t reach their goal of adding 130 new jobs. Keith replied that we are obligated by State law to prepare documents that require some type of “claw back” if they don’t meet their job projections. LM has blade orders in hand, and if they bring in the two molds, they will need to have the increased employees to do the work.

Doug asked the minutes of this meeting be e-mailed out to Council members before the JDA meeting this evening. Keith stated that Klaus will introduce Blake Seas at the meeting tonight and Keith would be presenting the points about the project and reviewing the proposed financing. Jon Ramsey moved and Terry Smith seconded to approve the proposed expansion with the financing package presented by staff. Voting “aye”: Gerald Hamerlik, Terry Smith, Jon Ramsey, Doug Christensen and Eliot Glassheim. Voting “nay”: None. MOTION CARRIED.

Adjournment:

Gerald Hamerlik moved to adjourn.

Respectfully submitted,


Peggy Kurtz
Community Development Specialist
Urban Development


Doug Christensen
Chair
Growth Fund Committee