Committee Minutes

Minutes
Growth Fund Committee Meeting
Tuesday, July 18, 2006, 4:00 p.m.
Urban Development Conference Room
1405 1st Avenue North, Grand Forks, ND 58203



Chairman Christensen called the meeting to order.

Roll Call:

Present were Eliot Glassheim, Terry Smith, and Doug Christensen. Also present were Connie Mangan, Peggy Kurtz, Keith Lund, Greg Hoover, Judi Paukert, and Tu-Uyen Tran.

Approval of Minutes:

Eliot Glassheim moved and Terry Smith seconded to approve the minutes of the 6/28/06 meeting. Voting “AYE”: Eliot Glassheim, Terry Smith, and Doug Christensen. Voting “NAY”: None. MOTION CARRIED.

Monthly Report – June 2006:

Doug asked if the rest of the City Council receives the monthly report and Greg replied they did.

LM Glasfiber Opportunity:

Keith distributed his memo to the Growth Fund Committee, dated July 6, 2006. Keith said that LM has the opportunity to start a new relationship with a global customer that is entering the United State market. This would add another 43-meter blade into production by the fall of this year. The company has not placed the orders yet, nor has LM agreed to fill them, because a key component of forging this relationship is the understanding that LM will have the necessary space to produce the additional blades. LM is interested in occupying the remaining 50,000 sq. ft. of the Amazon.com warehouse. We have had discussions with Amazon.com who have provided us correspondence indicating they would release the space. LM is seeking a similar structure to the fit-up of this space as they did the last. They have secured a preliminary estimate of $2 million. We are recommending that the JDA amend the debt instrument with Bremer Bank for an additional $1.5 million and that the company put in $500,000 of their cash. We will amortize the additional debt and, at the end of 3 years, there will be an additional $1 million exposure of this new debt, for a total of $2 million for the entire fit-up space of the Amazon facility. Keith provided two amortization schedules to the Committee. Keith said the first schedule shows the Growth Fund’s exposure for the first 75,000 sq. ft. after 3 years, which is $1,031,000. The number we provided earlier was $996,000. Keith ran his projections at 2.5% but it ended up being 3% with the PACE buydown. The PACE terms are maxed out. Keith said, if you agree to this structure, your exposure will be $1,984,000 for the Amazon.com warehouse. Amazon’s lease expires, for the main building, in June of 2009 and, at that time, the bond balance will be $2,075,000. We are already committed to the first phase expansion that is underway now. Work has been completed in the Amazon space and now LM is switching over to their building. Greg felt they would take occupancy on the Amazon space within a week. Doug said, if we approve this expansion and the company leaves, the City would have an exposure of $4,059,000. Doug asked how many employees they have now and Keith replied about 320. The first expansion will add 130 employees and, if this expansion is approved and they are successful in getting the new contract, it will add another 100 employees (for a total conservative estimate of 550 employees). Keith added that the City’s exposure is about $2 million at each facility. Terry said we’re already on the hook for $3.1 million. Keith said there are no guarantees that the company will release the space in 3 years; however we are reasonably confident that LM will go out and secure more business. We are proposing to wrap the entire 125,000 sq. ft. into one lease. The EDC supports the expansion. Doug asked about wages. Keith replied the salaries range from $25,000 to $40,000, so the average salary is in roughly the $26,000 – $27,000 average. They are going through a rapid hiring process so there are a lot of people at the bottom of the page scale. They get a 50¢ raise every 6 months for 2 years, plus they also get a very attractive benefit plan. Keith said, at an average salary of $28,000, they currently have about $8.3 million in annual payroll (for 320 employees). With the phase 1 new employees, this will increase to $12.6 million in annual payroll. After phase 2, if it happens, it will increase to $15.4 million in annual payroll, without taking benefits into consideration.

Doug asked what the cash balance was in the JDA now. Greg said our monthly report indicates both projections and what is available. Connie said we have $644,000 of approved projects that we haven’t expended yet. Keith said, if no more deals are approved, at the end of the year, you will have $1.6 million in 2163 and about $2.9 million in 5996. Doug asked if the JDA $2.8 million was cash and not investments and Connie replied it was cash. Doug asked if we were going to spend $500,000 out of 5996 and Keith replied this project requires no cash out of the Growth Fund, but instead increases the debt instrument at Bremer. Keith said that the underlying debt at Bremer is at 8%, the PACE for the first phase lowered it to 3%, and the effective rate after this expansion will be 5.1%, because the PACE is totally used up. Greg said we had talked about the possibly using the EDA RLF fund for the equipment and Keith added that we would like the flexibility to inject EDA RLF money as a loan and therefore reduce the rent and debt that the JDA would assume from Bremer. Greg said the EDA loan carries a 4% interest rate.

Doug said if LM uses all this space, they will have to go to a new building. Keith said there is potential for LM to use the entire Amazon facility if they grow, although Amazon has a lease until 2008 for the space they still occupy. Eliot asked if the rent covers the bond payments and Keith said that the blended rate for the entire 125,000 sq. ft. is $7.96/per sq. ft. This pays the debt service and protects the existing cash flow going into the JDA. The rent that Amazon is paying at $2.75/sq. ft. is unencumbered; it doesn’t go to pay any debt and goes directly into the cash balance. The first phase of the expansion advanced-paid the debt a little bit. By matching the existing sq. ft. lease rate at their plant now for the first phase, we were able to advance-pay that note to get the balance down to about $1 million after 3 years. What this next piece does is protects the existing cash flow and services the new debt only. We are suggesting that $2.75/sq. ft. come from LM, which will then go back into the cash balance of the JDA. The extra would go to service the debt. Eliot said this is a good situation for us; we keep the cash, we pay off the building, and at the end we have the exposure, but we also own the building. Doug asked what the total square footage was and Keith said the total warehouse space is 125,000/sq. ft. For that space, the annual debt service will be $1.1 million. Doug asked what we have to get for rent if LM moves out. Keith said you will need $1.1 million a year to service that debt. The total square footage of the initial project, first expansion, and this project is 141,000 sq. ft. Terry said this comes out to be $4.13/sq. ft.

Terry Smith moved and Eliot Glassheim seconded to recommend to the JDA, subject to LM Glasfiber securing the additional orders and entering into a 3-year lease agreement, to (1) release Amazon.com from 49,800 square feet of warehouse space currently leased to the company at 1550 South 48th Street; (2) amend LM Glasfiber’s current lease at 1550 South 48th Street to include the additional 49,800 square feet at a combined annual lease payment of $993,600 (which is for the entire 125,000 sq. ft.); (3) amend the current debt instrument with Bremer Bank to $3,487,500, an increase of $1.5 million; and (4) authorize staff to solicit bids for the conversion of 49,800 square feet at 1550 South 48th Street from warehouse to manufacturing space for LM Glasfiber. Doug added that the net positive cash flow that we’re getting from the Amazon space is preserved and Keith agreed. Voting “AYE”: Doug Christensen, Terry Smith, and Eliot Glassheim. Voting “NAY”: None. MOTION CARRIED. Eliot asked if Amazon was giving up their space and moving and Keith replied that Amazon, some time ago, contacted us and asked to sublease the space, since they are not doing distribution anymore. Keith added that it’s not really a sublease since we’re taking the space back. So we, at the request of Amazon, started looking for another tenant. Greg said we had conversations with them about whether they were willing to release the last bay and they said they were. Keith said this would keep them in the front of the building on two floors (31,000 sq. ft.).

REAC:

Greg said that previously, the Growth Fund Committee had indicated they are committed to a research park and partnering with the UND Research Foundation. Through the Chairman’s correspondence, we conveyed that to the Foundation, along with other incentives. The Chairman has received a letter back from Dr. Alphonso, President of the UND Research Foundation, which says they can’t endorse the creation of an entity for the governance of further development, although they are offering the possibility of having the JDA deed the 20 acres of land to the Foundation with restrictions on land transfers and sales to third parties, and they are also asking for a first option for a reasonable period of time on the purchase of the remaining 57-acre parcel. Keith said the project was introduced to this Committee on January 9th of this year and lots of work went into it before that time. We took a look at the Growth Fund’s goals of creating higher paying jobs, encouraging capital investment, and diversifying the local economy in the targeted industries of life science, commercialization of technology, and aerospace projects, and this seems to be a good fit. There is the potential to have a dramatic impact on the region. The UND Research Foundation plays an integral role and, in fact, there is no REAC campus without the research done by the University. Both the EDC Executive Committee and this committee have taken several actions in support of this project. Regardless of the location, we believe it is important to continue to provide support; i.e., the $500,000 grant and recommending to the City Council that the private sector tenants receive a five-year declining property tax exemption.

Terry Smith moved and Eliot Glassheim seconded to convene into executive session as provided by NDCC section 44-04-19.2 to consider and discuss closed or confidential records and information, negotiating strategy or negotiating instructions as provided by NDCC sections 44-04-19.1, 44-04-19.2, and 44-04-18.4. Voting “AYE”: Terry Smith, Eliot Glassheim, and Doug Christensen. Voting “NAY”: None. MOTION CARRIED. The Committee went into executive session at 4:40 p.m. Present were Keith Lund, Terry Smith, Greg Hoover, Peggy Kurtz, Eliot Glassheim, Doug Christensen and Connie Mangan.
-Executive Session-

The committee reconvened into open session at 5:15 p.m. Present were: Keith Lund, Terry Smith, Greg Hoover, Peggy Kurtz, Eliot Glassheim, Doug Christensen and Connie Mangan. Judi Paukert also rejoined the meeting at this time.

Project Update:

Keith reported no updates at this time.

Other Business:

Greg reported no other business.

Adjournment:

Terry moved and Eliot seconded to adjourn the meeting. Voting “AYE”: Terry Smith, Eliot Glassheim, and Doug Christensen. Voting “NAY”: None. MOTION CARRIED.

Respectfully submitted,


Peggy Kurtz
Office of Urban Development


Doug Christensen
Chair