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Growth Fund Committee
Tuesday, January 10, 2006, 4:00 p.m.
Urban Development Conference Room

Roll Call: Vice-Chairman Eliot Glassheim called the meeting to order. Present: Gerald Hamerlik via conference call, Terry Smith, Jon Ramsey, Eliot Glassheim. Absent: Doug Christensen. Also present: Keith Lund, Greg Hoover, Connie Mangan, Jonathan Fu, Dawn Keeley (Red River Regional Council), John Riske (Mayor, Minto, ND), Mike Delisle (Mayo), Dexter Sitzer (Harriston), Jim Melland, Terry Johnson, Klaus Thiessen

Approval of 10/18/05 Minutes:

Mr. Hamerlik moved and Mr. Ramsey seconded to approve the minutes of the 10/18/05 meeting. Voting “aye”: Gerald Hamerlik, Terry Smith, Jon Ramsey, and Eliot Glassheim. Voting “nay”: None. MOTION CARRIED.

Corporate Center Lease Negotiation:

Keith distributed a handout and said staff have been working with the General Services Administration (GSA) on behalf of the Social Security Administration (SSA) for the lease of third floor of the 402 DeMers Corporate Center building, which is currently vacant. GSA submitted a solicitation for offers (SFO) several weeks ago and we have responded with a proposal. The proposed lease rate is $14.66/square foot for the entire third floor (8,266 square feet). The additional operating costs base of $10.17/square foot includes basic operating and maintenance, parking, operating and replacement reserves, janitorial services, and management fees. The SSA is looking to the Growth Fund to provide total tenant fit-up which is estimated at $300,000 and we are working with a local architect for the layout and estimate. The tenant fit-up cost will be included in the lease and will be amortized over 7 years at 7.5%. The proposed lease rate will be set for $14.66/square foot for the Years 1-7 and will include the additional payment for fit-up at $7.25/square foot; for Year 8, it will be $14.66 adjusted by compounded CPI or compounded 5% for years 1-7, whichever is less; and for Years 9-15, it will be adjusted annually by CPI. We don’t have an exact timeline of when they need to respond, but Keith felt it shouldn’t take too long. Mr. Hamerlik asked about parking and Keith stated they have asked for some handicapped accessible spaces on the first floor of the attached parking ramp, plus contiguous spaces on perhaps the 3rd floor. Mr. Hamerlik asked what we charged per square foot from the last tenant. Keith stated that Noridian leased 18,000 square feet at $8.50 square foot. He added that this is a market proposal identical to any other location in the city. Eliot asked what this meant in terms of payments for the 402 building. Keith stated that vacant, this building loses about $270,000 per year. This lease will cut this amount in half. Keith stated there is another stage in this process; the best or final offer. If GSA approves our offer, they will work with us for tenant fit-up and then we will enter final negotiations. Costs may be adjusted at this time but it will end up as a zero net. Mr. Hamerlik asked if they will occupy the entire third floor and Keith replied they would. The GSA had indicated they can only pay for 7,600 square feet with any additional square footage to be provided at zero cost. We have adjusted the lease rate to include the entire 8,200 square foot third floor. Including the balance of 600 square feet is in the best interest of the City and will also give them room to grow. Once negotiations are completed, the final lease will be brought back to the Growth Fund Committee for approval. Mr. Hamerlik asked if this information is able to be released to the public, considering the open records law and because we have not yet entered the negotiation stage. Keith replied that we have submitted a formal offer, and nothing is confidential or proprietary at this point. Eliot stated the general feeling is that we are very pleased with this prospect.

EDA RLF Policy:

Keith reviewed the proposed resolution for annual certification and draft policies and procedures for the EDA Revolving Loan Fund program. Keith stated it is basically a reprint of the Growth Fund policies, which were approved in September 2005, and highlighted the following changes for the Committee:

· Page 1, Executive Summary, 4th paragraph: EDA funds cannot be used for interest subsidy buydown so we have deleted this reference.
· Page 4, Use of Funds: We have deleted the reference to seed capital and other miscellaneous costs as approved by the Authority. Eligible uses of EDA RLF funds can include purchase of land, site improvements, construction, acquisition and/or renovation of buildings, purchase and installation of machinery and equipment, inventory, and other working capital.
· Page 4, Types of Financing, 1st paragraph: We have deleted the reference to interest write-downs, grants, and equity positions, per EDA requirements.
· Page 4, Types of Financing, 2nd paragraph: We have deleted the reference to grants as an eligible type of financing.
· Page 5, Financing Terms, 1st paragraph: We have added that interest rates for loan cannot exceed the New York prime rate or be less than 4%.
· Page 5, Financing Terms, 2nd paragraph: We have deleted the reference to equity positions.
· Page 5, General Loan Policies, No. 1a and 1b: We have deleted the reference to funds not being used to provide loans to restructure existing debt and have added EDA’s guidance on this subject as described in 13 CFR 307.18(b)(6)(i) and (ii).
· Page 7, Standard Documents: At EDA’s request, we have added the standard documentation that must be included, i.e., the application, loan agreement, title verification, taxes paid, and prior lien holders. Keith added that we require this information anyway but EDA wanted it spelled out in the policies.
· Page 7, Loan Servicing Procedures, No. 2: We have added that a late fee will be charged on loans late by more than 10 days.

Keith stated these revisions came through communications with EDA. He is looking for approval of the policies as well as approval of a resolution to annually certify this plan. If approved by this Committee, we will forward the policy to the JDA for approval. Jon Ramsey moved and Terry Smith seconded to recommend to the JDA approval of the EDA RLF policies and procedures and the resolution for annual certification of the EDA RLF plan. Voting “aye”: Gerald Hamerlik, Terry Smith, Jon Ramsey, and Eliot Glassheim. Voting “nay”: None. MOTION CARRIED.

Harriston-Mayo PACE Loan Request:

Jim Melland stated this is a request from Harriston-Mayo for a PACE loan interest buydown for approximately $34,500. The information provided to the Committee is the pre-application and supporting documentation for a full application. Two companies (Mayo in East Grand Forks and Harriston in Minto) have combined and the underlying loan of about $750,000 will be used to acquire real estate, machinery, and equipment with a total project cost of $3.1 million. The amount requested from the Growth Fund is half of the total buydown and there are two other agencies involved in this portion of the project; the City of Grafton EDC and the Walsh County JDA. These two companies were recently part of a 5-company conglomerate - KRG Capital Partners, a Denver-based investment company. They are in the process of buying out the two businesses from that group to be combined and run locally. Mike Delisle from Mayo and Dexter Sizter from Harriston are the respective general managers.

Mike Delisle stated that he lives in Grand Forks and is the general manager for Mayo, which was founded in 1953 by Mike’s grandfather. He purchased the company from his father in 1993 and sold it in 1998 to KRG under the condition that he would operate the company for them. KRG is an investment firm that buys companies, groups them together and then resells them. Harriston was started in 1973 by Tony Osowski and in 1997 they put together a selling situation to KRG. KRG merged Mayo into Harriston and they have been in the same corporation since 1998 and have been headquartered in Minto. Mr. Delisle stated that Mayo and Harriston have also worked together in past years. KRG consolidated these companies, along with three other ag-based companies, into a platform called Terramarc Inc., and in 2005 announced that it was going to sell Terramarc. At that point, Mr. Delisle and Mr. Sitzer started discussions about purchasing Mayo and Harriston back from KRG and felt, with their national distribution contracts, they could bring the ownership back locally and be successful. They approached the Red River Regional Council for assistance and, along with Dawn Keeley, approached Choice Financial. As they put together their proposal, it became obvious that they needed a pretty sizable down payment. A number of employees were interested in partial ownership in the company and there were also several customers who were interested in seeing them stay a locally owned and successful company. They were able to put together $1 million in equity. The sellers had a year-end timeline and Mr. Delisle and Mr. Sitzer were able to complete the purchase but they still have a long way to go to get the total financial packaging in place. They have 58 employees that would be retained. Eliot stated, when the application was written, they had 80% of the funds committed. Mr. Delisle replied, last Friday, at the very last moment, they were able to get 100% of the funds committed. Mr. Hamerlik asked about the current employees and Mr. Delisle replied that 24 were in East Grand Forks and 34 were in Minto. Out of the 24 at the East Grand Forks location, 16 live in North Dakota, including himself. Mr. Hamerlik asked where the Minto employees lived and Mr. Delisle stated they draw on Grafton heavily but also have some employees that live in Grand Forks. Mr. Delisle added they also bring in seasonal employees from area farms. Eliot asked about the other participating entities. Mr. Delisle replied that the financial partners in the project are Choice Financial, the Bank of North Dakota, Dakota Community Development Corporation, Red River Regional Council, and the North Dakota Development Fund. Dawn Keeley of the Red River Regional Council, distributed additional talking points. She stated she has been working with this project since September. The PACE amount on the equipment note is $47,348.04 and $29,139.42 for the real estate note. The PACE request will be split equally between the Growth Fund and Grafton EDA/Walsh County JDA. This will let the company manage their finances better without a large corporate overhead. They are in the process of finalizing all the application processes right now. All partners have committed funds, except for Dakota CDC, which has verbally committed their funds. Greg stated that the PACE buydown would be for real estate in Minto and equipment in both Minto and East Grand Forks. He asked if there was any thought to segregating this JDA’s participation to North Dakota. Dawn stated it is based on the Minto location because the BND will only support the North Dakota part of the project. Jim stated the Growth Fund’s participation would be tied up in the respective amounts for equipment for 10 years and real estate for 20 years. He also has talked with the principals about guaranteeing this at 0% interest after the repayment of the real estate note. Dawn stated the equipment note would start repayment in Year 11 and the real estate note would start repayment in Year 21. Keith explained that the Growth Fund would require repayment in the same amount as the bank payment once that debt is retired. He added that we generally present the full value up-front to the BND. Dawn stated that the other entities may wish to do an annual disbursement, rather than an up-front disbursement, and added that the BND requires it all either one way or the other. Jim stated that what the Committee is reviewing today is the pre-application and all supporting material for a full application. They just have not filled out the 4-page full application form yet. The EDC has approved this request and recommends funding of this project. Urban Development staff has also reviewed all the materials. If this Committee was inclined, they could recommend approval by the JDA and staff would get the completed 4-page application completed. Greg agreed that we have looked at it and concur and the only thing we ask is that we have full application form for the JDA meeting. Eliot stated we also need the exact structuring of repayment. Jon felt the only question is how we would pay it out – lump sum up-front or annual disbursement, and added that the repayment would be in the same amount and plus we are getting personal guarantees. He felt this was a great investment for Growth Fund dollars. There are a number of jobs that are being retained and the principals are stepping up to the plate and taking the companies back to local ownership. Gerald Hamerlik moved and Jon Ramsey seconded to approve the request up to $38,244 to be used for a PACE loan with the provision that the final full application paperwork be approved by staff and the acting chair of this Committee at the earliest possible date. Eliot asked about wage rates and Mr. Delisle stated that the welder fabricators are paid in the $12/hour range, the supervisors are in the $40,000-45,000 per year range, and the parts employees and machinists are in the $12/$15 hour range. Voting “aye”: Gerald Hamerlik, Terry Smith, Jon Ramsey, and Eliot Glassheim. Voting “nay”: None. MOTION CARRIED. Keith discussed possible JDA dates and time conflicts. It was decided to schedule the JDA meeting for Tuesday, January 17th, at 7:00 p.m. immediately prior to the City Council meeting. John Riske, Mayor of Minto, thanked the Committee for their assistance. He stated this project is very important to the City of Minto and he felt secure coming before the Growth Fund because he has confidence this company will continue to grow and be successful.

Monthly Report - November 2005 and December 2005:

Keith distributed the monthly report. He stated there was no activity by the JDA or the Growth Fund Committee for the last two months and no meetings were held. He pointed out that the estimate cash available for loans at 12/31/05 was a negative number because the Cirrus financing loan did not close in 2005. Reimbursement is expected in mid-January. We also had anticipated that the Hood Packaging sale of the FTZ building would be concluded by year-end. This amount will quickly jump back to where it’s supposed to be. Jon Ramsey left the meeting at this time. Eliot asked what the SSA would be paying for the Corporate Center space and Keith replied about $115,000/month. Terry asked for an update on delinquent loans and Connie replied she is about half way done and expects completion within two weeks. Mr. Hamerlik asked for an update on the Industrial Lot parking lot. Keith replied we put the project out on bid and received no takers. We have not yet barricaded the entrance of the lot and will contact the adjacent property owners as to their interest in a lease arrangement.

Project Update:

Klaus reported that UD and EDC staff have been working on a couple of expansions. They have arranged for a Canadian company to meet with Senator Dorgan’s office in Washington in the next couple of weeks. He added that Senator Dorgan and his staff have been extremely helpful in working on several projects.

Adjournment:

Greg stated the next meeting will be February 14th. As there was no further business, Eliot adjourned the meeting.

Respectfully submitted,


Peggy Kurtz
Community Development Specialist
Urban Development


Eliot Glassheim
Vice-Chair
Growth Fund Committee