APPROVED

City Council – Action Request Form

Date: March 7, 2010

To: The City Manager
From: Derwick L. Paige, Deputy City Manager
Council Action Requested:

Adopt Resolution authorizing the City to re-subordinate its debt on a loan to the Nissen Building,
LLC.

Summary of Information:

In June 2004, the City Council authorized the City Manager to execute loan documents for a
$3,000,000 City loan to Nissen Building, LLC for the renovation of the historic Nissen Building
into 145 luxury apartments and over 10,000 square feet of commercial space. Under the terms of
the agreement, the City’s loan is subordinate to the current first mortgage, which is a U.S.
Department of Housing and Urban Development (HUD) loan that prohibits any prepayment until
May 1, 2011. The original HUD loan was $14,215,000. The agreement also includes a provision
that the City loan cannot mature before the first mortgage matures. To date, no payments have
been made on the City loan.

Because a key provision of the project was a condominium conversion strategy, it was always
anticipated that the City loan would be repaid as the apartments are converted to condos and
sold. As early as March 2011, the City has the right to request a feasibility study be conducted to
demonstrate the feasibility of converting the apartments to condominiums. A feasibility study is
currently being conducted; however, given the current housing market, conversion probably will
not be feasible at this time.

Given the current interest rates, Nissen Building, LLC would like to refinance its current first
mortgage with another HUD loan. The new HUD loan will be the same as the original amount
and reset the term to 40 years. In addition to a lower interest rate that will increase cash flow by
$250,000 annually, this new loan offers options for prepayment on an annual basis. The
additional cash flow will allow the tax credit investor to be paid off sooner; thereby allowing the
City loan to start receiving payments in 2013. Without the refinance, the tax credit investor
would not be paid off until 2017; thus delaying amortization of the City loan by four years.
Committee Action:

Committee Finance 3/21/11 Action Forwarded to Council

Council Members Opposed: None; Abstaining:
For Against
Merschel and Clark Council Member Burke
Remarks:
 APPROVED

As a condition of the new HUD loan, the City would be required to subordinate to this new loan
and extend the maturity date of the City loan to one day after the new HUD loan matures.
Additionally, the City would need to waive the provision requiring the repayment of the City
loan upon a refinance.

All of the original loan payment terms shall remain the same, except the one modification shown
below which changes the commencement date of the loan repayment to the date of the
refinancing:

• Years 1-10: Interest only, no later than 90 days after the end of each Fiscal Year,
commencing with the Fiscal Year in which the building is placed in service, commencing
with the date of the refinancing, subject to available Cash Flow. If Cash Flow is insufficient,
interest accrues, compounded annually.
• Years 11-40: Level monthly payments of principle and interest, based upon 30-year
amortization, provided the project maintains a City Loan Debt Service Coverage Ratio of
1.35.
• All principle and accrued interest shall be due and payable upon the sale or a refinancing of
the First Mortgage.

Prior to the City Manager executing the new subordination agreement and/or amendment to the
City Note and Deed of Trust, the City Attorney and Chief Financial Officer must review the
agreement to determine that the City’s financial position is not significantly weakened from its
original position.