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274112 � WHITE - CITV CLERK COUIICII ��I� PINK � - FINANCE G I TY O F SA I NT PA U L CANARV - DEPARTMENT « BLUE - MAVOR File NO. Council Resolution Presented By Referred To Committee: Date Out of Committee By Date WHEREAS: 1 . On November 20, 1979, the Port Authority of the City of Saint Paul adopted Resolution No. 1571 , giving preliminary approval to the issuance of revenue bonds in the initial principal amount of approximately $6,290,000 to finance the acquisition of the Gallery Profe_s�,ional Building by R.S.H. Associates, a Minnesota partnership comprised of Cyril Sheehy, Gary Holmes and Harold Roitenburg. 2. Laws of Minnesota 1976, Chapter 234, provides that any issue of revenue bonds authorized by the Port Authority of the City of Saint Paul , shall be issued only with the consent of the City Council of the City of Saint Paul , by resolution adopted in accordance with law; 3. The Port Authority of the City of Saint Paul has requested that the City Council give its requisite consent pursuant to said law to facilitate the issuance of said revenue bonds by the Port Authority of the City of Saint Paul , subject to final approval of the details of said issue by the Port Authority of the City of Saint Paul . RESOLVED, by the City Council of the City of Saint Paul , that .in accordance with Laws of Minnesota 1976, Chapter 234, the City Couricil hereby consents to the issuance of the aforesaid revenue bonds for the purposes described in the aforesaid Port Authority Resolution No. 1571 , the exact details of which, including, but not limited to, provisions relating to maturities, interest rates, discount, redemption, and for the issuance of additional bonds are to be determined by the Port Authority, pursuant to resolution adopted by the Port Authority, and the City Council hereby authorizes the issuance of any additional bonds (including refunding bonds) by the Port Authority, found by the Port Authority to be necessary for carrying out the purposes for which the aforesaid bonds are issued. COUNCILME[V Requested by Department of: Yeas MCMAHON. Nays �/�' --�Bnt�er b � [n Favor Hunt /__ �� Levine � __ Against BY "`��- Maddox Showalter Te o Form Approved by City Attorne Adopt y Counci Date — �Q7� • � C ified Ya-• b Cou .il Sec�tary �y ��//Z7 y � App by :�a�o�: o _ DEC 13 1979 Appr by Mayor for S o Council gy _ — BY � Pi�81.iSNED G�C 2� 1979 �°�� f� .��.��s � Resolution Na. /:5 7/ RESOLUTION OF THE PORT AUTHURITY OF THE CITY OF SAINT PAUL WHEREAS, the purpose of Chapter 474, t4innesota Statutes, known as the P�innesata Municipal Industrial Develop- ment Act (hereinaf ter called "Act") as found and determined by . the legislature is to promote the welfare of the state by the� active attraction and encouragement and development of economi- cally sound industry and commerce to prevent so far as possible the emergence of blighted and marginal lands and areas of � chronic unemployment and to aid in the development of existing areas of blight, marginal land and persistent unemployment; WHEREAS, factors necessitating the active promotion and development ' of economically sound industry and commerce are the increasing concentration of population in the metropolitan areas and the rapidly rising increase in t,he amount and cost of governmental services required to meet the needs of the ' increased population and the need for development of land use which will provide an adequate tax base to finance these � increased costs and access to emgloyment opportunities for such population; WHEREAS, construction .of the Gallery Professional Building was substantially com�leted in the City of St. Paul and has since its completion, been owned and operated by Fountain Development Company during which time Fountain . Development Company has sustained continued losses from the operation of that building; WHEREAS, the Gallery Professional Building is required to provide adequate office facilities for doctors serving St. Joseph' s Hospital and other hospital facilities in �he St. Paul area; and the Authority has been advised that in order to insure the economic viability of the Gallery Professional Building, it is necessary that the Gallery Professional Building be acquired under new ownership in accordance with a finaricing plan more feasibl,e than .the arrangement under which Fountain Development Corporation is bound; , t . • . � WHEREAS, The Port Authority of the City of Saint Paul (the "Authority") has received from R. S.H. Associates, a P�innesota general partnership (hereinafter referred to as . "Company") a request that the Authority issue its revenue bonds to finance tne acquisition of the Gailery Frofessional Building . from Fountain Development C�ompany and the leasing of that building to the Company (which acquisitio� and leasing is hereinaf ter .called the "Project") all as is more f ully described in the statf report on file; WHEREAS, the Authority desires to facilitate the selective development of the commu�nity, to retain and improve its tax base and to help it provide the' rang� of services and , employment opportunities required by its population, and said Project will assist the City in achieving that objective. Said Project will help to increase the assessed val,uation of the City and help maintain a positive relatioMShip between assessed valuation and debt and � enhance the image and reputation of the City; WHEREAS, the Project to be financed by revenue bonds will result in substantial employment opportunities in the . Project and is necessary to the economic viability of the Gallery Professional Building; WHEREAS, the Authority has been advised by repre- sentatives of the Company that conventional, commercial financing to pay .the capital cost of the Project is available only on a limited basis and at such high costs of borrowing that the economic feasibility of the Project caould be significant3.y reduced, but the Company has -also advised this Authority that with the aid of revenue bond financing, and its � resulting low borrowing cost, the Project is economically more feasible; and � WHEREAS, Miller & Schroeder Municipals, Inc. ( the "Underwriter") has made a proposal in an agreement (the �"Underwriting Agreement" ) relating to the purchase of the revenue bonds to be issued to finance the Project; WHEREAS, the Authority, pursuant to P�innesota Statutes, Seetion 474.Q1, Subdivision 7b did publish a notice, a copy of which with proof of publication is on file in the office of the Authority, of a public hearing on the proposal of , the Company that the Authority finance the Project hereinbefore described by the issuance of its industrial revenue bonds• and � WHEREA5, the Commissioners of the Authority met on November 13, 1979 for the purpose of conducting a public , hearing pursuant to said notice and no meMber of the public attending that meeting appeared to be opposed to the Project, but before the hearing was conducted, the Commissioners of the Authority �cancelled the hearing; WHEREAS, based on new information, the �Authority now considers it appropriate to consider the Project, autho�ize execution on behalf of the Authority of a Prelir�inary Agreei�ent and Underwriting Agreement with respect to the Project, and to reschedule a public hearing on the Project before giving final approval; � HTHEREAS, the staff has recommended preliminary approval of the Project, as set forth in the staff' s memorandum to the Commissioners which has been reviecaed by the Comr.iissioners and all pezsons who appeared at this hearing with regard to preliminary approval. - PJOW, THEREFORE, BE IT RESOLVED b.y the Commissioners of the Port Authority of the City of Saint Paul, Minnesota as follows: l. On the basis of information available to the Authority it appears, and the Authority hereby finds, that said Project constitutes properties, used or useful in connection . with one or more revenue producing enterprises engaged in any business within the meaning of Subdivision 1(a) of Section 474. 02 of the Act; that the Project furthers the purposes stated in Section 474. 01 of the Act, that the availability of the financing und�r the Act and willingness of the Authority to furnish such financing will be a substantial inducement to the Company to undertake the Project, and that the effect of the Project, if undertaken, will be to meet the need for office facilities for doctors serving St. Joseph's Hospital and other hospital facilities in the St. Paul area; to encourage the development of economically sound industry and commerce and assist in the prevention of the emergence of blighted and marginal land; and will help to prevent chronic unemployment, and will help the City to retain and improve its tax base and provide the range of services and employment opportunities . required by its population; and will help to prevent the movement of talented and educated persons out of the state and to areas within the state where their services may not be a� effectively used and will result in more intensive developnent and use of land within the City and will eventually result in � an increase in the City's tax base; and that it is in the best interests of the port district and the people of the City of Saint Paul and in f urtherance of the general plan of development to assist the Company in financing the Project. . , � , . . • • 2. Subject to the mutual agreement of the Authority, the Company and the purchaser of the revenue bonds as to the details of the lease or other revenue agreement as defined in the Act, and other documents necessary ta evidence and effect the financing of the Project and the issuance of the revenue bonds, and the conducting of a new public hearing on said Project before giving final approval of the Project, said � Project is hereby approved and authorized and the issuance of revenue bonds of the Authority in an amount not to exceed approximately $6,600, 000 (other than such additional revenue � bonds as are needed to complete the Project) is authorized to finance the costs of the Project and the recommendations of the Authority' s staff, as set forth in the staff inemorandum to the + Commissioners which was presented to the Commissioners, are incorporated herein by reference and approved . 3. Tfiere has heretofore been filed with the Authority a form of Prelirainary Agreement between the Authority . and Company, relating to the proposed construction and financing of the Project and a form of the Underwriting Agreement. The form of �said Agreements. have been exanined by the Cor�missioners. Said Agreements are hereby approved , and� the President and Secre�ary of the Authority are hereby . , authorized and directed to execute said Agreements. � 4. Upon execution of the Preliminary Agreement by the Company, the staff of the Authority are authorized and � directed to co�tinue negotiations with the Conpany so as to resolve the remaining issues necessary to the preparation of � the lease and other documents necessary to the adoption by the Authority of its f_inal bond resolution and the issuance and delivery of the revenue bonds; provided that the President (or Vice-President i� the Pre�sident is absent) and the Secretary (or Assistant Secretary if the Secretary is absent) of the Authority, or if either of such officers (and his alternative) are absent, the Treasurer of the Authority in lieu of such - absent officers, are hereby authorized in accordance with the _ � provisions of Minnesota Statutes, Section 475. 06, Subdivision � l , to accept a final offer of the Underwriters made by the Underwriters to purchase said bonds and to execute an' underwriting agreeMent setting forth such offer on behalf of � the Authority. Such acceptance shall bind the Underwriters to said offer but shall be subject to approval and ratification by the Port Authority in a formal supplemental bond resolution to be adopted prior to the delivery of said revenue bonds, and only after the rescheduled public hearing on the Project has � � been conducted. . 5. The revenue bonds and interest thereon shall not . eonstitute an indebtedness of the Authority or the City of Saint Paul within the meaning of any� constitutional or statutory limitation and shall not constitute or give rise to a pecuniary liability of the Authority or the City or a charge against their general credit or taxing powers and neither the full faith and credit nor the taxing pawers of the Authority or the City is pledged for the payrtent of the bonds or interest thereon. � Adopted November 20, 1979 � � � __ ; � / . Attest . / � /�< �c G--� Pres i ent The Port Autharity of the City - �� of Sai t Paul �, ��'u . Secre ary � `� ��PORT � AUTHORITY �:� � � OF THE CtTY OF ST. P^UL � ��..�.�_;�; � Memorandum ' TO: Board of Commissioners DATE: Nov. �g 1979 Special Meeting Nov. 20, 1979 r FROM: E• '�kr��(t✓ � SUBJECT: GqLLERY PROFESSIONAL BUILDING - PRELIMINARY AGREEMENT REVENUE BOND FINANCING - $6,290,000 RESOLUTION N0. 1571 1 . THE PROJECT The Gallery Professional Building, formerly Gallery Medical Building, was developed by a partnership comprised ��f Sherman Investment Corpora- tion and Sheehy Properties each holding a 50% interest. The partnership was called Fountain Development Company. We are in receipt of a letter from Sherman Investment Corporation, jointly executed by Sherman R. Rutzick and Cyril Sheehy, wherein their intent to sell the Fountain Development Company interest to R.S.H. Associates is set forth. As a part of the agreement the Fountain Development partners will on November 13 pay the Port Authority $51 ,511 .08 to reimburse the Authority for deferred bond issue expenses incurred on the Gallery Towers Apartment project, which agreement has been canceled. - R.S.H. Associates, an existing Minnesota partnership,comprised of Cyril Sheehy, Gary Holmes, and Harold Roitenburg, propose to acquire the Fountain Development interest from the proceeds of a revenue bond issue of $6,290,000. We have met and discussed this matter with St. Joseph's Hospital and herein enclose a letter expressing their desires to see this matter appropriately handled which, in effect, would if approved relieve St. Joseph's Hospital of their annual guaranty. The items that can be accomplished by acquiring this facility with an 876 revenue bond issue � are: 1 . To relieve St. Josep.h's Hospital of its $550,000 annual guaranty, 2. To, by appropriate bond issue structuring, reduce the annual debt thereby making the project more viable, and 3. Strengthen the security by a partnership comprised of three persons of substantial means. d Board of Commissioners Nov. 19, 1979 Page -2- The property has been appraised by William H. Muske and the values are as follows: Cost appro.ach - $7,446,000; income approach - $7,064,000; and market approach - $6,678,000. The facility is built on air rights purchased from the City of St. Paul atop the City's Block 7-A parking ramp, adjacent and connected to the Science Museum by a Galleria and connected to the Glasrud Condominium project by the same Galleria. It can be a vital center but the facility has been somewhat slow in rent up as exclusively a medical office build- ing. This has been changed now to provide corrmercial space for office facilities, and as of the date of this memo 62.5% of the facility is either rented or in final rent negotiations. The building contains 135,091 square feet of space of which 97,625 square feet are rentable area. This is equal to 72� of the gross. The evaluation based upon income approach to value indicates that the project will produce an estimated net annual income of $652,167 at 95� occupancy. Debt service at current interest rates is estimated to be $572,340.48. The office space is presently renting on a gross square foot basis of $11 .50 with an operating expense stop at $3.50 per square foot, or a net rental of $8.00. The corrnnercial space is currently renting at $13.50 per square foot with a $5.50 expense stop. In the opinion of the appraiser this is well within the appropriate market rate, and in most cases sub- stantially less than other new facilities are renting for. Therefore, it is the appraiser's opinion that this facility wi11 rent up by 1981 and that the project is viable. Based upon the 62.8� of the building curren�ly leased drawing an estimated rental of $409,560 there would be a short fall between debt service and income of $162,780 per year if no � additional space were leased. 2. FINANCING In considering this project and in evaluating the fact that the project must rent substantial additional space to be viable, staff has •carefully evaluated the partnership and its net worth and recommended certain criteria as a prerequisite to Port Authority approval . There will be established from the bond sale a tenant improvement fund of approximately $770,000 which will be held in reserve by the Port Authority until all the tenant improvements are made. The interest accruing on this tenant improvement reserve will remain in the reserve fund for a period of three years, at which time it may be used by the tenant for any appropriate purpose. Board of Commissioners Nov. 19, 1979 Page -3- The partnership will provide equity over and above the� purchase price of not less than $500,000 either in the form of cash to be placed in a reserve fund or, if any amount of this equity is expended for necessary work prior to closing, show evidence of such expenditure and payment therefor. The partnership will obtain from St. Joseph's Hospital a guaranty equal to $414,000 which shall be to offset any rent up deficits incurred during the first three years. The partnership shall provide a letter of credit in the amount of $330,00 as further coverage for any short fall which may exceed the amount guaranteed by St. Joseph's Hospital . In effect, the current St. Joseph's guaranty of $550,000 per year for seven years will be reduced to a total of $414,000.00. 3. UNDERWRITING Miller & Schroeder has submitted an underwriting agreement based upon a November closing at a rate not to exceed 8.25�, Such underwriting is subject to obtaining a Standard & Poor's "A" rating as is customary on Resolution 876 bond issues. 4. TERMS OF THE LEASE The terms of the lease are proposed to be 30 years, or more precisely 359-1/2 months, with an option to purchase the facility and the air rights when the bonds are amortized for $1 .00. The Port Authority will receive its customary bond expenses and legal fees from the issue and fiscal and administrative fees based-upon .36� per million per year for the first 10 years; .48% per million per year for the second 10 years; and .60� per million per year for the final 10 years. 5, RECbMMENDATION Staff has discussed this matter with officials and members of the Board of St. Joseph's Hospital and has reviewed the partnership and the current status of the facility in detail . While the building is already completed we have considered our recomrnendations very thoroughly. To make this project viable, which we are convinced it will be based upon the conditions set forth which the new partnership must meet, we feel it is appropri�ate for the Port Authority to consider use of its bonding powers to acquire the building, and thereby also relieve St. Joseph's Hospital of a serious impact on their cash flow during the rent up period. That obligation will now be the responsibility of the new partnership and it is on this basis that we recommend approval of Resolution No. 1571 . �' i . Board of Comnissioners Nov. 19, 1979 Page -4- The agreement as recommended proposes an option when the project is amortized for $1 .00. Since the Notice of Sale and the Public Hearing were canceled, a Public Hearing will be held on December 10 to act on the sale of property and the issuance of bonds. 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PAUL, MINN. 55102 • PHONE (612) 224-5686 November 20, 1979 Mr. Gary Stout Director Department of Planning and Economic Development City of St. Paul 14th Floor, City Hall Annex St. Paul , Minnesota 55102 SUBJECT: GALLERY PROFESSIONAL BUILDING $6,290,000 REVENUE BOND FINANCING Dear Gary: We submit herewith for your review and referral to the office of the Mayor, City Council and the City Attorney's office details pertaining to the issuance of revenue bonds to finance the acquisition of the Gallery Professional Building by R.S.H. Associates, a Minnesota partnership comprised of Cyril Sheehy, Gary Holmes and Harold Roitenburg. In addition to the staff inemorandum, we are attaching a draft copy of the proposed City Council Resolution and a copy of Port Authority Resolution No. 1571 which authorized the sale of bonds in the amount of $6,290,000. Your expeditious handling of this matter will be appreciated. � Yours truly, ��; ` � �� `�.._,.�'_ �`(. Eugen��A` � ra��t�'�`"'`� Assistant Exec�tive Vice President EAK:jmo cc: R. Broeker P.S. Relative to our conversation, this should be approved on the llth but in no event sooner because the action would be illegal . Our Board will act on the presecribed public hearing on December 10, at 2:00 p.� i�OBERT F.SPRAFKA EUGENE A.KRAUT,C.I.D. DONALD G.DUNSHEE,C.I.D. CLIFFORD E RAMSTED RONALD O �C'� ,'7JiNE VICE PRESIDENT ASSISiAM EXECUTIVE VICE PRESIDENT DIRECTOR,INDUSTRIAL DEVELOPMENT CHIEF ENGINEER CHIEF ACCOU��IA`I' �;OMMISSIONERS GEORGE W.WINTER RUBY HUNT ARTHUR N.GOODMAN G.RICHARD SLADE DAVID HOZZA LOUIS H. MEYERS WILLIAM J S�- PRESIDFNI VICE PRESIDENT SECREtARV TREASItRER � ,_ , - r- �:, �, . ,- •r� � �'��"� '� � F 4 N �. _ :1 � �1TY op CITY OF SAINT PAUL >,�0$ � ; � DEPARTMENT OF PLANNING AND ECONOMIC DEVELOPMENT � uuu tun �� • uu �u u r,"• ^°� . GARY E. STOUT, DIRECTOR � ,� �86� �d`�w� 25 West Fourth Street,Saint Paul,Minnesota 55102 GEORGE LATIMER 612-298-5775 MAYOR �� DATE: November 27, 1979 �� `�� Q� TO: Peter Hames � �� FROM: Gary Stout �� i SUBJECT: Attached Resolution - � Gallery Professional Building _ Gene Kraut has requested that this resolution be scheduled for action by the City Council on December 11. It is quite important that this be scheduled for December 11 since the publi� .#�� is oa.. Dec� 1.0 and s�c� a c�e2ay after Dec�r�:I1 jeo�d�zes the project. If this request creates a problem, Gene and I will need to work out a solution. GS:co Attachment cc: Doug Ford Gene Kraut Rose Mix Jim Hart • ♦ �� U " � • �