07-555Council File # �� �✓`✓�
Green Sheet # 3040751
RESOLUTION
SAINT PAUL, MINNESOTA
1�
1 RE5 tiTION THORIZING SUBORDINATING THE CITY'S STAR LOAN TO $400,000 OF
2 ADDITIONAL BT FOR IMPROVEMENTS TO THE MCl1'ALLY-SNIITH MUSIC COLLEGE, WARD 2,
3 DISTRICT 17.
5 WHEREAS, on September 26, 2001, The City of Saint Paul made a$500,000 STAR Loan to the McNally
6 Smith Music College (at the rime known as Music Tech), secured by a Mortgage, Security Agreement, and
7 Fixture Financing Statement; and
9 WHEREAS, at that time the STAR loan was subordinated to more than $2 million in other debt including
l0 loans made by Wells Fargo Bank (in first position) and the United States Small Business Administration
11 (in second position); and
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i3 WHEREAS, the McNally-Smith Music College is and has been current on its loan payments since the first
14 payment became due, and now has a loan balance of approximately $442,000; and
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16 WHEREAS, on January 10, 2007, by Resolution Number 07-21, the City Council authorized
17 subordination of the City's STAR loan to additional debt for improvements to the McNally-Smith Music
18 College; and
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20 WHEREAS, the McNaliy-Smith Music College plans to make additional improvements including
21 installing a sprinkler system, replacing flooring, and reconstructing the entrance at the northeast comer, for
22 which Wells Fargo has approved an additional $400,000 loan provided the SBA and the City subordinate
23 their existing loans to this new debt ; and
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WHEREAS, an appraisal indicates there would be more than sufficient collateral value to secure the City
STAR loan in the event of default, and the operating statement indicates there would be more than
sufficient income to service the new debt; and
WHEREAS, the PED Credit Committee, at its meeting on Ju1y 2, 2007, approved the subordination of the
STAR loan subject to the approval of the PED Director and the City Council;
32 NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Saint Paul, Minnesota
33 hereby approves the subordination of its exis6ng STAR loan to $400,000 in new debt from Wells Fargo
34 Bank; and
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36 BE IT FURTHER RESOLVED that the Director of the Department of Planning and Economic
3� Development of the City of Saint Paul is hereby authorized to execute such agreements as are necessary to
38 implement this subordination.
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Resolution # (��j
Benanav
Bostrom
Harris
Helgen
Adopted by Council: Date
Adoption Certified by
BY� 1/ / /G//L
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I
Secretary
Requested by Department of.
Plannin a 'Econo 'c Dev ment
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By:
� Form
"``' By.
v
Form
By:
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� Green Sheet Green Sheet Green Sheet Green Sheet Green Sheet Green Sheet �
Departmentloffice/council: Date Initiated: .
PE - Plannin�&EconortucDevelopment 13-JUN-07 Green Sheet NO: 3040751
Contact Person 8 Pttone:
Craig BlakeVy
266$697
Must Be on Council Agenda by (Date):
lt-JUL-�7 ,
Doc. RESOLUTION
E-Document Required: N
Document Contact:
Contact Phone:
0 Plannine&EconomicDevelopmei Acconntin9 _��y�l
1 Pianoins&EconomicDevelopme� Depar�entpirector �
2 CiNAttorneV CitvAHOrneV
3 11avoYS O�ce Mavor/ASSistaut
4 Council C7tyCouncil
5 Citv Clerk CiN Cterk
Total�# of Signature Pages _(Clip All Locations for Signature)
Reso]ution approving subordination of the STAR loan to $60Q000 in additional debt for improvements to the McNally Smith Music
College.
, Recommendations. Approve (A) or Reject (R): Personal Service Contracts Must AnsWer the Following Questions:
Pianning Commission ' 1, Has this person/firm ever worked under a contract for this department?
' CIB Committee Yes No
' Civil Service Commission 2 Has this person/firm ever been a city employee?
Yes No
' 3. Does this person/firm possess a skill not normally possessetl by any
current city employee?
�, '�i Yes No
' Explain all yes answers on separate sheet antl attach to green sheet
' Initiating Problem, Issues, Opportunity (Who, What, When, Where, Why):
The McNally Smith Music College wants to make improvements to their bnilding and Wells Fazgo Bank has approved making a
,$40Q000 loan provided the City subordinates its ]oan.
, Advantages ff Approved:
� The MeNa(ly Smith Music College will be able to make improvements to their building, including replacing the northeast entrance,
which wi11 maintain the vatue of the building, which is the cotlateral for the Ciry's loan. ,
Disadvantages It Approved:
None.
�
Assign
Number
For
Routing
Order
'� f� k � �� � �ty" � �.
�-�� �`�
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� Disadvantages If Not Approved:
The improvements to the building will not be made and the value of the Ciry's collatecal will decline. ���� �a �'��j�
�J
Transaction: $�
Funding Source:
Financial Information:
(Explatn)
,Activity Num4er:- _ ,
��. �� nR�p
CostlRevenue Budgeted:
RECEIVED �
JUN 2 a Zppl '
i
MAYOR'S OFFIGE
June 13, 2007 11:13 AM Page 1
D 7- 555
Interdepartmental Memorandum
CITY OF SAINT PAUL
TO: Council President Kathy Lantry
Councilmember Jay Benanav
Councilmember Dan Bostrom
Councilmember Pat Harris
Councilmember Lee Helgen
Councilmember Deborah Montgomery
Councilmember David Thune
FROM: Craig Blakely, 266.6697
SUBJECT: McNally Smith Music College 2 Subordination Request
DATE: Jnly 3, 2007
On the consent agenda last Wednesday, June 27�', was a resolution authorizing the City to
subordinate its STAR loan to additional debt the McNally Smith Music College wants to take on
to fund improvements to the building. On my Green Sheet (#3040751) I had scheduled it for the
July ll`�' meeting, because I was on vacation until July 2 because the PED Credit Committee
did not meet until July 2 and becaixse I wanted to forward this memo giving you some
background on the request. Unfortunately, it was put on the Agenda for the 27� and laid over
until July 5�'. In this memo, I would like to provide some background on the request to
subordinate our STAR loan, and address some of the issues that surfaced at the City Council
meeting on June 27
1. Request to subordinate to additional debt to Wells Fargo.
This is the second request McNally Smith Music College has made to subordinate our loan this
year, coming just 6 months after the January 10, 2007 meeting where the City Council (by
Resolution Number 07-21) authorized subordination of the City's STAR loan to additionai debt
from Wells Fargo Bank.
. On September 26, 2001 the City made a$500,000 amortizing STAR loan (20-yeaz,
5.5%), secured by a Mortgage, Security Agreement, and Fixrixre Financing Statement.
The loan is current, its balance is about $442,000, and the College is in good financial
shape. The loan is subordinated to Wells Fargo ($1,115,000), the SBA ($1,024,000), and
the $600,000 loan Wells Fargo made in January.
• They aze asking to subordinate the City loan to $400,000 in new debt from Wells Fargo.
Including the other debt to Wells Fargo and the SBA, the total debt ahead of us will be
just over $3.1 million.
AA-ADA-EEO EMPLOYER
p7-5�5
• They intend to install a sprinkler system in the basement offices, replace flooring, and
reconstruct the entrance at the northeast corner, which is the main entrance for the Great
American History Theater.
• There is an old bank appraisal of $5.1 million which is acceptable for bank purposes, and
the current value listed on the Ramsey County Records and Revenue web site is much
higher -- over $19 million on June 11, 2007.
• The PED Credit Committee met on July 2, 2007 and approved the subordination of the
STAR loan subject to the approval of the PED Director and the City CounciL I
recommend approval of the subordination because the borrower is current on their STAR
loan, because the financing will improve the exterior appeazance of the building, and
because this investment will help maintain the value of our collateral.
2. ��Museum Park" issues.
At the Council Meeting on June 27�', the question was raised as to how this request might affect
developing a City park or play space on the strip of land at the southern edge of the McNally
Smith Music College across the street from the Fitzgerald Theater, sometimes referred to as
"Museum Park." The question is anchored in whether or not the property was ever a dedicated
park in the inventory of the Parks Department, about which I have the following to report.
• Bob Bierscheid, Jody Martinez, and Brian Belfanz of the Parks Department report that
there is no record in their department that the property was ever a dedicated City park, an
opinion also shared by John Wirka, who is in a position to laiow from his long tenure in
the Parks Deparhnent.
• Bruce Englebrekt of the Real Estate Division has looked at deeds and property transfers
on the site going back to 1850 and reports that he found no record of any restriction,
limitation, dedication, declazation, or covenant saying the property should be park land.
• I reviewed the real estate closing documents dated September 26, 2001 by which the
HRA conveyed title to the property by quit claim deed to Music Tech (now called
McNally Smith Music College). These include the Contract for the Sale of Land for
Private Redevelopment between the HRA and Music Tech, and found no reference to
any park land.
• In two sections (3A1 Conveyance of Property and 5.01 Restrictions) the Contract for
Sale of Land does specify certain permitted encumbrances including the easement for
and the obligation to maintain the skyway across Wabasha Street, the rights of the
History Theater to remain as a tenant, and an easement for developing a skyway across
Exchange Street in the future, should that ever prove feasible, but there is no mention of
any park land dedication ar easement. If there had been, it would certainly have shown
up in one or another of these sections.
• Because the land in qnestion has been used as a public space by the Science Museum,
and for various functions held at the Fitzgerald Theater (including the periodic Prairie
Home Companion block parties), some may have perceived of it as a public park, but
there appears to be no legal basis to that claim. The sale of the land to the music college,
therefore, did not trigger the "no net loss of parkland" policy.
• The bottom line, therefore, is that the subordination of the City's STAR loan is an
entirely separate issue from the possible development of a dedicated City park or
playground on the site.
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