Loading...
Minutes 12/19/2006 PORT AUTHORITY OF THE CITY OF SAINT PAUL MINUTES OF THE REGULAR BOARD MEETING ✓'9i�i ��`�` 2 O 64 DECEMBER 19, 2006 ��� C <00, The meeting of the Port Authority Board was held on December 19, 2006 at 2:00 p.m. in the Board Room of the Port Authority of the City of Saint Paul, 1900 Landmark Towers, 345 St. Peter Street, St. Paul, Minnesota. The following Commissioners were present: - Dick Anfang - Dan Bostrom - John Regal - Nneka Morgan - Kathy Lantry - Scott Hutton Also present were the following: - Ken Johnson - Laurie Hansen - Laurie Siever - Tom Collins - Lorrie Louder - Bill Morin - Bruce Kessel - Pete Klein - Bruce Gehrke - Robyn Dixon - Terry Garvey, Assistant City Attorney - Scott Knudson Briggs & Morgan - Paul Thissen, Briggs & Morgan - Robyn Hansen, Leonard, Street & Deinard APPROVAL OF MINUTES Commissioner Lantry made a motion to approve the minutes from the regular meeting on November 28, 2006. The motion was seconded by Commissioner Regal and carried unanimously. CONFLICT OF INTEREST None of the Commissioners had a conflict with items which would be discussed at this meeting. NEW BUSINESS ADMINISTRATIVE COMMITTEE RESOLUTION NO. 4199 JOINT DEBT SUB-COMMITTEE REPORT Commissioner Morgan made a motion, stating the Administrative Committee had reviewed the report and recommended approval by the full Board. The motion was 37777.v1 -1- unanimously carried. A copy of Resolution No. 4199 is on file at the office of the Saint Paul Port Authority. RESOLUTION NO. 4200 FUND ALLOCATION Commissioner Morgan made a motion, stating the Administrative Committee had reviewed the Port Authority's fund allocation and recommended approval by the full Board. The motion was unanimously carried. A copy of Resolution No. 4200 is on file at the office of the Saint Paul Port Authority. CREDIT COMMITTEE RESOLUTION NO. 4201 PUBLIC HEARING —SALE OF LAND TRIPLE NET PROPERTIES, LLC - PURCHASE OF THE GALLERY PROFESSIONAL BUILDING IN SAINT PAUL Commissioner Regal made a motion, stating the Credit Committee reviewed the Triple Net Properties, LLC's proposal to purchase the Gallery Professional Building and recommended approval by the full Board. Chair Anfang stated that in accordance with Minnesota law, a public hearing is required to hear any comments from anyone regarding the sale of the Gallery Professional Building located in Saint Paul, Minnesota, to Triple Net Properties, LLC. No member of the public requested to address the Board; therefore, Chair Anfang declared the public hearing closed and asked Mr. Morin to address the Board. Mr. Morin reviewed his memorandum stating the property is located at the corner of St. Peter and Exchange Street and is connected by skyway to the St. Joseph's Hospital campus. The Port Authority has been involved with this property since 1980 when Series 1979-S bonds, in the amount of $6,370,000, were issued to finance initial construction of this project by Gallery Partnership. These bonds were issued pursuant to the Saint Paul Port Authority's Basic Resolution No. 876. In 1982, subsequent to the issuance of the 1979-S Bonds, Gallery Partnership assigned the project and the lease to Professional Partners of Saint Paul. Series 1983-R Bonds, in the amount of$2,800,000, were issued to provide funds to allow Exchange Street Partners to acquire the project from Professional Partners of Saint Paul, and to provide for additional improvements to the project. These Bonds were also issued pursuant to the Basic Resolution No. 876, and retired on May 1, 1987, under their default call provisions, from the proceeds of the 1987-F Bonds. 37777.v1 -2- The Series 1987-F Bonds, in the amount of $2,730,000, were issued to refund the 1983-R Bonds, using the default call provision. These Bonds were also issued pursuant to Basic Resolution No. 876. In 1989, a Taxable General Obligation Non-Tax Supported Development Note in the amount of $1,785,000 was issued pursuant to the Port Authority's General Resolution No. 2775, and sold to First Colony Life Insurance Company. This Note was used for improvements to the property and to facilitate the transaction. In 1996, Exchange Street Partners filed for Chapter 11 protection and entered into a settlement agreement and lease agreement with the Port Authority providing for the continued payment of rent and provisions to pay past due rent. In connection with the settlement agreement, the Port Authority and First Colony amended the payment terms of the Note. This amendment states that 18.64% of amounts received are paid to the holder of the 1989-3 Note. Genworth Financial now owns the First Colony Bonds. In 1999, the Port Authority took possession of the property because of Exchange Street Partners default on rent payments. Since 1999, the Port Authority has had the property professionally managed and leased. During the 1990's, St. Joseph's Hospital had contemplated closing and based on this information, it was very difficult to lease the property. In fact, there are leases in place that state if St. Joseph's closes, they could terminate their lease. When St. Joseph's announced an $80 million investment into this facility, the news was received favorably in the marketplace and in 2006, the investment market of commercial real estate has been very aggressive. Pricing has reached historical highs and Mr. Morin stated that in his professional opinion, now was the best time to sell the property which would result in maximizing the return on the bondholder's investments. In addition, the majority of leases at Gallery Professional building will be expiring between 2009 and 2012. Those leases will require significant reinvestment into the property which could be in excess of $1 million. In 2009 the Port Authority will lose $230,000 in cash flow, which they have received from HealthEast for over a decade as part of a settlement agreement which goes back to the origination of the property. Colliers, Turley, Martin, Tucker was hired to market this property. We were contacted by approximately 35 entities interested in the property and ultimately received two offers. Triple Net Properties, LLC submitted the best offer with the highest return to bondholders; therefore, the recommendation from management is to approve the sale. Mr. Johnson reminded the Board of the Port Authority's petition to end the 876 Fund, and that there is a minority group of bondholders who are challenging this petition. Since the time of the Credit Committee meeting, we have received a letter from the attorney representing that group of bondholders, making the allegation that all of the proceeds from this sale should go to the 876 Fund and should not be shared with Genworth Financial. They are not challenging the sale or the sale price; they are challenging the ultimate disposition of the proceeds. Management continues to recommend the sale of this property because it is strongly believed to be in the best interest of all the bondholders to achieve this sales price with this buyer for the benefit 37777.v1 -3- of the fund. Mr. Johnson then asked Robyn Hansen, bond counsel, to address the Board. Robyn Hansen stated that in 1989 the Port Authority issued a Note outside of Basic Resolution No. 876 which provided for tenant improvements and helped the building continue to generate some revenues. That Note was issued in addition to the two bond issues that were currently outstanding under the Basic Resolution. When the Note position occurred in 1989, the tenant currently in that building executed an amendment to the lease that provided for additional rent, and if the tenant had continued to perform in full and on time, would have been enough to pay both 876 Bond issues plus the new Note. Unfortunately the tenant didn't continue to perform and in 1996 filed bankruptcy. In the bankruptcy proceeding the tenant obtained a court ordered restructuring of the payments due under the lease that provided a little bit of a forbearance and breather for the tenant. That still wasn't enough and the tenant ultimately defaulted and the Port Authority repossessed the building. On the point of the disposition of the funds, the Basic Resolution has many references to the ability of the Port Authority to issue Bonds outside of the Resolution. It can issue Bonds with no pledge of revenues or if there is a project that already has some 876 Fund financing, it can issue Bonds that are payable on a parity. In addition there are many other references in the Resolution to make sure that as the Port Authority collects and disburses revenues, the debt service on these other secured bonds as they are called, are taken care of as well (as the funds flow down). As you know, it is a complicated fund flow mechanism, but at many different places the ability to pay debt service on other secured Bonds is provided for. We believe that the better argument under these documents is that the funds that are available from the sale should be used to pay both the 876 Bonds and the Note. The calculations that the Port Authority has done so far shows that the 876 Bonds will be made whole calculated against what would have been paid under that lease had it been performed. The Note that was issued outside of Resolution 876 would also be paid and then there would even be money left over to go back in the 876 Fund. Therefore, 876 will get technically more than it would have been entitled to had the building continued to perform and the other Note will be paid as well. Commissioner Lantry asked if the contention of the minority bondholders is that all sale proceeds should go to the 876 Fund and the other Note should not get paid. Robyn Hansen said from the very short email received that would appear what they are saying. Ken Johnson stated the bondholders imply that the Note would be the Port Authority's obligation for $1.5 million. Commissioner Lantry asked how the Port Authority allocated payments when the tenant went to court and the restructuring happened. Robyn Hansen stated it was her understanding that the allocations were made proportionately throughout the history of this. 37777.v1 -4- Commissioner Lantry said based on the information presented on the history of this project, the Port Authority is doing what we have always been doing, and it wasn't a problem when we started doing this or in 1996 when we had a court order, and now. Mr. Johnson confirmed Commissioner Lantry's statement. Commissioner Morgan stated the bondholders are getting more than they would have had the original tenant paid on time. Robyn Hansen confirmed this and further stated that if you measure against the original lease, the bondholders will end up getting more than they would have been entitled to had that tenant continued to perform. Commissioner Morgan asked if we factored in time value of money or if it was dollar for dollar. Laurie Hansen, Chief Financial Officer, stated it was dollar for dollar. Commissioner Regal asked if it were time value of money would it be less. Robyn Hansen stated the calculation done was based on if there had been a tenant that continued and if the tenant had been required to bring itself current, so that does reflect some level of time value. There is also the argument that this is what they were entitled to and that this other secured note holder shouldn't be required to stand behind the bigger deficit that is the 876 Fund; they only bargained to stand behind those two pieces of debt. Commissioner Lantry stated the only thing we are being asked is whether or not we should sell the building so it is up to the attorneys to figure out the rest. Our obligation is in determining if we should sell the building to this person for this price. Chair Anfang confirmed Commissioner Lantry's statement. Mr. Johnson agreed and stated that the Port Authority is in court again on the 876 petition this Thursday and this matter may be raised in front of the court by the other side and we are prepared to respond in court. The court may or may not make a decision on this matter but that is not the question before the Board today. Chair Anfang proceeded with the roll call vote with the Commissioners voting as follows: Commissioner Lantry - aye Commissioner Morgan - aye Commissioner Hutton - aye Commissioner Bostrom - aye Commissioner Regal - aye Chair - aye The motion carried unanimously. A copy of Resolution No. 4201 is on file at the office of the Saint Paul Port Authority. 37777.v1 -5- RESOLUTION NO. 4202 LAND AND FLEETING LEASE EXTENSIONS FOR 90 DAYS FOR UPPER RIVER SERVICES, LLC Commissioner Regal made a motion stating Resolution No. 4202 was reviewed by the Credit Committee and is being recommended to the full Board for approval. The motion carried unanimously. A copy of Resolution No. 4202 is on file at the office of the Saint Paul Port Authority. GENERAL MATTERS Commissioner Regal asked if there was any update on Resolution No. 4197 regarding the Empire Builder parcel. It came before the Board last month and was tabled. Mr. Johnson stated we did not have an update, but would at the January meeting. There being no further business, the meeting stood adjourned at 2:30 p.m. Dick Anfang, C al /Is 37777.v1 -6-