HomeMy WebLinkAbout03-12-09 HEDRA IV c Rehab ProgramsMarch 6, 2009
TO: HEDRA Board
FROM: John Grossman
RE: REHABILITATION PROGRAMS
Rehabilitation programs provide financial assistance for owners making improvements to
existing structures such as remodeling inside and out, building systems updates, code
required changes, energy improvements, and historic restoration.
Rehabilitation assistance is good public policy. The work is typically done by local
contractors and their employees. Rehab preserves and converts sound existing buildings
for new uses. It revitalizes neighborhoods. It preserves historic structures, also good for
tourism. It makes commercial and residential space available at affordable rents.
The current budget includes funds for residential loans for owner occupied and rental
properties ($200,000), residential emergency grants ($5,000), commercial loans or
interest reductions ($80,000) and fire safety grants for mixed use buildings ($20,000).
All the loan programs have the same terms: 0% interest, no payments for 12 months after
first draw or completion, then installment payments begin at 4 % interest for 48 months,
going up to 9% interest for 60 months or until loan paid off. The term is typically 10
years although statute allows twenty years. If the loan was paid off over 10 years, the
interest rate averages out to around 5%.The HRA considered the 9% adjustment an
incentive to pay off the loan early, so the funds could be used for another project. The
terms also give the most assistance up front, when the owner needs it the most. There are
currently five active residential loans.
The residential grant program is for hardship cases where a life, safety and health issue is
involved, such as furnaces, utility repair, or handicapped access. The grant is usually
structured as a 5-year year loan without interest, with 20% forgiven each year the
borrower remains in the property. We have made four grants in the past 15 years.
For commercial projects, the programs are two approaches to providing assistance. An
installment loan can be made directly to the owner for up to 25% of the costs. We
consider a loan of 25% of the entire project. For example, if an owner had invested
$200,000 in improvements and asked HEDRA for $50,000 to complete the project, we
would consider a loan of $50,000 to be 20% of a $250,000 project. There is one active
commercial installment loan.
A commercial loan interest reduction is a payment is made to the bank (and owner) to be
applied to the banks? rehab loan. It is limited to $30,000 per building. The amount
represents a 6% reduction of interest on a $200,000 loan (program limit) for 20 years.
This is a deferred loan, without interest, payable upon sale, secured by a mortgage. There
are five active interest reduction loans.
HEDRA is not limited to these approaches. Commercial projects, in particular, are all
different in some way, and the most efficient use of financial assistance may be different
too. Staff may propose a variety of tools: loan participation, loan guarantee, deferred
loan, single pay note, assessment abatement or tax increment. The Board may also waive
or change some of the conditions in the written programs for a specific project and
reason. A few conditions are statutory.
HASTINGS ECONOMIC DEVELOPMENT & REDEVELOPMENT AUTHORITY
OWNER-OCCUPIED REHABILITATION
PUBLIC PURPOSE. Supplemental financing of building improvements which accomplish one
or more of the following purposes: to preserve and improve affordable housing; to preserve and
make appropriate improvements to buildings which contribute to neighborhood appearance or
the historic character of the community; to correct conditions which threaten the health, safety
and welfare of the residents.
FORM OF ASSISTANCE. The HEDRA will lend funds for half of the costs, up to a limit of
$20,000 per property. The property owner will have to pay for or secure a bank loan for balance
of the costs.
APPLICATION PROCEDURE.
1. Complete the attached application for the HEDRA to determine if the project meets their
program criteria. The application form is only a summary of the work, costs and sources of
funds. In addition, document the work and costs with photographs, drawings, plans and
specifications, written and signed bids, etc.The HEDRA Director (480-2347) can advise on
what is needed.
2. If necessary, arrange with your bank to borrow the amount you need for the balance. Ask the
bank to write the HEDRA using the attached form letter.
3. If the loan is approved by both the HEDRA Board and the bank, the loan proceeds will be
disbursed at agreed intervals upon submission of invoices and demonstrated progress.
REQUIREMENTS
1. If CDBG funds are used, the household income must be within the limits set by HUD
annually for low-moderate income in the Metro Area. The current income limits are available
from the HEDRA staff.
2. If the CDBG funds are not used, the HEDRA may consider waiving the household income
limits if other community needs are met such as the preservation of designated historic buildings
and emergency replacement/repair for health and safety.
3. Work must conform to building codes and structural maintenance codes. The borrower must
secure building permits and if necessary, certificates of occupancy as required by city ordinance.
The contractor must be licensed or exempt by ordinance.
4. If the property is a designated heritage preservation site or contributing to a district, exterior
work must be approved by the City?s Heritage Preservation Commission. A copy of the
Certificate of Approval will be provided to the HEDRA.
5. The assistance funds must be spent on improvements to the residential building such as material and
labor for interior and exterior replacement, repair and remodeling, HVAC, electrical and plumbing
systems, health and safety, access and energy requirements, code compliance, design and fees.
Demolition, additions, improvements to the grounds and repairs to accessory buildings must be
specifically requested by the borrower and approved by the HEDRA.
STANDARD TERMS.
1. The HEDRA loan may be up to $20,000 but will not exceed 50% of the rehabilitation costs (purchase
not included). The remaining 50% is provided by the owner and/or the bank loan.
2. A project agreement, mortgage, note and other security documents will be executed by the HEDRA
and the borrower.
3. Typically, the term of the loan is 10 years. Starting with the first draw on the loan, the interest rate is 0
for the first 12 months and 4% for the next 48 months, and 9% thereafter.
4. The HEDRA board will consider a grant or forgivable loan for some or all of the costs in specific,
documented, cases of hardship.
ADDITIONAL MATERIAL NEEDED FOR APPROVAL
a. Contractor?s written and signed bids, and agreement or contract form specifying materials and labor to
complete the work.
b. Building permit application.
c. City Planning application if required for variance, relocation, or special use.
d. Preservation Commission Certificate of Approval if property is designated Historic.
e. Lender?s letter for the owner?s 50% of the funding.
f. Information for loan documents.
HASTINGS ECONOMIC DEVELOPMENT & REDEVELOPMENT AUTHORITY
Owner-occupied Rehabilitation Loan Program
APPLICANT__________________________________________________Phone__________________
Property address_______________________________________________________________________
Mailing address if different________________________________________________________
General description of work (add drawings, photographs and additional pages as necessary):
____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
PROJECT COSTS
Mechanical, HVAC __________________________ Plumbing ________________________________
Electrical, lighting ___________________________ Appliances________________________________
Structural, walls _____________________________Roof, skylights ____________________________
Windows, doors _____________________________Carpets, floors ____________________________
Exterior ___________________________________ Architect, Engineer_________________________
Demolition _________________________________ Permits, fees _____________________________
Total estimated costs _____________________________________
HEDRA LOAN AMOUNT REQUESTED: $_________________________
Bank loan $__________________________________ Owners cash $_____________________
Bank name: ________________________________________________________________________
Address _____________________________________________________________________________
Person to contact _____________________________________ phone __________________________
PROPERTY OWNERS
Name(s) ____________________________________________________________________________
Signature_____________________________________________ date___________________________
INFORMATION FOR HEDRA LOAN DOCUMENTS
1. Name, address and legal status of borrowers: corporation, partnership, husband and
wife
2. If purchasing on contract for deed, give name, address and phone of fee owner:
3. Legal description of property where work is to be done and to be mortgaged:
4. Principle amount, interest and term of loan.
Principle: $___________________________
4% interest starting one year after first draw for four years; 9% interest following five
years or until paid in full.
5. Brief description of the nature of the work done with the loan.
6. Mortgages or liens already recorded on the property.
Applicant will provide information for each existing mortgagor or lien holder: name of
lender, date of document, dollar amount of mortgage or lien, the document number and
the date it was recorded by county. Give the current balance of each.
7. The cost of preparing and filing legal documents to secure the loan will be added to
mortgage amount. This rarely exceeds $300. Indicate if you prefer to pay them at the
time of signing the documents.
8. Full legal names, middle initials (and if a business, titles) of those signing note and
mortgage:
9. Work is to be started by ________________ and finished by__________________
10. Other requirements:
Building permits for work as required by code
Preservation Commission approval for Designated Historic Properties
Documentation of owner?s household income
BANK?S LETTER
(LETTERHEAD)
date
John Grossman
Hastings Economic Development and Redevelopment Authority
th
City Hall, 101 E 4 St.
Hastings MN 55033
RE: name of applicant and address of property
Dear Mr. Grossman,
This letter is evidence of our willingness to lend $ ________________to the above
applicant for the rehabilitation project which may also be funded in part by the Hastings
Economic Development and Redevelopment Authority.
The loan will be for a term of ______________________ and at a rate of
_______________ %.
Yours truly,
_____________________
ResRehabApp.Owner
HASTINGS ECONOMIC DEVELOPMENT AND REDEVELOPMENT
AUTHORITY
PROGRAM REGULATIONS
COMMERCIAL REHABILITATION LOAN & INTEREST RATE REDUCTION
The City of Hastings, by Ordinance, authorized the Housing and Redevelopment
Authority in and for the City of Hastings to administer a local Commercial Rehabilitation
Loan Program in accordance with Minnesota Statutes, Section 469.184. Minnesota
Statutes Section 469.012, Subdivision 7 (7) authorized the HRA to develop and
administer an Interest Reduction Program to pay, in periodic payments or in a lump sum
payment, any or all the interest on loans made under 469.184 for the rehabilitation of
small and medium-sized commercial buildings.
The HEDRA, as successor to the HRA, does hereby establish program guidelines to be
used in conjunction with the commercial loan and interest rate reduction programs.
These program regulations have been adopted by the HEDRA Board on ____________,
incorporating the changes made by HRA Resolution No. 4-2006, and the reauthorization
of the program by City Council on December 4, 2006, for a period ending December 31,
2011.
I. FOR BOTH DIRECT LOANS AND INTEREST REDUCTIONS.
A. ELIGIBLE BORROWERS: Owners of property meeting the size and location
standards of the Program as described in under C. Owners may be individuals,
partnerships, corporations or joint ventures. Owners include Contract for Deed
purchasers with the fee owners? consent.
B. LENDERS: The loans will be made by HEDRA or, subject to HEDRA
approval, by other financial institutions.
C. PROPERTY ELIGIBILITY:
1.Small and Medium Sized Commercial Building: A commercial building
with less than 40,000 square feet of floor space used for retail, service,
display, office, inventory or storage.
2.Eligible Geographic Area: A property must be located within a City-
designated redevelopment project area. There are currently two project
areas: Downtown and Vermillion Street. The building must also be located
on property zoned for the commercial use as defined in the City of
Hastings Zoning Ordinance.
D. THE IMPROVEMENTS
1.Exterior improvement: Changes to exterior of a building will be in
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conformance to the Heart of Hastings Design Guidelines, or Vermillion
Street Development Guidelines. Work on designated Hastings Heritage
Preservation properties must have a Certificate of Approval from the
Heritage Preservation Commission.
2.Building Codes: Repairs and improvements to the building will be in
compliance with the City and State Building Codes. The work must have
a Building Permit.
3.Work which may be included in the direct loan or the interest reduction:
a)Restoration and repair of existing materials and architectural
features of the exterior of the building and exterior and the interior
commercial space in the building.
b)Replacement of missing or deteriorated original materials and
architectural features.
c)Repair and maintenance of the building including the structural
stability and integrity of roof, walls, floors and ceilings. Necessary
infrastructure repair or replacement.
d)Interior and exterior remodeling:
Reconfigure spaces for new uses.
Code improvements such as fire safety and access.
Energy-related improvements such as insulation,
windows, heating and cooling systems.
Appearance-related improvement such as awnings, doors,
windows, siding and painting.
Flooring, wall and ceiling treatments, electric fixtures.
e)Site improvements including parking lot and landscaping.
Replacement of non-conforming or unsightly signage.
4. Residential space: Repairs and improvements to the residential portion
of a building meeting the definition of small or medium sized commercial
building are permitted but shall not exceed 49% of the total cost of the
work.
5. Eligible Rehabilitation Expenses
a.Construction material
b.Labor, unless performed by the owner or the owner?s employees
c.Architect and engineer
d.Attorney, closing and recording fees
e.Bank fees, including any loan service charges, appraisal fees,
credit reports, inspection, abstract and filing fees, registration
taxes, attorney opinions, and title insurance premiums.
f.Building permit, SAC & WAC fees
g.Construction period interest
6. Ineligible Expenses. Refinancing or existing debt as a loan expenditure
is not permitted. Work will not include acquisition, installation or repair of
personal property, moveable furnishings, or of fixtures that not allowed
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under IRS regulations to be depreciated at the same rate as the buildings.
7. HEDRA?s costs in making a loan or interest reduction, including staff,
consultant, legal and recording fees will be added to the principal amount
of the installment loan or to the interest reduction for reimbursement.
E. BUSINESS SUBSIDY. The loan or interest reduction may be a Business
Subsidy under state law if the amount exceeds $150,000 or more than 50% of the
total project cost. A subsidy requires a hearing, possibly the creation of jobs,
continued operation of the business for five years and a reporting and
reimbursement agreement.
F. PRIORITIES. The following public purposes will be given preference:
1.Work which contributes to the area redevelopment plan.
2.Work which brings the building entirely up to code.
3.Work which improves the appearance of the building or site.
4.Work which makes space available for locally-owned business and/or the
creation of new local jobs.
5.Work which combines improvement to commercial and residential spaces.
6.Work which includes historic preservation and restoration.
G. AVAILABILITY OF FUNDS. Meeting the requirements does not imply a
right to a loan or interest reduction. Consideration of applications is always
subject to the availability of funds at the sole discretion of the HEDRA.
H. DEMONSTRATION OF NEED. Public funds are limited and directed
towards projects where the need is greatest. A statement and documentation of
the need for assistance is expected. Types of need that may be considered are:
1.The potential increase in revenues does not cover the costs of the
rehabilitation; proforma income, expenses and debt service.
2.The improvement does not necessarily translate into higher rents or value.
3.Private lenders do not provide all the funds needed to complete the
rehabilitation; lending limits, loan to value ratios, etc.
4.The work is required by code or immediate maintenance and it will take
time to recover the costs.
II. DIRECT HEDRA LOAN
A.HEDRA IS THE LENDER. The financial feasibility of the project and the credit
of the borrower will be assessed by HEDRA staff and consultants. The same
building is eligible no more than once every five years. The HEDRA may make
an exception for emergency repair or a phased project.
B.AMOUNT OF THE LOAN. The maximum loan will be 25% of the costs per
building unless the Board specifically approves a higher amount, justified by
unusual circumstances. Regardless, the loan cannot exceed $200,000 per
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building.
C.INSTALLMENT LOAN. The owner will be billed monthly for principal and
interest. No payments are required for the first 12 months. The balance may be
paid at any time without penalty. The HEDRA?s interest in the property will be
secured by a lien or mortgage.
D.TERMS
1.Rate: No interest is charged for the first 12 months. Monthly payments
at 4% interest start 12 months after the first draw. Starting in year five,
and continuing until the loan is paid in full the interest rate is 9%.
2.Term: The normal term is 10 years, but cannot exceed 20 years.
3.A loan cannot exceed 80% of the market value of the property upon
completion of the rehabilitation, less the outstanding balance of any
prior mortgages.
E. REQUIREMENTS .
1.The owner submits the application with estimated costs and preliminary
plans or descriptions of the work to staff.
2.Approval of the application will be contingent upon acceptable final plans,
cost estimates and city approvals. Work is not to start until final approval
of the loan and city approvals and permits are secured.
3.The HEDRA may, at its sole discretion, consider a loan for a project
which has been financed, secured city approvals and permits and is under
way.
4.The owner may draw against the loan monthly, by providing the staff
copies of invoices showing payment and/or cancelled checks with a list of
the work for which the payment was made.
5.Before the first draw, the owner will sign an agreement, a note and
execute a mortgage. The repayment obligation will be secured by a lien
recorded against the rehabilitated property.
III. INTEREST REDUCTION PAYMENT
A.INTEREST REDUCTION: This form of assistance is an alternative to a
direct loan from HEDRA. It may be more appropriate for a project that
exceeds the HEDRA?s loan limit. The payment is made to the lender and
owner jointly to reduce the cost of interest on a loan which meets the other
requirements included in this regulation. Work on the same building is
eligible no more than once every five years. The HEDRA may make an
exception for emergency repair or a phased project.
B.AMOUNT OF REDUCTION: The payment shall not exceed an amount that
would have the effect of reducing the interest rate by 6 percent per annum
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from current market rates, but not lower than 3 percent. The maximum
interest reduction amount will be $30,000 per building, unless the Board
specifically approves a higher amount, justified by unusual circumstances.
C.REPAYMENT: The interest reduction payment will be repaid to the HEDRA
upon the sale of the property as described in Minnesota Statutes 469.012.
Subd 9. The HEDRA?s interest in the property will be secured by a lien or
mortgage.
D.THE LOAN: Property owners must borrow the funds for the work in order to
qualify for this program. The amount of assistance is calculated on the
interest to be paid on the loan. Most lending institutions are acceptable.
1.Rate: The maximum rate for fixed rate loans or initial rate for variable
rate loans may not exceed a rate in excess of the equivalent of national
prime rate (as published in the Wall Street Journal) plus 4 percentage
points.
2.Term: No loan shall be made for a period exceeding 20 years. Loans
must be for a minimum term of five years to be eligible for the interest
rate subsidy.
3.Amount: The loan may not be in excess of $200,000 per building. If a
large loan is necessary, only $200,000 will qualify for interest
reduction. Lenders, at their sole discretion, may advance up to 20
percent of the approved loan amount to cover cost overruns as long as
the work performed meets all requirements of the program and is
consistent with the project presented to HEDRA. Any additional
advances covered by this section will be included in the final loan
amount and be covered by the interest rate reduction subsidy.
4.A loan cannot exceed 80% of the market value of the property upon
completion of the rehabilitation, less the outstanding balance of any
prior mortgages.
E. REQUIREMENTS .
1.The Lender must write a letter to the HEDRA stating their preliminary
approval, the principal amount of their loan, the interest rate, fixed or
variable, and the term.
2.The owner submits the application with estimated costs and
preliminary plans or descriptions of the work.
3.Preliminary approval of the application will be contingent upon
acceptable final plans, evidence of financing and city approvals being
provided. Work is not to start until final approval of the loan and
interest reduction and city approvals and permits are secured.
4.The HEDRA may, at its sole discretion, consider an interest reduction
application for a project which has been financed, secured city
approvals and permits and is under way.
5.Final approval of the application will include plans and descriptions,
the lender?s letter, and City approvals. The interest reduction payment
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will be contingent upon project completion. The owner will provide
the staff copies of invoices showing payment and/or cancelled checks
with a list of the work for which the payment was made. The payment
will be made to the lender and the owner jointly. The lender will
apply the payment to the loan.
6.On receipt of the payment the owner will sign an agreement, a note
and execute a lien obligating the applicant to make the repayment
when the subject property is sold, transferred or disposed of by the
applicant. The repayment obligation will be secured by a lien recorded
against the rehabilitated property. The amount of repayment is
described in the attached copy of Minnesota Statutes 469.012 Subd 9.
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