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4. Commercial Rehabilitation Loan Agreement ProposalsPlanning, Economic & Community Development Department P.O. Box 1997 Kalispell, MT 59903-1997 Date: To: From: Subject: iheCll�ot'KaIlsRell Incorporated 1892 Memorandum July 11, 1995 Larry Gallagher, PECD Director _ Ross Plambeck, Redevelopment Manager f=? Commercial Rehab Loan Program/KDC Recommendations 248 Third Avenue East (406) 758-7740 (406) 758-7739 (office fax) (406) 758-7758 (City Hall fax) As you will recall, back in 1980, the initial funding for the Commercial Rehab Loan Program was an economic development grant from HUD through the CDBG program. The federal regulations required the $100,000 grant for interest subsidy be awarded to a non-profit development corporation (KDQ and deposited in a bank for leveraging private capital. Norwest Bank took the risk to participate in a new and unique program that was a first of its kind for HUD, and administered the program for the last 15 years. In 1988, the City began using Tax Increment Funds to subsidize interest rates down to 3%. The use of TIF now allows more flexibility in the program than the original HUD program. At the KDC Executive Board meeting on July 11, 1995, my memo summarizing the proposals was discussed by the committee members. Several of the members suggested that the City make the program available to any of the Kalispell banks that wanted to participate in the program. All of the banks with officers present at the meeting agreed the program could be offered to Kalispell banks, allowing the loan applicants to work directly with the bank of their choice. Paul Wachholz, chairmen of the loan review committee, suggested the program have a rate and loan amount fixed by the City. He felt different rates and loan amounts established by each bank would cause confusion with the loan applicants as they tried to put their application together. He felt the integrity of the program needed to be maintained with a standardized rate for all applicants while allowing them to work with their own bank. Paul Wachholz made the motion: "On behalf of the KDC, recommend to the Kalispell City Council that the Commercial Rehab Loan Program be shared by the Kalispell banks that submitted a proposal per the July 5, 1995 RFP. The City will maintain a list of participating banks, and given to the applicants. The interest rate and loan limit to be established by the City Council." Motion seconded by Gordon Pirrie, and passed unanimously. Recommendations: As a way to increase the flexibility of the program by allowing the applicant to apply to the bank of their choice for the 3% loan, the City should establish the interest subsidy rate, and enter into an agreement with those Kalispell banks that submitted a proposal. It is also recommended to maintain the existing $40,000 loan limit per applicant with a 5 year payback as has been adopted by the Architectural Review Committee for the past several years. r-Fa eG;• �[t5sa3 0 Incorporated 1892 Planning, Economic & Community Development Department P.O. Box 1997 Kalispell, MT 59903-1997 Date: July 10, 1995 To: Larry Gallagher, PECD Director From: Ross Plambeck, Redevelopment Manager Subject: Request For Proposals/Commercial Rehab Loan Program Submittals: 248 Third Avenue East (406) 758-7740 (406) 758-7739 (office fax) (406) 758-7758 (City Hall fax) Eight banks were sent an RFP, sample draft Agreement and a 15 year summary Status Report. Six Kalispell banks indicated their interest in participating in the Commercial Rehabilitation Loan Program by submitting a proposal. As the table indicates below, there are a few variations in the proposals, but overall, they are all quite similar. PROGRAM INTEREST LOAN AMT NAME OF BANK AMOUNT RATE MAX TERM BankWest $400,000 9.50% $40,000 5 years First Interstate Bank $1,000,000 Prime + .50% $500 to $50,000 Up to 60 months Less than 36 months Prime + 1.0% (Loan Fee $150) More than 36 months First Security Bank $300,000 9.75% $25,000 5 years Glacier Bank $700,000 At prime as $200,000 5 years quoted in Wall Street Journal and fixed at time of closing for the term of the loan. Norwest Bank $400,000 100/0 $40,000 5 years Valley Bank $300,000 9.75% $50,000 5 years Whitefish Credit Union NO PROPOSALS SUBMITTED Security Federal DECLINED OFFER/NO COMMERCIAL LOAN OFFICER Comments on the Proposals: o The City will commit a fixed amount for one year of $100,000 to the program for interest subsidy. Two of the banks propose a variable rate tied to prime. While this approach will not affect the fixed 3% loan rate made to the applicant nor the monthly payments made, the variable rate will vary the actual Program Amount the bank will commit as interest rates fluctuate. o $40,000 is the current maximum loan amount. The proposals vary from $500 to $200,000. While the program has never had a minimum amount set, most loans are $5,000 and up. At the other end of the range, a $200,000 maximum would mean only 3 or 4 loans could be made each year. o First Security Bank's proposal commits $300,000 for principal loan amount. Based on their quoted interest rate and calculations, the City would expend $58,000 in interest subsidy. They make a suggestion that the remaining $42,000 be leveraged with another bank for additional loans. 0 Only one bank, First Interstate, included what the loan processing fee would be to the applicant. While the RFP didn't ask for those fees, the dollar amount may be an issue for further discussion. I would imagine the other banks may also charge a fee, and the amount could be significant to the program's overall success. It is extremely important that the integrity of the program be maintained. Any revisions to the program need to continue to achieve such positive results of leveraging capital, improving the appearance of downtown, extending the functionality of older buildings, and keeping the employment and tax base healthy in the CBD. The Commercial Rehabilitation Loan Program is nationally known and award winning for its tremendous success with a 10 to 1 leveraging ratio and positive acceptance by the merchants and property owners. Because the program initially began as a HUD Program for economic development, the Feds required an agreement with one bank to deposit the grant funds. Because the City now uses TIF money for the interest subsidy and no initial deposits are made, a greater amount of flexibility is available to the program. Over the past 15 years, many an applicant has asked if they could use their own bank for the 3% loan program. As the table shows, the proposals are all very similar, and maybe, as First Security Bank suggests, other banks could also participate. A.J. King at Valley Bank also suggested this approach in a telephone conversation last week.