07. Commercial Rehabilitation Loan Agreement ProposalsPlanning, Economic &
Community Development Department
P.O. Box 1997
Kalispell, MT 59903-1997
iheCityoiKalispell
Incorporated 1892
Memorandum
Date: July 11, 1995
To: Larry Gallagher, PECD Director
From: Ross Plambeck, Redevelopment Manager �--�
Subject: Commercial Rehab Loan Prograrn/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.
fU:;�; r.JUSEIx>
OPPORTUNITY
iheCit�otKalispell
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
10%
$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.
o 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.
This Agreement made this day of , 1995 by and between
Kalispell, Montana 59901, herein
known as the "LENDER", and the City of Kalispell, a municipal corporation, herein known
as the "CITY".
The parties to this Agreement desire to achieve maximum benefit from the use of Tax
Increment Funds available to the CITY through leveraging of these funds with funds
made available by the LENDER.
Parties Agree:
I. The CITY SHALL:
Commit a total sum of One Hundred Thousand Dollars ($100,000) to be used to
subsidize the interest on bank loans provided by private lending institutions
participating in the CITY's Commercial Rehabilitation Loan Program. The interest
subsidy is intended to leverage and stimulate commercial lender participation and the
private reinvestment in and redevelopment of commercial property located within the
boundaries of the Kalispell Downtown Redevelopment Plan's Project Area and to
encourage job opportunities.
A. Prepay the interest subsidy to the LENDER for approved loans, which
interest subsidy shall allow the borrower to fully amortize a commercial loan
provided by LENDER charging a maximum loan rate not to exceed
9.5 percent annually for a loan term not to exceed 60 months. (Applicant's
loan rate is 3 percent; therefore, the interest subsidy is 6.5 percent.)
B. The CITY, through an Architectural Review Committee appointed by the
Kalispell Development Corporation and approved by the Mayor and the City
Council, will review and approve all applications meeting the goals and
guidelines of Kalispell's Downtown Redevelopment Plan (Ordinance No.
933).
C. The CITY's Planning, Economic and Community Development Department
will be solely responsible for the preliminary applications for commercial
loans. The Planning, Economic and Community Development staff will
present all loan applications to the Architectural Review Committee with all
documentation.
D. The CITY shall make final determination of the applicant's eligibility to
participate in the Commercial Rehabilitation Loan Program (through the
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Architectural Review Committee) and notify the applicant of determination
pursuant to Planning, Economic and Community Development Department
guidelines.
II. The LENDER SHALL:
Following the intent of the Community Reinvestment Act, the participating
LENDER will make interest subsidized loan funds available to eligible applicants
only for qualified and approved improvements to real estate located within the
Kalispell Downtown Redevelopment Plan commercial district.
A. The maximum loan amount will be $40,000 for a five (5) year period. The
maximum interest rate to be charged by LENDER will be 9.5 percent per
annum for loans originated between July 1, 1995, and June 30, 1996.
B. The LENDER will provide all credit investigations in regard to these loans and
make all credit decisions as to credit worthiness.
C. The LENDER will assure all concerned that the City of Kalispell will be held
harmless for any and all losses which may occur as a result of this program.
D. The participating LENDER agrees that there is a definite market for this type
of commercial property rehabilitation/redevelopment loans and that they will
greatly enhance the business community, particularly the aesthetics and
safety of commercial real estate in the area. The LENDER can foresee that
the provisions of these interest subsidized loans to commercial property
owners and their tenants with a security interest in the real estate will be
merely a start, as many of them will match or exceed the low interest loans
with additional loans to be utilized for expansion or remodeling of
commercial real estate . This in turn will create more jobs for the low and
moderate income residents of the area and help create a healthier business
community.
E. The LENDER will service all loans, providing final processing, notification,
closing, collection, and all other normal banking procedures.
F. The LENDER'S loan file on these loans will be open to inspection for
municipal auditing purposes.
G. The LENDER will be entitled to collect those fees incidental and necessary to
process the loan including title insurance, appraisals, recording and
reconveyance fees, and loan closing fees. The loan closing fee shall not
exceed $75.00 per loan application. All fees and costs are the responsibility
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of the loan applicant and are not an eligible item that can be included in the
loan.
Ill. The CITY and the LENDER agree to the following:
A. That the use of the committed funds will be used to subsidize the interest
rate to the agreed upon rate. Upon loan closing by the LENDER, the
LENDER will notify the CITY of the total amount of the loan and the interest
subsidy on that portion of any loan qualified for the interest subsidy. The
LENDER will submit a statement showing the loan amount amortized at
both the 3 percent rate and the 9.5 percent rate to determine the interest
subsidy dollar amount for the difference not to exceed 6.5 percent on the
qualified portion of the total loan. The CITY will process a voucher for
payment to the LENDER for the specified interest subsidy and forward it to
the LENDER within two weeks of the date the request is received by the
CITY.
B. This Agreement shall remain in force for the period of the CITY's 1996
fiscal year (July 1, 1995 to June 30, 1996).
C. Loans will be made on a first come, first served basis. Once the CITY has
expended the total interest subsidy amount contained in their fiscal year
budget, pending loans will have to remain pending until the CITY makes a
determination whether to provide additional funds for the interest subsidy.
ATTEST:
Bruce Williams, City Manager
City of Kalispell
Bank Officer
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