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A-2. Centennial Hills Apartments GO DebtM11 1VT MEMORANDUM CITY OF TO: Mayor &City Council � i h Greg reg Stica, Finance Director CHANHASSEN FROM 1 7700 Market Boulevard DATE: July 14, 2014 60/ PO Box 147 Chanhassen, MN 55317 SUBJ: Discussion of Request for General Obligation Pledge Support for Refinancing and New Issuance of Funds for Improvements to Administration Centennial Hills Apartments Phone: 952.227.1100 Fax: 952.227.1110 BACKGROUND Building Inspections In May of 2014, the Carver County CDA approached city staff about Phone: 952.227.1180 refinancing and issuance of new funds for improvements to Centennial Hills Fax: 952.227.1190 Apartments. The refinancing portion of the project is approximately $2.96M Engineering and the new funds for improvements would consist of $1.55M. Phone: 952.227.1160 meaning that if the facility or the Carver County CDA failed to make payment, Fax: 952.227.1170 The new funding would include improvements for the plaza and the buildings Phone: 952.227.1400 themselves. Attached find a memo from the Carver County CDA's financial Finance advisor which details history of the initial project, the improvements to be made, Phone: 952.227.11 the amounts and structure of the proposed bonds and review of the financial Fax: 952.227.1110 0 operations of the facility since 2010. Park & Recreation Staff recommends that the City Council proceed with Carver County CDA's Phone: 952.227.1120 This bonding request of the Carver County CDA does not involve the City of Fax: 952.227.1110 Chanhassen making any bond payments for the refunding/improvements. However, the City's bonding authority is being pledged for this issuance, Recreation Center meaning that if the facility or the Carver County CDA failed to make payment, 2310 Coulter Boulevard the city would be responsible for repayment of the bonds. Phone: 952.227.1400 ATTACHMENT Fax: 952.227.1404 www.ci.chanhassen.mn.us Representatives from the Carver County CDA and its financial advisory firm Planning & will be present at the work session to answer any questions about the project and Natural Resources the bonding for the project. Phone: 952.227.1130 Fax: 952.227.1110 RECOMMENDATION Public Works 7901 Park Place Staff recommends that the City Council proceed with Carver County CDA's Phone: 952.227.1300 request for refinancing and issuance of new funds for improvements to Fax: 952.227.1310 Centennial Hills Apartments. This would include holding a public hearing and adopting a resolution pledging the general obligation of the city at the July 281h Senior Center City Council meeting. Phone: 952.227.1125 Fax: 952.227.1110 ATTACHMENT Web Site www.ci.chanhassen.mn.us 1. Background memo from Carver County CDA's Financial Advisor Springsted, Inc. dated July 3, 2014 2. Resolution Chanhassen is a Community for Life - Providing for Today and Planning for Tomorrow amm=lw MEMORANDUM TO: City of Chanhassen, Minnesota Mr. Todd Gerhardt, City Manager Mr. Greg Sticha, Finance Director ON BEHALF OF: Carver County Community Development Agency By Kathleen Aho, Springsted Incorporated DATE: July 3, 2014 Springsted Incorporated 380 Jackson Street, Suite 300 Saint Paul, MN 55101 -2887 Tel: 651 - 223 -3000 Fax: 651 - 223 -3002 www.springsted.com SUBJECT: Request for general obligation pledge support Carver County Community Development Agency Housing Development Refunding Bonds, Series 2014 and the Taxable Housing Development and Refunding Bonds, Series 2014T, together the "2014 Bonds" The Carver County Community Development Agency (the "Agency ") is requesting the City's action in support of the Centennial Hill Apartments by continuing to provide its general obligation backing to bonds proposed to be issued on behalf of the project. The 2014 Bonds will refund outstanding bonds supporting the project and also provide money for proposed improvements to the project. Background In 1995, City and the Agency entered into a Joint Powers Agreement to enable the construction of the Centennial Hill Apartments which provide 65 units of housing for seniors in the City of Chanhassen. At that time, the City provided its general obligation backing to $3,000,000 of bonds, $372,310 in cash to fund a debt service reserve, an annual pledge of $32,000 in support of debt service, and pledged its portion of the PILOT payment made by the project. In addition, the Agency issued $705,000 in revenue bonds to support the project. The Agency made a similar pledge of $31,000 per year to support debt service. In 2004, the original bonds and reserve were refunded with $4,645,000 of bonds backed by the City's general obligation pledge. The issue accomplished a present value savings of $526,973 that enabled the Agency to (i) return to the City the cash the City had provided for the debt service reserve, (ii) relieve the City of its annual contribution in support of the project and (iii) relieve the City of its contribution of PILOT. The Agency annual contribution remained in place. Public Sector Advisors City of Chanhassen Carver County CDA 2014 Bond Request Page 2 As it approaches its twentieth anniversary year, the project is in need of a variety of improvements. Market conditions are also such that the 2004 bonds can be refunded to accomplish savings. The Agency is requesting the City's continued support of the project by providing its general obligation backing in support of bonds to fund $1,550,000 in building improvements and to refund the $2,960,000 of outstanding 2004 bonds. The Building Improvements Kass Wilson Architects have been retained on the project and indicate that the primary purpose of the project is to repair the existing waterproof plaza which has had leaking issues for many years. The proposed project includes a complete reconstruction of the plaza waterproofing system. The plaza will then be refinished with a new heated walkway and concrete topping. The project also includes site improvements to collect water from the plaza and shed it away from the building, which is critical to successfully deal with the direct plaza water issues and to stabilize a retaining wall that has been affected by the accumulation of water. A final element of the proposed project includes improvements to the building designed to reduce ongoing maintenance costs and to update certain elements, including (i) new windows, (ii) the replacement of the existing vinyl siding new cement fiberboard, (iii) refinishing and furnishing the existing decks, (iv) adding new aluminum railings, (iv) refinishing and restriping the asphalt parking lot, (v) adding new landscaping to disturbed areas, and (vi) improving the interior with new lighting in the main lobby and new trim on all of the windows. The Agency has a firm price for the project from a contractor and will contract for the project cost simultaneously with the issuance of the 2014 Bonds. The Bond Structure The 2004 bonds have a final maturity date of January 1, 2025. The proposed combined financing has been structured as a twenty -year bond to allow for the retirement of the new money portion. Because of federal rules related to bonds that are bank qualified, the Agency is limited in the amount of tax - exempt debt that can be issued. The legal limitation is that neither the average life of the bonds nor the amount of the tax - exempt portion can exceed the respective values for the bonds being refunded. Working within these constraints, a combined level debt service has been designed consisting of tax - exempt bonds up to the maximum possible and taxable bonds for the balance of the financing. Under current market conditions, the combined annual debt service will be less each year than the current debt service payments. The bonds will be payable primarily from revenues generated by the Project and an annual contribution from the Authority from its special benefits tax. The Agency is required to provide advance notice to the City of any projected shortfall; however, it should be noted that the project has been self - supporting since its inception and is anticipated to remain so. While the Agency expects that the revenues of the Project will meet the debt service requirements, the City's general obligation pledge will lower interest and related costs, and increase the marketability of the Bonds. City of Chanhassen Carver County CDA 2014 Bond Request Page 3 Special considerations The granting of its general obligation pledge is permitted under Minnesota Statutes Chapter 469,034. There are several statutory requirements that must be met, including: 1. Pledged revenues must be expected to exceed 1.1 Ox debt service in each year debt service is outstanding. The final structure of the 2014 Bonds is not finalized as of this writing, however, an illustrative schedule of debt service is attached and a table of the historical available revenues and their ability to cover the expected maximum annual debt service is immediately below. Funds Available for Debt Service Total Revenue Total Operating Expenses Net Operating Income /(Loss) plus Depreciation & Amorization plus CCCDA contribution Available for Debt Service Estimate maximum annual debt service Coverage factor (Sources: 2009 -2013 CAFRs) 2010 2011 2012 2013 $716,234 $723,999 $735,8221i $754,794 $537,152; $551,676 $568,2571 $550,519 $179,082: $172,323 $167,5651 $204,275 168,141 182,355 169,980 167,086 31,0001 31,000 31,0001 31,000 $378,223', $385,678 $368,545 r $402,361 $334,763 $334,763 $334,763; $334,763 1.13 1.15 , 1.10 1.20 2. The project being financed must be intended for seniors or families with incomes not greater than 80% of median family income. This project will continue to be a senior project. 3. The term of the bonds can't be more than 35 years. The term is proposed to be approximately t��renty years. 4. The amount of similar bonds outstanding can't exceed the greater of $3,000,000 or 0.50% of the estimated market value ( "EMV") of the City. The Department of Revenue lists the City's EMV for the 2013 assessment year as $3.345 billion. 0.50% of that amount is over $16.7 million. The current estimated amount of this issue is $4,660,000. The debt does not count against the City's general debt limit under Minnesota statute. 5. Public hearings must be held by the City and by the Agency for the new money portion of the 2014 Bonds. As referenced earlier, the tax - exempt 2014 Bonds are being structured to comply with certain federal provisions that enable them to be bank qualified without interfering with bank qualification designations that the City or County has or will make in 2014. The balance of funding needed will be financed with taxable bonds and have no impact on bank qualification regardless of structure. It is possible to refund the Series 2014T Bonds with tax - exempt bonds at a later date. As a current refunding, no statutory savings test applies, however the refunding portion of the 2014 Bonds is projected to produce a present value savings of just over $200,000 which is 8.66% of the present value of the refunded debt service of the bonds being refunded. City of Chanhassen Carver County CDA 2014 Bond Request Page 4 What is requested of the City To accomplish the financing results as presented above, the Agency is asking that the City provide its general obligation backing for up to $5,000,000 in bonds. As mentioned, the current estimated amount of the 2014 Bonds is $4,660,000 and the $5,000,000 cap is requested to provide for flexibility to respond to any items unforeseen at this time. Both the final schedule and coverage information will be made available to the City staff and will comply in all respects with the essence of the description of the transaction provided in this memorandum. Under Minnesota statute, granting general obligation backing will require that a public hearing be conducted by the City and by the Agency and formal approval of the general obligation given. (The Agency's public hearing will be held on July 17.) A draft copy of the resolution the City will be asked to pass is enclosed with this memorandum. The Agency's finance team will work with City staff to coordinate completion of the financing, It is anticipated that the financing will occur in mid - August, with work on the project to proceed soon after. Representatives of the Agency, Springsted Incorporated and Ivy Properties will be available to respond to the Council's questions about the financing or the improvement project at its workshop on July 14tH cc: Julie Frick, Carver County Community Development Agency City of Chanhassen Carver County CDA 2014 Bond Request Page 5 $4,660,000 Carver County CDA, Minnesota Housing Development and Refunding Bonds, Series 2014 and Series 2014T Combined Refunding and New money Project Summary Interest Dated 08/26/20141 Delivered 08/26/2014 01/01/2015 Taxable Issue TERefunding Refunding New Loney Summary Series 2014 -- Series 2104T 140, 712.50 Sources Of Funds 01/01/2017 Par Amount of Bonds ............................ ............................... $2,270,000.00 $600,000.00 $1,790,000.00 $4,660,000.00 Transfers from Prior Issue DSR Funds . ............................... 173,610.00 - 173,610.00 Total Sources ..................................... ............................... $2,443,610.00 $600,000.00 $1,790,000.00 $4,833,610.00 uses Of Funds 01/01/2019 Primary Purpose Fund ........................... ............................... 2,414,899.38 - 2,414,899.38 Deposit to Project Construction Fund .... ............................... - 1,550,000.00 1,550,000.00 Deposit to Current Refunding Fund ....... ............................... - 576,412.50 - 576,412.50 Deposit to Debt Service Reserve Fund (DSRF) ................... - - 164,730.00 164,730.00 Costs of Issuance ................................. ............................... - 20,000.00 50,000.00 70,000.00 Total Underwriter's Discount (1. 150% ) .............................. 26,105.00 6;900.00 20,585.00 53,590.00 Rounding Amount .................................. ............................... 2,605.62 (3,312.50) 4,685.00 3,978.12 Total Uses ........................................... ............................... $2,443,610.00 $600,000.00 $1,790,000.00 $4,833,610.00 COMBINED DEBT SERVICE SCHEDULE 120, 202.50 Date Principal Interest Total P¢I 01/01/2015 230,000 49,177.96 279,177.96 01/01/2016 190,000 140, 712.50 330, 712.50 01/01/2017 195,000 139, 762.50 334, 762.50 01/01/2018 195,000 138,202.50 333,202.50 01/01/2019 195,000 136, 057.50 331, 057.50 01/01/2020 200,000 133, 230.00 333, 230.00 01/01/2021 205,000 129,530.00 334,530.00 01/01/2022 205,000 125,122.50 330,122.50 01/01/2023 210,000 120, 202.50 330, 202.50 01/01/2024 220,000 114, 742.50 334,74Z50 01101/2025 225,000 108,692.50 333,692.50 01/01/2026 225,000 102,167.50 327,167.50 01/0112027 235,000 93,617.50 3281617.50 01/01/2028 245,000 84,452.50 329,452.50 01/01/2029 250,000 74,652.50 324,652.50 01/01/2030 265,000 64,402.50 329,402.50 01/01/2031 275,000 53,140.00 328,140.00 01/01/2032 285,000 41, 040.00 326, 040.00 01/01/2033 300,000 28, 215.00 328, 215.00 01/01/2034 310,000 14,415.00 324,415.00 Total 4,660,000 $1,891,535.46 $6,551,535.46 CITY OF CHANHASSEN, MINNESOTA Resolution No. Approving the issuance by the Carver County Community Development Agency of bonds in an aggregate principal amount not to exceed $5,000,000 to refinance and improve a qualified housing development project and the pledge of the full faith and credit of the City of Chanhassen thereto, and authorizing the execution and delivery of related documents. WHEREAS, pursuant to Minnesota Statutes, Sections 469.001 through 469.047 (the "Act "), the Carver County Community Development Agency (the "Agency ") is authorized to undertake housing development projects and to issue bonds to finance such projects or to refinance prior bonds issued for such purpose; and WHEREAS, the Agency has previously issued its Housing Development Refunding Bonds (City of Chanhassen, Minnesota Unlimited Tax General Obligation — Chanhassen Apartments Project), Series 2004 (the "Prior Bonds ") the proceeds of which were used to refund certain prior bonds, originally issued to finance the construction of the Centennial Hill senior housing facility in the City which is owned by the Agency (the "Project ") and which constitutes a "qualified housing development project" under the Act; and WHEREAS, in order to refund the Prior Bonds and finance certain improvements to the Project, the Agency proposes to issue its Housing Development Refunding Bonds (City of Chanhassen, Minnesota Unlimited Tax General Obligation — Chanhassen Apartments Project), Series 2014 (the "Tax Exempt Bonds "), in an aggregate principal amount not exceeding the outstanding principal amount of the Prior Bonds, and its Taxable Housing Development and Refunding Bonds (City of Chanhassen, Minnesota — Chanhassen Apartments Project) Series 2014T (the "Taxable Bonds" and, together with the Tax Exempt Bonds, the "Bonds "), and to pledge the full faith and credit of the City of Chanhassen (the "City ") to both series of Bonds; and WHEREAS, pursuant to Minnesota Statutes, Section 469.034, Subd. 2, the Agency is authorized to pledge the full faith and credit of the City to bonds issued to finance or refinance qualified housing development projects following, (a) a determination by the Agency that pledged revenues will equal or exceed 110% of the principal and interest due on such bonds for each year, and (b) approval by the City of the principal amount of the Bonds following a public hearing, provided however, that (a) and (b) are not required for any refunding bonds; and WHEREAS, pursuant to Section 469.034, Subd. 2(c), the full faith and credit of the City may not be pledged to outstanding bond in an amount greater than one -half of one percent of the estimated market value of the City; and WHEREAS, on the date hereof, the City has conducted a public hearing following publication of notice pursuant to Minnesota Statutes, Section 469.034, subd. 2; 114450130 NOW, THEREFORE, BE IT RESOLVED, by the City Council of the City of Chanhassen, Minnesota, as follows: 1. That one -half of one percent of the estimated market value of the City is not less than $16,700,000, and the outstanding principal amount of bonds issued pursuant to Minnesota Statutes, Section 469.034, Subd. 2, to which the City's full faith and credit is pledged, including the Bonds (but not including the Prior Bonds which will be retired upon issuance of the Bonds) is not greater than $5,000,000. 2. That the City hereby approves (i) the issuance by the Agency of the Bonds in an aggregate principal amount not exceeding $5,000,000, and (ii) the pledge by the Agency of the full faith and credit of the City thereto, subject to a final determination by the Agency that the projected revenues pledged to the payment of any new money Bonds will equal or exceed 110% of the principal and interest due on such Bonds for each year of their term. 3. That the Mayor and City Manager are authorized to execute and deliver on behalf of the City a Continuing Disclosure Certificate in substantially the form on file with the City on the date hereof, with such modifications as may be approved by the Mayor and City Manager, and any other documents as may be necessary or convenient in connection with the issuance of the Bonds in forms approved by the Mayor and City Manager. Execution and delivery of such documents shall constitute conclusive evidence that any modifications and any such other documents have been approved by the Mayor and City Manager. 4. The Prior Bonds were designated as bank- qualified bonds for purposes of Section 265 of the Internal Revenue Code of 1986, as amended (the "Code "). The Agency has advised the City that (i) the Refunding Bonds will not exceed the outstanding principal amount of the Prior Bonds, (ii) the average maturity date of the Refunding Bonds will not be later than the average maturity date of the Prior Bonds refunded thereby, and (iii) the Refunding Bonds will have maturity dates which are not later than the date which is 30 years after the date the Prior Bonds were issued. Accordingly, the Agency anticipates that the Refunding Bonds will be deemed designated as qualified tax exempt bonds and will not count against the City's annual $10,000,000 limit of qualified tax exempt bonds. Adopted on this 28th day of July, 2014. 114450130 2