Council may offer loan for hotel
WORTHINGTON -- A bridge loan that would keep construction of a hotel adjacent to the long-planned Events Center moving forward will be further considered by the Worthington City Council following its Monday meeting.
A public hearing on the potential offering of a bridge loan of up to $400,000 -- at an interest rate of 7 percent over three years -- will take place during the council's July 23 meeting. The public meeting on the matter is required by the state's business subsidy laws.
Council members discussed the possibility for a loan for approximately 20 minutes with Lighthouse Hospitality Group President Don Klain.
Lexington Hotel Development, which plans to construct a 75-room Comfort Suites Hotel next to the Events Center, is a Lighthouse division.
Brad Chapulis, the city's director of community/economic development, framed the discussions by telling council members that Lexington is aiming to sell 28 investment shares at $50,000 each -- for a total of $1.4 million -- to reach a total equity of $2,379,177 required to obtain permanent financing for the hotel.
Sales of the shares began in April, but Chapulis said the company hasn't been as successful as it had hoped.
"The company has sold 13 shares and nine are in the works ... for a total equity sold or to be sold of $1.1 million," Chapilis said. "The company is asking for up to $400,000 in shortfall through the purchase of shares or a bridge loan ... to avoid a delay in the project."
Since city staff highly recommended the share-purchasing option not be considered, discussion quickly shifted to a bridge loan and how it might be set up.
A bridge loan, Chapulis explained in a department memo to council members, "would be required to be deferred and subordinate lien position in order for the loan to be considered equity by the lead lenders. Though deferred, the loan would bear interest for the term of the loan. ... The loan would allow Lexington to continue to sell the remaining shares without delaying the start of the project. The monies collected from sold shares would be pledged to pay off the city loan."
Lexington would be required to make a balloon payment for the balance of the loan at the end of the loan term. As the loan would be in a subordinate position to the primary lenders on the real estate, personal guarantees from all the principal owners of Lexington are necessary.
The company had originally suggested loan terms of 6 percent interest over five years, but Klain quickly showed a willingness to be flexible.
"Our intention is to get these shares sold as soon as possible," he said in response to a question from Councilman Mike Kuhle as to the certainty of the city's bridge loan being paid back.
"Money may not even change hands," Councilman Mike Woll added. "This is just a guarantee."
Klain said the sales of the hotel shares had been gaining momentum recently and expressed confidence they would be completed within the next several months. He added the sales of the shares locally had originally been slow, but have improved.
"From an outsider's standpoint, if there's not local participation, the question comes in their mind, 'Why would I invest in Worthington, Minnesota, if people in Worthington don't want to?'" he said.
Each of the council members expressed a desire to keep the hotel project moving forward, though Kuhle did express one other concern about the city's offering the bridge loan.
"I just wonder if we're starting to step over the line when we're starting to get into competition with other hotels in town," Kuhle said. "I'm struggling with that one."
Councilman Ron Wood forecast that completion of the hotel next to the Events Center would translate into greater occupancy rates for motels and hotels throughout the city.
"It's just an industry pattern you would see out there," he said.
In other business, the council:
* Approved an agreement with Hoisington, Koegler Group Inc. (HKGI), Minneapolis, to develop a detailed evaluation of existing recreation and athletic facilities and, among other duties, prepare a draft of a Recreation Facility Master Plan. The final negotiated cost for the services to be provided is $35,000.
* Approved the final plat for Central Square Addition, which is proposed to be a two-lot planned unit development on approximately 2.4 acres on the former site of Central Elementary.
* Approved an agreement with the International Union of Operating Engineers (IUOE) Local #49 for the years 2012-2014. Negotiations included a mediation session on May 25.
* Authorized the execution of a Safe and Sober Agreement that allows Worthington Director of Public Safety Mike Cumiskey to execute an agreement with the Minnesota Institute of Public Health that awards the Worthington Police Department up to $1,920 through an Alcohol Compliance Check grant.
* Approved a resolution authorizing Worthington's membership in a Joint Powers Agreement that would involve the city in a partnership for shared logging of radio transmissions with Nobles, Lyon, Murray, Pipestone, Redwood and Yellow Medicine County.
"It is in our best interest to be a member on the Southwest Minnesota Regional Public Safety Board," Cumiskey wrote in a department memo. "This will allow us to have some control in our regional communication logging interests. No one knows our interest/needs better than us; having representation at this level may prove advantageous in future regional cost-sharing endeavors."