02/28/12 Work Session - Laserfiche WebLink

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taken. He believed the documentation contained loopholes for PNC, such as the Right of Reverter and allowing PNC to do a split after foreclosure sale, both of which are uncommon. Commissioner Elvig stated there may be no default while the HRA is in control but if leasing does not go well and they have to drop the performa, the bank may pull back financing that results in stopping the project. He pointed out the HRA would have no ability to jump in at that point without injuring its position. Another scenario offered was that the project is completely built but the leasing is not working out so they are unable to size the loan for permanent financing to balance the appraisals. Commissioner Elvig stated his support to reduce the HRA's exposure. He doubted there would be a "scorched earth" scenario but there may be something in between. Chairperson McGlone stated he feels differently. He noted this is $28 million construction project and no matter where the funding comes from, the appraised value once built is $40 million, which is a good position for any bank or city. On the point of the documentation, he noted its purpose is to help the HRA through the process in case the need arises. Commissioner Ramsey stated the rents are at 85 cents a foot and if they can't get a lease at that rate, no apartment will last. Commissioner Elvig stated an appraisal is on land value, comps, and rent and the problem is that this has been raised to $40 million In comparison, he described a 210 unit apartment in Uptown appraised at $40 million that included the cost per unit, land, parking stalls. That rent is at $2.21 a square foot and appraisal at $40 million. Commissioner Elvig stated he is concerned that this appraisal came in at $40 million when it is at half the cost and half the potential price per square foot. Stacie Kvilvang, Ehlers & Associates, Inc., stated in reality it would need an appraisal of $30 million to take out the HRA. Commissioner Elvig stated that is correct if an institution is willing to take out 100 %. Ms. Kvilvang indicated many institutions are willing to do that, but not every institution. Commissioner Ramsey noted the HRA had these same discussions when the agreement was approved in September. He pointed out the HRA is under a purchase agreement contract and the Subordination Agreement does not change anything, with the exception of one issue. HRA Executive Director Nelson clarified that the Subordination Agreement does not change the agreement made in September as it relates to equity raises. Commissioner Ramsey believed the deal had already been negotiated and approved so if the Subordination Agreement was not approved, there could be penalties against the HRA. Commissioner Elvig stated his intent is not to "kill the deal," but he wants to assure the HRA fully understands that it really has no remedy under this agreement. He indicated that does not surprise him but now it is in `black and white." Commissioner Elvig explained the concern for Housing and Redevelopment Authority / February 28, 2012 Page3of8