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HomeMy WebLinkAbout1990-11-01 EURA MINUTESENGLEWOOD URBAN RENEWAL AUTHORITY Novemb er 1, 1990 Spe c ial Meeting I. CAL L TO ORDER. D R A F T The Special Meeting of the Englewood Urban Renewal Authority was called to order by Chairman James Totton at 6:30 P. M. in the Council Chambers of the Englewood City Hall at 3400 South Elati Street. Members present: Members absent: Also present: Bullock, Byrne, Minnick, Totton, Daugherty Wanush, Executive Director/Executive Secretary Schmidt, Voth Paul C. Benedetti, Legal Counsel Pam Pepper, Economic Development Administrator Mr. Tot ton wel corned members of the audience to the meeting, and stated the purpose of the meeting is to acquaint bondholders with the financial situation of th e Authority regarding repayment on the Tax Increment Bonds, and to receive comments and suggestions from bondholders in attendance. Mr. Totton stated that the initial presentation will be by Executive Director Richard Wanush, after which Economic Development Administrator Pepper will discuss e fforts that are being made to improve the economic conditions in the URA dis- trict. Following these presentations, the floor will be opened to questions and comments from members of the audience. Mr. Totton asked that those wish- ing to address the Authority come to the podium and give their name for the record. Mr. Wanush, Executive Director of the Authority, set forth the agenda for the meeting, which would include background information, discussion of the 1985 Bond Issue, discussion of the "project", the current financial situation, al- ternatives considered by the Authority, discussion of the economic development program, and public comments. Mr. Wanush stated that wh i 1 e the Urban Renew a 1 Authority was created in the early 1970's, it was not activated until the early 1980's. Mr. Wanush empha- sized that the Urban Renewal Authority is a separate entity from the City of Englewood, even though the Authority was created by the City Counc i 1. The City of Englewood has no obligation to repay the bonds issued by the Authori- t y. An Urban Renewal Area was created following the finding of "blight" by the City Council, and a tax increment district (sales and property tax incre- ment) was formed to finance public improvement projects in the downtown area. In 1985, $30 million in Tax Increment Bonds were issued by the Authority to finance these improvements. The projects to be accomplished by the Urban Re- newal Authority were the construction of a flood control facility along Little Dry Creek t o re move all of downtown Englewood from the 100-year flood plain (a substantia l porti on of this was funded direcctly by the City of Englewood); to -1 - develop an urban parkway and plaza along Little Dry Creek; to acqui.re and con- struct necessary rights-of-way in the downtown area; and to acquire and as- semble land for private development. These projects have been accomplished. Private developers have constructed Trolley Square, Englewood Marketplace, Phar-Mor Plaza, and Englewood Exchange. Mr. Wanush stressed that these developments are privately owned. Mr. Wanush discussed the status of these improvements, noting that there is an overall vacancy of 34.6%. The bankrupt- cy of the Buyer's Club in the Englewood Exchange contributed to the large vacancy percentage in that development. Mr. Wanush then discussed the financial status of the bond issue. Present indications are that the full December 1, 1990 payment can be made, but no projections have been made on revenues for 1991. It appears likely that the Authority will be in default on the June, 1991 payment. In mid to late 1989, the Authority asked Browne, Bortz & Coddington (BBC) to do a market analysis of the financial situation of the Authority. BBC reviewed the figures cited in the original projections, and then made their own projections, which indi- cated that even with improvement of the economic development activity in the urban renewal area, revenues would be insufficient to prevent a default on the bond payments. The Authority engaged the firm of Kirchner Moore and the law firm of Davis, Graham & Stubbs to look at options for the Authority to work out the problems on repayment of the bonds. Several options were outlined and considered by the Authority. The option of refunding the bonds was con- sidered, but is not possible with current revenue flow, and no additional security. The Authority does not have the option of extending the term of the District, which will expire in 2005. Other options to gain additional securi- ty were considered, and there were a number of meetings with City Council to discuss ways of acquiring additional security for the bonds. The City Council determined that additional financial relief from the City would not be forth- coming to the Authority, and that additional taxes such as a food tax, would not be imposed on the citizens of Englewood. Other considerations by the Au- thority included a tender/exchange program on the bonds; the costs incurred by pursuing this option are considerable (it requires 100% approval of the bondholders) and this did not appear to be a viable option for the Authority. The possibility of bankruptcy was considered and there are substantial expen- ditures i nvo 1 ved in this option, al so. The Authority, therefore, chose the option of defaulting on the bonds. All revenues which are generated in the Tax Increment District will continue to go to the Trustee (Central Bank of Denver) for distribution to the bondholders. There are no fees or charges withheld by the Authority; there is some withholding by the Trustee to cover their costs, but the remainder of the revenues would be distributed to the bondholders. All bonds would become due and would be considered on an equal basis in the distribution of the revenues. The Authority members are of the opinion that by pursuing the default option, more revenues would go back to the bondholders than by following other options which require expenditures with no guarantee of success. Mr. Wanush then asked Ms. Pepper to discuss economic development efforts in the City. Ms. Pepper addressed the Authority and members of the audience, stating that she has been working with the leasing agents, Chamber of Commerce, and Engle- wood Downtown Development Authority in an effort to encourage new businesses to locate in Englewood, and particularly in the urban renewal areas. Ms. Pep- per stated that there are three ways to market the City and the EURA area: - 2 - {l) on a City-wide basis, {2} by individual property, and {3) by public rela- tions. Ms. Pepper stated that the EDDA staff and she have been working on the development of a brochure to be available to potential businesses. She has also worked to encourage improvement of signage in and improvement of access to the downtown and EURA areas. Ms. Pepper discussed the publicity efforts that have been expended, citing the fact that the improvements along Little Dry Creek were included in an article in the National Geographic; Colorado Business Magazine has carried ads on Englewood, and other national publ ica- tions inquired and been sent news releases on the City. Ms. Pepper stated that efforts have been made to streamline the permitting process, and some app 1 i cants have been "walked through" the process to facilitate development. Funds have been requested in 1991 for a shopper's survey, additional signage, and other improvements to encourage business development. Ms. Pepper further discussed her work with the leasing agents and the Metro Denver Network. A property availability list is maintained to assist those making inquiries about possible locations to the area. Ms. Pepper stated that Englewood will receive final designation as an Enterprise Zone within a couple of weeks which will give incentives to new businesses or expanding businesses in the in- dustrial area as well as in the urban renewal areas. Financing sources to assist businesses are also being explored. The City currently administers a Revolving Loan Fund, which seed money of $150,000 came from a Community Block Grant. The City has loaned over $250,000 in this program; four loans have been made this year for a total of $38,000. Three of these loans were within the EURA district.' Ms. Pepper stated that she will be working with the Engle- wood financial institutions in an effort to increase and expand the benefits of this loan program. Ms. Pepper stated that a Chamber of Commerce luncheon featured discussion by the leasing agents of Trolley Square, Phar-Mor and Englewood Exchange, and many favorable comments have been received on the information gleaned from this session. A retail seminar has been planned for November 16 at Cinderella City with nationally known speakers to be featured. Ms. Pepper stated that City staff is working closely with the ownership and leasing agents of Cinderella City, because that Mall contributes greatly to the over-all economic health of the entire area. Ms. Pepper stated that this is a synopsis of the economic development efforts that have been expended in the last 10 months to turn the economy in Englewood around. Mr. Tatton thanked Ms. Pepper for her presentation, and stated that the Au- thority will now hear questions and comments from members of the audience. Mr. Tatton reiterated his request that those wishing to address the Authority come to the podium and identify themselves. Jim Fannell stated that he is a retired bank president. He stated that he understands that the City formed the Urban Renewal Authority, and has moni- tored the activity of the Authority since the beginning. The improvement of Little Dry Creek has greatly enhanced every residence in the City. Mr. Fan- nell stated that Moody's Underwriters has threatened the City of Arvada to downgrade their bond rating because of the trouble their Authority bonds are in, and would hope that the same has applied to the EURA. Mr. Fannell stated that the City of Englewood should step in and make money available to buy the bonds that were purchased in good faith. - 3 - Albert Danish stated that he is a businessman at Ninth and Broadway in Denver. Mr. Danish asked what the negative cash flow is, and how much "rental" would have to come in to stay current. Mr. Wanush stated that the total payment for 1990 is approximately $3.5 mil- lion; revenues in 1990 will approximate $2 million. The Reserve Fund will be dep 1 eted to make the December 1, 1990 payment. The Authority wi 11 have to generate $1.5 million per year additional to stay even. Larry Minifer, Union Colony Bank of Greeley, asked if, when the December pay- ment is made, whether any principal would be retired or if it would be a total interest payment. He asked "why haven't you contacted the bondholders rather than just saying you are going into default." Mr. Min if er referred to a statement regarding problems with bonds in an improvement district in Parker , noting that those bondholders had been notified. Mr. Minifer suggested that if the Authority were to go to a lower interest rate, he is of the opinion that a lot of people would approve this option rather than the default. Mr. Minifer stated that the default will hurt the credit rating of the City in the future, and that he "will never look at another Englewood bond if it goes for- ward this way." Mr. Bullock stated that the meeting this evening is an attempt by the Authori- ty to contact the bondholders to discuss the situation with them. He asked Mr . Minifer if he would agree that the objective is to get the maximum amount back to each bondholder. Mr. Bullock stated that other options considered by the Authority entailed considerable administrative expenses that would not be incurred by the default option. Mr. · Minifer stated that he felt the bondholders would be willing to accept an interest rate 3% to 4% less than the current 11% to get their principal back. Mr. Totten emphasized that 100% of revenues from the tax increment district go to the bondholders; if the economic activity increases and the revenues in- crease, all revenues still will go to retire the bonds. Mr. Benedetti stated that Central Bank of Denver is the Trustee, and will con- tinue to administer those bonds. A 11 bonds would become due at ti me of de- fault, and revenues would be paid to all bondholders on an equal basis. Jim Flannery asked what is meant by default; does this mean that all principal and interest would be repaid? Mr. Wanush replied that this is not what is meant by default; the district produces a given amount of revenue, but the district will expire in 2007, and payments cannot be made beyond that time; therefore, principal would most likely not be repaid . Mr. Flannery asked if , at the expiration date of the district, would this mean that bondholders had no further recourse --could they seize property? Mr. Wanush stated that he did not know what recourse bondholders would have after the expiration of the district, because this is a unique situation. Roscoe Pile stated that he approved of the course of action the Authority has chosen. Mr. Pile stated that he did not want to see the Authority get into bankruptcy proceedings. Mr. Pile stated that he understood that interest will be paid to bondholders so long as there is revenue coming in. Mr. Pile stated that he wished the City would underwrite the bonds or pledge more support, but it does not look like it will. - 4 - Walt Emery stated that he has worked with the Bank of Denver, and is a former Chairman of the Denver Urban Renewal Authority. Mr. Emery stated that he feels there are two problems the Authority/City could solve. The Authority should attempt to increase the term of the District from 2007, and work for legislative change in that direction. The City should reconsider assistance to the EURA. The unwillingness of the City to assist in the repayment of the bonds will injure the credit of the City as a whole. Mr. Emery stated that the City could impose sales tax on food which would certainly increase revenues to both the City and the District. He stated that if there is any concern for the City's credit rating, this should be reconsidered. Peter Ablanczy, Century Bank North, inquired about the revolving loan fund, and asked if this fund is part of the EURA. Mr. Totton stated that it is not, and that the funds cannot be used on retirement of bonds. Mr. Ablanczy asked when the Authority was to begin paying off principal. Mr. Wanush stated that payments on principal begin with the December 1, 1990 pay- ment. Mr. Wanush emphasized that when a default occurs, all bonds are brought to equal value, and the payments will be distributed equally. Sherwood Water stated that he is a small businessman in Arvada. The City of Englewood took $10 million to fix a "ditch ", which won't return any money to him. This is "garbage"; if the City returned the $10 million and if it was invested there would not be a question of default. Mr. Water again stated that "you are giving us garbage." Mr. Totten pointed out that the flood control improvements on Little Dry Creek had to be made to remove downtown Englewood from the 100 year flood plain, and that it was imperative that the improvements along the Creek be made. In response to comments from the audience, Mr. Minnick pointed out that mem- bers of the Authority serve without pay. Mr. Benedetti confirmed that Au- thority members are not paid; he is paid by the Authority for work that he performs for the Authority, and Mr . Wanush is a City-paid employee. Adrian Hawkinson stated that the City is benefiting from the improvement of the "ditch" and the plaza, but the bondholders are "donating" their money to the City of Englewood and won't be repaid. Many comments were made by members of the audience pertaining to the fact that they did not receive a copy of a prospectus to read, and that even if there were ''red flags" on this document, the City and Authority should not have al- lowed the bonds to be sold. Mr. Bullock suggested that a lot of the frustration which the bondholders feel should be directed to the brokers who sold the bonds. Mary Nichols stated that it appears the more revenue that is brought in, we would have less problems. Ms. Nichols asked about the leasing rates --has consideration been given to lowering those rates, or writing off tenant finish to encourage tenants. Ms. Nichols stated that the Authority should be ashamed of the vacancy rates and that stores have been allowed to remain vacant as long as they have. Ms. Nichols suggested that a year's free rent could have been offered which would have given incentive to businesses to locate here. - 5 - Mr. Wanush pointed out that the EURA does not have ownership of any of the developments, and cannot set leasing rates or offer free rents. The cleared land was sold to private developers, who constructed the private improvements such as Englewood Marketplace, Phar-Mor Plaza, and Englewood Exchange. Mr. Wanush suggested that Ms. Nichols talk to Ms. Pepper regarding the efforts that staff is making to get properties leased, and incentives that are being offered. Ms. Nichols stated that she had called regarding some of the vacan- cies in Englewood, and either did not receive call-backs, or when she did receive a return call she did not feel the leasing agent was in line with the current market. Ms. Nichols stated that the City must assist the developers and leasing agents. She stated that the initial developments have been done, and in a very fine manner, but it is now ti me to bring in the Mom and Pop businesses. Ms. Nichols stated that incentives offered through the Enterprise Zone result in very minimal incentives from the State level. Ms . Nichols stated that in her opinion more can be done on the local level and with the local merchants. Ms. Nichols stated that if the 11% interest and principal won 't be paid to the bondholders, maybe some of the "incentives" should go to the bondholders rather than to prospective businesses/tenants . Ms. Nichols stated that the City will get a bad reputation if the bonds default. Ms. Pepper responded to some of Ms. Nichols' concerns, and pointed out that the Englewood Marketplace, with a 2.7% vacancy rate, is charging $12 to $14 per square foot. Phar-Mor is charging $10 to $12 per square foot, are willing to do all tenant finish, and are considering reducing the leasing rates. Ms .. Pepper acknowledged that the loss of Buyer's Club was a big loss to the EURA, and the Authority is willing to consider tenants that are only partially retail. Mr. Bullock stated that City Council is considering other approaches to assist businesses, such as paying some moving expenses for business locating in the City. Mr. Bullock pointed out that the City does pay the administrative ex- penses incurred by the EURA; these expenses are not paid by the Bond proceeds. Mr. Bullock stated t~at he is also suggesting to City Council that if the EURA is "close" but does not have full resources to make the December 1, 1990 pay- ment that he will ask that funds be advanced to make this full payment. Mr. Bullock stated that he would be willing to put the question of additional taxation to the Englewood citizenry, but pointed out that a lot of people in Englewood are on fixed incomes, and the imposition of a food tax could have the opposite effect from that desired, and isn't sure it would be approved. Mr. Bullock also stated that he is willing to work with the legislature to extend the term of the District, if possible. Mr. Benedetti stated that he has been working with the Colorado Municipal League to draft legislation that could extend the deadline on taxation districts . Herbert Rose pointed out that funds raised through the EURA issuance of bonds enhanced property in Englewood through the improvement of Little Dry Creek and other public projects, and while it may not be a legal obligation of the City to assist in payment of the bonds, if the Authority goes into default on the bonds the City will pay the consequences. Mr. Rose stated he would suggest it is a moral obligation for the City to assist in keeping the bonds from going into default, and further suggested that the bonds be restructured so that the principal can be repaid when it comes due. - 6 - S. Jaye stated that he is a private investor, and suggested that the Authority should consider the restructuring of the bonds. The bonds were issued when the interest rates were very high, and if they were restructured to pay a low- er interest rate, it would eliminate the possibility of default and there would be a secondary market for those bondholders who want to sell. The an- nual need for funds by the Authority would be reduced and the Authority would be able to make the payments. Mr. Jaye stated that it is his opinion that a very large percentage of the bondholders would approve the restructuring at a lower interest rate rather than go into default. Mr. Totton pointed out that to restructure the bonds would require approval of 100% of the bondholders. Mr. Jaye stated that if the Authority could get 90+%, the others could be bought out. An unidentified lady addressed the Authority, and stated that the bondholders should be given the chance to determine whether they want the bonds to be restructured, or to go into default. The bondholders have not, to this point in time, been asked that question, and she suggested that it would be in the best interest of Englewood to restructure the bonds. Joseph Davis asked the effect amendment 1, if approved, would have on this. Mr. Wanush stated that the revenues of the Authority depend on the tax rate of various taxing entities; it could affect the revenues coming to the Authority. Mr. Davis asked if an esti mate could be given on the cost of the restructuring of the bonds. Would it be 5% of the outstanding indebtedness, or what per- centage. Mr. Benedetti suggested that it would be more like 1% to 1.5%. Mr . Davis stated that it seems to be the consensus of these in attendance that they want the optio n of restructuring the bonds investigated. Mr. Davis fur- ther suggested the possibility of litigation if this option is not explored. Mr. Davis stated that he did approve of the course of action taken by the Au- thority up to this point in time. Frank Adler suggested that inasmuch as the bonds are not in default at the present time, that he would be willing to forego his December interest payment to finance the restructuring of the bonds to a lower interest rate. Mr. Totton stated that the Authority wants to cooperate with the bondholders wherever possible, and want to assure that as much revenue as possible is re- turned to the bond holders. The Authority wi 11 consider the suggestions made by the bondholders serious l y. Mr. Totton then asked for a show of hands for those favoring restructuring; the majority of members present supported the restructuring, and three members of the audience indicated opposition. Greg Fulton of Prudential Bache addressed the Authority, and cited a statement on Page 146 of the Offering Statement, pertaining to the bondholders rights and appointment of a receiver in the event of default, whether default would mean the Authority would lose control of the project. Mr. Benedetti pointed out to Mr. Fulton that the "project" is completed; the only thing the Authority is doing at this point is overseeing the collection and distribution of revenues to the bondholders . All property that has been acquired, with the exception of two small parcels, has been sold and redevel- oped, .and the Authority has no interest in the private developments. -7 - Mr. Fulton then inquired what is being done about locating tenants. Mr. Benedetti stated that Ms. Pepper had addressed these efforts in her remarks to the Authority and bondholders earlier in the meeting. Mr. Benedetti empha- sized that the EURA does not have control of the private developments and can- not dictate leasing terms. Mr. Bullock discussed the restructuring of the bonds, and pointed out that fees would have to be paid whether the restructuring was successful or not. Mr. Totten stated that suggestions made by members of the audience have been very good and the Authority will consider them. Mr. Totton stated that the Authority would want to be sure in considering the restructuring of the bonds that the Authority does not end up with the same problem of insufficient revenues to pay off the bonds. The merits of restructuring the bonds was briefly debated by some members of the audience. Jim Hanson stated that he is a private investor, and did not receive a copy of the prospectus at the time he purchased the bonds. Mr. Hanson asked if the expenditure of funds for the flood control project was mentioned in the pro- spectus. Mr. Hanson was assured that the flood control project was clearly discussed in the prospectus. He stated that in his opinion, it is the respon- sibility of the City to maintain public drainage ways. Mr. Hanson suggested the City should consider establishing another revenue bond issue to repay the investors in the EURA bonds. Mr. Hanson stated that he wants to know where every dollar went: the cost of acquisition of property, streets, construc- tion, etc. A member of the audience asked when bondholders could expect to receive a determination on whether the Authority would pursue the restructuring of the bonds. Mr. Wanush stated the Authority has monthly meetings, and the next meeting will be on November 7, 1990, at which time this issue will be dis- cussed. Mr. Wanush stated that he anticipated communicating with the bondholders after the December 1 bond payment. A member of the audience pointed out that over 90% of those in attendance are in favor of restructuring. Mr. Totten stated that the Authority has been discussing the issue of bond repayments for nearly a year, and the Authority does want to reach the best resolution before the bonds are in default. Ms. Nichols stated that she had spoken to a representative of Kirchner Moore , and was informed that in the request from the EURA for their services, they were not asked to restructure the bonds, but only to determine what respon- sibilities the EURA and the City had. Ms. Nichols urged that the Authority solicit the services of firms who specialize in "fixing" bonds. Mr. Totten stated that the Authority solicited responses from a number of bond firms, and interviewed five or six firms concerning the work out of the bond issue. Kirchner Moore was selected, and presented options that were available to the Authority . Ms. Nichols stated that in the solicitation of services, the wording should have been toward "fixing" vs. "obligation" and options. Mr. Wanush stated - 8 - that this was the question Kirchner Moore was to answer, and in the opinion of the Authority they did answer the question. Mr. Totton stated that this meeting has demonstrated the preference of those in attendance to work out a solution to protect their principal investment, even if the interest rate is lowered. Mr. Wanush stated that he had serious reservations that the interest rate on a restructured bond issue would be 8%. He agreed, however, that the possibility of restructuring the bonds i s worth exploring. Bill Ott asked the estimated time of default. Mr. Wanush stated that he an- ticipates the Authority would have to default in June, 1991. Mr. Totton thanked bondholders for attending the meeting, and stated that the Authority will make every attempt to work things out on the bond issue. The meeting adjourned at 8:15 P.M. Gertrude G. Welty Recording Secretary - 9 -