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From: Mike Bouchee To: [EMAIL REDACTED] Cc: "Joe Easton"; "Rick Wishcamper"; "Marcy Allen"; Ellen Buchanan; "Matt Hisel"; John Engen; "Barbara Callaghan"; Grp. City Council and City Web Site; [EMAIL REDACTED] Subject: Montana Sustainable Building Center Date: Sunday, March 14, 2010 1:31:41 PM Dear Lynn, I hope you are enjoying a nice, sunny Sunday afternoon. In anticipation of tomorrow’s City Council meeting I wanted to touch base with you regarding a recent string of emails between yourself, Herb Kulow of MBOI, City Council members, Mayor Engen, and Ellen Buchanan. First, I want o thank you for the interest you have in the pending MSBC transaction, and the follow-up you’ve pursued since A&F on Wednesday. As you may know, we’ve been working many, many months on structuring the transaction and financing in a manner that would finally allow the Montana Sustainable Building Center (the Center) to become a reality, not only for purpose of spurring local economic growth but also in an effort to help curb global warming. It is apparent from your emails that you came away from A&F with a number of misconceptions about the Center and its current status. If I said anything to aid in those misconceptions, I certainly apologize. I would like to briefly take this opportunity to clarify any misunderstandings or misconceptions. The property where the Center will reside is currently owned by the unaffiliated Berkeley United, LLC (Berkeley). Berkeley has been working with Home Resource (HR) for well over a year and now has a lease agreement in place for HR’s lease of the majority of the existing building on-site. Berkeley has been very busy recently making improvements to the existing building and the site in preparation of HR’s impending move-in. HR’s lease with Berkeley is assignable to the non-profit Montana Sustainable Building Center (MSBC). MSBC holds an option to purchase the property from Berkeley United. MSBC does not own the property where the Center will reside. MSBC has been working to develop a financing structure that will allow it to purchase the property from Berkeley and complete the renovations required for the Center. The financing structure envisioned by MSBC involves three components: a $1.4MM EDA grant, (ii) loan proceeds of approximately $1.4MM from MBOI/First Security Bank, and (iii) loan proceeds of approximately $350K from MCDC. MSBC’s purchase and renovation of the property is contingent upon securing all three components of the planned financing structure. Unless and until all three financing pieces are finalized, MSBC will not be financially able to purchase the property and develop the Center. MSBC has been working with EDA on the grant for well over a year. MSBC only received word within the last couple of weeks that its preliminary grant application has been approved by EDA Denver and EDA DC for further consideration. As we discussed at A&F on Wednesday, EDA’s grant application process is two-stage. First, EDA must review MSBC’s initial grant application materials. If EDA feels that the project merits further consideration, it will invite MSBC to submit its final application for consideration. This is the stage where MSBC now find itself with EDA. In other ---PAGE BREAK--- words, MSBC is hoping to secure approval from Council that allow the City to proceed with preparing and submitting a final application to EDA, as MSBC was recently informed by EDA that the Center merits further consideration and must now submit a final application before EDA can award the grant. In order to secure the $1.4MM grant, MSBC must have, at a minimum, a local matching share of $1.4MM. It is anticipated that this matching share will come in the form of a loan of approximately $1.4MM from MBOI and First Security Bank. We have been actively engaged with both lenders on structuring and underwriting this loan since the time that we received word from EDA that MSBC’s application had been approved for further consideration. It is anticipated that the loan will originate with First Security bank, which is currently underwriting the loan with MSBC and will service the loan in the event the transaction is consummated. All of the underwriting is being done locally with First Security Bank, and not directly with Mr. Kulow and MBOI staff in Helena. While Mr. Kulow has had multiple conversations with MSBC and representatives from First Security Bank about this transaction and loan structure, he is absolutely correct in stating that he has not received a loan application as we are working at the local level with First Security Bank on the application and underwriting pursuant to his direction and approval, which is currently in process. The project will also require a second loan of approximately $350K, and MSBC is currently working with MCDC on that second strip of financing. It is at the same stage of process and underwriting as the MBOI/FSB debt strip. Neither loan has been finalized at this point as MSBC has only been working with the lenders on this for the last few weeks, i.e. since the time that MSBC received word from EDA that MSBC would be invited to submit its final grant application to EDA. MSBC is now working very hard to simultaneously do three things: prepare and submit its final grant application to EDA, (ii) work with First Security Bank, and to a lesser extent MBOI, to finalize the $1.4MM matching local funds loan, and (iii) work with MCDC to finalize the $350K strip of secondary debt. The goal is to have all three pieces of financing in place as soon as reasonably possible so that MSBC will be able to purchase the property from Berkeley and develop the Center. In the event MSBC cannot finalize and secure the necessary financing, it will not able to purchase property and develop the Center. From your email it appears that you were led to believe that: 1. The City could be financially responsible for the $1.4MM MBOI loan upon a default by MSBC; 2. MSBC currently has a $1.4MM loan with MBOI; and 3. MBOI currently holds a first position lien on the property as a result. First, as Mr. Kulow verified, in the event the MBOI loan is finalized and closed, and the non-profit borrower (MSBC) thereafter defaults on the loan, MBOI will begin foreclosure proceedings in cooperation with the borrower and any guarantors. In the event the loan is foreclosed upon by MBOI, it will either sell the property at auction or take possession of the property. At no point would MBOI look to the City to satisfy the financial obligations of MSBC under the loan. The City would not be a co-borrower, nor would it be a guarantor. MBOI’s financial recourse would lie in possible personal guarantees of interested individuals and MBOI’s security interest in the property ---PAGE BREAK--- itself, and not with the City. Second, as stated above, MSBC is currently working with First Security Bank (at to a lesser extent, MBOI) on underwriting the planned $1.4MM matching loan. That loan is not finalized, nor is the MCDC loan finalized. Neither EDA, MBOI, First Security or MCDC have provided any funding yet to MSBC. MSBC is working simultaneously to put all three pieces of financing into place. If MSBC is successful, it will then be able to secure the grant, close on both loans, purchase the property, and develop the Center. It is only at that point that MBOI, EDA and MCDC would take security interests in the property thereby securing the loans and EDA’s required use restrictions. At this point MSBC is hoping that City Council will authorize the City to proceed with preparing and submitting a final grant application to EDA allow with MSBC. This will allow MSBC to continue working with First Security/MBOI and MCDC to underwrite and finalize the two loans discussed above. All of this requires adherence to strict timeframes and coordination of many moving parts. MSBC obviously would not want Council to authorize the final EDA application unless it understands the transaction, its current status, and the ramifications to the City. I believe that Ellen and I did our best to present the project, its status, and its proposed financing structure in a clear, accurate manner at A&F. I thank you again for your interest in the project, and I look forward to discussing this matter in further detail at tomorrow night’s City Council meeting. In the meantime, please do not hesitate to let me know if you (or anyone else copied hereon) have any questions or concerns. Sincerely, Mike Mike Bouchee, VP c [PHONE REDACTED]