Roseville Community Development Corporation by yaoyufang

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									               Roseville Community Development Corporation
                                       P.O. Box 696
                             Roseville, California 95678-0691
                                 www.rosevillecdc.com


                              BOARD MEETING AGENDA

November 10, 2011                                                         Board of Directors
8:00 a.m. to 10:00 a.m.                                                       Chair Howard Rudd
                                                                Secretary/Treasurer John Norman
Blue Line Gallery                                                         Director Nick Alexander
405 Vernon Street                                                              Director Ed Benoit
Roseville, CA 95678                                                           Director Mark Lund



   I.      Roll Call

   II.     Approval of the October 13, 2011 Board Meeting Minutes

   III.    Action Items
           a. Approve Development and Management Agreement with Barbieri Properties for
              242-246 Vernon Street – John Sprague
           b. 238 Vernon Street – John Sprague
           c. Credit Survey and Loan Program – Kevin Payne
           d. Housing Investment Program – John Sprague
           e. Compilation Audit for Fiscal Year 2011 – Kevin Payne

   IV.     Non-Agenda Public Comment

   V.      Board and Staff Comments

   VI.     Adjournment
              Roseville Community Development Corporation
                                        P.O. Box 696
                              Roseville, California 95678- 2649
                                 www.roseville.ca.us/rcdc


                                    October 13, 2011
                              Draft Board Meeting Minutes


Present:             Secretary/Treasurer John Norman (Acting Chair), Directors Nick
                     Alexander and Ed Benoit

Absent:              Chair Howard Rudd and Director Mark Lund

Corporate Counsel:   Larry Larsen, Law Offices of Gregory D. Thatch

Corporate Staff:     CEO John Sprague, VP Kevin Payne, and Board Secretary Lonnye Heple


II.    Approval of the September 8, 2011 Board Meeting Minutes
       Director Alexander made a motion to approve the meeting minutes for the September 8,
       2011 Board Meeting. Director Benoit seconded the motion.

       Motion Passed Unanimously

III.   Approval of the September 27, 2011 Special Board Meeting Minutes
       Acting Chair Norman made a motion to approve the meeting minutes for the September
       27, 2011 Special Board Meeting. Director Alexander seconded the motion.

       Director Benoit abstained

       Motion Passed with Two (2) Aye Votes

IV.    Presentations
          a. Budget Reports Overview
             Melissa Hagan reviewed the budget reports for Fiscal Year 2011 and year to
             date report for Fiscal Year 2012.

              No Action Required

V.     Action Items
          a. Credit Survey and Loan Program
              This item was removed from the agenda and will be placed on the November 10,
              2011 agenda.

           b. Approve Development and Management Agreement with Barbieri
              Properties for 242-246 Vernon Street
              This item was removed from the agenda and will be placed on the November 10,
              2011 agenda.

           c. Appoint an Ad-Hoc Committee for 238 Vernon Street
                                                    Roseville Community Development Corporation
                                                               October 13, 2011 – Meeting Minutes
                                                                                      Page 2 of 2


           Acting Chair Norman made a motion to appoint Director Benoit and Director
           Alexander to the Ad-Hoc Committee for 238 Vernon Street. Director Alexander
           seconded the motion.

           Motion Passed Unanimously

        d. Adoption of Corporate Banking Resolution
           Director Alexander made a motion to adopt the Corporate Banking Resolution
           authorizing one signature for checks, drafts, and other instruments needed for
           the operation of the RCDC in the amount up to and including $10,000 rather than
           $20,000 as recommended. Any transactions greater than $10,000 would require
           two (2) signatures from the designated corporate banking officers. Director
           Benoit seconded the motion.

           Motion Passed Unanimously

VI.     Non-Agenda Public Comment
        None

VII.    Board and Staff Comments
        Lonnye Heple gave an update on the status of the RCDC website and email
        addresses for Directors.

VIII.   Adjournment – 8:45 a.m.
              Roseville Community Development Corporation
                                        P.O. Box 696
                                  Roseville, California 95678
                                   www.rosevillecdc.com



Meeting Date:          November 10, 2011

Item III-A (Action):   Development and Management Agreement 242-246 Vernon
                       Street - Barbieri Properties

Presenter:             John Sprague (Chief Executive Officer)


RECOMMENDATION

RCDC staff recommends the Board take the following actions:

       Approve the attached “Project Development and Management Agreement” with Barbieri
       Properties, Steve Pease, for 242 -246 Vernon Street; and
       Authorize the Chief Executive Officer to effectuate the attached agreement.

BACKGROUND

At the Board’s past closed session of September 27, 2011 staff was directed to:

       Provide a $10,000 non-refundable deposit towards the purchase of 242-246 Vernon
       Street;
       Develop a development and management agreement with Barbieri Properties;
       Perform additional due diligence related to the property in the form of securing estoppels
       from the existing tenants; and
       To take the necessary steps to make a timely close on the property located at 242-246
       Vernon Street on or by October 17, 2011.

In response to these requested actions staff has; 1) secured the property by paying the non-
refundable deposit of $10,000, 2) prepared a draft development and management agreement
between the Roseville Community Development Corporation and Barbieri Properties, 3)
secured estoppels from the existing tenants, and 4) closed on the property on October 27, 2011.
Closing was delayed due to complications with signatures being provided by the buyer, as the
property was held in a trust.

Project Development and Management Agreement: It is being recommended that the RCDC
have the 242-246 Vernon Street LLC enter into an agreement with Barbieri Properties for
project development and property management services. As part of this agreement Barbieri
Properties will manage owner improvements, market the building, secure tenants and leases
and oversee the on-going management of the building to develop “sweat equity”. The key
elements of the agreement include:

       242-246 Vernon Street, LLC, is the property owner and is the entity that is providing the
       capital investment;


                                                                                      Item III-A
                                                                            242-246 Vernon Street
                                                                       November 10, 2011 – Page 2

       Barbieri Properties, LLC, is managing the project development and leasing and is acting
       as an independent contractor;
       Barbieri Properties will actively market/retenant the property and manage the property
       for 2% of gross rents;
       Barbieri Properties will act as the construction manager and, implement the development
       plan. A construction management fee of 2 ½% of the hard and soft costs of construction
       will be paid for any improvements made by 242-246 Vernon Street LLC in order to
       prepare the building for lease-up. This construction management fee will not be paid to
       Barbieri Properties’ for the oversight being performed for the construction of tenant
       improvements by the tenant(s), this fee will be paid by the tenant;
       Net Rental Income and Net Proceeds of Sale will be distributed in the following priority:
            o 242-246 Vernon Street LLC to annually receive a minimum 5% return on
               investment; and
            o Provided that 75% of the net proceeds of cash flow satisfy the 5% preferred
               return to the RCDC, cash flow will then be distributed 75%, inclusive of the 5%
               preferred return, and 25% to Barbieri Properties.
            o Upon sale or refinance, net proceeds shall be distributed 75% to the RCDC and
               25% to Barbieri Properties.

       In the second bullet, the distribution of the Net Rental Income is structured slightly
       different than the 240 Vernon Street agreement. As part of this agreement, the 5%
       preferred return is included within the 75% distribution to the RCDC. In the 240 Vernon
       Street agreement the 5% preferred return needed to be met and then the remaining
       funds were distributed in a 75%/25% split. The structure of the 240 Vernon Street
       agreement was an oversight on Barbieri’s part, but since they had discussed this as the
       structure with the Ad-Hoc Committee they were will to proceed with the structure as
       noted. An example of the difference in the two agreements is included in Attachment 1.

It should be noted that as part of the terms of the agreement, Barbieri Properties is not charging
any real estate commission for the efforts related to finding tenants for the property or for the
initial acquisition of the property. The full content of this agreement is provided in Attachment 2
of this report.

CONCLUSION

The principal advantage that Barbieri Properties brings to this transaction is the expertise in
acquisition, tenanting, improving and managing the real estate investment. As part of the
project development and management agreement, Barbieri Properties is responsible for
providing on-going management of the investment, oversight of building improvements and
future tenanting of the building. It is for these reasons that staff has recommended the
acquisition of this property and entering into a partnership with Barbieri Properties.


Attachments:
1. Example of distribution of Net Rental Income for 240 Vernon and then 242-246 Vernon
   Street.
2. Draft Project Development and Management Agreement
              Roseville Community Development Corporation
                                          P.O. Box 696
                                    Roseville, California 95678
                                    www.roseville.ca.us/rcdc



Meeting Date:          November 10, 2011

Item III-B (Action): 238 Vernon Street Loan Agreement

Presenter:             John Sprague (Chief Executive Officer)

RECOMMENDATION

RCDC staff recommends that the Board proceed with extending financing for the improvement
of the real property commonly known as 238 Vernon Street. Should the Board decide to
proceed with this loan; staff further recommends that the Board take the following actions:

       Confirm that the proposed transaction is in the corporation’s best interest, for the
       corporation’s own benefit, is fair and reasonable to the corporation and that the
       corporation cannot obtain a more advantageous arrangement with reasonable effort
       under the circumstances;
       Approve the extension of financing for the property identified as 238 Vernon Street for
       $1,500,000 under the terms identified in this report;
       Authorize the Executive Director to finalize and execute the necessary documents to
       secure a Loan Agreement between Innova Restaurant Concepts and the Roseville
       Community Development Corporation, Inc. providing the provisions for extending a loan
       in the amount of $1,500,000;
       Authorize the Chief Executive Officer to draw funds from the corporation’s start up loan
       and provide these funds as a loan to Innova Restaurant Concepts to improve 238
       Vernon Street; and
       Authorize the Executive Director to accept a Subordination Agreement between the
       Roseville Redevelopment Agency and the Roseville Community Development
       Corporation, Inc., at the earliest possible date.

BACKGROUND

A key goal for the Roseville Community Development Corporation has been attraction of new
businesses and investment into downtown Roseville. The corporation has been working to
achieve this goal by assembling a core group of downtown properties using the corporation’s
start up loan leveraged through strategic partnerships with private investors. As part of this effort
RCDC staff has been focused on the 200 to 400 blocks of the downtown area.

The RCDC’s focus has been on assembling a portion of the 200 block through property
purchase or investment with existing owners. More recently, the corporation has obtained
ownership of two key properties in fulfilling the goal to assemble properties. The corporation
now owns 240 Vernon Street and the property addressed as 242-246 Vernon Street. At the
meeting of October 13, 2011 staff provided the Board with an overview of a request for funding
for another property that is located within this block, 238 Vernon Street. At the meeting of
October 13th, an Ad-Hoc Committee consisting of Board Members Alexander and Benoit were
appointed to review the investment proposal for this property.

                                                                                          Item III-B
                                                                                238 Vernon Street
                                                                       November 10, 2011 – Page 2

This request for funding is being made in order to provide funds for the completion of building
renovations in order to bring a quality restaurant/entertainment venue to the street. As outlined
in Attachment 1, soft costs, permits, fees and construction costs are estimated to be
approximately $1.3 Million. An additional $530,000 is necessary for the Furniture, Fixtures and
Equipment (FF&E). Operational start-up costs will be another $135,000. The estimated total
investment in the building and the future tenant is approximately $2 million. The gap in the loan
amount and the estimated project development and business start-up cost ($500,000) will be
funded through Innova Restaurant Concepts. With the $1.5 Million loan, the Corporation will
have created an opportunity to activate approximately thirty percent (30%) of the block with
tenants that are aligned with the vision for Downtown.

Property Description: The following provides a brief summary of the existing conditions
associated with this property and the proposed loan:

       Building Size: Approximately 16,000 square feet with a full basement (approx. 6,000
       sq.ft), consisting of a single tenant space configured for a restaurant with the ability to
       provide outdoor seating;
       Existing Ownership: KMS Vernon Street, LP
       Existing Occupancy: The building is currently vacant;
       Zoning: Central Business District/Special Area-Downtown
       Parking: Parking will be provided via the public parking resources along Vernon Street;
       Property Conditions: Constructed in 1947, the rectangular building is wood frame and
       brick, with a built-up composition of roof. This is a two story structure (ground floor with
       basement) that includes a mezzanine on the ground floor. The basement, which
       represents 6,123 sq.ft of the available square footage, has low ceilings. The ground
       floor/mezzanine provides the remaining 9,245 sq.ft of rentable area.

Due Diligence: As part of this loan request, the following is provided to address due diligence
items. Since the Redevelopment Agency (RDA) has owned this property, or worked in close
concert with KMS Vernon Street on improvements to the building, the information presented is
based on experience/analysis performed as part of past actions.

       Structural: As part of the RDA purchase in 2005. a full structural analysis was
       performed since the building is primarily a masonry building. Under the uniform building
       code, a change in use from retail to an occupancy use such as a restaurant triggers a
       significant seismic upgrade. Some of the seismic improvements have been completed
       as part of the recently completed façade renovation. Anticipating further seismic
       improvements, a significant amount has been set aside in the proposed development
       budget to complete the seismic retrofit of this building.

       Appraisal: A formal appraisal has not been prepared for the property. Based on the
       experience of RCDC staff acquiring properties in downtown Roseville for the City and its
       Redevelopment Agency, appraisals have not proven to be an effective tool in
       determining property value or in property negotiations. But, if the Board would feel more
       comfortable making this commitment based on an appraisal, staff will contract with an
       appraiser.

       Environmental Conditions: In 2005, when the RDA acquired the property a Phase 1
       report was completed. The Phase 1 noted that there were “no recognized environmental
       conditions”. Additionally, in 2007 a Phase 1 was previously completed as part of the
       Downtown Specific Plan Environmental Impact Report. As part of the Downtown Specific
       Plan’s EIR, a programmatic review of the Vernon Street corridor was completed. There
                                                                                 238 Vernon Street
                                                                        November 10, 2011 – Page 3

       were no other unmitigated hazardous materials in close vicinity to the 238 Vernon Street
       property.

       KMS purchased the building in 2008 and performed façade and limited interior
       demolition. As part of the funding for the façade the RDA issued a façade rebate.
       Agency staff monitored the construction and is confident that there have been no new
       environmental conditions created since the change in ownership. Additionally, the
       building has remained vacant since the original purchase in 2005.

Loan Request: A formal request has been made to the Board for a loan to rehabilitate the building
and assist in the completion of the tenant improvements in order to attract a major
restaurant/entertainment venue at 238 Vernon Street. Innova Restaurant Concepts is seeking a
loan in the amount of $1,500,000 to complete renovations and upgrades such as: roof
replacement, structural modifications, fire sprinkler installation and electrical service upgrades.
Additionally, the balance of the loan would be expended on completing a major portion of the
tenant improvements including but not limited to walls, flooring, HVAC, fixtures, furniture and
equipment. As this restaurant will be the first major tenant on the corridor and a catalyst for
revitalization of the area, Innova Restaurant Concepts is seeking payment relief during the start-up
period of the restaurant for an eighteen (18) month period. The following provides a brief overview
of the requested structure associated with this loan request:

      Loan Purpose: Soft costs, building structural improvements, tenant improvements and
       fixtures to attract a high quality restaurant/entertainment venue to Vernon Street.

      Proposed Loan Terms:
           Amount: $1,500,000;
           Start Date: December 1, 2011
           Interest Rate/Amortization: Interest rate of four percent (4%); monthly payment
             amounts to be determined based on a twenty (20) year amortization period.
           Repayment: First eighteen (18) months deferred payments with interest accrual,
             full monthly principal and interest payments thereafter, with a balloon payment for
             the total amount due at the end of seven (7) years. After the first eighteen (18)
             months and in order to accelerate debt payments, Innova Restaurant Concepts will
             make an additional debt reduction payment equal to twenty-five percent (25%) of
             the post-tax Net Profits of the restaurant each year.
           Security: The Note will be secured by a deed of trust on the real property executed
             by KMS Vernon Street LP. There will also be a subordination of the existing note
             held by the Roseville Redevelopment Agency to this new loan.
           Performance: As a provision of this Loan Agreement a draft of a structured
             release of funds and a schedule of performances has been included (refer to
             Attachment 2)

      Return on Investment: Based on a 7 year pay-off schedule, interest payments will result
       in $444,238 or approximately 30% return on the investment.

The proposed loan terms and payment schedule have been provided in Attachment 3.

Property ownership verses Loan Party: The current property owner is KMS Vernon Street, LP.
Steve Pease acting as Barbieri Properties has a 51% ownership in this partnership entity. The loan
is being requested by a separate entity, Innova Restaurant Concepts that will lease and operate
the restaurant/entertainment venue. As a provision of the loan agreement KMS Vernon Street, LP
will be responsible for entering a Deed of Trust to provide collateral for the loan to Innova
Restaurant Concepts.
                                                                                  238 Vernon Street
                                                                         November 10, 2011 – Page 4

Loan Security: The real property that would be used to secure this loan is already encumbered
with a loan for $618,430 payable to the City’s Redevelopment Agency. While it is contemplated
that the Redevelopment Agency would be willing to subordinate that loan to the new $1.5 Million
loan being made by the RCDC, it still requires that the Redevelopment Agency accept this position.
Current litigation concerning the future of redevelopment agencies is pending in the California
Supreme Court and the outcome of that litigation is uncertain. During the pendency of that
litigation, redevelopment agencies are restricted from conducting many of their customary
activities, including entering into a subordination of existing loans made by those redevelopment
agencies. Consequently, until the pending litigation is resolved, it is uncertain when or if a
subordination of the existing City Redevelopment Agency loan to the new $1.5 Million loan will take
place. There is the possibility that such subordination may never take place if the litigation results
in the discontinuance or restriction of the operation of redevelopment agencies.

DISCUSSION:

The Ad-hoc Loan Committee for 238 Vernon Street has reviewed the proposed request with
regards to how it may further the goals of the Corporation. The Committee noted that there are
merits to the proposal. The positive aspects of this proposal that were reflected in their discussion
included;

      That it activates a property that is currently vacant;
      It provides the opportunity to activate the 200 block with a viable attractive “destination”
       tenant;
      RCDC funds are the only source of funds available, as the nature and risk of this loan
       would not be supported through traditional bank financing;
      Property investment at this geographic location does have an immediate impact that is
       envisioned as part of an initial investment strategy;
      The loan term is relatively short;
      Interest return is appropriate; and
      The loan request can be accommodated given the Corporation’s remaining funds.

It is for these reasons that the Ad-Hoc Loan Committee is recommending that the Board approve a
request to loan $1,500,000 to Innova Restaurant Concepts. The purpose of this loan will be to
upgrade the existing building and bring a proven, high quality restaurant tenant to Vernon Street.

CONCLUSION

By extending financing to 238 Vernon Street, the recent investments by the Corporation in
adjacent properties will start to form the critical mass to attract new business, restaurants,
entertainment and housing to downtown. A unique use at this location will draw customers to
the area and encourage the perception of downtown as a desirable place to work, live and
recreate. By achieving this goal, the Corporation will be satisfying one of the clear premises of
its mission which is to enhance the investment opportunities and create a stronger economic
justification to bring investment downtown. It is for these reasons that the Ad-Hoc Loan
Committee and staff have recommended extending financing to Innova Restaurant Concepts in
the amount of $1,500,000.


Attachments:
   1. Development Budget
   2. Funding and Performance Schedule
   3. Loan Amortization Schedule
                                                                                    ATTACHMENT 2
                                                Exhibit X

                                      Funding Release Schedule

               Task                           Release Mechanism                     Total Funding
                                                                                       Release
1) Design: Architectural Design;      Innova Restaurant Concepts (IRC) shall
   Interior/Concept Design;           submit individual Scope of Services for             $114,000.00
   Structural Design;                 the various design services required to
   Kitchen/Food Service Design        develop construction plans to RCDC.
                                      Individual invoices to be provided to
                                      RCDC, prior to release of funds. Upon
                                      invoice submittal and verification of
                                      work, RCDC shall issue payment within
                                      fifteen (15) calendar days.

2) Permits and Fees: Building         Innova Restaurant Concepts (IRC) shall
   Permit; Plan Check; ABC            submit to the RCDC individual invoices              $360,000.00
   License; Change of Use Fees;       for Permits and Fees required to
   Gas Hook-up; Water-line            develop a restaurant use. Individual
   upgrade                            invoices to be provided to RCDC, prior
                                      to release of funds. Upon invoice
                                      submittal and verification of work,
                                      RCDC shall issue payment within fifteen
                                      (15) calendar days.

3) Demolition                         RCDC staff to review building condition
                                      at the request of IRC. RCDC shall issue              $35,000.00
                                      payment within fifteen (15) calendar
                                      days following approval of site
                                      inspection.

4) Completion of Re-roof              Roof inspection approved by the City of
                                      Roseville building division. RCDC shall              $35,000.00
                                      have fifteen (15) calendar days to
                                      disperse funds once notified.

5) Foundation: Installation of        Rough Plumbing inspection approved
   rough plumbing, underground,       by the City of Roseville building division.         $376,000.00
   structural elements and            RCDC shall have fifteen (15) calendar
   foundation/concrete                days to disperse funds once notified.

6) Rough Frame: Installation of       Framing inspection approved by the
   the structural elements, rough     City of Roseville building division.                $100,000.00
   framing, mechanical and            RCDC shall have fifteen (15) calendar
   electrical prior to sheetrock      days to disperse funds once notified.

7) Hood: Installation of              Commercial Hood Inspection approved
   commercial hood                    by the City of Roseville building division.          $81,000.00
                                      RCDC shall have fifteen (15) calendar
                                      days to disperse funds once notified.

8) Elevator (Lift): Installation of   Elevator Inspection approved by the
   an elevator or lift providing      City of Roseville building division or                  $70,000
   access to all three levels as      certified professional inspection service.
   required by the building code.     RCDC shall have fifteen (15) calendar
                                      days to disperse funds once notified
               Task                          Release Mechanism                      Total Funding
                                                                                       Release
9) Sprinkler System: Installation    Sprinkler System approved by the City
   of a sprinkler system as          of Roseville Fire Prevention Division.                  $72,000.00
   required by the building and/or   RCDC shall have fifteen (15) calendar
   Fire code.                        days to disperse funds once notified

10) Final: Including Electrical,     Commercial Hood Inspection approved
    Mechanical and Plumbing          by the City of Roseville building division.            $100,000.00
                                     RCDC shall have fifteen (15) calendar
                                     days to disperse funds once notified.

11) FF&E: Furniture, Fixtures and    Innova Restaurant Concepts (IRC) shall
    Equipment installation           submit individual Scope of Services for                $157,000.00
                                     the various design services required to
                                     develop construction plans to RCDC.
                                     Individual invoices to be provided to
                                     RCDC, prior to release of funds. Upon
                                     invoice submittal and verification of
                                     work, RCDC shall issue payment within
                                     fifteen (15) calendar days.


TOTAL LOAN DISBURSEMENT                                                                   $1,500,000.00


                                     Schedule of Performances

               Task                          Required Completion                         Date
1) ICR executes Loan Agreement       Within fifteen (21) calendar days after
   and other associated              RCDC Board approval                           December 15, 2011
   documents

2) Building Design is completed      Within sixty (60) calendar days from
   and submitted for building        execution of the Loan Agreement (Task         February 13, 2012
   permits                           1)

3) Building Permit is issued         Within forty-five (45) calendar days from
                                     Building Permit submittal (Task 2)             March 29, 2012

4) Commence Construction of          Within thirty (30) calendar days from
   Improvements                      Building Permit issuance (Task 3)               April 28, 2012

5) Completion of Items 3 through     Within one hundred and eighty (180)
   11 of Funding Schedule –          calendar days from the start of                October 28, 2012
   Receive Occupancy Permit          construction (Task 4)

6) Completion of Project             Within thirty (30) calendar days from
                                     receipt of Occupancy Permit (Task 5)          November 27, 2012
               ROSEVILLE COMMUNITY DEVELOPMENT CORPORATION
                                              238 Vernon Street

  Loan Information                                         [42]   Summary
                      Loan Amount      $     1,500,000                   Rate (per period)                    0.333%
              Annual Interest Rate                4.00%               Number of Payments                         91
                 Compound Period               Monthly
                Amortization Term                     20 yrs                   Years to Pay Off                7.58
       First Date to Start Deferral           1/1/2012
               First Payment Date             7/1/2013                         Total Interest       $    444,233.00
               Payment Frequency               Monthly                  Est. Interest Savings
                     Payment Type          End of Period                           Year Paid                7/1/2019
              Interest-Only Period                     0 yrs
                   Deferral Period           18 months             Total Principal & Interest       $ 1,944,233.00
                      Term of Loan                     7 yrs
                                                                          Monthly Payment                 $9,089.70

Amortization Schedule                                                                                     Rounding On
                                              Additional
 No.       Due Date        Payment             Payment              Interest            Principal            Balance
                                                                                                        $1,500,000.00
   1          1/1/12            0.00                                5,000.00            -5,000.00         1,505,000.00
   2          2/1/12            0.00                                5,016.67            -5,016.67         1,510,016.67
   3          3/1/12            0.00                                5,033.39            -5,033.39         1,515,050.06
   4          4/1/12            0.00                                5,050.17            -5,050.17         1,520,100.23
   5          5/1/12            0.00                                5,067.00            -5,067.00         1,525,167.23
   6          6/1/12            0.00                                5,083.89            -5,083.89         1,530,251.12
   7          7/1/12            0.00                                5,100.84            -5,100.84         1,535,351.96
   8          8/1/12            0.00                                5,117.84            -5,117.84         1,540,469.80
   9          9/1/12            0.00                                5,134.90            -5,134.90         1,545,604.70
  10         10/1/12            0.00                                5,152.02            -5,152.02         1,550,756.72
  11         11/1/12            0.00                                5,169.19            -5,169.19         1,555,925.91
  12         12/1/12            0.00                                5,186.42            -5,186.42         1,561,112.33
  13          1/1/13            0.00                                5,203.71            -5,203.71         1,566,316.04
  14          2/1/13            0.00                                5,221.05            -5,221.05         1,571,537.09
  15          3/1/13            0.00                                5,238.46            -5,238.46         1,576,775.55
  16          4/1/13            0.00                                5,255.92            -5,255.92         1,582,031.47
  17          5/1/13            0.00                                5,273.44            -5,273.44         1,587,304.91
  18          6/1/13            0.00                                5,291.02            -5,291.02         1,592,595.93
  19          7/1/13        9,089.70                                5,308.65             3,781.05         1,588,814.88
  20          8/1/13        9,089.70                                5,296.05             3,793.65         1,585,021.23
  21          9/1/13        9,089.70                                5,283.40             3,806.30         1,581,214.93
  22         10/1/13        9,089.70                                5,270.72             3,818.98         1,577,395.95
  23         11/1/13        9,089.70                                5,257.99             3,831.71         1,573,564.24
  24         12/1/13        9,089.70                                5,245.21             3,844.49         1,569,719.75
  25          1/1/14        9,089.70                                5,232.40             3,857.30         1,565,862.45
  26          2/1/14        9,089.70                                5,219.54             3,870.16         1,561,992.29
  27          3/1/14        9,089.70                                5,206.64             3,883.06         1,558,109.23
  28          4/1/14        9,089.70                                5,193.70             3,896.00         1,554,213.23
  29          5/1/14        9,089.70                                5,180.71             3,908.99         1,550,304.24
  30          6/1/14        9,089.70                                5,167.68             3,922.02         1,546,382.22
  31          7/1/14        9,089.70                                5,154.61             3,935.09         1,542,447.13
RCDC_1500000_7_YRS.xlsx
RCDC-238 VERNON                                                                                               11/1/2011
                                     Additional
 No.       Due Date       Payment     Payment     Interest   Principal       Balance
  32          8/1/14      9,089.70                5,141.49   3,948.21    1,538,498.92
  33          9/1/14      9,089.70                5,128.33   3,961.37    1,534,537.55
  34         10/1/14      9,089.70                5,115.13   3,974.57    1,530,562.98
  35         11/1/14      9,089.70                5,101.88   3,987.82    1,526,575.16
  36         12/1/14      9,089.70                5,088.58   4,001.12    1,522,574.04
  37          1/1/15      9,089.70                5,075.25   4,014.45    1,518,559.59
  38          2/1/15      9,089.70                5,061.87   4,027.83    1,514,531.76
  39          3/1/15      9,089.70                5,048.44   4,041.26    1,510,490.50
  40          4/1/15      9,089.70                5,034.97   4,054.73    1,506,435.77
  41          5/1/15      9,089.70                5,021.45   4,068.25    1,502,367.52
  42          6/1/15      9,089.70                5,007.89   4,081.81    1,498,285.71
  43          7/1/15      9,089.70                4,994.29   4,095.41    1,494,190.30
  44          8/1/15      9,089.70                4,980.63   4,109.07    1,490,081.23
  45          9/1/15      9,089.70                4,966.94   4,122.76    1,485,958.47
  46         10/1/15      9,089.70                4,953.19   4,136.51    1,481,821.96
  47         11/1/15      9,089.70                4,939.41   4,150.29    1,477,671.67
  48         12/1/15      9,089.70                4,925.57   4,164.13    1,473,507.54
  49          1/1/16      9,089.70                4,911.69   4,178.01    1,469,329.53
  50          2/1/16      9,089.70                4,897.77   4,191.93    1,465,137.60
  51          3/1/16      9,089.70                4,883.79   4,205.91    1,460,931.69
  52          4/1/16      9,089.70                4,869.77   4,219.93    1,456,711.76
  53          5/1/16      9,089.70                4,855.71   4,233.99    1,452,477.77
  54          6/1/16      9,089.70                4,841.59   4,248.11    1,448,229.66
  55          7/1/16      9,089.70                4,827.43   4,262.27    1,443,967.39
  56          8/1/16      9,089.70                4,813.22   4,276.48    1,439,690.91
  57          9/1/16      9,089.70                4,798.97   4,290.73    1,435,400.18
  58         10/1/16      9,089.70                4,784.67   4,305.03    1,431,095.15
  59         11/1/16      9,089.70                4,770.32   4,319.38    1,426,775.77
  60         12/1/16      9,089.70                4,755.92   4,333.78    1,422,441.99
  61          1/1/17      9,089.70                4,741.47   4,348.23    1,418,093.76
  62          2/1/17      9,089.70                4,726.98   4,362.72    1,413,731.04
  63          3/1/17      9,089.70                4,712.44   4,377.26    1,409,353.78
  64          4/1/17      9,089.70                4,697.85   4,391.85    1,404,961.93
  65          5/1/17      9,089.70                4,683.21   4,406.49    1,400,555.44
  66          6/1/17      9,089.70                4,668.52   4,421.18    1,396,134.26
  67          7/1/17      9,089.70                4,653.78   4,435.92    1,391,698.34
  68          8/1/17      9,089.70                4,638.99   4,450.71    1,387,247.63
  69          9/1/17      9,089.70                4,624.16   4,465.54    1,382,782.09
  70         10/1/17      9,089.70                4,609.27   4,480.43    1,378,301.66
  71         11/1/17      9,089.70                4,594.34   4,495.36    1,373,806.30
  72         12/1/17      9,089.70                4,579.35   4,510.35    1,369,295.95
  73          1/1/18      9,089.70                4,564.32   4,525.38    1,364,770.57
  74          2/1/18      9,089.70                4,549.24   4,540.46    1,360,230.11
  75          3/1/18      9,089.70                4,534.10   4,555.60    1,355,674.51
  76          4/1/18      9,089.70                4,518.92   4,570.78    1,351,103.73
  77          5/1/18      9,089.70                4,503.68   4,586.02    1,346,517.71
  78          6/1/18      9,089.70                4,488.39   4,601.31    1,341,916.40
  79          7/1/18      9,089.70                4,473.05   4,616.65    1,337,299.75
  80          8/1/18      9,089.70                4,457.67   4,632.03    1,332,667.72
  81          9/1/18      9,089.70                4,442.23   4,647.47    1,328,020.25
  82         10/1/18      9,089.70                4,426.73   4,662.97    1,323,357.28
  83         11/1/18      9,089.70                4,411.19   4,678.51    1,318,678.77
  84         12/1/18      9,089.70                4,395.60   4,694.10    1,313,984.67
  85          1/1/19      9,089.70                4,379.95   4,709.75    1,309,274.92
RCDC_1500000_7_YRS.xlsx
RCDC-238 VERNON                                                              11/1/2011
                                        Additional
 No.       Due Date        Payment       Payment        Interest      Principal       Balance
  86          2/1/19        9,089.70                    4,364.25       4,725.45   1,304,549.47
  87          3/1/19        9,089.70                    4,348.50       4,741.20   1,299,808.27
  88          4/1/19        9,089.70                    4,332.69       4,757.01   1,295,051.26
  89          5/1/19        9,089.70                    4,316.84       4,772.86   1,290,278.40
  90          6/1/19        9,089.70                    4,300.93       4,788.77   1,285,489.63
  91          7/1/19        9,089.70   1,280,684.90     4,284.97   1,285,489.63           0.00
                          663,548.10                  444,233.00   1,500,000.00




RCDC_1500000_7_YRS.xlsx
RCDC-238 VERNON                                                                       11/1/2011
              Roseville Community Development Corporation
                                          P.O. Box 696
                                    Roseville, California 95678
                                     www.rosevillecdc.com



Meeting Date:          November 10, 2011

Item III-C (Action): Credit Survey and Loan Program

Presenter:             Kevin Payne (Vice President)


RECOMMENDATION

RCDC staff recommends the Board take the following actions:

       Approve the three loan policies presented as part of this report, and direct staff to
       include these as part of a future investment policy;
       Direct staff not to pursue establishing an Equity Equivalent Investment (EQ-2) program,
       at this time; and to terminate the EQ-2 Loan Development Agreement with Tim Johnson
       Consulting, without the completion of Phases 2 and 3 of the agreement.

BACKGROUND

As part of fulfilling the economic assistance component of the Corporation’s mission, the RCDC
has been exploring the viability of creating a loan program. As a results, in June of this year, the
Board directed staff to initiate an agreement with Tim Johnson Consulting to evaluate the credit
needs of small businesses within the City of Roseville with the intent to possibly structure the
formation of a revolving loan program (Attachment 1). The agreement was structured in three
phases, with the results of each phase to be reviewed by the board prior to moving forward with
the next subsequent phase. These phases were defined as follows::

      Phase 1 – Identify the size of the targeted population of potential borrowers and
       identification of the average loan amount desired by local businesses.

      Phase 2 – Formulate a solicitation packet for Banks for EQ-2 and selection of an
       Underwriter/Trainer for the RCDC.

      Phase 3 – Identify and solicit for capital from potential investors and banking institutions.

With the completion of Phase 1, a report has been prepared summarizing the results of the
completed credit survey. A copy of this report was circulated to the Board on September 9,
2011.

The report incorporated the collection of data to ascertain the credit needs of small business in
Roseville. The use of an anonymous survey was devised to measure the input. The survey was
deployed through three methods, the internet, door-to-door and focus groups. In the effort to
ensure coverage, both the Roseville Chamber of Commerce and the City of Roseville deployed
surveys (2,000 plus each) via the Internet. RCDC/City staff and consultant held two focus
groups. Additionally, the consultant supported by city staff completed door-to-door surveys. The
specific focus was on businesses in the redevelopment area, where over 40 percent were
                                                                                         Item III-C
                                                                   Credit Survey and Loan Program
                                                                      November 10, 2011 – Page 2

contacted along with outreach to disadvantaged businesses (women, minority, and disabled)
along with veteran owned businesses at a citywide level.

Key Results: The following provides a brief summary of the key results of the survey.

       Seventy (70) percent of those that responded to the survey identified that they have
       been impacted by the “Credit Crunch.”
       Sixty-four (64) percent of those responding to the survey identified that they have not
       been able to acquire capital.
       Sixty-five (65) percent of the businesses surveyed identified that they have a current
       need for credit.
       Fifty (50) percent that responded identified that they could use a loan of less than
       $50,000.
       Overall, seventy-five (75) percent of the respondents indicated that they require a loan of
       less than $125,000.
       And lastly, that the median size of a loan was in the range of $50,000 to $75,000.

Beyond the Survey: The results of the survey identified that the median size of a loan that
businesses need was is in the range of $50,000 to $75,000. This range is the typical sweet spot
for Non-Bank Revolving Loans and for the Equity and Equivalent Line of Credit program, (EQ-
2). Also, the SBA is looking for experienced and qualified non-profits such as the Roseville CDC
to deploy their micro loan and 504 programs. It appears that an opportunity exists to help small
and midsize enterprises in the redevelopment area and also on a citywide basis.

Personal interviews revealed that small business owners are so busy they do not have time to
examine the lending landscape and identify the changes in personnel and products. Bank
products and personnel have changed due to the impacts of the “Great Recession”, as well as
credit requirements. Many small businesses identified the need for assistance in understanding
the changes in the marketplace. The concept previously discussed at the Banker’s forum has
included the RCDC partnering with local and regional banks in presenting lenders forums and
technical credit assistance. For this segment of Roseville businesses this appears to be a
valuable opportunity to pursue.

DISCUSSION

Following the distribution of the credit survey, the Ad-Hoc Loan Committee (Board members
Lund and Alexander) met to discuss the findings contained within the report. In addition to
discussing the findings, they also conferred with staff on the development of broad policies
when considering extending capital in the form of loans. The results of this conversation, frames
the recommended next steps in the Corporation’s pursuit of establishing a loan program. The
following briefly summarizes the recommended investment policies for extending future loan
funds that were discussed by the ad-hoc loan committee:


Policy Statement 1: In consideration of extending Corporation funds to individuals or
businesses in the form of a loan or financing the following criteria needs to be satisfied:

       The investment is being made in the Downtown or Redevelopment Plan Area, due to the
       current funding resources;
       The funding is being provided for physical improvements to real estate or property; and,
       The end result of this investment will be an economic benefit to the City in the form of
       additional goods and services and/or job creation.
                                                                    Credit Survey and Loan Program
                                                                       November 10, 2011 – Page 3


Policy Statement 2: RCDC funds should be leveraged to their full extent in order to maximize
the impact that these funds will have when allocated as part of a loan program.



Policy Statement 3: In consideration of future loans, appropriate measures must be taken to
insure that the risks are acceptable and that there is a defined positive return on the investment.


The mechanisms that are available to achieve these policies include, but are not limited to: loan
guarantees, SBA financing, hard money lender and Equity and Equivalent Line of credit
programs (EQ-2’s). Each of these methods of providing credit to small businesses was
discussed by the ad-hoc committee. The following reflects what the ad-hoc committee felt was
appropriate for the RCDC to currently pursue, at this time.

Loan Guarantees: A loan guarantee is a legally binding agreement under which the guarantor
agrees to pay any or the entire amount due on a loan instrument in the event of nonpayment by
the borrower. It is typically applied when the individual or business cannot establish their
creditworthiness. A practical example of this is the Redevelopment Agency posted a $50,000
loan guarantee in order for the Magic Circle theatre to secure a $200,000 loan from First Bank
to repair and renovate the theatre. This type of investment would require the Corporation to
reserve these funds should the loan go in to default.

   Pros:
      It leverages the RCDC funds to allow a small business to acquire capital;
      It takes advantage of partnering with other financial institutions;
      Utilizes financial institutions for underwriting and servicing of loan;
      It provides a return on the investment through interest charged; and
      It improves the physical and business environment.

   Cons:
     Requires that capital be set aside; and
     Risk of default and loss of capital.


Recommendation:
Utilize in conjunction with the Placer Fair Lenders Action Group (Placer FLAG), when
appropriate.


SBA Financing: The RCDC has a very good opportunity to partner with institutions that offer an
SBA 504 program. The CDC/504 loan program is a long-term financing tool, designed to
encourage economic development within a community. The 504 Program accomplishes this by
providing small businesses with long-term, fixed-rate financing to acquire major fixed assets for
expansion or modernization.

As a Community Development Corporation (CDC) which is set up to contribute to economic
development within its community, the RCDC is well positioned to take advantage of this type of
program. CDCs work with SBA and private sector lenders to provide financing to small
businesses, which accomplishes the goal of community economic development. Typically, a
CDC/504 project includes:
                                                                   Credit Survey and Loan Program
                                                                      November 10, 2011 – Page 4

        A loan secured from a private sector lender with a senior lien covering up to 50 percent
        of the project cost;
        A loan secured from a CDC (backed by a 100 percent SBA-guaranteed debenture) with
        a junior lien covering up to 40 percent of the project cost; and,
        A contribution from the borrower of at least 10 percent of the project cost (equity).

This type of setup means that 100% of the project cost is covered either by contribution of
equity by the borrower, or the senior or junior lien.

Proceeds from 504 loans must be used for fixed asset projects, such as:

        The purchase of land, including existing buildings;
        The purchase of improvements, including grading, street improvements, utilities, parking
        lots and landscaping;
        The construction of new facilities or modernizing, renovating or converting existing
        facilities;
        The purchase of long-term machinery and equipment; and,
        The 504 Program cannot be used for working capital or inventory, consolidating or
        repaying debt, or refinancing.

To be eligible for a CDC/504 loan, a business must be operated for profit and fall within the size
standards set by the SBA. Under the 504 Program, a business qualifies as small if it does not
have a tangible net worth in excess of $7.5 million and does not have an average net income in
excess of $2.5 million after taxes for the preceding two years. Loans cannot be made to
businesses engaged in speculation or investment in rental real estate.

Pros:
        It leverages the RCDC funds to allow a small business to acquire capital;
        It takes advantage of partnering with other financial institutions;
        It provides a return on the investment through interest charged; and,
        It improves the physical and business environment.

Cons:
        Requires that capital be distributed as part of the loan package; and
        Risk of default and loss of capital.


Recommendation:
Utilize in conjunction with eligible SBA lenders and the Placer Fair Lenders Action Group
(Placer FLAG) group when appropriate.


Hard Money Loans: A hard money loan is a specific type of asset-based loan financing through
which a borrower receives funds secured by the value of a parcel of real estate. Hard money
loans are typically issued at much higher interest rates than conventional commercial or
residential property loans.

Pros:
        It provides a higher level return on the investment through interest charged; and,
        It improves the physical and business environment.
                                                                     Credit Survey and Loan Program
                                                                        November 10, 2011 – Page 5

Cons:
        Requires that capital be distributed as part of the loan package;
        Does not leverage funds with other institutions;
        Requires the Corporation to insure that security is adequate and be willing to foreclose
        on property; and,
        Risk of default and loss of capital.


Recommendation:
May be used in limited circumstances, when appropriate and security is adequate.


EQ-2: Equity and Equivalent Investments, (EQ-2’s), are bank loans that are deeply
subordinated and have a rolling term so that they function like equity. Banks like Wells Fargo,
US Bank and Bank of America for example offer EQ-2’s to non-profits such as the RCDC to
establish a Non-Bank Revolving Loan Fund. Through this loan to the non-profit, subsequent
loans issued by the non-profit can be made to disadvantage, minority, women and veteran
owned businesses specifically in low income and high unemployment areas. It allows the non-
profit to strengthen its capital structures, leverage additional debt capital and as result, increase
lending and investing in economically disadvantage areas.

This program does require that the non-profit provide a loan loss reserve. In order to provide
this loan loss reserve the Corporation would need to set aside 20-30%. On a million dollars, the
reserve amount would be $200-300 thousand. As part of the ad-hoc committee’s discussion this
was not acceptable, given the limited amount of capital that the Corporation currently controls.

Pros:
        It leverages the Corporation’s funds;
        It generates revenue based on the interest capture; and,
        It improves the physical and business environment.

Cons:
        Requires that a significant amount of capital be set aside as part of a loan loss reserve;
        Limited market due to current available funding and area in which it can be deployed;
        Requires the Corporation to partner or employ personnel to underwrite and service the
        loans; and,
        Risk of default and loss of capital.


Recommendation:
Given the limited amount of capital available and the loan loss reserve requirements, the ad-hoc
committee did not feel that this would warrant further implementation, at this time.


CONCLUSION:

In response to the findings of the credit survey and consistent with the economic development
aspect of the Corporation, the ad-hoc loan committee finds the following:

        Based upon the findings of the credit survey, it is an appropriate role for the RCDC to
        provide financing mechanisms for small businesses (less than 10 employees),
        specifically those in the redevelopment area;
                                                                   Credit Survey and Loan Program
                                                                      November 10, 2011 – Page 6

       The concept of providing financing for small business meets the RCDC’s strategic
       goals for the Corporation;
       There are models statewide and regionally that illustrate that revolving loan funds for this
       purpose meet such a goal and funding from such operations can help create a
       sustainably financial organization;
       The types of loan products although not yet fully developed will include; loan guarantees,
       SBA loans and hard money loans when these loan mechanisms are determined to be
       appropriate; and,
       The use of EQ-2 funds is not currently feasible due to the limited capital that the
       Corporation has to work with, and the required loan loss reserves for this type of
       program.

Based on these findings the recommendation will be to discontinue the pursuit to establish an
EQ-2 program, and to utilize the other financing mechanisms to help local businesses when
appropriate.



Attachments:

   1. Consultant Agreement with Tim Johnson
   2. Credit Survey
              Roseville Community Development Corporation
                                          P.O. Box 696
                                    Roseville, California 95678
                                    www.roseville.ca.us/rcdc



Meeting Date:          November 10, 2011

Item III-D (Action): Housing Investment Program

Presenter:             John Sprague (Chief Executive Officer)


RECOMMENDATION

It is recommended that the Board direct staff to take the steps necessary to secure funding and
create a business plan/model for a Residential Housing Investment Program, to be approved by
the Board as part of a future action.

BACKGROUND

At the previous Board meeting, under staff comments, a brief discussion was held with the
Board regarding a potential business venture for the RCDC. The potential business venture has
been described as a Residential Housing Investment Program (RHIP). The premises of this line
of business would be to secure funding and other resources (labor) and obtain homes that are
in foreclosure, short sale or other distressed sale opportunity. A limited investment would then
be made to bring the home up to a “for sale” standard. Then the property would be marketed at
a price that provides a previously determined return on investment.

The purpose for pursuing this line of business aligns with the Corporation’s mission. The
mission is met by improving the condition of the housing stock in Roseville neighborhoods
through the physical improvement of these homes that have fallen into financial and physical
disrepair. Additionally, the individual properties that will be pursued will need to provide a return
on investment that provides an acceptable cash flow to the Corporation.

Staff has been exploring the availability of funding that might be available to support this line of
business. There are currently two sources of funding that have been identified. The first funding
source is approximately $500,000 provided through the City’s Housing Fund and the second
has been a funding match provided through local financial institutions. In addition to these
funds, the Corporation would look to partner with organizations such as the Building Industry
Association (BIA) for training opportunities which provides labor cost offsets.

In order to be successful and support this effort, a specific business plan will need to be
developed. As currently envisioned, a business plan would contain; 1) Goals and Objectives, 2)
Products and Services, 3) Program Systems and Specifications, 4) Processes including:
acquisitions, entitlements, permits, construction, disposition and partnerships, 5) Program
Management and Organization, 6) Funding and Accounting, and lastly 7) Financial Pro Forma.
In discussions with individuals that are currently pursuing this type of business model it is
expected that the return on the investment will be in the range of twenty percent (20%).

If the Board supports the pursuit of this business opportunity, staff will take the necessary steps
to develop a business plan and work towards securing funding/partnerships.
                                                                                          Item III-D
              Roseville Community Development Corporation
                                         P.O. Box 696
                                   Roseville, California 95678
                                   www.roseville.ca.us/rcdc



Meeting Date:         November 10, 2011

Item III-E (Action): FY-2011 Compilation of Financials

Presenter:            Kevin Payne (Vice President)


RECOMMENDATION

It is recommended that the Board direct staff to engage Gallina LLP to prepare a compilation of
the Corporation’s financials for Fiscal Year 2011 (FY-2011), in lieu of an audit.

BACKGROUND

Article 13 of the Corporation’s bylaws requires that an annual audit be prepared by an
independent public accountant. In April of this year the Corporation engaged the services of
Gallina LLP a certified public accounting firm. Based on the limited financial activity that the
Corporation has performed, in the brief period that it had been operating in Fiscal Year 2011,
Gallina LLP recommended a “compilation” of the financials, in lieu of an audit.

Based on the information provided by the Corporation, including; annual statements of financial
position and the related statements of activities, functional expenses, and cash flows of the
RCDC for FY-2011 Gallina LLP will issue an accountant’s report. The objective of the
compilation is to insure that the Corporation is presenting financial information in correct
financial statements. As part of this effort Gallina LLP will provide assurance that there are no
modifications that should be made to the financial statements and that the statements are being
presented in conformity with sound accounting principles.

CONCLUSION

Given the minor level of financial activity that has taken place in FY-2011, and the
recommendation from our accountant that a compilation of the Corporation’s financials is
adequate, it is being recommended that the Board authorize staff to work with Gallina LLP on
preparing a compilation of the FY-2011 financials verses an audit. Upon completion of the
compilation, the results of the accountant’s report will be forwarded to the Board as part of a
future presentation item.




                                                                                      Item III-E

								
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