WHEREAS, the City's Brownfields Showcase and Enterprise Communities contain abandoned or under-used properties, where expansion or redevelopment is hindered by real or perceived environmental contamination, and which are generally known as "brownfields" properties; and

WHEREAS, the Nisqually Earthquake of February 28, 2001 further destabilized brownfields properties within the City's Brownfields Showcase and Enterprise Communities, and a number of historic and environmentally contaminated buildings in Pioneer Square and the International District are now in need of immediate rehabilitation; and

WHEREAS, acquisition and rehabilitation of certain brownfields properties in these communities, including earthquake damaged buildings, would not be economically feasible unless publicly-based financing sources were available; and

WHEREAS, HUD awarded the City a Brownfields Economic Development Initiative grant in the amount of $1,750,000 ("BEDI Grant") to support development of the Rainier Court project in Southeast Seattle; however, due to the high levels of distress caused by the February 28, 2001 earthquake, HUD amended the terms of the BEDI Grant to allow use of funds to support redevelopment projects in the City's Brownfields Showcase and Enterprise Communities; and

WHEREAS, HUD conditioned use of the BEDI Grant on the City's ability to obtain a companion Section 108 loan; and

WHEREAS, under Section 108 of the Housing and Community Development Act of 1974, as amended, federal guarantees are available for loans obtained to finance eligible economic and community development activities, including acquisition and rehabilitation of brownfields properties within the City's Brownfields Showcase and Enterprise Community; and

WHEREAS, the City's Director of the Office of Economic Development has recommended that the City apply for a Section 108 loan guarantee to fund activities involving the acquisition and rehabilitation of properties within the City's Brownfields Showcase and Enterprise Communities; and

WHEREAS, State law, RCW 35.21.735, authorizes the City to issue federally guaranteed notes, without pledging the City's credit, to finance loans to private parties for activities authorized under the Section 108 program; and

WHEREAS, a Section 108 loan guarantee in combination with the BEDI Grant will make the acquisition and rehabilitation of certain brownfields properties economically feasible, and will assist in the economic recovery of the Pioneer Square and other neighborhoods within the City's Brownfields Showcase and Enterprise Communities still suffering from the lingering effects of the Nisqually Earthquake of February 28, 2001 and an economic recession; and

WHEREAS, a Section 108 loan guarantee in combination with the BEDI Grant will benefit low and moderate income individuals including the creation or retention of jobs, will help preserve certain historic buildings and will also address slums or blight on a spot basis; and

WHEREAS, subject to final approval by an ordinance, proceeds of a Section 108 guaranteed loan are intended to be applied to multiple projects, including three initial projects 211 First Avenue, the Buttnick Building and the City Loan Building, and an entity controlled by John A. Goodman will be the borrower for these three initial projects; and

WHEREAS, the Office of Economic Development has made public a proposed application for a Section 108 loan guarantee, and the City Council has held a public hearing on June 5, 2002 on the proposed application and to obtain citizens' views on community development needs, as required by federal regulations; NOW, THEREFORE,

BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SEATTLE, THE MAYOR CONCURRING, AS FOLLOWS:

Section 1. That the Mayor, or his designee, is authorized, for and on behalf of The City, to submit to the United States Department of Housing and Urban Development ("HUD") an application for a Section 108 loan guarantee in the amount of up to FIFTEEN MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($15,500,000.00) for the purposes of financing loans to be made for eligible activities, including those involving the acquisition and rehabilitation of brownfields properties, within the City of Seattle's Brownfields Showcase and Enterprise Communities. The final application shall be based upon the proposed application attached to this Resolution as Exhibit A, with all understandings and assurances contained therein, and with such additions, modifications and amendments as HUD may require or the Mayor or Director of the Office of Economic Development may deem necessary or advisable in order to carry out the intent of this Resolution and obtain the necessary approval from HUD. The Director of the Office of Economic Development is designated as the official representative of the City to act in connection with the application and is authorized to provide such additional information as may be required.

Section 2. That upon acceptance of the applications by HUD, the Mayor, or his designee, is requested to prepare and submit to the Council a proposed ordinance authorizing the necessary agreements with HUD and other parties to implement the Section 108 loan.

Section 3. That when any of the proceeds of the note to be made by the City and guaranteed by HUD are loaned to a for-profit entity, that loan should be secured by a personal guarantee from one or more of the principals of such entity, in addition to a lien on any property being acquired or improved with the loan, and the guarantee should be secured by additional collateral.

Section 4. That any agreement for a loan of any proceeds of the note guaranteed by HUD under Section 108 should provide, consistent with HUD regulations, that the borrower shall take affirmative steps to assure that minority and women's business enterprises are used when possible, and shall maintain records of those steps, and that nothing in the agreement shall be construed to require or authorize any discrimination or preferential treatment contrary to applicable law.

Section 5. That the Director of the Department of Human Services is authorized to make necessary amendments to the City of Seattle's Consolidated Plan for Housing and Community Development for 2001-2004, including the 2002 Action Plan component thereof, and to make any other reports or submissions to HUD as may be required.

ADOPTED by the City Council the day of , 2002, and signed by me in open session in authentication of its adoption this day of , 2002. ___________________________________ President ____________ of the City Council

Filed by me this _____ day of ____________________, 2002. ___________________________________ City Clerk

THE MAYOR CONCURRING: ________________________ Gregory J. Nickels, Mayor

Exhibits: A. Section 108 Loan Guarantee Application

June 6, 2002 (Version 6) t CITY OF SEATTLE APPLICATION FOR LOAN GUARANTEE FROM U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT FOR AN ECONOMIC AND COMMUNITY DEVELOPMENT LOAN FUND IN THE AMOUNT OF $15,500,000

JUNE 5, 2002

Project Description

The purpose of this Section 108 application is to assist with economic and community development activities in the City of Seattle's Brownfield Showcase and Enterprise Communities. The guaranteed loan funds will be used to create a loan pool targeted to projects that will have positive economic and community development benefits within targeted communities. The previously approved companion BEDI funding will be used to support the activities funded from the loan pool, and help assure payment of debt service. Individual projects will be evaluated by City of Seattle staff, as well as by consultants expert in financial underwriting. Loans will be structured using a combination of debt service reserves and early year interest subsidies. The BEDI funds will be used as an interest rate subsidy on the three projects proposed in this application.

The City has identified five projects, three of which are ready to proceed as soon as funding can be assured. These three are neighborhood commercial projects involving rehabilitation of buildings that have suffered damage in the February 28, 2001 6.8M earthquake. Each has actual and documented environmental contamination. These buildings are in historic neighborhoods or are themselves historic. The damage that they have received is substantial but they can be repaired. The problem is that they are private commercial buildings and as such are only eligible for FEMA assistance through the Small Business Administration (SBA). SBA only offers loans that carry market interest rates and are limited to actual earthquake damage. This form of assistance does not consider the requirement that repairs of the magnitude caused by the earthquake mandate substantial rehabilitation including environmental mitigation and seismic upgrades. The costs of rehabilitation on these three projects are far in excess of the simple repair costs. They can only be undertaken with financial structures that offer below market interest rates. The initial projects presently intended for funding are briefly described below. Other projects will include the development or redevelopment of Brownfield sites within the Brownfield Showcase Community or within the Enterprise Community.

The first project, 211 First Avenue, is a 12,000 square foot commercial building located in Pioneer Square, a national historic district. The building was constructed around 1900 and is made of wood and brick. It has three floors and a basement. The building is nearly vacant. It has never been renovated and was damaged in the February 28th earthquake. The project's renovation cost including related soft costs totals $810,000. The purchase price of the property is $1,180,000. The City of Seattle will charge a one percent loan fee to cover its costs. The borrower's loan request is for $1,592,000. The developer's cash equity will be $348,457. The building contains identified and removable levels of asbestos containing materials (ACM) and lead based paint (LBP). This project is only feasible with the lower cost debt available through the use of Section 108 in conjunction with the BEDI program.

The second project, the Buttnick Building, is a 25,600 square foot commercial building also located in Pioneer Square. It is a three story plus basement, wood and masonry building. It was built in 1919. It currently has two tenants, which will remain in the building upon completion of renovation. The renovation cost of this project is $1,740,000. The purchase price of the land is $2,780,000. The City will require a one percent loan fee. The total loan request is $3,616,000. The developer's cash equity will be $658,667. An environmental assessment has identified removable levels of ACM and LBP. This building sustained significant damage in the Nisqually Earthquake. The project is only financially feasible with the combined assistance of Section 108 loan program subsidized with BEDI funding.

The third project is the City Loan Building, also a 1900 brick and masonry building in Pioneer Square of Seattle. It contains 20,170 square feet of rentable space and is currently vacant. It contains five floors plus a basement. It also was damaged in the February 28th earthquake. The renovation cost of the project is $1,980,000. The purchase of the land is $1,499,000. The City will require a one percent loan fee. The total loan request is for $2,808,000. The developer's cash equity will be $556,502. Structurally and environmentally it is similar to the other two projects. Economically its renovation is not feasible without Section 108 and BEDI funding.

The two additional projects are now being evaluated. These include a site acquisition for the Compass Center and the rehabilitation of the Cadillac Hotel. The Compass Center is a low income emergency shelter for homeless individuals. Section 108 funding will be used for the purchase of a parcel of land. The actual construction of the shelter will be undertaken with other public and private funds. The total project will cost in excess of $7,350,000, of which $1,325,000 will be Section 108. The Section 108 funding will be used solely for land purchase. The project will result in 90 beds for lowand very low-income individuals, related administrative space, and a commercial kitchen and laundry facility, all in support of the housing. The project will replace the 84 beds lost when the Compass Center was damaged beyond the ability to be occupied in the Nisqually earthquake. The site currently is partially occupied by two small buildings that will need to be demolished. The balance of the parcel has been used for surface parking. There is limited concern from hydrocarbon contamination.

The Cadillac Hotel is a commercial building located at 325 2nd Avenue South in Pioneer Square. It has been vacant since the Nisqually Earthquake. Of all the properties in Pioneer Square that were damaged by the Nisqually Earthquake the Cadillac sustained the most extensive damage. It is only through the direct intervention of Historic Seattle, coupled with BEDI and Section 108 funding, that the building will be saved. Historic Seattle has negotiated a purchase price of $1,750,000. The total hard and soft costs of rehabilitation are $5,500,000. Together the total project cost is $7,250,000. Out of this total, $5,588,169 are estimated to be allocable to either site acquisition or to rehabilitation that will eliminate specific conditions of blight or decay. The building contains both ACM and LBP. When completed it is anticipated that it will house the Klondike Gold Rush National Historical Park as well as other offices.

The three projects that are being submitted for approval along with the loan pool are projected to create approximately 211 new jobs when completed and occupied. Each of these three projects is ready to proceed. They have detailed cost estimates and proformas. They have completed market assessments, have appraisals completed or nearly completed and have completed their environmental assessments. They all anticipate the commencement of rehabilitation as soon as funding can be secured. Their target dates for commencement of rehabilitation are in the second quarter of 2002. Specifics are included in addenda to this application and in the Section 570.209 review below. Because of the urgent need to begin work on these projects, the City anticipates availing itself of the ability to reimburse the developer for pre-award costs as set forth in 24 CFR 570.200(h).

All three of the projects are located within the City of Seattle's Brownfield Showcase Community and Enterprise Community Boundaries. All projects funded under the proposed Section 108 / BEDI loan pool will meet the eligibility requirements of 24 CFR 570.703. The first three of these projects are eligible under section 570.703 (i). Each meets the requirements of 570.209(b)(3)(i)(A).

Section 108 Submission Requirements

A. Community Development Objectives

The Section 108 loan fund will result in lending for economic and community development in Seattle's Brownfield Showcase and Enterprise Communities. In doing so the loan fund will further the City of Seattle's Economic Development Goals as listed in the City's 2001 2004 Consolidated Plan. Within the Economic Development component of the Consolidated Plan is the following objective:

"Provide operating, grant and loan, and project management support to neighborhood business districts and community based development organizations, and to special projects, so that Seattle has thriving neighborhoods and broadly shared prosperity."

Stated in the Outcome section of the plan is the expectation that the City of Seattle will directly assist businesses and development projects with Section 108 loans.

B. Description of how the Proposal meets one of the Criteria in 24 CFR 570.208 National Objectives.

The creation of the City of Seattle's Section 108 / BEDI loan fund will create jobs for low and moderate income persons, provide services to a low income area and/or eliminate conditions of blight. All projects assisted through the fund are to be located within the boundaries of the City of Seattle's federally designated Enterprise Community or within the Brownfield Showcase Community.

Section 570.208 defines the criteria under which an activity may meet Section 570.200(a)(2), National Objectives. Section 570.200(a)(2) requires that all CDBG activities meet one of three national objectives. These objectives are: 1) benefit to low and moderate income families; 2) aid in the prevention or elimination of slums or blight; and 3) meeting other community development needs having a particular urgency because existing conditions pose a serious and immediate threat to the health or welfare of the community where other financial resources are not available. Each project funded through the Section 108 loan fund will meet one of the National Objectives listed in Section 570.200(a)(2) as detailed in Section 570.208.

The 211 First Avenue project, the Buttnick Building project and the City Loan Building project, the first three projects to be assisted under the loan fund, will meet the requirements of Section 570.208(a)(4).

Section 570.208(a)(4) defines activities that meet the requirements of 570.200(a)(2) through the creation or retention of jobs. The subsection states that to qualify as a job creation or retention activity the project must "create or retain permanent jobs where at least 51 percent of the jobs, computed on a full time equivalent basis, involve the employment of low-and moderate-income persons." Sections 570.208(a)(4)(i) & (ii) specify that to qualify under Section 570.208(a)(4) the jobs created or retained must either be held by or be available to lowand moderate-income persons. Section 570.208(a)(4)(iv) lists minimum standards for the presumption that jobs will be "held by or made available to lowand moderate-income persons." Finally, Section 570.208(a)(4)(iv) and (v) state that if the assisted business is located in a census tract or block numbering area that is part of a Federally-designated Enterprise Community, and if the job is located within that census tract, then the person may be presumed to be a lowor moderate-income person.

The Compass Center will meet the criteria of subsection 570.208(2)(i)(A). This subsection states that for an activity to qualify it must "(b)enefit a clientele who are generally presumed to be principally low and moderate income persons. Activities that exclusively serve a group of the following categories may be presumed to benefit persons, 51 percent of whom are lowand moderate-income: abused children, battered spouses, elderly persons, adults meeting the Bureau of the Census' Current Population Reports definition of "severely disabled," homeless persons, illiterate adults, persons living with AIDS, and migrant farm workers." Because the facility to be developed by the Compass Center will exclusively serve homeless individuals, the acquisition of the property for the construction of a homeless shelter will meet the requirements of this subsection.

The final project, the Cadillac Hotel, will meet the requirements of subsection 570.208(b)(2), activities designated to address slums or blight on a spot basis. The Cadillac Hotel is a historic structure damaged in the Nisqually Earthquake. It has been "red tagged" by the City of Seattle. A red tag condition is one in which the building is not occupiable. Activities that will meet this objective are: "Acquisition, clearance, relocation, historic preservation and building rehabilitation activities which eliminate specific conditions of blight or physical decay on a spot basis not located in a slum or blighted area". The activities to be assisted with Section 108 and BEDI funds on the Cadillac Hotel are acquisition, building rehabilitation limited to specific conditions detrimental to public health and safety, and historic preservation. As such the project meets the conditions of subsection 208(b)(2).

C. Eligibility under 24 CFR 570.703

Each of the projects to be assisted with Section 108 guaranteed loan funds and Brownfields Economic Development Incentive through the loan fund is or will be eligible under 24 CFR 570.703. Of the five project listed in this application, the first three: 211 First Avenue, the Buttnick Building and the City Loan building are all activities eligible under 570.703(i)(1), eligible economic development activities.

Under 24 CFR 570.203 (b) the City can provide assistance to private for-profit business, including, but not limited to, grants, loans, loan guarantees, interest supplements, technical assistance, and other forms of support, for any activity where the assistance is appropriate to carry out an economic development project, excluding those described as ineligible in Section 570.207(a). In addition, these activities will meet the guidelines provided in Section 570.209 (Guidelines for evaluation and selecting economic development projects).

Section 570.207(a) excludes: buildings or portions thereof, used for the general conduct of government, general governmental expenses and political activities. None of the projects to be assisted with Section 108 proceeds will include buildings used for the general conduct of government, general governmental expenses, nor for political activity.

All uses of the Section 108 / BEDI funds to assist in the restoration of these three buildings will the requirements of Section 570.203 (b).

The acquisition of a site for the Compass Center is eligible under 570.703(a): "acquisition of improved or unimproved real property in fee or by long-term lease, including acquisition for economic development purposes."

The acquisition and renovation of the Cadillac Hotel is eligible under 570.703(a)&(b). Subsection 703(b) allows the "rehabilitation of real property owned or acquired by the public entity or its designated public agency." Historic Seattle is a Public Development Authority of the City of Seattle and will issue debt obligations to the City, which will become part of HUD's security for the notes to be issued by the City and guaranteed by HUD; therefore it meets the requirements of a designated public agency.

Section 570.209 Guidelines

Guidelines and Objectives for Evaluating Project Costs and Financial Requirements.

All activities eligible under Section 570.203 must meet the requirements of Section 570.209. This section outlines guidelines for ensuring that a proposed project carries out an economic development objective in an appropriate manner. These guidelines under 570.209(a) are not mandatory but serve as a framework for financially underwriting economic development projects.

In evaluating proposed projects the City of Seattle will use the following criteria.

Project Management

The City of Seattle, Office of Economic Development (OED) will administer the fund. OED will underwrite all loans and will use the National Development Council (NDC) to advise on project feasibility. NDC has a more than 35-year track record of assisting local governments in structuring and implementing economic development and housing projects.

Underwriting Standards for City of Seattle BEDI / Section 108 Loan Fund

1. National Objective

All loans shall meet a national objective as specified in 24 CFR 570.208. No loan shall be approved without verification of compliance with the national objective requirements, specified in 24 CFR 570.208, by the Washington State Office of the United States Department of Housing and Urban Development.

2. Eligibility

In addition to meeting one of the program's National Objectives all projects assisted through the loan fund must fall within one of the eligible activities listed in 570.703.

3. Guidelines for evaluating and selecting economic development projects

For all activities eligible under 570.703(i), economic development activities, the project will be required to meet the guidelines listed under 570.209: Guidelines for evaluating and selecting economic development projects. No loan shall be approved without verification of compliance with the public benefit standards as specified in 24 CFR 570.209(b) by the Washington State Office of the United States Department of Housing and Urban Development.

4. Financial Underwriting

In loan underwriting the City shall adhere to the follow criteria.

A. Real Estate Loans

Real Estate Loan shall be evaluated based on: Ability to Repay Collateral Development Team Capacity and Experience Developer Commitment Character of the Developer Ability to Repay

Projects to be funded will have at least a 1.1 projected debt coverage ratio. If the project includes more than a small percentage of its rental income from start-up or financially weak tenants then a higher debt coverage ratio shall be required.

Collateral

Projects to be funded should have a loan to value ratio of not greater than 80 percent. This value must be supported by an appraisal prior to funding. If greater than an 80 percent loan to value ratio is proposed, outside collateral sufficient to provide an 80 percent loan to value shall be required. In certain cases guarantees may suffice in lieu of additional collateral.

Development Team Capacity and Experience

Projects funded shall have a development team that has both the capacity and experience to complete the project as demonstrated by past projects and financial strength.

Developer Commitment

Developer commitment can take many forms. While each project is likely to be different the forms of developer commitment that can be expected include: adequate equity, guarantees of completion, guarantees to fund shortfalls or guarantees of minimum cash flow.

Character

Projects to be funded should have developers with good credit histories, demonstrated integrity, and quality references.

B. Business Loans

Business Loans shall be evaluated based on: Ability to Repay Collateral Guarantees Financial Strength Management Experience Character of the Principals Ability to Repay

All businesses funded with the program shall have existing cash flow (profits after tax, plus deprecation, plus excess officers income, plus rent savings if applicable) sufficient to repay the loan. Projections must be supported by strong evidence that they will materialize.

Collateral

All business loans must be supported by collateral. Real Estate must be supported by an appraisal and will be generally accepted up to 80 percent of its value. Machinery and equipment depending on its nature will be accepted from 40 percent to 60 percent of its fair market value. Accounts receivable and inventory will normally be used to secure operating debt and will generally not be taken as collateral. Outside collateral such as personal residences shall be valued up to 90 percent of their fair market value.

Guarantees

All principals with 20 percent or more or a controlling interest, if less than 20 percent, shall provide personal guarantees. Financial Strength

Three years of financial statements on the business plus a personal financial statement on all principals of the business shall be analyzed to determine if the company is well run and has the ability to manage its accounts and pay its obligations.

Management Experience

The management must have experience in the business or in a similar business, be able to demonstrate an ability to manage and have the depth in management to withstand unforeseen transitions.

Character of the Principals

The personal financial statements and credit history of the principals must demonstrate honesty and trustworthiness.

Project Evaluations

1. Guidelines for evaluating project costs and financial feasibility

a. Reasonableness of the Proposed Project Costs

Each use of loan funds shall be evaluated to ensure the reasonableness of proposed project costs. The scope of this evaluation shall depend on the size and nature of each project. Care will be taken to use third party evaluations of costs wherever appropriate, and particular attention will be exercised when an activity involves a non-armslength transaction.

The 211 First Avenue Building

The project costs for 211 First Avenue were provided by Turner Construction, a private construction firm with no ownership interest in the building. These costs were then reviewed by the National Development Council. Finally the owner of the project has agreed to fund any additional costs and all cost overruns.

The Buttnick Building

As with the 211 First Avenue Building the project costs for the Buttnick Building were provided by Turner Construction. These costs were also reviewed by the National Development Council. Similarly the project owner agreed to fund any additional project costs.

The City Loan Building

As with the 211 First Avenue and Buttnick Buildings the project costs for the City Loan Building were provided by Turner Construction. These costs were also reviewed by the National Development Council. The project owner will fund any additional project costs.

b. Commitment of all Sources of Funds.

The City and its consultants shall review every project to verify that all sources of funding are committed and available prior to approval of an activity to be funded by the Section 108 / BEDI fund.

The 211 First Avenue Building

The Section 108 loan and developer equity will fully fund the proposed project. If there should be cost overruns or unanticipated needs the developer has indicated that he will contribute the added funds.

The Buttnick Building

The Section 108 loan and developer equity will fully fund the proposed project. If there should be cost overruns or unanticipated needs the developer has indicated that he will contribute the added funds.

The City Loan Building

The Section 108 loan and developer equity will fully fund the proposed project. If there should be cost overruns or unanticipated needs the developer has indicated that he will contribute the added funds.

c. Substitution of CDBG funds for Private Sources.

City staff assisted by consultants will review all projects to insure that each loan minimizes the use of CDBG funds. It is in the City of Seattle's self interest to insure that there be no substitution of CDBG funding for non-federal funding. Given the limited availability of federal funds, the city staff will work diligently to maximize the use of private, non-federal funding in all projects.

All projects will be reviewed to insure that private sources of financing have been maximized and that the rate of return on equity is reasonable and within general standards.

The 211 First Avenue Building

The Section 108 loan will provide all of the proposed project debt. Given the extent of damage to the building and the market rents that can be achieved in Pioneer Square no other debt source is available to feasibly finance the rehabilitation of this earthquake damaged structure. Assuming a market rate loan at 8 percent, the project would yield an internal rate of return on the developer's cash equity of only 8.09 percent. This is not acceptable in the market and indicates an infeasible structure. With Section 108 and BEDI funding the internal rate of return improves to 15.49 percent. Without the Section 108 loan and the BEDI subsidy of the rate, an economically feasible structure is not possible. Since no economic alternative financing exists there is no substitution of federal funds for other available funding.

The Buttnick Building

The Section 108 loan will fully fund the development. As with the 211 First Avenue Building, the Buttnick Building was extensively damaged in the Nisqually Earthquake and like 211 First Avenue its potential market rental rates would not support a market rate loan sufficient to pay for the repairs and give the owner a reasonable return on investment. For analysis purposes we projected an internal rate of return to the owners equity using a market interest rate of 8 percent. The resulting IRR was only 4.03 percent, clearly not feasible. The IRR using the Section 108 loan and BEDI funding increased to 13.88 percent. Since no alternative market rate financing is available at a rate that will yield a feasible return to the owners equity, there is no substitution of federal funds for other available funding.

The City Loan Building

As with the 211 First Avenue and the Buttnick Buildings, the City Loan Building sustained extensive damage in the Nisqually Earthquake. Again we projected the internal rate of return that would result for a market rate loan at 8 percent. The resultant IRR was only 4.24 percent. This again demonstrates that with conventionally priced debt the project is not be feasible. By fully funding the project's costs with a Section 108 loan supported by a BEDI funded interest subsidy the project's IRR increases to 13.93 percent and the rehabilitation becomes feasible. Since no alternative financing exists there is no substitution of federal funds for other available funding.

d. Feasibility of the Project.

All projects seeking assistance under the Section 108 / BEDI loan fund shall be evaluated as to project feasibility. The scope of each evaluation will depend on the nature of prospective projects. For existing businesses, three years of financial statements will be reviewed and analyzed, projections evaluated and project costs verified. For business start-ups, projections will be compared to industry averages and evaluated by others experienced in the line of business. In addition, at risk capital will be required on the part of the borrower. For real estate projects, appraisals will be required and reviewed, appropriate pre-leasing levels will be set and prospective tenants' credit worthiness will be evaluated. In some cases formal market feasibility studies will be required. In other cases less formal evaluations will be sufficient. In all cases the prospective borrowers' experience and capacity to perform will be reviewed.

The 211 First Avenue Building

The 211 First Avenue Building, once rehabilitated and leased, will have a projected debt coverage ratio of 1.2. This exceeds the standard set in the City of Seattle's underwriting criteria. It reflects a prudent coverage given the current economy. The building currently has not been pre-leased but once rehabilitated will be an attractive rental property. The City of Seattle commissioned an appraisal of the property. The fee simple value of the property once rehabilitated is $1,990,000. This results in a loan to value of 80 percent. Again this is within the program's standards. The pro forma rental income is supported in the appraisal. The property will be owned by a limited partnership. John A. Goodman, President of Goodman Financial Services, will personally guarantee the loan. The principals involved in the transaction are very experienced real estate professionals with good reputations within the industry

The Buttnick Building

The Buttnick Building is projected to achieve a 1.2 debt coverage ratio at rents supported by the appraisal. The building is 80 percent pre-leased. The principal tenant in the basement and ground floor will be the Fenix Underground, a nightclub displaced by the Nisqually earthquake. The ground floor street frontage will be leased to a retail carpet business. The upper floors will house a small architectural firm, a software developer and to-be-leased space. A City of Seattle commissioned appraisal valued the property at $4,520,000 as improved. The appraised value supports a $3,616,000 loan at an 80 percent loan to value ratio. John A. Goodman, President of Goodman Financial Services, will personally guarantee the loan. As with the 211 First Avenue Building the principals involved in this transaction are very experienced real estate professionals with good reputations within the industry.

The City Loan Building

The City Loan Building is also projected to achieve a 1.2 debt coverage ratio at rents supported in a market appraisal commissioned by the City of Seattle. The building is more than 25 percent preleased. The Fenix Underground will occupy the basement, the back of the first floor and the mezzanine. (The City Loan and the Buttnick Buildings are adjoining and will internally connect.) The second, third, fourth and fifth floors are not pre-leased. The appraised value after rehabilitation is $3,510,000. This value will support the proposed loan with an 80 percent loan to value ratio. John A. Goodman, President of Goodman Financial Services, will personally guarantee the loan. As with the above two properties the principals involved in this transaction are very experienced real estate professionals with good reputations within the industry.

e. Return on owner's equity.

Staff will evaluate all projects to determine the owner's return on equity and compare this projected return to industry norms. The loan fund will seek to participate in projects where its participation will help secure the owner a return commensurate with the risk. Projects where the return on equity is high will need to demonstrate why the fund's involvement is necessary, or why its participation should not be lessened. Projects where the return on equity is low will need to further justify feasibility and accuracy of costs. It shall be the goal of the fund to maintain a viable portfolio of loans with the minimum fund involvement.

The 211 First Avenue Building

The projected return on equity is 9.20 percent in the stabilized year. This is on the low side of market but given the owner's experience and commitment to the property it is considered adequate. The projected internal rate of return (IRR) for the project is 15.49 percent based on a year 10 sale. This is also on the low side of a market rate return and is not considered excessive.

The Buttnick Building

The projected return on equity is 11.65 percent in the stabilized year. This is within a market return and given the owner's experience and commitment to the property it is considered adequate. The projected internal rate of return for the project is 13.88 percent based on a year 10 sale. This is again on the low side of market and is not considered excessive.

The City Loan Building

The projected return on equity is 14.03 percent in the stabilized year. This is within a market range and given the owner's experience and commitment to the property it is considered adequate. The projected internal rate of return for the project is 13.93 percent based on a year 10 sale. As with the IRR on the two previous projects this project's IRR is on the low side of market and is not considered excessive.

f. To the extent practicable the Section 108 funds should be disbursed on a pro rata basis

It shall be a goal of the fund to disburse funds on a pro rata basis with other funds being used in specific projects. In those situations where pro rata disbursement is not followed, staff will justify the procedure and seek alternative means to mitigate risk.

The City will not disburse Section 108 funds in a ratio greater than the ratio of committed Section 108 funding to committed equity for each of the three initially proposed projects.

2. Standards for evaluating public benefit

All projects eligible under Section 203 and Section 204 will be required to comply with Section 570.209. Section 570.209(b)(1) establishes the standards for evaluating public benefit in the aggregate, Section 570.209(b)(2) applies those standards and 570.209(b)(3) establishes the standards for individual activities. All projects funded through the Section 108 / BEDI loan fund to which Section 570.209 applies will comply with the standards of subsections 570.209(b)(1), (2) & (3).

All projects funded through the loan program will be required to meet the individual standard of Section 570.209(b)(3). The City of Seattle anticipates qualifying projects under both 570.209(b)(3)(i)(A) & (B) the creation or retention of at least one full-time equivalent permanent job for every $50,000 of CDBG assistance and the provision of goods and services to lowand moderate-income persons where the CDBG assistance does not exceed $1,000 per lowand moderate-income person to which goods or services are provided by the activity.

In most situations projects assisted with the loan fund will be located within the federally designated Enterprise Community. Within this area all census tracts have levels of poverty exceeding 20 percent. Section 570.209(b)(2)(v)(F) exempts activities from meeting the aggregate standard for public benefit if the activity provides assistance to businesses that operate within a census tract that has at least 20 percent of its residents who are in poverty. If a project should fall outside of this area, it will be required to meet the aggregate standard as well as the individual standard.

The 211 First Avenue Building

The 211 First Avenue Building contains 13,620 square feet. The current office standard per employee ranges from 200 to 300 square feet per employee. Applying 275 square feet per employee results in 45 employees. There is no need to reduce this total for the loss of the existing tenant, since that tenant will expand into the Buttnick Building and will not result in job loss. Because the building is in a census tract with a level of poverty exceeding 20 percent, the project is exempt from the aggregate standard and must only meet the individual standard of one job created for each $50,000 in CDBG and BEDI funds committed. Based on a Section 108 loan of $1,592,000 and a BEDI of $179,742 the project would need to create 35 jobs. At 45 it exceeds the individual standard of $50,000 combined Section 108 and BEDI per job created.

The Buttnick Building

The Buttnick Building contains 29,328 square feet. Applying the same standard of 275 square feet per employee results in 107 employees. The existing and transfer tenants have a total of 22 employees. The net new projected employment from the project will therefore be 85. Based on a Section 108 loan of $3,616,000 and a BEDI of $408,258 the project would need to create 80 jobs. At 85 it exceeds the individual standard of $50,000 combined Section 108 and BEDI per job created. Since the project is located in a census tract that has a level of poverty in excess of 20 percent the project is exempt for the aggregate standard.

The City Loan Building

The City Loan Building contains 22,355 square feet. Applying the same standard of 275 square feet per employee results in 81 employees. Based on a Section 108 loan of $2,808,000 and a BEDI of $317,032 the project would need to create 63 jobs. With an estimate of 81 it will exceed the individual standard of $50,000 combined Section 108 and BEDI per job created. Since the project is located in a census tract that has a level of poverty in excess of 20 percent the project is exempt for the aggregate standard.

D. A Description of the Pledge of CDBG Guarantee

The City of Seattle understands that if the participants in this Section 108 loan fund fail to make timely payments and the City of Seattle therefore fails to make a required payment on its notes, HUD will deduct that payment from the City of Seattle's CDBG Letter of Credit and in accepting this loan guarantee, the City of Seattle will pledge its CDBG funds and all other applicable grants as security for the guarantee. (Please refer to Attachment A Certifications.)

E. A Schedule for Repayment of the Loan

In requesting approval of this loan guarantee the City of Seattle is requesting a commitment for a 20-year term. The City will act as the borrower and issue the guaranteed debt obligations, consistent with RCW 35.21.735. Please use the following principal repayment schedule. The sources of repayments will be payments on the loans from the proceeds of the guaranteed notes, and the proceeds of the BEDI grant. The first loan is anticipated to close in August of 2002. Therefore the repayment period should run from 2003 through 2022.

Year Principal Repayment

August 2003 $ 0 August 2004 $ 0 August 2005 $ 280,000 August 2006 $ 310,000 August 2007 $ 345,000 August 2008 $ 380,000 August 2009 $ 435,000 August 2010 $ 500,000 August 2011 $ 560,000 August 2012 $ 635,000 August 2013 $ 715,000 August 2014 $ 820,000 August 2015 $ 915,000 August 2016 $1,045,000 August 2017 $1,160,000 August 2018 $1,260,000 August 2019 $1,350,000 August 2020 $1,460,000 August 2021 $1,580,000 August 2022 $1,750,000

F. Certifications

Please see Attachment A Certifications.

ECONOMIC AND COMMUNITY DEVELOPMENT LOAN FUND

SEATTLE, WASHINGTON

Version 2 t ATTACHMENT A CERTIFICATIONS

SECTION 108 LOAN GUARANTEES

Certification of Legal Authority to Pledge Grants

The public entity hereby certifies and assures with respect to its application for a loan guarantee pursuant to Section 108 of the Housing and Community Development Act of 1974, as amended, that it possesses the legal authority to make the pledge of grants required under 24 CFR section 570.705 (b)(2).

THE CITY OF SEATTLE

BY:

Gregory J. Nickels

Its: Mayor

Date:_____________________________

SECTION 108 LOAN GUARANTEES

Certification of Efforts to Obtain Other Financing

The City of Seattle hereby assures and certifies with respect to its application for a loan guarantee pursuant to Section 108 of the Housing and Community Development Act of 1974, as amended, that it has made efforts to obtain financing for the activities described herein without the use of such guarantee, it will maintain documentation of such efforts for the terms of the loan guarantee, and it can not complete such financing consistent with the timely execution of the program plans without such guarantee.

CITY OF SEATTLE

BY:

Gregory J. Nickels

Its: Mayor

SECTION 108 LOAN GUARANTEES

CERTIFICATION REGARDING DRUG-FREE WORKPLACE REQUIREMENTS

The certification set out below is a material representation upon which reliance is placed by the U.S. Department of Housing and Urban Development in awarding the loan guarantee assistance. If it is later determined that the public entity knowingly rendered a false certification, or otherwise violates the requirements of the Drug-Free Workplace Act, the U.S. Department of Housing and Urban Development, in addition to any other remedies available to the Federal Government, may take action authorized under the Drug-Free Workplace Act.

CERTIFICATION

A. The public entity certifies that it will provide a drug-free workplace by:

(a) Publishing a statement notifying employees that the unlawful manufacture, distribution, dispensing, possession or use of a controlled substance is prohibited in the public entity's workplace and specifying the actions that will be taken against employees for violation of such prohibition.

(b) Establishing a drug-free awareness program to inform employees about:

(1) The dangers of drug abuse in the workplace;

(2) The public entity's policy of maintaining a drug-free workplace;

(3) Any available drug counseling, rehabilitation, and employee assistance programs; and

(4) The penalties that may be imposed upon employees for drug abuse violations occurring in the workplace;

(c) Making it a requirement that each employee to be engaged in the performance of the activities undertaken with the loan guarantee assistance be given a copy of the statement required by paragraph (a);

(d) Notifying the employee in the statement required by paragraph (a) that, as a condition of employment under the loan guarantee, the employee will:

(1) Abide by the terms of the statement; and

(2) Notify the employer of any criminal drug statute conviction for a violation occurring in the workplace no later than five days after such conviction;

(e) Notifying the agency in writing, within ten calendar days after receiving notice under paragraph (d)(2) from an employee or otherwise receiving actual notice of such conviction. Employers of convicted employees must provide notice, including position title, to every grant officer or other designee on whose grant activity the convicted employee was working, unless the Federal agency has designated a central point for the receipt of such notices. Notice shall include the identification number(s) of each affected grant;

(f) Taking one of the following actions, within 30 calendar days of receiving notice under paragraph (d)(2), with respect to any employee who is so convicted:

(1) Taking appropriate personnel action against such an employee, up to and including termination, consistent with the requirements of the Rehabilitation Act of 1973, as amended; or

(2) Requiring such employee to participate satisfactorily in a drug abuse assistance or rehabilitation program approved for such purposes by a Federal, State or local health, law enforcement, or other appropriate agency;

(g) Making good faith effort to continue to maintain a drug-free workplace through implementation of paragraphs (a), (b), (c), (d), (e) and (f).

B. The public entity shall insert in the place provided below the site(s) expected to be used for the performance of work under the assistance covered by the certification:

Place of Performance (include street address, city, county, state, and zip code for each site):

Check if there are workplaces on file that are not identified here.

THE CITY OF SEATTLE

BY:

Gregory J. Nickels

Its: Mayor

Certification Regarding Debarment, Suspension,

and Other Responsibility Matters --

Primary Covered Transactions

(1) The prospective primary participant certifies to the best of its knowledge and belief, that it and its principals:

(a) Are not presently debarred, suspended, proposed for debarment, declared ineligible, or voluntarily excluded from covered transactions by any Federal department or agency;

(b) Have not within a three-year period preceding this proposal been convicted of or had a civil judgment rendered against them for commission of fraud or a criminal offense in connection with obtaining, attempting to obtain, or performing a public (Federal, State, or local) transaction or contact under a public transaction; violation of Federal or State antitrust statutes or commission or embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements, or receiving stolen property;

(c) Are not presently indicted for or otherwise criminally or civilly charged by a governmental entity (Federal, State or local) with commission of any of the offenses enumerated in paragraph (1)(b) of this certification; and

(d) Have not within a three-year period preceding this application/proposal had one or more public transactions (Federal, State, or local) terminated for cause or default.

(2) Where the prospective primary participant is unable to certify to any of the statements in this certification, such prospective participant shall attach an explanation to this proposal.

THE CITY OF SEATTLE

BY:

Gregory J. Nickels

Its: Mayor

Date: ___________________________

Appendix A to Part 87 Certification Regarding Lobbying

Certification for Contracts, Grants, Loans, and Cooperative Agreements.

The undersigned certifies, to the best of his or her knowledge and belief, that:

(1) No Federal appropriated funds have been paid or will be paid, by or on behalf of the undersigned, to any person for influencing or attempting to influence an officer or employee of an agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with the awarding of any Federal contract, the making of any Federal grant, the making of any Federal loan, the entering into of any cooperative agreement, and the extension, continuation, renewal, amendment, or modification of any Federal contract, grant, loan, or cooperative agreement.

(2) If any funds other than Federal appropriated funds have been paid or will be paid to any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with this Federal contract, grant, loan, or cooperative agreement, the undersigned shall complete and submit Standard Form-LLL, "Disclosure Form to Report Lobbying," in accordance with its instructions.

(3) The undersigned shall require that the language of this certification be included in the award documents for all subawards at all tiers (including subcontracts, subgrants, and contracts under grants, loans, and cooperative agreements) and that all subrecipients shall certify and disclose accordingly.

This certification is a material representation of fact upon which reliance was placed when this transaction was made or entered into. Submission of this certification is a prerequisite for making or entering into this transaction imposed by section 1352, title 31, U.S. Code. Any person who fails to file the required certification shall be subject to a civil penalty of not less than $10,000 and not more than $100,000 for each such failure.

Statement for Loan Guarantees and Loan Insurance

The undersigned states, to the best of his or her knowledge and belief, that:

If any funds have been paid or will be paid to any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with this commitment providing for the United States to insure or guarantee a loan, the undersigned shall complete and submit Standard Form-LLL, "Disclosure Form to Report Lobbying," in accordance with its instructions.

Submission of this statement is a prerequisite for making or entering into this transaction imposed by section 1352, title 31, U.S. Code. Any person who fails to file the required statement shall be subject to a civil penalty of not less than $10,000 and not more than $100,000 for each such failure.

THE CITY OF SEATTLE

BY:

Gregory J. Nickels

Its: Mayor

Date:__________________________

SECTION 108 LOAN GUARANTEES

ENTITLEMENT PUBLIC ENTITY CERTIFICATIONS

In accordance with Section 108 of the Housing and Community Development Act of 1974, as amended (the "Act") and with 24 CFR section 570.704 (b), the public entity certifies that:

(I) It possess the legal authority to submit the application for assistance under 24 CFR Part 570, Subpart M ("Subpart M") and to use the guaranteed loan funds in accordance with the requirements of Subpart M.

(ii) Its governing body has duly adopted or passed as an official act a resolution, motion or similar action:

(A) Authorizing the person identified as the official representative of the public entity to submit the application and amendments thereto and all understandings and assurances contained therein, and directing and authorizing the person identified as the official representative of the public entity to act in connection with the application to provide such additional information as may be required.

(B) [ Action authorizing such official representative to execute such documents as may be required in order to implement the application and issue debt obligations pursuant thereto will be given by the local governing body after submission of the application but prior to execution of the contract required by section 570.705 (b).]

(iii) Before submission of its application to HUD, the public entity has:

(A) Furnished citizens with information required by section 570.704 (a)(2)(i);

(B) Held at least one public hearing to obtain the views of citizens on community development and housing needs; and

(c) Prepared its application in accordance with 570.704 (a)(1)(iv) and made the application available to the public.

(iv) It is following a detailed citizen participation plan which meets the requirements described in section 570.704 (a)(2).

(v) The public entity will affirmatively further fair housing, and the guaranteed loan funds will be administered in compliance with:

(A) Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d et seq.); and

(B) The Fair Housing Act (42 U.S.C. 3601-20).

(vi) In the aggregate, at least 70 percent of all CDBG funds, as defined at section 570.3, to be expended during the one, two, or three consecutive years specified by the public entity for its CDBG program will be for activities which benefit low and moderate income persons, as described in criteria at section 570.208(a).

(vii) It will comply with the requirements governing displacement, relocation, real property acquisition, and the replacement of low and moderate income housing described in section 570.606.

(viii) It will comply with the requirements of section 570.200 (c)(2) with regard to the use of special assessments to recover the capital costs of activities assisted with guaranteed loan funds.

(x) It will comply with the other provisions of the Act and with other applicable laws.

THE CITY OF SEATTLE

BY:

Gregory J. Nickels

Its: Mayor

Date:________________________________

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