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JANUARY 25, 1988
An Emergency Special Meeting of the City Commission of the City
of Delray Beach, Florida, was called to order by Vice-Mayor Marie
Horenburger in the Commission Chambers at City Hall at 10:07 A.M.,
Monday, January 25, 1988.
Roll call showed:
Present - Commissioner Richard J. Dougherty
Commissioner Marie Horenburger
Commissioner Mary McCarty
Commissioner Jimmy Weatherspoon
Mayor Doak S. Campbell (Arrived 10:09 A.M.)
Absent - None
Also present were - City Manager Walter O. Barry and
Assistant City Attorney Jeffrey Kurtz.
Vice-Mayor Horenburger called the meeting to order and an-
nounced that this meeting has been called for the purpose of Considering
(1) The proposed changes to UDAG Grant and agreement with Procacci
Development Corporation, Inc.
1. Ken Simback, representing the CRA, stated that on Friday they
were notified that the Department of Housing and Urban Development was
~'willing to extend to them a UDAG Grant in the amount of $5,048,000,
which is slightly less than what they had asked for. However, they have
once again revised the terms of the grant award, necessitating the CRA
to renegotiate the project. Basically, what HUD is offering ignores the
City in the repayment of the City match but requires the developer to
repay the $5 million Federal award under a schedule they have offered.
The problem with the UDAG award, as they propose it, is that there is
not adequate cash flow in the project to provide any return to the
developer or any return to the City for its $1 million match. Over the
weekend, they analyzed the HUD offer and responded to it. The Commis-
sion has been furnished a spread sheet with HUD's proposal and
Procacci's new proposal, which they sent to HUD this morning and are
expecting a response very shortly. Under the HUD terms, there is no
positive cash flow until the 13th year of the project and, finally, at
the 15th year there is only a cumulative cash flow of $4558.
Phil Procacci, representing Procacci Development Corporation,
Inc., stated that the HUD proposal required interest to be paid on the
UDAG grant, far in excess of the cash flow which was available. They
also did not include, or given them credit, for any replacement re-
serves. He told them that under no circumstances would he even consider
the project without replacement reserves and that the City would not
consider the project being built if there was not money to maintain it
during the 15 years. Therefore, he has come back with a proposal which
is similar to the original one; he will make some payments to the City
for the City match up to $1 million through the 15th year, he has put
the replacement reserves back into the project and there is a minimal
amount of return to the developer, which averages about 1% per year.
HUD forced the City into taking a purchase money mortgage for the land
costs and have now stated that this mortgage should not be considered a
cost of the project. He has agreed, in his proposal to HUD, to pay the
~urchase money mortgage off over a three year period. However, in
~ffect, he will pay it off sooner from the proceeds of refinancing or
~yndication. He cannot commit to HUD that he will pay it off in a year,
)ut the chances are that it will be paid off as the project is being
:onstructed. HUD also wanted interest and amortization on the $5
~illion which would put the project in a severe deficit. He is propos-
.ng to set up a priority of payments; first, is the replacement re-
erves, second is the money to the City, third is the return to the
eveloper and fourth would be the interest on the UDAG.
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The City Manager stated that the contract calls for a $25,000
payment to be made in the first two years, as well as the subsequent
four years. Mr. Procacci stated he would be willing to modify that and
go along with the original payment schedule; he did not show this in his
new proposal as it is minor and he did not want to show the negative.
Mr. Simback stated that he would like to capsulize some of the
changes in the proposal from what the Commission had originally ap-
proved. HUD has acknowledged that the cost of the project is less than
projected, in part because they have disallowed the $730,000 land
payment. Their logic is that since this is publicly owned land, the
City charging the developer this cost is contributing to the need for
the UDAG. Therefore, they reduced the overall cost of the project and
the formula for the UDAG and local match. They have also disallowed
approximately $400,000 in other expenses. Mr. Procacci has set up a
hierarchy of payments and is stating that he will find an alternate
financing mechanism and has applied for an FHA mortgage on the project.
This will provide better terms than what he has shown to HUD and will
improve the cash flow. At the end of the 15th year, whatever is not
repaid out of the $5 million award will be repaid through refinancing of
the project or whatever reserves he has been able to take out of it.
Basically, at the end of the 15th year the City will be at the same
point they would be with the old proposal, i.e., the City's local match
of the UDAG award will be paid. It appears on the face that the City is
putting in $1 million as the local match, plus the $730,000 purchase
money mortgage. However, Mr. Procacci is stating that, from the pro-
ceeds of either the FHA financing or through syndication fees, he will
repay those funds to the City in the early stage of the project. They
are expecting that the commitment for either the mortgage or syndication
.will occur within six months.
Upon question by Mayor Campbell as to what the net cost to the
City is as far as out of pocket dollars, Mr. Simback stated it would be
approximately $250,000 of which most would be repaid at the end of the
sixth year. At the end of the 15th year period there would be an
additional $5 million in the City coffers. The City Manager stated it
is his understanding that the $5 million is to be expended in the target
area for which the housing is being built and could be spent on infra-
structure improvements, economic development and other housing.
Upon question by Mayor Campbell, the City Manager stated the
impact on the City's fund balance would be approximately $400,000 over a
three year period of time.
David Huddleston, Finance Director, advised that they will be
swapping the benefit of the land, which is approximately $730,000, with
the $1 million they are pledging from the fund balance; therefore, they
will be getting cash back definitely within the first three years and
perhaps within the first six months. The City would then turn around
and use that for Mr. Procacci to draw upon on the $1 million match.
Upon question by Mr. Weatherspoon as to whether or not the
restrictions used by HUD are what they normally use for grants of this
nature, Mr. Procacci stated they claim they are used on every project;
however, from information they have received on other projects, that is
not necessarily what is happening. Mr. Simback advised that HUD indi-
cated, when they excluded some of the cost items, that it is their
policy; however, none of those policies are written. Also, this was an
extremely competitive round and he feels that they are looking to reduce
the grant award so that they can fund more projects. Mr. Weatherspoon
questioned what will happen if Mr. Procacci is not able to get the FHA
mortgage. Mr. Procacci advised that he has already been preliminary
approved by the FHA lender.
The City Manager stated that he indicated earlier that the City
would be getting the entire $270,000 back within three years, that is
not correct. They will get it by the 13th, 14th and 15th years on this
schedule.
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372
Mr. Huddleston clarified that the City is pledging $1 million
and will be getting the $730,000 return on the purchase money mortgage
on the property some time within the first three years. The balance of
$270,000 will be paid back over the 15 years along with, in effect,
replenishing the purchase money mortgage again or the $1 million draw.
Therefore, the net out of pocket, other than the land, would be $270,000
over 15 years.
Mr. Dougherty stated that he feels they have a project which
has practically no debt service coverage and return on equity is practi-
cally zero. Those indexes would seem to make the whole thing question-
able. Mr. Procacci stated that in his original proposal to the City
there was not that much return to the developer. He anticipates selling
and has had some commitments from syndicators who are willing to buy the
tax credits; this is where the profit to the developer will be. He
cannot see the point in trying to sell a project in advance; if he has
the UDAG approved he can obtain more money from a syndicator than a
promise that he may get a UDAG loan approved.
The City Manager stated what Mr. Procacci needs today is an
expression of support for the project as modified and presented so that
they can negotiate with HUD.
Mr. Simback clarified that they need an expression from the
Commission that they would be willing to go along with the agreement, as
explained today. If HUD accepts this counter-proposal they will then
document what the general agreement is and send the award to them. If
the Commission accepts it at that point, then, over the next sixty days,
HUD will put together a written contract which details everything. The
final document will then be sent to both the City and the developer for
execution. The Assistant City Attorney advised that also, within this
time period, they will be revising the agreements previously entered
into with Mr. Procacci to reflect the current status of the matter.
Mrs. Horenburger moved to support the agreement as outlined
today, seconded by Mr. Weatherspoon. Upon roll call the Commission
voted as follows: Mr. Dougherty - Yes; Mrs. Horenburger - Yes; Mrs.
McCarty - Yes; Mr. Weatherspoon - Yes; Mayor Campbell - Yes. Said
motion passed with a 5 to 0 vote.
Mayor Campbell declared the meeting adjourned at 10:35 A.M.
City Clerk
ATTEST:
..... . ........... M' A 'Y 0 'R'----~' -
The undersigned is the City Clerk of the City of Delray Beach
and that the information provided herein is the minutes of the meeting
of said City Commission of January 25, 1988, which minutes were formally
approved and adopted by the City Commission on ~ ~. /~p~ .
City Clerk
NOTE TO READER:
If the minutes that you have received are not completed as indicated
above, then this means that these are not the official minutes of City
Commission. They will become the official minutes only after they have
been reviewed and approved which may involve some amendments, additions,
or deletions to the minutes as set forth above.
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