In this particular deal, the proposed terms are as follows: Cincinnati-based Model Group, the firm heading the $32 million project, would borrow $2.5 million from the fund created by the sale of the city's electric utility at an annual rate of 2.5 percent. But Model would have to pay only $37,500 in interest (1.5 percent) every year; the remainder would be due at the end of the loan's 15-year term or upon sale of the project, although additional payments could be made earlier depending on the project's cash flow.
The intent, Feasel said, is to make the loan more affordable during the project's early years, when revenues from its proposed 72 residential units and 22 storefronts may or may not match expectations.
The terms aren't quite as arbitrary as they sound. The non-profit Downtown Development Trust bought many of the properties included in the Landing project with the help of a $1.2 million loan from the Community Foundation of Greater Fort Wayne — a loan that was also made at 2.5 percent interest for 15 years and served as a guide for the Legacy proposal.
"I would have preferred 10 years (to repay the loan), but 15 is not unreasonable. A loan is better than an outright grant," said Crawford, who is unconcerned about the city's lack of collateral in the deal because of the Landing project's good design and the Model Group's track record, which includes a similar but much larger historic-restoration project in its home town.
He's right about that: Even a partial shift from grants to loans would allow Legacy to underwrite more projects over a longer period of time. The longevity of the fund, which currently contains about $37 million, has been a special concern of Russ Jehl, R-2nd, who last year persuaded his fellow councilmen to make Riverfront development Legacy's top priority. But even though the Landing is at least indirectly linked to redevelopment of the nearby riverfront, Jehl has at least one major concern about the proposed $2.5 million loan.
As I first reported in December, the project's proposed funding package includes about $6.7 million in federal New Market Tax Credits — credits the city was unable to secure as expected in November. The Model Group's Jason Chamlee said he's confident the credits can be obtained from other sources, but even he understands Jehl's reluctance to commit Legacy dollars to a project with a gaping hole in its financing, which also anticipates a $3.9 million mortgage from the Illinois Finance Fund, $3.2 million in private equity, a $4 million historic tax credit, $2.5 million from the city's Redevelopment Commission, $7.1 million form the state's Regional Cities program and $1 million loan from federal housing funds that may be forgivable depending on certain conditions, Feasel said.
"We've gotten the cart before the horse before," Jehl said. "Legacy should be used only when the full capital stack is in place."
Perhaps, but the loan agreement protects the city in this case by placing the Legacy dollars in reserve until all other proposed funds are secured. A more legitimate concern could be the fact that the interest of the Legacy fund would be subordinate to private investors should the project develop financial problems.
Overall, though, the loan appears to make sense and deserve council's support not only because the project will spur economic activity and generate taxes (Chamlee said some exciting commercial tenants could be announced soon) but because Crawford is right: A loan is better than a grant, especially when a private firm stands to earn a $3.2 million development fee.
But with no clear lending guidelines in place, and the Foellinger-Freimann Botanical Conservatory and the Clyde Theater seeking $1.2 million in Legacy loans for a walkway and renovations, respectively, you can bet a lot of people will be watching what council decides about the Landing, and drawing conclusions that may or may not apply to future events.
This column is the commentary of the writer and does not necessarily reflect the views or opinions of The News-Sentinel. Email Kevin Leininger at firstname.lastname@example.org or call him at 461-8355.