Graystone buildings to be taken off mortgage note
DETROIT LAKES -- The city of Detroit Lakes and Midwest Minnesota Community Development Corporation are shuffling around a couple of properties.
In July 2001, the city of Detroit Lakes and MMCDC entered into a loan agreement to renovate the Graystone Annex Block. Community Development Director Larry Remmen said the city was required to be involved simply to make sure MMCDC would stay in line with the requirements of the grant. The city didn't actually have any money involved in the loan agreement.
The loan for $925,000 was through a Small Cities Development Program Grant Agreement with zero percent interest, maturing on Dec. 31, 2011.
"The loan is to be forgiven at maturity if MMCDC remained in compliance throughout the term with its covenant respecting the low and modest income housing tenancies," MMCDC Real Estate Manager John King wrote in a letter to the city.
There are 19 units in the Graystone being rented to residents.
On Feb. 4, 2003, the city released its mortgage on a portion of the Graystone named Beaton Building to sell to the Lakes Crisis Center. With that move, the city reduced the note by $164,000 to $761,000.
Now, MMCDC is requesting the release of the mortgage on Condo A and Condo C, forgiving $442,000 more on the note. Condo A is first level of the Markland Building, and Condo C is the State Farm Building and the Godfathers Building. None of those buildings include residential units.
"This would leave Condo B, the second and third level of the Graystone Annex on the mortgage with a remaining balance of $319,000," King said.
He explained the request stems from renovation costs, building value and current debt.
The Holmes Block Partnership is being dissolved and MMCDC will be the owner of the buildings. With that dissolution, the debt on the buildings will be shown on MMCDC's books.
"Because of renovation costs, the current debt is now greater than the value of the building," King said. "Therefore, MMCDC will have to write down the value of the building showing a loss."
He added that when the debt is forgiven in 2011, MMCDC will record a gain, and it would benefit MMCDC to have the value of the building and the city forgive the debt in the same fiscal year.
"I know this is an unusual request, but it would be of benefit to MMCDC," he said.
At the Community Development Committee meeting Thursday, Remmen said the request was "perfectly fine, straight forward."
The city council will vote on the matter Tuesday evening.