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HomeMy WebLinkAbout10.F.1. Shutterfly Subordination Agreement CITY OF SHAKOPEE Memorandum TO: Mayor and City Council FROM: Mark McNeill, City Administrator SUBJECT: Shutterfly Subordination Agreement DATE: September 17, 2013 Comment: ACTION SOUGHT: For the Council to approve a resolution entering into a Subordination Agreement with Ryan Companies, relating to the Shutterfly project. BACKGROUND: As part of the Master Development Agreement for Dean Lakes, the City agreed to subordinate (in other words,take a second position)to any bank that provided financing for a particular development. Without this Subordination Agreement, it would be difficult, if not impossible, for private developers to obtain financing. Ryan/Dean Lakes, or subsequent secondary developers, continue to pay all special assessments related to the Dean Lakes properties. The Subordination Agreement does not relate to the City's ability to collect special assessments levied against the property upon which the Shutterfly project will be built. Ryan Companies, the company which will build and own the building in which Shutterfly will be housed, has asked the City to agree to execute the Subordination Agreement, so that financing may be obtained. The applicable section of the Master Redevelopment Agreement states the following: Section 7.2 Modification; Subordination. In order to facilitate the Developer or any individual Developer obtaining financing for the development of any Individual Improvements, the City agrees to subordinate its rights under this Agreement to the Holder of a Mortgage securing construction or permanent financing, under terms and conditions reasonably acceptable to the Authority,provided that if any Individual Development Agreement requires execution of an assessment agreement pursuant to Minnesota Statutes, Section 469.177, Subd. 8, in no event with the City's rights under that assessment agreement be subordinated to any Mortgage. City Attorney Julie Eddington states that the actual subordination will not be a problem for the City, as Shutterfly will not be receiving any of the "Individual Developer" subsidies provided in the Master Development Contract and the City has previously agreed to Shutterfly's development. In addition, special assessments are already assessed against the Shutterfly property, and Ryan will continue to pay these. In her opinion, the City has obligated itself to provide a subordination and providing the subordination will not have a significant impact on the City with respect to this property. The subordination would be only for the Shutterfly property. RECOMMENDATION: In order for the City to facilitate Shutterfly financing, the City should agree to the Subordination Agreement. BUDGET IMPACT: There is no direct additional cost to the City. RELATIONSHIP TO VISIONING: This supports Goal B, "Positively manage the challenges and opportunities present by growth, development and change." ACTION REOUIRED: If the Council concurs, it should, by motion, adopt the following resolution number 7364: RESOLUTION APPROVING SUBORDINATION AGREEMENT AND AUTHORIZING THE EXECUTION AND DELIVERY OF THE SUBORDINATION AGREEMENT AND A CERTIFICATION LETTER TO DEAN LAKES I,LLC U V& AX-(lU,c^o Mark McNeill MM:en City Administrator CITY OF SHAKOPEE,MINNESOTA RESOLUTION NO.7364 RESOLUTION APPROVING SUBORDINATION AGREEMENT AND AUTHORIZING THE EXECUTION AND DELIVERY OF THE SUBORDINATION AGREEMENT AND A CERTIFICATION LETTER TO DEAN LAKES I,LLC WHEREAS, the City of Shakopee, Minnesota (the "City") and Ryan Companies US, Inc., a Minnesota corporation ("Ryan"), are parties to (i)that certain Planned Unit Development Agreement for Dean Lakes Project, dated December 26, 2003 (the "PUD Agreement"); (ii)that certain Dean Lakes First Addition Master Development Agreement, dated December 9, 2003 (the "Master Development Agreement"); (iii) that certain Developer's Agreement, dated May 11, 2004 (the "First Developer's Agreement"); (iv) that certain Developer's Agreement, dated September 1, 2004 (the "Second Developer's Agreement"); (v) that certain Developer's Agreement, dated January 6, 2006 (the "Third Developer's Agreement"); and (vi) that certain Developer's Agreement, dated December 27, 2006 (the "Fourth Developer's Agreement," and collectively with the PUD Agreement, the Master Development Agreement, the First Developer's Agreement,the Second Developer's Agreement,the Third Developer's Agreement,the"Development Agreement"),covering certain real property owned by Dean Lakes I,LLC, a Minnesota limited liability company(the`Borrower"), located in the City(the"Property"); and WHEREAS, pursuant to a Construction Loan Agreement, dated September 6, 2013 (the "Loan Agreement"),between the Borrower,as successor in interest to Ryan's fee title ownership of the Property,the Lender agreed to make a construction loan to the Borrower in the maximum principal amount of$21,344,420 (the"Loan"),to facilitate development of the Property;and WHEREAS, as a condition to making the Loan to the Borrower, the Lender requires that the City subordinate its interest in the Development Agreement to the Lender;and WHEREAS, there has been presented before the City Council a form of Subordination Agreement proposed to be delivered by the City to the Lender (the "Subordination Agreement") and a form of certification letter proposed to be delivered by the City to the Borrower certifying, among other things, that the Development Agreement and other documents named therein are in full force and effect, that the City is not aware of any defaults existing except those set forth therein, and that Ryan and the Property are in compliance with the Development Agreement(the"Certification Letter"). NOW,THEREFORE, BE IT RESOLVED by the City Council of the City of Shakopee, Minnesota as follows: 1. The Subordination Agreement and the Certification Letter are hereby in all respects authorized, approved, and confirmed and the Mayor and City Administrator are hereby authorized and directed to execute and deliver the Subordination Agreement and the Certification Letter for and on behalf of the City in substantially the form now on file with the City but with such modifications as shall be deemed necessary, desirable or appropriate, their execution thereof to constitute such conclusive evidence of their approval of any and all modifications therein. 2. This resolution is effective upon the date of its adoption. Approved by the City Council of the City of Shakopee, Minnesota this 17`" day of September, 2013. Mayor ATTEST: Finance Director/City Clerk 431992v1 JAE SH155-316 2 SUBORDINATION AGREEMENT THIS SUBORDINATION AGREEMENT ("Agreement") is made as of this _ day of , 2013, by the CITY OF SHAKOPEE, a Minnesota municipal corporation ("City"), in favor of U.S. BANK NATIONAL ASSOCIATION, a national banking association ("Lender"). RECITALS A. The City and Ryan Companies US, Inc., a Minnesota corporation ("Ryan") are parties to the following agreements: (i) that certain Planned Unit Development Agreement for Dean Lakes Project dated December 26, 2003, filed January 22, 2004, as Document No. T153920 (the "PUD Agreement"); (ii) that certain Dean Lakes First Addition Master Development Agreement dated December 9, 2003, filed June 3, 2004, as Document No. T157652 (the "Master Development Agreement"); (iii)that certain Developer's Agreement dated May 11, 2004, filed June 3, 2004, as Document No. T157653 (the "First Developer's Agreement"); (iv) that certain Developer's Agreement dated September 1, 2004, filed September 13, 2004, as Document No. T160613 (the "Second Developer's Agreement"); (v) that certain Developer's Agreement dated January 6, 2006 filed July 13, 2006, as Document No. T178018 (the "Third Developer's Agreement"); and (vi) that certain Developer's Agreement dated December 27, 2006, filed November 15, 2007, as Document No. T187463 (the "Fourth Developer's Agreement"; the PUD Agreement, the Master Development Agreement, the First Developer's Agreement, the Second Developer's Agreement, the Third Developer's Agreement and the Fourth Developer's Agreement are collectively, the "Development Agreement"). B. The Development Agreement covers, among other real property, certain real property owned by Dean Lakes 1, LLC, a Minnesota limited liability company (`Borrower"), located in Scott County, Minnesota, and legally described on Exhibit A attached hereto (the "Property"). C. Pursuant to a certain Construction Loan Agreement between Borrower (the successor in interest to Ryan's fee title ownership of the Property), and Lender dated September 6, 2013 (the "Loan Agreement"), Lender has agreed to make a construction loan to Borrower in the original principal amount of up to $21,344,420 (the "Loan") to finance a portion of the costs -1- of acquiring the Property and certain improvements to be made by Borrower on a portion of the Property. The Loan is evidenced by the Promissory Note dated September 6, 2013, executed and delivered by Borrower to the order of Lender in the amount of$21,344,420 (the "Note"). D. The Note is secured by, among other things, that certain Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement dated September 6, 2013, recorded September , 2013 as Document No. , which encumbers the Property (as such mortgage may be amended, the "Mortgage"; the Loan Agreement, the Note, the Mortgage and any other document evidencing and/or securing the Loan are hereafter the "Loan Documents"). E. As a condition to making the Loan available to Borrower, Lender requires that City enter into this Agreement. F. City understands that Borrower requires the proceeds of the Loan in order to finance the development of the Property and to perform certain of its other obligations under the Development Agreement. NOW THEREFORE, in order to induce Lender to make the Loan to Borrower, Lender and City hereby agree as follows: 1. Defined Terms. Unless the context otherwise provides, each capitalized term not defined herein shall have the meaning therefor specified in the Development Agreement. 2. Subordination. City agrees that City's interest in the Property, including but not limited to City's interest in or pursuant to the Development Agreement, the obligations of Ryan and Borrower to City contained therein and the rights and liens of City contained therein, are subordinate to the lien of the Mortgage and the other Loan Documents and any amendments, modifications and replacements thereof, notwithstanding the order of recording or any other priority requirements which may otherwise exist. Lender agrees, however, that without the prior written consent of the City, Lender will not increase the indebtedness secured by the Loan Documents (other than optional advances as provided under the Loan Documents to protect Lender's interest therein including, without limitation, advances for payment of taxes and assessments, insurance premiums, discharge of liens and repair and maintenance expenses). No other amendment or modification of any Loan Document nor any waiver by Lender of any obligations of Borrower contained therein shall require the consent of the City. City further agrees that, unless Lender or its successors or assigns expressly agree in writing to assume and perform Ryan's or Borrower's obligations under the Development Agreement, neither the Development Agreement nor any provision thereof, shall be a personal obligation of Lender or its successors or assigns. In the event Lender or its successors or assigns assume in writing any of the obligations of Ryan or Borrower under the Development Agreement, Lender shall nonetheless not be liable for any then existing defaults of Ryan or Borrower, any misrepresentations of Ryan or Borrower or any breaches of any covenant, agreement or indemnification of Ryan or Borrower which occurred prior to the date on which Lender or such successor or assign acquires title to the Property. -2- 3. Improvements. Neither Lender nor its successors or assigns shall be obligated to construct or complete (i) any Individual Improvements (as defined in the Master Development Agreement) on the Property pursuant to the Master Development Agreement; (ii) any Essential Improvements (as defined in the PUD Agreement) on the Property pursuant to the PUD Agreement; (ii) any Plan A Improvements and/or Plan B Improvements (as defined in the First Developer's Agreement, Second Developer's Agreement, Third Developer's Agreement and Fourth Developer's Agreement). In the event, however, that Lender or its successors or assigns acquires any portion of the Property by foreclosure or deed in lieu of foreclosure, the City acknowledges and agrees that, upon substantial completion of the related portion of any Individual Improvements, any Essential Improvements and/or any Plan A Improvements or Plan B Improvements, Lender shall be entitled to seek from the City a Certificate of Completion for such completed portion of the Individual Improvements, Essential Improvements, Plan A Improvements and/or Plan B Improvements under the terms set forth in Section 4.6(c) of the Master Development Agreement and Section 18.11 of the PUD Agreement. 4. Insurance and Condemnation Proceeds. City acknowledges that the rights of the City with respect to the receipt and application of any insurance proceeds or condemnation awards affecting the Property shall, in all respects, be subject to the rights of the Lender under the Mortgage. 5. Notice to City. Lender agrees to use commercially reasonable efforts to send City a copy of any written notice of default sent by Lender to Borrower relating to the Loan Documents. 6. Miscellaneous. 6.1 City acknowledges that Lender is not a party to the Development Agreement and that this Agreement constitutes the entire agreement between City and the Lender with respect to the Development Agreement, and that this Agreement may be amended only in a writing executed by City and Lender. 6.2 This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and their respective successors and assigns, including any subsequent holder of the Mortgage. 6.3 Any notices and other communications permitted or required by the provisions of this Agreement (except for telephonic notices expressly permitted) shall be in writing and shall be deemed to have been properly given or served by (i) personal delivery, (ii) depositing the same with the United States Postal Service, or any official successor thereto, designated as Certified Mail, Return Receipt Requested, bearing adequate postage, or (iii) depositing the same with a reputable private courier or overnight delivery service, in each case addressed as hereinafter provided. Each such notice shall be effective upon (a) immediately upon personal delivery, (b) three (3) days after being deposited in the U.S. Mail, or (c) one (1) Business Day after being deposited with such courier service. The time period within which a response to any such notice must be given, however shall commence to run from the date of receipt of the notice by the addressee thereof. Rejection or other refusal to accept or the inability to deliver -3- because of changed address of which no notice was given shall be deemed to be receipt of the notice sent. By giving to the other party hereto at least ten (10) days' notice thereof, either party hereto shall have the right from time to time to change its address and shall have the right to specify as its address any other address within the United States of America: To City: City of Shakopee 129 Holmes Street South Shakopee, MN 55379-1328 Attention: Mark McNeill, City Manager With a copy of any notice to City to: Kennedy & Graven, Chartered 470 U.S. Bank Plaza 200 South Sixth Street Minneapolis, MN 55402-1458 Attention: Julie Eddington, Esq. To Lender: U.S. Bank National Association U.S. Bancorp Center 800 Nicollet Mall, 3rd Floor BC-MN-H03A Minneapolis, Minnesota 55402-7020 Attention: Real Estate Banking Division With a copy of any notice to Lender to: Fabyanske, Westra, Hart& Thomson, P.A. 800 LaSalle Avenue Suite 1900 Minneapolis, Minnesota 55402 Attention: Rory O. Duggan, Esq. 6.4 This Agreement may be executed in counterparts, all of which, when taken together, shall constitute one and the same original. 6.5 In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision thereof. 6.6 THIS AGREEMENT WAS NEGOTIATED, EXECUTED AND DELIVERED IN THE STATE OF MINNESOTA, IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF -4- MINNESOTA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICT LAWS) AND ANY LAWS OF THE UNITED STATES OF AMERICA APPLICABLE TO NATIONAL BANKS. TO THE FULLEST EXTENT PERMITTED BY LAW, CITY HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY RIGHT TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT AND THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA AND ANY LAWS OF THE UNITED STATES OF AMERICA APPLICABLE TO NATIONAL BANKS. CITY HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION RELATING TO THIS AGREEMENT. THIS AGREEMENT MAY BE ENFORCED IN THE STATE COURT SITTING IN THE COUNTY IN WHICH THE PROPERTY IS LOCATED; CITY CONSENTS TO THE JURISDICTION AND VENUE OF SUCH COURT AND WAIVES ANY ARGUMENT THAT JURISDICTION IN SUCH FORUM IS NOT PROPER OR THAT VENUE IN SUCH FORUM IS NOT CONVENIENT. IN THE EVENT AN ACTION IS COMMENCED IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, LENDER AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO THE JURISDICTION AND VENUE ABOVE DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE. [Remainder of Page Intentionally Left Blank] -5- IN WITNESS WHEREOF, the City has executed this Agreement as of the day and year first written above. CITY OF SHAKOPEE By: Name: Brad Tabke Its: Mayor By: Name: Mark McNeill Its: City Administrator STATE OF MINNESOTA ) ss. COUNTY OF ) The foregoing was acknowledged before me this day of , 2013, by Brad Tabke and Mark McNeill, the Mayor and City Administrator, respectively, of the City of Shakopee, a Minnesota municipal corporation, on behalf of the municipal corporation. Notary Public THIS INSTRUMENT DRAFTED BY: Fabyanske, Westra, Hart& Thomson, P.A. 800 LaSalle Avenue Suite 1900 Minneapolis, Minnesota 55402 -6- Exhibit A to Subordination Agreement Legal Description Parcel 1: Lot 1, Block 2, Dean Lakes Fifth Addition, according to the recorded plat thereof, and situate in Scott County, Minnesota, together with the appurtenant easements contained in that certain Declaration of Easements and Covenants dated January 13, 2006, filed July 13, 2006, as Document No. T 178019. Torrens Property Parcel 2: Lot 2, Block 2, Dean Lakes Fifth Addition, according to the recorded plat thereof, and situate in Scott County, Minnesota, together with the appurtenant easements contained in that certain Declaration of Easements and Covenants dated January 13, 2006, filed July 13, 2006, as Document No. T 178019. Torrens Property Parcel 3: Lot 3, Block 2, Dean Lakes Fifth Addition, according to the recorded plat thereof, and situate in Scott County, Minnesota, together with the appurtenant easements contained in that certain Declaration of Easements and Covenants dated January 13, 2006, filed July 13, 2006, as Document No. T 178019. Torrens Property Parcel 4: Tract C, Registered Land Survey No. 199, Scott County, Minnesota, together with the appurtenant easements contained in that certain Declaration of Easements and Covenants dated January 13, 2006, filed July 13, 2006, as Document No. T 178019. Torrens Property [CITY LETTERHEAD] Dean Lakes 1, LLC c/o Ryan Companies US, Inc. 50 South Tenth Street, Suite 300 Minneapolis, Minnesota 55403 Attention: Audra Williams Attention: Judy Hermanson U.S. Bank National Association U.S. Bancorp Center 800 Nicollet Mall, 3rd Floor BC-MN-H03A Minneapolis MN 55402-7020 Attention: Real Estate Banking Division Re: Lots 1-3, Block 2, Dean Lakes Fifth Addition and Tract C, Registered Land Survey No. 199, Scott County, Minnesota (the "Property") The undersigned certifies to Dean Lakes I, LLC, a Minnesota limited liability company ("Dean Lakes"), and U.S. Bank National Association, a national banking association ("USB") together with any of their respective affiliates and/or any of its or their respective successors and/or assigns: 1. The undersigned is a party to the following documents and resolutions (collectively,the "Development Documents"): (a) Planned Unit Development Agreement for Dean Lakes Project dated December 26, 2003, filed January 22, 2004, as Document No. T153920 by and between the City of Shakopee and Ryan Companies US, Inc., a Minnesota Corporation. (b) Dean Lakes First Addition Master Development Agreement by and between the City of Shakopee, Minnesota and Ryan Companies US, Inc., a Minnesota Corporation, dated December 9, 2003, filed June 3, 2004, as Document No. T157652 (the "Master Development Agreement"). (c) Developer's Agreement by and between the City of Shakopee and Ryan Companies US, Inc., a Minnesota Corporation, dated May 11, 2004, filed June 3, 2004, as Document No. T 157653. (d) Developer's Agreement by and between the City of Shakopee and Ryan Companies US, Inc., a Minnesota Corporation, dated September 1, 2004, filed September 13, 2004, as Document No. T 160613. (e) Developer's Agreement by and between the City of Shakopee and Ryan Companies US, Inc., a Minnesota Corporation, dated January 6, 2006, filed July 13, 2006, as Document No. T 178018. (f) Developer's Agreement by and between the City of Shakopee and Ryan Companies US, Inc., a Minnesota Corporation, dated December 27, 2006, filed November 15, 2007, as Document No. T 187463. (g) City of Shakopee Petition for Public Improvement and Waiver of Assessment Rights Recitals dated January 14, 2004, filed January 22, 2004, as Document No. T 153921. (h) Petition for Public Improvements and Waiver of Assessment Rights Recital dated March 15, 2001, filed March 29, 2001, as Document No. T 117776. (i) Resolution No. 5986 being a resolution of the City of Shakopee, Minnesota, approving Planned Unit Development (PUD) Overlay District No. 24, Dean Lakes, filed January 20, 2004, as Document No. T 153787. (j) Resolution No. 5988 being a resolution of the City of Shakopee, Minnesota, approving the request for a Conditional Use Permit (CUP) to allow business park and residential uses, as well as trails in the Shoreland Overlay Zone filed January 20, 2004, as Document No. T 153788. (k) Resolution No. 6078 being a Resolution of the City of Shakopee, Minnesota, approving the preliminary and final plat of Dean Lakes Second Addition filed July 28, 2004 as Document No. T 159164. (1) Resolution No. 6242 being a Resolution of the City of Shakopee, Minnesota, approving the preliminary and final plat of Dean Lakes Fourth Addition and an amendment to the Dean Lakes Planned Unit Development (PUD) filed May 31, 2005 as Document No. T167388. (m) Resolution No. 6345 being a Resolution of the City of Shakopee, Minnesota, approving the preliminary and final plat of Dean Lakes Fifth Addition and an amendment to the Dean Lakes Planned Unit Development (PUD) filed January 23, 2006 as Document No. T173896. (n) Consent and Agreement regarding the encroachment of parking improvements with the City of Shakopee dated June 7, 2006, filed July 13, 2006, as Document No. T 178020. 2. To the best knowledge of the City without investigation, the Development Documents have not been modified, amended or terminated in any respect except as set forth herein. To the best knowledge of the City without investigation, the Development Documents are valid and in full force and effect on the date hereof. -2- 3. On the date hereof, the City has executed a subordination agreement pursuant to Section 7.2 of the Developer's Agreement The City's subordination of its interests under the Master Development Agreement does not subordinate the City's right to collect special assessments levied against the Property. 4. As of the date hereof, the City is not aware of any defaults existing, or any amounts due and owing, under any of the Development Documents, except as set forth herein: 5. To the best knowledge of the City without investigation, as of the date hereof, Ryan Companies US, Inc. and the Property are in compliance with each of the Development Documents. 6. The person signing this letter on behalf of the undersigned is a duly authorized agent of the undersigned. The undersigned is providing you with this letter and agrees that you may rely upon it as conclusive evidence of the matters stated herein. -3- Dated this day of September, 2013. CITY OF SHAKOPEE a Minnesota municipal corporation By: Name: Title: -4-