ORIGINATING DEPARTMENT
To Committee(s)
| # | Committee Name | Meeting Date |
|---|---|---|
| 1 | Business, Inspections, Housing & Zoning Committee | Nov 7, 2022 |
Action Item(s)
| # | File Type | Subcategory | Item Description |
|---|---|---|---|
| 1 | Action | Loan | Authorizing a $700,000 Commercial Property Development Fund Loan to 2518 North Second Street, LLC or its assigns to assist in the acquisition of the property at 2518 2nd St N. |
Ward / Neighborhood / Address
| # | Ward | Neighborhood | Address |
|---|---|---|---|
| 1. | Ward 5 | Hawthorne | 2518 2nd St N, Minneapolis, MN |
Background Analysis
This report seeks approval for a $700,000 Commercial Property Development Fund (CPDF) loan for the acquisition of the commercial building at 2518 2nd St N.
Jesse Ross, the 100% owner of 2518 North Second Street LLC, is seeking funding to purchase 2518 2nd St N, a 67,000 square foot industrial property located in North Minneapolis. In addition to a new location for his firm, Mr Jesse Ross LLC, the property currently provides space for eleven other small businesses. Mr. Ross has also negotiated a lease with Appetite for Change subject to planned tenant improvements to the property. There is an additional 8,300 square feet of vacant space that the developer plans to convert to community space and lease to community businesses and organizations. His plans for the property include the following:
- Offering a community room for people to gather, celebrate, and build relationships
- Providing commercial rental space to build and grow community businesses
- Creating local ownership in his community
- Securing space in North Minneapolis that the developer plans to keep affordable as property values in the area increase
- Building generational wealth
- Creating a blueprint for holistic change in North Minneapolis where locally based owners can control and stabilize desirable creative/industrial properties versus community assets going to outside investors
Jesse Ross is a diversity, equity, and inclusion consultant; executive coach; and international speaker who has booked over 400 speaking engagements at colleges, conferences, corporate and nonprofit companies with many Fortune 500 clients. He leads multiple groups through DEI and anti-racism work, including the Racial Justice in Real Estate group that was organized in Minneapolis after George Floyd’s murder in May 2020. He also leads events and major fundraisers at his Northside church and actively engages community members throughout the year to support Northside schools and kids.
Mr. Ross grew up on the Northside and is currently raising 6 kids with his wife and partner in the community. He is passionate about bringing investment to his community and plans to purchase this property for his own business while also supporting other small business owners. The developer plans to be a local property owner who will support local businesses and teach other community business owners about the opportunity of local ownership in the area.
The total project cost is $4.14 million. Bell Bank has committed to provide senior debt financing using a direct bank loan in the amount of $2,615,000. The borrower is also contributing $250,000 in equity, 6% of the total project costs. The project is seeking a 2% Loan from the City of Minneapolis in the amount of $75,000. It is also requesting a $700,000 loan from the City’s Commercial Property Development Fund (CPDF), the subject of this report.
To address the remaining funding gap, the developer has requested $500,000 in interim financing from Meda to assist with closing on the property before the current purchase option expires. The project is seeking permanent funding to take out any interim financing including from the McKnight Foundation-led Ground Break initiative of over 40 corporate, civic, and philanthropic leaders aiming to bring more financial capital to community-benefiting projects. The City would not close on its financing until the project is fully funded. The following Sources and Uses chart shows a breakdown of the total project costs and funding sources:
| SOURCES | AMT | PCT |
| Bell Bank | $2,615,000 | 63.2% |
| City of Minneapolis - CPDF | $700,000 | 16.9% |
| Owner Equity | $250,000 | 6.0% |
| City of Minneapolis - 2% | $75,000 | 1.8% |
| Funding Gap | $500,000 | 12.1% |
| Total Sources of Funds | $4,140,000 | 100.0% |
| USES | AMT | % |
| Acquisition | $3,800,000 | 91.8% |
| Tenant Improvements | $50,000 | 1.2% |
| Soft Costs | $21,300 | 0.5% |
| Bank Fees and Closing Costs | $53,000 | 1.3% |
| Contingency/Operating Reserves | $215,700 | 5.2% |
| Total Uses of Funds | $4,140,000 | 100.0% |
The terms of the CPDF loan will align with the approved guidelines for the CPDF program, including:
- 40-year term
- 0% interest
- Repayment of full principal balance due if one of the following events occurs:
- Changes in property ownership without City consent to a non-qualified heir or successor owner(s); or
- Material changes in use of the property without City consent.
- No debt forgiveness during the term. At the end of the term principal balance is forgiven if the borrower meets the following conditions:
- there are no material changes in the use of property;
- there are no issues with delinquent taxes;
- there are no unresolved City zoning and property maintenance violations;
- there are no other defaults on the loan.
The CPDF loan will be documented by a separate loan agreement, evidenced by a promissory note, and secured by a recorded subordinate mortgage on the property.