City guarantees $1.25 million credit line for Old Town Elk Grove developer who can't obtain conventional financing




In an effort to help a struggling Old Town development, the Elk Grove City Council decided to guarantee a $1.25 million loan for the developer. The action was taken by a unanimous vote during the Wednesday, January 13 city council meeting.

The loan guarantee will be made by deposits Elk Grove has on hand at F& M Bank as part of the city's reserves. As part of the agreement,  the city cannot withdraw the collateral funds should an emergency need arise.

During his presentation to the city council, the city's economic development director Darrell Doan said while the development at 9676 Railroad Street has the potential to aid the long-struggling Old Town special planning area, the COVID-19 pandemic has hurt prospects for the developer, Eco Green LLC, to attract a potential destination-style restaurant to agree to a lease to anchor the mixed-use development. Because there are no prospective restaurant leaseholders, conventional lenders are unwilling to extend the credit needed to continue improving the brick structures.

Doan also told the city council should the developer default of the loan, the city will take possession of the property. He claimed the property has appreciated in value since Eco Green took title to the property in October 2020 when the city provided mortgage financing.

"The value of the property that we would take time to exceeds the city's exposure on the loan guarantee and the city mortgage," Doan claimed. "So even if the worst-case scenario came to pass, where the city had to foreclose on that deed of trust...we would at the end of the day, take title back to the property, we [taxpayers] would own a completed restaurant property that is valued at roughly three point eight million dollars, and that value would far exceed our exposure."

Doan also noted that as part of the agreement, "ECO Green will provide a second [subordinate] deed of trust on the property." 

During public comment, Elk Grove resident Rany Bekker expressed concern about using taxpayers' money, especially amidst the COVID-19 pandemic, even though he is a self-identified Old Town proponent calling it the "heart and soul" of the community. Bekker suggested putting this on hold for six months. 

"We are in a time of uncertainty and for the city to move forward with this under these provisions, is not good governance," Bekker stated. "The next six months, we don't know what's going to take place."

During deliberations, Councilmember Darren Suen brushed aside Bekker's comments. Citing the Sacramento's Delta Shores freeway exchange construction in 2009 during the Great Recession, Suen said that project proceeded during the economic uncertainty. 

"Had they not done that, they would not have caught the uptick that happened later on," Suen said. "It does appear to be risky in this environment, but at the same time, I think we need to maintain a postive outlook and prepare for when things do turn around." 

   

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2 comments

D.J. Blutarsky said...

City leaders need to put down their glasses of Kool-Aid and think straight. Like Mister Bojangles who will sing a song and dance for you in worn out shoes, this economic development journey has been painful (and expensive) to watch. Barring the cliche economic jargon that sounds impressive to laypersons, let's really dissect what was said:

"So even if the worst-case scenario came to pass, where the city had to foreclose on that deed of trust...we would at the end of the day, take title back to the property, we [taxpayers] would own a completed restaurant property that is valued at roughly three point eight million dollars, and that value would far exceed our exposure."

Okay...who says the restaurant would be completed when, and if the City had to foreclose on the property? What if the LLC who jumped into this project (where wise developers dared to touch with a 10-foot pole) goes belly-up with no further improvements? Are two old brick buildings not meeting building codes still worth $3.8 million dollars? Where's the appraisal report? How many decades did this old property sit rotting away as a wasteland with no buyer interest, until the City came along and used taxpayer money to score the deal of the Century!

Mr. Bojangles may be dancing, but I'm not seeing coins being thrown into any hats here. Let's see how the Old Town Plaza unfolds..,


Josie said...

It never fails to amaze me when I hear all this cockeyed financial wisdom coming from some of our leaders. Comparing this location to Delta Shores...really! I believe this was tried in Old Town maybe 10 years ago...how did that work out?

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