The Park Rapids Economic Development Authority (EDA) passed two resolutions on Nov. 27 furthering the process of purchasing part of the Armory Square complex.

The project involves portions of the historic National Guard Armory building and annex at Park Avenue South and Second Street West. It does not include the Vallarta's Mexican Grill portion of the structure, which will continue to be owned by Alan Zemek and the Armory Square Management Corporation.

Funding the purchase and related expenses is a General Obligation Bond Proceeds Grant for up to $2.5 million, awarded in 2014 by the Minnesota Legislature for what is officially titled the Park Rapids Upper Mississippi Arts Center project.

Lease amendment

The first resolution was to adopt an amendment to the Armory lease agreement in which the EDA is the landlord and the Midwest Minnesota Community Development Corporation (MMCDC) is the lessee.

The ultimate aim of the lease agreement is for MMCDC to sublease the facility to the Park Rapids Community Development Corporation (PRCDC), and for PRCDC to operate it as a regional arts and event center.

The amendment added language to the lease agreement as required by the Minnesota Department of Management and Budget (MMB). In part, the amendment inserts two references to "the Commissioner" to paragraphs that now require assignment and subletting to be approved by "the Landlord and the Commissioner."

City Administrator John McKinney explained that "the Commissioner" refers to a member of the EDA, while "the Landlord" designates the EDA as a body.

When the lease agreement was first adopted on June 15, McKinney noted, it did not call for a city representative to be involved in the lease's oversight. The amendment reflects a change in the MMCDC's bylaws to ensure that the city is represented.

Also added to the agreement at the MMB's request is a sentence stating that the conditions of the grant supercede any conflicting provisions in the lease.

Grant agreement

In its second resolution, the EDA approved and authorized the execution of the grant agreement for the Armory Square project "upon concurrence by the MMB," in McKinney's words.

"This is the formal document that says what we've agreed," he said about the 45-page grant agreement which the city worked out with the MMB and the Minnesota Department of Employment and Economic Development (DEED). "After its execution, we send that to the MMB, and they approve it and then authorize us to sign the application."

McKinney stressed, "It is an end grant, which means that everything that we say we're going to do with the money actually has to have been accomplished before they will release the grant. In our case, what we do with the grant is buy the portion of the Armory building."

He added, "The developer (Zemek) has to meet certain conditions before we can agree to do that under the purchase agreement, which has already been approved by MMB."

A short list of goals that Zemek must improve before the city can close on the deal includes heating, ventilation and air conditioning (HVAC) improvements. "The developer can get money to finish the project from lenders (only) if the grant agreement is approved by us," said McKinney.

He explained that the purchase agreement offers Zemek $2.5 million for the facility minus any costs the city incurs regarding the purchase.

"Whatever is left is what he gets," said McKinney. "He gets it, but only momentarily, because then he's got to pay off the existing loans. We've got to have free title."

McKinney clarified that the grant money must be used to clear debts on the part of the Armory building being purchased before Zemek can use the remaining funds for anything else.

If Zemek needs to borrow money to complete the required HVAC improvements, McKinney said, "that's what he's got to do before we can close, because the building's got to be done. So, if he doesn't have the money, which he claims he doesn't, he's got to borrow money from somebody to finish off the air conditioning, so we can get the grant and pay him, and then he pays that loan off."