The Park Rapids City Council had a special meeting Monday via conference call, followed immediately by a Park Rapids Economic Development Authority (EDA) meeting, to tie up final loose ends required to purchase the future Armory Arts and Events Center.

Funded by a 2014 state grant for up to $2.5 million, the EDA is buying portions of the former National Guard Armory and its annex at 2nd St. and Park Ave. from developer Alan Zemek’s Armory Square Management Corporation (ASMC). The purchase does not include Vallartas Mexican Grill.

Currently, the sale is expected to close on Monday, May 18.

Council waives interest, fees

In a meeting lasting less than 10 minutes, the council approved a resolution waiving the accrued interest and late fees on three city loans to ASMC, totaling approximately $9,600.

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The waiver is contingent upon ASMC, Zemek and Echopoint Design and Development, LLC, agreeing to release the city, EDA and their other creditors from future claims regarding the sale.

City Attorney Robert Scott, with the firm Flaherty & Hood, P.A., explained that before the property can be conveyed, the debt on it needs to be cleared with all of the seller’s creditors – including the City of Park Rapids itself.

According to the resolution that Scott presented for council action, the city has issued three Revolving Loan Fund (RLF) loans to ASMC – a 2011 loan for $150,000, a 2012 loan for $100,000 and a 2015 loan for $150,000 – and also, in 2013, provided a loan funded through the Small Cities Development Program (SCDP) for $39,907 to finance improvements to the Armory. All four loans were secured by mortgages on the property.

As of May 18, the payoff amounts on these loans, including interest and late fees, are $127,382, $102,679, $153,718 and $22,171 respectively.

Scott proposed waiving interest of $3,226 and a late fee of $20 for the 2011 loan, $2,629 and $50 for the 2012 loan and $3,692 and $25 for the 2015 loan, leaving payoff amounts of $124,018, $99,841 and $149,807 respectively – a total of $395,837 including the SCDP loan.

However, Scott explained that the SCDP loan, funded by a grant from the Minnesota Department of Employment and Economic Development (DEED), gives the city “no discretion to make any accommodations or in any way alter the terms” of the loan.

“It’s just a matter of administering the loan on DEED’s behalf,” he said, “and one of the requirements of the grant that funded the loan, as I understand it, is that it must be repaid if any portion of the facility, for which the loan funds were issued, is sold. So, the city simply must collect the outstanding balance, including any interest on that loan.”

Scott noted that while the city is not legally required to provide the proposed accommodations, they were the result of difficult negotiations by City Administrator Ryan Mathisrud.

“In the interest of facilitating this transaction and achieving the greater good of closing on it with all parties relatively satisfied, we would recommend that the city agree to these slightly reduced payout amounts,” said Scott. “The city is one of numerous creditors.”

Indeed, a memo provided to the council shows that other debts against the Armory, as of May 18, include $274,187 owed to the Northwest Minnesota Foundation, $950,397 to the Midwest Minnesota Community Development Corp., $453,573 to Northwoods Bank, $8,776 from Headwaters Regional Finance Corp., and approximately $213,000 in other credit lines.

“I think the city’s consideration of waiving interest and fees really was instrumental in other creditors making similar accommodations,” said Scott. “They were, in some cases, more considerable, and those collective efforts by all the creditors are what is allowing this transaction to proceed to closing, which I think is a momentous occasion and potentially a great, positive development for the community of Park Rapids, as well as the city and the EDA.”

Council member Tom Conway moved to approve the resolution, and the motion passed unanimously.

EDA approves closing documents

The EDA board, whose members are the city council and Mayor Ryan Leckner, approved additional Armory closing documents, including a supplemental escrow agreement reflecting the final settlement statement for the Armory deal, escrow wiring instructions and a flow-of-funds memo for the sale.

Scott noted that these approvals had to be submitted to the state that day in order to allow the purchase to close on May 18. Because the state only disburses grant funds every other Monday, he said, the next available closing date would be June 2.

Scott said the intention of the supplemental escrow agreement was “to solve the conundrum where the city was required, under the purchase agreement, to pay the purchase price, which was equal to the grant proceeds of $2.5 million, and be entitled to reimbursement of that amount from the state.”

He acknowledged that having to front that amount, even with assurances of being reimbursed afterward, would be a hardship for the city and would require it to make “extraordinary arrangements” to cover the cost.

“So, we worked out an agreement where the seller would forward all closing documents, including the deed … to the escrow agent,” he said.

With this, he said, the city could show that it “has taken all steps to secure the ownership interest and would be paying the full purchase price to escrow, and at that point, the state … could release the grant, so that the grant funds could be used in the closing.”

As for recovering the EDA’s costs connected with the purchase, Scott said his firm continues to negotiate for approximately $4,500 in addition to the amount listed in the escrow wiring instructions, but he asked that the EDA approve the supplemental escrow agreement without requiring this to be done in order to allow the closing to move forward as scheduled. He said this final reimbursement will have to be handled outside the actual closing process.

Regarding the escrow wiring instructions, the so-called “closing memorandum” describes the flow of funds for the purchase as follows:

  1. DEED disburses $2.5 million to the EDA, which immediately puts the full amount in escrow with Leer Title, plus $4,218 for the city’s settlement costs.

  2. The escrow fund pays off the Armory’s debts to Northwest Minnesota Foundation ($274,187), Midwest Minnesota Community Development Corp. ($950,397), Headwaters Regional Finance Corp. ($8,776), the city ($395,837) and Northwoods Bank ($455,038).

  3. The escrow fund pays the Hubbard County treasurer $34,396 for property taxes owed for 2019 and the first half of 2020.

  4. The escrow fund pays Leer Title $16,796 for recording fees, transfer fees and costs, title insurance premiums and other title charges.

  5. The escrow fund pays ASMC $155,996, which the seller is then to pay to the city to reimburse its out-of-pocket expenses.

  6. The escrow fund pays off the remaining $212,823 owed on a 2019 mortgage to Echopoint Design & Development, LLC.

In separate motions, council member Erika Randall moved to approve both the supplemental escrow agreement and the closing memorandum. Both motions passed without dissent.