April 20, 2016
GLOVERSVILLE – The Fulton County Center for Regional Growth is set to soon reopen a $900,000 loan pool for city businesses.
“That fund has not been active. We’re going to be creating what will be called the Gloversville Loan Fund and we’re setting up a joint administration of that with the city and CRG,” CRG President Ron Peters said.
Peters said the loan pool, which is made up of money from the federal Urban Development Action Grant-funded loan program, had been inactive since at least 2012 when Gloversville initiated two lawsuits against the CRG and its precursor entities, the Fulton County Economic Development Corp. and the Cross Roads Incubator Corp. Gloversville had given the UDAG money to the Fulton County EDC to administer, but sought the return of the funds in the lawsuit.
I think in business, in the real world, you cut your losses and you move forward. We don’t want to be at war with CRG or anybody else. We want to make partnerships. [The New York Innovative Communities Network’s conference] last week wouldn’t have happened if we’re suing each other.” Gloversville Mayor Dayton King
On April 12 the Common Council voted unanimously to drop the lawsuits, forgiving approximately $1.2 million in Gloversville UDAC loans. These were the loans forgiven: $750,000 for the CIC Estee Commons project; $200,000 to the CIC for the construction of 110 Decker Drive, formerly the site of the CRG’s headquarters; $25,000 to Beebie Printing; and a $179,190 loan the city government had borrowed from the fund. Prior to the loan forgiveness, the 110 Decker Drive project had paid down the principle of its loan to $151,854, Beebie Printing had paid down its loan to $13,562, but neither the city nor the Estee Commons project had paid back any portion of its loans.
Mayor Dayton King said he and the Common Council evaluated the likelihood of recovery of any of the forgiven loans and decided it was in the city’s best interest to end the lawsuits.
“We were probably never going to get any of that money back,” King said. “We also realized that if we ever did get that money, it was never going to go back to our general fund. We did get a project out of it, the Estee Commons project, out of that initial grant money. We could have kept beating our heads against the wall and saying no on principle – that was really the theme from the last Common Council, ‘No, no matter what, this is the right thing to do and I don’t want to explain to my taxpayers why we’re forgiving these loans.’ But I think in business, in the real world, you cut your losses and you move forward. We don’t want to be at war with CRG or anybody else. We want to make partnerships. [The New York Innovative Communities Network’s conference] last week wouldn’t have happened if we’re suing each other.”
Peters said at its peak level, the Gloversville UDAG loan fund had approximately $2.2 million in it. As of Jan. 31, the loan fund has $900,000 in it and has three outstanding loans that are receiving monthly payments:
Peters said Gloversville’s decision to forgive the $1.2 million in non-performing loans was crucial to the CRG’s ability to move forward and reopen the UDAG loan fund.
“The issues had to be straightened out,” he said. “We’re going to create a new board – we haven’t had the organizational meeting yet -but we’re going to sit down and organize our new loan committee and it will be made up of the city and the CRG. We’re going to do this in the next week to 10 days.”
King said the new governance board for the Gloversville UDAG fund will include the mayor of Gloversville, three Common Council members and three members from CRG, giving Gloversville elected officials a one-vote majority control of how the money in the fund will be loaned out.
The largest portion of the forgiven money was $750,000 for the Estee Commons project. Peters said the rules of the federal program that governs UDAG loan pools require the UDAG loan to be paid off last for projects that have multiple funding sources. In the case of the Estee Commons project, the project has a $1.9 million private sector mortgage, which is known as the “first position” in the repayment structure.
Peters said Estee Commons, which now has an occupancy rate of between 93 and 100 percent for its 39 apartments, currently brings in about $21,000 per month in rent revenue after expenses, but has about $19,000 in monthly mortgage payments, not counting taxes or insurance. He said at its current rate of payment it won’t repay its private sector mortgage for at least another 15 years.
Peters said the purpose of the Estee Commons project was to help spark urban renewal in the neighborhood in which it was built, but so far the prevailing market rent rates in that neighborhood have not risen to the level necessary to repay both the private and public sector financing for the project. He said rent revenue would need to be about 60 percent higher than it currently is for it to have reasonably repaid its $1.7 million private sector mortgage and the $750,000 from the Gloversville UDAG loan fund.
Until recently, Estee Commons only had about a 60 percent occupancy rate, which Peters attributes to the CRG having only a two-member staff, down from the eight-member staff the Fulton County EDC had at its peak. Peters said the CRG increased the occupancy rate by hiring Schenectady-based property management company Maddalone & Associates, which is paid about 7 percent of the rent revenues for the site.
Peters said Estee Commons was effectively unsellable so long as the $750,000 UDAG loan was still a lien against the value of the property.
“It would be like buying a $20,000 car and saying ‘I know its worth $20,000, but I’m going to give you $40,000 for it,” he said.
King said the low probability of Estee Commons ever selling for a price high enough to repay the UDAG loan was a key part of the city’s decision to drop the lawsuit.
CRG recently relocated its headquarters from 110 Decker Drive, one of the projects which had a loan forgiven, to the former OHM Laboratories building at 34 W. Fulton St. in Gloversville, a 35,000 square foot location the CRG plans to use as a business incubator.
King said there was never an explicit quid pro quo agreement for Gloversville to forgive the Decker Drive loan and the CRG to move to downtown Gloversville, but he’s glad the organization made the move.