MEMORANDUM. Board Members Alaska Industrial Development and Export Authority

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1 MEMORANDUM TO: FROM: Board Members Alaska Industrial Development and Export Authority Ted Leonard Executive Director DATE: January 14, 2015 SUBJECT: Loan Summary The Zehrung Living Trust Dated July 15, 2010 Loan Resolution No. L15-01 Loan Request First National Bank Alaska (FNBA) requests AIDEA s participation of $3,415,500 (90%) in a $3,795,000 loan. Term Lender Amount Term Structure AIDEA $3,415, years Fixed for 24 yrs. FNBA $379, years Variable for 12.5 yrs. Total $3,795,000 Borrower The Zehrung Living Trust Dated July 15, 2010 Co-Borrowers Edward Zehrung and Terrie Zehrung Use of Proceeds Project Long term financing for the acquisition of a retail/restaurant project in Anchorage, Alaska. Commercial property with 15,400 SF of improvements leased to retail/restaurant tenants. Economic Development/ Job Creation Approximately 30 jobs will be continued that otherwise would have been eliminated and 30 new construction jobs were created as a result of remodeling the buildings. Management Ed Zehrung, co-borrower, will be managing the property through his real estate firm, EZ, LLC. He is an experienced owner, investor and manager of commercial properties in Southcentral Alaska.

2 AIDEA Board Members Memorandum L15-01 January 14, 2015 Page 2 Collateral and Value First deed of trust on Lots 1, 2, & 3, Blueberry Lake Subdivision, located at C Street, Anchorage, Alaska. AIDEA will require an assignment of rents. Per E. Bjorn-Roli, MAI of Reliant Advisory Services, LLC, appraised the property as of October 30, He concluded the market value of the Leased Fee interest of the property in its current As-Is condition is $7,300,000. Appraised value provides a loan to value of 52%, which is within AIDEA regulations. The net operating income from the existing leases results in a 1.51 debt service coverage ratio. Related Debt None Financial Information Specific confidential financial information will be provided to Board members under separate cover. Environmental No issues noted. Strengths Weaknesses Loan to value at 52% is deemed very well secured. Debt Service Coverage Ratio of 1.51 is above the 1.25 guideline. Good mix of leases between two existing tenants and new tenant in an excellent location. Market risk associated with a potential down turn in the Anchorage economy due to current lower oil prices. The impact of lower oil prices on the local economy will be reduced and mitigated by Anchorage s diversified economy sources from government, tourism, and transportation. Portfolio Diversification As of September 30, 2014, AIDEA had 1.9% of its total statewide portfolio in the restaurant type industry. This will increase to 2.8%. For participated loans within the Anchorage region, 2.3% of AIDEA s total portfolio is attributed to restaurant type projects. This loan will increase penetration of the restaurant business to 4.3% in the Anchorage region.

3 AIDEA Board Members Memorandum L15-01 January 14, 2015 Page 3 AIDEA s Capacity AIDEA s loan funding allocation for Fiscal Year 15 (FY 15) is $60.85 (including $10.85 million of loans approved in FY 14 to be funded in FY 15). As seen in the table listed below, AIDEA has committed to fund or has funded $28.33 million in loans as of 12/31/14. If the Board approves Loan Resolution No. L15-01 for $3.41 million, the total amount of loans estimated to be funded in FY 15 so far would be approximately $31.74 million leaving $29.11 million of the Loan Funding allocation unencumbered. FY 15 Loan Participation Funding Capacity Amount FY 15 Loan Participation Funding Allocation $60,847,579 Number of Loans Funded 15,995,250 3 Approved to be funded 12,332,329 5 Total Target Balance Available as 07/31/2014 $32,520,000 L15-01 Loan Amount 3,415,500 1 Total Allocation Available For Future Loans $29,104,500 Based on the economic value of this loan participation, and having sufficient funds unencumbered under our Loan Participation target, staff recommends funding the loan participation. Recommendation Staff recommends approval as presented, with the following conditions: A. All leases are to be subordinate to the Lender s Deed of Trust. B. Repayment terms to require the accelerated amortization program. C. Loan amount not to exceed the balance of the seller note and FNBA loan plus interest, loan fees and costs.

4 AIDEA Credit Presentation BORROWER: The Zehrung Living Trust Dated July 15, 2010 Bank: First National Bank Alaska CO-BORROWER: Edward & Terrie Zehrung Originating Officer: Jay Page ADDRESS: 400 Bering Street, Nome, AK Loan Officer: Bill Phelan Date: December 22, 2014 C-Corp S-Corp LLC General Partnership Ltd Partnership Sole Proprietorship Individual BOND SALE BUSINESS: Real estate investment NAICS: GUARANTORS: None LOAN PURPOSES: Refinance New Construction Acquisition Assumption Equity Extraction LOAN PROGRAM: Loan Participation Business Assistance Program OREO Sale AIDEA 100% Owned COMMITMENT TERM: Six months ANTICIPATED FUNDING DATE: March JOBS CREATED/RETAINED: 30 construction jobs were created. 30 permanent jobs were created. PARTICIPATION Loan Amount Percentage Rate Payment Monthly Annual Term FNBA $379,500 10% Variable/5.35% $3, $41, years: AIDEA $3,415,500 90% Fixed/5.35% $21, $252, years TOTAL $3,795,000 $24, $294, Effective Amo: 22 years Related debt None GUARANTEE Loan Amount Guarantee Percentage Guarantee Amount Rate Payment Monthly Annual Term Not Applicable COLLATERAL DESCRIPTION AND VALUE Description Appraisal Date Source Appraised Value Loan to Value Multi-Use Property leased to GCI, Arby s and The Crossbar restaurant. Located at 2800, 2830, & 2850 C Street, Anchorage. As of October 30, 2014 Per E. Bjorn-Roli, MAI Reliant Advisory Services $7,300,000 52% APPROVALS/DECLINES Comments: Loan Committee approved this request on December 22, Financing this project created 30 construction jobs and 30 permanent jobs in Anchorage. CONDITIONS OF APPROVAL -1- Credit Presentation Zehrung Living Trust Public Page.docx

5 Credit Presentation The Zehrung Living Trust Credit Presentation Zehrung Living Trust Public Page.docx

6 ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY RESOLUTION NO. L15-01 A RESOLUTION OF THE ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY REGARDING PURCHASE BY THE AUTHORITY OF A PARTICIPATION IN THE ZEHRUNG LIVING TRUST DATED JULY 15, WHEREAS, First National Bank Alaska has filed an application with the Alaska Industrial Development and Export Authority (the Authority ) requesting that the Authority purchase a participation in a loan to The Zehrung Living Trust Dated July 15, 2010, (the Loan ) under the Authority s loan participation program (AS et seq.); WHEREAS, the nature, purpose and terms of the Loan and the Authority s participation are described in the memorandum from Authority staff attached as Exhibit A hereto (the Memorandum ); WHEREAS, staff of the Authority has recommended that the Authority purchase the participation in the Loan, subject to certain conditions, as described in the Memorandum; WHEREAS, the Authority s participation in the Loan is consistent with all requirements for such participation provided in AS et seq. and the applicable regulations of the Authority related to such participations provided in 3 AAC ; WHEREAS, it is the Authority s policy that the purchase of a loan participation be approved by the Authority s board if the Authority s participation in the loan will equal or exceed $3,000,000, or if the aggregate amount of the Authority s participation in loans to any borrower or guarantor will exceed $5,000,000; WHEREAS, the dollar amount of the participation is over $3,000,000.;

7 WHEREAS, First National Bank Alaska requests the Authority to purchase $3,415, (90.0%) of the $3,795, Loan; and WHEREAS, it is in the best interest of the Authority that the Authority purchase the participation in the Loan, subject to conditions recommended by staff as described in the Memorandum. NOW, THEREFORE, BE IT RESOLVED BY THE ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY AS FOLLOWS: Section 1. The Authority s purchase of the participation in the Loan as described in the Memorandum is approved, subject to the conditions recommended by staff as set forth in the Memorandum. The Executive Director is authorized to approve such non-material changes in the terms and conditions of the Loan and the Authority s participation as the Executive Director, in his discretion, determines appropriate. Section 2. The Executive Director of the Authority and the Commercial Finance Director of the Authority are authorized to take such actions as may be necessary or convenient to consummate the purchase of the participation in the Loan including, without limitation, issuing a commitment with respect to the Authority s participation in the Loan. DATED at Anchorage, Alaska on this 14 th day of January (S E A L) A T T E S T Chair Secretary AIDEA Loan Resolution No. L15-01 Page 2