3.12 TIF - Otsego Apartments Note Assignment
Request for
City Council Action
DEPARTMENT INFORMATION
ORIGINATING DEPARTMENT REQUESTOR: MEETING DATE:
Administration City Administrator / Finance Director Flaherty April 24, 2023
PRESENTER(s) REVIEWED BY: ITEM #:
Consent Taft Law, TIF Counsel 3.12 – TIF Assignment
AGENDA ITEM DETAILS
RECOMMENDATION:
City staff is recommending that the City Council adopt a resolution authorizing a TIF Note Assignment.
ARE YOU SEEKING APPROVAL OF A CONTRACT? IS A PUBLIC HEARING REQUIRED?
No No
BACKGROUND/JUSTIFICATION:
In July 2018, the City approved a development agreement with Otsego Apartments, LLC (the Developer),
relative to Tax Increment Financing District No. 4 – Riverbend North. Said development agreement was
amended and restated with City Council approval in May 2022.
In accordance with the terms and conditions of the development agreement, a TIF Note was issued by the
City in February 2021 in the amount of $1,250,000. The Developer, as a condition of their project financing
has assigned the TIF Note to Wings Financial Credit Union.
As the Developer prepares to construct Phase 2 of the Riverbend North project, has secured financing
through another financial institution, Crown Bank. The Developer, as a condition of their project financing
wishes to transfer assignment of the TIF Note from Wings Financial Credit Union to Crown Bank.
In accordance with the terms and conditions of the development agreement and TIF Note, the Developer is
required to obtain consent of the assignment from the City. The City’s TIF Counsel, Taft Law, has reviewed
the Assignment Document and has prepared a resolution providing the City’s consent of the assignment to
Crown Bank.
SUPPORTING DOCUMENTS ATTACHED:
• Collateral Assignment of Interest in Tax Increment Revenue Note
• Resolution 2023-28
POSSIBLE MOTION
PLEASE WORD MOTION AS YOU WOULD LIKE IT TO APPEAR IN THE MINUTES:
Motion to adopt Resolution 2023-28 Approving Consent to Collateral Assignment of Development
Agreement and TIF Note.
BUDGET INFORMATION
FUNDING: BUDGETED:
N/A N/A
90040744v2
2777649.v3
COLLATERAL ASSIGNMENT OF INTEREST IN
TAX INCREMENT REVENUE NOTE
THIS COLLATERAL ASSIGNMENT OF INTEREST IN TAX INCREMENT
REVENUE NOTE (this “Assignment”) is made as of April ___, 2023, by and between OTSEGO
APARTMENTS, LLC, a Minnesota limited liability company (hereinafter referred to as
“Assignor”), and CROWN BANK, a Minnesota banking corporation (hereinafter referred to as
“Lender”).
RECITALS
On even date herewith, pursuant to the terms and conditions contained in that certain Loan
Agreement by and between Assignor, Otsego Apartments II, LLC, a Minnesota limited liability
company (“Otsego Apartments II”, together with Assignor, collectively, the “Borrower”), and
Lender of even date herewith (the “Loan Agreement”), Lender has agreed to make a loan up to
the principal amount of $______________ to Borrower (the “Loan”). The Loan is evidenced by a
Promissory Note from Borrower to Lender of even date herewith in the principal amount of the
Loan (the “Promissory Note”). Otsego Apartments II is using the proceeds of the Loan as and
for a portion of the construction costs in connection with the construction of a sixty-seven (67)
unit multifamily rental apartment project (the “Project”), located at 7535 River Road NE, in the
City of Otsego, State of Minnesota, County of Wright (the “Property”). The Promissory Note is
secured by, inter alia, this Assignment, and a Pledge of Deposit Account (the “Pledge
Agreement”), all executed by Borrower in favor of Lender of even date herewith. The Loan
Agreement, Promissory Note, and all other documents executed in connection with the Loan
(along with any extensions, modifications, or renewals thereof) are hereinafter sometimes
collectively referred to as the “Loan Documents”. Capitalized terms not defined herein shall have
the meaning ascribed to them in the Loan Agreement. In the event of any conflict between the
terms hereof and the Loan Agreement, the terms and conditions of the Loan Agreement shall
control. As a condition to granting the Loan on the date hereof, Lender has requested Borrower to
cause the execution and delivery of this Assignment.
NOW, THEREFORE, in consideration of the Loan and intending to be legally bound,
Assignor does hereby covenant, agree, warrant, represent, assign, set over and transfer, to the
extent assignable and transferable, as set forth herein:
1. The City of Otsego, Minnesota, a statutory city and political subdivision of the State
of Minnesota (the “City”), issued a Tax Increment Revenue Note B (Otsego Apartments Project),
R-1, dated February 18, 2021 in the principal amount of $1,250,000.00, as may be subsequently
increased by up to the amount of $425,000.00 (collectively, the “TIF Note”) pursuant to that
certain Amended and Restated Development Agreement, dated May 9, 2022, ultimately between
the City, Otsego Apartments II, Otsego Mini Storage, LLC, a Minnesota limited liability company
(“Otsego Mini Storage”), and Borrower, and all amendments thereto and assignments thereof
(collectively, the “Development Agreement”). The TIF Note shall be the subject of this
Assignment. Borrower shall promptly deliver the original of the TIF Note to Lender, including
any subsequent TIF Note due to amendment or increase of such TIF Note. If the TIF Note is not
issued and delivered to Lender, as provided in this Section 1, by no later than __________, 202_,
90040744v2
2
subject to extension in the event of delay by the City, which delay may only be approved by Lender
in its sole discretion, then it shall be an Event of Default hereunder and Lender shall be entitled to
all rights and remedies available to it pursuant to Section 6 herein.
2. Assignor hereby assigns, transfers, and sets over unto Lender all of its current and
future right, title and interest, in and to the TIF Note, and all rights and benefits therefrom,
including, without limitation, rights to payments as set forth in Section 3 below, as security for the
full, timely and faithful repayment by Borrower of the Loan, and performance by Borrower of its
obligations under the Loan Documents. As further security to Lender, Assignor hereby assigns,
transfers and sets over unto Lender, a first security interest in all of its right, title and interest
pursuant to Sections 3.2 and 3.3 of the Development Agreement and all other provisions and terms
of the Development Agreement as they relate to the TIF Note, including the specimen TIF Note
attached as Exhibit C to the Development Agreement, as security for the full, timely and faithful
repayment by Borrower of the Loan, and performance by Borrower of its obligations under the
Loan Documents. Borrower hereby agrees to execute such additional documentation as required
by Lender in order to give full force and effect to such assignment to Lender of the TIF Note and
relevant portions of the Development Agreement.
3. Commencing on the date hereof, and continuing until the earlier of the date the
Promissory Note is paid in full, or the Maturity Date (as defined in the Note), or payment in full
of the TIF Note, whichever shall first occur, all payments made by the City under the TIF Note,
shall be deposited by Borrower into the Account (as defined in the Pledge Agreement, whereby
Borrower pledged the Account to Lender) held by Borrower at Lender. Lender shall automatically
be authorized to apply monies from the payments under the TIF Note deposited in the Account (as
defined in the Pledge) against the Promissory Note as and when due pursuant to the terms of the
Promissory Note. The affidavit or written statement of an officer, agent or attorney of Lender
stating that Lender is exercising its right to payments under the TIF Note or this Assignment shall
constitute conclusive evidence thereof, and the City or other persons are authorized and directed
to rely thereon.
4. Assignor agrees to faithfully observe and perform all of the obligations and
agreements imposed upon it under the TIF Note and Development Agreement, subject to
Assignor’s right to reasonably contest observance/performance.
5. Lender will not be deemed in any manner to have assumed any of the obligations
related to the TIF Note or the Development Agreement, nor shall Lender be liable to the City by
reason of any default by any party under the TIF Note or the Development Agreement. Borrower
agrees to indemnify and to hold Lender harmless of and from any and all liability, loss or damage
which it may or might incur by reason of any claims or demands against it based on its alleged
assumption of Assignor’s duty and obligation to perform and discharge the terms, covenants and
agreements in the TIF Note or Development Agreement.
6. After the occurrence of an Event of Default (as defined in the Loan Agreement):
a. Lender may elect to exercise any and all of Assignor’s rights and remedies
under the TIF Note or such rights assigned hereunder to Lender under the Development
Agreement regarding the TIF Note, without any interference or objection from Assignor,
90040744v2
3
and Assignor shall cooperate in causing the City to comply with all the terms and
conditions of the TIF Note or the Development Agreement.
b. Lender may exercise Assignor’s rights under the TIF Note or such rights
assigned hereunder to Lender under the Development Agreement regarding the TIF Note,
and perform all acts in the same manner and to the same extent as Assignor might do. In
connection with any and all of the foregoing powers, and without limiting the same, Lender
may amend the terms of and make concessions to the City.
c. Lender may exercise any remedies provided to it in the Loan Agreement or
Loan Documents.
7. All of the foregoing powers herein granted to Lender shall be liberally construed.
Lender need not expend its own funds in the exercise of such power, but if it does, such amounts
shall be considered as advances for and on behalf of Borrower secured by this Assignment and
evidenced by the Promissory Note and secured by other Loan Documents. Any amounts so
advanced shall bear interest at the then current rate prescribed in the Promissory Note.
8. Nothing herein contained shall be construed as constituting a waiver or suspension
by Lender of its right to enforce payment of the debts under the terms of the Promissory Note, the
Loan Agreement or other Loan Documents. Lender is not the agent, partner or joint venturer of
Borrower, Assignor, any Guarantor or the City.
9. This Assignment may be enforced from time to time by Lender at its discretion,
with or without order of any court, as Lender shall determine. Lender may also, at any time, cease
to enforce this Assignment. Any failure on the part of Lender promptly to exercise any option
hereby given or reserved shall not prevent the exercise of any such option at any time thereafter.
Lender may pursue and enforce any remedy or remedies accorded it herein independently of, in
conjunction or concurrently with, or subsequent to its pursuit and enforcement of any remedy or
remedies which it may have under the Promissory Note, the Loan Agreement and/or other Loan
Documents.
10. Assignor warrants and represents to Lender that:
a. It has the right to exercise and deliver this Assignment. The execution of
this Assignment and performance and observance of its terms hereof have been duly
authorized by necessary company action and do not contravene or violate any provision of
Assignor’s organizational documents.
b. the outstanding principal balance on the TIF Note as of the date of issuance
was $1,250,000.00 and current the outstanding principal balance is $1,250,000.00 ,
together with interest at 5.00% per annum from and after the date of issuance.
c. It has made no prior assignments of the TIF Note, except to Wings Financial
Credit Union (“Wings Financial”), which shall be released concurrent herewith in
connection with a portion of the proceeds of the Loan being used to pay Wings Financial
in full for the TIF Note loan and Wings Financial shall release its security interest in the
TIF Note.
90040744v2
4
d. To Assignor’s knowledge, the Development Agreement is in full force and
effect on the date hereof, subject to no defenses, setoffs or counterclaims whatsoever.
e. To Assignor’s knowledge, there exists no event, condition or occurrence
which constitutes, or which with notice and/or the passage of time would constitute, a
breach of or default under any terms or conditions of any of the TIF Note or the
Development Agreement. Assignor also hereby covenants and agrees not to do any act
which would destroy or impair the security to Lender of this Assignment.
f. Assignor has filed all tax returns required to be filed and either paid all taxes
shown thereon to be due, including interest and penalties, which are not being contested in
good faith and by appropriate proceedings, and Assignor has no knowledge of any
objections or claims for additional taxes in respect to federal tax or excise profit tax returns
for prior years.
11. When the context so requires, the singular shall include the plural and conversely,
and use of any gender shall include all genders.
12. This Assignment shall be governed by and be construed in accordance with the
laws of the State of Minnesota. Whenever possible, each provision of this Assignment shall be
interpreted in such manner as to be effective and valid under applicable law, but if any provision
of this Assignment shall be prohibited by or be invalid under applicable law, such provision shall
be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of
such provisions or the remaining provisions of this Assignment.
13. Any notices required or contemplated hereunder shall be effective upon two (2)
business days after placing thereof in the United States mail, certified mail and with return receipt
requested, postage prepaid, and addressed as follows:
If to Assignor at: Otsego Apartments II, LLC
7535 NE River Road
Otsego, Minnesota 55330
Attn: Casey Darkenwald
If to Lender at: Crown Bank
6600 France Avenue South, Suite 125
Edina, Minnesota 55435
Attn: Brian Dougherty
With a copy to: Michelle R. Jester, Esq.
Messerli & Kramer P.A.
1400 Fifth Street Towers
100 South Fifth Street
Minneapolis, Minnesota 55402
90040744v2
5
With a copy to: Mary Ippel
Taft, Stettinius & Hollister LLP
2200 IDS Center
80 South 8th Street
Minneapolis, Minnesota 55402
or to such other address specified in writing by one party to the other upon ten (10) days advance
written notice in accordance herewith.
90040744v2
IN WITNESS WHEREOF, Assignor / Borrower has caused this Assignment to be executed
as of the day and year first above written.
ASSIGNOR / BORROWER:
OTSEGO APARTMENTS, LLC,
a Minnesota limited liability company
By:
Casey Darkenwald
Its: Manager
Signature page to Collateral Assignment of Interest in Tax Increment Revenue Note.
90040744v2
CONSENT TO ASSIGNMENT OF PAYMENTS UNDER
TAX INCREMENT REVENUE NOTE
The City of Otsego, Minnesota, a statutory city and political subdivision of the State of
Minnesota (the “City”), issued Tax Increment Revenue Note B (Otsego Apartments Project),
R-1, dated February 18, 2021 in the principal amount of $1,250,000.00, including all amendments,
modification or subsequent increases thereto (collectively, the “TIF Note”) pursuant to that certain
Amended and Restated Development Agreement, dated May 9, 2022, ultimately between the City,
Otsego Apartments, LLC, a Minnesota limited liability company (hereinafter referred to as
“Assignor” or “Borrower”), Otsego Mini Storage, LLC, a Minnesota limited liability company
and Otsego Apartments II, LLC, a Minnesota limited liability company, and all amendments
thereto and assignments thereof (collectively, the “Development Agreement”). The City has
received a Collateral Assignment of Interest in Tax Increment Revenue Note which assigns as
collateral to Crown Bank, a Minnesota banking corporation (“Crown Bank”), all of Borrower’s
interests in the Payments (as defined in the Development Agreement) under the TIF Note and
Borrower’s rights pursuant to Sections 3.2 and 3.3 and Exhibit C of the Development Agreement
and other sections related to the issuance of the TIF Note. The subsequent increase of the TIF
Note by up to the amount of $425,000.00 is contingent on the City receiving evidence of eligible
costs to be reimbursed by tax increments up to the amount of $425,000.00. The City consents to
such assignment pursuant to the terms of the TIF Note and the City agrees that Crown Bank shall
have the right but not the obligation to cure any default under the Development Agreement.
Until further notified, the City shall make all payments under the TIF Note to the Borrower.
CITY:
CITY OF OTSEGO, MINNESOTA,
A statutory city and political subdivision of the
State of Minnesota
By:
Print Name:
Its:
Signature page to Consent to Assignment of Payments Under Tax Increment Revenue Note
90039879v1
EXTRACT OF MINUTES OF A MEETING
OF THE CITY COUNCIL OF THE
CITY OF OTSEGO, MINNESOTA
HELD: APRIL 24, 2023
Pursuant to due call and notice thereof, a meeting of the City Council (the "Council") of
the City of Otsego, Wright County, Minnesota, was duly called and held at the Council Chambers
at the Prairie Center in said City on April 24, 2023 at 7:00 p.m.
The following members were present:
and the following were absent:
Member ____________________ introduced the following resolution and moved its
adoption:
RESOLUTION NO. 2023-28
RESOLUTION APPROVING
CONSENT TO COLLATERAL ASSIGNMENT OF DEVELOPMENT
AGREEMENT AND TIF NOTE
WHEREAS, on July 23, 2018, the City of Otsego (the "City") approved a Development
Agreement, dated January 28, 2019, as amended by the First Amended and Restated Development
Agreement, dated May 9, 2022 (the "Development Agreement") with Otsego Apartments, LLC, a
Minnesota limited liability company (the "Developer"), Otsego Apartments II, LLC, a Minnesota
limited liability company ("OA2"), and Otsego Mini Storage, LLC, a Minnesota limited liability
company ("OMS"), in connection with the construction of a 97-unit multifamily rental apartment
project and the construction of an approximately 44,000 square foot commercial mini-storage
facility (the "Phase 1 Project"), and the construction of a 67-unit multifamily rental apartment
project (the "Phase 2 Project", and together with the Phase 1 Project, the "Project") each to be
constructed by the Developer and located in the City (the “Project”); and
WHEREAS, pursuant to the Development Agreement, the City issued Tax Increment
Revenue Note A (Otsego Apartments Project) (the “TIF Note A”), in the original principal amount
of $1,684,685.00, and Tax Increment Revenue Note B (Otsego Apartments Project) (the “TIF Note
B,” and together with TIF Note A, the “TIF Notes”) in the original principal amount of
$1,250,000.00;
WHEREAS, the Tax Increment Notes are currently held by Wings Financial Credit Union,
a Minnesota credit union (the “Phase 1 Lender”); and
90039879v1
2
WHEREAS, the Developer proposes to obtain financing for the Phase 2 Project from
Crown Bank, a Minnesota banking corporation (the “Phase 2 Lender”), and enter into a Collateral
Assignment of Interest in Tax Increment Revenue Note (the “Assignment”) with the Phase 2
Lender, by which the Phase 1 Lender would release its interest in the TIF Note B, and Developer
would assign its interest in TIF Note B to the Phase 2 Lender, for which a Consent to Collateral
Assignment of Tax Increment Financing Note and Development Agreement (the Consent”) of the
City is required.
NOW, THEREFORE, BE IT RESOLVED by the Council of the City of Otsego,
Minnesota, as follows:
1. The Council hereby approves the Assignment and the Consent in substantially the
forms submitted, and the Mayor and City Administrator/Finance Director are hereby authorized to
execute the Consent on behalf of the City.
2. The approval hereby given to the Assignment and Consent includes approval of
such additional details therein as may be necessary and appropriate and such modifications thereof,
deletions therefrom and additions thereto as may be necessary and appropriate and approved by
the City officials authorized by a resolution of the City to execute the Consent. The execution of
the Consent shall be conclusive evidence of the approval of the Consent in accordance with the
terms hereof
The motion for the adoption of the foregoing resolution was made by member __________
and duly seconded by member ____________________ and, upon a vote being taken thereon after
full discussion thereof, the following voted in favor thereof:
and the following voted against the same:
Whereupon said resolution was declared duly passed and adopted.
90039879v1
3
STATE OF MINNESOTA )
) ss.
COUNTY OF WRIGHT )
I, the undersigned, being the duly qualified and acting City Administrator/Finance Director
of the City of Otsego, Minnesota (the "City"), DO HEREBY CERTIFY that attached hereto is a
compared, true and correct copy of a resolution approving the Collateral Assignment of Tax
Increment Financing Note and Development Agreement by the City, duly adopted by the City
Council of the City on April 24, 2023, at a regular meeting thereof duly called and held, as on file
and of record in my office, which resolution has not been amended, modified or rescinded since
the date thereof, and is in full force and effect as of the date hereof, and that the attached Extract
of Minutes as to the adoption of such resolution is a true and accurate account of the proceedings
taken in passage thereof.
WITNESS My hand this ______ day of April, 2023.
_______________________________________
City Administrator/Finance Director