City Council - 09/12/1978 i
APPROVED MINUTES
EDEN PRAIRIE CITY, COUNCIL
TUESDAY, SEPTEMBER 12, 1978 8: 00 PM, CITY HALL
COUNCIL MEMBERS: Mayor Wolfgang Penzel , Billy Bye, Joan
Meyers, Dave Osterholt and Sidney Pauly
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COUNCIL STAFF PRESENT: City Manager Roger Ulstad, Finance
Director John Frane, and City Attorney
Roger Pauly
ROLL CALL: All Council members present.
I. CONSIDERATION OF PRELIMINARY APPROVAL FOR INCREASE OF M1DB '_S_ FOR TUDOR OAKS
COVENANT LIVING CENTERS FROM 7.5 TO 11 .2 MILLION DOLLARS
Mayor Penzel requested that the proponent comment on their request for
consideration of preliminary approval for an increase of MIDB's from 7.5
to 11 .2 million dollars.
Tudor Oaks (Covenant Living Centers) was represented by Messrs . Williams,
Mortimer, George, Dougherty and Strand.
The Dorsey firm acting as Bond Counsel was represented by Mr. Wieser.
Suburban National Bank was represented by Roy Terwilliger.
Mr. Wi l l iaras explained Covenant Living Centers is in an embarrassing
.ituation. Under normal circumstances they wouldn ' t be back before the
;ouncil until seeking final approval and issuance of the bonds . They have
returned to officially request an amendment of the original agreement in
order to accommodate the requirements of Peat, Marwick, Mitchell &
Company, the feasibility consultant, and Dougherty, Dawkins, Strand &
Edstrom, the underwriter, to increase the bond issue from 7.5 to 11 .2
million dollars.
Mr. Williams stated he feels the Council has a right to expect a full
explanation of their current position, how they got there, and what the
reasonable future prospects are. Williams commented this is especially true
in light of their need for the Council 's action tonight in order to provide
for the orderly continuation of the project. Williams further outlined that
the accommodation fee is between $19,000 and $36,000 and a monthly service
charge covers the cost of providing services and the debt service.
When there is a tax exempt bond issue, Mr. Williams stated, the following
things occur: 1) a full disclosure of all aspects of the transaction is
required, 2) an independent feasibility study helps to reduce the risk of
undertaking a project, and 3) a trustee is established at a large bank or
trust company which protects not only the bondholders but the residents
as well by controlling reserves and guarding against their "willful
dissipation of corporate assets.
I . TUDOR OAKS (continued)
The financing plan for Tudor Oaks - Eden Prairie, according to Mr. Williams,
includes the issuance of industrial revenue bonds - providing both
i, construction and long term financing - and an interim loan of $6.25 million
from Occidental Life Insurance Company of California. On a cash flow basis,
Occidental 's short-term loan is retired by the receipt of accommodation
fees from residents. Attachment entitled "Why $11 .2 Million rather than
$7.5 million" to be made part of the minutes .
Mr. Bye inquired of the City Attorney if there were any legal reasons
why the City should have to approve the request. Mr. Pauly stated that he
felt the City has no legal requirement to approve an increase in the
amount of bonds.
Osterholt requested information as to why the firms of Elmer Fox, Westheimer &
Company, C.P.A. , and Dain, Kalman & Quail , Investment Brokers, were no longer
representing Covenan� Living Centers, and also what cost would be incurred
in selling the bonds.
Mr. Williams commented that he did not feel the aspects of their
(Covenant Living Centers) relationship with Elmer Fox, Westheimer & Company,
and Dain, Kalman & Quail could be discussed at a Public Forum. He indicated
the cost of the sale is as follows:
Dougherty, Dawkins, Strand & Edstrom - 4.5% of total
Elmer Fox, Westheimer & Company - $36,000
Peat, Marwick, Mitchell & Company - $56,000
Bond Counsel $28,000 - $30,000 (Paid by Dougherty,
et al )
Dain, Kalman & Quail - 0 -
Mr. Williams did come back and responded to the first question stating that
a personality conflict developed between individuals in the Dain and Fox
firms,which lead the Fox firm to be very critical of Covenant Living Centers
proposal and he felt the relationship would have been better had the Minneapolis
office of Elmer Fox handled the account.
Mr. Osterholt questioned why a recommendation from Mr. Robert Lapic, C.P.A. ,
was not given to the Council based on his review of the financial documents
received.
Staff responded that we did not request a recommendation as to whether or not
the City should or should not grant approval of the additional request, but
only to look at the validity of the information given to the City by Covenant
Living Centers.
Mr. Wieser stated that as Elmer Fox withdrew from the study and Peat,
Marwick, Mitchell & Company came into the picture, this created a situation
where it could appear that someone was shopping for a favorable report and
accounted for Dai n's withdrawal .
Mr. Osterholt asked how the monthly rates are structured and how could they
be changed.
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I . TUDOR OAKS (continued)
Mr. Williams stated the rates are higher than in Wisconsin:
Minnesota - $315 - $425/mo. single
$190/mo. 2nd person
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Wisconsin - $250 - $350/mo. single
$150/mo. 2nd person
(Has had one rate increase in
1975 of 10%)
The cost increases will be related to cost of providing service applicable
to Covenant Living Centers.
Mr. Bye questioned what happens if the request is not approved?
Mr. Terwilliger answered that he would have to inform the contractors to
cease any further building, and that in the event the project would
be restarted the contracts would have to be renegotiated at a probable
higher cost.
Mrs . Pauly asked is the $1 ,500 deposit by residents as a downpayment
for a unit held in escrow, and how are the monies refunded in the event
of a cancellation by the resident or default by the owners of Covenant
Living Centers?
Mr. Osterholt questioned what right do the investors and residents of Covenant
( Living Centers have in the event of default or foreclosure on the property?
` w Mr. Williams responded that the bond holders have the 1st mortgage or
lien on the property. The residents do not have any rights legally to
any dollars.
Mr. Osterholt asked what was the time frame of the original request for
$7.5 million and the reason it was not offered for sale?
Mr. Williams stated that Covenant Living Centers had to establish a level
of sales of approximately 20% prior to the actual bond sale. Increases
in reserve requirements were required, and increased construction costs
have occurred. The results of these requirements also prevented the
September, 1977 bond sale as planned.
Mr. Osterholt stated that the City should have additional time to inquire
as to the validity of statements made this evening.
MOTION: Osterholt moved to continue the matter before the Council to the meeting
of September 15, 1978. Motion failed for lack of a second.
MOTION: Bye moved, seconded by Meyers, to adopt Resolution No. 78-110,
granting approval of the amended resolution giving preliminary approval to
the issuance of MIDB's for Tudor Oaks (Covenant Living Centers) from
$7.5 to $11 . 2 million, subject to all necessary documents being supplied to _
the City Attorney as specified,to include closing documents, Articles of
Incorporation, and By-Laws. Roll Call Vote: Bye, Meyers, Pauly and Penzel
voted "aye", Osterholt voted "nay". Motion carried.
II . 1979 CITY BUDGET
The Council in reviewing the draft proposal of the budget agreed in concept,
however, it was suggested that each Council member could respond to their
concerns to the City Manager prior to t e next budget hearing of September 19,
1978.
III . ADJOURNMENT
MOTION: Bye moved, seconded by Pauly, to adjourn the meeting at 12:10 AM.
Motion carried unanimously.
art
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WHY $11 .2 MILLION RATHER THAN $7. 5 MILLION
1) Construction costs were, at the time of pre-
limiary approval, only architect' s estimates . Bidding took
place four months later and construction actually began
seven months later. This budget area, when considered with
the increased cost of equipping the facility and other cost
increases incurred as a result of project delays, accounts
. for approximately $1 , 600,000 of increased cash requirements.
2) Capitalized interest and other reserves were
calculated to be $2, 096, 000. Based on the accounting
and underwriting principles applied to the transaction,
$3,998,000 is now provided for these items.
Items l and 2 account for approximately $3 .5 million
in additional project "costs" albeit one cost 'is an in-
creased reserve.
For comparative purposes , it is enlightening to review
the estimated source and application of funds, as prepared
on May 160 1977, with that prepared by Peat, Marwick ,
Mitchell & Co.
SOURCE OF FUNDS
5/16/77 8/24/78
Inital Accomodation Fees $ 6,621,000 $ 71400,000
1st Mortgage Loan $ 7, 5001000 $11 , 200 ,000
$14, i21 ,000 $18,600,000
APPLICATION OF FUNDS
5/16/77 8/24/78
Land ( Including Interest) $ 955, 000 $ 935,000
Construction ( Inc.
Professional Fees) $ 6,750,000 $10, 350,000
Furnishin s, Fixtures,
and. Equipment $ 575,000 $ 640,000
APPLICATION OF FUNDS
5/16/77 8/24/78
Sales/Development/Consulting $ 700,000 $ 1 e 150,000
Financing/Legal Fees $ 770000 $ l,212,000
Net Interest During
Construction $ 1 ,160,000 $ 559,000
$12,9101000 $14,854.000
5/16/77 8/24/78
Interest Reserve $ 600,000 $ 2, 289,000
Operating Reserve $ 336, 000 $ 1, 1501000
Operating Capital $ 275,000 $ 315,000
TOTAL RESERVES & CAPITAL $ 1 ,211 ,000 $ 4, 446,000
TOTAL APPLICATION $14, 121 ,000 $18,6001000
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Covenant Living Centers-Minnesota,Inc.
11 111 ANDERSON LAKE PKWV.,EDEN PRAIRIE,MN 55343 i PHONE (612) 941-39M
October 2, 1978
Mr. Roy Terwilliger
Mr. Alan D. Lyng
1080 Eden Prairie Center
Eden Prairie, Minnesota 55343
Gentlemen:
1 . We hereby assign to you, as co-trustees, the sum of $175,103.00 cash,
together with all Reservation Fees (approximately $1,500.00 each)
made in connection with future Reservations of Tudor Oaks - Eden
Prairie units collected prior to the initial occupancy of any unit
at Tudor Oaks - Eden Prairie.
2. . Please hold it in trust for the benefit of each of those persons
named in the attached list of Tudor Oaks - Eden Prairie residents,
which list we represent to be complete and accurate.
3. You may exercise your judgement as to whether, when and how to notify
such persons that such amounts are held in trust for these.
4. You may pay any person the amount set forth opposite his name, upon
his demand.
5. At the time a resident takes occupancy of a unit the Reservation Fee
held for that resident shall be paid to the corporation or, at the ,
direction of the corporation, to any lender having a security interest
in Accommodation Fees. Neither the corporation nor any lender shall
have a security interest in any monies placed in trust pursuant to this
agreement.
6. You may exercise your judgement as to whether or not to hold these
funds in a (i) checking account or savings account or (ii) at Suburban
National Bank or any other bank.
7. You may serve without bond.
8. In administering this trust, I wish you would keep in mind that the
f persons who are to benefit herefrom and be protected hereby are the
l Tudor Oaks - Eden Prairie residents named in the attached list. This
trust is to be administered, construed and regulated by the laws of
the State of Minnesota. You shall not be entitled to commissions or
compensations for your services. Either or both of you may attend to
the handling of receipts and disbursements and accounting hereunder.
Tudor Oaks - Eder Prairie • A Non profit Retirement Community
Mr. Roy Terwilliger
Mr. Alan D. Lyng
Page Two
October 2, 1978
9. If one of the co-trustees shall become incapable of performing his'
duties due to mental incapacity, death or any other cause, the
surviving co-trustee shall act as sole trustee of this trust. If
both of the co-trustees are incapable of performing their duties
due to mental incapacity, death or any other cause, the corporation
shall appoint a successor trustee.
10. This trust shall termintate when any lender having a security interest
in Accommodation Fees, including but not 11-mited to Occidental Life
Insurance Company of California, shall establish a Reservation Fee
account to be held in trust for the benefit of Tudor Oaks - Eden Prairie
residents. The Reservation Fee account shall preserve the right of a
payor of a Reservation Fee to demand refund of his Reservation Fee at
any time, at his discretion, prior to occupancy of his unit in Tudor
Oaks - Eden Prairie. Upon the termination of this trust, all funds
remaining therein shall be paid to the holder of the Reservation Fee
account.
._ COVENANT LIVING CENTERS - baNNESOTA, INC.
J mes G. E. Williams, President
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Covenant Living Centers-Minnesota,Inc.
11111 ANDERSON LAKE PKWY.,EDEN PRAIRIE, MN 55343 • PHONE (612) 941-3900
oro s Waal
October 10, 1978
. F
Roger K. Ulstad, City Manager
CITY OF EDEN PRAIRIE
City Office
8950 Eden Prairie Road
Eden Prairie, Minnesota 55344
Dear Mr. Ulstad:
Your letter of October 6, 197B arrived in my office this afternoon.
I apologize for not having made the refund of deposit.- procedure clear at the
Septembea 12th City Council meeting and can understand your concern.
As you know, prospective residents are required to make a deposit of
$1,500 with their application. That deposit earns interest at 59 and
is fully refundable at any time if the prospective resident wishes to
withdraw. Each deposit is held in an interest bearing trustee account
at Suburban National Bank. Funds cannot be withdrawn from that account
without the express written consent of the resident and either Roy
Terwilliger or Al Lyng, the trustees of the account.
When a resident wishes to withdraw his application, he is given a no-
tice of withdraw form which, when signed, releases Covenant Living
Centers - Minnesota, Inc. from any and all obligations incurred and
authorizes release of the deposit from the account. The form is then
forwarded to the bank and a check is issued.
If you have any further questions, please do not hesitate to ask.
Very truly yours,
COVENANT LIVING, CENTERS - MINNESOTA, INC. _
Revere d ames G.E. Williams, �~
Presi ent
Tudor Oaks Eden Prairie • A Nonprofit Retirement Community
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To Whom It May Concern,
I the undersigned,
hereby notify you of my intention to withdraw my
application for admission to Tudor Oaks
Retirement Community dated Please
forward my refund of deposit in the amount of
according to the terms of our
agreement. It is understood and agredd that
acceptance of my refund constitutes a waiver of
any and all rights and interest in Tudor Oaks
mutually agrees to release me of any obligation to
conclude the purchase of the apartment numbered
in the community.
Sincersly yours,
Resident
Date:
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10110 EDEN PRAIRIE CENTER,EDEN PRAIRIE, MINNESOTA 55343•TELEPHONE 612/941-7100
Suburban National BanK
October 17, 1978
i
Mr. Roger Ulstad
City Manager
City of Eden Prairie
Eden Prairie, MN 55344 1
Re: Accomodation Deposits
Tudor Oaks--Eden Prairie
Dear Roger:
Confirming our conversations regarding Tudor Oaks--
Eden Prairie and their accomodation deposits of $1 ,500 per
unit, all such deposits are isolated and controlled directly
' by Al Lyng and/or me.
The $1 ,500 deposit is made in Suburban at the time of
sale and immediately placed on deposit in the Trust Account.
In accordance with the Seventh Amendment to the Building
Loan Agreement and our supplemental agreement with Tudor
Oaks--Eden Prairie, there can be no access to the funds by
Tudor Oaks or any other party outside of the party in whose
name the accomodation is reserved.
All agreements are structured to insure that the
deposits are fully protected and guaranteed refundable at
e all times until project completion and occupancy of the
units by the purchasers.
t Sincerely,
I
W. ee
1 er
resident
RWT:hd
cc: Robert F. Collins
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