10/16/2001 RA RPT 08 - Laserfiche WebLink

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, CITY OF RIVERSIDE COUNCIL/AGENCY MEMORANDUM Honorabl. Mayor & City Council and R....v.lopm.nt Agency Date: It.m No.: October 16, 2001 8 Subject: Request Authorization to Establish a Restaurant Assistance Program Background For several years, the Redevelopment Agency has provided commercial rehabilitation assistance to various downtown restaurants. Beneficiaries of this assistance include Lake Alice Trading Company, Simple Simon's and most recently, Mario's Place Restaurant. Obviously, Downtown has benefited greatly by the success of the first two eateries; and it is anticipated that the relocation of Mario's Place will produce similar results. Current Issue Agency Board and members of the public have stated their desire to attract a variety of eating establishments in the Downtown and Marketplace areas. As a result, the Development Department has undertaken a marketing campaign to attract restaurants. While marketing efforts have generated overall interest, the large chain restaurants continue to view Riverside as a secondary market; and as such, select other locations with higher median incomes. However, there are a few that might reconsider provided that they are given substantial incentives or other subsidies. On the other hand, there are several operators of successful, smaller, independently owned restaurants that are very interested in either relocating or expanding in the area. As a whole, restaurants are very difficult to finance, and traditional commercial financing is almost impossible to obtain. Moreover, small restaurants are usually tenants, rather than building owners; and they often do not have the real estate collateral required to secure a commercial loan. As evidenced by the success stories mentioned above, lending institutions are far more inclined to provide financing with the Agency's participation in the fonn ofa loan guarantee. Thus, restaurants are able to take advantage of lower interest rates, thereby lowering their financing costs, increasing cash flow, and increasing their chances for success. Based upon interest expressed by representatives ofInland Empire National Bank (IENB) to participate with the Agency in a five-year loan guarantee program targeted toward new restaurant businesses, the following financial proposal has been developed for Agency consideration: ~ An Agency-capitalized loan guarantee program would be established through an Agency certificate of deposit at [ENB in the amount of $1 ,000,000, which would be pledged toward loan repayments in the event of default. The tenn of the certificate of deposit would be 5 years. ~ IENB will provide lower rate lending to eligible borrowers than would otherwise be possible. ~ In order to reduce the risk to the Agency, all recipients of Agency assistance will be required to be established restaurant owners with a successful track record. ~ The building owner andlor restaurateur will be required to provide a minimum of25 percent equity to obtain financing. The equity can be provided in the form of cash, tenant improvements, equipment, furniture and fixtures or operating capital. It should be noted that equipment, furniture and fixtures, or other sources of equity contribution could not be leased or otherwise encumbered in any manner that would have them be senior to the Agency's guarantee. 8-1