Questions swirl around bond proposal for Tahoe development
SOUTH LAKE TAHOE ” The City Council on Tuesday heard more details of a proposal for the city to issue bonds to raise money for the developer of the stalled convention center project.
The council began to receive answers to some of its questions about the complex plan, but postponed any decision until at least Thursday, when a special meeting will take place at 4 p.m.
Randy Lane of Lake Tahoe Development Co. has asked the city to issue the bonds to raise money to pay off some of the debt he’s incurred on the project thus far. Those payments would buy him two years to find additional financing to get construction going again. Work on the state line project stopped early last year after the foundation was laid, leaving what’s known around town as “the hole.”
Lane has said that his financing for the project fell through in November 2007.
About $14 million of the funds from the $25 million bond sale would be used for “debt restructuring.” About $6.4 million would be used to make payments to the bond holders for the first two years. Another $3.6 million would go to pay past-due and future property taxes, and about $1.2 million would be spent to issue and sell the bonds.
Lane told the Tribune last week that his overall debt on the project is about $50 million. The creditors who would not be paid from the $14 million in bond proceeds designated for debt restructuring have agreed to wait two years for repayment, he said.
Among those who would be paid are the two parties who have filed notices of default ” one for $1.5 million and another for $2.5 million ” to try to force repayment within 90 days.
Council members, who initially reviewed the proposal in March, said they want to see a list of all of Lane’s debts on the project.
The bonds are being called a rescue plan, and without them, Lane said, Lake Tahoe Development would likely file Chapter 11 bankruptcy to avoid fore-closure.
“We miss this opportunity, and we’re going to be looking at that hole for a long time,”Lane told the council.
The developer ” and not the city or the redevelopment agency ” would pay back the $25 million raised by the bonds.
City officials say a big benefit to the plan is that the 29 parcels now in the project site would be consolidated into five. The city would acquire two of the lots, valued at $18.3 million. Even if the developer ends up in bankruptcy, the simpler parcel map would streamline future development of the site, city officials say.
The revised parcel map would require the signatures of those who have loaned money to the developer and have liens on the property.
The bonds would not be issued directly by the city, but by a community facilities district formed for this purpose. The Mello-Roos bonds issued by the district would be paid back by special taxes on the privately owned parcels ” which in this case would be owned by Lake Tahoe Development.
One of the consultants on the proposal told the council that if the bonds are not repaid, foreclosure would result and proceeds from sale of the property would be used to pay back the bond holders.
If the property didn’t sell, however, penalties and interest on the site could add up quickly.
Another consultant who specializes in bond placement said the bond buyers might be hoping that the property goes into foreclosure, so that they could snap it up in court at a bargain price.
Lane told the Tribune the bonds would also be attractive because they would be tax-free, with a relatively high interest rate of about 12 percent.
The bonds would be sold to five or fewer “sophisticated investors” willing to invest at least $3 million, according to a report from City Manager David Jinkens.
If some, but not all, the bonds were sold, the transaction would be cancelled because not enough money would be raised.
Councilwoman Kathay Lovell said she’d like to see worst-case scenarios outlined at Thursday’s meeting.
Lovell also asked how well the existing foundation would hold up if it sits there for another few years. Although the foundation seems to be fine right now, officials said it would be worthwhile to bring in an engineer to inspect it.
Questions also arose over the Tahoe Regional Planning Agency permits for the project, which will expire in a year or two. Attorney Lew Feldman, representing Lake Tahoe Development, said he didn’t expect getting the permits reissued would be a major hurdle.
Plans for the $420 million convention center project, known as The Chateau at Heavenly Village, also include hotel-condominiums and retail space.
It’s not clear whether the council will reach a decision on the bonds at the Thursday meeting, but Lane is anxious for a decision.
“He has stated that he has no more time to work this matter out and allay concerns of investors in this project,” Jinkens said in a report to the council.
Meanwhile, Councilman Bruce Grego has some ideas about how to get construction of the convention center started again.
Grego would like the city to make more effort toward receiving federal economic stimulus money for the project. He’d also like to look at possible sources of tax revenue to fund construction. But any public funds would go toward the convention center only, Grego said, not the hotel-condominiums that are also part of the project.
“What’s being proposed right now ” the Mello-Roos bonds ” doesn’t solve the problem,” Grego told the Tribune. “It doesn’t put one more 2-by-4 into the project.”
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