City considers options for Arlie's building

Staff writer

Marion City Administrator Doug Kjellin gave three options for refinancing the former Arlie’s building, 828 N. Roosevelt St., Monday at the City Council meeting.

The five-year balloon payment structure closes at the end of July. The way that system worked was that the city and tenant pay five years worth of payments, $1,382 a month, and then put in a large balloon payment for the rest of the cost. The agreement was set up with a 30-year amortization. On the sliding scale, interest is paid first over a 30-year period. On the first of Arlie’s payments, $1,100 went to interest. The original principal was $254,519. The current principal is $235,437.

The original goal was to have a tenant take over payments on the principal by either refinancing or paying the balloon. This worked out with Cardie Oil and Tire, who refinanced after five years. That structure features

an interest rate of 5.1 percent.

“I think it would be a travesty to do what we did again last time,” Kjellin said.

The primary alternatives Kjellin presented were to buy the building outright or to set up a traditional 15-year lease purchase agreement.

Kjellin favors the option to purchase the property. He said there is $414,000 in the capital outlay fund available for the purchase in 2013. Kjellin said about $235,437 is owed on the property.

Buying the property may have affect on the city budget for 2014, using future cash reserves, but it would not affect other projects planned in 2013, Kjellin said. Council member Todd Heitschmidt said $235,437 is not the market value of the building and Kjellin agreed.

However, purchasing the building outright gives the city the most flexibility, Kjellin said. With a lease-purchase agreement, the city is handcuffed to have the tenant pay an equal share back to the bank. With Arlies, those payments were part of a burden on business that led to bankruptcy. By owning the building, the city removes all debt it is paying, reducing the money owed to $13,000 in property taxes.

Kjellin said the city could have an option to have a new tenant — whether that is another auto shop or manufacturing business, two offers Kjellin has fielded — pay just the property taxes on the building for the first year. That is if the city cannot sell the building outright.

The 15-year refinancing option would feature an interest rate at least 2 percentage points less than the previous five-year plan Kjellin said.

“We’re not hitting principal fast enough,” he said of the five-year plan.

In the 15-year agreement, the city could exercise an early payment option. This way the city could purchase the property if market values improve.

The third option Kjellin presented was a combination of options one and two, paying off a portion of the $237,000 owed and financing the other section.

“I like option three,” council member Jerry Kline said.

The council will not decide on a financing solution for at least two more weeks, at the next council meeting.

“So banks don’t freak out,” Heitschmidt said.

The city has until August to come up with a solution, but Heitschmidt said the faster the city moves, the easier it would be finding either a buyer or tenant for the commercial building.

In a rare moment, Heitschmidt and Mayor Mary Olson agreed that the city should start advertising with a real estate firm marketing the building in Wichita, Topeka, and Kansas City. Kjellin said the city would have to have at least a 6-month contract with a potential firm.

The council solidarity was short lived. Heitschmidt and Olson went back to bickering over proposed park bathrooms later in the meeting. Olson wanted to take a recess at the end of the April 15 meeting to look at the park. Heitschmidt said there are not plans for the bathroom and thus there is nothing to look at.

 

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