KCHA approves bond issue for apartments
Reserve funds raise some questions
Friday, December 16, 2005
GALESBURG - The Knox County Housing Authority, meeting in special session Thursday, approved issuing $1.4 million in multi-family revenue bonds to help buy Brentwood Apartments and Prairieland Townhouse Apartments from Knox College.The housing authority also is receiving a $600,000 grant from the Federal Home Loan Bank.
Brentwood, 900 W. Dayton St., has 72 units; Prairieland, 301 E. Huston St., has a 66-unit complex.
The KCHA board has been working for months to get to this point. Executive Director Don Tomlin explained that payments will be $12,900 a month for the first five years of the 20-year bonds, amortized over 30 years. The payment drops to $7,775 monthly after five years. Tomlin explained that for the first five years, the housing authority will receive an annual "interest reduction payment" of $62,500, which is why the payment is higher initially.
The deal is expected to be closed about Jan. 9, 2006. Tomlin said the housing authority probably will not officially take possession of the apartment complexes until March 2006.
The bonds can be paid off in advance with no penalty. Tomlin said if the bonds are still being paid in 20 years, that means "Jan. 1 of 2026 there's a $338,817 balloon payment that is due."
Tomlin explained the bonds can eventually be refinanced through tax credits, "but that would probably be 10 years before we could do that," he said, talking about the feasibility, rather than the legality of such action.
The employees of the apartment complexes the KCHA is buying are expected to become employees of the housing authority.
"I think it's very important to keep the people who are there because they have done a good job," Tomlin said.
What may turn out to be an interesting issue is the about $275,000 in reserves Brentwood and Prairieland have.
Tomlin said that in conversations before the sale, it was clear the money would not be going to the KCHA as part of the sale.
"I read the contract and it said all of the money would pass to the purchaser," Tomlin said. "It was a boo-boo."
"So this money will be transferred to us?" asked board chairman Lomac Payton.
"It should be," Tomlin said, although he admitted "there was never an intent to pass that through."
"You're not backing down on this?" Payton asked.
Tomlin said he would not, unless it affects the $600,000 grant, which is a possibility.
KCHA's attorney Roger Williamson said the seller could make to argument that the wording that apparently gives the money to the buyer as a "mutual mistake" and does not reflect the discussions before the contract was drawn up.
Tomlin said there was a suggestion by a representative for the seller to split the money, which is meant to be used to replace appliances and for maintenance.
Commissioner Roger Peterson, just before the vote, noted that if payments are made for 20 years, the housing authority will pay $1,125,000 in interest.
