Item Description:
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Neg Agmts PR00006316 and PR00006317 with NextStage to establish small business and commercial ownership capital funds, 07/01/24-07/01/34, total combined NTE $4,220,000
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Resolution:
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BE IT RESOLVED, that the following 2022 Community Investment Initiative awards totaling $3,120,000 authorized under Resolution 22-0325 (adopted August 16, 2022) be rescinded and reallocated herein consistent with Resolution 21-0370 (adopted October 5, 2021): City of Bloomington for the Small Business Resource Center project in the not to exceed amount of $400,000 (Agreement PR00004646); City of Brooklyn Center for the Entrepreneurship Market Plaza project in the not to exceed amount of $750,000 (Agreement PR00004653); Perspectives, Inc. for the Seed the Change project in the not to exceed amount of $370,000 (Agreement PR00004652); Riverfront Development Partners, or affiliated entity, for The Resolute project in the not to exceed amount of $800,000 (Agreement PR00004640); and 1200 KMA Development, LLC, or affiliated entity, for the ZaRah project (Agreement PR00004664) in the not to exceed amount of $800,000; and
BE IT FURTHER RESOLVED, that Amendment 1 to Agreement PR00004557 with NextStage, Inc. for the Emerging Contractor Support Program, reducing the not to exceed amount from $1,500,000 to $400,000 and shortening the contract term from December 31, 2024, to June 30, 2024, be approved; that recaptured funds in the receivable amount of $1,100,000 be accepted from the vendor in accordance with the agreement and available for reallocation herein consistent with Resolution 21-0370; and that the Controller be authorized to accept and disburse the funds as directed; and
BE IT FURTHER RESOLVED, that the County Administrator be authorized to negotiate Agreement PR00006316 with NextStage, Inc. to provide seed capital for the establishment and implementation of a small business capital fund with the not to exceed amount of $1,100,000, and Agreement PR00006317 with NextStage, Inc. to provide seed capital for the establishment and implementation of a commercial ownership fund with the not to exceed amount of $3,120,000, during the period July 1, 2024 through July 1, 2034; that following review and approval by the County Attorney’s Office, the Chair be authorized to sign the agreements and related documents on behalf of the county; and that the Controller be authorized to disburse funds as directed.
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Background:
Resolution 21-0370 (adopted October 5, 2021) authorized up to $19 million in pandemic recovery funding for equitable economic recovery strategies.
Consistent with Resolution 21-0370, Resolution 22-0325 (adopted August 2022) awarded Community Investment Initiative (CII) funds to 18 projects supporting long-term affordable commercial space and nonprofits leading economic recovery activities in disproportionately impacted communities. Projects recommended for funding were selected from a highly competitive pool of applications based on readiness, organizational capacity, and outcomes that included the scale of benefit to multiple local businesses, to disadvantaged communities and business owners, and to quality of life for Hennepin County residents.
To date, nine projects awarded funding have closed on financing and have expended some or all the funds awarded. Four other projects are proceeding as planned and are anticipated to expend funds by the end of 2024 as required by terms of the award.
The current action rescinds the remaining five 2022 Community Investment Initiative awards, either because the projects are no longer moving forward as originally planned and awarded, or because they are unable to complete sufficient eligible construction activities on the timeline required by the program:
• City of Bloomington - Small Business Resource Center project NTE $400,000
• City of Brooklyn Center - Entrepreneurship Market Plaza project NTE $750,000
• Perspectives, Inc. - Seed the Change project NTE $370,000
• Riverfront Development Partners - The Resolute project NTE $800,000
• 1200 KMA Development, LLC - ZaRah project NTE $800,000
A concurrent action being considered by the Hennepin County Housing and Redevelopment Authority (HCHRA), if approved, would provide Transit Oriented Communities (TOC) Program funding to two of the above projects that align with TOC Program priorities: 1200 KMA Development, LLC for the ZaRah project and Riverfront Development Partners for The Resolute project. The allocation of TOC Program funds will provide longer timeframes than the CII program, enabling the projects more time to complete construction and enabling the county to realize the public benefits of these projects.
Separately, Agreement PR00004557 with NextStage, Inc. provided a total of $1,500,000 to operate an emerging contractor support program, including cohort-based and individualized technical support (up to $400,000) and loaned principal and reserve funds ($1,100,000) to pilot a short-term working capital financing product designed to sunset and return funds back to Hennepin County in 2024. The program provided in-depth support to 13 emerging contractors over a six-month period and facilitated financing for two of those contractors. Program results showed that while the technical support was highly effective, the niche financing product for emerging contractors was undersubscribed. Terms of Agreement PR00004557 anticipate the repayment of up to $1,100,000 to Hennepin County. With a current termination date of December 31, 2024, staff recommends amending the agreement to terminate on June 30, 2024, reducing the agreement to the not to exceed amount of $400,000, and recapturing funds in the amount of $1,100,000 for reprogramming and expenditure by December 31, 2024.
Consistent with the purpose authorized by Resolution 21-0370, staff recommends that the rescinded/recaptured funds identified herein ($4,220,000) be reallocated to support new working capital and ownership-assistance funds that will benefit small and disadvantaged businesses in Hennepin County over the long-term.
NextStage, a non-profit community-based lender, was selected among seven proposers through a multi-stage open and competitive process completed between February and April 2024 to establish and implement two low-barrier small business capital assistance funds. Agreement PR00006316 with NextStage will establish and implement a sustainable low-barrier fund providing capital to help startups and growing businesses finance their growth. County funds will be pooled with other leveraged sources and financing will be available for a range of activities, including the working capital needs of emerging contractors, and will increase access to capital for disadvantaged entrepreneurs.
Agreement PR00006317 will establish and implement a separate and innovative new loan product for businesses seeking to own commercial space. The fund will make financing available on an equity-equivalent basis to support the purchase and improvement of commercial real estate.
Tentatively dubbed “Elevate Hennepin Small Business Fund” and “Elevate Hennepin Commercial Ownership Fund,” these small business financing products are estimated to achieve overall leverage of at least 4:1, resulting in a $20 million impact for local businesses.
The agreements with NextStage will be structured as grants, paid in full at agreement execution, with performance monitoring and annual reporting over a 10-year period.
These agreements are funded with non-federal funding in accordance with Resolution 22-0136R1 (adopted March 22, 2022) and with the authority delegated to the County Administrator via Resolution 23-0349R1 (adopted December 12, 2023). The allocation of non-federal funds for these agreements consists of $3,120,000 in rescinded CII awards and $1,100,000 in funds from Agreement PR00004557 repaid as agreed after the completion of a pilot emerging contractor working capital loan program. The total combined not-to-exceed amount of these agreements is $4,220,000.
Current Request: Rescind five prior CII awards with a combined total of $3,120,000 available for reallocation; Amend Agreement PR00004557 to reduce the contract term and recapture $1,100,000; authorize negotiation of Agreements PR00006316 and PR00006317 with NextStage in the total combined not to exceed amount of $4,220,000 to establish small business and commercial ownership capital funds to support the growth and resilience of local businesses in Hennepin County.
Impact Outcomes: The small business and commercial ownership capital funds are anticipated to facilitate a leveraged total of at least $20 million in financing to small businesses in Hennepin County. Rescinding awards to five projects previously awarded Community Investment Initiative funds will result in overall outcomes generated by the thirteen projects receiving awards leveraging approximately $224 million in total investment value to create over 236,000 square feet of affordable commercial and community space for approximately 500 local small businesses or entrepreneurs, in total preserving or creating an estimated 450 total new or retained jobs.
Disparity Domains: This request supports Hennepin County disparity reduction efforts in income and employment by supporting financing for small businesses that create employment, wealth-building, and commercial property ownership opportunities in communities throughout Hennepin County.
recommendation
Recommendation from County Administrator: Recommend Approval