School Board troubled by Boys & Girls Club loan | $8 million loan from U.S. Bank complicates PEAK

Members of the Mercer Island School Board and administration were admittedly frustrated by the latest development in the PEAK project. The Boys & Girls Club is seeking to amend its lease with the school district in order to obtain a construction loan from U.S. Bank to cover costs until all of the club’s pledges have been received.

Superintendent Gary Plano said he conveyed to Boys & Girls Club of King County Executive Daniel Johnson the district’s surprise and frustration that a new partner had entered into the agreement at the last minute.

“I told him that if U.S. Bank was a part of it, we should have all met earlier. To have a third party show up at the 11th hour is troublesome,” said Plano.

The board and the district’s legal counsel, Denise Stiffarm, of K&L Gates, discussed specific portions of the proposed amendment during a special board meeting on Wednesday, Sept. 2.

One area of concern for the board is that under the proposed amendment, the bank would like the Boy & Girls Club of King County to have the ability to refinance at the end of its current loan terms, which have been established at $8.2 million over five years, in case money is still trickling in at the end.

“This is an issue that is still out there,” said Stiffarm. While the Boys & Girls Club has told the district they find this to be an unlikely scenario, members of the board said they would prefer putting a fixed amount of time on the loan. Part of the board’s frustration is that the district has not yet seen copies of the loan documents from the bank.

“This is just one of the elements that I find unacceptable,” said board member Lisa Strauch-Eggers. “We can’t accept anything without first seeing the loan documents.”

The board also wanted to get more information on whether the Boys & Girls Club loan used to build the Rainier Vista project was similar.

“I would like to know if the Rainier Vista project has been paid off yet,” said board member Pat Braman.

The board discussed putting in a specific time limit to make sure the club pays off the loan during the five-year period, thereby decreasing the chance of the club returning to ask for another amendment if the loan is not paid in full after those five years.

Stiffarm said an advantage of the agreement is that the bank will guarantee that the club will not default on its loan, but it also means a longer lease and that the bank remains a third party to the agreement until the loan is paid off.

“Even with a time limit, what’s to stop them from coming back and extending it time and time again?” asked board member Adair Dingle. The board agreed that a time limit should be included in the amendment.

“Obviously, I completely dislike the idea of no time limit,” said Strauch-Eggers. “We also want to make sure they are paying it down. I’m really shocked at the size of the loan.”

The club is asking for an $8.2 million loan, roughly half of the total amount needed to build the facility.

“The bank is trying to ensure that there is enough to see the project is completed, which is in the district’s benefit,” said Stiffarm.

The second key point in the proposed amendment is to modify the lease to make necessary changes that would allow the amendment. Stiffarm said the bank would like to include language that would make it so that the district would be unable to hurt the bank’s security and would change the lease terms to a 10-year lease, with the possibility of extending the lease for one year, up to four times.

“As a matter of principle, I have to disagree with this,” said Strauch-Eggers. “They need both parties to agree to this anyway, and the bank has the Boys & Girls Club handcuffed. I do not want to give them any recourse. That provision has to go.”

The district is stuck in something of a quagmire on another portion of the amendment.

The bank would like to include a provision which states that if the club was to default on the loan, the project would become the bank’s responsibility, for which it would complete construction and find a new tenant for the building under the same guidelines in the original lease between the school district and the Boys & Girls Club. Should this happen, the bank has requested that an extra year be added to the lease in order to deal with finding a new tenant and other aspects that could possibly occur.

If the district decides to disagree with this provision and the club defaults, the building, in whatever state it is in, would be returned to the district and, most likely, the district would be responsible for whatever costs are left.

“I would rather give the bank an additional year,” said Braman. “I don’t want an unfinished building. I don’t think it will happen, but it would be reassuring.”

Despite Braman’s vote of approval, the board decided to lower the one-year limit to six months. Under this portion of the amendment, the district would not have to worry about chasing down the Boys & Girls Club should something happen and the building remains unfinished. The bank would see to it that the project is completed, and a new tenant is found, even if it is only temporarily.

The board was in agreement about one thing; the fact that more information was needed and that Stiffarm was going to have to hammer out a few more points in the agreement.

Plano said he had gotten the impression from the Boys & Girls Club that the amendment would be fast-tracked, and that it would be considered at the Sept. 10 board meeting, but the board and Plano said it would depend on how quickly Stiffarm and the other lawyers could meet to discuss the district’s requested changes.

“I think it’s very unlikely we will be able to act on it at the Sept. 10 meeting,” Plano said.

The board does have the option of calling a special meeting to discuss or approve the proposed amendment, but that was not an option as far as the board was concerned.

“I would not be inclined to call a special meeting,” said Strauch Eggers. “I’m not very happy about the increased amount of time demanded by the Boys & Girls Club on this project. We’ve spent so much time on this project already.”

The PEAK-proposed amendment is listed on this week’s School Board meeting agenda and, depending on the update from Stiffarm, the board may or may not take action. The School Board meeting will be held at 7 p.m. on Thursday in the administration building.

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