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To buy or not to buy still at issue in hospital loan

Diana Jorgenson
Staff Writer
10/5/2011

What should have been a simple City Council approval of loan documents drawn up by Steve Gross, the city of Portola and Eastern Plumas Health Care’s mutual attorney, (with smiles and thanks all around) led to continued and extended discussion at the regular meeting Wednesday, Sept. 28, regarding whether the city should purchase property owned by EPHC outright.

EPHC’s CEO Tom Hayes made a third appearance before the council, this time without board members, to witness the city’s finalization of a loan agreement between the two entities. The loan is being implemented specifically to help the hospital’s difficulties with cash flow. The $348,000 the hospital is being loaned by the city will pay off a current loan with much higher interest rates on a 34-acre parcel the hospital originally bought for future expansion.

City Manager Leslie Tigan introduced the agenda item with a couple of changes to directives received from the last council meeting. The city is offering the loan at 1.48 percent interest (1 percent above LAIF rate, adjusted annually) for a period of 15 years. Originally, council and staff had settled on interest-only payments for the first year but, Tigan explained, since the process of dividing the parcel into smaller lots, as the hospital wished to do, would be a lengthy process, they had changed the terms described in the documents to a period of two years of interest-only payments. She hoped that this would help the hospital.

Gross added that they had also changed the manner of payment and reassignment. Originally, the city had planned to pay the current lender directly, but had changed it to a more traditional mortgage transaction by outlining an escrow account handled by a title company.

Because recent market evaluations have undergone drastic changes since the property was bought, the current value assigned by Plumas County tax assessor Chuck Leonhardt ($238,000) is less than the amount still owing on the property and the loan is only partially secured by the property. Thus, in addition to the loan agreement and a deed of trust, the documentation included a promissory note.

The hospital hopes to recoup that differential in value by subdividing the property into smaller properties that would individually attract a higher price per acre. Larry Fites, vice chairman of the EPHC board, has already met with City Planner Karen Downs to begin the process.

“It is contemplated that, as we sell off those parcels, we would then reduce the principal on the loan. We would pay the city directly,” Hayes told the council.

“In legalese, there’s a ‘due-on-sale’ clause,” added Gross.

Council member Juliana Mark was not satisfied with the documents as drawn and insisted that, although the loan was being expedited to help the hospital immediately, the council should re-examine purchasing the property outright.

Resident Larry Douglas supported her in this, at length and in several speeches.

Hayes intervened: “Yeah, well, if we can sell the property for more than we owe, we’ll take it. Absolutely. We would like to do that. But the deal that we’ve already talked about is going to be very helpful to the hospital and we very much appreciate what you’ve done. I think we’ll continue to explore the parceling of the property and if we can come back with a bona fide appraisal to the city council to discuss ultimate purchase of it, then we’ll bring that back as something separate at that time.”

Mark was still not satisfied and further discussion finally produced the addition of a “right-of-first-refusal” clause for the city should a third party purchase offer enter the picture.

That introduced the subject of who would be profiting from increases in value (should there be any) from developing the property. Supervisor Terry Swofford reminded them, “We’re not here to make a killing. We’re here to help the hospital.”

“I think that the deal we have is a good one for the hospital,” Hayes agreed.

 

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Am I the only one shaking my head on this entire transaction? Mark wants to contemplate buying the property outright...A quick assessed value of 238K by the Assessor...Real value, probably less. Purchase price: 348K. Pretty genius.
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