By VERNON ROBISON
The Progress
The Mesquite City Council voted last week to take a calculated risk in its ongoing negotiations with the developer of BARK! Canine Club.
In a meeting held on Tuesday, Sept. 27, the Council agreed to subordinate the City’s ownership claim on a real estate parcel, located at 510 Isaac Newton Drive. The city sold the parcel last year to BARK! at a conditional discount requiring the development to meet certain economic development objectives for the community.
In last week’s meeting, the Council agreed to give up a first claim on the property in return for a letter of
credit issued by Nevada Bank and Trust, the financing bank on the project.
At the meeting, City Attorney Brian Pack advised the Council against taking this action. The consequences of the action would be that the city would completely release its security interest in the property; and its leverage in seeing that the economic development perameters are actually met, Pack said.
“If this action is taken and the project does not go forward, for whatever reason, the city no longer has any stake in the property, cannot do anything to ensure development and would be left completely unsecured,” Pack told the Council.
The original agreement
In introducing the matter before the Council, Pack reviewed the timeline of the BARK! negotiations with the city.
In November of 2020, the City entered an agreement to sell the 13.7 acre parcel to BARK! for the development of a luxury dog park facility. An appraisal of the parcel at that time determined its value to be $330,000. The city agreed to a conditional sale price of only $33,000.
“The city agreed to sell the acreage to them at a 90 percent discount which totalled $297,000 off the appraised value,” Pack explained. “But the City also required conditions including BARK! make a certain development investment in the property and the employment of a certain number of employees at a determined wage level. Assuming all of those incentives were met, we would give the full discount on the land.”
The contract did provide for lesser discounts on the price of the land if BARK! only accomplished a portion of their economic development requirement. In that case, the developer would have to pay the difference between the 90 percent discount anticipated by the contract and the discount actually qualified for by the development.
But BARK! was required to at least complete enough of the objectives to qualify for a discount of 40 percent by Sept. of 2024, according to the contract. As an assurance, the city required a trust deed to be granted, giving it a claim on the property in case the project fell below that 40 percent threshhold.
“If they don’t do what they’ve said they are going to do, the city can step in and there are certain remedies there,” Pack said. “One of those remedies is to take the property back. Then we could at least try to sell it to somebody who will develop it.”
Beginning at the 40 percent threshhold, though, BARK! had the opportunity to make a cash payment to release the trust deed on the acreage. At that threshhold, the cash payment amount would be $165,000. Then the cash payment requirement would decrease in steps with every additional 10 percent of discount that the company qualified for; up to the 90 percent threshhold when nothing more would be due.
Negotiations with the bank
The trouble began when BARK! owner Susan Hunter went to her bank to get financing for the project. To issue the $1.4 million loan needed, the bank wanted to have a priority claim on the land above that of the city.
In October of 2021, the bank and the city discussed the potential for the city to subordinate its interest in the property. But to do so, city officials wanted a letter of credit, issued by the bank, ensuring that the city receive the remaining $297,000 in appraised value of the property if the developer did not fulfill the conditions of the agreement.
The bank agreed to this rough concept. But it has argued that the letter of credit ought to actually be in the amount of only $165,000. This is because the developer is already very close to the 40 percent threshold which would require that payment. In fact, with the issuance of the first band of funding from the loan, BARK! would qualify for the $165,000 price point.
Pack said that, though the city had gone back and forth with the bank over the letter of credit, the bank had held strong on the $165,000. But he said that this action would leave the city unsecured in the development of the parcel and under-secured on the purchase price of the property.
Pack pointed out that the agreement had begun simply with the city giving a 90 percent discount on the land as an incentive to bring development. But it was now requiring the city to enter further risk and assist the developer with getting financing. This was never contemplated in the contract, Pack said.
“My job is to minimize risk to the city,” Pack said. “In this case, I am not sure that these risks are necessary. They are only necessary because the bank has declared them to be so. But are they appropriate? In my opinion they are not.”
Economic reality
In last week’s meeting, Bob Sweetin, attorney for Nevada Bank and Trust, argued that the requirements from the bank were simply a matter of the economic reality in which the loan was being made.
He pointed out that BARK! is already an established and successful business in the community. Sweetin added that the loan is already approved and ready to issue immediately. But in order to fund it, the land must be free and clear from encumberance, he said.
“Our biggest concern here is the avoidance of form over substance,” Sweetin said. “We will do a letter of credit at $165,000. Right now Ms. Hunter is at the 30 percent threshhold (on development requirements). All she has to do is deploy $600,000 of this $1.4 million loan and she has hit her 40 percent incentive, and the city is covered.”
“With that being the economic reality, we would ask council to look at this situation and see what is trying to be accomplished here,” Sweetin added.
An acceptable risk
Members of council reluctantly stated that they felt the risk to the city in this situation was reasonable.
“Everything in life is a risk, and I always like to do some risk analysis,” said Mesquite Mayor Al Litman. “I personally do not see this as a great risk. It is a very small risk, in fact.”
Councilman Brian Wursten agreed. “If I am going to take a risk, I think this is a great thing to take a risk on,” he said.
Wursten also suggested that the legal risk might be greater if the city did NOT go forward in this way. Wursten read a line from a letter previously sent to the bank by a city official in the course of the negotiations. Wursten did not name the official. The letter stated clearly that the city would be willing to subordinate the deed of trust in exchange for a letter of credit from the bank. This statement on its own could open the city up to a lawsuit if the city pulled out of the negotiation at this point, Wursten claimed.
“We hear all the time that it is very tough working with the city,” Wursten said. “This is an example of that and it is frustrating to me. I just think that we are not really considering the idea that this thing may cost us more money if we DON’T do this.”
Councilman Wes Boger emphasized that it was a tough situation for a public official to be placed in. When the city enters into clear agreements with the intention to spur economic growth, it should never come to this kind of impasse, he said.
“I am going to vote for this, but I am not happy about it,” Boger said. “We need to do something in our purchase and sales agreements that makes it so this never happens again. If they don’t have the funding, we don’t go. We just say no and everyone knows that beforehand.”
Councilwoman Sandra Ramaker said that it was a “scary decision” for her to take a risk with public funds in this way. But she said that she had received more than 100 emails and phone calls from members of the public leading up to the meeting. All stated support for BARK! in this situation, she said.
“What you are telling me clearly is that you are in support and you have said, ‘Please do this! Find a way to make this happen.’,” Ramaker said, directing her comment to the public. “I am hearing that, in your mind, it is okay that we use your money in this way.”
This sentiment was confirmed strongly during the public comment period. Several people stood and commented that they were wholeheartedly in favor of risking the city’s funds on this particular project.
In the end, Wursten made a motion to accept the proposal by the bank for the $165,000 letter of credit with the city releasing its lien on the property completely.
The motion was approved in a 3-1 vote. Councilman George Gault was opposed. Councilwoman Karen Dutkowski abstained from the vote stating she has a family member who is an employee at BARK!.
