TO: FROM: DATE: SUBJECT:

Mayor Allen Joines and Members of City Council D. Ritchie Brooks, Community & Business Development Director December 30, 2013 Ogburn Station RUCA Project and Mrs. Elaine Oakes Malones Family Restaurant

The Ogburn Station RUCA funding proposal was initiated by the Ogburn Merchants Association and a total of $750,200 was allocated to fund the entire project. Seven businesses originally requested assistance, of which four completed the staff review process and were approved for assistance. The remaining businesses withdrew from consideration. 1. 2. 3. 4. 5. 6. 7. D. Kim-Ogburn Station Shopping Center E. Oakes-Malones Restaurant Jerry/Paula Anderson-Fish Market(*) Ogburn Station Meat Market Bernies Lunch Youngs Cleaners The Butcher Shop Balance $400,000 $120,000 $160,000 $ 65,000 (16,450) (8,750) (80,000) $5,200 Active Active Active Active Withdrew Withdrew Withdrew Unallocated

The Malones Restaurant project was initially approved for $20,000 of matching and $20,000 of low interest loan assistance. Prior to Mrs. Oakes initial loan being approved, she notified the office that she would like to apply for additional funding. Because several businesses withdrew from consideration, additional funds became available and Mrs. Oakes was approved for additional funding of $40,000 matching assistance and $40,000 loan assistance, bringing her total assistance to $120,000. Mrs. Oakes leased the former Bell Brothers Restaurant site from Danny Kim, who is the owner of the Ogburn Station Shopping Center, and her project has been dependent on renovations to the space. Responsibility for the necessary renovations/improvements was negotiated between Mrs. Oakes and Mr. Kim within their lease agreement. The project required a great deal of construction and Mrs. Oakes engaged a number of contractors to perform the work including plumbing, electrical, floor and ceiling work. Problems started with the roof repair and interior wall work shortly after the work began (Attachment 1), i.e. water from the roof began to leak into the restaurant area. The interior wall that was removed was a load bearing wall that should have either remained in place or been removed by a qualified contractor instead of the on-site employees hired by Mrs. Oakes. Roof repair was the responsibility of Mr. Kim, and the interior wall repair was the responsibility of the tenant, Mrs. Oakes. These problems hindered progress of the interior up-fitting in the restaurant area and caused a substantial delay in the work because each party believed the other was responsible for the leaks in the roof. Mrs.

Oakes appealed to Community and Business Development staff to assist her in getting the roof leaks repaired, but since the roof was inspected and approved by the Inspections Department, the roofing contractor and owner were reluctant to take any action. Other construction related issues began to surface and staff met with Mrs. Oakes and Mr. Kim on several occasions to facilitate a mutual agreement to complete the project. The work on the project was eventually halted due to a disagreement between Mrs. Oakes and Mr. Kim regarding her not making a rent payment on the leased space. Mrs. Oakes believed Mr. Kim was not adhering to his responsibilities as outlined in an executed agreement between them. Staff recommended to Ms. Oakes that she seek legal advice, and she eventually obtained an Attorney to represent her interest. On 11/02/12, Mrs. Oakes attorney, Susan Ryan, contacted Mr. Brooks regarding the roof problem and other construction concerns. On 11/13/12, Mr. Brooks responded to Attorney Ryan and advised he was aware that the roof was still leaking, and he also advised staff would obtain quotes to repair the roof. On 12/03/12 staff met with Mr. Kim to discuss the roof and he advised repairs were made to stop all of the leaks, however, on 12/17/12 staff inspected the roof and confirmed it continued to leak and also confirmed the roof permit was finalized. On 12/18/12, staff met with Mrs. Oakes on-site to further confirm the leaks still existed, and finally on 12/28/12, Mr. Kim agreed that the roof was still leaking. On 01/07/13, a letter was sent to Mr. Kim (Attachment 2) advising the City would initiate action to have the roof correctly repaired. On 01/24/13 Mr. Kim agreed to the roof contract terms and paying for the installation of the HVAC unit, which was already a commitment in a previously executed agreement with Mrs. Oakes. On 02/04/13, Mr. Brooks and staff met with Mrs. Oakes and Attorney Ryan to provide an update and summarize steps going forward. On 02/18/13, staff obtained a quote for roof work of $67,996 and on 02/26/13 Mr. Books sent a letter to Mr. Kim outlining cost of the roof repair and additional cost of replacing the agreed HVAC. On 3/5/13, Mr. Kim signed an agreement (Attachment 3) to allow the City to move forward to assist with completing the roof and other repairs. While the above was underway, Mrs. Oakes discovered that some actions taken by her Project Manager (which she hired), were not in her best interest and said Manager was terminated. It was also discovered that her Project Manager was working for Mr. Kim. Discussions occurred with Mrs. Oakes regarding the City assisting with obtaining a new Project Manager to oversee the remaining work. This was suggested because the experienced City staff member that could provide this service was paid from Community Development Block Grant funds and was limited in the amount of time he could devote to the project.

On 03/11/13, Mr. Brooks discussed with Mr. Paige hiring a project manager to oversee the completion of the work and on 03/12/13 staff met with a local developer, experienced in restaurant renovations, to discuss the project. During the period of March through May, the contract for the new roof repair was executed, the work began, and bids were solicited from contractors to complete the remaining work at the restaurant. On 05/23/13, staff received an estimate of total project costs that was well beyond current RUCA funds available, but was reasonable with respect to the scope of the remaining work. Staff met with Mrs. Oakes and Attorney Susan Ryan to provide an update. Afterwards, staff provided an update to Mr. Paige that included a request for an additional $400,000 to complete the work. Failure to complete the above project can be attributed to a lack of proper project management and supervision. The initial RUCA program design did not provide for Cityassisted construction oversight. Said oversight was the responsibility of the RUCA loan recipient and the Project Manager, which can be handled somewhat successfully with small to medium-sized projects. The task becomes much more complex with larger projects, particularly with loan recipients who are not in the development business. Staff recognized this was a responsibility that should be provided by the City along with several other changes that were needed to enhance the Program, and at the start of RUCA 2 staff began to make said changes. This caused a delay in the start of the Program and some of the changes were not fully implemented due to funding restrictions. Regarding the Malones Restaurant Project, the following contributed significantly to the problems encountered: (1) the lack of City construction oversight at the beginning of the work; (2) staffs opinion that the Project Manager who worked for Mrs. Oakes did not act in her best interest, and (3) the project not being adequately funded.