It was a fake $2.4 million mortgage, and now the city of St. Paul is poised to write it off.
Say what, you ask?
The convoluted financial arrangement dates to the late 1990s, when the city acted as a middleman between the Department of Housing and Urban Development and Presbyterian Homes of Minnesota in a deal to rehabilitate Central Towers, a low-income apartment complex on Exchange Street in downtown St. Paul.
In addition to a real loan of $400,000 that Presbyterian Homes has since repaid, the city also underwrote an imaginary $2.4 million mortgage on the building.
The city never gave the organization that money, and the organization was never expected make payments. Because the actual purchase price for the building was just $1, the “debt” served to inflate the property’s value, making it eligible for more federal tax credits.
The arrangement worked, but now the “loan” is hampering the organization’s ability to finance a new round of renovations to the 197-unit building.
To fix that problem, St. Paul is forgiving the fake loan, so Presbyterian Homes can get a real one.
Easy come, easy go.
The arrangement is unusual, said St. Paul housing official Al Carlson, but the important thing is: There’s no cost to the city.
“I know it all sounds complicated,” Carlson said. “The only entity that lost money on this deal was HUD.”
The federal government wrote off its $2.2 million mortgage on the property more than a decade ago. That was real money. This is just paper.
Click here to download a .pdf of the city’s board report on the Central Towers loan that wasn’t.