NEW ULM –The New Ulm Economic Development Authority (EDA) discussed an $800,000 loan request from Oak Hills for the Garden Terrace project Tuesday.

The board authorized staff to prepare loan documents, with formal approval of the loan coming at a future meeting.

The $800,000 loan will be used to cover the purchase of furniture, fixtures and equipment for the new Garden Terrace building, which Oak Hills does not currently have the funds to cover.

Earlier this year, the New Ulm Economic Development Authority sold the two existing Garden Terrace buildings and an adjacent vacant lot to Rebound Real Estate, with the understanding that Rebound is planning to construct a third Garden Terrace building on the vacant lot.

The new building will be three stories with 39 units. Upon completion of the new building, Rebound plans to lease the building to Oak Hills Living Center, which operates a senior living facility on an adjacent property. Oak Hills will take over all expenses associated with the property. The long-term goal is to create a continual campus for Oak Hills, which is next door to the Garden Terrace apartments.

Many skilled nursing facilities like Oak Hills are struggling in Minnesota due to regulations restricting how much skilled nursing homes are able to charge. One solution to this restriction was to add additional levels of care to Oak Hills, including independent living apartments. The new Garden Terrace building would allow Oak Hills to offer additional independent living options for seniors.

Housing studies conducted in New Ulm have found a void in the market for independent senior living.

Rebound had hope to begin construction work on the new Garden Terrace during the winter, however Oak Hills has not yet signed a lease agreement because of the additional furniture, fixture, and equipment expenses.

Oak Hills Living Center administrator Candas Schouvieller said they were not aware the furnishing of the building would be Oak Hill’s responsibility upon taking over the project. For this reason Oak Hills board was hesitant to sign the lease agreement.

“We don’t have that type of funds to invest at this point,” Schouvieller said. “That’s is why the board is asking for a loan to get us through this hump.”

Schouvieller said once Oak Hills has completed the remodel of its currents building, property rates should increase and would help cover the loan cost.

EDA board member Andrea Boettger favored approving the loan to assist Oak Hills, but wanted to make sure the EDA loan was protected.

“I want to do this because it is extremely important, I just want to know how our EDA is protected and that we are being responsible with these dollars,” Boettger said.

She wanted to make sure the loan documents had clear information about the collateral and the equity to cover the loan.

Dalton said a mortgage could be placed on the property to protect the EDA’s investment. The loan itself would be for a 10-year period with a 1-2% interest rate. State statute prevents the EDA from setting zero percent interest. No interest or principal payments would be required until May 2028, when Garden Terrace is expected to start turning a profit. The EDA could fund the loan using money from the original sale of the Garden Terrace properties.

Board member Char Reinhart-Kalk asked if this loan request was part of the original plan when the EDA sold Garden Terrace.

Dalton said it was not part of the original plan, but said this is an opportunity to help Oak Hills move into the building and purchase it faster. It is believed Oak Hills will have enough cash flow to make the loan payments, but currently does not have the funding in part due to the remodel occurring in the main Oak Hills building.

Mayor Kathleen Backer said she supported the loan because Oak Hills would be in a better financial position following its property renovation.

“This would help bridge them to a point where they have more sustainability potential,” Backer said.

Boettger made the motion to authorize staff prepare the necessary loan documents for this project. Board member Lindsay Henn seconded the motion and it was passed by the EDA.

Board Chairwoman Michelle Markgraf abstained from the vote and recused herself from the loan discussion because she is also a member of the Oak Hills board.

Dalton said staff would bring the final loan document back to the EDA board during a special meeting or by the board’s January meeting at the latest.