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City will subordinate more than $182,000 in system development charges to a bank funding construction of an apartment complex on Second Street

GRAPHIC PHOTO: GARY ALLEN - Graphic photo: Gary Allen
Construction of an apartment complex on Second Street can move forward after the Newberg City Council agreed to subordinate its system development charges to a loan from the bank funding the project.

The Newberg City Council, at its Aug. 5 meeting, has agreed to subordinate a systems development charge to allow a developer to continue construction of apartment complex on East Second Street.

The apartment building, owned by Andrew McCann and located at the corner of Second and Edwards streets, is a three-story, 19-unit mixed use building. It totals 20,175 square feet and will have commercial space on the first floor. There will be nine one-bedroom apartments and 10 two-bedroom apartments, as well as 18 ground floor parking spaces for the building.

The application for the project was approved in August 2017.

City Attorney Truman Stone said this kind of request was unusual for city and not something he'd seen in his six years with the city.

The total SDC's for the project are $182,185. Over the winter, McCann applied for installment payments and signed a commitment to pay deferred system development charges. In July, he asked the council to subordinate the city's first position on a proposed note and deed of trust to the Bank of the Pacific, which is financing the construction of the project.

Stone said the city's municipal code is "silent on the subject." However, he said it may become an issue going forward as he has already had conversations with another potential developer about subordination.

"Any decision you make tonight would set a precedent in how the council interprets city code," he said.

David Clyne, the city manager pro tem, said in his experience allowing subordination is not uncommon and he supported the move. He added that the council should act on what was before them and they can always have future discussions on the topic.

"I think it's supportable," he said.

Stone agreed, saying while the council and city should reevaluate this, holding up the project further would not be beneficial to McCann.

McCann told the council the bank was willing to work with them and their current financing is good for six months. He said the current appraisal of the property is around $4 million, but they are investing more than $5 million.

"This is not a short-term thing," he said.

He added that if they did not get the loan, "I'm not sure what we're going to do."

Some councilors expressed reservations. For example, Councilor Mike Corey said he was initially not in favor of this, but after hearing more about the loan, he can see McCann has considerable interest in the property. Councilor Patrick Johnson also said he had some concerns, but opted to go forward, largely because it helped address the need for housing in the downtown area.


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