Cottage Grove EDA approves $2 million loan and business subsidy for Cedarhurst restoration

The Cottage Grove Economic Development Authority on Dec. 2 unanimously approved a business subsidy agreement and a loan agreement that will provide up to $2,000,000 to Bella Gala/3 60 Real Estate to restore and reopen the Cedarhurst mansion as an event center.

City Administrator Jennifer Levitt summarized the property's history and prior actions: the city previously approved a $100,000 forgivable loan for Bella Gala, which the current action rescinds as part of the new agreement. "They were not adhering to the character," Levitt said of an earlier higher-density proposal; the new proposal aims to preserve the mansion’s historic setting.

Stacy from Ehlers explained the loan structure to the EDA: an eight-year interfund loan with a first year of no required principal payment, principal-and-interest payments on a $1.4 million portion in years two through eight, and interest-only payments on the $600,000 forgivable portion. At a 5% interest rate (noted as the statutory maximum for the interfund loan rate), the forgivable principal is structured to be forgiven at the end of year eight, though the borrower may prepay earlier without penalty. "There is no prepayment penalty on the city's loan," Stacy said.

Stacy and city staff acknowledged risk. She noted the city would hold a mortgage on the property but be in second position behind the primary lender: "You'll be second position to the bank," Stacy said. EDA members questioned Bella Gala's equity stake and contingency planning; Stacy acknowledged the borrower's equity contribution is low but said the bank’s participation and the operator’s experience were mitigating factors.

Bella Gala representatives said their existing venues have been successful and that local venue owners welcomed the investment; they also noted the project could help attract a hotel to Cottage Grove. The applicant provided a staffing estimate that was described as seasonal with a few full‑time employees and a larger number of part‑time staff.

Finance Director Brenda Malinowski confirmed the $2,000,000 would come from the ED Trust Fund and emphasized that the ED Trust Fund is composed of donations and is not supported by the property tax levy. The EDA approved the business subsidy agreement and the loan agreement, subject to minor modifications by the city attorney. One recorded 'Nay' vote was heard during the business subsidy motion; both motions carried.

Next steps include finalizing loan documents and working toward a closing date the applicant estimated "right after the first" of January.