Owensville aldermen on Monday in a special meeting voted unanimously to proceed with scheduling an online auction of city-held collateral from the failed Rock Island Marketplace restaurant.

A 15-page “Uniform Commercial Code Filing Acknowledgement” form on file since July 14, 2017, with the Missouri Secretary of State’s office lists 12 pages of cost estimates for itemized equipment collateralized against a $350,000 low-interest loan from the city of Owensville through the MODAG program (Missouri Development Action Grant).

As of June 30, 2018, the balance due on the loan was $324,208, according to the city’s independent audit prepared by K Deluca Audit Services, LLC., of St. James, for the city’s fiscal year 2017-18.

The amount of collateralized equipment is listed at $246,467.90, according to the document filed with the Secretary of State’s office.

Mayor John Kamler on Jan. 28 said he and City Administrator Nathan Schauf had met with the auctioneer, Bill Cockrum with BCL Auction, St. Louis, who had a “vast amount of knowledge” in inventory liquidation auctions. The firm handles advertisements and has an extensive mailing list of potential bidders for online sales. The firm handles all sales and payments and keeps a percentage for a commission. The city would be allowed to have a “day of preview” scheduled where bidders could inspect the items being sold.

“I have no problem with moving forward with this,” said Rob Borgmann, Ward 2 alderman and president of the board.

No date for the auction had been finalized as of Tuesday, said Schauf, but the city is working with the building’s owners, Debbie and John Adams, to accommodate their desire to have the city’s collateralized equipment removed from the building as soon as possible. They bought the building back at a trustees sale in late December.

Schauf said the city’s attorney would be tasked with reviewing the language of the sales agreement. The agreement should “specify” and include a description of “how the city got involved with this equipment,” Schauf pointed out to the board.

Scahuf told aldermen the firm has the “expertise and audience” for this type of auction and added, “They definitely said we need to clean some things up.”

Kamler suggested the city could reconnect the water and pay for some heating in the building during the cleaning process. 

Aldermen acknowledged that while some of the equipment on the collateralized list needed a good cleaning, other items such as some of the larger display cases and freezers may end up being sold for scrap minus their compressors.

Kamler said he was told some of the units are “too big” and a common practice is to “take them apart and sell the compressors. Most go for scrap.” 

He sounded optimistic, moments later, saying, “They say we have some good equipment.”

Ward 1 Alderman Kevin McFadden, who was not an alderman when the MODAG loan was awarded, made the motion to proceed with scheduling the auction using the services of BCL Auction.  Cathy Lahmeyer, who was an alderman representing Ward 1 in 2017, offered the second which was approved on a 4-0 vote.

“I’m hopeful we’ll close that chapter and move on to something else,” said Kamler.

MODAG is a city managed revolving loan fund designed to boost economic development in rural communities. Funding originally was granted to the city by the Missouri Department of Agriculture.

Less than a year after borrowing controlled MODAG funds from the city, Rock Island Marketplace was showing signs of trouble.

By the summer of 2018, the business was listed for sale with a realtor and operating on reduced hours and drive-up services only.

The city had not received a payment on the loan since February 2018 and the balance as of September was $324,208.08, according to city records and the annual audit.

The business made only seven monthly payments of $4,743.91 since being awarded the loan at 3.75 percent interest. The term of the loan was seven years.

Megan and Robert Leesmann and Holly and John Kaeshoefer signed as partners of the business listed as JMTW, LLC. They listed an address in House Springs, Mo., and the two men were police officers in the St. Louis area community of Clayton.

A troubling pattern

Rock Island’s status as a MODAG borrower are similar to four other businesses which were loan recipients and which are now defunct.

According to city records, JnL2 has two different outstanding MODAG loans with the city with unpaid balances of $3,005.83 and $36,996.52. 

Robert Casey, who opened an automotive repair shop with MODAG funds, owes an unpaid balance of $24,414.17 on a  $50,000 loan. The city received some funds back by selling collateralized automotive equipment but nowhere near what the loan amount was.

And Great Reflections has two outstanding loans with balances of $27,523.33 and $57,743.14. The owner of the business at the time these loans were taken out is not the current owner of the business. The business was sold and relocated.

Together, the accounts in default — along with the past-due amount owed by Rock Island Marketplace — total $473,891.07.

The city’s most-recent audit noted “an allowance of $37,912 has been recorded” for the outstanding JnL2 loans, noting “the city considers collection to be unlikely.”

The city had assets under management remaining in the fund of $90,625 in a checking account and $56,309 on a certificate of deposit as of June 30, 2018.