8.1. SR 10-21-2013 - Laserfiche WebLink

Home Browse Search

City of Elk River, Minnesota Preliminary Financial Analysis of Blackhawk Woods TIF Application 10/16/2013 Page 10 in this memo, based on current assumptions it would take approximately 23 years of the district to meet the request. The need for TIF assistance can be evaluated on an annual basis, due to the reduced operating revenues resulting from the affordable units and will remain the case as long as a portion of the units are income restricted. As a result, the length of time the City desires to maintain the affordable housing units may become a factor in determining the level and amount of TIF assistance. Following discussion at the October 7 HRA meeting, Springsted has prepared several alternate scenarios to understand the impact that a market value inflator would have on the term of the pay-go repayment. A 1% annual market value inflator has been estimated to result in a reduced repayment term of 20 years and a 2%annual market value inflator has been estimated to reduce the term further to 18 years. In order for the repayment term to be reduced to a 15-year term, a 4%annual market value inflator would need to be realized. In some cases, there may be opportunities to fill a portion of the gap by other means—thereby reducing the required TIF subsidy and/or term. The developer could consider deferring a portion of the upfront developer fee, rental rates might also be able to be increased if the project proves successful, however the rates are ultimately dictated by both market and income requirements of TIF Districts, actual project costs may be less than projected, and finally, a reduction in the TIF note interest rate (from 4.70%) may also be considered but currently matches the term of the anticipated second mortgage and a reduced rate may cause an additional gap. As illustrated in our analysis outlined above, it appears the project is infeasible without assistance absent significant changes to either the equity investment, project cost assumptions, or projected operating income. Given our review of the current assumptions it appears as if changes of this magnitude are unlikely to be realized. Therefore, we feel the proposed project is unlikely to proceed but-for the requested TIF assistance. Additionally, if the City were to undertake the provision of TIF assistance for the project, the duration of the District would need to be determined. The Developer has indicated a request for a TIF District term of 25 years, to allow them to maximize the additional mortgage they could secure based on the TIF revenue. If a TIF duration of a shorter period were to be utilized it would require the Developer satisfy a $266,137 financing gap through additional equity, reduction in project costs that would not impact the tax credit allocation, or increased mortgage amount. It is important to note that the project will be providing affordable senior housing in the City of Elk River. Without the tax increment assistance, the developer has indicated he is not able to proceed with the project due to rent restrictions required. Thank you for the opportunity to be of assistance to the City of Elk River. Please contact me at (651)223-3036 or mhuot(@springsted.com with any questions or comments.