7.1 HRSR 03-03-2014 - Laserfiche WebLink

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City of Elk River, Minnesota Preliminary Financial Analysis of Blackhawk Woods TIF Application 10/03/2013 Page 9 1.0 as a measure of cushion in the vent actual revenues and expenses are different than projected, In this case the Developer indicated a need to meet or exceed a DCR of 1,15, Our pro forma calculation, which included slightly revised TIF projections from the Developer, resulted in a stabilized DCR of 1.19 with assistance and 0.98 without assistance. In order to understand the sensitivity of the DCR to changes in project assumptions we analyze the amount by which project costs and operating income would have to change in order for the project to have a feasible DCR. In regards to project costs, the development would need to realize either a project costs savings of approximately 10% or conversely the Developer would need to increase their equity investment into the project by approximately 10% of the total development cost. In regards to net operating income, the project would need to realize an increase in operating revenue of 17% to be feasible without assistance. Based on this analysis, it could be stated the Developer would be unlikely to undertake this project, as proposed, "but -for" the provision of the Tax Increment assistance as requested, The return analysis outline above is based on the Developer's request for a 25 -year TIF reimbursement term, as this would represent the maximum potential return to the Developer as a result of TIF assistance. The Developer did perform a calculation on the impact of the receipt of TIF over a shorter 15 -year period. If the TIF were to be received over a shorter period, the Developer indicated the revenue would be capable of supporting a reduced TIF mortgage amount of $730,734, while maintaining a desirable DCR. However, a reduced TIF term would decrease the potential borrowing capacity of the revenue stream and result in a decrease of $266,137 from available financing. As a result of the shorter term, the Developer would be required to increase their equity investment in the project by the $266,137 amount and /or defer payment on their Developer Fee. Conclusion Should the developer receive TIF assistance, it would be required to reserve at least 20% of the units for persons of low and moderate income for the term of the TIF assistance. When the TIF assistance has been completely repaid, the developer will be under no obligation to continue reserving affordable housing units, As a result, the projected time frame for the repayment of the TIF assistance should be considered when determining the assistance amount. The developer has requested TIF assistance of $996,871 as necessary to attract additional equity to assist with project feasibility due to reduced operating revenues resulting from the affordable housing units, Current revenues projections indicate that with a 0% market value inflator, it would take approximately 23 years of the TIF District to repay the TIF Note assuming a 4.70% interest rate. Assuming all other variables remain constant, an increase in the market value inflator would result in increased revenues, potentially decreasing the repayment term. As indicated previously, once the note is repaid the developer will be under no obligation to continue providing affordable housing units. The developer has indicated that the assistance is necessary for the project to proceed as proposed, The developer would use the pay -as- you -go note assistance to finance the additional debt required to fund the initial projects that cannot be supported due to the reduction in operating revenues from the affordable units. As we had indicated earlier