6.1 EDSR 05-18-2015 - Laserfiche WebLink

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Springsted DRAFT MEMORANDUM TO: Amanda Othoudt, Economic Development Director FROM: Mikaela Huot, Vice President /Consultant DATE: April 24, 2015 SUBJECT: GATR Proposed Tax Abatement — Project Analysis Springsted Incorporated 380 Jackson Street, Suite 300 Saint Paul. MN 55101 -2887 Tel: 651 - 223 -3000 Fax: 651 - 223 -3002 www.springsted.com The City of Elk River has asked Springsted to evaluate a tax abatement request for assistance submitted by the developer, GATR Truck Center. (GATR). The developer proposes to purchase land from the Economic Development Authority of the City located within the 2nd phase of the Nature's Edge Business Center and construct an approximate 42,912 square foot facility. GATR Truck Center is a full service heavy and medium truck dealership. The proposal for this project site is to provide new and used truck sales, rental, leasing parts and service. GATR anticipates having 100 -150 trucks in inventory, with customer and service trailers stored on the lot periodically. The purchase price of the land from the City is $2.25 /SF for a total of $1,316,695. According to the applicant, the tax abatement assistance will be used as annual cash flow to support debt service on the approximate $13.25M project to be financed with a combination of debt and equity. The purpose of this memo is to summarize the analysis that Springsted prepared, including the estimate of tax abatement revenues for the project and to assist with determining whether the project as proposed is likely to proceed "but for" the requested tax abatement assistance. The analysis is based on our review of the project components and financials and general rationale for assistance as submitted by the developer. There are several methods available to determine if a project would proceed "but for" the assistance. An analysis comparing the rates of return with and without assistance is a common method used to analyze the "but for" test. However, in some cases, a review of the project's sources and uses of funds and operating cash flow performance is done to determine if an operating gap exists or if the project performance is not expected to meet minimum financing requirements and return thresholds to assist with determining that a project meets the "but for" test. If, following the review, it is determined that the project has a shortage of debt, cash, and /or equity based on the projected value of the project upon completion and net operating income available to support debt service, it can be determined that the project would not proceed "but for" the assistance. It is important to note that tax abatement does not statutorily require a "but for' analysis to determine if the project would proceed without assistance, however it must be determined that the project is in the public interest and that the benefits outweigh the costs and the City's current tax abatement policy requires this finding be made. Public Sector Advisors