4.1. EDSR 02-23-2016 - Laserfiche WebLink

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City of Elk River,Minnesota Cornerstone Ford LLC Tax Abatement Project February 19,2016 Page 5 o help redevelop or renew blighted areas; o help provide access to services for residents of the political subdivision; o finance or provide public infrastructure; o phase-in a property tax increase on the parcel resulting from an increase of 50 percent or more in one year on the estimated market value of the parcel, other than increase attributable to improvement of the parcel;or o stabilize the tax base through equalization of property tax revenues for a specified period of time with respect to a taxpayer whose real and personal property is subject to valuation under Minnesota Rules,chapter 8100. The applicant has stated the project would increase the City's tax base and provide additional employment opportunities. The applicant's submittal includes a projected sources and uses of funds, project description, anticipated number of jobs created, 2014 and 2015 financial statements for the tenants of the expansion (Elk River Ford and Elk River Chrysler) and a one year cash flow of the proposed expansion. The one year cash flow includes the annual rental income (rent per square foot and leasable square feet) from the proposed expansion only and estimated debt service payments on the building and equipment loans. There are two scenarios, one with assistance and one without, with a projected return on equity calculation for each. As stated previously, the tax abatement would provide additional annual cash flow to the project to assist with increasing the projected return on equity for the owner, as well as assisting with meeting the required debt coverage ratios. Based on our analysis of the annual cash flow, additional annual revenues through an increase in rental incomes or other funding source(or a reduction in debt service payments through reduced mortgage amount) beyond the tax abatement would be needed to meet the minimum coverage requirements. Conclusion The applicant has requested tax abatement assistance from the City to assist with financing a portion of the project costs associated with construction of an approximate 23,861 square foot expansion to the existing facility. The applicant has indicated that the project requires tax abatement assistance to provide sufficient returns and cash flow upon project completion. As discussed, there are several methods to determine if a project would proceed "but for" the assistance. When making a but-for determination, it is also necessary to understand what components may impact the likelihood that a project would proceed as proposed with or without public assistance. An increase in revenues (through public assistance or owner investor equity or increased lease rates and all subject to market and feasibility)and/or decrease in project costs may assist with reducing a potential gap and increase the likelihood that a project would proceed as proposed, and without public assistance. The applicant has stated that the project will facilitate a minimum of 20 new jobs in the expanded facility with weighted average wages of $53,721/year or $25.83/hour in the City of Elk River. 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 to discuss.