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PA N G E R / BENSO N Kenneth J. Panger, IF AS <br /> John C. Benson, IF AS <br /> APPRAISAL PROFES SIGNALS Alice R. Lenzmeier, Assoc. <br /> • Suite 1 • 2233 Roosevelt Road • St. Cloud, MN 56301 • (612) 259-5544 • FAX: (612) 259-4426 <br /> June 17, 1994 <br /> Mr. William Rubin <br /> Economic Development Coordinator <br /> City of Elk River <br /> 13065 Orono Parkway <br /> Elk River, Minnesota 55330 <br /> Re: A 34 acre parcel of land zoned Light Industrial and <br /> located within the City of Elk River, Sherburne County, <br /> Minnesota <br /> Dear Mr. Rubin: <br /> This letter is follow up to a consultation held at the City of <br /> Elk River at 7: 00 a.m. on June 17, 1994. Those present at the <br /> meeting included the negotiation team, yourself, Ken Panger and <br /> myself. Time was spent reviewing the market value appraisal <br /> presented on the above mentioned property. In addition, we <br /> discussed issues involving a possible offer by the City of Elk <br /> • River to the present owner. <br /> The City of Elk River, being a municipal body, will not incur <br /> some of the traditional expenses a market investor would if <br /> developing this property. Real estate taxes would be one of <br /> those expenses not incurred because the property would be tax <br /> exempt if owned by the City. Another expense not incurred <br /> would be entrepreneurial profit. Indeed, it may not be prudent <br /> for the City to expect to earn a profit on it's development and <br /> in fact, some cities like Becker and Sauk Rapids subsidize <br /> their industrial development. <br /> Because these expenses would not be incurred by the City the <br /> following page shows a cash flow analysis taking these expense <br /> items out. The first of the following two cash flow analysis <br /> assumes a 10.5% discount rate, the same as the appraisal. The <br /> second attached cash flow analysis takes out the expenses <br /> mentioned above as well as reduces the discount rate to 4.5%. <br /> If we assume that the City is not profit motivated a lower <br /> discount rate can be used taking out the additional risk <br /> factors that a typical investor would have. 4.5% is used <br /> because it is the current safe rate and even though the City <br /> may not need to borrow funds for the project, it can be assumed <br /> that the funds used to finance the project would otherwise be <br /> invested and earning a return of at least the safe rate. <br /> • <br /> Commercial • Industrial • Apartments • Residential • Farm • Consultations <br />