7.1. SR 10-17-2016 - Laserfiche WebLink

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Springsted Incorporated 380 Jackson Street, Suite 300 Saint Paul, MN 55101-2887 Tel: 651-223-3000 Fax: 651-223-3002 www.springsted.com MEMORANDUM TO: Amanda Othoudt, Economic Development Director FROM: Mikaela Huot, Vice President/Consultant DATE: October 17, 2016 SUBJECT: SBH Properties, LLC: Request for Tax Abatement Assistance The City of Elk River asked Springsted to evaluate a tax abatement request for assistance submitted by the applicant, SBH Properties, LLC. The applicant proposes to build a new facility within the City of Elk River to allow for growth of the business and expand existing operations. The total estimated usable square footage for the facility is approximately 13,312. According to the applicant and supporting financial materials, the tax abatement assistance will be used as annual cash flow to support debt service and equity investment on the approximate $1.75M project to be financed with a combination of debt, equity and the City’s Forgivable Loan program. The purpose of this memo is to summarize an updated alternate analysis that Springsted prepared, based on adjusted lease rates to understand how an increase in an assumed lease rate may impact cash flow of the project and needed amount of City abatement assistance. The analysis is following the EDA Finance Committee’s September 29 meeting in which much discussion focused on the current proposed lease rate driving the need for assistance. It was determined that any increases in the actual lease rate should result in a reduction of required tax abatement assistance. Our review of the project components and financials and general rationale for assistance is based on the initial application materials as submitted by the applicant. The applicant plans to lease the space and use the rental income to support annual debt service payments on the mortgage with any tax abatement assistance providing additional cash flow. Based on the applicant’s initial information provided on the project, the annual rents estimated to be received from a $5/square foot lease rate for 13,312 of usable square feet would generate an estimated annual rental income of $66,560 to support the debt service payments. The estimated annual debt service payments for the first mortgage ($1,049,774 with a 20 year term and 4.25% interest rate) would be $78,007. Annual abatements from both the City and County totaling $14,856 ($7,097 City share and $7,759 County share) would provide sufficient income to make annual debt service payments. The first mortgage debt has a 20 year amortization and the requested term of abatement is 10 and 12 years, respectively, for the County and City. Once the abatement assistance has terminated, the lease rate and/or debt service payments would need to be adjusted in order for there to be sufficient revenues to support debt payments.