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: Members of the EDA Finance Committee Meeting Amanda Othoudt, Economic Development Director FROM: Mikaela Huot, Vice President/Consultant DATE: September 23, 2016 SUBJECT: SBH Properties, LLC: Request for Tax Abatement Assistance The City of Elk River has 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 square feet for the expansion is approximately 13,312. The company currently employs 18 full time employees and has indicated in the application a need for additional personnel. The company is anticipating the hiring of an additional 7 employees with an average wage of those jobs equaling $17.60/hour. According to the applicant, 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 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 applicant. There are several methods available to determine if a project would proceed “but for” the assistance. An analysis comparing the rates of return (return on equity and/or internal rate of return) with and without assistance is a common method used to analyze the “but for” test. 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 as proposed may not proceed “but for” the assistance. It is also