6.3 EDSR 10-17-2016 - Laserfiche WebLink

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City of Elk River, Minnesota SBH Properties, LLC Tax Abatement Project October 17, 2016 Page 2 Due to the inequity of timing for the analysis between tax abatement revenues and debt service regarding total number of years, we focused on the period of time in which the requested term of abatement would be in place through 2030. We have assumed the building would commence in 2017 and the abatement in 2019. To understand how an increase in the lease rate may impact the need for abatement assistance during this same period of time (14 years) we made assumptions as to an alternate lease rate for the project. For illustration purposes, an increase in the rental rate from $5 /square foot to a blended rate of $5.50 /square foot ($4.75 for industrial and $6.25 for office) over the same period of time as the term of the City and County abatement assistance would result in increased revenues for the project. An increase in annual lease revenues should result in an estimated decrease in the need for City tax abatement revenues over that same period. See table below to outline this alternate analysis: An increase in the annual lease rate for the office portion of the project (with slight decrease in the industrial portion) would result in an overall increase in annual cash flow for the project. Understanding the term of the debt service is 20 years and longer than the term of abatement assistance, we quantified what the increase in lease rates would do to the need for the abatement assistance. To maintain an equal amount of total revenues through the abatement period (12 years) we estimated a reduced term by approximately 2 years, resulting in a 10 year term for both the City and County. Based on our analysis of the provided annual cash flow, additional annual revenues through an increase in rental incomes or other funding source) beyond the tax abatement would be needed to meet both the annual payments on the first mortgage (with assistance) and equipment loan (with or without assistance) over a 20 year period (and beyond the term of abatement assistance). Tax abatement revenues would be necessary, absent other annual revenue increases, to support first mortgage debt payments. Thank you for the opportunity to be of assistance to the City of Elk River. Please contact me at 651 - 223 -3036 or mhuot(a,springsted.com with any questions or to discuss. Original Assumptions Alternate Assumptions Lease Rate $5.00 /SF $5.50 /SF Total Lease Revenues 14 Years $931,840 $948,248 Total Abatement Revenues (City) $85,167 $70,973 Total Abatement Revenues (County) $77,595 $77,595 Total Abatement Revenues $162,762 $148,567 Number of Years City 12 10 Number of Years County 10 10 Total Estimated Revenues 14 Years $1,094,602 $1,096,816 An increase in the annual lease rate for the office portion of the project (with slight decrease in the industrial portion) would result in an overall increase in annual cash flow for the project. Understanding the term of the debt service is 20 years and longer than the term of abatement assistance, we quantified what the increase in lease rates would do to the need for the abatement assistance. To maintain an equal amount of total revenues through the abatement period (12 years) we estimated a reduced term by approximately 2 years, resulting in a 10 year term for both the City and County. Based on our analysis of the provided annual cash flow, additional annual revenues through an increase in rental incomes or other funding source) beyond the tax abatement would be needed to meet both the annual payments on the first mortgage (with assistance) and equipment loan (with or without assistance) over a 20 year period (and beyond the term of abatement assistance). Tax abatement revenues would be necessary, absent other annual revenue increases, to support first mortgage debt payments. Thank you for the opportunity to be of assistance to the City of Elk River. Please contact me at 651 - 223 -3036 or mhuot(a,springsted.com with any questions or to discuss.