4.1. EDSR ATTACHMENT 03-28-2017 - Laserfiche WebLink

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City of Elk River, Minnesota But For Analysis of Jackson Hills Residential Suites TIF Project March 24,2017 Page 7 payments and would have to use other sources to fill any shortfall of tax increment revenues. With internal financing, the City reimburses the loan with future revenue collections and may risk not repaying itself in full if tax increment revenues are not sufficient. The developer's financial information includes pay-as-you-go financing. Conclusion The developer has requested financial assistance of approximately$500,000 as related to construction of the 40-unit multi-family affordable housing project. Assistance has been requested as pay-as-you-go financing (supported solely by tax increments generated from this project). City policy guidelines have indicated the maximum amount the developer could be eligible for is 65%of the total request to equal a revised amount of$325,000. Through the submission of the tax increment financing application and supporting financial information, the developer has indicated that the project as proposed would not occur on the current site without financial assistance from the City due to the below-market returns and low debt coverage metrics projected to be generated by the project. Based on the current assumptions, without assistance the project as proposed would not be considered feasible. With assistance the project is expected to generate returns that the developer has indicated are sufficient to allow the project to proceed. An overall reduction in project costs and/or increase in revenues may assist with achieving greater market feasibility in the future. The City may also choose to perform a post-development cost audit to determine actual costs as opposed to projected (and thus driving the need for public assistance)to determine if the recommended amount of assistance is appropriate. Based on the projected performance of the project with assistance, it appears the City will have an opportunity to reduce the amount of assistance while still meeting the developer's needs. Without assistance, the debt coverage ratio is 1x and below typical lender standards. Providing annual cash flow assistance will allow the project to achieve market debt coverage ratios, thus allowing the project to proceed. It is important to note the project as proposed is providing affordable housing units within the City. By establishing a Housing TIF District, the developer is agreeing to maintain a portion of the units as affordable (meeting the income requirements as outlined previously) over the life of district. Without tax increment assistance the developer is not required to maintain any affordable units. Due to the projected infeasibility of the project based on current assumptions, absent additional revenue source(s)to meet minimum coverage thresholds, we assume the developer would increase the rents without assistance, reduce the scope of the project to reduce costs or not proceed with the project,or some combination. Based on the provided financing assumptions, there is a financing gap resulting from providing a portion of the units as affordable and some sort of financial assistance would be necessary to support a portion of the extraordinary project costs and meet minimum return thresholds that would allow the project as proposed to proceed. To support this conclusion and as illustrated in the analysis outlined above, the projected debt coverage ratios and rates of