02-23-2021 JOINT FINANCE COMMITTEE PACKET

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Memo –Updated To: Members of the Joint Finance Committee Cal Portner, City Administrator Colleen Eddy, Economic Development Specialist From: Mikaela Huot, Director Date: February 17, 2021 Subject: Financial Needs Analysis for proposed Riverwalk Tax Increment Financing Redevelopment (TIF) District project – based on new development team (Stonewood Development, LLC) Background In late summer/early fall 2020, the City of Elk River received an application from Sun Rae Apartments, LLC for financial assistance through Tax Increment Financing (TIF) to assist with financing the redevelopment of the former Saxon site and offsetting a portion of the redevelopment costs necessary for subsequent construction of 176 units of market rate apartment housing units. The original application included a request for up to 26 years of tax increment assistance and the City’s current policy limits the level of assistance for redevelopment projects to 15 years. The request for assistance has been reviewed by the Joint Finance Committee (JFC) at two meetings (September 26 and December 29) as consideration for the project and level of assistance to be recommended for this project. At the December 29 meeting, the applicant indicated no less than a 20-year term of assistance would allow the project to be financially viable. Following the December JFC, in early January, the City was informed that a new development entity was interested in taking over redevelopment of the project site and acquiring the property from Sun Rae Apartments, LLC. The new entity, Stonewood Development, LLC submitted an application to the City on February 5, 2021. The request for assistance has been consistent (up to 26 years) with what had been originally requested. Included with the application for assistance is a preliminary preapproval letter from Bank Forward indicated that 20 years of TIF assistance would be an assumed revenue source to obtain financing for the project. The applicant also provided a purchase agreement for $2,000,000 between Sun Rae Apartments, LLC and Stonewood Development, LLC indicating acquisition of the property and subsequent construction of the project was contingent upon 20 years of TIF assistance provided by the City. The purpose of this memorandum is to provide a summary of Baker Tilly’s review of the development project costs and operating pro forma as provided by the applicant (Stonewood Development, LLC) to assist the City with making a determination 1) if the project as proposed would be unlikely to proceed “but-for” the requested Tax Increment Financing (TIF) assistance, and 2) if assistance was necessary, to determine the appropriate amount and terms, if any, of public assistance. Prior to establishing a tax increment financing district, there are findings that need to be made by the City that include: 1) determination that the project qualifies as a TIF district and 2) determination that the project as proposed would not proceed without public assistance (meeting the “but-for” test). When reviewing requests for financial assistance it is important to understand how the level of financial assistance would impact the ability of the project to proceed as proposed and maximize new value created on the current project site. Project Summary The applicant is proposing to construct two 98 unit residential apartment buildings on the former Saxon auto site for completion of a total of 176 new units with underground parking. Phase 1 of the project is expected to