12-29--2020 JOINT FINANCE COMMITTEE PACKET

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Memo – Draft Updated To: Members of the Joint Finance Committee Cal Portner, City Administrator Colleen Eddy, Economic Development Specialist From: Mikaela Huot, Director Date: December 22, 2020 Subject: Riverwalk Tax Increment Financing Redevelopment (TIF) District Revenue Projections and Financial Analysis Background The City of Elk River received an application from Sun Rae Apartments, LLC, the developer, for financial assistance through Tax Increment Financing (TIF) to assist with financing a portion of the extraordinary redevelopment costs related to the existing property located on the former Saxon site and subsequent construction of a new 178-unit apartment project. Assistance has been requested to offset a portion of the redevelopment costs that cannot be supported solely by the project itself. The developer’s original application included an approximate $31.556 million project that would be funded through a combination of debt (80%) and equity (20%) with tax increment revenues requested to provide additional cash flow to support debt repayment. Following review of the application and supporting financial information at the September Joint Finance Committee meeting, the developer was asked to provide additional information related to the identified site development costs, appraisal and/or supporting information for land acquisition costs and confirmation of lease rates for the apartments. The additional information was provided by the developer and has been incorporated into the updated analysis for presentation at the December 29 Joint Finance Committee meeting. 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 developer (both original and updated) to assist the City with making a determination if the project as proposed would be unlikely to proceed “but-for” the requested Tax Increment Financing (TIF) assistance, and to determine the appropriate amount, 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. Developer Request for Assistance The developer’s original application included an approximate $31.556 million project that would be funded through a combination of debt and equity. Following receipt of additional information as requested from the