12-29--2020 JOINT FINANCE COMMITTEE PACKET

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September JFC meeting, the developer provided an updated sources and uses of funds with a revised total development cost of $34.1 million with 80% as debt financing and 20% as private equity. Financial assistance through pay-as-you-go tax increment financing from the City of Elk River has been requested to provide additional revenues to support the required level of debt and project cash flow to repay annual debt service payments. Typical extraordinary redevelopment costs that cannot be supported solely by the project alone could justify the need for public financial assistance and allow the project to proceed as proposed to provide appropriate upfront funding and meet the minimum debt coverage requirements. The developer has indicated the receipt of City financial assistance is necessary for the project to proceed. The updated sources and uses of funds from the developer’s financial materials is illustrated in the table below. Sources Amount Uses Amount First Mortgage $27,290,542 Acquisition $1,780,000 Equity $6,822,636 Site Development $3,329,888 Construction $21,934,089 Soft Costs $4,065,261 Developer Fee $890,000 Contingency $1,246,000 General Conditions $867,940 Total $34,113,178 Total $34,113,178 Sources/Uses of Equity Amount Developer fee (deferred) $890,000 Land $1,780,000 General contracting $1,144,000 Arch/Eng $320,400 Closing costs $235,850 Add’l developer funds: $2,452,386 Tax increment financing has been requested as pay-as-you-go and would not be an upfront funding source and instead be used to support level of first mortgage and return on equity Qualifications The City of Elk River has been approached by Sun Rae Apartments, LLC for redevelopment of the project site and would require the establishment of a Tax Increment Financing Redevelopment District. Tax increment financing is a tool the City may consider using to support financial assistance for the project, subject to meeting the but-for test and need for public financial participation. A blight inspection confirming qualification of the site for Tax Increment Financing was completed in 2015 and would provide the basis for which a Redevelopment TIF District could be established. Project Financing There are generally two ways in which assistance can be provided for most projects, either upfront or on a pay- as-you-go basis. With upfront financing, the City would finance a portion of the developer’s initial project costs through the issuance of bonds or as an internal loan. Future tax increment would be collected by the City and used to pay debt service on the bonds or repayment of the internal loan. With pay-as-you-go financing, the developer would finance all project costs upfront and would be reimbursed over time for a portion of those costs as revenues are available. Pay-as-you-go-financing is generally more acceptable than upfront financing for the City because it shifts the risk for repayment to the developer. If tax increment revenues are less than originally projected, the developer receives less and therefore bears the risk of not being reimbursed the full amount of their financing. However, in some cases pay as you go financing may not be financially feasible. With bonds, the City would still need to make debt service 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 project financing as requested includes pay-as-you- go for reimbursement of eligible costs.