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Conclusion <br />The developer has requested financial assistance related to redevelopment of the site and subsequent <br />construction of a 178-unit market rate apartment building. Through submission of the tax increment financing <br />application and supporting financial information, the developer has indicated that the project would not occur as <br />proposed without financial assistance from the City due to below market debt coverage and rates of return. <br />Approximately $5.38 million has been identified as site development costs as necessary for redevelopment to <br />occur. In part, focus of the level of assistance based on the proposed establishment of a redevelopment district <br />should be on the demolition and site clean-up costs that are considered barriers preventing redevelopment from <br />occurring. Further breakdown of the $5.38 million of site development costs from the updated sworn <br />construction statement is provided below: <br /> <br />Sources Identified <br />Amounts <br />Potential <br />Amounts <br />Excavating/grading $1,460,888 $1,460,888 <br />Concrete work $1,558,451 $1,558,451 <br />Driveway $178,000 $178,000 <br />Masonry/precast $1,869,000 $229,117 <br />Landscaping $313,772 $313,772 <br /> <br />Subtotal $5,380,111 $3,740,228 <br /> <br />Using the developer’s assumptions, without financial assistance, the project as proposed does not appear to be <br />financially feasible. The developer’s operating proforma without tax increment assistance is less than 1.0x DCR <br />and with assistance would be closer to 1.13-1.21x DCR, which is generally an acceptable level required for this <br />type of project. Without assistance, the projected annual and cumulative rate of return is below industry <br />standards for this type of project and with annual public assistance the project is projected to achieve <br />marketable returns. Both the rate of return and debt coverage analysis indicate that additional annual cash <br />flow, additional funding sources or reduction in project costs would be necessary to obtain a level of debt <br />financing necessary to fund all project costs and provide a reasonable return that allows the project to proceed. <br /> <br />Considerations for level of public assistance parameters include: <br /> Public to private investment <br /> Public assistance (TIF) and private equity <br /> Extraordinary costs <br /> Total development costs <br /> Financial gap <br /> Availability of tax increment revenues <br /> City policy <br /> <br />The developer has requested tax increment financing from the City as a method of providing the additional cash <br />flow revenues required to achieve financial feasibility. In addition to tax increment financing, we’ve also <br />reviewed other possible methods that could be used to increase financial feasibility and reduce the level of <br />public participation that has been requested and may be needed for the project. Adjusting the assumptions <br />related to land costs, debt and equity contributions and annual revenues (lease rates) could all have positive <br />impacts to the project. All are subject to market and feasibility conditions and could result in a reduction in the <br />potential level of assistance that is needed while focusing on the extraordinary redevelopment costs of the site. <br />The maximum term of assistance pursuant to the City’s policy for redevelopment districts is 15 years and less <br />than what the developer has requested and provided in possible lender requirements. <br /> <br />Thank you for the opportunity to be of assistance to the City of Elk River. Please contact me at 651.368.2533 <br />or Mikaela.huot@bakertilly.com with any questions or comments. <br />