09-29-2020 JOINT FINANCE COMMITTEE PACKET

Home Browse Search

Memo - Draft To: Members of the Joint Finance Committee Amanda Othoudt, Economic Development Director From: Mikaela Huot, Director Date: September 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 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 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 application includes an approximate $31.556 million project that would be funded by an estimated $25.245 million of debt financing and $6.311 million of equity. Financial assistance through pay-as- you-go tax increment financing from the City of Elk River has been requested to provide additional annual cash flow necessary to support the cash flow and debt service financing. Those extraordinary redevelopment costs that cannot be supported solely by the project alone typically may justify the need for public financial assistance that would 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 sources and uses of funds from the developer’s financial materials is illustrated in the table below. Sources Amount Uses Amount