05-26-2020 JOINT FINANCE COMMITTEE PACKET

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Memo To: Members of the Joint Finance Committee Amanda Othoudt, Economic Development Director From: Mikaela Huot, Director Date: May 22, 2020 Subject: Hillside Heights Tax Increment Financing Housing (TIF) District Revenue Projections and Financial Analysis Background The City of Elk River received an application from Community Housing Development Corporation (CHDC), the developer, for financial assistance through Tax Increment Financing (TIF) to assist with financing a portion of the extraordinary development costs related to the construction of a new 55-unit affordable housing building. The developer stated in the application for assistance that the Hillside Heights Apartments would meet part of the remaining demand for affordable and subsidized rental housing and affordable independent living senior rental housing according to Elk River’s 2018 Housing Study. CHDC proposes to develop a three-story new construction affordable apartment building on the South East corner of Twin Lakes Road NW and 175th Ave NW. The apartment building would consist of approximately 55 units with 13 one-bedroom units, 28 two- bedroom units, 14 three-bedroom units and approximately 60 parking spaces. Common amenities will likely include storage, a roof deck, fitness/physical therapy room, library, community room, patio area, ball court, playground and community garden. 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 $16.9 million project that would be funded by an estimated $11.9 million of tax credits, $3.29 million of debt financing, rebates, deferred developer fee and TIF mortgage. The developer has asked for annual tax increment revenues generated by the new project to finance a gap of approximately $780,000. Financial assistance through pay-as-you-go tax increment financing from the City Elk River has been requested to provide additional annual cash flow necessary to support the cash flow and debt service financing. Those extraordinary development 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.