8.1 SR 05-17-2021 - Laserfiche WebLink

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Memo Members of the Elk River City Council To: Cal Portner, City Administrator Colleen Eddy, Economic Development Specialist From: Mikaela Huot, Director Date: May 17, 2021 Financial Needs Analysis for proposed Delta Tax Increment Financing Subject: Redevelopment (TIF) District project proposed by Stonewood Development, LLC Background The City of Elk River received an application from Stonewood Development, LLC for financial assistance through Tax Increment Financing (TIF) to assist with financing the redevelopment of the former Saxon site and offsetting a portion of the redevelopment costs necessary for construction of approximately 180 units of market rate apartment housing units to be built in two phases (90 units each). The application included a request for up to 26 years of tax increment assistance and the City’s current policy limits the level of assistance for redevelopment projects to 15 years. The request for assistance has been reviewed by the Joint Finance Committee (JFC) and Housing and Redevelopment Authority (HRA) at multiple meetings as consideration and support for the project and recommended level of assistance. The JFC recommended 20 years of assistance be provided for each phase of the project and would be considered a deviation from the City’s current policy regarding term due to extraordinary circumstances. The applicant provided a purchase agreement for $2,000,000 between Sun Rae Apartments, LLC and Stonewood Development, LLC indicating acquisition of the property and subsequent construction of the project was contingent upon 20 years of TIF assistance provided by the City. In conjunction with purchase of the property was the request to provide an appraisal verifying value assumptions. That has been prepared and provided to illustrate a value that supports the purchase price. The applicant has also provided a letter from its anticipated lender, Bank Forward, that includes financing terms for each phase of development and an indication that 20 years of tax increment from each phase will be necessary to provide sufficient cash flow to meet minimum debt coverage requirements. 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 applicant (Stonewood Development, LLC) to assist the City with making a determination 1) if the project as proposed would be unlikely to proceed “but-for” the requested Tax Increment Financing (TIF) assistance, and 2) if assistance was necessary, to determine the appropriate amount and terms, 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. Project Summary The applicant is proposing to construct two 90-unit residential apartment buildings on the former Saxon auto site for completion of a total of 180 new units with underground parking. Phase 1 of the project is expected to