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recommended level of assistance could be consistent with the City’s objectives resulting in less assistance than <br />what has been requested. The below table is a summary of the projected performance of the project based on <br />current assumptions: <br />Table 3: Estimated Developer Returns <br /> <br />Projected Performance Metrics * <br />Developer <br />Without <br />Assistance <br />Developer <br />With <br />Assistance <br />Modified With <br />Assistance <br />Cash-on-Cash -0.91% 2.32% 1.51% <br />Debt Coverage Ratio .94x 1.07x 1.04x <br /> <br />* calculated using stabilized net operating income and net project costs financed by the developer <br /> <br />Conclusion <br />The applicant has requested financial assistance related to construction of 44 units of apartment units, of which <br />20% would be affordable to occupants with incomes no greater than 50% area median income. There are <br />significant site development and soils corrections costs necessary to allow for development to occur on the site. <br />Through submission of the tax increment financing application and supporting financial information, the <br />applicant has indicated that the project would not occur as proposed without financial assistance from the City <br />due to below market rates of return. <br /> <br />Based on financial analysis of the provided assumptions, without financial assistance, the project does not <br />appear to be feasible. Without assistance, the projected annual and cumulative rate of returns and debt <br />coverage ratios are well below industry standards for this type of project. With financial assistance from the City <br />through tax increment financing, the project performance is projected to improve and may be closer to <br />achieving marketable returns and coverage ratios, as needed to obtain debt financing and attract equity <br />investors. The financial analysis indicates that the project is not expected to be viable without one or more of <br />the following: 1) reduction in project costs 2) additional annual cash flow, and/or 3) additional upfront funding <br />sources. <br /> <br />Parameters to consider when determining an appropriate level of public assistance include the following: <br />• Return on Investment <br />• Purchase price and other development costs <br />• Public to private investment <br />• Public assistance (TIF) and private equity <br />• Extraordinary costs <br />• Financial gap <br />• Term of collection (district) <br />• Other necessary public improvements <br /> <br />The applicant has requested tax increment financing from the City to provide additional cash flow revenues that <br />is required to achieve financial feasibility. The request is for 90% of the tax increments generated over 15 years <br />and would equate to total tax increment revenues of approximately $1.2M (up to $850,000 principal to support <br />actual extraordinary site development costs plus interest at 4%). The project will be privately financed through <br />debt and equity and the increment would provide additional annual revenues to enhance cash flow. <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@bakertily.com with any questions or comments.