7.2 SR 01-03-2022 - Laserfiche WebLink

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Project Summary and Qualifications The project is proposed to include the construction of 44 residential apartment buildings comprising of studio, 1, 2- and 3-bedroom units with separate garages. In order to qualify for inclusion within a housing TIF district, one of the two following income qualifications need to be met by the residents: • at least 20% of the units must be occupied by persons or families at 50% area median income or • at least 40% of the units must be occupied by persons or families at 60% area median income. The project as proposed would provide for at least 20% of the units being occupied and affordable to persons at 50% area median income. The applicant would need to annually certify the project qualifies for the duration of the TIF district. This income requirement would allow for the establishment of a Tax Increment Financing Housing District. Tax increment financing is a tool the City may consider using to support financial assistance for the project, subject to meeting the but -for test and need for public financial participation. Applicant Request for Assistance Financial assistance through pay-as-you-go tax increment financing from the City of Elk River has been requested to provide additional revenues to support the required level of debt and project cash flow to repay annual debt service payments. The request is for 90% of incremental revenues for up to 15 years related to the extraordinary development costs of the project site that include site development and soils corrections in an estimated amount of $760,000-$850,000. The application includes an approximate $8.5 million project funded through a combination of debt and equity. The applicant's supporting financial information includes sources and uses of funds with 70% as debt financing and 30% as private equity. Debt repayment would be supported by annual cash flows of the project and would also require additional revenues through tax increment financing. The applicant has provided a letter from its potential lender indicating that 15 years of TIF revenues would be needed to support the project financing. Typical extraordinary development costs that cannot be supported solely by the project alone could justify the need for public financial assistance and allow the project to proceed as proposed to provide appropriate upfront funding and meet the minimum debt coverage requirements. The applicant has indicated the receipt of City financial assistance is necessary for the project to proceed. Table 1: Sources and Uses of Funds Sources Amount Uses Amount First Mortgage $6,000,000 70% Acquisition (2) $400,000 5% Equity $2,588,174 30% Site Development $850,000 10% Deferred Developer Fee Construction $6,828,174 79% TIF Arch & Eng. Fees $75,000 1% Legal Fee $10,000 .12% Construction Interest $175,000 2% Contingency $250,000 3% Total $8,588,174 Total $8,588,174 Tax increment financing has been requested as pay-as-you-go and would not be an upfront funding source (2) Acquisition price includes entire 6.64-acre site. Only portion of property to include the proposed project would be included within the TIF District Project Financing There are generally two ways in which assistance can be provided for most projects, either upfront or on a pay- as-you-go basis. With upfront financing, the City would finance a portion of the applicant's initial project costs through the issuance of bonds or as an internal loan. Future tax increment would be collected by the City and used to pay debt service on the bonds or repayment of the internal loan. With pay-as-you-go financing, the applicant would finance all project costs upfront and would be reimbursed over time for a portion of those costs as revenues are available. Pay -as -you -go -financing is generally more acceptable than upfront financing for the City because it shifts the risk for repayment to the applicant. If tax increment revenues are less than originally projected, the applicant receives less and therefore bears the risk of not being reimbursed the full amount of their financing. However, in some cases pay as you go financing may not be financially feasible. With bonds, the City would still need to make debt service payments and would have to use other sources to fill any shortfall of tax increment revenues.