7.2 SR 01-03-2022 - Laserfiche WebLink

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recommended level of assistance could be consistent with the City's objectives resulting in less assistance than what has been requested. The below table is a summary of the projected performance of the project based on current assumptions: Table 3: Estimated Developer Returns Developer Developer Projected Performance Metrics * Without With Modified With Assistance Assistance Assistance Cash -on -Cash -0.91 % 2.32% 1.51 % Debt Coverage Ratio .94x 1.07x 1.04x * calculated using stabilized net operating income and net project costs financed by the developer Conclusion The applicant has requested financial assistance related to construction of 44 units of apartment units, of which 20% would be affordable to occupants with incomes no greater than 50% area median income. There are significant site development and soils corrections costs necessary to allow for development to occur on the site. Through submission of the tax increment financing application and supporting financial information, the applicant has indicated that the project would not occur as proposed without financial assistance from the City due to below market rates of return. Based on financial analysis of the provided assumptions, without financial assistance, the project does not appear to be feasible. Without assistance, the projected annual and cumulative rate of returns and debt coverage ratios are well below industry standards for this type of project. With financial assistance from the City through tax increment financing, the project performance is projected to improve and may be closer to achieving marketable returns and coverage ratios, as needed to obtain debt financing and attract equity investors. The financial analysis indicates that the project is not expected to be viable without one or more of the following: 1) reduction in project costs 2) additional annual cash flow, and/or 3) additional upfront funding sources. Parameters to consider when determining an appropriate level of public assistance include the following: • Return on Investment • Purchase price and other development costs • Public to private investment • Public assistance (TIF) and private equity • Extraordinary costs • Financial gap • Term of collection (district) • Other necessary public improvements The applicant has requested tax increment financing from the City to provide additional cash flow revenues that is required to achieve financial feasibility. The request is for 90% of the tax increments generated over 15 years and would equate to total tax increment revenues of approximately $1.2M (up to $850,000 principal to support actual extraordinary site development costs plus interest at 4%). The project will be privately financed through debt and equity and the increment would provide additional annual revenues to enhance cash flow. Thank you for the opportunity to be of assistance to the City of Elk River. Please contact me at 651.368.2533 or Mikaela.huota-bakertily.com with any questions or comments.