10-03-2022 Council Work Session Packet

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Memo To: Michael Grochala, City of Lino Lakes From: Mikaela Huot, Director Date: October 3, 2022 Subject: Financial Analysis for Tax Increment Financing (Economic Development) District No. 1-14 (Clearwater Creek Industrial Business Park Project) Executive Summary The City of Lino Lakes received development interest from two perspective developers (Ryan Companies and MSP) for the construction of approximately 578,000 square feet of light industrial buildings that would comprise of manufacturing, warehousing, and distribution space. Since initial discussions with both developers, the City received an application for financial assistance from one of the development entities – Ryan Companies (the “developer”) for the construction of approximately 451,000 square feet of light industrial speculative building space between 3 buildings. MSP had been proposing an additional 127,000 square feet of light industrial space on property south of the Ryan Companies’ site and existing Distribution Alternatives building. Since initial development interest, it was determined that the MSP site is not proceeding on the same schedule as Ryan Companies and as a result, we are proceeding only with analysis of the Ryan Companies request for assistance and subsequent establishment of an Economic Development TIF District to facilitate their planned development. The developer has identified extraordinary site development and related costs that are barriers to constructing on the project site and maximizing building size and taxable valuations. Tax increment is a financing tool the City could consider for financing of a portion of the eligible costs associated with construction of the project, subject to additional due diligence analysis to assist with determining if the project meets the but- for test and would not proceed without public financial 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, 2) determination that the project as proposed would not proceed without public assistance (meeting the “but-for” test), and 3) the increased market value of the property to be developed is greater with tax increment than if no public assistance is provided. 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. Review of the operating proformas based on with assistance as pay-as-you-go and with no assistance provides the range of financial feasibility for this project and what the estimated financial gap would be without assistance. To understand viability of the project and need for an appropriate level of public assistance, we provided a sensitivity analysis to the proformas with adjustments made to the total project costs (including land/building acquisition, construction costs, soft costs, developer and other related items) and corresponding funding sources, as well as projected annual lease rates and operating expenses. The purpose of the sensitivity analysis is to test the level of assistance that may be needed using those assumptions to understand if the recommended level of assistance could be consistent with the City’s objectives resulting in reduced amount from what had been requested. Based on the financial analysis and available financing assumptions, without financial assistance, the project does not appear to be feasible due to the significance of the extraordinary site development and soils correction