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assist in understanding potential impacts on performance and what a required level of assistance (number of <br />years and total amounts) may be. <br />To understand viability of the project and need for an appropriate level of public assistance, we provided a <br />sensitivity analysis to the proformas with adjustments made to the total project costs (including land/building <br />acquisition, construction costs, soft costs, developer and other related construction management fees and <br />contingency) and corresponding funding sources, as well as projected annual lease rates and operating <br />expenses. Realizing any adjustments are all subject to market conditions. The purpose of the sensitivity <br />analysis is to test the level of assistance that may be needed using those assumptions to understand if the <br />recommended level of assistance could be consistent with the City’s objectives resulting in less assistance than <br />what has been requested. <br />Conclusion <br />The developer has requested financial assistance for the construction of approximately 578,000 square feet of <br />light industrial speculative building space (451,000 square feet constructed by Ryan and an additional 127,000 <br />square feet to be constructed by MSP). The developer has identified extraordinary site development and <br />related costs associated with constructing on the project site. Through submission of the tax increment <br />financing request and supporting financial information, the developer has indicated that the project would not <br />occur as proposed without financial assistance from the City due to below market rates of return. <br />Based on the financial analysis and available financing assumptions, without financial assistance, the project <br />would not appear to be feasible. Without assistance, the projected annual and cumulative rate of return is <br />below industry standards for this type of project. The rate of return analysis indicates that the provided financing <br />structure would not be financially viable without one or more of the following: 1) reduction in project costs 2) <br />additional annual cash flow, and/or 3) additional funding sources. With annual public assistance the project is <br />projected to achieve marketable returns. There are ranges of what would be considered market returns and are <br />generally subject to the project type, market indicators, investor demands and financing structure. The level of <br />public assistance is expected to have an impact on what the projected returns for the project could be. <br />Considered parameters for level of public assistance include the following: <br />•Return on Investment: (City benefits) <br />•Purchase price and other development costs: (reasonable ranges and supported by project) <br />•Public to private investment: (public participation within 10% or less) <br />•Public assistance (TIF) and private equity: (public does not exceed private equity) <br />•Extraordinary costs: (as opposed to ‘greenfield’ or market) <br />•Financial gap: (limit on private debt and equity) <br />•Term of collection (district): (less than maximum term) <br />•Other necessary public improvements: (case by case basis to be determined) <br />Identified Extraordinary Costs (Ryan Development) $2,900,000 <br />The developer has requested tax increment financing from the City as a method of providing additional cash <br />flow revenues required to achieve financial feasibility. The request is for 90% of the tax increments generated <br />over the maximum 9-year term of the TIF District. The project will be privately financed through debt and equity <br />and the increment would provide additional annual revenues to support a secondary TIF mortgage, enhance <br />cash flow and increase the developer’s return. We typically review both the annual (upon stabilization) and <br />long-term (10-15-year period) investment returns to understand financial performance and verification of need <br />for public assistance, as well as identifying those costs considered TIF-eligible as extraordinary to the project. <br />Due to timing for anticipated construction between the Ryan development (451,000 square feet to the north of <br />the existing Distribution Alternatives (DA) project) and MSP development (127,000 square feet to the south of <br />DA), two separate tax increment financing districts are anticipated to be created and certified. We are focusing <br />solely on the Ryan development with this analysis and proposed establishment of an Economic Development <br />Tax Increment Financing District. <br />Thank you for the opportunity to be of assistance to the City of Lino Lakes. Please contact me at 651-368-2533 <br />or mikaela.huot@bakertilly.com with any questions or to discuss.