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. 48 EHLERS & ASSOCIATES INC 0 To: Mike Morrison,City Manaager From: Mark Ruff,Financial Advisor W Jim Prosser,Financial Advisor Subject: Culver's Request for Assistance Date: April 9, 2002 Ehlers &Associates has completed a review of the request for assistance with the development of the Culver's restaurant on the site of the former Hardee's restaurant and the Exhaust Pro's building on Silver Lake Road. Julie Chien and Steve Sparks are the applicants and would own the restaurant at this location. They have represented that assistance is necessary due to extraordinary development cost including site acquisition,relocation, site preparation and demolition. These expenses are considered qualified redevelopment expenses. The assistance requested is the sale of the City owned Hardee's site, cleared for development by the City for$5,000. The City has purchased this site for$319,00,000. Culver's has extended an offer to purchase the Exhaust Pro's site for$335,000. The applicants have provided Ehlers with a project pro forma for this development including estimated land costs. The project pro forma includes estimated land acquisition of$654,000 for a site of 58,750 square feet. This represents a land cost of$11.13/square foot. Project costs appear to be reasonably estimated, based on a review of similar projects by other developers. The applicants report the rate of return for this project without assistance would be 4%and with assistance of$314,000 land write down the rate of return would be 11.6%. A typical rate of return for this type of project would be 12%to14%. This information and analysis supports the use of assistance. Ehlers did review this information provided by the applicants. However, since the property will be owned by the applicants a typical rate of return analysis Ehlers did not rely solely on this rate of return analysis. As substitute measure on need, Ehlers reviewed the land cost for this type of development with other similar developments. Generally, it appears that businesses of this nature would support a land cost of approximately$5.50 - $6.00/square foot for land. The applicants have provided Ehlers with a project pro forma for this development including estimated land costs. The project pro forma includes estimated land assembly related cost of$654,500 for a site of 58,750 square feet. This represents a land cost of$11.13/square foot which is significantly higher that the typical land cost for this type of development. If assistance is provided the effective cost of land is estimated at$5.79/square foot. Therefore,the assistance requested will provide for a land payment within the range developers typically pay for land for this type of use. LEADERS IN PUBLIC FINANCE 3060 Centre Pointe Drive 651.697.8503 fax 651.697.8555 Roseville,MN 55113-1105 jim@ehlers-inc.com