CC PACKET 12121989 - Laserfiche WebLink

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City of St. Anthony, Minnesota November 22, 1989 Page 2 • redevelopment agreement was entered into, the class rate for residential real estate containing four or more units was 4.1%. Based on the Minimum Improvements agreed to and the tax capacity rate in effect at the time the redevelopment agreement was entered into, the tax capacity of the improvements would be $233,700. This equates to a per unit tax liability on improvements of$1,163. LaNel Financial is concerned that the Hennepin County Assessor will value the improvements that are made to the project at an amount that will be substantially in excess of the minimum improvements required under the contract. The fear is that the valuation could be so high as to cause a tax liability on a per unit basis of $1,750. According to LaNel, this would cause them to suffer a negative cash flow, require LaNel to raise rents to a level that is substantially above the market rate. In the alternative, if rates are not raised, LaNel would suffer a negative cash flow on the project. LaNel has supplied us with 2 sheets titled St. Anthony Rent comps. These sheets show the 1989 and projected 1992 rents for comparable apartment complexes. The 1989 average rents range from a low of $520 to a high of $800. LaNel is using 1989 rents of $550 for a 1 bedroom and $675 for a two bedroom apartment as their benchmark. The rates used by LaNel appear to fall squarely within the range of comparable apartment complexes. For 1992 projected rents, the comparable projects show a range from a low of$630 to a high of $1052.50. LaNel is using 1992 rents of $619 for a 1 bedroom and $760 for a 2 bedroom apartment as their benchmark. The rates used by LaNel again appear to fall squarely within the range of comparable apartment complexes. • LaNel has requested that the City of St. Anthony agree to subsidize the tax liability if it is so high as to require raising of rents in order to recoup the cost of the higher than anticipated taxes. This would allow LaNel to keep rents at their predicted level. LaNel has prepared projections showing the adverse effect of higher taxes on the project, other things being equal. The base case projection shows an anticipated tax liability of $244,200, or $1,200 per unit. This is quite close to the tax liability generated by the minimum improvements as detailed above. Using the base projections, LaNel would have a positive cash flow on the project. Based on the projection where taxes are imposed at a $1,750 per unit basis, the project shows a negative cash flow for LaNel. Subsequent to the signing of the Redevelopment Agreement and the preparation of the projections, the Minnesota State Legislature amended the property tax law. Part of the amendment reduced the tax capacity percentage, now called the "class rate", that is paid by residential real estate containing four or more units. The rate was reduced from 4.1% to 3.6%, effective for taxes payable in 1990 Based on the Minimum Improvement value of $5,700,000, the new tax capacity will be $205,200, or $1,021 per unit. This amount is less than the Article VI, Section 6.1 Tax Increment Guarantee amount of$221,100. •