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22 Page 2 ♦ Amount of increment requested by the developer is driven inpartby the end user of the project. ♦ Amount of increment relates to the City's LGA/HACA penalty which is further outlined below. e Decisions regarding the amount of increment need to be made at an early stage in. order to move ahead to finalize the development agreement, TIF plan'budget, and final cash flows. It is evident from our analysis that some level of increment is justified given the various extraordinary costs of redevelopment and the curtent market for the type of end users anticipated. ■ Springsted has completed preliminary analysis of the developers project including their estimated budget and 10 year pro-forma. . Using the developers assumptions we have concluded the following: ♦ Upon payment of increment in the year 2012 the developer will have reached an approximate internal rate of return of 0% or"break-even"._ ❑ The developers agreement could provide that if certain costs are higher than originally estimated, i.e. environmental, that the increment could be adjusted at the time the project is completed. ❑ The developer is taking a management fee of a certain percent of revenues derived from the project including tax increment. This fee is NOT included in the rate of return indicated above, however, it would certainly be counted as having a net positive effect. . o The City is not REQUIRED to see- that enough increment is provided to bring the developer to a 12— 15% rate of return. What needs to be balanced here is that just enough increment should be provided to incent the developer to complete the project. ♦ Should increment be stopped after 2012, the developer has several options to explore in order to gain an appropriate level of return including selling the project or repositioning the rent structure. o It is almost anyone's guess regarding what occurs next year let alone after the year 2012. Therefor any attempt beyond 10 years to project expenses, rent, taxes, maintenance costs, etc. is potentially invalid. ♦ The City's LGAMACA penalty, should the District decertify on December 31, 2012, will occur as follows: ❑ Year 2002 0 Li Year 2003 . 0 o Year 2004 . 0 ❑ Year 2005 0 ❑ Year 2006 0 ❑ Year 2007 9,761 ❑ Year 2008 20,052 ❑ Year 2009 30,887 o Year 2010 42,284 o Year 2011 54,260 o Year 2012 66,830 Total LGA/HACA penalty 304,087 LGA/HACA penalty estimate in a 25 year District is $3.2 million.