2008.07.21 EDA Packet - Laserfiche WebLink

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Springsted Incorporated 380 Jackson Street, Suite 300 Saint Paul,MN 55101-2887 Springsted Tel: 651-223-3000 Fax: 651-223-3002 www.sphngsted.com MEMORANDUM TO: Bryan Bear, Community Development Director Rachel Simone, Planner FROM: Paul Steinman, Vice President/Client Representative DATE: July 18, 2008 SUBJECT: TIF Assistance Review of the Frenchman Centre Redevelopment Project The purpose of this memo is to provide guidance to the City of Hugo on the public assistance requested for the Frenchman Centre Redevelopment Project. Springsted conducted this analysis based on the information provided by the Developer. The project includes the acquisition, demolition, site preparation and construction of a 23,000 square foot commercial/retail building. The Developer estimates the total development cost of the project to be$4,353,490. The Developer has requested TIF assistance in the amount of$543,100 (present value) in the form of a pay-as-you-go reimbursement, which is an annual payment of tax increment from the City to the Developer. The property will pay an annual base property tax, to all taxing jurisdictions, of$9,906 through the term of the district. We estimate the annual tax increment reimbursement to commence in year 2(2010),with a payment of$32,251,and the first full year of reimbursement in year 3(2011)of$50,461 based on a total Estimated Market Value of$4,159,450. The future value of the annual TIF reimbursement is$1,294,022 based on the full term of the District. Our calculation of a Pay-as-you-go Note shows that using a 6.65% interest rate applied to this future value amount, gives us a present value of approximately$543,100. Here is how the Pay-as-you-go Note breaks down over the 26 years of TIF requested: $ 543,100 Principal 750,922 Interest $1,294,022 Total Principal and Interest But-For Analysis The"but-for'test is used to determine whether or not a project would proceed as proposed without the use of the TIF assistance. To complete this analysis we need to examine a 10-year pro forma of the project comparing the rate of return with assistance and without assistance. Springsted used the assumptions included within the Developers' application summarized below. Total project costs are$4,353,490. The Developer is proposing a 20/80% split between equity and private financing, equating to an equity amount of $853,490 and a financed principal amount of $3,500,000. The Developer has indicated the private financing will be a 20-year mortgage with an interest rate of 7.00%. The TIF assistance is provided on a pay-as-you-go basis and is not available during construction. For our side-by-side analysis of the project with and without TIF,we used identical financing assumptions. Public Sector Advisors