2008.07.21 EDA Packet - Laserfiche WebLink

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City of Hugo, Minnesota-Frenchman Centre Redevelopment July 18, 2008 Page 3 Internal Rate of Return Without assistance this project is expected to generate an internal rate of return of 9.13% in 2019. The calculation of the internal rate of return includes a hypothetical sale of the building at the end of year 11 (2019)as described above. Using the same assumptions, with the TIF assistance we calculated the project would generate an internal rate of return of 14.71%. Return on Investment The calculation of the return on investment includes an average of the total cash flows from distribution over 10 years, divided by the initial equity investment of$853,490. With the assistance the calculated return is 15.51% and without the TIF assistance the estimated return on investment is 4.11%. Summary Table of Rate of Return Calculations: With TIF Assistance Without TIF Assistance 1 Cash on Cash Return(10-year) 4.25%- 13.88% 0.44%-7.97% 2 Internal Rate of Return 2019 14.71% 9.13% 3 Return on Investment 2011 15.51% 4.11% Conclusion The calculated cash on cash rates of return, internal rates of return and returns on investment show the subsidy has a positive impact on the project, providing assistance necessary to enable the project to proceed. An examination of the spread of return percentages with and without the assistance is another discussion point that arises as a result of our analysis. In this case the spread is fairly significant indicating that the assistance makes a large impact on the project, supporting the fact that the assistance may be necessary to get the proposed deal to take place at this time in the current market environment. Without the assistance, the timeline and type of project may be adversely impacted. Our analysis shows that$316,772 (present value) of tax increment assistance, over ten years, results in an internal rate of return of 14.71%,which lies generally within an acceptable range for these types of multi-tenant projects. Please contact me at(651) 223-3066 or psteinman springsted.com with any questions or comments.