2009.05.18 EDA Packet - Laserfiche WebLink

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City of Hugo, Minnesota May 14, 2009 Page 2 *the Developer has indicated that the Bank will increase the amount of its loan by approximately 66% of the face amount of the PayGO Note in return for a pledge of the note. The result would be an increase in the loan and decrease in other funds—SBA 504. Follow-up discussions with the bank have indicated that the anticipated financing terms for the loan may be up to 90%of the project costs through the SBA program, with 10%private equity. The bank has indicated that the TIF Note will provide additional collateral and cash flow for the project, making a more favorable project to finance. 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 examined a 10-year operating pro forma of the project and compared the cash flows with and without assistance. The TIF assistance would be provided on a pay-as-you-go basis and would not be available during construction. For our side-by-side analysis of the project with and without TIF,we used identical financing assumptions for the construction financing. In the pro forma with TIF,we assume the annual increment revenues would be available to assist with operating and debt service expenses. Without TIF,the project would not have the additional revenues, resulting in annual cash flow shortfalls. The developer has indicated that TIF assistance is necessary to finance a portion of the redevelopment costs associated with the site through pay-as-you-go financing. In addition,it has been represented to us that the TIF financing will assist the developer in obtaining the private financing necessary to commence redevelopment and subsequent construction on the project. The developer anticipates using private financing to complete redevelopment and construction of the project,and using TIF to finance a portion of the annual expenditures associated with continued operations of the business, including debt service. Based on the increased cost of demolition and site preparation costs for the redevelopment site,it can reasonably be assumed that redevelopment on the site would not likely occur, but-for the assistance provided through Tax Increment Financing. Tax increment assistance may be necessary to encourage redevelopment of the site,with assistance used primarily to fund extraordinary redevelopment and demolition costs. Total Tax Increment Generated We are providing a tax increment revenue scenario using certain assumptions based on information for the proposed redevelopment as provided by the City and developer. The assumptions are as follows: • Total EMV of$2.OM(Land and Building) o Approximately$250/square foot • Base value of$758,700(existing Land and Building) o ONTC based on completed development • Class Rates Remain constant o Commercial-industrial(1.5%first$150,000, 2%thereafter) • Construction schedule