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HomeMy WebLinkAbout2017-05-16 HRA Regular MeetingAgenda H ousing and Redevelopment Authority Meeting City of Edina, Minnesota Edin a City Hall Cou n cil Cham be rs 4801 West 50th Street Tuesday, May 16, 2017 7:00 PM I.Call to Order II.Roll Call III.Approva l of Meeting Agenda IV.Adoption of Consent Agenda All a genda items listed on the consent agenda are considered routine and will be ena cted by one motion. There will be no separate discussion of such items unless requested to be remov ed from the Consent Agenda by a Commissioner of the HRA. In such cases the item will be remov ed from the Consent Agenda and considered immediately following the a doption of the Consent Agenda. (Favorable rollcall v ote of majority of HRA Commissioners present to approve.) A.Minutes: April 19, 2017 HRA Regular Meeting and April 18, 2017 HRA Work Session V.W 49-1/2 Street Redevelopment - Project Update VI.Adjournment The Edina Housing a nd Redevelopment Authority wants all pa rticipants to be comforta ble being pa rt of the public process. If you need assistance in the way of hearing ampli7cation, an interpreter, large-print documents or something else, please call 952-927-8861 72 hours in advance of the meeting. Date: May 16, 2017 Agenda Item #: I V.A. To:C hair & C ommissioners of the Ed ina HR A Item Type: Minutes F rom:Jane M. Timm, Dep uty C ity C lerk Item Activity: Subject:Minutes : April 19, 2017 HR A R egular Meeting and April 18, 2017 HR A Wo rk S es s ion Edina Housing and Redevelopment Authority Established 1974 C ITY O F E D IN A HO US I NG & R EDEVELO P ME NT AUT H O R I T Y 4801 West 50th Street Edina, MN 55424 www.edinamn.gov A C TI O N R EQ U ES TED : Approve minutes as presented. I N TR O D U C TI O N : AT TAC HME N T S : Description Minutes : April 18, 2017 HRA Work Ses s ion Minutes : April 19, 2017 HRA Regular Meeting Page 1 MINUTES OF THE EDINA HOUSING AND REDEVELOPMENT AUTHORITY WORK SESSION APRIL 18, 2017 5:30 P.M. I. CALL TO ORDER Chair Hovland called the HRA meeting to order at 5:30 p.m. II. ROLLCALL Answering rollcall were Commissioners Brindle, Fischer, Staunton, Stewart, and Chair Hovland. Edina City Staff attending the meeting: Chad Millner, Engineering Director; Scott Neal, City Manager; Bill Neuendorf, Economic Development Manager; Brian Olson, Public Works Director; Lisa Schaefer, Assistant City Manager; Cary Teague, Community Development Director; and Jane Timm, Deputy City Clerk. Nick Anhut, Ehlers & Associates and Jay Lindgren, Dorsey and Whitney were also in attendance. III. MOTION TO CLOSE MEETING Commissioner Brindle made a motion to close the work session of the Edina HRA as permitted by MS.13D.05 subdivision 3(c) to consider the potential sale of the property located at 3925 and 3930-3944 West 49 ½ Street. Commissioner Fischer seconded the motion. Ayes: Brindle, Fischer, Staunton, Stewart, and Chair Hovland. Motion carried. IV. CLOSED SESSION: POTENTIAL SALE OF REAL ESTATE LOCATED AT 3925 AND 3930-3944 WEST 49 ½ STREET Economic Development Manager Neuendorf reviewed the possible sale of the property at 3925 and 3930-3944 West 49 ½ Street. The HRA discussed the matter and gave staff direction. Motion by Commissioner Brindle seconded by Commissioner Stewart to move back into open session. Ayes: Brindle, Fischer, Staunton, Stewart, and Chair Hovland. Motion carried. V. ADJOURNMENT Chair Hovland declared the meeting adjourned at 6:46 p.m. Respectfully submitted, Minutes/HRA Work Session/April 18, 2017 Page 2 Scott Neal, Executive Director Page 1 MINUTES OF THE EDINA HOUSING AND REDEVELOPMENT AUTHORITY APRIL 19, 2017 12:51 A.M. I. CALL TO ORDER Chair Hovland called the HRA meeting to order at 12:51 A.M. II. ROLLCALL Answering rollcall were Commissioners Brindle, Fischer, Staunton, Stewart, and Chair Hovland. III. APPROVAL OF MEETING AGENDA Motion made by Commissioner Brindle seconded by Commissioner Fischer approving the Meeting Agenda. Ayes: Brindle, Fischer, Staunton, Stewart, Hovland Motion carried. IV. CONSENT AGENDA ADOPTED Motion made by Commissioner Staunton, seconded by Commissioner Stewart approving the consent agenda as follows: A. Approve minutes of April 4, 2017 Regular HRA Meeting V. WEST 49-1/2 STREET REDEVELOPMENT – PROPOSED TERM SHEET Economic Development Manager Neuendorf presented a summary of the proposed mixed-use redevelopment project on W. 49-1/2 Street and the draft Term Sheet that had been prepared over the past four months. The presentation included a brief history of the evolution of the 50th & France district, including the use of tax increment financing to advance public goals. The summary of the Term Sheet included an overview of the project and clarified the proposed improvements on the south and north sides of the street. Manager Neuendorf explained that upon approval of the preliminary term sheet several actions would occur including: 1) negotiations of final terms of redevelopment agreement and real estate transaction; 2) City and HRA would pursue creation of TIF District; 3) completed plans for final approval; 4) establishment of a firm construction schedule; 5) a refined budget; 6) developer would secure matching funds for affordable housing units through Edina Housing Foundation; and 7) developer and HRA would pursue grant funds. Members of the HRA asked questions of Manager Neuendorf which he answered. Executive Director, Neal also explained that approval of the general Term Sheet would give staff a clearer direction while still preserving all options in the future, and tonight’s request was not for final approval, but for authorization to continue with negotiations. Motion made by Commissioner Staunton, seconded by Commissioner Fischer approving the term sheet and authorization to proceed with final redevelopment agreement. Ayes: Brindle, Fischer, Staunton, Hovland Nays: Stewart Motion carried. Minutes/HRA/April 19, 2017 Page 2 VI. RESOLUTION NO. 2017-04 REQUESTING THE CITY COUNCIL OF THE CITY OF EDINA TO CALL A PUBLIC HEARING ON THE PROPOSED MODIFICATION TO THE REDEVELOPMENT PLAN FOR SOUTHEAST EDINA REDEVELOPMENT PROJECT AREA AND THE PROPOSED ESTABLISHMENT OF THE 50TH & FRANCE 2 TAX INCREMENT FINANCING DISTRICT (A REDEVELOPMENT DISTRICT) Economic Development Manager Neuendorf presented a summary of the resolution and explained that it documents the HRA’s request for the City Council to call for a public hearing on June 20, 2017. The purpose of the public hearing is to consider the creation of a new tax increment financing district. Motion made by Commissioner Staunton, seconded by Commissioner Fischer approving Resolution 2017-04 requesting the City Council of the City of Edina to call a public hearing on the proposed modification to the redevelopment plan for Southeast Edina Redevelopment Project Area and the proposed establishment of the 50th & France 2 Tax Increment Financing District (a Redevelopment District). Ayes: Brindle, Fischer, Staunton, Stewart, Hovland Motion carried. VII. ADJOURNMENT Chair Hovland declared the meeting adjourned at 1:21 a.m. on April 19, 2017 Respectfully submitted, Scott Neal, Executive Director Date: May 16, 2017 Agenda Item #: V. To:C hair & C ommissioners of the Ed ina HR A Item Type: Advis o ry C o mmunication F rom:Bill Neuendorf, Ec o nomic Development Manager Item Activity: Subject:W 49-1/2 S treet R edevelo p ment - P rojec t Up d ate Dis cus s ion Edina Housing and Redevelopment Authority Established 1974 C ITY O F E D IN A HO US I NG & R EDEVELO P ME NT AUT H O R I T Y 4801 West 50th Street Edina, MN 55424 www.edinamn.gov A C TI O N R EQ U ES TED : N o action required. F or discussion only. I N TR O D U C TI O N : T his update is in regard to the potential sale and redevelopment of publicly-owned parcels located on West 49- 1/2 S treet. S ince the preliminary approvals were secured on April 18 th, 2017, staff has continued meeting with the development partners to refine details of the project. T his update is provided to summarize the status of several details related to the project. N o action is needed at this time. D iscussion or comments are appreciated as staff continues the negotiations and prepares a complete P urchase Agreement and R edevelopment Agreement for consideration on June 20, 2017. AT TAC HME N T S : Description Staff Memo: W 49-1/2 Street Redevelopment – Project Update Edina Market Street Redevelopment: Pro Forma Review City of Edina • 4801 W. 50th St. • Edina, MN 55424 Economic Development / HRA Phone 952-826-0407 • Fax 952-826-0390 • www.EdinaMN.gov Date: May 16, 2017 To: Chair and Commissioners of the Edina Housing and Redevelopment Authority From: Bill Neuendorf, Economic Development Manager Re: W 49-1/2 Street Redevelopment – Project Update Since the preliminary approvals were secured on April 18th, 2017, staff has continued meeting with the development partners to refine details of the W. 49-1/2 Street Redevelopment project. This update is provided to summarize the status of several details related to the project. No action is needed at this time. Discussion or comments are appreciated as staff continues the negotiations and prepares a complete Purchase Agreement and Redevelopment Agreement for consideration on June 20, 2017. 1) W. 49-1/2 Street Redevelopment Project Description The overall redevelopment project consists of two separate components – the North Ramp Expansion and the South Property Reconstruction. Please note – there is no change to the existing South Ramp located W. 51st Street. Construction of each component will be coordinated to minimize the impact to employees, customers and clients. COMPONENT #1 - The Edina HRA will expand the existing North Parking Ramp on property currently owned by the Edina HRA. Two of the parcels are currently vacant after being acquired in 2013/2014. The Hooten site (3944) will be demolished by the HRA in summer 2017 as a separate project that leaves the site in a ‘shovel ready’ condition. • Publicly owned, operated and funded • Increase parking capacity from 262 to 573 stalls • Estimated construction cost is $11.2 million • Three primary funding sources o proceeds from property sale and Housing and Redevelopment Authority Established 1974 W 49-1/2 Street Redevelopment Update May 16, 2017 Page 2 o existing monies in the Centennial Lakes Fund o Developer contribution to create street-level retail (gray box) • Retail spaces on first floor will be sold to developer o Approx. 10,000 sq. ft. o Return tax-exempt parcel to tax rolls o Construct costs borne by developer COMPONENT #2 - The developer will acquire the existing Center Ramp property (located on the south side of W. 49-1/2 Street) and construct a new mixed-use project consisting of 110 apartments, approximately 23,000 sq. ft. of commercial space, and underground parking for residents. The project will also include dedicated public parking and a large public plaza. • Privately owned, private built • Return tax-exempt parcels to tax base • Estimated project cost is $73.8 million • 82% privately financed (debt and equity) • Requesting approximately $10 million in TIF to address extraordinary expenses • Seeking grants to enhance “placemaking” and remediate environmental contamination • Seeking low-interest loans to offset costs of affordably-priced units (see discussion on Pg 3) 2) Project History The vacant parcels at 3930 and 3944 W. 49-1/2 Street were acquired in 2013 and 2014 to improve public parking conditions for the whole 50th and France District. The initial concept of simply adding more public parking was rejected after numerous discussions with the business community in 2013/2014. The strong preference was to develop a mixed-use project that added vitality, street life and business opportunity on W. 49-1/2 Street. Additional public parking was determined to be a significant expense with no opportunity for revenue. The pursuit of mixed use project with public parking and an occupied street level would return a portion of the tax-exempt properties to the property tax rolls and create vitality for existing and new businesses. In summer 2016, the Edina HRA issued a Request for Proposal (RFP) to solicit creative ideas from the business community. Three teams were interviewed and the Buhl/Saturday team was selected. W 49-1/2 Street Redevelopment Update May 16, 2017 Page 3 3) Sale of HRA-owned Properties The State-mandated process to sell properties that are owned by the Edina HRA includes several key steps: • The sale of land by the Edina HRA for redevelopment purposes is governed by Minnesota Statutes Section 469.029. • In accordance with a redevelopment plan, land belonging to the HRA may be sold without public bidding, but only after holding a public hearing. Notice of the public hearing must be published at least once. The notice must be published at least 10 days, but not more than 30 days, before the hearing. • The sale price must take into consideration the estimated fair market value. This is often demonstrated through an appraisal or other market knowledge. • The agreement authorizing the transfer must include terms to ensure that the project plans are carried out. For the 49-1/2 aka Market Street project, these terms will be included in the Redevelopment Agreement. • An HRA public hearing on the sale of the HRA parcels should be held (with proper notice) in conjunction with approval of the Redevelopment Agreement. Source: Dorsey & Whitney, Special Counsel 4) Design of North Ramp Expansion Staff recommends that the design team at Mohagen Hansen Architects be retained directly by the Edina HRA to design the expansion of the North Ramp. They will utilize Kimley Horn Associates for the site and engineering work. Both firms have worked for the HRA on previous projects at 50th and France and performed satisfactorily. Staff is currently negotiating the scope and terms of the architectural/engineering contract. This will be presented in early June so that design can proceed. Time is of the essence, as the development partner would like to begin preliminary site work in Fall 2017. This preparation is anticipated to minimize disruption during the busy 2017 holiday season and allow the full project to begin in January 2018. 5) Public Finance W 49-1/2 Street Redevelopment Update May 16, 2017 Page 4 The HRA is considering the creation of a new Tax Increment Financing (TIF) District to fund a portion of the extraordinary costs of the project. Historically, TIF was the finance tool used to construct the Center Ramp and surrounding pedestrian improvements in the 1970s and the North Ramp in the 1990s. The proposed TIF District is limited in size to only the HRA/City-owned properties that are currently vacant or tax-exempt. The State-required property evaluation is complete. Notices have been sent to the County. A draft TIF Plan is being prepared and will be shared with School District and County this week. 6) Analysis of Gap Financing The Edina HRA has retained the services of Ehlers Associates to assist staff in evaluating the financial needs of the proposed project. The development partner has shared their budget and pro forma with Ehlers so that the need for public financing can be independently verified. A summary of the Pro Forma Review (dated May 10, 2017) is attached. 7) Affordable Housing The preliminary approvals require that 10 percent of the housing units be affordably-priced to households earning no more than 60 percent of the Area Median Income (AMI). The Edina Housing Foundation recommends that 9-one bedroom units and 2-two bedroom units be priced at the affordable rates. This arrangement results in a $1.8 million loss to the project. The developer is willing to defer $1 million of their fee and is seeking low-interest loans from the Edina Housing Foundation and the Edina HRA to cover the loss. • Suggest $900,000 loan from EHF and $900,000 loan from Edina HRA • HRA funding source is the Affordable Housing Fund that has a current balance of $2.0 million • 15-year loan at below-market interest • Lump sum payment at end of term • Pre-payment does not relieve developer of requirement to provide affordable units for full term W 49-1/2 Street Redevelopment Update May 16, 2017 Page 5 • Tenants of affordable units offered overnight parking permit in North or Center Ramps (in lieu of $150 per month to park in heated private garage) 8) Operations of Public Parking The North Ramp is anticipated to be the preferred parking location for employees and customers who wish to park for more than three hours during the daytime. Standard enforcement procedures are anticipated to continue. Long-term and employee parking should be discouraged in the new Center Ramp so that priority is given to customers and clients. The new enforcement strategy is recommended in the new Center Ramp. With the opening of a brand new facility, customers will learn have to establish new patterns. This is the appropriate time to introduce controlled access with a movable gate/arm and ticket stub. Customers should be allowed to park at no charge for the first hour or two. If they choose to remain longer, an hourly fee should be charged. The goal is not to collect fees, but to direct behavior. These stalls are best used for short duration visits. This practice allows a greater number of customers to benefit from the use of these centrally-located stalls. 9) Permit Parking Policy The current employee permit parking program is recommended to continue. This program issues annual, monthly and daily permits to employees. Fees are used to offset the maintenance costs of all three parking ramps at 50th and France. This policy encourages employees to give priority to customers and clients. Staff recommends that permit fees be reduced during the construction period to reflect potential inconveniences. It is important to retain good employees during this transition. This change will reduce revenue collections in 2018 and 2019. Revenue losses, however, will be offset by reduced maintenance expenses during the construction period. For example, the Center Ramp will require no maintenance while it is being rebuilt by the developer. Staff also recommends that new overnight parking permits be made available to tenants and guests of the new apartment complex. This is similar to the courtesy extended to guests at 5000 France Condominiums. The HRA currently offers up to ten overnight permits for $50/month to business tenants who park in the North Ramp. Overnight parking does not hinder the W 49-1/2 Street Redevelopment Update May 16, 2017 Page 6 effectiveness of the public ramps provided that overnight vehicles are moved during the daytime hours. This allows customers and employees to use the parking stalls during the daytime. 10) Distribution of Maintenance Assessments The new privately owned project is located in the 50th and France Maintenance Assessment District. Costs of maintaining the public parking ramps and streetscape are borne by the commercial property owners. This policy has been effectively used since the 1970s and is recommended to be continued. • The net area (approx. 33,000 square feet) of new commercial space will be included in its entirety because employees, customers and clients will use the shared parking ramps. o This will reduce the proportional share of all existing property owners. • The net area of the new apartment complex will be adjusted to recognize that private parking is provided for the residents. The apartments are recommended to still make a small contribution to the Maintenance District because, staff and guests will use the shared parking ramp. Tenants and guests will also benefit from the maintenance of the streetscaping, woonerf and plaza. o This will also reduce the proportional share of all existing property owners. END Memo To: Bill Neuendorf - Economic Development Manager From: Nick Anhut - Ehlers Date: May 10, 2017 Subject: Edina Market Street Redevelopment - Pro Forma Review The City requested Ehlers to review the Market Street project redeveloper’s pro forma and related request for tax increment financing (TIF) assistance. The project includes the following components: 1. Apartments: 110 units: 11 units designated affordable, and 99 units as market rate 2. Commercial Space: 33,500 square feet Background on TIF and TIF Projections Tax increment financing is a tool available for cities and counties to utilize for new developments that demonstrate a financial need for assistance. The underlying justification for the use of TIF is the “but for” test. This means that the Council must make a finding that the project as proposed would not be feasible without the use of public resources. There are many approaches to make a “but for” finding, which this memo will discuss in more detail. There is also great flexibility in the “business deal” or negotiation on how much TIF can be directed to a project. If circumstances dictate, a development may not require all the available TIF. The Council has discretion to reject a request for TIF or it can cap a maximum amount of TIF based on any of the following:  Reimbursement for certain extraordinary (site specific) costs or redevelopment costs,  Specified dollar amount designed to assist in securing private financing, or  Specified time (number of years). The HRA’s redevelopment agreement will identify various redevelopment and public improvement cost items qualifying for reimbursement. Because there is financial assistance negotiated within a contract, the Council also can make assistance conditional upon compliance with other factors such as construction completion by a certain date, types of units or public amenities, and/or a higher level of quality in the exterior of buildings or landscaping than is required under the zoning code. The first step in evaluating a TIF request is to determine how much TIF is generated. Our estimate is based upon using an initial $51.4 million taxable market value provided by the assessor upon review of the apartment and retail components. T he potential annual TIF generated from the project upon completion will be approximately $757,000, as shown in Bill Neuendorf Edina Market Street Pro Forma Review May 10, 2017 Page 2 the chart below. TIF does not capture the taxes attributable to the base value (as exists today), or for tax-exempt property once it is converted to a taxable classification. TIF also does not capture taxes paid to the State or fiscal disparities contributions for commercial property, or market value-based levies such as school district referenda. It does capture all other tax capacity-based levies. Project TIF Estimate Total Property Taxes 1,089,488 less State-wide Taxes (107,021) less Fiscal Disp. Adj. (117,219) less Market Value Taxes (96,329) less Base Value Taxes (11,920) Annual Gross TIF 756,999 The request is for a $10.1 million pay-as-you-go TIF Note, meaning the developer would only receive assistance payments over time as TIF is generated from future increases in tax payments. No bonds backed by the City’s other revenues or direct loans would be made for the TIF assistance. The developer intends to pledge the City’s TIF Note to help obtain the financing necessary, along with its equity, to build the project. It is anticipated that this TIF Note will be monetized into $8.5 million in up-front financing to offset a project gap. The developer has requested the TIF Note be payable from 90% of the annual tax increment generated over the full 26 years allowable in creating a new redevelopment TIF district. The TIF Note would carry an interest rate of 6% which is tied to the private permanent financing assumption. A $10.1 million TIF Note is supportable from the anticipated TIF cash flow assuming 2% annual appreciation on the taxable value of the apartment and retail property. If any year’s TIF decreases below expectations, the developer receives only what is generated. If the annual TIF increases above 2%, the City is not obligated to provide more once the TIF Note is paid off. Pro Forma Review and Analysis We have reviewed the project based on general industry standards for construction, purchase price of land, and project costs. We have further evaluated the developer’s pro forma assumptions for lease/rent rates, return on equity/profit, cash flow, and the request for TIF assistance. Below are our comments with regards to the pro forma and TIF request for the $74 million redevelopment project. 1. Acquisition Cost: Total acquisition cost is $6,100,000 to purchase the HRA property. This value is not based upon appraisal. However, the City Assessor’s most recent value for the Center Ramp, Hooten’s, and Old Edina Realty property to be acquired is $8.4 million. This figure includes added value for the parking structure. Atop the acquisition price, it should be noted the City/HRA will also obtain permanent easements related to retaining use and control of public parking and access and use to the outdoor public plaza. Following is a cost allocation of the land price to the elements of the project and what we see for typical land costs within the larger market:  Apartment - $23,670 per residential unit Bill Neuendorf Edina Market Street Pro Forma Review May 10, 2017 Page 3  Area Retail - $37.60 per developable sq. ft. Pad ready sites for mixed income rental projects with some affordability in them typically see $8,000 to $10,000/unit. Inner-ring market rate rental can be a bit higher at $15,000 to $20,000/unit range. Metropolitan area commercial retail is $25 to $40 per developable sq/ft. To be noted: the development is paying a premium for the land which adds to the project expense, but this level is in accordance with what we would expect to see for similar developments and is lower than some recent sales in the area. The anticipated use of the land proceeds is to further invest in North Site parking improvements benefiting the larger district. 2. Financing Structure: The developer proposes to finance the Apartment and Retail “South Site” project with a combination of equity, debt and public assistance. The proposed financing includes 26.5% equity; 2.1% in public grant funds; 57.3% to come from debt in the form of a first mortgage; and the remaining gap to come in the form of a TIF loan and deferred affordable housing loan. For a project of this nature, we expect to see an equity contribution of at least 20% and do not typically see above 25%. Market Street, LLC indicates the first mortgage includes a 30-year term at 6.0% interest and is set at a level assuming a 125% debt coverage ratio limit. The project’s anticipated net income without TIF underwrites only $41.7 million loan amount, leaving a gap of approximately $10.3 million. The anticipated term is common for residential and the rate is conservatively set anticipating future market conditions. The estimate of 6.0% is on the high end of an acceptable range due to the current uncertainty within the market. These assumed terms are within industry standards, but a thorough review should be given to the actual terms obtained for the project upon releasing public assistance. 3. Developer Fee: Market Street, LLC included a 4.0 percent developer fee (~$2.7 million) for the south site project, which is in line with industry standards for this type of project. By comparison, typical market rate and commercial projects receive a 3.0- 5.0 percent developer fee. Projects with increased levels of affordable units typically receive a higher 8-10 percent developer fee (higher because affordable projects defer a portion of the fee up front and receive payment out of project cash flow, if any). The developer anticipates deferring $1 million of this fee. The developer will also serve as construction manager for the North Site project at a 4.0 percent fee against the hard costs for that portion of the redevelopment project (~$400,000). 4. Soft Costs: Total non-construction related expenses of the project equates to 17.1% of the total development. This portion of the costs includes those related to design, engineering, legal, financial and start-up expenses. It is typical to expect 15% to 20% of the total development cost (TDC) attributable to soft costs. 5. Total Development Cost (TDC): The TDC is approximately $450,000 per/unit and $634 per building sq.ft. for the South Site apartment and overall commercial retail, respectively. The per unit apartment figures are somewhat overstated due to the large unit sizes anticipated. These costs include construction, public and private Bill Neuendorf Edina Market Street Pro Forma Review May 10, 2017 Page 4 parking, common areas, amenities, and all soft and financing costs. Market Street, LLC. stated that the market rate and affordable units have higher end finishes necessary to attract rents at the expected levels. The below-grade structured parking does contribute to the higher costs as does the costs of redevelopment activities and public amenities. Typical TDC range for new construction apartments at a greenfield site, regardless of income, is $250,000-$285,000 in this market. Adding land acquisition and parking expenses, we would anticipate $310,000–$345,000 per unit TDC for a typical amenity project. 6. Structured Parking: The south site redevelopment includes two below-grade levels contributing 270-stalls of structured parking facility with a cost (excluding land and redevelopment costs) of $8.4 million or $31,017 per /stall and 11.4% of the TDC. This is just above the recent industry standards of $25,000 to $30,000/stall for structured parking with below grade elements. 7. Apartment Rents/Commercial Leases: The affordable units are designated at the regulatory maximum rents for households at 60% of area median income (AMI), which translates to rents between $983/month for a 1-bedroom unit and $1,107/month for a 2-bedroom unit. Market rate rents are set for $1,620/month to $1,990 for 1-bedroom units, and up to $4,920 for a three-bedroom. Market rate rents are $2.58 per sq/ft on average. This is somewhat aggressive for Edina (typical per sq/ft rent is $2.25 per sq/ft plus), but given the location and type of units the assumption seems reasonable. Commercial rents on a triple net basis in the suburban metro range from $16 sq/ft for in-line retail, $24 sq/ft for a café and $41 sq/ft for a coffee house. The pro forma details $32.50 across the full site, which is within the typical range for the market and does not reflect an aggressive assumption for uses within the 50th and France business district. 8. Operating Expenses: Residential operating expenses of approximately $5,941 per unit per year or 15% of gross revenues (before taxes, management fees, and reserves) is at the high end of industry standards. The carrying costs of the retail spaces are anticipated to be passed through to potential tenants. 9. Returns / Cash Flow: Returns on a real estate transaction are measured under a variety of means. Below is a synopsis of several methods, designed to provide some background on the level of anticipated returns given the assumptions above as will as the impact provide from the potential assistance. Return on Equity: The cash return measured against the equity invested. Assuming invested equity of $19.3 million and the developer’s pro forma including repayment of the deferred developer fee, the net income after debt service equates to an annual return without TIF of approximately 1.7% by year 5 and only rising to 5.6% in year 15. Given the level of risk involved in a new development, investment returns on equity are typically expected to exceed 10%. Even with TIF assistance, the pro forma does not anticipate exceeding this level until year 15. Return on Cost: Cash on Cost, or the amount of net income generated prior to debt and depreciation helps compare returns independent of equity and financing levels. As a percent of the total development cost, the stabilized net income of the private Bill Neuendorf Edina Market Street Pro Forma Review May 10, 2017 Page 5 project demonstrates an initial 5.1% return on cost. Cash on cost returns exceeding 7-8% are typical benchmarks. Internal Rate of Return: A more comprehensive analysis of market returns also evaluates the timing of future cashflows and proceeds from a potential sale of the property discounted back against the initial investment. The projected internal rate of return (IRR) by year 10 for the developer from this project with TIF assistance is just under 14%, and without TIF is 8.6%. In this case, we assumed hypothetical sales ranging 6 to 10 years into the future. For a project requesting City assistance we typically want to see an IRR at or below 20%. Financial Feasibility Market Street LLC expects a portion of funding will come from securing grants the City has applied for on behalf of the redevelopment. As is the case with most projects that include substantial redevelopment activities, there is a gap that warrants the use of TIF. However, even with the TIF, the project does not generate sufficient cash flow to obtain the remaining debt needed to close on the total financing package. In addition to the grants, the developer is seeking to address remaining shortfall by obtaining a commitment from the Affordable Housing Fund and Edina HRA in the amount of a $1.8 million subordinate housing loan. In terms of the project financing, the requested Tax Increment Assistance equates to 13.8% of the apartment and retail TDC. Our recent observations for mixed-use redevelopment projects have included TIF request ranging from 6.0% to 15%. Overall, the project is financially feasible, although the South Site project does demonstrate a need for public assistance in the form of Tax Increment Financing as well as continued city investment in public parking amenities for the overall 50th and France business district. As part of the City’s redevelopment agreement, Market Street LLC will provide financing commitments necessary to prove access to the capital needed to financing the project. Supplementing this memo are restated project sources and uses, pro forma and returns analysis. Please contact us at 651-697-8507 with any questions.