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MEI MIN <br />Memo <br />To: <br />Patrick Brama, Economic Development Manager, Assistant City <br />Administrator <br />From. Stacie Kvilvang and Jason Aarsvold, Ehlers <br />Date: May 27, 2015 <br />Subject: Housing Assistance Policy Measures <br />The City of Ramsey intends to update its Housing Assistance Policy to establish some <br />parameters for financial participation. You requested that we provide some measures to <br />consider for inclusion in the policy based on our observations from other city -assisted <br />housing projects. Included in this memorandum is a summary of the possible measures <br />that could be included in such a policy and assumes that all projects are built on <br />greenfield sites (does not consider higher costs of redevelopment). <br />Since your policy distinguishes between affordable and market rate housing, the lists below <br />are broken out that way. Some of the measures for these product types differ, while other <br />may be the similar. <br />Market Rate Housing <br />• Cash -on -Cash Return (COC): The most discernable way to determine need for <br />assistance is through an analysis of the developer's proforma to ascertain if all the <br />project costs and sources of funds are within industry standard. Once those are <br />determined to be in line, the benchmark for all rental projects is for the developer to <br />receive a maximum 10% COC rate of return (return on equity invested). This <br />measure provides some flexibility in that each project might require a different level <br />of assistance (e.g. per unit) to achieve this level of return. On the other hand it does <br />provide for a quantifiable cap as desired. <br />• Internal Rate of Return (IRR): The second test under this format is setting an IRR. <br />This is the value of the annual cash received plus the value of the property when it is <br />sold (net of closing costs and fees). The TIF and/or Development agreement will <br />usually state that it is determined based upon the earlier of the actual sale and/or <br />refinance date of 10 years. The typical range for an IRR is 15% to 20%. For <br />purposes of your policy we would recommend an IRR range of 16% to 18%. <br />• Per Unit Dollar Subsidy: For most suburban markets, the average subsidy ranges <br />from $15,000 to $25,000 per unit. This is what is required to build high quality, <br />market rate multifamily housing that includes "country club" amenities such as a pool <br />(indoor and outdoor), fitness facility, club house, etc. Funding can come from <br />sources other than the City. We would recommend a cap of City funds at $10,000 <br />vv vw.ehlers-inc.com <br />1111 EHLERS <br />LEADERS IN PUBLIC FINANCE <br />Minnesota. <br />Offices also in Wisconsin and Illinois <br />phone 651-697-8500 3060 Centre Pointe Drive <br />fax 651-697-8555 Roseville, MN 55113-1122 <br />toll free 800-552-1171 <br />