Agenda - Council Work Session - 06/25/2019

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and end sources of funds (rent paid by the business) would meet typical market returns to attract private equity financing. Summary of Analysis For purposes of this analysis, we assumed the project receives the full 9 years of tax increment totaling an estimated $972,000. Based on the anticipated development costs and potential rental income, the projected cash -on -cost return on investment to a potential developer would be 8.1% without TIF assistance and 8.42% with TIF assistance. Cash - on -cost return is simply the annual income from the property divided by the total development cost. Industrial developers typically need a cash -on -cost return of between 7% and 9% to attract private financing. With the requested TIF assistance, the projected returns are still within this range. Recommendations Based on our review of the project and market trends, we onclude that the proposed development would not reasonably be expected to ur solely through private investment within the reasonably foreseeable future. refore, if the City chooses to provide assistance, Ehlers concludes it will help facial Ott the project and not unduly enrich the company. TIF assistance could be provided on a "pay -As -you -go" basis in an amount up to $972,000. With "pay-as-you-go" TIF assistance, the City does not provide any funding up -front. Instead, the City enters into an agreement to provide tax increment payments that are generated solely from the project's actual increased property taxes for up to nine years. The applicant uses those f'tax increment payments to obtain additional debt and/or support returns on investment. If the tax increment is insufficient to pay the $972,000 TIF note in nine yaks, the City does not make up the shortfall. Please contact me at 65,697-8512 with any questions. BUILDING COMMUNITIES. IT'S WHAT WE DO. info@ehlers-Inc,com 1 (8°°) 552-1171 I www.ehlers-inc,cam