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• The Developer proposes to finance the entire hotel project with a combination of equity and debt. The proposed financing includes 30.4% equity and 69.5% debt in the form a first mortgage and the PAYGO portion of the developer loan. For a project of this nature, we would expect to see an equity contribution of at least 25%. The developer indicates the first mortgage would include a 25-year term with 6.75% interest. While these terms are within industry standards and are used for the analysis, we were not given an actual lending commitment to review. • The total development cost (TDC) for this project is $18.25 million or $186,229 per room, assuming no payment for the land. Based on our experience with similar projects, we would expect total development costs to range between $175,000 and $200,000 per room with a payment for land. The development costs are within an acceptable range, but we did not receive a detailed breakdown for review. • The developer fee of$373,698 is 2.0% of total development costs. For a project of this nature, we would expect to see a developer fee of no more than 5%. The proposed fee is acceptable. • The developer proposes an Average Daily Rate (ADR) of$130 in year one with a 61% percent occupancy assumption. This increases to an ADR of$138 by year three with a 68% occupancy assumption. The projected ADR is consistent with a third-party market analysis prepared for the project and is, therefore, an acceptable assumption for this project. • The total operating costs are projected at just over $20,626 per room (at stabilization) and represent 58% of effective gross income. The proposed operating costs are within industry standards. • The project's average cash on cash return (annual cash flow / equity) without any assistance is 5.2% in year three and increases to 7.7% by year 10. Hotel developer/ owners would like to see a cash-on-cash return of 8% to 10%. Recommendations In summary, the lower than average projected return on investment means the project does demonstrate a need for assistance. Providing the requested land write-down and PAYGO note will help facilitate development of the hotel without unduly enriching the developer. We estimate the project will generate approximately $129,435 annually (at full build-out) in tax increment within the COR TIF district. Some of that increment can be directed to repay the City's land write-down through and inter-fund loan, and some can be used to repay the PAYGO TIF note. We propose using 40% of the increment generated to repay the City's inter-fund loan with the remaining 60% directed to the PAYGO note payments. Based on this structure, we estimate the PAYGO note could be repaid with 10 years of payments, assuming an interest rate on the note of 5%. This, coupled with the land write-down, would push the project's average cash on cash return to 9.9% by year 11 (at which point the TIF payments would stop). Repayment of the City's land though an interfund loan would take an estimated 12.5 years assuming the City charges the maximum interfund land interest rate of 5%. BUILDING, COMMUNITIES. IT'S WHAT WE DO. E�J info @ehlers-inc,com 1(800)552-1171 www.ehlers-inc,corn