Agenda - Economic Development Authority - 07/13/2023

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gS ..EHLERS is PUBLIC FINANCE ADVISORS • Rents: 20% of the units (36 total) will be set aside for those with incomes at or below 50% of area median income (AMI), which qualifies the project for inclusion in a Housing Tax Increment Financing district. The projected affordable rents are inflated for occupancy in 2026 and acceptable for the project. Market rate rents are projected at $2.68 per sq. ft. which is the high end of the market for Ramsey. • Operating Expenses: The operating expenses of approximately $8,712 per unit per year are higher than the typical range of $3,500 to $4,500 per unit per year (before management fees, property taxes, and replacement reserves). These operating expenses, however, include the management fee as well as some housekeeping and wellness activities and are acceptable for the project. • Reserves: The annual deposit to replacement reserves are proposed to be at $350 per unit per year. Typical deposits to the replacement reserve range between $250 - $450. • Developer Fee: The developer fee of $2,332,227 is 3.4% of total development costs. This is within the typical industry range of 3-5% for rental projects. The proposed fee is within the typical range. • Return on Investment - The project's average yield on cost return on investment (net operating income / total development costs) with 20 years of TIF assistance is 7%. Developers typically need a yield on cost of between 6.5% to 7% for feasibility. Since the project reaches this level within 20 years, we conclude TIF payments can stop at this point. Recommendation: Based on our review of the Developer's pro forma and under current market conditions, the proposed development may not reasonably be expected to occur solely through private investment within the near future. Due to the costs associated with developing the property and constructing housing with affordable rents, this project is only feasible, in part, through public assistance. TIF assistance should be provided on a "pay-as-you-go" (PAYGO) basis. With PAYGO 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. The Developer uses those tax increment payments to obtain additional debt and/or support returns on investment. If the tax increment is insufficient to pay the $2.7 million in total TIF notes, the City does not make up the shortfall. Please contact me at 651-697-8512 if you have any questions or comments. BUILDING COMMUNITIES. IT'S WHAT WE DO. info@ehlers-inc.com yL) 1(800) 552-1171 www.ehlers-inc.com