PUBLIC HEARING: Adopt Resolution #23-126 Approving Business Subsidy and Authorizing Execution of a Tax Increment Financing (TIF) Agreement and Approving Terms of an Interfund Loan; case of Ramsey Properties, LLC

The purpose of this case is to consider adoption of Resolution #23-126 Approving Business Subsidy and Authorizing Execution of a Tax Increment Financing (TIF) Agreement and Approving Terms of an Interfund Loan for the Ramsey Properties Hilton Home 2 project.

Tax Increment Financing Agreement / Public Hearing

A Public Hearing is required for the requested business subsidy of $434,511 for the up front land cost write-down and $550,000 on Pay-Go TIF for the reimbursement of site improvements for the project ($984,511 total).  Part of the TIF Business Subsidy process involves the authorization of an inter-fund loan which allows the City to reimburse itself through TIF for the land cost write-down ($434,511) and project legal and administrative costs (up to $25,000) plus 5% interest.  Approval for the Business Subsidy, the TIF Agreement and Inter-fund Loan are all included in Resolution #23-126.

The Public Hearing notice was published on May 26, 2023 in the Anoka County Herald

Observations:
The request for a Business Subsidy in the form of a land write-down of $434,511 (reduced sales price) and request for $550,000 in Site Improvement reimbursement triggers the need for business subsidy analysis which is highlighted below from information provided by Ehlers. This information has been previously shared with the City Council and EDA.    Items specific to the requirements of the business subsidy included in the TIF Agreement and other benefits to the community include but are not necessarily limited to the following:

• General Project Description and Business Subsidy Requirements
• 98 unit, Four Story Hilton Home 2 Hotel with hot breakfast and indoor pool; a Certificate of Occupancy 16 months after Closing.  If this is not done, the City may exercise the Right of Re-Entry. 
• Estimated Tax Assessed Value 7.14M (Minimum Assessment Agreement required) 
• Estimated Taxes - $202,000 annually 
• 11 new jobs to be created paying at least $14.75 / hr.
• Requirement to operate at location for 5 years
• Catalyst project (provides more trips to COR and encourages investment in restaurants/retail)
• Strong presence at the entrance to COR and along Sunwood Drive NW
• Hotel brand with positive reputation

Project Analysis - Public Hearing - Need for Subsidy - TIF Development Agreement
As with any Business Assistance project, both Staff and Ehlers have completed analysis determined if the amount of assistance provided is appropriate. A summary of this analysis is below and attached in a Memo put together by Jason Aarsvold from Ehlers:
 
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%.

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 an 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 for $434,511 with the remaining 60% directed to the PAYGO note payments for the $550,000 in Site Improvement reimbursement.

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%.

Interfund Loan  
The City is required to adopt an inter fund loan resolution allows the city to reimburse eligible costs with TIF revenue.  The eligible costs include $434,511 (land cost write-down) and $25,000 (Administrative and legal costs) and they are included in the attached resolution for Council consideration.

Alternatives Include:
1)  Adopt Resolution #23-126 Approving Business Subsidy and Authorizing Execution of a Tax Increment Financing (TIF) Agreement and Approving Terms of an Interfund Loan (as presented); subject to TIF Attorney Review
2)  Adopt Resolution #23-126 Approving Business Subsidy and Authorizing Execution of a Tax Increment Financing (TIF) Agreement and Approving Terms of an Interfund Loan (with changes); subject to TIF Attorney Review
3) Something Else
 

This case is being handled as part of normal Staff duties. If financial assistance is provided, TIF District 14 will also be a funding source.

The EDA has formally recommended approval of the proposed Business Subsidy included in the proposed TIF Development Agreement at the January 12, 2023 EDA meeting.  The EDA Minutes are attached to the case.

Motion to adopt Resolution #23-126 Approving Business Subsidy and Authorizing Execution of a Tax Increment Financing (TIF) Agreement and Approving Terms of an Interfund Loan (as presented); subject to TIF Attorney Review