05/28/2019 - City Council Finance CommitteeFINANCE COMMITTEE MEETING
TUESDAY, MAY 28, 2019
10:00 A.M.
FIRE SAFETY CENTER
UPPER LEVEL CONFERENCE ROOM
AGENDA
I.AGENDA ADOPTION
II.CONSIDERATION OF PRELIMINARY APPLICATION FOR BUSINESS FINANCING
ASSISTANCE
III.OTHER BUSINESS
IV.ADJOURNMENT
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Agenda Information Memo
Finance Committee Meeting
May 28, 2019
II.REAL ESTATE EQUITIES PROPOSAL
DIRECTION TO BE CONSIDERED:
To provide direction on the pre-application for business assistance financing by Real
Estate Equities.
FACTS:
Real Estate Equities has submitted a pre-application for business assistance
financing for a 202-unit affordable housing development.
The 8.05-acre site is located south of the intersection of Nicols and Diffley Roads.
The development would have a mixture of one, two, and three-bedroom units all
affordable to households at or below 70% of area median income.
The developer is requesting the establishment of an affordable housing tax
increment financing (TIF) district to capture the increase in property taxes from
the development for a maximum of 16 years.
The developer is proposing a 20-year term of affordability and 16 years of tax
increment assistance.
ATTACHMENTS (8)
FCII-1 Staff Memo, Identification of Policy Issues
FCII-2 Maps, Location Map and Location of Housing and Amenities
FCII-3 Business Assistance Financing Pre-Application (Revised)
FCII-4 Memo, Tammy Omdal, Analysis of Preliminary Application
FCII-5 Memo, Bob Bauer
FCII-6 Memo, Erik Slettedahl, Preliminary Land Use Review
FCII-7 Dakota County CDA, Housing Finance Tools and TIF Policy
FCII-8 Developer Presentation
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Memo
To: Finance Committee
From: Dave Osberg, City Administrator
Jill Hutmacher, Director of Community Development
Date: May 28, 2019
Subject: Preliminary Application for Housing TIF Assistance
Introduction
The Finance Committee meeting on Tuesday May 28, 2019 at 10 AM in the upper level
conference room at Fire Station #2 may prove to be quite different than those held in recent
years. Review and discussion of a business assistance financing application is rare. Staff
understands much information is included in this packet. Several City staff will be in
attendance at the meeting including Jill Hutmacher, Tom Pepper, Erik Slettedahl and Bob Bauer.
Tammy Omdal, Northland Securities, Tony Schertler, Dakota County CDA, and representatives
from Real Estate Equities will also attend.
Staff might suggest the flow of events as follows:
a.) Opening comments from Staff
b.) Presentation by Real Estate Equities (10-15 minutes)
c.) Presentation and discussion of Northland Securities memo
d.) Presentation and discussion of CDA memo
e.) Presentation and discussion of memo from City Attorney office
(Each of the above memos were requested by City Staff.)
All of the above are open for discussion and questions during the presentations. When the
conversations with the developer are at an appropriate point in the meeting, they may be
asked to leave, which of course they are not required to do so as it is an open meeting. The
Finance Committee can then discuss and determine next steps in the process which may
include, but not be limited to, the need for additional information from Staff or the developer.
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Policy Issues
o The developer has requested 16 years of tax increment assistance and is proposing a 20-
year term of affordability. Based on preliminary analysis by Northland, the project may
not need a full 16 years of tax increment and a reduction in tax increment may be
warranted.
o The City’s approved Business Assistance Policy states the following regarding Tax
Increment Financing Housing Districts:
Assistance is provided by increasing the tax base of a parcel through
development of rental or owner-occupied housing for persons of low to
moderate income.
Must comply with Minnesota Statutes 469.174.
Must be for persons of low to moderate income, as defined by the Minnesota
Housing Finance Agency.
Up to 20% of the fair market value of the improvements may be for uses other
than low- and moderate-income housing.
Maximum of 2 years of increment.
Amount is based on proven need.
o The developer is proposing 202 affordable units and no market rate units. The following
table compares the proposal’s breakdown of affordable units compared to the City’s
identified Allocation of Affordable Housing Need. The Finance Committee may want to
discuss whether the breakdown of affordability proposed is appropriate given the
Allocation of Affordable Housing Need is a policy question.
Level of Affordability
Met Council Allocation
of Affordable Housing
Need (2030)
Proposed Units –
Real Estate Equities
At or below 30% AMI 232 0
31% to 50% AMI 100 45
51% to 80% AMI 140 157
o The proposed location near the intersection of Diffley and Nicols Roads is well-served by
transit and has nearby retail services and park amenities. It is near an area that has a
high number of naturally occurring affordable housing (NOAH) units that are affordable
to households at 80% or less of area median income. The Finance Committee, and
ultimately, the City Council may want to discuss whether the location is appropriate for
an affordable housing development is a policy question.
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o Every recently-approved multi-family development has received some flexibility from
City Code requirements. This proposed project will continue to be refined during the
design process. Based on a City Code review of a preliminary site plan, the project may
need variances for R-4 lot area, maximum lot coverage, setback, underground parking,
and recreational space standards.
o The site is currently guided Retail Commercial and will need a Comprehensive Guide
Amendment (CGA). Per State Statutes, a CGA to allow an affordable housing project
may be approved by a 3/5 vote.
o The City needs access to the existing wetland on this site to relieve burden on the
existing trunk storm sewer system within Nicols Road. Rather than purchase land or
easements, City staff and the developer have discussed the possibility of utilizing the
City’s wetland banking credits to provide the necessary 2:1 wetland mitigation required
by state regulations. The alternative would be to initiate a public improvement project,
acquire easement from the property owner, and construct the pond as a City project.
The alternative would have a greater cost to the City and also require the use of wetland
banking credits.
o The Dakota County CDA has a housing tax increment policy which provides affordable
housing developers with 70% of increment for 15 years. Increment that is not provided
to the developer is used for other affordable housing purposes within the community.
The developer has indicated that it will approach the CDA for 4% low-income housing
tax credits and housing bonds. The Finance Committee may want to discuss whether
the City or the Dakota County CDA should be the issuer of a TIF note.
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Location Map
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Cliff Rd
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Map Area Extent
Liefschultz Property (Ramada Co.)PID: 10-03000-27-011
Subject SitePID: 10-03000-27-011
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#*
Lone Oak Rd
Yankee Doodle Rd
Wescott Rd
Diffley Rd
Cliff Rd Lexington AvePilot Knob RdDeerwood Dr
Silver Bell Rd
Blackhawk RdRahn RdNicols RdJohnny Cake Rdg RdGalaxie AveDodd RdDiffley Rd
Cedar AveMe
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Subject SiteSubject Site
#*Transit Stations and Park & Ride Lots
Transit Routes
High Density Res
Eagan Residential Density80% AMI Valued Owner/Occupied Housing
0 10.5 Miles
E
Source: Dakota County Assessor Data-2017
#*
#*
#*
CDA Workforce/Subsidized Housing
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Business Assistance Financing
Pre-Application
Eagan, MN
Description of Partnership
Real Estate Equities is a full-service real estate firm based in the Twin Cities with a primary focus on
multifamily real estate investments. The company was founded by Terry Troy and Bob Bisanz in 1972 with
a vision of providing quality rental housing and ownership opportunities that improve communities and
provide strong economic returns for their investors. We have been the developer and managing partner
in more than 70 projects in excess of 10,000 housing units with projects spanning from Minnesota,
Wisconsin, Ohio, Missouri, South Dakota as well as Indiana.
Today, our real estate portfolio consists of approximately 11,200 housing units that range from artist lofts,
luxury apartments, traditional apartments, affordable apartments, senior (affordable) apartments, as well
as our luxury home portfolio that spans globally. Currently we have a regional portfolio with properties
located in Minnesota, Wisconsin and Indiana. Real Estate Equities funds their investments with their own
equity as well as numerous relationships with institutional and individual investors.
Real Estate Equities Management, LLC has experience in all facets of property management including:
Marketing and Lease-up of new and renovated product; Financial Reporting and Controls including
exceptional Compliance Administration and Reporting; Resident Relations and Communication programs;
Plant Operations including maintenance, housekeeping and repairs; Safety, Security and Emergency
Planning; Management of Major Capital Improvement Projects and Restoration of property after
fire/water/wind damage; and, management of small scale Commercial Space.
Narrative of Project
The site in Eagan is located next to 4205 Nicols Road. The parcel is an 8.05-acre site that is well
positioned for multifamily with its easy access to two major arteries in the state of Minnesota, such as
Highway 77 & Highway 35E. The proposed project will consist of 202 workforce housing units consisting
of both one, two, and three-bedroom units. Through numerous calculations, the Metropolitan Council
has determined the allocation of affordable housing need for Eagan between now and 2030 to be 545
units. With this pent-up demand and a vacancy rate of 3.1% MetCouncil and the City of Eagan 2040
Comp Plan reports that the City of Eagan and surrounding southeast metro areas have notable shortfalls
of workforce housing units. The proposed use of the project is workforce housing, in which the target
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market will be hard working citizens residing within and outside of the city of Eagan. Escalating rent
levels throughout the Twin Cities continues to force hard working Minnesotans into less desirable and
lower quality housing options which in turn pushes the demand for this housing need in the City of
Eagan.
Comprehensive Guide Plan Land Use
Currently the property is zoned “Commercial-Preferred”. Given the intended use of the proposed
project the property will need to be rezoned as the city’s designated use to allow for High Density
housing.
Traffic Projections
According to Spack Consulting the proposed project would be generating about 550 entering and 550
exiting trips over the course of a typical weekday (1,100 total trips). About 75 trips in an a.m. peak hour
(20 in, 55 out) and about 90 trips in a p.m. peak hour (55 in, 35 out). Average peak parking demand for
the site is estimated at 265 parking stalls (1.31 per unit). A 2014 count showed Nicols Road had 6,000
daily vehicles on it near your site. A 2016 count showed Diffley Road had 17,900 daily vehicles on it.
Both of those roads could handle an 1,100 vehicle increase.
City of Eagan Public Benefits
The proposed project will offer housing units at 50-60% of the area median income which will provide
on average a 30% savings to tenants in comparison to other new market rate properties in the Eagan
area. Additionally, the tenants will have access to several high-quality amenities that include a
community room with outdoor patio, fire pit, fitness center, and underground parking. The proposed
project will offer tenants 183 underground parking stalls, as well as, 190 surface parking stalls. This
comes to a parking ratio of 1.85 stalls/unit. Through diligent analysis REE believes that this number of
parking stalls will be an adequate amount to service the project’s tenants. With these savings,
amenities, and new landscaping providing connections to the surrounding community this housing
project is a $48,000,000 investment that the City of Eagan and its residents can be proud of.
Currently the estimated market value of the Parcel ID: 100300027011 is $1,206,400. The proposed
workforce housing project would potentially increase the market value to $27,000,000. REE believes
that the 202-unit workforce project will significantly increase the value of the long-time vacant site in
the City of Eagan. REE also believes that the proposed project will act as a development catalyst for the
City of Eagan, which will in turn help shrink the gap between the low supply of quality affordable
housing units and the extremely high demand within the city and surrounding area.
In addition to providing high quality workforce housing for the community, the project will also provide
substantial support to the local economy and its surrounding businesses. It is estimated by Marquette
Advisors that the 202-unit workforce housing project would generate an additional $5.2 million in
consumer spending within the City of Eagan.
Intended Use of Assistance Funds
All tax increment financing funds will be allocated towards workforce housing project costs.
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Development Team
Officers/Shareholders/Partners
1)William Bisanz
2)Terry Troy
3)Bob Bisanz
4)Alex Bisanz
5)Patrick Ostrom
Project Contact Information
Developer:
Alex Bisanz
Real Estate Equities
579 Selby Ave
Saint Paul, MN 55102
(651) 389-3801
postrom@reeliving.com
Borrower’s Legal Counsel:
Jeffrey Drennan
Winthrop & Weinstine, P.A.
225 South Sixth Street
Capella Tower, Ste 3500
Minneapolis, MN 55402
(612) 604-6730
jdrennan@winthrop.com
Bond Underwriter:
Craig Theis
Dougherty & Company LLC
90 South 7th Street, Suite 4300
Minneapolis, MN 55402
(612) 376-4135
Craig.theis@doughertymarkets.com
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Tax Credit Bridge Loan Lender:
John Callahan
Bridgewater Bank
4400 Excelsior Blvd
Saint Louis Park, MN 55416
(952)-746-3926
John.callahan@bwbmn.com
Architect:
Petro N. Megits
Kaas Wilson Architects
1301 American Blvd. E, Suite 100
Bloomington, MN 55425
(612) 223-7957
petrom@kaaswilson.com
Accountant:
Mahoney Ulbrich Christiansen Russ P.A.
Craig A. Mulcahy
10 River Park Plaza, Suite 800
Saint Paul, MN 55107
(651) 281-1852
cmulcahy@mucr.com
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Project Information:Debt Assumptions:LIHTC Equity Assumptions
Project Name Eagan Site 1st Mortgage Non-Rated Type of Credits 4% LIHTC
Occupancy Workforce Amount 31,252,599$ Applicable Percentage 100%
Location Eagan , MN Interest Rate 4.75% Credit Percent (4%)3.30%
Number of Buildings 1 MIP 0.00% Credit Percent (9%)9.00%
Number of Units 202 Amortization 40 Qualified Census Tract No
Term 15 LP Ownership 99.99%
Closing 3/31/2020 DSCR 1.2
Construction Timeline (months)18 LTV/LTC 87% Credit Pricing 0.91$
Construction Completion 10/31/2021 Interest Only 22
Year Placed in Service 2022 Total LIHTC Equity 13,155,094$
Qualified Occupancy 12/31/2022 TIF Loan (Included in 1st Mortgage)1st Installment
1st Year Credit Period 2022 Assume TIF?Yes Amount 20%2,631,019$
Amount -$ Date 3/31/2020
Rent Inflation 1.02 Interest Rate 4.75%
Expense Inflation 1.03 MIP 0.25%2nd Installment
Vacancy Rate 5.00%Amortization 40 Amount 40%5,262,037$
Term 16 Date 7/1/2020
Interest Only 22
3rd Installment
Equity Bridge Loan Amount 40%5,262,037$
Amount 10,443,371$ Date 1/1/2023
Interest Rate 6.50%
Term (months)30
Project Inputs
Eagan Site
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Source of Funds Permanent Per Unit
First Mortgage (Includes TIF)31,252,599$ 154,716$
LIHTC Equity - 1st Installment (Closing)20%2,631,019 13,025
LIHTC Equity - 2nd Installment (Completion)40%5,262,037 26,050
LIHTC Equity - 3rd Installment (Stabilization)40%5,262,037 26,050
Letter of Credit 1,838,562 9,102
Investment Earnings 500,000 2,475
Deferred Developer Fee 2,954,068 14,624
Total Sources 49,700,323$ 246,041$
Use of Funds Permanent Per Unit
Acquisition 2,000,000$ 9,901$
Construction Costs 32,875,500 162,750
Soft Costs 2,894,563 14,330
Construction Financing Costs 149,434 740
Bond Costs 680,920 3,371
Title & Tax Credit Fees 226,153 1,120
Interest & Reserves 6,465,613 32,008
Developer Fee 4,408,140 21,822
Total Uses 49,700,323$ 246,041$
Eagan Site
Sources & Uses
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Source of Funds Permanent Per Unit
First Mortgage (Excludeds TIF)29,938,160$ 148,209$
LIHTC Equity - 1st Installment (Closing)20%2,631,019 13,025
LIHTC Equity - 2nd Installment (Completion)40%5,262,037 26,050
LIHTC Equity - 3rd Installment (Stabilization)40%5,262,037 26,050
Letter of Credit 1,838,562 9,102
Investment Earnings 500,000 2,475
Deferred Developer Fee 2,954,068 14,624
Total Sources 48,385,884$ 239,534$
Use of Funds Permanent Per Unit
Acquisition 2,000,000$ 9,901$
Construction Costs 32,875,500 162,750
Soft Costs 2,894,563 14,330
Construction Financing Costs 149,434 740
Bond Costs 680,920 3,371
Title & Tax Credit Fees 226,153 1,120
Interest & Reserves 6,465,613 32,008
Developer Fee 4,408,140 21,822
Total Uses 49,700,323$ 246,041$
Eagan Site
Sources & Uses
GAP $1,314,439
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Unit
Type Income Restriction Rent Restriction
# of
Units
Square
Feet
Gross
Rents
Utility
Allowance
Net
Rent
Underwritten
Rent
Monthly
Income
Annual
Income
1 Bedroom / 1 Bath (A1)50%50%15 821 937$ 72 865$ 865$ 12,975$ 155,700$
1 Bedroom / 1 Bath (A1)60%60%28 797 1,125$ 72 1,053$ 1,053$ 29,484$ 353,808$
1 Bedroom / 1 Bath (A1)70%70%15 718 1,312$ 72 1,240$ 1,240$ 18,600$ 223,200$
2 Bedroom / 2 Bath (C2)50%50%20 770 1,125$ 89 1,036$ 1,036$ 20,720$ 248,640$
2 Bedroom / 2 Bath (C2)60%60%61 1,029 1,350$ 89 1,261$ 1,261$ 76,921$ 923,052$
2 Bedroom / 2 Bath (C2)70%70%20 1,119 1,575$ 89 1,486$ 1,486$ 29,720$ 356,640$
3 Bedroom / 2 Bath (D1)50%50%10 1,294 1,300$ 106 1,194$ 1,194$ 11,940$ 143,280$
3 Bedroom / 2 Bath (D3)60%60%23 1,043 1,560$ 106 1,454$ 1,454$ 33,442$ 401,304$
3 Bedroom / 2 Bath (D3)70%70%10 1,372 1,820$ 106 1,714$ 1,714$ 17,140$ 205,680$
Total/Average 202 973 1,330$ 1,242$ 1,242$ 250,942$ 3,011,304$
Eagan Site
Rent Analysis
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Income:Per Unit Total
Gross Potential Rent 14,907 3,011,304$
Workforce
Other Income:# of Stalls Price Vacancy
Parking 183 75 5%775$ 156,465$
Storage - Garage 183 20 5%207 41,724
TIF Income 871 175,901
Miscellaneous 50 10,100
Total Other income 1,902$ 384,190$
Vacancy 5%(745)$ (150,565)$
Total Income 16,064$ 3,244,929$
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Expenses:16 Per Unit Total
Payroll 1,250$ 252,500$
Marketing 100 20,200
Amdinistrative 325 65,650
Grounds 200 40,400
Maintenance 250 50,500
Turnover 150 30,300
Utilities 750 151,500
Insurance 325 65,650
Total Variable Expneses 3,350$ 676,700$
Real Estate Taxes 1,525$ 308,072$
Management Fee 3.50%562 113,573
Replacement Reserves 250 50,500
Total Fixed Expenses 2,337$ 472,144$
Total Expenses 5,687 1,148,844$
Net Operating Income 10,377$ 2,096,085$
Eagan Site
Proforma
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Minimum Estimated Taxes:
Per Unit
Estimated Value 175,000$ 35,350,000$
Taxable Value (up to $150k / unit)150,000$ 30,300,000$
Converstion Rate (up to $150k / unit)0.75%
Taxable Value 227,250$
Taxable Value (over $150k / unit)25,000$ 5,050,000$
Converstion Rate (over $150k / unit)0.25%
Taxable Value 12,625$
Total Taxable Value 239,875$
Mill Rate 90.64%
Market Rate 0.25644%
Per Unit
Total RE Taxes 1,525$ 308,072$
Underwritten Taxes 1,525$ 308,072$
Eagan Site
RE Tax Analysis
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Current Taxes
Current Value Market Value 1,206,400$
Classification Rate (up to $150K)1.50%
Classification Rate (over $150k)Workforce 2.00%
Current Taxable Value 23,378$
Mill Rate 90.64%
Current Real Estate Taxes (2019 Payable)21,189.59$
Stabilized Taxes
Stabilized Value 35,350,000$
Classification Rate (.75% up $150k/unit & .25% above $150k/unit)
Stabilized Taxable Value 239,875.00$
Captured Increment 216,497$
Mill Rate 90.64%
4.75%
Tax Increment 196,231$
Admin Fees 100.00%
Less: HRA Admin Fee 10.00%
Less: State Auditor Fee 0.36%
Available Increment 89.64%
Total TIF 175,901$
Eagan Site
TIF Analysis
TIF Request
Analysis
Year Increment
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
NPV
175,901$
175,901
175,901
175,901
175,901
175,901
175,901
175,901
175,901
175,901
175,901
175,901
175,901
175,901
$1,940,758
175,901
175,901
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Credit Year:0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Year 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037
Income:
Rental Income 1,003,768$ 3,011,304$ 3,011,304$ 3,071,530$ 3,132,961$ 3,195,620$ 3,259,532$ 3,324,723$ 3,391,217$ 3,459,042$ 3,528,223$ 3,598,787$ 3,670,763$ 3,744,178$ 3,819,062$ 3,895,443$ 3,973,352$ 4,052,819$
Parking 52,155$ 156,465$ 156,465$ 159,594$ 162,786$ 166,042$ 169,363$ 172,750$ 176,205$ 179,729$ 183,324$ 186,990$ 190,730$ 194,545$ 198,435$ 202,404$ 206,452$ 210,581$
Storage - Interior ------------------
Storage - Garage 13,908 41,724 41,724 42,558 43,410 44,278 45,163 46,067 46,988 47,928 48,886 49,864 50,861 51,879 52,916 53,974 55,054 56,155
TIF Income ---175,901 175,901 175,901 175,901 175,901 175,901 175,901 175,901 175,901 175,901 175,901 175,901 175,901 175,901 175,901
Interest Income ------------------
Miscellaneous 3,367 10,100 10,100 10,302 10,508 10,718 10,933 11,151 11,374 11,602 11,834 12,070 12,312 12,558 12,809 13,065 13,327 13,593
Total Other Income 69,430$ 208,289$ 208,289$ 388,356$ 392,605$ 396,939$ 401,360$ 405,869$ 410,468$ 415,160$ 419,945$ 424,826$ 429,804$ 434,882$ 440,062$ 445,345$ 450,734$ 456,231$
Vacancy (1,073,198)$ (3,219,593)$ (1,916,614)$ (153,577)$ (156,648)$ (159,781)$ (162,977)$ (166,236)$ (169,561)$ (172,952)$ (176,411)$ (179,939)$ (183,538)$ (187,209)$ (190,953)$ (194,772)$ (198,668)$ (202,641)$
Total Income -$ -$ 1,302,979$ 3,306,310$ 3,368,918$ 3,432,778$ 3,497,916$ 3,564,356$ 3,632,125$ 3,701,249$ 3,771,756$ 3,843,674$ 3,917,029$ 3,991,852$ 4,068,171$ 4,146,016$ 4,225,418$ 4,306,409$
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Expenses:16
Payroll -$ -$ 168,333$ 260,075$ 267,877$ 275,914$ 284,191$ 292,717$ 301,498$ 310,543$ 319,859$ 329,455$ 339,339$ 349,519$ 360,005$ 370,805$ 381,929$ 393,387$
Marketing ---20,806 21,430 22,073 22,735 23,417 24,120 24,843 25,589 26,356 27,147 27,962 28,800 29,664 30,554 31,471
Amdinistrative --43,767 67,620 69,648 71,738 73,890 76,106 78,390 80,741 83,163 85,658 88,228 90,875 93,601 96,409 99,302 102,281
Grounds --26,933 41,612 42,860 44,146 45,471 46,835 48,240 49,687 51,178 52,713 54,294 55,923 57,601 59,329 61,109 62,942
Maintenance --21,883 52,015 53,575 55,183 56,838 58,543 60,300 62,109 63,972 65,891 67,868 69,904 72,001 74,161 76,386 78,677
Turnover --20,200 31,209 32,145 33,110 34,103 35,126 36,180 37,265 38,383 39,535 40,721 41,942 43,201 44,497 45,831 47,206
Utilities -- 101,000 156,045 160,726 165,548 170,515 175,630 180,899 186,326 191,916 197,673 203,603 209,711 216,003 222,483 229,157 236,032
Insurance --43,767 67,620 69,648 71,738 73,890 76,106 78,390 80,741 83,163 85,658 88,228 90,875 93,601 96,409 99,302 102,281
Real Estate Taxes --14,126 317,314 326,833 336,638 346,738 357,140 367,854 378,890 390,256 401,964 414,023 426,443 439,237 452,414 465,986 479,966
Management Fee 3.50%--45,604 115,721 117,912 120,147 122,427 124,752 127,124 129,544 132,011 134,529 137,096 139,715 142,386 145,111 147,890 150,724
Replacement Reserves --33,667 52,015 53,575 55,183 56,838 58,543 60,300 62,109 63,972 65,891 67,868 69,904 72,001 74,161 76,386 78,677
Total Expenses -$ -$ 519,281$ 1,182,051$ 1,216,232$ 1,251,417$ 1,287,635$ 1,324,916$ 1,363,293$ 1,402,798$ 1,443,463$ 1,485,324$ 1,528,415$ 1,572,773$ 1,618,436$ 1,665,442$ 1,713,831$ 1,763,644$
Net Operating Income -$ -$ 783,698$ 2,124,259$ 2,152,686$ 2,181,361$ 2,210,281$ 2,239,440$ 2,268,832$ 2,298,452$ 2,328,294$ 2,358,350$ 2,388,614$ 2,419,078$ 2,449,734$ 2,480,574$ 2,511,587$ 2,542,764$
Debt Service:
1st Mortgage 371,125$ 1,484,498$ 1,593,765$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$
Construction Loans 91,615 625,665 416,121 ---------------
Debt Service Reserves (462,739)(2,110,163)(1,282,078)---------------
Total Debt Service -$ -$ 727,807$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$ 1,746,737$
Total Cash Flow -$ -$ 55,891$ 377,522$ 405,949$ 434,624$ 463,544$ 492,702$ 522,095$ 551,715$ 581,556$ 611,613$ 641,877$ 672,341$ 702,997$ 733,837$ 764,850$ 796,027$
Capital Improvements 50,500$ 52,015$ 53,575$ 55,183$ 56,838$ 58,543$ 60,300$ 62,109$ 63,972$ 65,891$ 67,868$ 69,904$ 72,001$ 74,161$ 76,386$
Net Cash Flow 327,022$ 353,934$ 381,049$ 408,361$ 435,864$ 463,551$ 491,415$ 519,448$ 547,641$ 575,986$ 604,473$ 633,093$ 661,836$ 690,689$ 719,641$
Deferred Developer Fee:
Beginning Balance 2,954,068$ 3,101,771$ 3,256,860$ 3,410,248$ 3,253,739$ 3,062,493$ 2,834,569$ 2,567,936$ 2,260,468$ 1,909,941$ 1,514,022$ 1,070,276$ 576,149$ 28,970$ -$ -$ -$ -$
Interest 5.00% 147,703$ 155,089$ 162,843$ 170,512$ 162,687$ 153,125$ 141,728$ 128,397$ 113,023$ 95,497$ 75,701$ 53,514$ 28,807$ 1,449$ -$ -$ -$ -$
Payment --(9,454)(327,022)(353,934)(381,049)(408,361)(435,864)(463,551)(491,415)(519,448)(547,641)(575,986)(30,419)----
Remaining Balance 3,101,771$ 3,256,860$ 3,410,248$ 3,253,739$ 3,062,493$ 2,834,569$ 2,567,936$ 2,260,468$ 1,909,941$ 1,514,022$ 1,070,276$ 576,149$ 28,970$ -$ -$ -$ -$ -$
Construction/Lease-Up
25
Development Costs Total Per Unit
Purchase Price 2,000,000$ 9,901$
Construction Costs:
Hard Construction Costs 27,226,087$ 134,783$
General Conditions 1,633,565 8,087
Overhead 544,522 2,696
Profit 1,633,565 8,087
P&P Bonds 272,261 1,348
Total Construction Contract 31,310,000$ 155,000$
Construction Contingency 5%1,565,500$ 7,750$
Total Construction Costs 32,875,500$ 162,750$
Soft Costs:40
Architect & Engineering - Design 850,000$ 75%637,500$ 16$
Architect - Construction Admin 25%212,500 1,052
City Entitilement Fees (Plat/CUP/Re-zone/Site Plan)7,500 37
Survey - (Loucks)20,000 99
Market Study - (Marquette Advisors)10,500 52
Appraisal - (Nicollet Partners)5,750 28
Phase I 4,150 21
Phase II 20,000 99
Geotech 35,000 173
Legal 125,000 619
SAC Charges - MetCouncil 202 2,485$ 501,970 2,485
Park Dedication Fee 701,950 3,475
Trailway Dedication Fee 52,116 258
Water Quality Dedication Fee 160,627 795
Builders Risk Insurance 150,000 743
FF&E 200,000 990
Soft cost Contingency 50,000 248
Total Soft Costs 2,894,563$ 11,190$
Construction/Bridge Financing
Bridge Lender Legal 35,000$ 173$
Origination 1.00%104,434 517
Misc. Financing Costs 10,000 50
Total Bridge Financing Costs 149,434$ 740$
Bond Costs:
Bond Counsel 50,000$ 248$
City/Issuer Counsel 5,000 25
Issuer Fee - Tax Exempt Bonds 0.2500%78,131 387
Application Fee 5,000 25
Trustee Fees 12,500 62
Rating Agency 5,000 25
Verification Report 1,500 7
Underwriter Fee - Series A 1.50%468,789 2,321
Underwriter Counsel 50,000 248
Miscellaneous Costs 5,000 25
Total Bond Costs 680,920$ 3,371$
Title & Tax Credit Fees
Title Insurance 1.10$ 54,670$ 271$
Mortgage Registration Tax 2.30$ 71,881 356
Closing/recording fee/draw admin 30,000 149
Reservation Fee 3.50%50,602 251
Special Counsel Fee 7,000 35
Application Fee 2,000 10
Cost Cert 10,000 50
Total Tax Credit & Title Costs 226,153$ 1,120$
Interest & Reserves
1st mortgage interest reserve 2,968,997 14,698
Equity Bridge Loan 1,340,653 6,637
Debt Service Reserve 6 873,369 4,324
Taxes during construction 75,000 371
Marketing/Lease-up Costs 1,200$ 242,400 1,200
Operating Reserve months 4 965,194 4,778
Total Tax Credit & Title Costs 6,465,613$ 32,008$
Developer Fee:
Developer Fee 4,408,140$ 21,822$
Total Developer Fee 4,408,140$ 21,822$
Total Development Costs 49,700,323$ 242,901$
Developer Fee Calculation:
Developer Fee (up to 50 Units)50 15%1,681,640$ 8,325$
Developer Fee (over 50 Units)152 8%2,726,500 13,498
Total Developer Fee 4,408,140$ 21,822$
Construction Costs Summary
Hard Costs 27,226,087$ 134,783$
General Conditions 6.00%1,633,565 8,087
Overhead 2.00%544,522 2,696
Profit 6.00%1,633,565 8,087
P&P Bonds 1.00%272,261 1,348
Total Construciton Contract 31,310,000$ 155,000$
Eagan Site
Development Costs
26
Northland Securities, Inc.
150 South Fifth Street, Suite 3300, Minneapolis, MN 55402
Toll Free 1-200-851-2920, Main 612-851-5900,www.northlandsecurities.com
Member FINRA and SIPC | Registered with SEC and MSRB
MEMORANDUM
To:City of Eagan
From:Tammy Omdal, Managing Director
Date:May 21, 2019
Re:Pre-Application for BusinessAssistance from Real Estate Equities
The City of Eagan requested that Northland Public Finance review the Pre-Application for
Business Assistance Financing from Real Estate Equities, LLC (the “Developer”). The Developer
initially submitted a Pre-Application to the City datedApril 12, 2019, which Northland reviewed.
Follow-up information was requested from the Developer. In response, the Developer submitted
a revised Pre-Application dated May 16, 2019, which includes revisions to the original request,
including a reduction in the term for the TIF assistance.
The Developer is requesting tax increment financing (TIF) assistance ($1.94 million) from the City
to assist with the financing of a 202-unit apartment building consisting of a combination of one,
two, and three-bedroom units to be located next to 4205 Nicols Road (the “Project”). All
apartment units in the Project will be affordable with income and rent restrictions ranging from
50% to 70% of the area median income (AMI). The 2019 AMI for Dakota County, as calculated by
the U.S. Department of Housing and Urban Development, is $100,000. The parcel is an 8.05-acre
site located with access to Highway 77 and Interstate 35E. The property is currently guided for
commercial and a rezoning will be required.
The request is for the City to establish an affordable housing TIF district to capture the increase
in property taxes from the Project for a maximum period of 16 years to assist with the financing
of the affordable housing units. TIF assistance for a residential rental property requires that a
minimum of either 20% of the units be leased to person at or below 50% of AMI, or 40% of the
units be leased to persons at or below 60% of AMI. The Project will meet the requirement.
27
Pre-Application for TIF
City of Eagan
May 21, 2019
Page 2
Northland has reviewed the information submitted by the Developer based on general industry
standards for land acquisition, construction costs, developer fees, operating expenses, and rental
rates, among other items. We find the information provided to be within general industry
standards.Exhibit A provides a preliminary source and use of funds for the $49.7 million Project.
PRELIMINARY OBSERVATIONS
It is Northland’s opinion that the Project, as proposed, is feasible only through assistance, in part
from TIF.Our opinion may change with final application andnew and updatedinformation from
the Developer.
Financing affordable housing projects takes multiple sources to achieve rents at affordable levels.
Based on the Pre-Application, the Developer proposes to maximize public finance tools,
including 4% Low-income Housing Tax Credits (LIHTC) and TIF to assist with financing the
Project. The Developer plans to seek tax-exempt bonding (first mortgage) to finance
approximately 63% of the costs of the Project. The Developer plans to submit application to the
Dakota County Community Development Agency (the “CDA”) for bonds and LIHTC. In
addition, the Developer will defer a portion of the developer fee and rely on a letter of credit for
the balance of funds. Subject to the estimated terms of assistance, we find that the Project, as
proposed, would not be reasonably expected to occur solely through private investment within
the reasonably near future.
Based on the pro forma developed by Northland, using information from the Developer and
information we independently prepared, we estimate the TIF assistance could be limited to a
duration of ten (10) years), subject to final terms of the first mortgage. Our opinion on duration
may change based on new information from the Developer and changes to the assumptions. Our
analysis assumes 1.0% annual inflation in taxable market value for the Project in our TIF and real
estate projections and tax rates based on year 2019. We estimate the Project is feasible with a $1.36
million TIF Note based on a 10-year term with 4.75% rate. (The Developer is requesting $1.94
million for a 16-year term with 4.75% rate.) The par amount of the TIF note (present value of
future cash flow) is based on the City retaining 100% of the tax increment generated and
providing 90% of the tax increments collected to payment on the TIF note with interest. The TIF
assistance would be provided on a “pay-go” basis payable from tax increment collected semi-
annually and would not be a general obligation of the City. The City would retain 10% of the tax
increments collected to pay administrative costs of the district.Exhibit B provides a preliminary
cash flow for the available tax increments and present value.
28
Pre-Application for TIF
City of Eagan
May 21, 2019
Page 3
As shown in the summary of the pro forma for the Project, see Exhibit C, without TIF assistance
the Project will not achieve a cash-on-cost basis (net operating income divided by total
development cost) greater than 5.0% until year 10 of the Project. TIF is estimated to be necessary
to achieve a minimum debt service coverage (1.20X) for the Project. Developer’s compensation
on these types of projects is typically the developer fee. It is common for a developer to defer a
large portion of the developer fee to make the project work, as is proposed for the Project. The
developer fee is paid out of cash flow, so the dollars are “at-risk” for the developer. We might
typically expect the developer fee to be repaid over a 15-year term. The Developer estimates
repayment in 10 years at 5.0% interest.
USE OF TIF
A decision to deny the use of TIF does not necessarily mean that there will be no future
improvements on the site. A decision to approve may be made based on afindingthatthe Project,
asproposed,wouldnotbereasonablyexpectedtooccur solelythrough privateinvestmentwithin
the reasonably near future. It does not mean that “no” development will occur on the site ever.
While not a statutory required finding for a housing TIF district, the preliminary analysis shows
that an induced development, based on a maximum TIF duration of 10 years, will yield a net
increase in taxable market value ($38.7 million future value) for the site compared to the likely
taxable market value ($1.32 million future value) without TIF.
In considering the use of TIF, the City may want to consider whether the proposed income
qualification levels the Developer is proposing are acceptable to the City in meeting its affordable
housing goals. The proposed income and rent levels and unit mix will meet the TIF, LIHTC, and
the fair market rent requirements.Exhibit D provides a summary of the City’s allocation of the
Metropolitan Council’s Allocation of Affordable Housing Need (2030) and the proposed units to
be added by the Project. The Developer is proposing 78% of the affordable units in the highest
AMI bracket (157 out of 202). They are proposing more units at that bracket than for which the
City has demonstrated 2030 need. The Developer is not proposing any units at the most difficult
AMI threshold. The Project is located within an area of the City that already has some CDA
workforce developmentsandan abundanceofNaturallyOccurringAffordableHousing(NOAH)
units affordable at 80% AMI. As public benefit for use of TIF, the City may want to discuss with
the Developer options to achieve further increase in the middle bracket (31-50% of AMI) units
and impacts on the proposed source of funds to provide some market rate units.
Other potential public benefits of the Project, as it relates to the consideration of use of TIF, may
include the Developer agreeing to maximize the site development through enhancements to the
29
Pre-Application for TIF
City of Eagan
May 21, 2019
Page 4
proposed parking and storage available to the tenants of the Project, among other public benefit
considerations for the use of TIF.
SUMMARY
This memorandum was prepared to assist the City with its evaluation of the Pre-Application
submitted by the Developer. The assumptions and estimated amounts provided in this
memorandum and exhibits are subject to change after the Pre-Application phase. The key items
to note from the memorandum are as follows:
All 202 apartment units in the Project are proposed to be affordable with income
restrictions ranging from 50% to 70% of the area median income. Income qualifications
and rent requirements for the proposed public financing will be met.
The public finance tools proposed include tax exempt bonding, 4% LIHTC, and TIF. The
Developer plans to submit application to the CDA for the bonds and LIHTC and is
requesting the City establish a housing TIF district.
The Developer will defer a portion of the developer fee (approximately $3.0 million). The
developer fee will be repaid from future cash flow, as available, from the project with
interest.
Preliminary review suggests the Project, as proposed, is feasible only through assistance,
in part from TIF. The amount of TIF assistance that is needed is estimated to be between
$1.36 million and $1.94 million, with a term not to exceed 16 years. Northland’s
preliminary analysis suggests the lesser amount at a term of 10 years.
The Developer is proposing 78% of the affordable units in the highest AMI bracket based
on the City’s allocation of the Metropolitan Council’s Allocation of Affordable Housing
Need (2030). They are proposing more units at this bracket than for which the City has
demonstrated 2030 need (see Exhibit D).
30
Pre-Application for TIF
City of Eagan
May 21, 2019
Page 5
Exhibit A
Total % of Total Per Unit
Sources of Funds
First Mortgage
1 $31,252,599 62.9%$154,716
LIHTC Equity - 1st Installment (Closing)$2,631,019 5.3%$13,025
LIHTC Equity - 2nd Installment (Completion)$5,262,037 10.6%$26,050
LIHTC Equity - 1st Installment (Stabilization)$5,262,037 10.6%$26,050
Deferred Developer Fee $2,954,068 5.9%$14,624
Letter of Credit $1,838,562 3.7%$9,102
Investment Earnings $500,000 1.0%$2,475
Total Sources of Funds $49,700,322 100.0%$246,041
Uses of Funds
Acquisition $2,000,000 4.02%$9,901
Construction $28,810,000 57.97%$142,624
Construction of parking
2 $2,500,000 5.03%$12,376
Construction contingency $1,565,500 3.15%$7,750
Bridge financing costs $149,434 0.30%$740
Bond costs $680,920 1.37%$3,371
Soft Costs (not including Developer fee)$2,894,562 5.82%$14,330
Title and tax credit fees $226,153 0.46%$1,120
Other interest and reserves $317,400 0.64%$1,571
Debt service and operating reserves $1,838,563 3.70%$9,102
Equity bridge loan $1,340,653 2.70%$6,637
First mortgage interest reserve $2,968,997 5.97%$14,698
Developer fee payable at closing $1,454,072 2.93%$7,198
Deferred Developer fee $2,954,068 5.94%$14,624
Total Uses of Funds $49,700,322 100.00%$246,041
Number of Units 202
Notes:
1/ Developer's Pre-Application 15 year term at 4.75% amortized over 40 years.
Eagan, MN
2/ Developer provided a preliminary estimate for the underground parking construction cost of $2.0M to $2.5M.
The schedule above assumes $2.5M. The total construction cost estimate provided by the Developer was reduced by
the $2.5M shown separately under parking construction.
REE Affordable Housing Project
Developer Sources and Uses of Funds for Construction
202 Unit Residential Apartment Building
31
Pre-Application for TIF
City of Eagan
May 21, 2019
Page 6
Exhibit B
1202335,350,000239,875(9,048)230,82790.64%209,219(753)208,46620,847187,619164,2642202435,703,500240,759(9,048)231,71190.64%210,020(756)209,26420,926188,338321,5943202536,060,535241,651(9,048)232,60390.64%210,829(759)210,07021,007189,063472,2884202636,421,140242,553(9,048)233,50590.64%211,646(762)210,88421,088189,796616,6285202736,785,352243,463(9,048)234,41590.64%212,472(765)211,70721,171190,536754,8876202837,153,205244,383(9,048)235,33590.64%213,305(768)212,53721,254191,283887,3227202937,524,737245,312(9,048)236,26490.64%214,147(771)213,37621,338192,0381,014,1828203037,899,985246,250(9,048)237,20290.64%214,997(774)214,22321,422192,8011,135,7059203138,278,985247,197(9,048)238,14990.64%215,856(777)215,07921,508193,5711,252,11810203238,661,774248,154(9,048)239,10690.64%216,724(780)215,94421,594194,3491,363,63911203339,048,392249,121(9,048)240,07390.64%217,600(783)216,81721,682195,1351,470,47612203439,438,876250,097(9,048)241,04990.64%218,485(787)217,69821,770195,9291,572,82813203539,833,265251,083(9,048)242,03590.64%219,378(790)218,58821,859196,7291,670,88514203640,231,597252,079(9,048)243,03190.64%220,281(793)219,48821,949197,5391,764,83115203740,633,913253,085(9,048)244,03790.64%221,193(796)220,39722,040198,3571,854,83916203841,040,253254,101(9,048)245,05390.64%222,113(800)221,31322,131199,1821,941,07717203941,450,655255,127(9,048)246,07990.64%223,043(803)222,24022,224200,0162,023,70418204041,865,162256,163(9,048)247,11590.64%223,982(806)223,17622,318200,8582,102,87419204142,283,813257,210(9,048)248,16290.64%224,931(810)224,12122,412201,7092,178,73320204242,706,651258,267(9,048)249,21990.64%225,889(813)225,07622,508202,5682,251,42221204343,133,718259,334(9,048)250,28690.64%226,857(817)226,04022,604203,4362,321,07422204443,565,055260,413(9,048)251,36590.64%227,834(820)227,01422,701204,3122,387,81923204544,000,706261,502(9,048)252,45490.64%228,822(824)227,99822,800205,1982,451,77824204644,440,713262,602(9,048)253,55490.64%229,819(827)228,99222,899206,0922,513,07125204744,885,120263,713(9,048)254,66590.64%230,826(831)229,99523,000206,9962,571,80926204845,333,971264,835(9,048)255,78790.64%231,843(835)231,00823,101207,9082,628,100TOTAL =5,722,111(20,600)5,701,511570,1515,131,360Key Asssumptions for Cash Flow:1Taxable market value (TMV) annual growth assumption = 1.00%2Original Tax Capacity Rate estimated based on Taxes Payable Year 2019.3Election for captured tax capacity is 100.00%4Base Tax Capacity (TC) calculated based on a TMV = $1,206,400. Base TC will be calculated on residential classification, after property use changes.56CapturedTaxCapacity3TIF forCityAdminCostsTax Increment Financing District No. 2-6 (Housing)City of Eagan(Housing Eagan Site)Projected Tax Increment Cash FlowTIFDistrictYearTaxesPayableYearTaxCapacityLessBase TaxCapacity4TaxableMarketValue (TMV)1,6TMV is calculated based on 202 housing units at an estimated average value of $175,000 per unit.Present value is calculated based on semi-annual payments, 4.75% interest rate, and date of 1/1/2021.CapturedTaxIncrementFinancing(TIF)OriginalTax Rate2LessStateFeeNetAvailableTIFAvailableTaxIncrementFinancingPresentValue ofNetAvailableTIF532
Pre-Application for TIF
City of Eagan
May 21, 2019
Page 7
Exhibit C
Calendar Year20222023202420252026202720282029203020312032Year of TIF District12345678910Project YearYear 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10Year 11Gross Income (before TIF)1,302,9793,130,4083,193,0173,256,8773,322,0143,388,4553,456,2243,525,3483,595,8553,667,7723,741,128Less Expenses(519,281)(1,171,294)(1,197,741)(1,224,924)(1,252,864)(1,281,584)(1,311,106)(1,341,453)(1,372,648)(1,404,717)(1,437,686)Net Operating Income (NOI)783,6981,959,1151,995,2762,031,9532,069,1502,106,8702,145,1182,183,8962,223,2072,263,0552,303,442Plus Tax Increment Financing (TIF) Revenue-187,619188,338189,063189,796190,536191,283192,038192,801193,571194,349NOI with TIF783,6982,146,7342,183,6132,221,0162,258,9462,297,4072,336,4012,375,9342,416,0082,456,6262,497,792Debt Service1,593,7651,746,7371,746,7371,746,7371,746,7371,746,7371,746,7371,746,7371,746,7371,746,7371,746,737Capital outlay net of use of reserves22,47852,01553,57555,18356,83858,54360,30062,10963,97265,89167,868Net Cash Flow before Payment onDeferred Developer Fee(832,545)347,982383,301419,096455,370492,127529,365567,089605,299643,998683,187Payment on Deferred Developer Fee3(832,545)347,982383,301419,096455,370492,127529,365567,089605,299643,998683,187Net Cash Flow after Payment on DeferredDeveloper Fee-----------Cash on cost with TIF (NOI / TDC)11.6%4.3%4.4%4.5%4.5%4.6%4.7%4.8%4.9%4.9%5.0%Cash on cost without TIF1, 21.6%3.9%4.0%4.1%4.2%4.2%4.3%4.4%4.5%4.6%4.6%Debt coverage with TIF20.491.231.251.271.291.321.341.361.381.411.43Debt coverage without TIF20.491.121.141.161.181.211.231.251.271.301.32Notes:1/ Total Development Cost (TDC):$49,700,3224/ Expenses include real estate taxes based on $35,350,000 taxable market value, pay 2019 tax rates held constant, and 1.0% annual increase in taxable market value.3/ Total Developer Fee of $4,408,140. Developer pro forma assumes initial payment of $1,454,072 at closing with the balance of $2,954,068 deferred and to be paid as revenue isavailable with 5.0% interest.2/ Par amount of TIF note is estimated at $1,363,639, 10 year term, 4.75% rate, payable from 90% of the tax increment derived from the property.Eagan, MNREE Affordable Housing Project202 Unit Residential Apartment BuildingPreliminary Estimated Pro Forma
33
Pre-Application for TIF
City of Eagan
May 21, 2019
Page 8
Exhibit D
Eagan, MN
Summary of the City’s Allocation of the Metropolitan Council’s
Allocation of Affordable Housing Need (2030) and the Proposed Units
To be Added by the Proposed Real Estate Equities (REE) Project
Level of Affordability
Met Council
Allocation of
Affordable Housing
Need (2030)
Proposed Units –
Real Estate
Equities (REE)
At or below 30% AMI 232 0
31% to 50% AMI 100 45
51% to 80% AMI 140 157
34
MEMORANDUM
To: Jill Hutmacher, Director of Community Development
From: Robert B. Bauer, City Attorney
Date: May 20, 2019
Re: TIF Application
______________________________________________________________________________
Jill,
The application process for the proposed affordable housing project would proceed as follows:
With proposed amendments to the comprehensive plan the typical process is for the applicant to
submit the comprehensive guide plan amendment application together with a proposed
conceptual plan for the project. The APC would then hold the public hearing and make the
recommendation to council. If the council acts favorably, the vote (only a majority is needed) is
to submit the proposed amendment to the Met Council. Once the Met Council grants approval,
the application is “parked” and the plan amendment is not implemented until the applicant
provides more detailed plans. Here, the applicant would likely request a PD zoning which would
require another public hearing before the APC and formal action by council. Because of the
affordable component, a simple majority vote is needed on the Guide plan amendment. The
pertinent portion of the statute states:
Except for amendments to permit affordable housing development, a resolution to
amend or adopt a comprehensive plan must be approved by a two-thirds vote of all of
the members. Amendments to permit an affordable housing development are approved
by a simple majority of all of the members. For purposes of this subdivision,
"affordable housing development" means a development in which at least 20 percent
of the residential units are restricted to occupancy for at least ten years by residents
whose household income at the time of initial occupancy does not exceed 60 percent
of area median income, adjusted for household size, as determined by the United
States Department of Housing and Urban Development, and with respect to rental
units, the rents for affordable units do not exceed 30 percent of 60 percent of area
median income, adjusted for household size, as determined annually by the United
States Department of Housing and Urban Development.
35
We would hold the public hearing on the TIF, and send the requisite notices out in tandem with
the development PD application. All agreements would be prepared, signed by the applicant and
then considered for approval at one meeting by the council—the meeting when the final PD is
considered and the Comprehensive Guide Plan change is implemented.
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Memo
TO: Jill Hutmacher, Director of Community Development
FROM: Erik Slettedahl, Planner/GIS Specialist
DATE: May 17, 2019
SUBJECT: Preliminary Review of Concept Plan-Proposed Apartments at Nicols
Road and Diffley Road
Purpose
The purpose of this memo is to provide a current summary of storm water issues and a
preliminary site review of a proposed 202-unit apartment building on an 8-acre site in the
southwest area of Nicols Road and Diffley Road.
Wetland/Storm W ater Retention
The site contains an existing wetland over the north portion of the lot. City Engineering
Staff has worked with the developer’s consultant to identify necessary City storm water
needs. The following are comments received from the City Engineer:
•Additional ponding/storage volume on this site is needed to temporarily store storm
water during large rain events, to help relieve the burden on the existing trunk storm
sewer system within Nicols Road. The need for the additional ponding volume on
this site has been identified in past and current City Storm Water Management
Plans, and experienced during past storm events, so there is a public purpose and
need to participate in the construction of the storm water pond. The additional
ponding is needed regardless of land use on the property.
•As part of development, the applicant has agreed to expand the wetland on site to
provide as much storm water storage (ponding and easement) as possible. The new
applicant has indicated the needed pond expansion volume (8.5 acre-feet) can be
accommodated with the proposed site plan.
•The City has not committed to financially participating in this pond expansion/
grading. Because of the public purpose and need, City staff has indicated that its
wetland banking credits could be used to provide the necessary 2:1 wetland
mitigation required by state regulations. No buffers would be required since this pond
would not be considered a wetland. (Expanding a wetland and bringing more storm
water to it constitutes an impact requiring mitigation).
•The new applicant is contracting with the same engineer as previous, Sambatek, so
there is a consistent understanding of City storm water management needs.
•The alternative to working with the applicant to construct the needed pond would be
to initiate a public improvement project, acquire easement from the property owner,
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and construct the pond. This alternative would be at a much higher cost, and also
require the use of the City’s wetland banking credits.
Zoning Code Compliance
The site is currently zoned PD-Planned Development but there are no development
agreements in place. The PD zoning was requested by the applicant in the early 2000’s to
preserve Roadside Business uses following the removal of that zoning district from the City
Code. The site currently has a Guide Plan designation of RC-Retail Commercial.
While it is anticipated a formal development proposal would be reviewed under a Planned
Development (1), the following comments are based on review of a preliminary concept plan
provided by the applicant against standard R-4 zoning requirements:
•Lot Area-
o Required: ~11 acres for 202 units (based on 2,450 sf of land per unit when
underground parking is provided)
o Proposed: ~4.5 acres net developable acres when ponding area is
subtracted
•Building Coverage-
o Required: maximum 20% ,
o Proposed: 29% net
•Building Setbacks-
o Required: Minimum 50’ setback from Cedar Ave and 30’ from south property
line, plus 3’ for every 1’ over 35’ in height.
o Proposed: ~ 20’ from Cedar Ave and 25’ from the south lot line.
•Parking-
o Required: 202 covered/underground stalls, 101 open stalls (1.5 stalls/unit,
with 1 space/unit being attached/covered or underground.)
o Proposed: 183 underground stalls and 190 surface stalls (1.85 stalls/unit)
•Recreational Area-
o Required: ~32,000 sf of recreational space for the mix of units proposed.
o Proposed: unknown. The applicant is showing a possible small tot lot on site,
but no other recreational amenities are indicated at this time. Fitness rooms,
community rooms, recreational open spaces and swimming pools are
generally used to satisfy this requirement. Rahn park is .4 miles to the south
of the site. There is an existing trail on the east side along Nicols Road.
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(1) The Planned Development zoning allows for deviations from standard zoning requirements to
allow greater development flexibility in exchange for better overall design and improved use of the
site. Recent multifamily developments in the City of Eagan have all been approved under a
Planned Development with some level of deviation from standard R-4 zoning requirements.
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1
CDA HOUSING FINANCE TOOLS FOR DEVELOPERS
The CDA has several programs available to assist in the development and preservation of affordable
housing in Dakota County.
Housing Opportunities Enhancement (HOPE) Program
Dakota County created the HOPE Program in 2001 to provide a local source of gap financing to encourage
and assist in the development and preservation of affordable housing throughout the County. This
program is funded with the CDA levy. Funding is provided in the form of a deferred loan and requires a 2:1
match of other public or private funding sources. Developers can be awarded $30,000 per hour, up to a
total of $750,000. HOPE funds must be used to provide rental housing opportunities for households at or
below 50% of area median income or homeownership opportunities for household at or below 80% area
median income.
Eligible uses of HOPE funds include new construction, acquisition, rehabilitation, preservation, and indirect
or direct assistance with homeownership opportunities.
Low Income Housing Tax Credits (9% and 4%)
The CDA has been designated as an allocating agency for Low I ncome Housing Tax Credits (both 9% and
4%) by the state legislature. These tax credits are allocated to developments on a competitive basis based
on guidelines and selection criteria set forth in the CDA’s Qualified Allocation Plan (QAP). Once allocated,
these tax credits are sold to an investor to generate equity for construction. The investor becomes a
limited partner in the project and uses the tax credits to receive a reduction in federal tax liability each
year for 10 years.
Developments receiving low income tax credits must have a minimum of either 20% of its units occupied
by households with incomes at or below 50% of area median income or 40% of its units occupied by
households with incomes at or below 60% of area median income. Maximum rents are set at 30% of
applicable maximum income level, as determined by the U.S. Department of Housing and Urban
Development (HUD).
Applications for 9% Low Income Housing Tax Credits are due in June of each year. Application files will be
posted on the CDA webpage when available.
Applications for 4% Low Income Housing Tax Credits can be submitted throughout the year, in an open
application process.
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2
Multifamily Housing Revenue Bonds
501(c)(3) Bonds for Residential Rental Housing
The CDA has authority to issue tax exempt housing revenue bonds to finance the acquisition,
rehabilitation, and development of rental housing that is owned by a non-profit 501(c)(3) organization, if
the provision for such housing is within the mission of the charitable organization.
Qualified Residential Rental Revenue Bonds
The CDA receives an annual entitlement allocation of private activity bon ding authority from the State of
Minnesota. Benefits of these tax-exempt bonds include lower interest rates, the ability to finance projects
owned by private for-profit entities and an allocation of low-income housing tax credits to eligible projects.
Developments financed with these bonds must have either a minimum of either 20% of its units occupied
by households with incomes at or below 50% of area median income or 40% of its units occupied by
household with incomes at or below 60% of area median income. Maximum rents are set at 30% of
applicable maximum income level, as determined by HUD.
Tax Increment Financing
Tax Increment Financing (TIF) is used to promote economic development, affordable housing,
redevelopment, renewal and renovation in areas where it would otherwise not occur. TIF is a mechanism
whereby an authority can “capture” the property taxes generated by new development or redevelopment
and use it to pay a portion of the cost of development.
Developments financed with TIF must meet the income and rent requirements of the low income housing
tax credit program. All CDA TIF districts must be approved by the Dakota County Board of Commissioners,
following a public hearing. The CDA TIF policy also requires that CDA TIF districts be approved by the city
of where the TIF district is located.
The CDA has created and administered 15 TIF districts, primarily housing districts, dating back to the early
1980s. See the attached powerpoint slides for how the CDA TIF district policy is administered.
Home Investment Partnership Program (HOME)
The HOME Program is a flexible federal grant program that gives participating jurisdictions the ability to
decide how the funds will be used to provide affordable housing for persons at or below 80% of area
median income. Eligible activities under HOME include new construction of affordable units, rehabilitation
of owner and rental properties, homebuyer assistance, rent assistance and acquisition.
For more information about the CDA housing finance tools, please visit the CDA website and read the CDA
Housing Finance Policy or contact Kathy Kugel at 651-675-4478 or Kkugel@dakotacda.state.mn.us for
information on bonds, low income housing tax credits, or HOME. Please contact Ka rly Schoeman at 651-
675-4488 or kschoeman@dakotacda.state.mn.us for information on the HOPE program or single family
financing.
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CDA TIF Policy
•Statutory authority to create TIF districts for
affordable housing and redevelopment
•CDA provides TIF in the form of an interest rate
reduction (IRR)
•Reduces cost of mortgage
•Strictly for affordable housing districts
•Can only be provided over 15 years
•Housing district may run entire 25 years as permitted
by state statute
•After first increment received –26 years43
CDA TIF Policy (cont.)
•CDA provides 70% of increment to developer for 15 years (IRR)
•CDA retains 30% for first 15 years
•10% for administrative work
•20% for other affordable housing in community of established TIF
district
•If district runs 25 years, CDA collects/retains final 10 years of TIF
generated by district
•10% for admin
•90% for other affordable housing in community of established TIF
district 44
202 Workforce Apartments
Eagan, Minnesota 45
202 Workforce Apartments
Eagan, Minnesota
Real Estate Equities
Experienced and Committed Owners since 1972
•Real Estate Equities is a residential property management and ownership company based in St. Paul
currently operating mainly in Minnesota, Indiana, and Wisconsin.
•Real Estate Equities is a premier property management company that believes in providing housing
that builds communities and enhances the lives of others all while instilling our values of Ownership,
the Right Attitude, Knowledge, and Integrity.
•Real Estate Equities has developed and managed more than 70 projects in excess of 11,000 housing
units with projects spanning from Minnesota, Wisconsin, Ohio, Missouri, South Dakota as well as
Indiana.
•1,200 units currently under development today
•Real Estate Equities will develop and operate all aspects of the property and will remain as owners for
20+ years.
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202 Workforce Apartments
Eagan, Minnesota
202 Workforce Apartments – An important affordable housing resource for
the citizens of Eagan
1.Apartment rents will be at 50-70% of the Area Median Income providing a 20-30% savings to
tenants in comparison to other new market rate properties in the area.
2.Exceptional location with access to transportation and surrounding Twin Cities amenities.
3.Exceptional quality housing project totaling a $50 million investment that residents and city
can be proud of.
4.Committed long term owners and managers that currently own, operate, and develop
similar properties throughout the Twin Cities.
5.Best use of land with proximity to Cedar Lake & Diffley Road.
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202 Workforce Apartments
Eagan, Minnesota
Overwhelming Demand for this Housing Solution
•Demand:
•Dougherty Mortgage LLC Market Report projects 7,981 additional affordable housing units
needed by 2020 currently in the southeast suburb submarket.
•Metropolitan Council has determined the allocation of affordable housing needed within the
City of Eagan between 2019-2030 to be 545 units.
•Dougherty Mortgage LLC indicates the vacancy rate has stayed steady at 3.1%
•Penetration rate stays consistent at nearly 5.5% for stabilization.
•Target Market:
•Rising rents continue to force hard working Minnesotan workforce families into less
desirable/ lower quality housing options.
•Market research provided by Dougherty Mortgage and the MetCouncil indicates that the City
of Eagan and surrounding Dakota County areas have notable production shortfalls of
workforce housing units.
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202 Workforce Apartments
Eagan, Minnesota
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202 Workforce Apartments
Eagan, Minnesota 50
202 Workforce Apartments
Eagan, Minnesota
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202 Workforce Apartments
Eagan, Minnesota
Resident Unit Amenities
Unit Amenities:
•Unit Washer & Dryer
•Solid Surface Counters
•9 Foot Ceiling Height
•Full Stainless Steel
appliance package
•Low Flow Fixtures, LED
lighting, High Efficiency
HVAC
Facility Usage:
•2 Elevators
•Dedicated Move-in areas
•Secure Entries
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202 Workforce Apartments
Eagan, Minnesota
RESIDENT COMMUNITY AMENITIES
•FULL-TIME ONSITE MANAGEMENT TEAM
•SECURE RESIDENT ENTRANCE LOBBY WITH DEDICATED
PACKAGE STORAGE
•COMMUNITY ROOM
•FITNESS CENTER
•DEDICATED UNDERGROUND PARKING
•DOG RUN
•OUTDOOR PATIO WITH GRILLING STATION
•TOT LOT
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202 Workforce Apartments
Eagan, Minnesota
10
SOLAR PANELS ON
ROOF OF EACH
BUILDING
MINNESOTA GREEN
COMMUNITY
STANDARDS
LOW FLOW WATER
FIXTURES
ENERGY STAR
APPLIANCES
HIGH EFFICENCY
HVAC
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202 Workforce Apartments
Eagan, Minnesota 11
Secure
Entrance/Exits
With Controlled Key
FOB Access
Security Cameras
Highly Visible/Well Lit Parking Area
Full On-Site Management Team
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202 Workforce Apartments
Eagan, Minnesota 12
Community Rooftop Patio Children Tot Lot/Play Area
Dog Run Outdoor Community
Gathering Space with
Grilling Area
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202 Workforce Apartments
Eagan, Minnesota
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Project will accommodate highly
necessary regional pond that will
provide much needed water
services for the surrounding area.
This is a much needed resource for the City of
Eagan and is projected to add considerable
costs to the overall grading budget for the
project.
Marquette Advisors estimates
increase of $5.2 million in Consumer
Spending within City of Eagan.
Project development budget
estimates $1.52 million in direct
funds to City of Eagan.
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202 Workforce Apartments
Eagan, Minnesota
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202 Workforce Apartments
Eagan, Minnesota
PROJECTS CURRENTLY UNDER
DEVELOPMENT
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202 Workforce Apartments
Eagan, Minnesota 60
202 Workforce Apartments
Eagan, Minnesota
Questions?
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