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HomeMy WebLinkAboutIV.A. TIF 9 Overview for HEDRA packet 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: John Hinzman, Community Development Director Eric Maass, Economic Development Coordinator From: Tammy Omdal, Managing Director Jessica Green, Managing Director Date: February 3, 2022 Re: Overview of Tax Increment Financing District No. 9 This memorandum provides an overview of the proposed establishment of Tax Increment Financing (TIF) District No. 9. This matter will be considered by the Hastings Economic and Redevelopment Authority (HEDRA) on February 10. The City Council will conduct a public hearing on the TIF District on February 22. Proposed Development The City of Hastings received an Application for Tax Increment Financing Assistance from NJS Development, LLC (the “Developer”). The Developer is requesting tax increment financing (TIF) assistance from the City to assist with the financing of a market-rate 89-unit apartment building consisting of studio, one and two-bedroom units to be located on an approximate 2- acre site at 404 3rd Street East (the “Project”) within the City. The request by the Developer is for the City to establish a Redevelopment TIF district to capture the increase in property taxes from the development for a maximum period of 25 years. Northland has reviewed the information submitted by the Developer, including the project pro forma, land acquisition costs, construction costs, developer fees, operating expenses and rental rates, among other items. Based on our review, we find the information provided to be within general industry standards. The Developer’s request for public financial assistance is to assist with the extraordinary costs of redevelopment and construction of the Project. The Developer has represented that it will not undertake the Project as proposed without the approval of the requested public financial assistance. It is Northland’s opinion that the Project as proposed, which includes underground parking, is unlikely to occur but for the proposed public financial assistance, inclusive of the tax City of Hastings Overview of TIF District No. 9 Page 2 increment financing (TIF). Without public financial assistance, the Project is not expected to achieve the level of debt service coverage and returns needed to secure the necessary private financing and equity. Without the underground parking, the Project as proposed would not be feasible and the density (number of housing units) would need to be reduced. Northland finds that it is reasonable for the HEDRA to consider public financial assistance for the Project as necessary so that development by private enterprise will occur on the Property. The Project, inclusive of the higher level of density, is possible only with the construction of the enclosed parking, which will not occur solely through private investment within the reasonably foreseeable future. A development agreement will be brought forward for the HEDRA’s consideration at a date to be determined. The development agreement will define the actual terms for the use of tax increment from TIF District No. 9. The District under consideration by the HEDRA and City Council defines the parameters and empowers the use of TIF. Process for Approval To create the TIF District, the City must hold a public hearing prior to consideration of a resolution considering the adoption of a Tax Increment Financing Plan for the TIF District (the “TIF Plan”). The TIF Plan provides information about the Project to be funded with tax increment from the TIF district and authorizes the use of tax increment from the district to pay TIF-eligible project costs, among other items. A tax increment financing district administered by the HEDRA (after establishment by the City) must be located within the boundaries of a specified development district or redevelopment project. The HEDRA has previously established Development District No. 1 (Hastings Downtown Redevelopment Area), and it is proposed that Area be modified to include additional parcels to allow for future redevelopment activity (see map in Exhibit V of the TIF Plan). The Modification incorporates the Redevelopment Plan into a common document with the TIF Plan. Once the TIF District is established by the City, the HEDRA may consider its actions, including approving a contract with the Developer for tax increment financing assistance. Notice to County and School District Before the public hearing and the establishment of a TIF district, the City/EDA must provide certain notices to the county and the school district, including providing a copy of a draft TIF plan. The county and school district may comment on the proposed TIF district but cannot prevent the creation of the TIF district. On behalf of the City and the HEDRA, Northland City of Hastings Overview of TIF District No. 9 Page 3 submitted a letter and a draft copy of the TIF Plan for the TIF District to Dakota County and Independent School District No. 200 on January 7, 2022, asking to receive written comments. To date, no written or oral comments have been received by Northland or the City. Adoption of TIF Plan Following the public hearing, the City Council may consider a resolution approving the establishment of the TIF District within the Project Area and the adoption of the TIF Plan relating thereto. TIF Plan Summary TIF plans can be confusing, as the plans tend to contain technical language that is required by the statutes that govern tax increment. The summary that follows is provided to highlight the key elements of the TIF Plan. A complete copy of the draft TIF Plan is available and included in the packet for the HEDRA and City Council meetings. Item Plan Section Comments Introduction, Proposed Project, Redevelopment Plan 1.01 Section 1.01 of the TIF Plan summarizes the proposed development, and actions taken in connection with Development District No. 1 (Hastings Downtown Redevelopment Area) Statement of Public Purpose, Statement of Objectives 2.02 3.01 Section 2.02 describes how the Project Area and Redevelopment Plan will facilitate desired outcomes for public benefit; Section 3.01 provides details related to the objectives of the Redevelopment Plan. Boundaries of TIF District; Type of District 4.03.02 4.03.03 TIF District No. 9 will consist of ten (10) parcels, as well as adjacent roads and right-of-way. The District will be a Redevelopment District and will meet the statutory criteria for this type of district. Estimated Tax Increment 4.04 The projected development is estimated to create annual tax increment revenue of $218,258 (after deducting State Fee) in the first year of the TIF District or upon completion of development. This amount is based on the following factors: City of Hastings Overview of TIF District No. 9 Page 4 Item Plan Section Comments Total estimated taxable market value of the Property after completion is approximately $25.1 million, to be classified as “apartments”. The actual estimated market value of the property will be set by the Assessor after completion of construction. Changes in property values and tax rates, among other factors, will alter the amount of tax increment revenue from year-to-year. The TIF Plan includes estimates for planning purposes only, and the actual amounts will vary. Project Costs, Estimated Source and Uses of Funds, Administrative Expense 4.04.2 4.04.3 4.04.4 Tax increment revenue will be used to pay Project Costs related to redevelopment of the Property. The TIF Plan provides for use of tax increments up to $3,926,000 to pay Project Costs, including administrative costs incurred by HEDRA. The Project Costs include $3,851,000 for land acquisition, site improvement costs, other qualifying improvements, and $75,000 for administrative costs. The amounts in the TIF Plan are maximum not-to-exceed amounts. The actual assistance to the Developer may be less than the not-to-exceed amounts in the TIF Plan and will be subject to final terms in the development agreement. Bonded Indebtedness 4.04.6 Use of tax increments will be on a “pay-go” basis payable solely from available tax increments and will not be a general obligation of the City. Duration 4.04.7 The TIF Plan elects a duration of twenty-five (25) years which is the maximum duration allowed for a housing district. The estimated month and year of first receipt of tax increment is July 2025.