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HOUSING AND REDEVELOPMENT AUTHORITY
ORGANTZATION CHART
?i R ~ BOARD OF
COMMISSIONERS
Karl Nollenberger
Executive Director
Clayton LeFevere Dennis'Kraft
Legal c-~. Director of
C.oH.r,s¢..~ Community
Development
• Bruce Palmborg
Housing & Re-
development
Coordinator
Supervisor of HRA Staff
Manages LHN Redevelop-
. ment Project
Bruce Nordquist Sue Haverkost Lidy Flom
Housing Specialist Clerk-Typist Redevelopment Aide
Administers Housing Assists in LHN
Programs Project
Marcia Hale Kathy Lovick
Housing Aide Leased Housing
Administers Rehab- Agent
ilitation Grants Section 8
Annabelle Thomas
Clerk Typist
~~~ .
Housing and Redevelopment
Authority Commissioners
City of Richfield
Dear Commissioners:
HOUSING. AND REDEVELOPMENT AUTHORITY
Office of Executive Director
HRA Letter No. 39
Agenda November 17, 198
Subject: L/HfN Redevelopment Reasibility Analysis
N.E.. Corner of-66th Street and Nicollet Avenue
The. parcel identified above and known. as 6545 Nicollet
Avenue and 12 East 66th Street (Richfield Automotive, Jackie Ann -
and Dairy Queen), would. benefit dramatically if it was developed.
The area occupied by the .service station facility is especially
in need of redevelopment, although the redevelopment plan does
not identify this area for purchase by the HRA. However, a mod-
fication to the plan could be made. to provide-for future rede-
ve'opment. Following is a."pro forma" tax increment feasibilty°
analysis and a discussion of the development capabilities of`the
site.
Site Size
Dimensions 76 x 251.82
Area. 19,138 square feet
Estimated Site Assembly Costs
Acquisition, relocation, demolition $398,600
Administration, legal. services,
acquisition and disposition :expenses 11,927
Sub-total $410,527
Contingency 41,052
Sub-total ~ $451,580
Les land proceeds @ $2.50/sq. ft. x
19 ,-138 square feet - 47 , 845
Sub-total $403,735
Approximate Net.Cost $40~0,0~00~
If the HRA were to utilize a General-Obligation Tax Increment
Redevelopment Bond to support the site assembly costs (such as was
HRA Letter No. 39 -2-' - November 17, 1980
done to support .the HRA's costs to assemble land for the K-Mart
..project), additional costs and the-tax increment which would be
needed to 'retire the indebtedness for the development. can be
identified. The following assumptions are made:
Bond interest rate 9%
Bond. sale (arbitrary date) 3/1/81
Start construction 10/81
Complete Construction. 1982
Assessed value es ablshed 1/1/83
Taxes received 1984'
First full principal..payment.
on bonds. 1:985.
Final. payment. on bonds 2001
Capitalized interest (interest payments.
to be made before any tax increment is
received; this cost. is included in the.
bond issue) $125,000`.
_ HRA costs to be financed through sale... of
redevelopment bonds. 525,000
Increment needed to amortize bonds 65,000
Taxes based. on 1975 frozen assessed value
for the site, @ 100-mills 5,800
• Total taxes which new:: development... must
generate to make the development finan-
dally feasible 70:,800:.
Assuming a commercial development assessed at 43 percent of
Estimated Market. Value.(EMV) and a, tax levy of 100 mills, 'every
dollar of EMV generates $.043 in taxes.:
$70,800 = $1,646,51'2 EMV needed for feasibility
$.043
This site will not support.$1.6 million worth of development,
as the following discussion indicates.
Development Potential of Site
The subject site is not conducive to the intensive development
generally required to make-tax-increment financing feasible.- Tt is
76 feet deep and 252 feet long. To better understand the site's
development potential, several alternative developments are
described..
Office Building
Scenario 1 (probably maximum intensity)
A-four story office structure with threefinished
.floors and ground-level,'."tuck under" parking.
HRA Letter No. .39 -3- November 17, 1980'
Building dimensions 50 x 100
Square feet/floor 5,000
Gross square feet 15,000
Value/square. foot $35 to
$45'(say $40) x 15,000
sq ft $600,000
Total value of improvements _
.needed without subsidy $1,646,512 -
Differenee -$1:,046,512
A structure of this size and :value is marketable, but is
considerably below the threshold level for tax increment feasibility.
Scenario 2
Assume the same size and value for the improvements, but sub-
sidize the development:..
Total value of improvements
needed, with subsidy of $262`,500
to reduce costs to- be financed
by-bond sale $:890,698
Difference -$290.,698
.The structure is valued at $600,000 which is $2:90,698 short
for tax increment feasibility.
• Scenario 3
Increase the subsidy to .
$350,000, which would make
the HRA costs to be financed
by a bond sale equa to
$175,000, the needed value
of development would be $548,837.
Difference + 51',163
Thus, with a subsidy of $350;000 and improvements valued'at
$600,000,-this site has financial feasility.
Alternate:1
Assume the development of this site is nubsidized to a point
where the tax increment from the new development must support. only
one-half the HRA costs ($:525;000 = $262,500)
2
HRA .costs to be financed through
the sale of redevelopment bonds $262,500 _
• Increment needed to amortize bonds 32,5D0
Taxes based-on 1975 frozen assessed
value @ 100 mills 5,800
HRA Letter. No. 39 -4- November 17,.19'80
Total taxes .which new development must
'+ generate for financial feasibility $.38,300.
Assuming.. commercial development again
$38,300 =:$89.0,698`EMV needed for 'feasibility
$.043
This development alternative is more feasible, but valued at
this amount will still be difficult to achieve. '~
Interest Rate Differential
To .illustrate the impact which high intersst_rates have on
ax ncrement:.feasbility., theoretically contemplate a return to
the past when monies were available at 7 percent interest:
-~ - 7 percent 9 percent
Net HRA Cost of $400,000 $.400,000
" Capitalized interest 100,OOb 125,000
Increment needed to
amortize bonds 54,OOQ 65,000
Taxes based on 1975
fronzen assessed value 5,800 5,800
Total taxes which must be
generated 59,800 7^,800
•
EMV needed for feasibility 59,800. 70,800
.043 .043
$1,390,6:98 $1:,646,512`:
llifference $255.,.8:14
A building valued at approximately. $250,000 less would be
.financially feasible for tax increment financing if interests costs
were only two percent lower.
.Even if a subsidy could be provided to make development finan-
cially feasible, another-major development dilemma for ths_;site
is the: scarcity of off-street parking.
Gross square feet of building space 15,000
..Parking spaces...requred @ 1 per-200
square feet of office space 75
Approximate number of spaces available
on .site 42
Difference -33 spaces:
A variance from the zoning ordinance of this size could not
be readily recommended.
An office building for this s e confronts two problems: lack
of adequate cash flow, and insufficient parking space. By reducing
the building.-size to lessen the parking need, the value of the de-
velopment decreases and a greater. subsidy is needed.
HRA Letter No. 39 -5- November 17, 1980
Restaurant..
tin alternative plan would be development of a considerab;iy
smaller structure occupying ess site area. Such a'development
would require a subsidy,-but the`off-street parking requirements
could possibly be satisfied.• However, preliminary statements from
developers of restaurants'ndicate: the site is even ?tigha" for this
type of development.
A restaurant facility for this site would probably be valued
between-$400,000 and $500,000, meaning that a_subsidy in excess of
$400,000 would be required for tax increment feasibility.
Conclusion
The above analysis is very.preliminary . Real estate-appraisals
and negotiations to purchase-the property have not been initiated,..
and some of the numbers and assumptions are likely to change. How-
ever, this information is based on reasonable estimates and dis-
- cussions with developers, and although the specifics may change,
the conclusions will not:
1. Development. of conventional buildings on this .site
will require a..substantal subsidy for tax increment
feasibility (if funds were available, perhaps the tax.
increment .approach should not be used. The'cost of
capalitized`interest would .be saved on the "frontend"
.and 17 years of interest payments would also be saved):;....
A building designed for specialized tenants such
as doctors and dentists may be valued higher, but
the space limitations of the site would still be a
problem.
2. If.redevelopmentof this site is to proceed, it may.
be necessary/desirable for the HRA to initiate nego-
tiations with the owners of the property to the north
to provide a move suitable development site:
3. _A renewal strategy which involves- bo h rehabilitation
and redevelopment may be appropriate.
If the HRA is interested in the site for redevelopment, now
is the time to make that decision. The Dairy Queen has plans to
make improvements to their structure and `the..Naegele Company has
plans for the corner property which is currently .used for auto-
motive repair. Increases in value will make redevelopment less
attractive than the present figures show.
Respectfully submitted,
lv ~
ar ollenberge
Executive Director
KN/eja
cc: Director .Community Development