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CITY OF NEW BRIGHTON COMMUNITY DEVELOPMENT DEPARTMENT MEMORANDUM DATE: August 20, 2010 TO: Dean Lotter, City Manager Schawn Johnson, Assistant to the City Manager FROM: Grant Fernelius, Community Development Director C -4R,- SUBJECT: Work Session Update on Stuart Company Negotiations Staff met with representatives from Stuart Companies on August 16th to discuss their proposal for an apartment project in the Northwest Quadrant. The negotiations continued with a counter proposal from Stuart Companies on August 18th. All of these deal points are subject to Council review, but the following is a summary of the negotiations. Densi Stuart is proposing to reduce the project scope from 125 to 120 units. We have not been able to understand why there was a reduction. While disappointing, it represents a 4% reduction. Reaction: The proposed project still has a density of 30 units per acre, which is consistent with the City's goals. Cash Assistance Stuart has affirmed that they need $1.5M in net cash assistance to make the project work. They have identified an 8% rate of return (before tax cash flow/cash equity) as their minimum threshold. Some of the other developers we talked to identified a much higher minimum rate of return, (10-12%), so Stuart's projection is low for the industry. Stuart is contributing slightly more than $4,000,000 (22%) toward the project and has stated that they will not put more cash or debt into the project. All things being equal this would simply reduce their proposed the rate of return. There is a $300,000 gap between what the City can provide ($1.2M) and Stuart's request ($1.5M). They recognize that the City does not have more cash, so they are proposing to adjust the land price (see below).