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Stuart Negotiations Update August 20, 2010 Page 2 Reaction: The City cannot provide more cash assistance than it has available, so the only negotiating room seems to be in adjusting the land price. Land Stuart initially proposed a payment of $500,000 ($4,000 per unit) for the land. The City felt this was unacceptable and requested $1.25M ($10,000 per unit), with the possibility that some portion ($750,000) could be deferred or forgiven. The City's motives are mostly to maintain adequate land values in the NWQ and avoid setting a precedent for the future. Stuart is willing to pay $1.25M, but wants to defer/forgive $1,050,000 and pay $200,000 at closing. The deferred portion would be forgiven at a rate of 10% per year for 10 years. Reaction: Staff believes this needs some work. The City could counter with a different deferral term and/or reduce the amount of deferred park dedication fees (see below). Project Valuation This is an area that needs further exploration. Stuart Companies is anticipating that their hard construction costs will be $140,000 per unit (excluding land). Including land and development costs they estimate the total cost will be $161,400 per unit. These assumptions seem reasonable to staff and Ehlers. Last month, staff met with the Ramsey County Assessor's office to discuss general valuation issues. With regard to apartments, (Class A, New Construction) the Assessor believes that the units will be valued at roughly $115,000 per unit for tax purposes. The number could be slightly higher depending on the quality and building amenities. This per unit valuation translates into a project valuation of $14.375M. Again this valuation could be higher. Stuart Companies has focused their efforts mostly on the amount of taxes that must be paid and less on building valuation. This is reasonable, given the fact that the taxes impact the bottom line. Their pro forma assumes that the taxes will be $1,500 per unit, which equates to a valuation of between $11.7M and $12.2M, depending on tax rates and other factors. They are not opposed to an assessment agreement, which would guarantee a minimum value and require the developer to make up any shortfall in taxes. Reaction: At the end of the day, the issue will be decided by Ramsey County. Our objective is to try and guarantee a minimum valuation. They have agreed to enter into a minimum assessment agreement for a value of $97,600 or ($11.7M) starting in 2014 and continuing for 5 years. We're still waiting for confirmation from legal counsel that an assessment agreement can be used in the NWQ, but this approach seems workable.