DATE:	September 8, 2000

TO:	Economic Development Commission Members

FROM:	David Black

RE:	NWQ Financial Plan

Background

For the last several months, staff has been working with the proposed developers (Ryan and CPDC) and Jim Casserly and Greg Johnson of Krass Monroe, to produce a preliminary financial model for the NWQ. This has been necessary because of the unusually high "front-end" acquisitions thought to be necessary in order to accomplish the long-term vision of high-quality, mixed-use development. Before we proceed on key, expensive acquisitions including Midwest Asphalt, we had to demonstrate to ourselves and to the City Council that there is sufficient development potential and cash flows within our entire TIF program to justify the risks involved and to cover cash flow needs throughout the early years.

The analysis, a portion of which is contained herein, shows that this is a viable project, even with conservative assumptions throughout. The City Council heard this presentation at a work session on August 16th, and recommended that staff proceed with further planning and negotiations. The Finance Director and auditors met with us earlier this week to discuss the shifts in funds that would be needed in order to free up funds from other TIF districts.

The plan is preliminary, pending development of a detailed land use and transportation plan for the area, but reasonable assumptions were provided by the developers for the scale and value of future development in each area. Proposed phasing was coordinated with assumptions on the appropriate sequence and timing of acquisitions, and the likely market absorption of various types of products.

Analysis

I am enclosing the key five pages out of a longer presentation in your packet. All information was developed by Krass Monroe after detailed discussions with Ryan and CPDC, and are based on conservative "benchmarks" of the scale of development and the valuations. No inflation factors are used, and interest income is not added. No outside grants are assumed, though we fully expect to be able to utilize several established state and metro funds.

Page 5, the Development Summary, shows the phasing of each type of residential and commercial/industrial development. The first assumption relates to the phasing. We are assuming that some property will be available for development by fall 2001, and constructed in 2001-2002. The years across the top are the years of completion for tax purposes. In this case, the first phase shows no production. Phase 2 is assumed to be completed in time for valuation in January 2003, with taxes payable in 2004. This is a conservative assumption, in that it is entirely possible that some construction would be completed by mid-2002, in order to generate a partial increment in 2003. Under this scenario, construction continues until completion by January 2008, in time for full valuation in 2009. You will also notice, in the last column, that total projected valuations ar $145,850,000. This exceeds the valuations of all New Brighton redevelopment projects to date.

The second page (Page 6) breaks down the costs and revenues by each of the four "tracts." You can see that projects costs are very rough (round numbers), and there is a 15% contingency factor applied to each category. Land sale proceeds of $2.00/sf would be at the low end of the market for raw industrial land. The "bottom line" shows a deficit of $762,120 out of a budget of over $39,000,000 - essentially in balance.

The following pages show the cash flows over the life of the redevelopment area. It assumes that 2/3 of the excess revenues from the City's previous districts will be directed toward the NWQ. The need for substantial early acquisitions will still necessitate city bond issues of some type. The coupon rate of 7.5% is near today's taxable rate, therefore we may have an opportunity to attract funds at a lower rate of interest. This analysis indicates a need for $31,000,000 in the 2001-2005 period, keeping a cushion of at least $1.8 million over the entire period starting in 2002.

This analysis will continue to be reviewed and refined as the creation of the detailed master plan provides additional refinement of the physical layout.