HomeMy WebLinkAbout17. 16-416JULY 26, 2016 16-365 16-400 16-416 PENDING
JULY 12, 2016 RESOLUTION
AUGUST 10, 2016
(CARRIED 6-0LOST________ LAID OVER______ WITHDRAWN_______)
PURPOSE: APPROVE UPDATED TAX INCREMENT FINANCING (TIF) POLICY
AND APPLICATION GUIDELINES
INITIATED BY: COMMUNITY DEVELOPMENT
WHEREAS, the City of Oshkosh is active in its use of tax increment financing (TIF) to
promote redevelopment and industrial development activity; and
WHEREAS, a formal TIF policy and application better communicates the City’s
expectations to the development community and public regarding use of TIF; and
WHEREAS, Council previously approved TIF policy and application guidelines; and
WHEREAS, based on developer interest in utilizing TIF funding and the current
market, staff is recommending revisions to three significant policy and criteria elements of the
TIF Policy and Application:
1)Criteria for TIF Assistance
2)Payback Period
3)Policy Criteria
NOW, THEREFORE, BE IT RESOLVED that the Common Council of the City of
Oshkosh hereby approves of the attached revised City of Oshkosh Tax Increment Financing
Policy and Application guidelines.
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Oshkosh
TO: Honorable Mayor and Members of the Common Council
FROM: Allen Davis, Community Development Director
DATE: August 4, 2016
RE: Updated Tax Increment Finance (TIF) Policy and Application Guidelines
BACKGROUND
The City Council deferred action on this item at their July 12, 2016 meeting.
ANALYSIS
Staff asked the City's Financial Consultant, Ehlers, for TIF information on the Best TIF Practices
from around the state. Ehlers has provided an additional informational PowerPoint for your
review and it is attached. Mr. Mike Harrigan and Todd Taves from Ehlers and Associates will be
in attendance at the City Council meeting to talk about TIF in the context of economic and
development conditions in Wisconsin.
RECOMMENDATION
City Council approves the updated Tax Increment Finance (TIF) Policy and Application
Guidelines.
Submitted, Approved,
Allen Davis Mark Rohloff
Community Development Director City Manager
What is TIF?
Tax Incremental Financing (TIF) is a special funding tool available to local municipalities that spurs
economic development which otherwise would not occur. When a Tax Increment District (TID) is created
property owners within the district continue to pay the same property tax rates as those outside the district.
The difference is that tax collections, over and above the "base value" are placed into a special fund that is
used to pay for project costs. Once all costs incurred by the creation of the TID are recooped by the
additional tax increment created the TID is closed
Al. TIF Closed and the additional property taxes created are shared
by all taxing entities. The use of TIF varies from
Time
project to project and district to district. In some
cases, the City uses TIF to promote redevelopment
of older parts of the community. In other cases the
City uses TIF to create industrial parks through
land acquisition and construction of infrastructure.
In both cases, increased property tax collections are
used to pay down debt service associated with
project costs. The following outlines the City's
policy regarding TIE
Purpose:
The purpose of this Policy is to articulate to existing or potential businesses the City of Oshkosh's desire to
promote economic development that is consistent with the City's Comprehensive Plan and provides a
community benefit that will ultimately be shared by all taxing entities (City, School, Technical College,
County, and State) impacted through the establishment of Tax Increment District (TID).
Notwithstanding compliance with any or all of the guidelines herein, the provision of TIF assistance is a
policy choice to be evaluated on a case-by-case basis by the Common Council. The burden of establishing
the public value of TIF shall be placed upon the applicant and the application must substantially meet the
criteria contained herein. City Administration reserves the right to bring any TIF proposal forward for
Council consideration.
Meeting statutory requirements, policy guidelines or other criteria listed herein does not guarantee the
provision of TIF financial assistance nor does the approval or denial of one project set precedent for
approval or denial of another project.
TIF Authority:
The authority and regulations for Tax Incremental Financing and the establishment of Tax Increment
Districts are found in Wis. Stats. 66.1105. The City of Oshkosh reserves the right to be more restrictive than
provided under the statutes.
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Asu matter of policy the City of Oshkosh will consider using Tax Incremental Financing to assist private
development in those circumstances where the proposed private project shows a demonstrated financial gap
and that the financial assistance request is the minimum necessary to make the project feasible. 7budevclo9cr
ia expected tohave exhausted every other financial alternative(s) prior to requesting the use of TIF, including
equity participation, other federal and state funds, bonds, tax credits, loans, etc.
It is the intent of the City to provide the minimum amount of Tax Incremental Financing assistance to make the
project viable and not solely 1m broaden a developer's profit margin outhe project. Prior to consideration o[n
Tax Incremental Financing request, the City will undertake (at the requestor's cost) an independent analysis of
the project tw ensure the request for assistance iavalid.
In requesting TIF assistance, the developer must demonstrate that there will be a substantial and significant
public benefit (o the community by eliminating blight, strengthening the economic and employment base of
the City, positively impacting surrounding neighborhoods, increasing property values and the tax base, creating
new and retaining existing jobs, and implementing the Comprehensive Plan.
Each project and location ix unique and therefore every proposal shall be evaluated om its individual merit,
including its potential impact on city service levels, its overall contribution to the economy and its consistency
with the Comprehensive Plan, Strategic Plan mz other community planning documents. Each project must
demonstrate probability o[ financial success,
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Ibefuoduooeotal principle and that which the City must determine through information provided 6,the
developer is that the project would not occur "but for" the assistance provided through Tax Incremental Financ-
ing, The burden is on the developer to make this case Wthe City and not the City to make this case for the
developer. Should this "but for" determination not hm made, Tax Incremental Financing for the project cannot
move forward.
��� Objectives:
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7he[]1yvvdlcooaidccutilbzingIaxlucreracnLo]Fiuuooio8k/zucetdhefoDovvng basic objectives:
I. Stimulate and continued revitalization of the central city and downtown area by:
a. Improving infrastructure;
k Creating o variety of housing opportunities to increase the number of downtown residents;
c. Preventing oz eliminating slums and blighting cuodbimrm;
d. Constructing mixed-use developments;
o. Attracting desirable businesses and retaining existing businesses.
f.Encouraging development projects that enhance the e<zeeLocapcand pedestrian experience and
improve the vitality of the downtown area by adding interest and activity on the first floor of
mixed- use buildings.
2. PzocooLu efficient usage of land through redevelopment ofblighted areas.
3. Strengthen the economic base wf the City and support Economic Development.
4. Stabilize and upgrade targeted neighborhoods,
S. Create and retain family supporting jobs bo the City,
h. Increase property values and tax revenues.
7. Leveraging tbccouxiruuouaou000to{oom-cityfundsioboadcvulopzocutnodbackio1otkecoouozuuity
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Tax Incremental Financing
Policy and Application
What Development is Eligible?
The type of development that the City will consider TIF funding includes:
1. Business development (attraction, retention, expansion), TIF assistance will be evaluated on its
impact on existing local markets.
2. Mixed-use developments that creatively integrate commercial and retail projects into a residential
development.
3. Revitalization of historically significant or deteriorated buildings,
4. Projects that promote central city office and retail development,
5. Projects that promote neighborhood stabilization or revitalization.
6. Projects that promote industrial development.
7. Projects consistent with approved TIF Project Plans.
8. Projects that involve environmental clean-up, removal of slum and blighting conditions.
9. Projects that contribute to the implementation of other public policies, as adopted by the city in its
strategic plans such as promotion of high quality architectural design, energy conservation (i.e.
LEER, Energy Star, etc), green infrastructure, etc.
The Rivers Assisted Living Facility as
m
co Pleted in 2011 within TID #2yl also
known as the Fox River Corridor Project,
Basler Turbo Conversions is located in
TID #8, South Aviation Park, which was
developed in 1991 and is approximately 256 acres,
What Development is Ineligible?
The City will not favor use of TIF funding to help support the following types of development.
1. Speculative office development without one or more anchor tenants.
2. Relocation of offices, retail and/or commercial uses for purposes other than retaining or
substantially expanding the business.
3. Office and retail development outside of the central city unless part of a city owned business or
industrial park.
4. Stand alone residential development projects unless limited by site and environmental conditions
beyond which make the project financially infeasible.
5. Projects not consistent with the Comprehensive Plan.
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Tax Incremental Financin�V
Policy and Application
~
Eligible Costs:
TIF eligible expenditures are defined 6v Section 66.lI0SC0(z)of Wisconsin Statutes, which the City of
Oshkosh may further limit moa project bv project basis. T6e following are typical eligible costs.
l. Capital costs, including actual costs of.
a. Construction of public works orimprovements;
b. Construction mf new buildings, structures, and fixtures;
c, Demolition, alteration, rehabilitation, repair or reconstruction of existing buildings,
structures and fixtures, other than historic buildings and structures.
d. Acquisition of equipment boscrvicotbedimbicL;
e. Restoration of soil wr groundwater affected by environmental pollution; and
[ Clearing and grading mfland.
2. Real property assembly costs.
3. Professional service costs (planning, architectural, cogiueczin8` and legal).
4. Relocation costs.
5. Environmental rmooedbatiou.
6. Organizational costs (environmental and other studies, publication and notification costs).
7. Development Incentives in the fhcnn of loans or grants.
Criteria ��,� ��� �� ��� Assistance:
All of the following financial criteria must be met io order tobeconsidered for T2fassistance.
1. Equity Requirement. Developers must provide a minimum 15% equity of total project costs.
Projects that exceed the 15% equity requirement will be looked upon favorably by the City.
Equity is defined as cash or un-leveraged value in land or prepaid costs attributable to the project.
I2F shall not bc used to supplant cash equity.
2. Maximum Increment Use. For loans, oo more than 7596of the net present value of the tax increment
generated by a private development shall be made available to the project. For "pay-go" supported
pr wf the generated annual tax increment can bemade available ifu financial need
is demonstrated and there are no other public infrastructure projects planned iu the district,
3. Payback Period. Payback period for loans will match the arnortization period but in no case will
exceed the statutory life oC the district, Preference will bo given to projects with payback periods
oflO years wzunder.
4.TIFCap. The total amount of TIF assistance should not exceed 25% of total project costs. This
limitation may be waived i[ the project iovwlveozzdcvelopnmeoto[cximtiugmtroctuzoworLhc
assembly and clearance of land upon which existing structures are located.
5.Sclf'8upportiug Po4ucim. Each project requesting IIF assistance should generate sufficient tax
increment to cover the requested TIF assistance and a portion of any public infrastructure costs
within the district.
uNo increment from other private development projects within the district may be used to
supplement uonthmz project's inability 1u generate sufficient tax increment tm cover project
costs.
6, Land Assembly Cup.DF assistance for land/property assembly costs will not bc provided in4n
amount exceeding 10% of the fair market value of the land, The fair market value will be
determined by an independent appraiser contracted by the City with cost of appraisal paid for by
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Tax Incremental Financing
0
Policy and Application
Criteria for TIF Assistance continued from previous page...
7, Internal Rate of Return. The amount of assistance provided to a developer will be limited to the
amount necessary to provide the developer a reasonable rate of return on investment in the project
and the subject site. A developer's return on equity, return on cost or internal rate of return will be
based on current market conditions as determined by the City or City's financial advisor. In no case
shall the internal rate of return exceed 30%.
8. Taxable Increase. The project should result in an increase in taxable valuation of at least 20% upon
project completion.
Policy Criteria
In addition to meeting all of the above financial criteria, projects must accumulate at least 50 points based on
the following policy criteria. Points can range from 0 to the maximum shown below in each category:
Criteria
Maximum Points
1 Attracting, retaining or expanding businesses for the purpose of improving the City's
economic base.
is
a. Documentation of employment or financial projections must be provided by the party
making the request and will serve as the basis for the agreement.
2. Projects that directly implement specific recommendations of the City's strategic planning
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documents such as the Comprehensive Plan, Downtown Action Plan, Riverwalk Plan,
Vision Report, Consolidated Plan, Storrnwater Plans, etc.
3. Projects involving retail development that is targeted to encourage an inflow of customers from
outside the city that result in exported goods, or that provide services or fill retail markets that
H:::
5
are currently unavailable or underserved in the City.
4. Presence of extraordinary development/redevelopment costs such as:
a. Remodeling/Rehabilitation/Demolition
b. Environmental Remediation
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c. Capital purchases
d. Facility expansion
e. Public infrastructure
5. Proposed employment potential.
a. Number of new employees.
b. Skill and education levels required for the jobs.
c. Range of salary and compensation rates for the jobs as compared with the median
income level for the community.
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d. Cost of public assistance per job.
e. Potential for executive relocation.
.. . ... ... . ....... . ........ . . ......
6. Enhance the streetscape and pedestrian experience.
5
7. Historic Preservation. Preservation/rehabilitation of a locally significant historic structure.
5
8. Provides direct benefit to distressed areas through blight elimination.
9. Quality of development and overall aesthetics (architectural, site design, landscaping, etc.)
beyond that which is minimally required by the Zoning Ordinance,
10. Higher standards of Building Design, Materials, and Energy Efficiency such as meeting
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LEED certification, Energy Star, etc.
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Tax Incremental Financing
Policy and Application
Process of TIF Approval:
Tax Increment District creation requires following statutory prescribed timelines that include notification to
the overlying taxing jurisdictions (i.e. public school district, technical college, county, city), property owners
within the district, and published meeting notification in the newspaper. Ultimately the City's Plan
Commission, Common Council, and joint Review Board all must approve the TIF creation request.
1. A pre-application meeting is held between the developer and the City.
2. A Tax Incremental Financing Application is submitted by the developer to the City.
3. The City will review the Application and determine completeness and whether the proposed
project is eligible under the City's policy and statutory requirements.
4. An analysis of the TIF Plan and financial proformas will be conducted by city staff and/or
outside consultants,
5. Within ninety (90) days of receipt of a completed application staff will schedule a public
hearing before the Plan Commission on the Project Plan and District Boundaries. If approved
by the Plan Commission, the Project Plan and recommended boundaries will be sent to the
Common Council for review. There is a minimum 14 day wait from the public hearing to
Council review.
6, The Common Council may approve or deny the proposal to create the'rax Increment District.
The Common Council may also adjust the boundaries (retraction only) of the proposed
district from that which was recommended by the Plan Commission. If approved, the plan is
forwarded to the joint Review Board to make the final determination that the development will
not proceed "but for" the use of TIE
7. If approved, a Development Agreement is drafted and negotiated between the City and
Developer.
8. Once general agreement has been reached on the terms of the Development Agreement, it will
require approval by the Common Council.
9. Execution of the Development Agreement between the City and Developer.
Structure for Tax Incremental Financing Assistance:
1. Tax Incremental Financing assistance will be provided by the City on a "Pay-go" note method or
via bond proceeds. Requests for up-front financing may be considered on a case-by-case basis
if increment generation is sufficient to meet initial financing and debt service costs and is not
the first dollars spent on a project.
2. For "Pay-go" structured projects, the project owner shall agree to pay all other outstanding City
of Oshkosh property tax bills prior to disbursement of any pay-go payments by the City.
3. No Mortgage Guarantees. The City will not provide mortgage guarantees.
4. Personal Guarantee. The City will require a personal guaranty for receiving up front TIF
assistance. Amount and form shall be acceptable to the City.
5. The property owner shall agree not to protest to the Board of Review or Circuit Court the
Assessor's determination of the property value for the properties for which the grant is requested.
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,.Lax Incremental Financing
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Policy and Application
Structure for Tax Incremental Financing Assistance Continued from previous page...
6, The City will retain a maximum of 10% of any tax increment received from the project to
reimburse for administrative costs. Until such time as the project generates positive tax
increment, the City will charge an administrative fee to the developer to partially offset the cost of
record keeping, report preparation, and accounting.
7, When the project is intended as a for-sale development (i.e., office, retail or residential
condominiums), the developer must retain ownership of the overall project until final completion;
provided, however, that individual condominium units may be sold as they are completed. For
all other projects, the developer must retain ownership of the project at least long enough to
complete it, to stabilize its occupancy, to establish the project management and to initiate payment
of taxes based on the increased project value.
8. Projects receiving assistance will be subject to a "look back" provision. The look back mandates a
developer to provide the City or its financial advisor with evidence of its annualized cumulative
internal rate of return on the investment (IRR) at specified periods of time after project
completion. The IRR shall be calculated with equity, revenues, and expenses in accord with
generally accepted accounting principles.
When the developer owns the subject property and rents space to tenants, supporting
documentation shall include certified records of project costs and revenues including lease
agreements and sales on a per square foot basis. If the records indicate that the developer has
received a higher return on equity, a higher return on cost, or a higher internal rate of return than
originally proposed to the City at the time of development agreement, the developer and the City
may split, on a 50/50 basis, the increase above the originally projected rates of return, Terms of any
split will be negotiated in a Development Agreement.
When the subject property is a for-sale development and the IRRI cannot be completed, the
developer is to provide financial data after the project is completed. This shall include a
calculation of profit on total development costs minus the TIF assistance. If the financial records
indicate that the developer has received a higher return on equity, a higher return on cost, or a
higher internal rate of return than originally contemplated at the time of development agreement
approval, the developer and the City may split, on a 50/50 basis, any increase at or above original
projected rates of return. Terms of any split will be negotiated in a Development Agreement.
9. Exceptions to TIF Policy. The City reserves the right to amend, modify, or withdraw these policies
or require additional statements or information as deemed necessary. Any party requesting waiver
from the guidelines found herein or on any other forms provided for TIF assistance may do so
on forms provided by the City with the burden being on the requestor to demonstrate that the
exception to these policies is in the best interests of the City.
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Tax Incremental Financing
Policy and Application
Please complete and submit the following information to the City of Oshkosh for a more detailed review of
the feasibility of your request for Tax Incremental Financing (TIF) assistance. The application is comprised
of five parts:
I. Applicant Information
2. Project/Property Information
3. Project Narrative
4. Project Budget/Financial Information
5. Buyer Certification and Acknowledgement.
Where there is not enough space for your response or additional information is requested, please use an
attachment. Use attachments only when necessary and to provide clarifying or additional information.
The Department of Community Development (DCD) reviews all applications for TIF assistance. Failure to
provide all required information in a complete and accurate manner could delay processing of your
application and DCD reserves the right to reject or halt processing the application for incomplete submittals.
For further information please refer to the "City of Oshkosh Tax Incremental Financing Policy" document.
Legal Name:
Mailing Address: -
Primary Contact #:
E-mail:
Cell #:
FAX #:
Attorney:
Legal Entity: Individuals)_ Joint Tenants Tenants in Common Corporation
LLC Partnership Other
If not a Wisconsin corporation/partnership/LLC, state where organized:
Will a new entity be created for ownership? Yes— No
Principals of existing or proposed corporation/partnership/LLC and extent of ownership interest.
Name: Address: Title: Interest:
Is any owner, member, stockholder, partner, officer or director of any previously identified entities, or any
member of the immediate family of any such person, an employee of the City of Oshkosh? Yes— No
If yes, give the name and relationship of the employee:
Have any of the applicants (including the principals of the corporation/partnership/LLC) ever been
charged or convicted of a misdemeanor or felony? Yes— No
If yes, please furnish details:
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Tax Incremental Financing
Policy and Applicatio on
Overall Project Summary and Objectives:
Current and Proposed Uses:
Description of End Users:
Describe any zoning changes that will be needed:
Identify any other approvals, permits or licenses (i.e. Liquor License, Health Department, etc):
Describe briefly what the project will do for the property and neighborhood:
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Tax Incremental Financinig
Policy and Application
Project Timetable Date
Final Plan/Specification Preparation:
Bidding and Contracting:
Firm Financing Approval:
Construction /Rehabilitation:
Landscaping/Site Work:
Occupancy/Lease Up:
. . of
Architect:
Surveyor:
Contractor:
Other Members:
Describe Team expertise and experience in developing similar projects:
Other current Team projects in development:
Financial ability of the applicant to complete the project:
Full and part-time jobs to be created by the proposed project including estimated salary:
Professional Studies
Market Studies: Applications for commercial and residential projects must include a comprehensive market
study. The market study must identify target markets, analysis of competition, demographics, market rents,
letters of intent/interest from prospective tenants, or for housing developments, sale prices or rental rates of
comparable properties.
Appraisal: All projects that involve the transfer of land must include a recent appraisal. Projects that include
land as a form of equity or collateral must also submit a recent appraisal. The appraisal must value the property
"as is", and the impact on value must be considered for such items as demolition, environmental remediation,
relocation of utilities, lease buy-outs, and other work necessary to make the site developable. The property
must be valued assuming that the highest and best use is the proposed use.
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Tax Incremental Financing
Policy and Application
Sources and Uses of Funds
Identify the sources of funds used to finance the project. Typical sources include equity, lender financing,
mezzanine financing, government financing, other anticipated types of public assistance, and any other types
or methods of financing.
Uses of Funds
Land Acquisition:
Demolition:
Environmental Remediation:
Site Clearance and Preparation:
Soft Costs/ Fees:
Soft Cost Contingency:
Hard Construction Costs:
Total Project Costs:
Amount ($)
$ per SF of Building Area
Sources of Funds
% of total project costs
Equity
Developer Equity:
$
%
Other Equity:(
$
%
Total Equity:
$
Loans
Rate
Term
Construction Financing:
$ %
MOS.
Permanent Financing:
$ %
yrs. %
TIF Assistance
$
%
Other: (
$
%
Total Sources of Funds
$
100%
Financing
Source Amount
Terms: Years/Interest
Contact Information
Equity:
Loans 1:
2:
3:
4:
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Tax Incremental Financing
0
Policy and Appli cation
Detailed Pro Forma (must correspond to line items far Uses of Funds on previous page)
Land Acquisition
$
Demolition
$
Site Clearance and Preparation
Infrastructure
$
Utilities/removal
$
Utilities/relocation
$
Utilities/ installation
$
Hazardous Materials Removal
$
Other(
$
Total Site Clearance and Preparation
Soft Costs/Fees
Project Management %)
$
General Contractor %)
$
Architect/Engineer
$
Developer Fee
$
Appraisal
$
Soil Testing
$
Market Study
$
Legal/Accounting
$
Insurance
$
Title/Recording/Transfer
$
Building Permit
$
Mortgage Fees
$
Construction Interest
$
Commissions
$
Marketing
$
Real Estate Taxes
$
Other Taxes
$
Other(
$
Other(
$
Sub-total Soft Costs/Fees
$
Soft Cost Contingency
$
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Tax Incremental Financing
Policy and Application
Pro Forma Income and Expense Schedule
Applicants whose projects involve the rental of commercial, retail, industrial, or living units must submit
project pro formas that identify income and expense projections on an annual basis for a minimum five-year
to a maximum eleven-year period. If you expect a reversion of the asset after a holding period please include
that in your pro forma as well. Please check with city staff to determine the time period needed for the pro
forma. Identify all assumptions (such as absorption, vacancies, debt service, operational costs, etc.) that
serve as the basis for the pro formas. Two sets of pro formas are to be submitted. The first set should show
the project without TIF assistance and the second set with TIF assistance.
For owner-occupied industrial and commercial projects, detailed financial information must be presented
that supports the need for financial assistance (see below).
Analysis of Financial Need
Each application must include financial analyses that demonstrate the need for TIF assistance. Two
analyses must be submitted: one WITHOUT TIF assistance and one WITH TIF assistance. The applicant
must indicate the minimum return or profit the applicant needs to proceed with the project and rationale for
this minimum return or profit. The analyses will necessarily differ according to the type of project that is be-
ing developed.
Rental Property: For projects involving rental of space by the developer to tenants (tenants include offices,
retail stores, industrial companies, and households), an internal rate of return on equity must be computed
with and without TIF assistance based on the pro forma of income and expense prepared for the Income
and Expense Schedule below. The reversion at the end of the ten-year holding period must be based on the
capitalized 11th year net operating income. The reversionary value is then added to the 10th year cash flow
before discounting to present value. State all assumptions to the analyses.
For Sale Residential: Show profit as a percent of project cost (minus developer fee and overhead and minus
sales commissions and closing costs, which should be subtracted from gross sales revenue). Other measure
of profitability may be submitted, such as profit as a percent of sales revenue.
Mixed Use Commercial / For-Sale Residential: Provide either separate analyses for each component of the
project or include in the revenue sources for the for-sale portion, the sale value of the commercial component
based on the net operating income of the commercial space at stabilization. Indicate how the sale value was
derived.
Owner-Occupied Commercial: For projects, such as "big-box" retail projects, provide copies of the analyses
that the company needs to meet or exceed the company's minimum investment threshold(s) for proceeding
with the project.
Competitive Projects: In instances where the City is competing with other jurisdictions for the project (e,g,,
corporate headquarters, new manufacturing plant), present detailed analyses that demonstrate the capital
and operating cost differential between the proposed location(s) in Oshkosh and locations that are seriously
being considered by the applicant.
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Revenue Projections - Rental Project
Income rent per sf (or avg.)
Commercial Rent
Commercial Expense Recoveries
Residential Rent
Other Revenue (
Gross Potential Income
Commercial Vacancy %
Residential Vacancy %
Effective Gross Income (EGI)
Expenses
Maintenance & Repairs
Real Estate Taxes
Insurance
Management Fee
Professional Fees
Other Expense
Other Expense
Total Expenses
Net Operating Income (NOI)
Capital Expenses (reserves, tenant improvements, commissions)
Debt Service
Net Cash Flow (before depreciation)
Reversion in Year 10
Year 11 N01 before Debt & Capital Expenses $
Capitalization Rate %
Gross Reversion $
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Year 1
Year 2
>>Year 11
Revenue Projects — For-Sale Project
Gross Sales Revenue
Housing Units Unit Type* Number Price/Unit
Total Housing Sales: $
*affordable units if any
Housing Unit Upgrades: $
Commercial Space Unit Type Size-sf Price per sf
Total Commercial Sales: $
Total Gross Sales Revenue $
Cost of Sales
Commissions $
Marketing $
Closing % $
Other Costs % $
Total Costs of Sales % $
Net Sales Revenue $
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lax Incremental Financing
Policy and Applicati on
Summary Letter
Provide a summary of the project in the form of a letter addressed to the City Manager. The letter should not
exceed two (2) pages in length and should include only the following essential information about the project:
• Description of site or building • Overview of private-sector financing
• Current and proposed uses • Amount of TIF assistance requested
• Description of end users • Summary of increment projections
• Project start and end dates • Name of developer and owner
• Profitability • Total development costs
• Description of public benefits, • Statement regarding why TIF is essential and why the
including job creation. "but for" provision will be met,
Note: In the "but for" discussion you must clearly describe why TIF is needed to help this project and
why the project will not/cannot proceed without such support. Failure to clearly provide the
"but for" explanation will delay action on your application.
Project Narrative
Provide an in-depth overview of the project in narrative format. The narrative must include a description of
the following aspects of the project:
• Current condition of the site and historical overview that includes the size and condition of
any existing structures, environmental conditions, and past uses of the site.
• Proposed use(s) of project (e.g. industrial, commercial, retail, office, residential for sale or
for rental, senior housing, etc.)
• Construction information about the project including: size of any existing structure to be
demolished or rehabbed; size of any new construction: types of construction materials
(structural and finish); delineation of square foot allocation by use; total number and individual
square footage of residential units: type of residential units (e.g. for-sale, rental, condominium,
single-family, etc); number of affordable residential units; number and type of parldng spaces;
and construction phasing.
• If in an existing TID or redevelopment area, confirm that this project is consistent with the goals and
objectives in the Project or Redevelopment Plan.
• A summary of the proposed "green" features to be included in the project. All projects that receive
TIF assistance are encouraged to include environmentally friendly features.
16
E 0 0
'iax Incremental Financing
Policy and Application
Filing Requirements
You must provide all of the following items with your signed application:
1. Fee: An application fee of 1% of the requested TIF assistance or $10,000, whichever is greater. This
fee is to cover City costs associated with evaluating the TIF application and does not cover the
use of outside consultants, which if required will be paid for by the applicant. Make your
check payable to the City of Oshkosh.
2. Site Maps: Provide a map that shows the location of the site. Also provide a map that focuses on
the project and its immediate surroundings. Both maps should be no larger than
11x17 inches. Larger maps will be required for projects presented to the Plan
Commission, Redevelopment Authority, or Common Council.
3. Project Renderings: Provide preliminary architectural drawings, plans and renderings for the
project. These drawings should be no larger than 1 1x17 inches, Larger maps will be required
for projects presented to the Plan Commission, Redevelopment Authority, or Common
Council.
Notes
The City charges an administrative fee of 5% of the annual tax increment revenue.
If the project requires planning and zoning approvals, you must make these applications concurrent
with this request.
Agreement
1, by signing this application, agree to the following:
1.1 have read and will abide by all the requirements of the City for Tax Incremental Financing.
2. The information submitted is correct.
3.1 agree to pay all costs involved in the legal and fiscal review of this project. These costs may
include, but not be limited to, bond counsel, outside legal assistance, and outside financial
assistance, and all costs involved in the issuance of the bonds or loans to finance the project.
4. 1 understand that the City reserves the right to deny final approval, regardless of preliminary
approval or the degree of construction completed before application for final approval.
5. The undersigned authorizes the City of Oshkosh to check credit references and verify financial and
other information.
6. The undersigned also agrees to provide any additional information as may be requested by the City
after filing of this application.
Applicant Name —Date
17
Development Incentives
Dawn Gunderson — Ehlers
John Duggan — The Concord Group
February 12, 2015
q. ,mffl A e
oncord
€.:
Types of Local Public Assistance &Incentives
• Development Incentives
— Infrastructure Improvements
— Site Improvements
— Cash Payments
• Tax Increment Financing
— Municipal- issued TID
— Pay -as- you -go TI D
• Other Types
— CDBG or low interest Loans
— Assistance with Industrial Revenue Bonds
— Wavier of impact and building fees
— Planning tools
• Increased density
• Reduced parking
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MAC FMAN_rk
2
• Communities want to foster Economic Development
and /or Redevelopment
• Communities want to add or enhance property values
• Developer's want to make a profit
• The "But For" Clause
— Is there a Gap that needs to be filled to make the project
happen /profitable?
9 Do your due diligM
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40 MAC FMAN-rk
Developer's Fees /Profit
• Why should they get paid?
— Projects require equity (real cash) which is at risk to be lost
• Developer or Investor Equity
• Developer Letters of Credit
• Developer Guarantees
• Deferred Developer Fees
— Need to run a business and pay for staff and overhead
— Developer's aren't "not for profit"
— Investing money in exchange for a reasonable return
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40 MAC FMAR-rk
How Do Developers Get Paid?
Depends Upon the Type of Development
• Three types of fees
1. Project Profit
• Annual or over term
— Rental and commercial projects
— Cash on Cash (COC)
Annual % of equity invested
— Internal Rate of Return (IRR)
Annual COC plus net proceeds after sale of project
A % of equity invested in the project
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40 MAC FMAN-rk
How Do Developers Get Paid?
• Three types of fees
2. Developer Fee
• Fee for undertaking development
— Line item in rental and commercial projects
— Typically 2% to 5% of Total Development Costs (TDC)
3. Project Management /Coordination Fee
• Line item in for -sale projects
• Funded from developer equity or construction loan
• Pay staff and business overhead to undertake and
manage project until last unit is sold
• Amount and how determined varies by project
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Project Budget/Determining Feasibility
• Construction costs today
• Funding sources
• Funding Gap?
• Sources of funds must equal the uses or costs
How do we fill a gap?
— Grants
— TIF
— Deferred developer fees
— If the gap is too big, the project does not get built
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40 MAC FMAN-rk
Project Source &Use (Budget)
Sources
Uses
ar.
Developer Financing
Tax Increment Financing
Interest on Cash Reserves
Developer Equity
Grant
Total Sources
Land Costs
Construction Costs
Cash Account
Professional Services
Financing Costs
Developer Fee
Total Uses
Concord
3
Group
$20,000,000
2,195,000
20,000
6,300,000
25,000
$28,740,000
$1,930,000
23,000,000
160,000
1,840,000
705,000
1,105,400
$28,740,400
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s
I FADE S IN I= �[., %.F Muiae, :
LV=A.,
Fm Construction Costs
Cash Account
Professional Services
Financing Costs
Developer Fee
70/-
Conco
UU
MflGroup
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6(* EHLERS
10 . -. -:.� I FADE S IN ,ELI.= %.F Muiae, :
Origin of Costs
Uses
Land Costs
Construction Costs
Cash Account
Professional Services
Financing Costs
Developer Fee
Total Uses
ar.
$1,930,000 -
�& III Of
160,000 -
1,840,000 % of Construction
705,000 % of Project Costs
1,105,400 % of Project Costs
$28,740,400
Concord
3 Group
I FADE S IN I= �[., %.F Muiae, :
Project Due Diligence
• Hard Costs
• Soft Costs
• Who's doing the work?
• Are they reputable?
• Do they have the correct experience?
Concord
3
Group
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I FAD F, R S IN P U I M .
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SWAG — Due Diligence of • Costs
Sources
Uses
ar.
Developer Financing
Tax Increment Financing
Interest on Cash Reserves
Developer Equity
Grant
Total Sources
Land Costs
Construction Costs
Cash Account
Professional Services
Financing Costs (8% of Construction)
Developer Fee (4% of Budget)
Total Uses
$20,200,000
2,195,000
20,000
6,300,000
25,000
�► • 1 111
•1 111
1,840,00
1 5, 111
-15%
�► • 1 111
• 1 111
160,00
1,564,0 11
705,001
Concord
Group
+15%
'► • 1 111
• 1 111
160,000
2,116,000
705,000
1,105,400 956,360
1,254,440
$28,740,400 $24,865,360
$32,615,440
$3,874,640
($3,875,440)
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FADE S IN I= �[., %.F Muiae, :
Sources -10% +10%
Uses
Developer Financing $20,200,000
Tax Increment Financing 2,195,000
Interest on Cash Reserves 20,000
Developer Equity 6,300,000
Grant 25,000
Total Sources $28,740,000
Land Costs
$1,930,000
$1,930,000
$1,930,000
Construction Costs
23,000,000
20,700,000
25,300,000
Cash Account
160,000
160,000
160,000
Professional Services
1,840,000
1,656,000
2,024,000
Financing Costs (8% of Construction)
705,000
705,000
705,000
Developer Fee (4% of Budget)
1,105,400
1,006,040
1,204,760
Total Uses
$28,740,400
$26,157,040
$31,323,760
$2,582,960 ($2,583,760)
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40 I FADERS IN PIM MAC .F Mu%<, :
L • • • 1 •
Sources
Uses
ar.
Developer Financing
Tax Increment Financing
Interest on Cash Reserves
Developer Equity
Grant
Total Sources
Land Costs
Construction Costs
Cash Account
Professional Services
Financing Costs (8% of Construction)
Developer Fee (4% of Budget)
Total Uses
111 The
CO
ncord
lflGroup
$28,740,400 $27,448,721 $30,032,082
$1,291,279 ($1,292,082)
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I FADE S IN I= �[., %.F Muiae, :
-5%
+5%
$20,200,000
2,195,000
20,000
6,300,000
25,000
$28,740,000
$1,930,000
$1,930,001
$1,930,002
23,000,000
21,850,000
24,150,000
160,000
160,000
160,000
1,840,000
1,748,000
1,932,000
705,000
705,000
705,000
1,105,400
1,055,720
1,155,080
$28,740,400 $27,448,721 $30,032,082
$1,291,279 ($1,292,082)
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I FADE S IN I= �[., %.F Muiae, :
Soft Costs — Due Diligence
fl -The
ncord
Group
Professional services - 3
— Architects, surveyors, appraisers
— Attorneys
— Market researchers
Financing Costs
— Construction period interest
— Closing Costs
— Title Insurance
— How do we verify cost &
expertise?
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40 MAC FMAN_rk
q� plillipill
Other Things to Consider
• Contracts
• Quality Control
• Bidding Requirements
• Self Performed Work
• Insurances
• Project Risk
F-M
The
Concord
ff'5'Group
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I F ADF, RS 1 N PUI .
MAC FMAN-rf
Determining Need /Amount of Assistance
• Understand Source of funds for the development
— Developer Equity
— Bank Loan
• Need to know how financing works
— Loan to value
- Debt Service Coverage
• Ratio of Net Operating Income (NOI) to the mortgage payment
• The higher the DCR, the lower the risk to the lender
— Capitalization Rates (CAP)
• Compare to a yield on an investment —the higher the cap rate,
the higher the risk
• Yield
on a treasury bond = 4%
Yield
on an apartment building (cap rate)
= 8%
- 10%
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40 MAC FMAR-rk
• Operating Expenses
— Depends on type, age, tenant profile & geographic location
— Includes marketing, administrative, payroll, utilities, insurance,
repair & maintenance, etc
• Property Taxes
— Varies dependent upon type of project and location
• Management Fees
— Typically a percentage of Effective Gross Income (EG I )
— Ranges from 3% to 5%
— Depends upon level of management required
• Replacement Reserves
— Used to fund major repairs and improvements
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40 MAC FMAN-rk
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Operating Pro Forma
• Net Operating Income = NOI
9
NOI = Total Revenues — Total Expenses
NOI = What Lenders look at to determine how much debt
property can support
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f � EHLERS
MAC FMAR-rf
E
Rental Operating Pro Forma
Income
Gross Rental Revenue $3,822,000
Other Income $366,297
Vacancy (7 %) (191,100)
Effective Gross Income
Expenses
Operating Expenses $807,675
Property Taxes 335,085
Management Fees (3% to 5 %) 99,930
Replacement Reserves 40,050
Total Expenses
Net Operating Income
ar.
$3,997,197
$1,282,740
$2,714,457
is
MAC F Mu <,
Internal Rate of Return Definition
• The IRR of an investment is the discount rate at which
the net present value of costs (negative cash flows) of
the investment equals the net present value of the
benefits (positive cash flows) of the investment.
• IRR calculations are commonly used to evaluate the
desirability of investments or projects. The higher a
project's IRR, the more desirable it is to undertake the
project. Assuming all projects require the same amount
of up -front investment, the project with the highest IRR
would be considered the best and undertaken first.
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40 MAC FMAN-rf
Z4 n M i rjA,, WIZOPWO'Me
• Beginning of project
— Community becomes Equity Partner
• Throughout project
— Pay As you Go (Project financed)
• Conclusion of project
— Developer financed
• Question of who takes on the risk or how it is shared
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EHLERS
Now for the key pre -nup provision
• The deal is sealed
• You've agreed to the terms
• You've accepted the gap and filled it with assistance
• How do you know you are not giving too much?
— Have a "Look Back" provision
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40 MAC FMAR-rk
i
M40 • • i
9 Provided proofs of level of profitability
• Demonstrates the success of the project
• Allows the community to share in the success of the
project
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40 MAC FMAN-rk
Look Back Provision
• Identify item to be reviewed as part of
look back
• Examples on Look Back:
— Relocation
— Carrying Costs
— Loan Costs
— Demolition
— Construction Costs
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40 MAC FMAN-rf
Determine Final Project Cost
Why you should preform a detailed final account?
• You are an equity partner
• You should verify the profitability / success of the project
• Tax Payers Money
• Not all project expenses are lump sum
• Not all construction expenses are lump sum
• General Accounting Errors
• Human Errors
Concord
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Final Thoughts
• Development and redevelopment is complicated
• Every deal is different
• Need to understand development or hire someone that
does
• If the costs to build a project equal the sources of funds
available, the project gets built
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40 MAC FMAR-rf
T he
oncord
EHLERS I ", �
-M
LEADERS PUBLIC FINANCE