HANDOUTS JT HR CC MTG 11042013 a• VtiN
r 1
City of Elk River,Minnesota
Business Subsidy,Tax Increment Financing and
Tax Abatement Policy and Procedures \Ai .kdA
Pre-Session Questions: Summary of Responses
Dated: November 4, 2013
I. Strengths
Identify the top three to five strengths of the City; Specifics are not needed; key phrases, ideas
and observations desired.
• Land availability.
• Strong community values.
• Affordability of Land,
• Proximity to Twin Cities,
• City owned municipal utilities,
• Moderate property taxes,
• Availability of incentives
II.Issues and Challenges
Identify the top three to five issues or challenges of the City; specifics are not needed; key
phrases,ideas and observations desired.
• Present economic status
• High Taxes,
• High Tax Rates,
• Regulatory Customer Service
• Physical location
• Availability of lots with city services
• Council is very cautious with use of TIF and tax rebates
M.Short Term Outcomes(1-3 years)
Identify outcomes and results you want to achieve in the short term(1 to 3 years). In three
years what clear and distinct development successes do you want to achieve?
• Increase of city tax base.
• Adequate local housing for labor force.
• Incentives to promote industrial development.
• Bring in more businesses and grow our tax base.
• More industrial building and jobs.
• Retention of local business.
• Further expansion of Nature's Edge Business Park.
] T.Mid-Term Outcomes(3 to 10 years)
Identify outcomes and results you want to achieve in the mid-term(3 to 10 years). During this
timeframe what clear and distinct development successes do you want to achieve?
• Retention and expansion of present industrial base.
• An increase of local information as to what the city has to offer for job opportunities as
word of mouth is great promotion tool.
• Look outside of area for ventures to promote the city's attributes.
• Bring in more businesses and grow our tax base.
• Industrial job growth
• Open new industrial park either city owned or private
V. Long Term Outcomes
Identify outcomes and results you want to achieve in the long term. Consider these legacy
decisions that you may not be directly involve d in,but your decisions in the next few years will
create an environment or opportunity for the City to capitalize on them in the long term.
• Long term retention of present tenants will be a sign of good local stability.
• Target undeveloped lands for future industrial and business expansion.
• Maintain and increase availability of local amenities, such as shopping and personal
needs facilities.
• Create a well-defined plan for an increased population housing demand.
• Bring in more businesses and grow our tax base.
• Add Jobs in ER
• Retention of local business.
VI.Overall Priorities
We are interested in knowing what your overall priorities are for development,including
housing.Please identify the top three to five priorities you want to achieve(regardless of
timeframe).
• Industrial and business expansion.
• Retention of present tax base.
• Maintain and look to future housing needs.
• Housing:Not Sure
• Business:Retention,Growth.And Fill unoccupied space.
• Appropriate mix of housing types
• Continued growth of industrial and commercial tax base
VII.Role of City in Development
We are interested in knowing how active or passive you desire the City to be in development,
including housing,activities. Please identify the top three to five roles and activities the City
t
should undertake and those that the City should not undertake. Explain why but limit response
to bullet points or key phrases.
• Use of TIF for certain projects in industrial, business and maybe housing. Housing
only to meet needs of community.
• Programs used need to be of benefit to the City and meet its needs.
• Well thought out planning and execution is of the most importance.
• No city involvement in development of new housing.
• City involvement in redevelopment areas and undesirable neighborhoods.
• City involvement in providing good and price competitive city sewer and water/streets
and parks to the residents
• Not active in housing development
• TIF not used for housing
, -St Cc / W.P Crsitl
11- oil- 13
A Market Feasibility Study for
Blackhawk Woods in
Elk River, Minnesota
r
Prepared for:
Cottage Homesteads of America
Minneapolis, Minnesota
April 2013
lilt
ii i l field
sh
.. v Research lac.
1221 Nicollet Avenue
en e
Suite 218
Minneapolis, MN 55403
612.338.0012
www.maxfieldresearch.com
EXECUTIVE SUMMARY
Purpose and Scope
• Maxfield Research Inc.was retained by Cottage Homesteads of America to conduct a
market feasibility study for an affordable senior rental community to be located in Elk River,
Minnesota. The development,to be named 8lackhawk Woods, is an 84-unit townhome
development that will be affordable under the Low-Income Housing Tax Credit(LIHTC)
program.
• This study assesses several factors that impact market potential for affordable rental
housing. Included is a review of the quality of the Site,analysis of demographic and
economic characteristics of the draw area(Primary Market Area or"PMA"),and assessment
of the existing market conditions of affordable senior housing in the local area. These
factors inform our demand calculations,which quantify demand for affordable senior
housing units in the PMA and on the subject Site.
• Fieldwork for this study was conducted by Maxfield Research Inc.on April 4,2013.
Project Description
• As proposed,Blackhawk Woods would include 84 cottage-style townhome units that will be
located in a row-home style ranging from five-to-eight units per structure. All units would
be income restricted with contract rents at 60%of Area Median Income(AMI). Contract
rents by income-restriction are as follows:$865 for studio units,$927 for one-bedroom
units, and$1,111 for two-bedroom units. Income guidelines for a two-person household
cannot exceed$39,540.
Site Analysis
• The subject site is predominantly located off of Yankton Street Northwest in Elk River,
' Minnesota. Yankton Street is just south of Highway 10 and east of Waco Street on the
western edge of Elk River. The project would be located in the West Oaks subdivision that
was previously platted and contains a mix of townhomes and single family homes. The
development would be located on two parcels;the western parcel is about five acres and
the eastern parcel is about three acres.
Demographic Analysis
The following points summarize demographic trends that will have the greatest impact
on demand for affordable senior rental housing in the PMA:
• Between 2000 and 2010,the PMA added 23,039 people and 8,372 households. By •
2017,the PMA is projected to add 3,728 people and 1,403 households.
MAXFIELD RESEARCH INC. 2
EXECUTIVE SUMMARY
• Another measure of demand is the project and market penetration rate. We estimate that
the income-qualified base for affordable rental housing in the PMA in 2012 is 1,364 senior
households. Dividing the proposed units at Blackhawk Woods(and accounting for PMA
residents and a 5%vacancy factor)by the income-qualified base yields a project penetration
rate of 5.2%. Because there are no competitive affordable senior units in the Market Area,
the gross market penetration is the same as the project penetration.These penetration
rates are low and indicate that the income-qualified renter base is more than sufficient to
support the proposed Blackhawk Woods.
• We estimate that the 84-unit townhome!development would be 40%pre-leased at initial
occupancy. We project that the remaining 50 units should lease at a rate of between four
to six units per month to reach stabilized occupancy(95%)within:approximately eight to
twelve months'
MAXFIELD RESEARCH INC. 4
SITE EVALUATION
many other specialists. Just east of the Mina Medical Clinic is the Sherburne County
Government Center which includes the county courthouse and county government offices and
services. Other community services located east of the site within one-mile include the
following: Elk River City Hall, Elk River Public Library,Sherburne County Fair Grounds, and the
YMCA of Elk River.
The nearest retail services are located in Downtown Elk River which is located just over two ,
miles east of the site via Highway 10 or from Mississippi Road NW. The historic downtown is
bordered by the Mississippi River and boasts many shops, restaurants,financial institutions,
and the Elk River Senior Center.
The majority of retail and service businesses are located along Highway 169 north of the
Highway 10 interchange. This stretch of Highway 169 is dominated by big box and national
retailers and regional and national restaurant chains. Big box retailers include Home Depot,
Menards,Walmart Supercenter,Coborn's grocery store,and Furniture Mart. Numerous other
big box retailers are located south of Elk River along Highway 169 in Otsego and Rogers.
Other retail and service goods along Highway 169 include service stations and auto-related
businesses,restaurants,hair salons, pharmacies,banks,and other specialty store. Most goods
and services seniors are located in either Downtown Elk River or along Highway 169.
Finally, Ells River boasts numerous outdoor recreational amenities that will be attractive to
active seniors. Pinewood Golf Course is located only blocks from the subject Site while other
amenities include parks,walking paths,and Orono Park.
Appropriateness of Site for Senior Rental Housing
Based on our analysis,several factors support development for affordable senior rental
'townhomes. These factors include the following:
• Adjacent and surrounding land use is appropriate for development of townhome-style
housing. The subject Site is located in the West Oaks Subdivision that boasts townhomes,
twinhomes,and is adjacent to single-family residential to the south.
• The Site is easily accessible to Highway 10 which has convenient access to retail goods and
services,employment,restaurants,and other services. Residents would be able to satisfy
their retail and service needs within five miles of the subject Site.
MAXFiELD RESEARCH INC. 18'
CONCLUSIONS AND RECOMMENDATIONS
introduction
The impetus for this study is to assess the market potential for affordable senior housing units
in Elk River, Minnesota. in particular,this study focuses on the market potential for the 84 units
affordable through the UHTC program to be built at the Blackhawk Woods development.
Earlier sections of this report examined the quality of the Site for residential use,demographic 'F
growth trends and projections,and the historic and current performance of existing affordable
and older market rate rental properties in the PMA. This section of the report assesses demand
for affordable senior rental housing in the PMA and calculates the portion of overall demand
. . ............ .
that could be captured by Blackhawk Woods.
Affordable Senior Rental Demand Analysis
Demand calculations analyze information from the demographic(demand-side)and market
(supply-side)conditions for affordable rental housing. Table 15 on the following page presents
a summary of demand calculations for affordable senior rental housing in the PMA over the
next five years. The following text summarizes the demand methodology used to arrive at
these figures.
in order to determine demand for affordable independent senior housing,the potential market
is reduced to those households that are both age and income qualified. The age-qualified
market is defined as seniors age 55 and older,although independent living projects will
primarily attract seniors age 65 and older.
We calculate the minimum income needed to afford monthly rents based on income guidelines
established by HUD and the Minnesota Housing Finance Agency(MHFA). Based on household
size,the income guidelines for Blackhawk Woods will range from approximately$20,000 to
:39,500. In addition,we add households with incomes between$15,000 and$20,000 who
would be able to supplement their incomes with the proceeds from a home sale. We estimate
the number of age/income-qualified senior households in the Elk River Market Area in 2012 to
be 1,148 households.
Adjusting to include appropriate short-term capture rates for each age cohort(1.5%of
households age 55 to 64,about 10.0%of households age 65 to 74,and 20.0%of households
age 75 and over)results in a market rate demand potential for about 100 affordable
independent senior rental units in 2012.
MAXFIELD RESEARCH INC. 54
CONCLUSIONS AND RECOMMENDATIONS
TABLE 15
AFFORDABLE INDEPENDENT SENIOR HOUSING DEMAND
ELK RIVER MARKET AREA
2012&2017
Age of Householder Age of Householder
55-64 65-74 75+ 5544 65-74 15+
Households w/Incomes of$20,000 to$39,540/$22,600 to 44,7002 516 378 = 470 511 398 456
(plus)Households w/Incones of Sin-$20k/$17k-$22.6k 82 188 157 54 108 146
(times)Homeownership R a t e x 9 2% 88% 73% x 9% 88% 73% 'f
(equals)Potential Market = 75 165 115 = 49 95 107
(equals)Potential Market Base by Age 591 213 355 560 303 349
(times)Potential Short Term Capture Rate x 1.5% 10.0% 20:0% x 1.5% 10.0% 20.0%
(equals)Demand Potental 9 21 71 8 30 70
Total Market Rate Demand Potential 101 109
(plus)Demand From Onside the Market Area(25%) + 34 + 36
(equals)Total Demand Potential for Affordable Senior Housing in Market Area 135 145
(minus)Existing&Pending Affordable Senior Units In Market Area' 0 0
(equals)Total Market Area Affordable Senior Housing Demand Potential = 135 = 145
Proposed number of units at Blackhawk Woods 84 84
Units occupied by PMA residents(7591),at 9596 occupancy 60 60
Project Penetration Rates 5.2% 4.9%
Gross Market Penetration Rate 5.2% 4.9%
'2017 calculations adjusted for inflation(2.5%annually)
Competitive affordable senior units(non subsidized)minus a 5%vacancy rate.
3The number of units at Blackhawk Woods at stabaiized occupancy(95%)divided by the number of income-qualified households
'Units at Blackhawk Woods at stabalzed occupancy(95%)plus Ws-ling/pending units at 95%occupancy divided by the total number of age/income-
qualified households
Source: Maxfield Research Inc.
Some additional demand will come from outside the Elk River Market Area. We estimate that
25%of the demand for independent affordable senior housing will be generated by seniors
currently residing outside the Elk River Market Area. This demand will consist primarily of
parents of adult children living in the Elk River area,individuals who live just outside of the Elk
River Market Area and have an orientation to the area,as well as former residents who desire
to return. Together,the demand from Elk River Market Area seniors and demand from seniors
who would relocate to Elk River results in a demand for 135 affordable active adult units in
2012.
Next,we subtract existing competitive affordable units(minus a vacancy factor of 5%to allow
for sufficient consumer choice and turnover)from the demand. However,since there only
subsidized or market rate senior products in the Elk River Market Area we do not subtract any
competitive units. Therefore,demand remains at 135 affordable senior units in the market
area:
Adjusting for inflation,we have estimated that households with incomes of$22,600 to$44,400
and homeowners with incomes of$17,000 to$22,600 would be the primary target market for
affordable senior housing in 2017. Considering the growth in the older adult base and the
income distribution of the older adult population in 2017,the methodology projected that
demand will increase to 142 units by 2017.
•
MAXFIELD RESEARCH INC. 55
CONCLUSIONS AND RECOMMENDATIONS
Penetration Rates
No single site can capture all of the demand in the market area. Based on the location of the
subject Site and its characteristics,the proposed concept,the lack of competitive facilities,we
estimate the subject Site can capture sufficient market share to support the proposed 84-unit
townhome development. Based on our analysis of household income,approximately 1,150
households are calculated to comprise the target market for affordable housing in the Elk River
Market Area. Dividing the proposed units at Blockhawk Woods(84 units)yields a project
penetration rate of 5.2%. Since 25%of the demand will be drawn from outside of the PMA,we
only include 75%of the units(or 60 units with a 5%vacancy rate) This low project penetration
rate indicates that the income-qualified renter base is more than sufficient to support the
proposed development
Next,we estimate the gross penetration rate that includes competitive and pending projects.
Since there are no competitive or pending affordable senior housing units in the PMA,the gross
penetration rate is the same as the project penetration rate. Again,this is low and indicates;:
that the income-qualified base is sufficient to support all of the existing and proposed
affordable rental developments
Discussion of Development Concept
Based on our research and analysis,we believe the proposed development concept will be well
received in the marketplace. The quality of the subject Site and lack of affordable senior
housing product together create a strong market appeal for the townhome community.
Seniors will be attracted to a maintenance-free project that is free of stairs,while also boasting
an individual entrance to each unit.The propose concept overall requires little,if any,
amendment. Maxfield Research reviewed the proposed development concept and believes the
• unit mix, unit sizing,and related pricing options are appropriate for the Market Area and should
be well-received.
However,if possible we would recommend increasing the unit size of the suite and one-
bedroom units. Although these unit sizes are typical for a traditional multifamily structure,they
are on the low end for a cottage-style townhome design. All of the one-bedroom units are
designed to be end units so they will received additional natural light resulting in the feel of a
larger unit. However,the suite units are all inside units and hence will be surrounded by other
units on both sides. Because of this they will have fewer windows than the end-units and will
not have the natural light like the one-bedroom units will gain. Therefore,we recommend
either increasing the suite square footages or incorporating design elements that will allow
more natural light(i.e.larger windows,sky lights,staggering of units,etc.)
Overall,we believe the development will meet the housing needs of low-to-moderate senior
households and will increase the quality and availability of affordable housing in the Elk River
MAXFIELD RESEARCH INC. 56
CONCLUSIONS AND RECOMMENDATIONS
area. We expect the project to have strong initial market acceptance and excellent long-term
performance;however,this will not be at the expense of existing affordable facilities in the
PMA.
Projected Absorption
Based on a review of the development concept,an assessment of the Site and location,and
lack of competitive product,we believe that the proposed project will be very successful and
should experience a relatively fast absorption rate.
Because Blackhawk Woods is a townhome concept with buildings ranging from five to eight
units,the project has the potential to be phased as construction is completed. However,for
purposes of our analysis we assume the construction of all units will be completed
simultaneously providing economies of scale for construction costs.
Other affordable cottage-style senior developments in the Twin Cities have absorbed very
quickly. In fact,some of those projects were over 90%leased at the time of occupancy. Many
of these developments were constructed in the early-to-mid 1990s. Based on the
demographic trends,the current rental market situation,and the proposed development
concept,we estimate that 84-units would be 40%pre-leased at'initial occupancy. We project
that the remaining 50 units should lease at a rate of between four to six units per month to
reach stabilized occupancy(95%)within approximately eight to twelve months.
This projected absorption period assumes that a professional marketing campaign is
undertaken and initial occupancy is between spring and summer. Should the project
open in late fall or the winter months,the lease-up period would be extended.
MAXFIELD RESEARCH INC. 57