6.0. EDSR 09-08-2003 ITEM 1 6.
City of
Elk -�-�
River
MEMORANDUM
TO: Economic Development Authority
CC: EDA Marketing Committee
FROM: Catherine Mehelich, Director of Economic Development��
DATE: September 8, 2003
SUBJECT: Industrial Land Development Strategy
Attachments
• Memo from Sid Inman, Ehlers&Assoc.re: Industrial/Business Parks Land
Development Strategy, September 3, 2003.
• • City of Elk River Industrial/Business Park Costs Spreadsheet.
• Concept Maps of Proposed Phase I of Business Parks.
Background
The City's goal is to be "the light industrial hub for small to medium-size firms in the
northwest metro region". This mission was adopted by the EDA as part of the Strategic
Industrial Marketing Plan.
Over the past two years staff has experienced two primary barriers to successfully recruiting
small to medium sized light industrial development in Elk River. The two barriers are:
• Availability of 1.5 - 2 acres lots
• Land costs
Analysis & Issues for Discussion
Sid Inman of Ehlers&Associates has prepared the attached memo and spreadsheet
outlining the analysis of the industrial/business park development costs. The information
includes options for the EDA to consider in terms of the amount of assistance (tax
increment financing)to provide industrial users in order for Elk River to be competitive
within the market for industrial land development. Mr. Inman will be in attendance at the
meeting to present the analysis and facilitate the policy discussion with the EDA.
•
0 EHLERS
• &. '\ ssacin —E , INC MEMORANDUM
DATE: September 3,2003
TO: Catherine Mehelich,City of Elk River
FROM: Sid Inman,Ehlers and Associates Inc
RE: Industrial/Business Parks Land Development Strategy
As you recall,the purpose of this analysis is to see if Elk River's industrial/business parks can be
competitive with other markets and not create competition between the city's landowners. To complete
this review it was determined by the EDA that we should first look at a first phase of development on
three Elk River industrial/business parks: Elk Path Business Center,Elk River Business Park, and the
EDA/Brown property. The analysis was to determine the total cost per square foot to develop the park
and review it against what the market would be willing to pay per square foot. The difference in these two
would be the gap the EDA would need to fill with TIF/abatement to be competitive.
The first step in this analysis was to prepare an estimate of the total cost to develop each of the parks.
This analysis includes the current special assessment costs,estimates of future public improvement costs,
park dedication fees and an amount that would have to be paid for raw land to the landowner.This is
added to arrive at a per square foot cost.We then estimated what an industrial user was willing to pay per
• square foot for land to establish the market. We prepared projections on a Phase I for each park to
determine if the amount of available subsidies was sufficient to fill the gap.
We arrived at a square foot cost,that was the landowners' minimum sale price,of$1.25 per square foot
(includes raw land,all improvements,and park dedication fees)based on general conversations we had
with landowners. This number has to be reviewed with landowners,and an analysis would have to be
completed to document if this is an accurate and justifiable number.
We also have heard that the market for industrial land in Elk River is from$0 per square foot to $1.00 per
square foot. We analyzed$0, $0.50,and$1.00 per square foot to be paid by the industrial user.
Following are the other assumptions we used:
1. All financing would be pay as you go.
2. Special assessment estimates are from current rolls as of December 31,2003.
3. All public improvements are estimated from consultants.
4. Public Improvements may include City assessment bonds.
5. Park fees are at$2,000 an acre.
6. 90% of the TIF was available to the development.
7. That as soon as all costs were paid,the TIF would stop,and no additional TIF districts would
be needed.
8. That each landowner would sign a master development agreement with the City as to the
terms and conditions of the assistance,and it would apply to each lot assisted.
9. That the landowners sale price is $1.25 per square foot
• 10.
11. That each landowner would provide a but-for analysis on the selling price of their land.
Once we arrived at a market price,the developer,by contract,would be required to sell all of
the lots at the determined price.
12. 40% lot coverage ratio on the build-out.
13. Building Market Value of$40 per square foot(similar to Elk River Business Park
14. One building a year on each lot with separate TIF districts.
• Based on these assumptions we evaluated the industrial purchase price that the buyer would be asked to
pay depending on the level of assistance determined by the EDA. If the buyer pays $1.00 per square foot,
the result is excess tax increment in all three parks. This would mean that less TIF and fewer TIF districts
would be needed to develop Phase I of the park. If the buyer pays$0.50 per square foot,then all three
parks would have sufficient TIF to cover the gaps. If the buyer pays $0 per square foot,then one park
would have deficits and one park just covers the cost. These results are in line with some landowners
and industrial users who told us they thought that a buyer would be willing to pay from $0.50 to$0.75 a
foot for industrial land in the Elk River area.
I would recommend that we present these results to the EDA for comment and direction. Some of the
policy issues to be determined include the following:
1. Level of assistance
2. Pay as you go
3. Assessment bonds
4. Industrial/business parks to be included
5. Annual review of the model
6. Competition between the City and landowners
7. Master developer for the EDA property
8. 80%or 90%of the TIF to be allowed
I would then recommend we look at$0.50 to $0.75 a square foot as our industrial purchase price. We
should then meet with the two landowners to begin the process of evaluating their cost of land and
discussing the process. Other areas and parks could be analyzed with the same model,but they may arrive
II
at different levels of assistance needed due to the unique attributes including level of city services and
types of uses(e.g. Cascade Industrial Park).
Please let me know if you have questions or comments.
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