5.0. EDSR 03-10-1997 ITEM 5.
ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY
•
MEMORANDUM
TO: Economic Development Authority
p-r-
/ FROM: Paul T. Steinman, Director of Economic
Development
DATE: March 5, 1997
SUBJECT: Approve Business Incubator Financing
and Budget
Issue
It is appropriate at this time for the EDA to approve the business incubator
financing and a business incubator budget prior to approving the final Lease
Agreement and Repayment Agreement with Larry Hickman. Attached to
this memo is the statement of financial activity for the EDA for month ending
up February, 1997, and a business incubator financial analysis.
Background
For the past six months staff has been researching options with regard to
establishing a business incubator project in Elk River. Larry Hickman,
owner of the Furniture and Things building, has been a willing participant as
a partner in this program. The project which has been established to date
includes leasing 13,186 square feet in the former Furniture and Things
building at a rate which is approximately $6.00 per square foot below market
value. This space would allow for the location of approximately five
incubator tenants, with room to expand into an additional area of the
building at some time in the future if determined necessary and appropriate.
Attached to this memo is a financial analysis of the incubator program
including projections, budgetary items, total investment, and a schedule for
repayment of leasehold improvement costs by Larry Hickman. The financial
projections outline revenues, expenses, and annual cash flow up to a
potential eight years of incubator operation. The figure in these projections
which is most variable at this time is the estimated revenue to the EDA in
the form of cash rent. Staff has used an estimate of sub-leasing 5,000 square
IIIfeet in year one and 2,000 additional square feet in year two, at an average
P.O. Box 490 • 13065 Orono Parkway • Elk River, MN 55330-1743 • (612) 441-7420 • Fax: (612) 441-7425
Equal Opportunity Housing and Equal Opportunity Employment
EDA Meeting 2
March 12, 1997
Business Incubator Financing/Budget
Illper square foot gross rent of$2.00. In year three and four staff estimates the
incubator will be 90% occupied at an average per square foot gross rent of
$3.00. The expenses listed are all firm costs with the exception of signage at
$3,000.00 and a contingency estimate of$5,000.00. A budget for year one
and two is listed on the second page of the financial analysis attachment.
Such budget is as follows:
Year
• Lease Cost $50,502.00
• Signage $ 3,000.00
• Leasehold Improvements $25,000.00
• Genesis Business Centers $ 6,000.00
• Contingency $ 5,000.00
Total: $89,502.00
Year 2
• Lease Cost $50,502.00
lip • Signage $ 0.00
• Leasehold Improvements $ 2,500.00
• Genesis Business Centers $ 6,000.00
• Contingency $ 5,000.00
Total: $64,002.00
An analysis of the EDA's short term and ongoing investments follows on page
two of the financial analysis attachment. Staff has provided the estimated
best and worst case investment scenarios. As is indicated, at the end of year
two, the EDA would be able to terminate the lease and, with Hickman's
repayment for his proportionate cost of leasehold improvements of
$58,038.00, would have a total investment cost of approximately $95,000.00.
At the end of year two, if the EDA were to continue the lease for an
additional two years,there would be no Hickman repayment for leasehold
costs and the EDA's investment at the end of the first two years would be
approximately $153,000.00 (worst case scenario).
On page three of the financial analysis attachment, staff has laid out the
repayment schedule which applies to the total cost of leasehold
• improvements. This repayment schedule has been agreed to by Larry
EDA Meeting 3
March 12, 1997
Business Incubator Financing/Budget
SHickman and indicates the amounts which would be repaid to the EDA by
Hickman should the EDA terminate its lease at any given time.
Recommended Action
Staff recommends at this time the EDA approve the business incubator
financing and budget as detailed by staff.
s\eda\meetings\businfin
410
•
INFORMATION
STATEMENT OF FINANCIAL ACTIVITY
S FOR THE EDA,MICRO AND DTED LOAN FUNDS
FOR THE PERIOD FEBRUARY 28, 1997
ECONOMIC DEVELOPMENT AUTHORITY
1997 Month to Year to
Budget Date Date
Cash Balance $ 118,592
Revenues
Property Tax 82,440 - -
HACA 12,060 - -
Refunds&Reimb. - - -
Interest Income - 257 257
Total Revenues 94,500 257 257
Expenditures
Personal Services 46,600 - 17
Supplies 800 61 114
Other Services&Charges 45,350 156 368
Capital Outlay - - -
Transfers 1,000 - -
Total Expenditures 93,750 217 499
ill .********************************************************************************************************************************
MICRO LOAN FUND DTED LOAN FUND
Month to Year to Month to Year to
Date Date Date Date
Cash Balance $ 296,230 $92,830
Revenues
Application Fees - 500 - -
Interest Income - (1,683) - (517)
Loan Payments 9,930 18,318 5,182 7,773
Total Revenues 9,930 17,135 5,182 7,256
Expenditures
Loans - - - -
Legal Services - - - -
Total Expenditures - - - -
Status of Micro Loans as of February 28:
Business Current Business Current
Alltool Grant Y Pomeroy Tool Y
Roma Tool Grant Y Designing Women Y
Second Generation Y Tescom Y
Indy Lube N Larose Y
40 Beaudry Y Water Laboratories N
R&D Sales Y E R Automall Y
Carpe Kairos LLC Y T J Properties Y
Internet 5 Y Diamond City Bread Y
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