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5. HRSR 06-26-2006item # 5. ver MEMORANDUM TO: Housing and Redevelopment Authority ~ ~j FROM: Heidi Steinmetz, Assistant Director of Economic Development ~-''I DATE: June 26, 2006 SUBJECT: Downtown North of Highway 10 Redevelopment Plan Update Attachments • Work Plan Adopted by HRA in November 2005 • Sub-Planning Area 4 Financial Modeling Template, May 10, 2006 • Preliminary Gap Analysis, Ehlers & Associates, June 16, 2006 Purpose of Memorandum The purpose of this memorandum is to accomplish the following: • Discuss with the HRA how redevelopment financial modeling works and how it can be used in the redevelopment land use planning process • Gather the HRA's input regarding the physical boundaries of the financial modeling template's sample land use concepts Project Purpose and Background Purpose of Redevelopment Plan The purpose of the Downtown North of Highway 10 Redevelopment Plan is as follows: • State Statute 469.028 requires a redevelopment plan to be completed, and approved by the Council, prior to commencing redevelopment actions. • A formal plan creates a consensus (City boards and commissions and citizens) for future actions. • The plan will serve as a redevelopment guiding document for staff and other City boards and commissions. Downtown North of Highway 10 Redevelopment Plan Update June 2G, 2006 HRA Meeting Page 2 of 3 Project Background Below is a summary of the HRA's redevelopment planning activities for the area: • Project purpose was defined and the attached work plan was developed • Several previously prepared analyses, plans and other documents were collected including the Interregional Trunk Highway (TH) 10 Corridor Management Plan, a Market Analysis, a Historical Significance Analysis, a Building Condition Analysis, the Elk Rive Comprehensive Plan, the Elk River Transportation Plan Update • HRA developed a Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis for the area • Policy goals and strategies were drafted as part of the redevelopment plan • The attached financial modeling template was developed to begin testing the financial feasibility of sample land uses in Sub-Planning Area 4. Financial Modeling What is financial modeling? Financial modeling is a method to test the financial feasibility of sample land use concepts. This is a starting point for testing the financial feasibility of a redevelopment project. A financial modeling template is meant to test the first in a series of land use concepts for redevelopment. What is the purpose of financial modeling? Financial modeling assists city planners to develop land use concepts based on the financial feasibility of a project. Land use concepts are meant to be refined as financial modeling concepts are refined. How will financial modeling be used for this project? Financial modeling will be used to help determine the following: Cost estimates for a redevelopment concept Estimated Tax Increment Financing (TIF) for redevelopment Estimate of the financial gap between costs and TIF Preliminary Redevelopment Gap Analysis Summary The attached preliminary gap analysis indicates the different ranges of financial gaps that would need to be filled, whether it be through TIF, grants, low-interest loans, etc., in order to make the sample land use concepts feasible in Sub-Planning Area 4. For instance, the financial gap for the current Downtown Revitalization Project was filled by the usage of Tax Increment Financing TIF, reducing the sale price of the land and deferral of SAC and WAC. Redevelopment is a complex and expensive process in which property is most often purchased at above market value prices even though the buildings will be removed. S:\Downtown North of Hwy 10\Memos\2006\G-2G-OG.doc Downtown North of Highway 10 Redevelopment Plan Update June 2G, 2006 HRA Meeting Page 3 of 3 The gap analysis reflects the following land/assembly costs: • Land acquisition • Demolition • Relocation expenses • Soft costs Gas analysis assumptions and disclaimer: The amount of TIF estimated to be generated in the analysis assumes that the developer would receive 90% over 25 yrs. and also assumes that the area meets statutory TIF substandard tests. The analysis does not include the incorporation of parks, amenities, infrastructure, or market feasibility. What does the preliminary ag p analysis mean? The analysis indicates that there are significant financial gaps to be considered as the HRA moves forward in its redevelopment planning process. Options for reducing the gap include: • Availability of other financial resources • Changing the land use concept or densities to push for higher values • Consider options for reducing land assembly costs Action Requested Staff identified certain properties to be included in the financial modeling template's sample land use concepts and assumed which properties may be best suited as part of a preliminary redevelopment concept. Staff requests the HRA's input on the preliminary areas identified in the concepts and whether any properties should be added or deleted from the preliminary concept. Next Steps Based on feedback from the HRA at this meeting, staff will present the following information next month: • A refined financial modeling concept for Area 4. • Land use concept based on financial modeling and past studies • Financial modeling concept for Area 3 Upon review and acceptance of the above, it is anticipated that a preliminary land use concept will be ready for review by stakeholders (Neighborhood (Business & Residential), Planning Commission, Heritage Preservation Commission, Park & Recreation Commission, Economic Development Authority and City Council) this fall. S:\Downtown North of Hwy 10\Memos\2006\6-2G-OG.doc fiver Downtown North of Hwy 10 Redevelopment Plan Work Plan Outline Adopted by HRA in November 2005 I. Refine Purpose & Primary Goal A. Discussion: "Are we attempting to extend the downtown area and reestablish a second downtown area or is it appropriate to view the area as something else?" B. Review property inventory including property valuations C. Check-in with City Council for agreement on purpose and primary goal, and authorization to proceed with work plan II. Refine Policy Goals & Strategies A. Land Use B. Design & Regulatory Issues C. Economic Development D. Property Acquisition E. Rehabilitation F. Transit/Traffic Consideration III. Modify the Generalized Land Use Concept IV. Test Desired Land Uses for Economic Feasibility V. Modify Land Use Plan and Review with Stakeholders A. Neighborhood (Business & Residential) B. Planning Commission C. Heritage Preservation Commission D. Park & Recreation Commission E. Economic Development Authority F. City Council VI. Develop Phasing Schedule & Priorities VII. Finalize Land Use Plan VIII. 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