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Home My WebLink AboutAspen Crossing Staff Report Application and Packet Material 20181206 Staff Report To: Midtown Urban Renewal Board From: David Fine, Urban Renewal Program Manager Date: December 4, 2018 Subject: Aspen Crossing at Midtown mixed‐use project 515 W. Aspen St. (N. 5th Ave. and W. Aspen St.) TIF Assistance Program Overview The Bozeman City Commission created the Midtown TIF Assistance Program in 2017 to support redevelopment activity and advance the goals of the 2015 Midtown Urban Renewal Plan. The Midtown TIF Assistance Program supports projects that create significant new taxable value as `well as meeting the five goals of the Midtown Urban Renewal Plan. These goals, as required by statute, focus on mitigating blighted conditions in the urban renewal area. Each of these five goals are further refined with particular criteria for a total of sixteen categories that can receive points. Point awards demonstrate specific compliance with the criteria, but are not the only factors the board may consider in recommending an incentive award. For example, the board may also consider new taxable value created by the project, or whether the project would be feasible without a public incentive. In addition to tax generation, the goals of the Urban Renewal Plan and the need for assistance, the Board must also make affirmative findings as required by State Law. Criteria for TIF Assistance Overall District Relevance 1. Relevance to the Midtown Urban Renewal Plan: Documentation of the project’s impact in relation to the goals and objectives of the Midtown Urban Renewal Plan, particularly mixed‐ use development. Urban design elements are also considered, including pedestrian emphasis and quality of design. The project eliminates blight by demolishing an aging structure and replacing it with a 3‐story vertical mixed‐use building with one floor of restaurant/retail, one floor of office, and 25 housing units on the upper level, which increases the taxable value of the property use. This 65,000 square foot mixed‐use project locates a new building closer to the street adding interest and activity. The project will provide, at minimum 12 foot sidewalks with street trees and tree grates and the applicant is actively participating in the Festival Street design process for Aspen Street, which may further augment the pedestrian experience. [5 of 5] Goal Number 1: Promote Economic Development 2. Tax Generation: The project will increase the taxable value within the District. The increase in taxable value due to new construction & rehabilitation is estimated by the County Assessor’s office or State Department of Revenue to determine tax increment generation. Submit documentation of estimated tax projections to receive points for these criteria. Leland Consulting Group (LCG) created a tax revenue generation model for the Midtown URD. Using data provided by the property owner, LCG estimates that the property will provide an estimated annual net tax revenue increase of $249,240 for the District, with the net increase in the value of the property increasing $13,187,285. For the assumptions related to these projections, please see the LGC report. [4 of 4] 3. Elimination of Blight: The project’s direct and indirect impact on the physical and fiscal deterioration within the Tax Increment Financing District and the community. Submit information showing current conditions of property. The project eliminates blight by replacing a low value building with a 65,000 square foot vertical mixed‐use building that adds storefront restaurant/retail commercial space, office space and 25 residential condo units. The project substantially increases the density of development on the property. Sidewalks, curb, gutter and upgraded stormwater facilties will be added on N. 5th Avenue. [4 of 4] 4. Employment Generation: Total employment generated by the project assessed in terms of new permanent and part‐time jobs, and construction jobs. Submit documentation of estimated new jobs to receive points for this criterion. According to the Applicant, the project will support 350 construction jobs over a 14 month period. Once completed, the two commercial floors will support 175‐225 jobs depending on the tenants. [3 of 3] Goal Number 2: Improve Multi‐Modal Transportation 5. Facilitates Public Health and Mobility: Project will construct or improve sidewalks, including ADA access to buildings. Provide detailed information demonstrating that the current condition inhibits public health and mobility. The project adds new 12 foot storefront block frontage standard sidewalks on the Aspen St. frontage and 10 foot sidewalks along Tamarack and N. 5th Ave. The new building will be ADA accessible. Pedestrian access and facilities will be dramatically improved. [1 of 1] 6. Reduces Resource Demand: Project promotes the use of transit, ride sharing, or car sharing. Provide plans, agreements or other methods to demonstrate reduction of resource demand. While locating housing and commercial development in Midtown places it in a centrally located location, this project does not take particularly exceptional or innovative measures to promote transit use, ride sharing, or car sharing. [0 of 1] 7. Promotes Active Transportation: Project promotes bicycling as an active transportation option by constructing or improving bike lanes, providing covered bike parking, and/or participating in a bike share program. Provide plans, agreements or other methods to demonstrate reduction of resource demand. Covered bike and scooter parking is proposed for the basement of the building. [1 of 1] Goal Number 3: Improve, Maintain, and Support Innovation in Infrastructure 8. Infrastructure Improvements: Project promotes innovation in infrastructure and/or reduces long‐ term costs of maintenance. Provide plans and descriptions of innovations proposed. The project, with TIF Assistance, plans to extend and utilize the City of Bozeman fiber conduit system. The project is improving pedestrian facilities on three frontages and is participating in the Aspen Festival Street design process. [2 of 2] Goal Number 4: Promote Unified Human Scale Urban Design 9. Street Frontage: The project improves the street frontage by eliminating parking between the right‐of‐way and the building. Provide plans to demonstrate improvement in street frontage. The project provides all parking behind the building, which is consistent with the vision of the Midtown Urban Renewal Plan. [2 of 2] 10. Vehicular Access Points: The project reduces the number of vehicular access points to the property and improves the pedestrian experience. Provide plans, agreements or other methods to demonstrate reduction. The project eliminates multiple vehicular access points along N. 5th Ave. and consolidates them to one access point. [2 of 2] 11. Street Orientation: The project enhances the North 7th Ave. entryway corridor by having buildings oriented toward the street and designed to provide interest and activity. The proposed structure is not on N. 7th Avenue, though it does orient itself toward the street to provide interest and activity. [0 of 3] 12. Pedestrian Experience: The project enhances the pedestrian experience with elements such as façade transparency, building articulation, street furniture and/or landscaping. Submit plans and details that address this criterion. The project provides enhanced façade transparency with a store front design along Aspen St. The project includes street trees and tree grates as well as 12 and 10 foot sidewalks. No landscaping plan was submitted with this application. [2 of 3] 13. Quality of the Development Exceeds Minimum Requirements. The quality of development and overall aesthetics (architectural, site design, landscaping, etc.) are beyond that which is minimally required by the UDC. Submit documentation to demonstrate compliance with this criterion. Based on preliminary renderings, the project as proposed appears to exceed the minimal requirements of the UDC for architecture, site design, and landscaping. [2 of 2] Goal Number 5: Support Compatible Urban Density Mixed Land Uses 14. Increases Housing Units: The project increases housing units within the District. Submit plans demonstrating an increase in the number of housing units. The project includes 25 housing units. [4 of 4] 15. Mix of Uses Including Residential: The project has a mix of uses, including residential. Submit plans detailing the proposed mix of uses within the project. The project includes a mix of uses including restaurant, retail, office, and 25 residential units. [4 of 4] 16. Shared Parking: The project shares parking among compatible uses. Provide details demonstrating compliance with the UDC and as well as total number of parking spaces reduced because of a shared arrangement. The project appears to share parking between its commercial and residential uses. Future more detailed plans for parking could show a shared parking arrangement to receive points for this category. [0 of 2] Total Points (37/44) Relocation of Persons Displaced by the Project The Montana Urban Renewal Law requires the local governing body to make a finding when approving incentive funds for an urban renewal project that “(1) a workable and feasible plan exists for making available adequate housing for the persons who may be displaced by the project” (7‐15‐4217, MCA). In conjunction with the property owner and HRDC, staff has been working on a proposal that we believe would allow the City Commission to make a finding that such a “workable and feasible plan exists” for relocating residents that will be displaced by the proposed project. While many details still need to be negotiated in the final development agreement, Staff recommends a proposed relocation plan with the following details:  Space rental in the trailer park is $300 per space  21 spaces are currently occupied in the trailer park  The 2019 HUD Fair Market Rent (FMR) for a two bedroom apartment in Gallatin County is $898  Each property owner would receive the 12 month value of the difference between their current rent and the two bedroom FMR: $7,176 (12 x $598); $150,696 TOTAL relocation cost  HRDC would manage the funds. We propose that the residents could draw down on the funds over time and use them for deposits, first and last month’s rent, or possibly even take the money as a lump sum. They could also use the money to move their trailer in the event that the trailers are movable.  The Developer would front 100% of the relocation funds to HRDC.  The Midtown URD would, via development agreement, agree to reimburse the Developer for the value of the relocation funds at the same time as other incentive funds are paid at or around certificate of occupancy for the new project.  The Midtown Board would pay a 10% upfront management fee to HRDC for managing the relocation funds. Criteria for Approval of Urban Renewal Project, 7‐15‐4217 MCA 1) a workable and feasible plan exists for making available adequate housing for the persons who may be displaced by the project;  The proposed rent assistance solution is workable and feasible to make adequate housing available for the persons who may be displaced by the project. 2) the urban renewal plan conforms to the comprehensive plan or parts thereof for the municipality as a whole;  The Midtown Urban Renewal Plan adopted in 2015 made findings that mixed‐use projects that included commercial and residential uses were in conformance with the comprehensive plan. 3) the urban renewal plan will afford maximum opportunity, consistent with the sound needs of the municipality as a whole, for the rehabilitation or redevelopment of the urban renewal area by private enterprise; and  The project includes a request for tax increment financing assistance that makes the proposed redevelopment project feasible to be undertaken by private enterprise. 4) a sound and adequate financial program exists for the financing of said project.  The Midtown Urban Renewal District currently has adequate revenue to support the issuance of tax increment bonds to finance the tax increment finance assistance for this project. Staff Recommendation The Midtown Urban Renewal District needs catalyst projects to drive growth in taxable value and create demand for market‐driven redevelopment. The City Commission created the District in 2006 with the vision of a walkable pedestrian centric area with compact urban density. Redevelopment projects have focused on reuse of existing buildings, which provide less potential new tax revenue. Vertical mixed‐use buildings add residents to support neighborhood commercial uses and typically share parking among compatible uses, which allows developers to produce building forms with more value per acre. These projects, however, are typically more difficult to finance and develop. The City Commission structured the Midtown Urban Renewal Plan and the Midtown TIF Assistance Program to focus on vertical mixed‐use buildings. To date, there have been no significant vertical mixed‐use projects in the Midtown Urban Renewal District. The lack of these projects suggests the market for these projects is untested, which increases the degree of risk for developers, and makes incentives important for early catalyst projects. Incentives may create the potential for higher returns to mitigate higher risk, which may attract investment that would not occur without these incentives. The Midtown TIF Assistance Program allows the payment of eligible costs of development to incentivize development that meets the goals of the Midtown Urban Renewal Plan. The applicant is applying for several eligible cost areas totaling $759,862 (. Staff finds that the proposed costs are eligible for TIF assistance. Staff scored the application based on the program criteria. Based on our review and the application materials presented, the project received 37 of 44 available points. The application scored points toward all five goals of the Midtown Urban Renewal Plan. The project eliminates blight and advances the District goal of creating urban density land uses and providing increased housing stock within the District to drive further commercial development. Leland Consulting Group (LCG) completed a financial analysis of the project to help staff evaluate the application for creation of new taxable value. Their report analyzed return on investment (ROI), estimated payback period for the public assistance and proposed target metrics for the ratio of private investment to public assistance. LGC bases their analysis on awarding the applicant’s full assistance request. LCG recommends a ratio of private investment to public assistance of 8:1 or greater for commercial projects; the ratio for this project is greater than 16.60:1. LCG also created a tax generation model for the Midtown URD. According to their model, the project would produce net new annual taxes of $177,191, which would allow TIF assistance to be paid back in 5 years (assumes a 5% interest rate on the advanced amount) for new increment‐based payback if assistance is provided at the staff recommended amount. The proposed incentive request is larger than past requests, but is consistent with the goals of the Midtown Urban Renewal Plan. In order to ensure that the level of assistance makes the project feasible, but does not provide unreasonable returns to the developer, staff hired Economic and Planning Systems, Inc. (EPS) to provide a third party assessment of the development pro forma. This component of the review process is new and was primarily obtained to assess the reasonableness of each applicant’s incentive request. EPS performed their analysis using a target discount rate and capitalization rate based on Bozeman market conditions. Their analysis projects that the project would require incentives between $254,000 and $850,000 to meet the reasonable target rates of return. The Applicant’s request is within this range. Due to untested nature of the market for Midtown mixed‐use, the catalytic nature of the project, and the high ROI for creating new taxable value staff recommends that the Midtown Urban Renewal Board award between the developers full request of $684,262 with the addition of $150,696 in relocation costs. Consider the Motion: “Having reviewed the findings of the Staff Report, Public Comment, and Board Deliberation and Discussion, I move to direct staff to negotiate a development agreement with the Applicant for Midtown TIF Assistance not to exceed $684,262 and to draft a Resolution to designating the Aspen Crossing as an Urban Renewal Project.” Staff also recommends that the Board direct staff to work with the Applicant and HRDC on a relocation plan as described in the Staff Report. Consider the Motion: “Having reviewed the findings of the Staff Report, Public Comment, and Board Deliberation and Discussion, I move to direct staff to develop a relocation plan for existing residents as recommended by the Staff Report.” BOZEMAN MIDTOWN TIF ASSISTANCE REQUEST TIF APPLICATION Property Information Property Addresses | Owners: • Parcel 1: 515 West Aspen | Aspen Land LLC • Parcel 2: 522 West Tamarack Street | Kali LLC • Parcel 3: 727 North 5th Avenue | RJM Holdings Legal Description: See Attached Geocode Locations | County Tax ID Numbers: • Parcel 1: 06-0798-01-3-02-48-0000 | RGG3862 • Parcel 2: 06-0798-01-3-02-20-0000 | RGG3709 • Parcel 3: 06-0798-01-4-05-29-000 | RGG2844 Applicant Information Property Owner and Developers: • Mike Hope 61% | Primary Contact o Aspen Land LLC | 406-539-0169 | mkwnhope@aol.com • Ralph Ferraro 18% • John Kesserich 18% • Tony Kaber 3% I (we), by signature below, certify that the information supplied in this application is, to the best of my (our) knowledge, true, accurate, and complete, and is provided for the purpose of obtaining approval to participate in the Midtown Urban Renewal District TIF assistance program. I (we) understand that failure to comply with the terms of the TIF assistance program may result in revocation of an award. I (we) understand the work to be undertaken must be in accordance with all applicable requirements of the Bozeman Municipal Code and any special conditions established by the approval authority,and must receive all required approvals prior to commencing the work. I (we) understand if approved for TIF assistance, the work to be performed must also be in accordance with TIF assistance program procedures and the general design guidelines for the District, as well as the specific plans approved for the project. I (we) acknowledge that the City has an Impact Fee Program and impact fees may be assessed for my project. Further, I (we) agree to grant City personnel and other review agency representative's access to the subject site during the course of the review process (Section 38.34.050, BMC). ___________________________ ___________________________ Mike Hope Date Ralph Ferraro Date ___________________________ ___________________________ John Kesserich Date Tony Kaber Date BOZEMAN MIDTOWN TIF ASSISTANCE REQUEST COMPANY PROFILE Business Location This is an existing business at 515 West Aspen in Bozeman that is expanding. Year Business Established 1985 Type of Business This new building, Aspen Crossing, will be mixed use to include retail, professional office, and residential. We are tentatively planning to complete the project in the summer of 2020. Business Plan Gross Condo Sales $7,038,000 Taxes Condo Sales $1,249,778 Sales Commissions $422,280 Net Condo Sales $5,365,942 Constuction Loan $12,685,000 Net Condo Sales $5,365,942 Net Loan Compilation $7,319,058 NNN Lease 43,333 Square Feet Rental Income @ $20 per $866,660 P & I 5.5% 25 year /per year $539,340 Net Cash Flow Per Year $327,320 Break Even - 62% Occupancy PROJECT DETAIL Project Information Project Description: The Aspen Crossing will be a mixed-use building with retail space, hospitality services, professional offices, and residential units. Further details are explained below. Project Manager General Contractor Project Architect Aspen Land, LLC Martel Construction A & E Architects Mike Hope Tony Martel Dusty Eaton 406-539-0169 406-580-6344 406-698-1816 mkwnhope@aol.com tmartel@Martelconstruction.com Deaton@aearchitects.com BOZEMAN MIDTOWN TIF ASSISTANCE REQUEST Property Status The property is currently land and buildings. It is currently used for retail, hospitality, and offices. There are also rental mobile homes on the premise. Type of TIF Assistance Sought We are requesting assistance with public infrastructure costs, building demolition, relocation expense reimbursements for current mobile home residents. Value of TIF Assistance Sought $759,862 Will this project proceed if TIF assistance is not granted? No BOZEMAN MIDTOWN TIF ASSISTANCE REQUEST Project Narrative This section answers the following criteria numbers from the TIF Assistance score sheet. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● The 2.14-acre B-2M zoned property is directly east of the old Village Inn Pizza Parlor on the north side of West Aspen and the south side of west Tamarack. The site currently the home of Mixers Saloon, Fiesta Mexicana, Mr. Macks Barber Shop, and Sunset Mobile Home Park. All existing structures will be moved or demolished prior to the commencement of construction. Shown on the next page is a draft letter from Mike Hope that will be sent to all Sunset Mobile Home Park residents with his plan to help them transition to another location. West Aspen is designated to be a festival street in the Midtown redevelopment plan, and Aspen Crossing will face West Aspen and be an anchor development and paramount to achieving the festival street goal. Aspen Crossing will have 65,000 square feet divided equally between three floors. Ground level will be hospitality and retail driven. The second floor will be office space. The third floor will include 25 residential condominiums. Building access will be provided from North 5th and a shared use alley between west Aspen and Tamarack. Parking will be on the north side of the building on the land currently occupied by Sunset Mobile Home Park. There will also be on street parking along West Aspen, West Tamarack, and North 5th. We insist the development be pedestrian and biker friendly. Space for a future structure will be prepared on the south side of Tamarack. This space will accommodate a 5,000 to 15,000 square foot structure from one to three stories in height. The goal of this development is to create a lifestyle area for living, working, and relaxing. As a planned festival street, West Aspen will be a central area to the Midtown District. We envision the Midtown District hosting concerts, farmers markets, car shows and other events that attract people from across Montana. It will be an economic driver for the Midtown District and overall Bozeman community. Aspen Crossing will lead a paradigm shift for the Midtown District. Aspen Crossing is a visionary infill development that further links North 7th and downtown Bozeman. It enhances the social and economic corridor between these two vital areas in our community. BOZEMAN MIDTOWN TIF ASSISTANCE REQUEST BOZEMAN MIDTOWN TIF ASSISTANCE REQUEST BOZEMAN MIDTOWN TIF ASSISTANCE REQUEST Site Maps and Building Plans This section answers the following criteria numbers from the TIF Assistance score sheet. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● Photographs of Project Site Map showing location of the site and immediate surroundings BOZEMAN MIDTOWN TIF ASSISTANCE REQUEST Proposed development plans – site plans, floor plans indicating square footage and layout, building elevations Parking accommodations for residential units and commercial uses Estimated date of occupancy. August 2020 BOZEMAN MIDTOWN TIF ASSISTANCE REQUEST Part Two Project Timeline Public Benefit | Re-Occupancy of Vacant Land and Building This section answers the following criteria numbers from the TIF Assistance score sheet. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 ● ● ● ● ● ● ● Approximately 25 % of the current Aspen land building (currently Mixers) is not leasable. The footprint of that building is approximately 10,000 square feet, which is 55,000 square feet smaller than the proposed Aspen Crossing building. Aspen Crossing is a more productive use of limited land and enhances urban density. The Midtown District will attract more investment funds, making it a more desirable area for our entire community. Public Benefit | Elimination of Blight This section answers the following criteria numbers from the TIF Assistance score sheet. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 ● ● ● ● ● ● ● ● Buildings, parking lots, curbs, and sidewalks throughout and adjacent to this property are unsafe and unsightly. Electrical utilities above and below ground and at the end of their useful life. Aspen Crossing will modernize this area with new infrastructure, modern buildings, bike and pedestrian paths, and adequate ADA friendly access to welcome everyone. This is a 1960’s unplanned commercial and residential area that is prime for a modern makeover. Photos are worth a thousand words…here are a few that show the blight of this property. Urban Living Options J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D Demolition and Construction Occupancy 2018 2019 2020 Concept & Design Planning & Review BOZEMAN MIDTOWN TIF ASSISTANCE REQUEST Public Benefit | Public Health & Mobility This section answers the following criteria numbers from the TIF Assistance score sheet. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 ● ● ● ● ● ● Aspen Crossing will modernize this area with new infrastructure, modern buildings, bike and pedestrian paths, and adequate ADA friendly access to welcome everyone. Outdating utilities, both above and below ground, will be replaced to improve reliability and safety. This property will be cleaner, safer, and more inviting – supporting the goals of the Midtown District. BOZEMAN MIDTOWN TIF ASSISTANCE REQUEST Public Benefit | Creation of New Office / Retail / Hospitality Space This section answers the following criteria numbers from the TIF Assistance score sheet. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 ● ● ● ● ● ● ● ● ● ● Aspen Crossing will offer two floors (approximately 45,000 square feet) of new modern urban lifestyle space. The main level will open to West Aspen in the summer creating an inviting indoor/outdoor work and social space. These residences and business will generate their own tax revenue, plus the taxes paid from new jobs. Public Benefit | Residential This section answers the following criteria numbers from the TIF Assistance score sheet. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● Twenty-five condominiums ranging from 600 to 1,300 square feet will occupy the third floor, taking advantage of the spectacular views of downtown and the Bridger Mountains. Vertical housing also lowers the demand for land consumption in our open fields – and this project does not remove any historic character or charm to our community. 12 foot wide sidewalks on Aspen and 10 foot on Tamarack and 5th streets to encourage pedestrian and bicycle friendliness. Parking will be shared with the old Village Inn Pizza Parlor. BOZEMAN MIDTOWN TIF ASSISTANCE REQUEST Public Benefit | Reduction of Resource Demand & Active Transportation This section answers the following criteria numbers from the TIF Assistance score sheet. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 ● ● ● ● ● ● We anticipate Aspen Crossing capitalizes on the modern live where you work movement that is spurring mixed use developments elsewhere in Bozeman. We will be providing garage storage in the basement for bikes and scooters. BOZEMAN MIDTOWN TIF ASSISTANCE REQUEST Public Benefit | Increased Tax Revenue This section answers the following criteria numbers from the TIF Assistance score sheet. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 ● New property tax revenue will fund future opportunities for the Midtown redevelopment. Aspen Crossing offers a short-term payback opportunity for the TIF district and a long-term gain for both the City of Bozeman and the Bozeman School District. Current Taxes and Future Tax Projections Current Taxes Paid: $ 23,141 Projected Taxes Paid: $ 180,000 Five Year Payback to the TIF*: $ 784,295 Total Value of Building $15,000,000 *$156,859 (Projected Taxes Paid – Current Taxes Paid) x 5 (Years) Public Benefit | Construction Jobs/ New Jobs/ Local Sales This section answers the following criteria numbers from the TIF Assistance score sheet. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 ● ● ● ● The construction of Aspen Crossing will support 350 full-time construction jobs over a 14-month period. Average construction jobs in Bozeman offer a livable wage and benefits that include health insurance. Construction is a major contributor to our Gallatin Valley economy. Once operational, Aspen Crossing is expected to support 175 to 225 new jobs. We plan to create a strategic partnership with MSU’s new Hospitality program to prepare the next generation of hospitality industry leaders. Hospitality could be considered Gallatin Valley’s biggest economic driver and one that has an insatiable appetite for qualified workers. Aspen Crossing and MSU have an opportunity to feed this need. A thriving hospitality industry in Gallatin Valley has sustained our community through past economic downturns in the past – and will be relied on to do so again in the future. Project Financial Information Sources of Funds Land - Aspen land / Kali / RJM $ 2,774,500 Construction Loan – First security Bank $12,685,000 Gap in Financing $ 687,597 Total $16,147,097 BOZEMAN MIDTOWN TIF ASSISTANCE REQUEST Uses of Funds Land Fair Market Value $ 2,774,500 Soft Cost* $ 2,921,171 Hard Cost (See Development Budget Below) $10,451,426 Total Uses of Funds $16,147,097 *Engineering, Architecture, Planning, Permitting, Carrying Cost, Marketing, Relocation etc. Development Budget | Financial Commitments Budget of TIF Eligible Expenses Impact Fees $ 225,000 Demolition (Included in Line Item #2 Above) $ 250,000 Relocation Fee* $ 75,600 Northwestern Energy $ 25,000 Fiber Optics $ 25,000 Side Walks/ Curb/ Gutter/Alley** $ 159,262 Estimated Total $ 759,862 *See the letter (shown above) to residents of the Sunset Hills Mobile Home Park. ** See the spreadsheet below. BOZEMAN MIDTOWN TIF ASSISTANCE REQUEST Aspen Crossing at Midtown Tax Increment Analysis November 27, 2018 Prepared by: Andy Parks, CPA Leland Consulting/GEL Oregon, Inc. on behalf of the City of Bozeman Economic Development Department Summary Applicant plans to expand existing business with new mixed used commercial/residential development that links North 7th and downtown Bozeman - 2.14 acre B-2M zoned propety. Applicant plans to invest approximately $13.3 million and is requesting $759,862 from the Agency. The following schedule summarizes our findings of our analysis. Estimated construction costs to complete project 13,029,045$ Estimated capitalized interest 343,552 Less: 2017 market value per assessor (improvements only) parcel 1 (RGG3862) - retained as project expands on existing improvements - does not appear to demolish on this parcel - parcel 2 (RGG3709)91,542 parcel 3 (RGG2844)93,770 Net estimated increase in value 13,187,285 Estimated net increase in taxable value 249,240 TIF tax rate - estimated - FY 2022 710.93 Estimated incremental taxes (TIF) - annual 177,191 TIF investment 759,862 or 687,597 funding gap per sources/uses ROI - estimated 23.3% Estimated payback period (years)5.0 assumes 5.0% interest rate on advanced amount Private investment to public investment 16.60 Metric: Greater than 8 to 1 - commercial Greater than 5 to 1 - family wage jobs Assumptions Cost and timing information provided in application - except construction financing which is estimated Estimated start date May-19 Estimated completion per application is approximately 14 months Aug-20 Occupancy August 2020 Increase in property taxes applicable fiscal year 2020 Construction Interest - estimated 343,552 12 month construction loan rate 5.00%Note: estimated commercial rate Current property taxes - Analysis has been performed to determine: Return on Investment (ROI), Estimated payback period and metrics related to private to public sector investment http://gis.gallatin.mt.gov/common/parcel_informati on.aspx?tab=taxcode&taxID=RGG3097&geocodeid=0 6079801405070000 Greater than 10 to 1 - desired for multi- family Property valuation is limited to the cost approach, i.e., cost to complete project - real market value will likely differ. Different valuation methods include but are not limited to; income approach, sales comparisons, and Capital Asset Pricing Model. http://gis.gallatin.mt.gov/common/parcel_informati on.aspx?tab=taxcode&taxID=RGG3097&geocodeid=0 6079801405070000 http://gis.gallatin.mt.gov/common/parcel_informati on.aspx?tab=taxcode&taxID=RGG3097&geocodeid=0 6079801405070000 Aspen Crossing at Midtown Tax Increment Analysis November 27, 2018 Estimated Financing Cost - Construction Financing 12,685,000 Construction Financing Month Amount Beg Month Ending Month Months of Interest Estimated Interest 1 906,071 13 49,079 2 906,071 12 45,304 3 906,071 11 41,528 4 906,071 10 37,753 5 906,071 9 33,978 6 906,071 8 30,202 7 906,071 7 26,427 8 906,071 6 22,652 9 906,071 5 18,876 10 906,071 4 15,101 11 906,071 3 11,326 12 906,071 2 7,551 13 906,071 1 3,775 14 906,071 - - Estimated cost to complete 12,684,994 343,552 Note: Financing cost assues 14 month construction period, equal monthly expenditures throughout construction. M E M O R A N D U M To: David Fine, City of Bozeman From: Brian Duffany and Tim Morzel, Economic & Planning Systems Subject: Bozeman URA TIF Request Review: Aspen Crossing Date: November 29, 2018 This memorandum provides a summary of the analysis Economic & Planning Systems (EPS) has completed relating to the request for tax increment financing (TIF) for the Aspen Crossing development. EPS has been contracted by the City of Bozeman to complete an evaluation of developer requests for TIF and specifically evaluate key project assumptions, such as construction costs, sales revenues, and operating revenues and expenditures, as well as overall developer return. The purpose of this analysis is to ensure that the assumptions presented by a developer align with current market conditions and industry standards. This memorandum provides an overview of the evaluation criteria, an overview of the key inputs, and a summary of the key findings. The detailed analysis and supporting tables are provided in the appendix of this memorandum. Approach As part of the TIF application process, each development team is required to submit a formal proposal that includes a project overview and key project assumptions. These materials include a summary of the development program, construction costs, eligible costs, sales revenues, and ongoing revenue and expenditures assumptions. Using this information as a starting point, EPS has structured a static and time series pro forma that summarizes this information as well as a number of other key project metrics such as project return. This analysis evaluates the performance of each project on an unleveraged pre-tax basis in order to evaluate the project fundamentals exclusive of the unique equity and debt structure of each project. Memorandum November 30, 2018 Bozeman TIF Review: Aspen Crossing Page 2 183082-MEMO-TIF Review-Aspen Crossing Project Assumptions This section provides a summary of the development assumptions submitted by the development team and a comparison to current market conditions or industry standards. Development Program Location: NW Corner of N 5th Avenue and W Aspen Street Parcel Area: 2.14 acres (93,218 square feet) Stories: 3-stories Total Building Area: 65,000 square feet Commercial Program: The current proposal contemplates 43,333 square feet of commercial space that is anticipated to make up the first and second floor. The first floor is contemplated as fast casual dining or restaurant with a small amount of ancillary retail. The second floor is contemplated as office space. For-Sale Residential Condos: The third floor is contemplated to be occupied by 25 for-sale condo units occupying roughly 21,667 square feet of space. The residential unit mix currently contemplates 11 studio units, 12 1-bedroom units, and two 2-bedroom units. Project Costs Land Costs Total: $2,774,500 Cost per Land SF: $30 per square foot % of Total Costs: 17 percent of total Comments: Land costs typically range from 10 to 20 percent of total project costs depending on the development type and local market. At 17 percent of total, this project is within that range. In addition, land costs at roughly $30 per square foot appear to be in align with other recent transactions in this area. Hard Costs Total: $10,451,427 Cost per GBA: $161 per square foot Comments: Average construction costs in the larger market area are estimated to range from $110 to $150 per square foot. At $161 per square foot, this project falls just above that range. However, the development team anticipates using higher quality finishes and steel construction, which both increase overall construction costs. Soft Costs Total: $2,950,151 % of Hard Costs: 28.23 percent Comments: Generally, soft costs for comparable projects typically range from 20 to 30 percent of hard construction costs (vertical construction costs). At 28.23 percent of hard costs this project is within that range. Memorandum November 30, 2018 Bozeman TIF Review: Aspen Crossing Page 3 183082-MEMO-TIF Review-Aspen Crossing For-Sale Revenues Gross Revenue: $7,178,760 Comments: Sales values are currently estimated at an overall average of $281,520 per unit. Smaller studio units are anticipated to be priced closer to $200,000 per unit and larger 1- bedroom and 2-bedroom units are anticipated to be priced between $300,000 and $400,000 per unit. In the City of Bozeman, prices for for-sale residential condo units generally range from the mid-$200,000’s up to roughly $800,000 per unit. The market for condos at this location is unproven and, as a result the somewhat lower anticipated sales prices appear to be reasonable. Operating Revenue Commercial Rental Rate: The 43,333 square feet of space that is contemplated as a mix of commercial uses is currently anticipated to rent for $20 per square foot (NNN). Rental rates for comparable space in downtown Bozeman are roughly $25 per square foot while rental rates for office space outside of downtown can range from $16 to $18 per square foot. The proposed commercial rental rates appear to be reasonable for this location. Project Return The performance of the project with and without a public investment is estimated by using two primary criteria. The first is an evaluation of the overall project returns on an annual basis. This approach relies on an evaluation of the projects Net Present Value (NPV) and Internal Rate of Return (IRR). The second approach is based on a static (single point in time) evaluation of the project’s total value and compares those to total construction costs. Although this approach is generally less precise than the times series evaluation, it provides an additional test of overall project feasibility. The purpose of this analysis is to provide an evaluation of the feasibility of the project with and without a potential public investment. Overall Project Return The first method used to evaluate project return is an evaluation of the project’s internal rate of return (IRR). Generally, the IRR is the percentage rate earned on each dollar invested for each period it is invested. The IRR is typically used by investors to compared alternative investments based on their potential rate of return. Mathematically, the IRR is the discount rate that makes the net present value (NPV) of a project equal to zero. The NPV is the estimated value of all future cash flows of an investment discounted to the present. The NPV of a given series of cash flows is heavily dependent on an investor’s discount rate, which reflects an individual investor’s opportunity cost of capital. In other words, an investor’s discount rate reflects their expected rate of return for investments with a comparable level of risk. For the purpose of this analysis, the discount rate is used as a hurdle rate in determining an appropriate rate of return for a given project. When determining appropriate discount it is important to consider the following rates when building up to a project discount rate.  Inflation rate  Riskless rate of return (typically U.S. 10-Year Treasury Note rate of return)  General real estate risk (timing and market cycle risk)  Product type risk (i.e. multifamily, retail, office, etc.)  Market risk (geographic specific) Memorandum November 30, 2018 Bozeman TIF Review: Aspen Crossing Page 4 183082-MEMO-TIF Review-Aspen Crossing In addition to an evaluation of these rates EPS referenced published data documenting discount rates in the western U.S. Finally, in determining an appropriate discount rate for this specific property EPS considered the following project specific factors:  Program – The amount of commercial development including both restaurant and office space was an important factor in determining an appropriate discount rate. Generally, commercial uses such as retail and office warrant a higher discount rate than multifamily uses. While for-sale condo development at this scale is less risky in Bozeman as a whole, it remains untested in the area surrounding the project.  Project Location – While this site is only a short drive from downtown Bozeman, the area is still relatively untested for the uses proposed for development and this project would represent an initial test of an unproven market, which results in added risk and warrants a higher discount rate.  Market Cycle – The nation and generally the local real estate market has experienced nearly 10 straight years of year-over-year growth. In most real estate markets there is a natural cycle of expansion and contraction that typically ranges from seven to 10 years. Given the fact that Bozeman is likely at the tail end of this cycle or nearing a phase of oversupply, there is additional risk associated with the timing of the market. Without public investment the project achieves an internal rate of return of 8.08 percent. The factors outlined above and the risks associated with this type of project, at this location, and in this phase of the real estate cycle warrant a discount rate of 9.25 percent (1.5 percent above the capitalization rate, below). While this estimate is somewhat subjective, it reflects a variety of current market conditions and risk factors. In order to achieve an internal rate of return of 9.25 percent the project requires nearly $850,000 in public investment. Static Project Feasibility Evaluating the project from a static (i.e. single point in time) perspective provides an evaluation of a given project’s feasibility. This method relies on a comparison of the total project costs to a given project’s total estimated value. For the Aspen Crossing project, total value is calculated by summing the value of the condominium units and adding the estimated value of the commercial space. The value of the commercial space is calculated by using an estimated capitalization rate at stabilization. The capitalization rate (cap rate) is relatively straight forward metric that reflects a project’s net operating income (NOI) and perceived value. Mathematically the cap rate is calculated by dividing a project’s stabilized NOI by its actual sales value. For this project a cap rate of 7.75 percent is estimated to be reasonable from a review of market data in the western U.S. The cap rate for the Aspen Building should be higher than the Rue Building in EPS’ opinion due to the mix retail and office uses which are trading at higher cap rates than rental residential in the current market. This results in a total valuation for the commercial space of $9.47 million. Adding the estimated value of the commercial space to the net revenues from the condo sales of $6.62 million and subtracting the total construction costs of $16.34 million, results in a total project gap of $254,000. Project Request The developers of the Aspen Crossing project are requesting $759,862 in public investment in order to fund project specific eligible costs. Based on the two methodologies outlined above, EPS estimates that the project funding gap ranges from $254,000 to $850,000. The developer request is within this range. Prepared for: City of Bozeman Prepared by: Economic & Planning Systems, Inc. Date: November 27, 2018 EPS #183082 Financial Model TIF Request Review: Aspen Crossing TIF Request Review: City of Bozeman 12/3/2018 Table 1 Project Summary and Key Assumption Sensitivity TIF Request Review: Aspen Crossing Description Amount Developer Low High KEY ASSUMPTIONS Revenue Assumptions Commercial Rental Rate $20.00 NNN $18.00 $22.00 $20.00 Inside Multifamily Rental Rate N/A per square foot $1.25 $1.55 N/A N/A Condo Sales Value $281,520 per unit $275,000 $325,000 $281,520 Inside Cost Assumptions Land Cost 16.98%% of total cost 10% 20%16.98%Inside Hard Construction Costs $161 per GBA $110 $150 $161 Higher Soft Construction Costs 28.23%% of HC 20% 30%28.23%Inside Total Construction Cost $251 per GBA $200 $250 $251 Higher Return Assumptions Overall Project Discount Rate 9.25%project discount rate Commercial Cap Rate 7.75%Commercial capitalization rate, used to determine static value Multifamily Cap Rate N/A MF capitalization rate, used to determine static value PROJECT SUMMARY Total Cost land, infrastructure, hard, and soft Total Condo Sale Revenue net revenues Capitalized Commercial Value Capitalized Multifamily Value N/A Stabilized Commercial NOI at year 4 Stabilized Multifamily NOI N/A Commercial Disposition Revenue at year 10 Multifamily Disposition Revenue at year 10 PROJECT GAP Developer Request as stated in application Static Estimate total revenues/value less cost Time Series Estimate discount rate hurdle Sensitivity Analysis Time Series Estimate: Commercial Rental Rate -849,938 8.75% 9.00% 9.25% 9.50% 9.75% $16.20 -$2,327,214 -$2,474,391 -$2,618,545 -$2,759,751 -$2,898,082 $18.00 -$1,460,238 -$1,622,187 -$1,780,784 -$1,936,112 -$2,088,254 $20.00 -$496,931 -$675,294 -$849,938 -$1,020,958 -$1,188,445 $22.00 $466,375 $271,600 $80,908 -$105,804 -$288,636 $24.20 $1,526,012 $1,313,183 $1,104,838 $900,865 $701,154 Static Estimate: Commercial Rental Rate and Cap Rate -253,762 7.25% 7.50% 7.75% 8.00% 8.25% $16.20 -$1,523,458 -$1,796,655 -$2,052,227 -$2,291,825 -$2,516,902 $18.00 -$612,802 -$916,354 -$1,200,322 -$1,466,542 -$1,716,628 $20.00 $399,039 $61,758 -$253,762 -$549,562 -$827,435 $22.00 $1,410,879 $1,039,871 $692,799 $367,419 $61,758 $24.20 $2,523,904 $2,115,795 $1,734,015 $1,376,097 $1,039,871 Condo Sales Prices -849,938 8.75% 9.00% 9.25% 9.50% 9.75% $228,031 -$1,675,898 -$1,851,556 -$2,023,509 -$2,191,850 -$2,356,670 $253,368 -$1,117,440 -$1,294,379 -$1,467,607 -$1,637,217 -$1,803,300 $281,520 -$496,931 -$675,294 -$849,938 -$1,020,958 -$1,188,445 $309,672 $123,578 -$56,208 -$232,269 -$404,699 -$573,590 $340,639 $806,137 $624,787 $447,167 $273,186 $102,751 Time Series Estimate: Construction Hard Cost -849,938 8.75% 9.00% 9.25% 9.50% 9.75% $130 $1,488,840 $1,310,478 $1,135,833 $964,813 $797,326 $145 $548,211 $369,849 $195,205 $24,185 -$143,302 $161 -$496,931 -$675,294 -$849,938 -$1,020,958 -$1,188,445 $177 -$1,542,074 -$1,720,436 -$1,895,080 -$2,066,101 -$2,233,588 $195 -$2,691,731 -$2,870,093 -$3,044,737 -$3,215,758 -$3,383,245 Source: Economic & Planning Systems \\EPSDC02\Proj\183082-Bozeman MT P3 Development Analysis\Models\[183082-MODEL-Aspen Crossing-11-21-2018.xlsm]T-Summary -$253,762 -$849,938 7.75% cap rate $786,464 $0 $10,874,259 $0 -$759,862 Market Range -$16,335,086 $6,615,720 $9,465,605 $0 Sales PriceProject Discount Rate Cost per sfCommercial Cap Rate NNN NNN Project Discount Rate Project Discount Rate Economic & Planning Systems 2 of 8 TIF Request Review: City of Bozeman 12/3/2018 Table 2 Eligible Costs Summary TIF Request Review: Aspen Crossing Description Amount % of Total Impact Fees $225,000 29% Demolition $250,000 32% Relocation Fee $104,580 13% Northwestern Energy $25,000 3% Fiber Optics $25,000 3% Side Walks/Curb/Gutter/Alley $159,262 20% TOTAL $788,842 100% % of Total Project Cost 4.8% Source: Development Team; Economic & Planning Systems \\EPSDC02\Proj\183082-Bozeman MT P3 Development Analysis\Models\[183082-MODEL-Aspen Crossing-11-21-2018.xlsm]T-Elig Costs Economic & Planning Systems 3 of 8 TIF Request Review: City of Bozeman 12/3/2018 Table 3 Development Program TIF Request Review: Aspen Crossing Description Units Square Feet % of Total Revenue Assumptions COMMERCIAL NNN ($/sf) Office N/A N/A N/A N/A Retail N/A N/A N/A N/A Flex N/A N/A N/A N/A Other N/A N/A N/A N/A Subtotal N/A 43,333 67% $20.00 RESIDENTIAL Ownership (Condos)Sale Price ($/unit) 1-Bed N/A N/A N/A N/A 2-Bed N/A N/A N/A N/A 3-Bed N/A N/A N/A N/A 4-Bed N/A N/A N/A N/A Total 25 21,667 33% $281,520 Rental (Apts.)Rental Revenue ($/sf) 1-Bed 0 0 0% N/A 2-Bed 0 0 0% N/A 3-Bed 0 0 0% N/A 4-Bed 0 0 0%N/A Total 0 0 0% N/A TOTAL 25 65,000 100% Source: Development Team; Economic & Planning Systems \\EPSDC02\Proj\183082-Bozeman MT P3 Development Analysis\Models\[183082-MODEL-Aspen Crossing-11-21-2018.xlsm]T-Program Economic & Planning Systems 4 of 8 TIF Request Review: City of Bozeman 12/3/2018 Table 4 Development Costs TIF Request Review: Aspen Crossing Description Quantity Allocation per GBA Total % of Total LAND COSTS Land 2,774,500$ 17.0% Land Costs 2,774,500$ 17.0% TOTAL LAND COST 2,774,500$ 17.0% Horizontal Development Costs North Site 13,216 sf $10,543.77 total $8.05 per sf 106,440$ 0.7% City Sidewalk 10,315 sf $7,088.32 total $6.25 per sf 71,557$ 0.4% City Curb & Gutter 967 sf $2,179.59 total $20.50 per sf 22,003$ 0.1% Street Patch 1,934 sf $1,275.86 total $6.00 per sf 12,880$ 0.1% South Site 1,434 sf $1,859.09 total $9.00 per sf 12,912$ 0.1% City Sidewalk 978 sf $1,028.15 total $6.25 per sf 7,141$ 0.0% City Curb & Gutter 152 sf $524.13 total $20.50 per sf 3,640$ 0.0% Street Patch 304 sf $306.81 total $6.00 per sf 2,131$ 0.0% Alley Paving 8,624 sf $0.00 total $4.60 per sf 39,657$ 0.2% Total Costs 8,624 sf $3,953.53 total $4.14 per sf 39,657$ 0.2% TOTAL HORIZONTAL CONSTRUCTION COSTS 159,009$ 1.0% Vertical Development Costs Direct Construction Costs $145.00 per GBA 9,425,040$ 57.7% General Conditions $11.95 per GBA 776,589$ 4.8% Excavation - Building Only $6.80 per GBA 442,260$ 2.7% Concrete $5.63 per GBA 365,820$ 2.2% Masonry $10.33 per GBA 671,580$ 4.1% Steel $2.69 per GBA 174,785$ 1.1% Wood - Structure & Finishes $32.96 per GBA 2,142,311$ 13.1% Thermal & Moisture Protection $7.46 per GBA 484,836$ 3.0% Doors & Windows $11.95 per GBA 776,623$ 4.8% Finishes (Pain, Flooring, etc)$15.50 per GBA 1,007,509$ 6.2% Specialties $0.46 per GBA 29,608$ 0.2% Equipment $3.28 per GBA 213,203$ 1.3% Furnishings $0.80 per GBA 52,001$ 0.3% Special Construction $0.00 per GBA -$ 0.0% Conveying Systems $3.99 per GBA 259,350$ 1.6% Mechanical $19.01 per GBA 1,235,560$ 7.6% Electrical $12.20 per GBA 793,004$ 4.9% Indirect Construction Costs $15.79 per GBA 1,026,387$ 6.3% Preconstruction Fee $0.00 per GBA -$ 0.0% Construction Fee $7.25 per GBA 471,252$ 2.9% General Liability Insurance $1.29 per GBA 83,883$ 0.5% Bond $0.00 per GBA -$ 0.0% Gross Receipts Tax $0.00 per GBA -$ 0.0% Construction Contingency $7.25 per GBA 471,252$ 2.9% TOTAL VERTICAL CONSTRUCTION COSTS $161 per GBA 10,451,427$ 64.0% Soft Costs General Soft 2,950,151$ 18.1% Engineering, Arch, Planning, Permitting, Carrying Cost, Marketing, Relocation, etc. $45.39 per GBA 2,950,151$ 18.1% TOTAL SOFT COSTS $45 per GBA 2,950,151$ 18.1% TOTAL PROJECT COST $251 per GBA 16,335,086$ 100.0% Source: Development Team; Economic & Planning Systems \\EPSDC02\Proj\183082-Bozeman MT P3 Development Analysis\Models\[183082-MODEL-Aspen Crossing-11-21-2018.xlsm]T-Cost Economic & Planning Systems 5 of 8 TIF Request Review: City of Bozeman 12/3/2018 Table 5 Operating Revenues and Expenditures TIF Request Review: Aspen Crossing Building Area Area % of Total Net Rentable Area 43,333 sf 100.0% Common Area N/A sf 0.0% Total Residential GSF 43,333 sf 100.0% Type Rentable SF Lease Rate Total Revenue % of Total per year Annual REVENUE Rental Income 43,333 rentable sf 866,660$ 100.0%of PGI All Retail and Office Space 43,333 rentable sf 20.00$ per year 866,660$ 100.0%of PGI [Blank]0 rentable sf -$ per year -$ 0.0%of PGI [Blank]0 rentable sf -$ per year -$ 0.0%of PGI [Blank]0 rentable sf -$ per year -$ 0.0%of PGI [Blank]0 rentable sf -$ per year -$ 0.0%of PGI [Blank]0 rentable sf -$ per year -$ 0.0%of PGI [Blank]0 rentable sf -$ per year -$ 0.0%of PGI [Blank]0 rentable sf -$ per year -$ 0.0%of PGI [Blank]0 rentable sf -$ per year -$ 0.0%of PGI [Blank]0 rentable sf -$ per year -$ 0.0%of PGI Average 43,333 sf 20.00$ per month Other Income -$ 0.0%of PGI [Blank]0 unit -$ per month -$ 0.0%of PGI [Blank]0 unit -$ per month -$ 0.0%of PGI [Blank]0 unit -$ per month -$ 0.0%of PGI [Blank]0 unit -$ per month -$ 0.0%of PGI [Blank]0 unit -$ per month -$ 0.0%of PGI [Blank]0 unit -$ per month -$ 0.0%of PGI [Blank]0 unit -$ per month -$ 0.0%of PGI [Blank]0 unit -$ per month -$ 0.0%of PGI [Blank]0 unit -$ per month -$ 0.0%of PGI [Blank]0 unit -$ per month -$ 0.0%of PGI POTENTIAL GROSS INCOME (PGI)866,660$ 100.0%of PGI Less: Vacancy 10.0%per year (86,666)$ -10.0%of PGI EFFECTIVE GROSS INCOME (EGI)779,994$ 90.0%of PGI EXPENDITURES Operating Expenditures 0.90$ per RBA Adjustment (39,000)$ 5.0%of EGI Property Taxes -$ per RBA 100%% of total -$ 0.0%of EGI Insurance -$ per RBA 100%% of total -$ 0.0%of EGI Utilities -$ per RBA 100%% of total -$ 0.0%of EGI CAM -$ in general OPEX 100%% of total -$ 0.0%of EGI Property Management Fee (% of Gross Rev)5.0%% of EGI 100%% of total (39,000)$ 5.0%of EGI General Operating Expenses -$ per RBA 100%% of total -$ 0.0%of EGI [BLANK]-$ -$ 0.0%of EGI [BLANK]-$ -$ 0.0%of EGI [BLANK]-$ -$ 0.0%of EGI [BLANK]-$ -$ 0.0%of EGI [BLANK]-$ -$ 0.0%of EGI NET OPERATING INCOME (NOI)17.10$ per GSF 740,994$ 95.0%of EGI Asset Management Fee (% of NOI)1.0%% of NOI 100%% of total (7,410)$ 1.0%of EGI NET CASH FLOW 16.93$ per GSF 733,584$ 94.1%of EGI PROJECT COST (excluding condos)251.31$ per GSF 10,889,974$ RETURN ON COST (ROC)6.74% Reserves (Annual/ unit)2,500.00$ per unit 100%% of total (40,000)$ 5.1%of EGI PROJECT VALUE ESTIMATED PROJECT VALUE 7.75%cap rate 9,465,605$ PER NSF 218.44$ PER GSF 218.44$ Source: Development Team; Economic & Planning Systems \\EPSDC02\Proj\183082-Bozeman MT P3 Development Analysis\Models\[183082-MODEL-Aspen Crossing-11-21-2018.xlsm]T-Operating Economic & Planning Systems 6 of 8 TIF Request Review: City of Bozeman 12/3/2018 Table 6 Condo Revenue Estimate TIF Request Review: Aspen Crossing Description Amount Gross Revenue Total Units 25 Revenue per Unit $281,520 Total Revenue $7,038,000 Taxes Tax Rate [1] 0.00% Total Taxes $0 Sales Commissions Commissions Rate 6.0% Total Commissions -$422,280 NET CONDO REVENUE $6,615,720 Source: Development Team; Economic & Planning Systems [1] This analysis is an evaluation of returns before taxes and debt and as a result does not account for the estimated taxes that the developer will have to pay. \\EPSDC02\Proj\183082-Bozeman MT P3 Development Analysis\Models\[183082-MODEL-Aspen Crossing-11-21-2018.xlsm]T- Condos Economic & Planning Systems 7 of 8 TIF Request Review: City of Bozeman12/3/2018Table 7Development Revenues and Expenditures TIF Request Review: Aspen CrossingKEY ASSUMPTIONSProject Timing Project DispositionConstruction Period12 monthsCommercialYear 10Condo Absorption Period12 monthsMultifamilyYear 10Vacancy Commercial ResidentialYear 130.0% 30.0%Year 220.0% 20.0%Year 310.0% 10.0%Stabilization10.0% 10.0%DescriptionFactor EscalationTotal Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15DEVELOPMENT COSTSConstruction Cost -$16,335,086 -$16,335,086 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Land$2,774,5002.0%-$2,774,500 -$2,774,500 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Horizontal Development Costs$159,0092.0%-$159,009 -$159,009 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Vertical Development Costs$10,451,4272.0%-$10,451,427 -$10,451,427 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Soft Costs$2,950,1512.0%-$2,950,151 -$2,950,151 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Total Commercial Costs -$16,335,086 -$16,335,086 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0NET OPERATING INCOMECondo Sales $6,748,034 $0 $6,748,034 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Gross Revenue$7,038,0002.0%$7,178,760 $0 $7,178,760 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Taxes Condo Sales0.0% N/A$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Sales Commissions6.0% N/A-$430,726 $0 -$430,726 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Commercial Net RevenuePotential Gross Income$866,6601.5%$20,340,963 $0 $879,660 $892,855 $906,248 $919,841 $933,639 $947,644 $961,858 $976,286 $990,930 $1,005,794 $1,020,881 $1,036,194 $1,051,737 $1,067,513 $1,083,526Vacancy Loss -$2,299,314 $0 -$263,898 -$178,571 -$90,625 -$91,984 -$93,364 -$94,764 -$96,186 -$97,629 -$99,093 -$100,579 -$102,088 -$103,619 -$105,174 -$106,751 -$108,353Effective Gross Income$18,041,649$0 $615,762 $714,284 $815,623 $827,857 $840,275 $852,879 $865,672 $878,657 $891,837 $905,215 $918,793 $932,575 $946,564 $960,762 $975,174Operating Expenditures-$39,0001.5%-$915,343 $0 -$39,585 -$40,178 -$40,781 -$41,393 -$42,014 -$42,644 -$43,284 -$43,933 -$44,592 -$45,261 -$45,940 -$46,629 -$47,328 -$48,038 -$48,759Commercial Net Operating Income $17,126,306 $0 $576,177 $674,105 $774,842 $786,464 $798,261 $810,235 $822,389 $834,725 $847,245 $859,954 $872,853 $885,946 $899,235 $912,724 $926,415Multifamily Net RevenuePotential Gross Income$01.5%$0$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Vacancy Loss $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Effective Gross Income $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Operating Expenditures$01.5%$0$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Multifamily Net Operating Income $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0DISPOSITION REVENUEGross Revenue $11,096,182 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $11,096,182 $0 $0 $0 $0 $0Commercial7.8% cap rate$11,096,182$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $11,096,182 $0 $0 $0 $0 $0MultifamilyN/A$0$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Cost of Sale -$221,924 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 -$221,924 $0 $0 $0 $0 $0Commercial2.0%-$221,924 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 -$221,924 $0 $0 $0 $0 $0Multifamily2.0%$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Commercial Net Sale Revenue $10,874,259 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $10,874,259 $0 $0 $0 $0 $0Multifamily Net Sale Revenue $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0PROJECT CASH FLOWSNet Project Cash Flows $9,071,605 -$16,335,086 $7,324,212 $674,105 $774,842 $786,464 $798,261 $810,235 $822,389 $834,725 $847,245 $11,734,213 $0 $0 $0 $0 $0Construction Costs -$16,335,086 -$16,335,086 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Condo Sales $6,748,034 $0 $6,748,034 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Commercial Operating Income $7,784,398 $0 $576,177 $674,105 $774,842 $786,464 $798,261 $810,235 $822,389 $834,725 $847,245 $859,954 $0 $0 $0 $0$0Multifamily Net Operating Income $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Commercial Disposition Income $10,874,259 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $10,874,259 $0 $0 $0 $0 $0Multifamily Disposition Income $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Net Present Value9.25%-$849,938 -$16,335,086 $6,704,084 $564,787 $594,222 $552,069 $512,906 $476,521 $442,718 $411,312 $382,134 $4,844,395 $0 $0 $0 $0 $0Internal Rate of Return 8.08%Source: Economic & Planning Systems\\EPSDC02\Proj\183082-Bozeman MT P3 Development Analysis\Models\[183082-MODEL-Aspen Crossing-11-21-2018.xlsm]T-Time SeriesEconomic & Planning Systems8 of 8