HomeMy WebLinkAbout10.A.2. Trystar Inc. Application for Business Assistance in the form of Tax Abatement �
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CITY OF SHAKOPEE
Memorandum
TO: Economic Development Authority (EDA)
Honorable Mayor and City Council
Mark McNeill, City Administrator/EDA Executive Director
FROM: R. Michael Leek, Community Development Director
SUBJECT: Trystar Inc. Application for Business Assistance in the Form of Tax
Abatement
MEETING DATE: March 6, 2012
INTRODUCTION: `
Trystar Inc., (Trystar) as operating company and tenant, and Bridgewater LLC, as
landlord have made application for business assistance in the form of tax abatement. (A
copy of the application is attached, along with the February 22" report to the EDAC, for
the EDA's information). It is estimated that construction of phase I would begin in the
summer of 2013. . .
The EDA is asked to make a decision regarding whether to move forward with the
development of an agreement for tax abatement for the Trystar project.
DISCUSSION:
Background on the Dean Lakes Business Park/Planned Unit Development (PUD):
After three years planning and working with the Shakopee community, Ryan Companies
purchased Dean Lakes from Allianz Life in January of 2004. Dean Lakes is one of the
largest mixed use developments in the Twin Cities. The master plan includes a mix of
residential, retail, industrial, office, and corporate headquarters.
Ryan dedicated 84 acres of the project as conservation area, constructed an infiltration
storm water system, built 5 miles of trails connecting Dean Lal<es PUD to the greater
community, eradicated evasive species like buckhorn and replaced them with native
plantings as part of a conservation development plan.
As a part of the development of Dean Lakes, the intersection of CR 16 and CR 83 was
realigned. In order to pay for the cost of those improvements, the City of Shakopee and
Ryan entered into a development agreement that allows the use of taxes generated by
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the commercial portion of the PUD to abate assessments for those improvements on
business park parcels if certain job creation targets are met. The public improvements
include the upgrades to County road 83 and the interchange into Dean Lakes Parkway
along with internal improvements. ,
The project breal<down is as follows:
• total site- 273 acres
• commercial development 134 acres
• residential development 42 acres
• roads and right away 13 acres .
• conservation area dedicated 84 acres.
Description of the Project: �
Trystar is a manufacturer and distributor of portable and permanent power solutions,
including cables and power accessories. The company was founded in 1991, is privately
held, and currently operates in Faribault, Minnesota. Trystar proposes to relocate to
the Dean Lal<es PUD/business park in Shakopee.
The site of the proposed project consists of about 28 acres in Dean Lakes adjacent to
U.S. Hwy. 169. The project consists of two phases. The first phase consists of a
structure containing about 130,000 square feet with; 26,542 square feet of
manufacturing space; 21,894 square feet of office space; 47,461 square feet of
warehousing/storage space. The second phase of the project would add about 50,000
square feet for an extrusion and conductor operations.
The estimated total cost of the project is $15,072,727.00, of which about $9,000,000.00
is building construction cost. The applicant proposes funding in the amount of
$3,572,727 in the form of equity and bank loan(s) in the amount of $10,500,000.00, with
about $1,000,000.00 in the form of tax abatement over a 15-year term from both the
City of Shakopee and Scott County.
Trystar currently operates with about 110 persons, about 55 of which are full-time
employees. Within 2 years of opening of the facility, Trystar projects it would employ 80
full-time employees. The minimum hourly wage of new jobs that would be created
would be $12.00/hour. Of the current 55 full time positions, 33 (60%) pay wages of
$19.94/hour or more, while 22 (40%) from about $12.00 to $19.94/hour.
Dean Lakes Master Deyelopment Agreement:
Use of Commercial Taxes to Abate Assessments for Business Park Property;
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Under the Dean Lal<es Master Development Agreement (the Agreement), taxes from the
commercial portion of the Dean Lakes PUD can be captured and used to abate
assessments for infrastructure (in the form of CR 16 and CR 83 intersection
improvements) against the business parl< properties. However, when a development
occurs on a business park parcel certain criteria must be met to allow the continued use
of commercial taxes to abate assessments for the business park parcels for the
infrastructure. These criteria include;
• Whether the project is for manufacturing, warehousing or office development;
� If for manufacturing, the project must create one job per 1,000 square feet;
• If for warehousing, the project must create .25 jobs per 1,000 square feet.
Staff is continuing the evaluation of whether the job creation criteria would be met,
thus allowing the use of commercial taxes as abatement for infrastructure for this
parcel. Prior to review of the request by the EDA/City Council, a final determination is
expected on this issue.
Process for Approval of a Tax Abatement Agreement and Plan: .
In the event that the City Council/EDA ultimately decides that it wishes to proceed with
tax abatement for the project, the following is the sequence of events/timeline that
would occur or be followed;
1. The City would, with the assistance of its attorneys and financial consultants,
develop a master schedule of notices and resolutions, as well as the
development agreement for tax abatement.
2. Once the EDA/City Council has approved moving forward with the proposed tax
abatement, the application would be filed with Scott County.
3. Sometime priorto the public hearing—The Planning Commission must review
the tax abatement agreement only to determine that the proposal is consistent
with the City's adopted 2030 Comprehensive Plan.
4. At least 10 days, but no more than 30 days before the public hearing—publish
notice of the public hearing.
5. EDA approves the development agreement.
6. City Council approves the development agreement.
City Criteria for Business Assistance: ,
The City's current policy includes the current criteria for granting a business subsidy;
a. Increase in Tax ease — An increase in tax base is a necessary condition for �
granting a business subsidy under the policy, but cannot be the sole grounds for
granting a subsidy.
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b. lobs and Wages — Every recipient must create "...the maximum number of livable
wage jobs feasible for the proposed project." These jobs should pay 275% of
federal minimum wage, exclusive of benefits.
c. If creation of jobs is not the goal, then the goal is to be specific, tangible and
measurable.
Increase in Tax Base:
The subject property is currently vacant, and the material submitted to date indicates
that the estimated assessed value of the completed project would be between $9
million and $12 million. Thus, the first criterion would be met.
Jobs and Wages: �
The current city policy requires that "every recipient must create "...the maximum
number of livable wage jobs feasible for the proposed project." These jobs should pay
275% of federal minimum wage, exclusive of benefits. The current federal minimum
wage is $7.25 per hour. Thus, 275% of federal minimum wage is $19.94 per hour.
As indicated above, about 60% of the jobs projected to be created would be above the
level of 275% of federal minimum wage. -
Pro forma for the project:
When approving the tax abatement plan, the Council will be required to find that this
proposed development is not likely to occur without assistance, and that no other
development is lil<ely to occur at this site without assistance that would create a higher
market value than the proposed development (after adjusting for the TIF assistance). If
the City moves forward with this proposal, staff and financial advisors will be analyzing
these points, and also the amount of tax increment that is reasonably necessary.
Attached for the EDA's/Council's information is Springsted's but for analysis for this
project.
ALTERNATIVES:
EDA:
1. Offer and ap�rove a motion recommending to the City Council that it direct staff and
the city's consultants to initiate the process for developing a tax abatement plan,
holding a public hearing on the plan, and development agreement to provide
assistance (in an amount to be determined to be necessary) for the proposed _
179,000 square foot manufacturing/warehouse/office facility because (a) the project
represents significant job creation consistent with the City's business subsidy policy,
and (b) the project will result in a significant increase in tax base for the City:
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2. Offer and approve a motion recommending to the City Council that it direct that
staff and the city's consultants not initiate the process for tax abatement plan and
development agreement.
3. Recommend to the City Council that it table the matter with direction to obtain
additional, required information.
CITY COUNCIL:
4. Offer and approve a motion directing staff and the city's consultants to initiate the
process for tax abatement plan and development agreement to provide assistance ,
(in an amount to be determined to be necessary), and set the public hearing
thereon, for the proposed 179,000 square foot manufacturing/warehouse/office
facility because (a) the project represents significantjob creation consistent with the
City's business subsidy policy, and (b) the project will result in a significant increase
. in tax base for the City.
5. Offer and approve a motion directing that staff and the city's consultants not initiate
the process for tax abatement plan and development agreement.
6. Table the matter with direction to obtain additional, required information.
RELATIONSHIP TO CITY GOALS:
The proposed project and City action on the request relate to City Goals;
B. Positively manage the challenges and opportunities presented by growth,
• ' development and change, and to
D. Maintain, improve and create strong partnerships with other public and private
sector entities.
EDAC RECOMMENDATION:
The EDAC recommended that the City proceed with a tax abatement plan for the Trystar
project by a vote of 4-0.
REQUESTED ACTION:
EDA:
Offer and approve a motion recommending to the City Council that it direct staff and
the city's consultants to initiate the process for developing a tax abatement plan (and
schedule May 1, 2012) public hearing on the plan, and development agreement to
provide assistance (in an amount to be determined to be necessary) for the proposed
130,000 square foot Trystar manufacturing/office facility to be located in the Dean
Lal<es PUD, because (a) the project represents significant job creation consistent with
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the City's business subsidy policy, and (b) the project will result in a significant increase
in tax base for the City.
CITY COUNCIL:
Offer and approve a motion directing staff and the city's consultants to initiate the
' process for tax abatement plan and development agreement to provide assistance ,(in
an amount to be determined to be necessary), and set a May 1, 2012 public hearing
thereon, for the proposed 130,000 square foot Trystar manufacturing /office facility to
be located in the Dean Lakes PUD because (a) the project represents significant job
creation consistent with the City's business subsidy policy, and (b) the project will result
in a significant increase in tax base for the City.
6
R. Michael Leek
Community Development Director
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. Springsted Incorporated
380 Jackson Street, Suite 300
Saint Paul, MN 55101-2887
��.�� S p r i n g s t e d Tel: 651-223-3000
Fax: 651-223-3002
www.springsted.com
MEMORANDUM
T0: Michael Leek, Community Development Director
FROM: Tony Schertler, Senior Vice President
Tom Denaway, Analyst
DATE: March 1, 2012
SUBJECT: But-For Analysis of Trystar Inc. Application for Tax Abatement .
The purpose of this memorandum is to examine the development project costs, operating pro forma and expected .
rate of return as providetl by the Developer in order to determine whether the development would be unlikely to
proceed "but-for" the requested Tax Abatement assistance, and if the assistance requested by the Developer would
provide a rate of return in excess of typical market expectations.
Background
The Tax Abatement application proposes the development of a 130,098 manufacturing facility, consisting of 21,894
square feet of office, 60,743 square feet of assembly, and 47,461 of warehouse space. Proposed by the Developer
to be constructed at a later date is a phase two expansion of approximately 50,000 feet for a contluctor assembly
area. The Developer is proposing an approximate 30/70 split between equity and debt, with $4,572,727 of equity and
private financing of $10,500,000, Atlditionally, the Developer is requesting the project be supported by Tax
Abatement on a pay-as-you-go basis of an annual amount of approximate�y $100,000 through a 15-year City and
County Tax Abatement. The Developer estimates the net present value of this tax abatement to be approximately
$1,000,000, which equates to an approximately 5.5% net present value interest rate. For the purpose of evaluating
the Internal Rate of Return (IRR) and the operating pro forma analysis, we have assumed the Developer funds 100%
of the project costs up front and receives the abatement on an annual basis. As the Tax Abatement creation process
is completed the actual tax abatement amounts will be refined.
The development is projected to be constructed, owned, and operated by a separate entity from Trystar Inc. but
affiliated with the company. This analysis is based on the prospective of the development entity undertaking the real
estate transaction, with Trystar Inc, as the leasing tenant. The purpose of this analysis is two-fold, first to determine if
the project is unlikely to proceed "but-for" the assistance, and second to determine if the�requested assistance would
create a rate of return in excess of typical market expectations.
Project Costs ,
The Developer's submittal includes a preliminary total project budget of $15,072,727.
Public Sector Advisors
Financial Analysis of Trystar Application for Tax Abatement
3/1/2012 •
Page 2
The total cost is broken down below:
T star Buildin ' Total Cost
Land Ac uisition $3,131,311
Site Develo ment � 1,036,881
Buildin Cost 9,061,912
Professional Services 1,088,000
Fees and Permits 817,015
Total Costs $15,135,119
The Developer has indicated they intend to enter into a purchase agreement to acquire the 28 acre parcel for a cost
of $3,131,311, which equates to a per acre purchase price of $111,833. The purchase price appears to be
reasonable and likely to occur as projected,
The total costs related to the construction of the building total $9,061,912, which includes the following line-items;
$3,948,295 for assembly/extrusion space, $2,705,277 for warehouse space, and $2,408,340 for interior offices. The
construction costs equate to approximately $69.65 per square foot for total development costs, with the assembly
space costing approximately $65 per square foot, the warehouse space costing approximately $57 per square foot,
and the o�ce space costing approximately $110 per square foot, The proposed construction costs, while preliminary
in nature, appear reasonable based on a comparison to the RSMeans Quickcost Estimator, which is an online
resource for reviewing construction cost estimates.
� The developer provided a cost estimate for the site work of $1,036,881, this cost is estimated on a per square foot
basis in relation to the size of the building; with the site costs estimated at $7.97 per square foot of building. The
Developer including professional service costs of $1,088,000 antl fees antl permits of $817,015. The professional
fees equate to approximately 7% of the total project costs, but this also includes other costs associatetl with the
development of the site. The application details the individual fees and permits totaling the budgeted amount of
$817,015.
Sources of Funds
Sources of Funds "
Private E uit $3,072,727
Private Financin 10,500,000
Tax Abatement 1,000,000
Total Taxes and Le al Fees $15,572,727
The Developer has intlicated they will expecting the terms of their private lending to require equity of approximately
30% of the project cost, or $4,072,727. The private financing is projectetl to be based on a term of 20-years at a rate �
of 7%; which are reasonable assumptions. The Developer estimates the up-front value of the Tax Abatement at
$1,000,000. For the purposes of the operating pro forma analysis we assumed the total initial equity investment
would be $4,072,727, and the tax abatement woultl be received on an annual basis.
� �Financial Analysis of Trystar Application for Tax Abatement
3/1/2012 •
Page 3
Retum Analysis
In order to understand the potential return realized by the Developer, with and without the Tax Abatement assistance,
we utilized the information in their supplied pro forma to perform an internal rate of return (IRR) analysis. The IRR
analysis allows for measuring the potential return to the developer over an operating period, while accounting for the
time value of money. In this case the Developer prepared an operating pro forma based on an 11-year period. The
purpose of evaluating the operating pro forma is to understand the potential return to the Developer through the initial
development of the project and the operation of the enterprise over a period of time. The use of an 11-year period to
illustrate the return is not indicative of the Developer's intentled investment period.
The first step in analyzing the return to the Developer is to determine if the costs presented are reasonable, We have
discussed a portion of the costs above and have commented on the impact of potential project cost savings. If cost
savings occur absent any other changes, the Developer would realize a greater return than projectetl. Though the
costs outlined above are estimates, and subject to future change, the assumptions do appear to be reasonable.
The second step in calculating the return to the Developer is to determine if the operating revenues and expenses
are reasonable.
• The Developer proposes a triple net lease rate of $8.24 for the initial phase one development. The proposed
lease rate is the amount necessary to accomplish a tlebt coverage ratio, with tax abatement, of 1,20.
• The Developer is assuming all operating expenses will be paitl by the tenant.
• We use a two percent inflator in the analysis of the pro forma. �
The third step in performing an internal rate of return analysis is to assume a hypothetical sale of the asset at the end
of the pro forma review period, which in this case is 11-years, The use of a hypothetical sale in this analysis is only
for purposes of calculating the potential return to the Developer, and is by no means indicative of the likelihood of a �
sale in Year 11. In order to accurately perform the return analysis all assets have to be converted to a cash position
at the end of the pro forma, in order to calculate the return on the initial equity investment. The Developer has
indicated they intend to own and lease the building for an extentled term greater than the 11-years analyzed for
purposes of calculating the return. For the purpose of accounting for the value of the building asset in year 11 of the
operating pro forma, we usetl a capitalization rate of 8.5% to determine the building value. For the purpose of
calculating the return to the Developer we addetl this hypothetical sale to the operating pro forma; which was not
originally included in the Developer's pro forma.
The table below shows the Developer's base pro forma with the rate of return with and without abatement,
Base Developer With ` Without
. Pro Forma Tax Abatement. Tax
(Leveraged) _ Abatement
11.17% 8.94°/a
Financial Analysis of Trystar Application for Tax Abatement -
3/1/2012
Page 4
Typically, in the review of development projects of this nature we define the typical reasonable rate of return as a
range of IRR between 10% - 20%. An additional measure of project feasibility is the debt coverage ratio, which is a
calculation detailing the ratio that project revenues exceed the debt-service of the project. In this case the Developer
is aiming for a_ debt coverage ratio of 1.20 with the tax abatement on a pay-as-you-go basis; basetl on this the
Developer has calculated an estimated lease rate of $8,24 per square foot. In order for the debt coverage ratio to '
exceed 1.20 without the tax abatement assistance the lease rate would have to be increased by approximately 10%
to $9,01 per square foot. �
' In reviewing the internal rate of return without assistance the return to the Developer is 8.94%, while the return with '
� assistance is 11.17%. Typically in projects of this nature, we assume a feasible rate of return is greater than 10%.
The additional revenue provitled by the tax abatement allows for the project to be feasible at the projected lease rate
of $8.24 while also maintaining a debt-coverage ratio of 1.20. Given that this lease rate is on the higher-end of rates
for developments of this type, it is unlikely the tenant would be willing to lease at a higher rate. Based on this
analysis, it, could be stated the Developer would be unlikely to undertake this project, as proposed, "but-for" the
provision of the Tax Abatement assistance as requested.
Additionally given our review of the Developer's projected rate of return, and the assumptions on which this analysis
is based, the projected return with assistance of 11.17% with assistance is reasonable and not in excess of typical
market expectations,
� �
CITY OF SHAKOPEE
� Memorandum
TO: Economic Development Advisory Committee (EDAC)
FROM: R. Michael Leek, Community Development Director
SUBJECT: Trystar Inc. Application for Business Assistance in the Form of Tax
Abatement
MEETING DATE: February 22, 2012
INTRODUCTION:
Trystar Inc., (Trystar) as operating company and tenant, and Bridgewater LLC, as
landlord have made application for business assistance in the form of tax abatement. (A
copy of the application is attached for the EDAC's information) It is estimated that
construction of phase I would begin in the summer of 2013. �
The EDAC is asked to review, discuss and make a recommendation to the City
Council/EDA regardingthe application and whetherto move forward with the
development of an agreement for tax abatement for the Trystar project.
DISCUSSION: .
Description of the Project:
Trystar is a manufacturer and distributor of portable and permanent power solutions,
including cables and power accessories. The company was founded in 1991, is privately
held, and currently operates in Faribault, Minnesota. Trystar proposes to relocate to
the Dean Lakes business park in Shakopee.
The site of the proposed project consists of about 28 acres in Dean Lakes adjacent to
U.S. Hwy. 169. The project consists of two phases. The first phase consists of a
structure containing about 179,000 square feet with; 26,542 square feet of �
manufacturing space; 21,894 square feet of office space; 47,461 square feet of
warehousing/storage space. The second phase of the project would add about 50,000
square feet for an extrusion and conductor operations.
The estimated total cost of the project is $15,072,727.00, of which about $9,000,000.00
is building construction cost. The applicant proposes funding in the amount of
$3,572,727 in the form of equity and bank loan(s) in the amount of $10,500,000.00, with
H:�EDAC\2012\2-22-12\Trystar Report.docx 1
about $1,000,000.00 in the form of tax abatement from both the City of Shal<opee and
Scott County.
Trystar currently operates with about 110 persons, about 55 of which are full-time
employees. Within 2 years of opening of the facility, Trystar projects it would employ 80
full-time employees. The minimum hourly wage of new jobs that would be created .
would be $12.00/hour. Of the current 55 full time positions, 33 (60%) pay wages of
$19.94/hour or more, while 22 (40%) from about $12.00 to $19.94/hour.
D�an Lakes Master Development Agreement:
Use of Commercial Taxes to Abate Assessments for Business Park Aroperty; �
Under the Dean Lakes Master Development Agreement (the Agreement), taxes from the
commercial portion of the Dean Lakes PUD can be captured and used to abate
assessments for infrastructure (in the form of CR'16 and CR 83 intersection �
improvements) against the business park properties. However, when a development
occurs on a business parlc parcel certain criteria must be met to allow the continued use
of commercial taxes to abate assessments for the business parl< parcels for the
infrastructure. These criteria include;
m Whetherthe project is for manufacturing, warehousing or office development;
• If for manufacturing, the project must create one job per 1,000 square feet;
• If for warehousing, the project must create .25 jobs per 1,000 square feet.
Stai`f is continuing the evaluation of whether the job creation cri�eria would be met,
thus allowing the use of commercial taxes as abatement for infrastructure for this
parcel. Prior to review of the request by the EDA/City Council, a final determination is
expected on this issue.
Proeess for Approval of a Tax Abatement Agreement and Plan:
In the event that the City Council/EDA ultimately decides that it wishes to proceed with
tax abatement for the project, the following is the sequence of events/timeline that
would occur or be followed; ,
1. The City would, with the assistance of its attorneys and financial consultants,
� develop a master schedule of notices and resolutions, as well as the �
development agreement for tax abatement.
2. Once the EDA/City Council has approved moving forward with the �proposed tax
abatement, the application would be filed with Scott County.
3. Sometime priorto the public hearing—The Planning Commission must review
the tax abatement agreement only to determine that the proposal is consistent
with the City's adopted 2030 Comprehensive Plan.
H:�EDAC�2012\2-22-1�2\Trystar Report.docY 2
4. At least 10 days, but no more than 30 days before the public hearing — pubiish
notice of the public hearing.
5. EDA approves the development agreement.
6. City Council approves the development agreement.
City Criteria for Business Assistance:
The City's current policy includes the current criteria for granting a business subsidy;
a. Increase in Tax Base — An increase in tax base is a necessary condition for
granting a business subsidy under the policy, but cannot be the sole grounds for
granting a subsidy.
b. Jobs and Wages — Every recipient must create "...the maximum number of livable
wage jobs feasible for the proposed project." These jobs should pay 275% of
federal minimum wage, exclusive of benefits.
c. If creation of jobs is not the goal, then fhe goal is to be specific, tangible and
measurable.
Increase in Tax Base:
The subject property is currently vacant, and the material submitted to date indicates
that the estimated assessed value of the completed project would be between $9
million and $12 million. Thus, the first criterion would be met.
lobs and Wages: '
The current city policy requires that "every recipient must create "...the maximum
number of livable wage jobs feasible for the proposed project." These jobs should pay
275% of federal minimum wage, exclusive of benefits. The current federal minimum
wage is $7.25 per hour. Thus, 275% of federal minimum wage is $19.94 per hour.
As indicated above, about 60% of the jobs projected to be created would be above the
level of 275% of federal minimum wage.
Pro forma for the project: � �
When approving the tax abatement plan, the Council will be required to find that this
proposed development is not likely to occur without assistance, and that no other
development is likely to occur at this site without assistance that would create a higher
market value than the proposed development (after adjusting for the TIF assistance). If
� the City moves forward with this proposal, staff and financial advisors will be analyzing '
these points, and also the amount of tax increment that is reasonably necessary. A
conversation between the applicant's representative, city staff and city consultant is
planned for early next week regarding the specifics of the pro forma.
H:�EDAC�2012\2-22-12\Trystax Report.docx � 3
ALTERNATIVES:
1. Offer and approve a motion recommending to the Shakopee City Councii and EDA
that they initiate the process for tax abatement plan and development agreement to
provide assistance (in an amount to be determined to be necessary) for the
proposed 179,000 square foot manufacturing/warehouse/office facility because (a)
the project represents significant job creation consistent with the City's business
subsidy policy, and (b) the project will result in a significant increase in tax base for .
the City.
2. Offer and approve a motion recommending to the Shakopee City Council and EDA
that they do not initiate the process for tax abatement plan and development
agreement to provide assistance (in an amount to be determined to be necessary}
for the proposed 179,000 square foot manufacturing/warehouse/office facility
because (a) the project represents significant job creation consistent with the City's
business subsidy policy, and (b) the project will result in a significant increase in tax
� base for the City.
3. Table the matter with direction to obtain additional, required information.
RELATIONSHIP TO CITY GOALS:
The proposed project and City action on the request relate to City Goals;
B. Posifively manage the challenges and opportunities presented by growth,
development and change, and to
D. Maintain, improve and create strong partnerships with other public and private
sector entities.
REQUESTED ACTION: -
After discussion ofthe proposed project and request for assistance ofFer a motion
making a recommendation to the City Council/EDA consisfent with the EDAC's wishes. •
i�'� ����a1��� �� .
R. Michael Leek �
� Community Development Direcfor
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- �I�l�C O� ��IAKO�'��
Application for Business Subsidies
�
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!. �
��i�i . . � •. ... ' �'' . � ,. ` ' �� ��� ���
129 Holmes Street South Shakopee, MN 55379
Phone (952) 496-9661 Fax (952) 233-3801
C:\Users\kcarlsonWppData\L.ocal\Microsoft\Windows\Temporary Intemet Files\Content. Business Assistance
Application 1 27 2012.rtf
. Secfian I: General inf�rmafion �
** With this appfiea�ion, pfease submit a forma! Iet�er requesiing the ass�stanee.
1. Business Name: Trvstar inc. Operatin� Companv/Tenant
Brid�ewater LLC/Landlord
2. Address: 2917 Industrial Drive . �
Faribault MN 55021 . �
3. Contact Person: Rick Dahl
4. T2lephone: (507) 333-3990
5. Fax: (507) 333-0012 �
6. E-Maii�: _ rdahl(a�trvstar.com
7. Brief Description of the Business / Company: Trvstar is a manufacturer and �
distributor of portable and permanent power solutions indudin� cables and power
accessories, Founded in 1991 and is privatelv hefd
8. Parent Corporation, if any: N/A
9. Consultant information, if applicable: Anderson-I<M Builders LLC
Name: Kent Carlson
Address: 4220 Park Glen Road St Louis Park MN 55416
Tefephone: (952) 927-5400 Fax: _ (952) 927-5444
E-Mail: I<carlson anderson-I<m.com
10. Type of Subsidy Requested: Tax increment Financing Tax Abatement X
Othei (Describe: �
(Checl< appropriate item)
11. Amount of Subsidy Requested: � 1,000,000
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' App]ication I 27 2013.itf
-� 12. Public Purposes of the Subsidy: To assist Trvstar with the relocation and expansion
of their business bv buildin� a new world ciass manufacturin� facilitv and corporate
� headquarters in the Dean Lakes development �
13. Location of Proposed Project: Dean Lakes
14. Legal Description of Project Location: Lots 4, 5, 6 and 7, Block 2 Dean Lakes 5tn
Addition, Scott Countv, Minnesota
15. Property Identification Number(s): 27-4080090, 27-4080100, 27-4080110
27-4080120
16. Present Ownership of the Site: Rvan Companies US Inc,
17. Name / Description of the proposed project (Attach site plan, if available): �
Trvstar anticipates buildin� a 179 243 sq ft manufacturin� and office complex See the
attached site plans.
18. Size of the Property: 28.0 acres sq. ft. 1 Z21,332
19. Estimated Total Building Square Footage:_ First phase is approximately 179 000
. sy.ft.
20. Estimated size of the Proposed Facifity: __179.243 sq. ft
� Manufacturing/Assembly/Processing sq. ft. _ 26,542 sq.ft
Office sq. ft. 21,894 sq.ft �
Research Laboratory sq. ft.
Warehousing sq. ft. 47,461 sa.ft
Other (Please Sqecifvl: �
Extrusion — 34,201 sa. ft. and Conductor — 49 145 sq ft
TOTA! sq. ft. 179,243 sq.ft. • .
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' Application I 27 2012.rtf
�1.. Esfirnated �roject Casts (incfudir�g refocation, constructivn}: .
Land Acquisition $ 3,131,000
Site Development (grading, landscaping, etc.) $ 1,036,000
Building Cost $ 9,000,000
Street/Road Improvements (include your costs only) $ 0
Utility Improvements (include your costs only) $ Included in building costs
Capital (machinery and equipment) $ Unknown at this time
Professional Services (archit., engin.,legal, fiscal) $ 1,088,000
Fees and Permits (same as total frcm below) $ 817,727 . �
Otfier (Please specify ) �
TOfA! $ Z5,67'2,7�3
22. Estirrga�ed Fee and Permit Costs: .
City Permits and Fees $ 579,397
� (Grading and Building Permits, Parl< Dedication Fees, etc.)
Metropolitan Council Fees $ 238,330 �
(SAC and WAC Charges) � �
Other fee or permit costs $ 0 .
(Please Specify )
T�TA� $ 817,7�7
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Applicatian 1 272012.�ti'
• �3. Indicate the proposed start clate for construetion and estimated date of
. completion: It is anticipated that Phase I will commence construction in the
Summer of 2013 and be completed in the Fall of 2014, which consists of
approximately 130,098 sq. ft. of office, manufacturing and warehouse. Trystar
requires 4-6 months to relocate its equipment and anticipates full production in
January 2015. Phase II, approximately 49,145 sq.ft., will commence 3-5 years after
Substantial Completion of the initial phase. Commencement of construction is
subject to financing.
24. Proposed Financing Source(s):
Equity $ 3,572,727
Bank Loan $ 1Q,500,000
(Check one): Tax Increment Financing, OR
Tax Abatement $ 1,000,000
Industrial Development Revenue Bonds $ 0
Other Local Government Assistance $ 0
(Please specify )
. State of Minnesota Assistance $ 0 �
(Please specify )
TOTAL $ Z5,072,727
25. If tax increment financing is requested, piEase submit a iist of efigible project costs
(Refer to Section V of the Business Subsidy Policy):
26. The City reserves the right to request tax returns and/or other financial statements
from the applicant for the years of operation.
27. The City reserves the right to request three i�ank references from the appiicant.
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Application I 27 2012.rtf
, • Section It:
� Empioymenf,lAfage and Benefit Iniorr�na�oon
' �,. �MPlOYMENf
1. Does this project involve the relocation of jobs within the State of Minnesota?
Yes
a. If so, provide a statement of why the project cannot be completed at its
current location / facility: ,
The owners were unable to firid a site to meet the long term gr.owth
needs of the business. The needs of Trystar's business have changed
because of the vertical integration which now requires the state of the art
manufacturing facility.
b. Number of full time equivalent (FTE) permanent employee posiiions at
current Minnesota location / facility to be relocated to Shal<opee: 55
2. If the project is an er.pansion of an existing Shakopee sacifity, what is the current
number of FTE permanent employee positions? N/A
3. Estimated Number of FTE permanent employee positions to be created (within 2
years of issuance of Certificate of Occupancy) as a result of the project is 25
additional employees.
4. TaT/�.L number of current and estimated new FTE permanent emplayee positions (No.
2+ No. 3 from above) 80 full time employees
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Application 1 37 2013.rtf
. ' �
• B. WAGES
1. What will be the minimum hourly wage (exclusive of benefits) of the FTE permanent
employee positions created bythe project? $12.00 per hr.
2. The hourly wage of each new permanent FTE employee position, with separate bands
of wages, is as follows:
Total Number of
Wa�e Levels Per Hour FTE Permanent Emplovee Positions
Less Than $14.16 (275% of min wage) 8
$14.17 —18.99 24
$19.94* - 23.99 . 9
� $24.OQ — 28.99 4
$29.00 — 33.99 . 2
$34.00 and Over " 18
*$19.94 is equal to 275% of the federal minimum wage in 2011
e. NEALTH INSURAN�E BENEFITS � .
The value of health insurance benefits provided by the employer for the above
referenced jobs, separated by bands of wages, is as follows:
Wa�e Levels Per Hour Value of Health fnsurance Benefits
Less Than $14.16 6
$14.17 —18.99 14 �
$19.94* — 23.99 11
$24.00 — 28.99 4
$29.00 — 33.99 1
$34.00 and Over . 19
*$19.94 is equal to 275% of the federal minimum wage in 2011
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Application 1 27 2012.rtf
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, Springsted Incorporated
� 380 Jackson Street, Suiie 300
Saint Paul, MN 55101-2887
� Springsted �
Tel: 651-223-3000
Fax: 651-223-3002
www.springsted.com
MEMORANDUM
T0: Michael Leek, Community Development Director
FROM: Tony Schertier, Senior Vice President
Tom Denaway, Analyst .
DATE: February 29, 2012 .
SUBJECT: But-For Analysis of Trystar Inc. Application for Tax Abatement
The purpose of this memorandum is to examine the development project costs, operating pro forma and expected
rate of return as provided by the Developer in order to determine whether the development is would be unlikely to
proceed "but-for" the requested Tax Abatement assistance, and if the assistance requested by the Developer would
provide a rate of return in excess of typical market expectations.
Background
The Tax Abatement application proposes the development of a 130,098 manufacturing facility, consisting of 21,894
square feet of office, 60,743 square feet of assembly, and 47,461 of warehouse space. Proposed by the Developer
to be constructed at a later date is a phase two expansion of approximately 50,000 feet for a conductor assembly
area. The Developer is proposing an approximate 30/70 split between equity and debt, with $4,572,727 of equity and
private financing of $10,500,000. Additionally, the Developer is requesting the project be supported by Tax
Abatement on a pay-as-you-go basis of an annual amount of approximately $100,000 through a 15-year City and
County Tax Abatement. The Developer estimates the net present value of this tax abatement to be approximately
$1,000,000, which equates to an approximately 5.5% net present value interest rate. For the purpose of evaluating
the Internal Rate of Return (IRR) and the operating pro forma analysis, we have assumed the Developer funds 100%
of the project costs up front and receives the abatement on an annual basis. As the Tax Abatement creation process
is completetl the actual tax abatement amounts will be reflned.
The development is projected to be constructetl, owned, and operated by a separate entity from Trystar Inc. but
affiliated with the company. This analysis is based on the prospective of the development entity undertaking the real
estate transaction, with Trystar Inc. as the leasing tenant. The purpose of this analysis is two-fold, first to determine if
the project is unlikely to proceed "but-for" the assistance, and second to determine if the requested assistance would
create a rate of return in excess of typical market expectations.
Project Costs
The Developer's submittal includes a preliminary total project budget of $15,072,727.
Public Sector Advisors
Financial Analysis of Trystar Application for Tax Abatement
3/6/2012 '
Page 2
The total cost is broken down below:
. .' :- T star Buildin -µ . �; ;,;'.� ;,To,tal Cost ;: �'
Land Ac uisition $3,131,311
Site Develo ment 1,036,881
Buildin Cost 9,000,000
Professional Services 1,088,000
Fees and Permits 816,535
Total Costs $15,072,727
� The Developer has intlicated they intend to enter into a purchase agreement to acquire the 28 acre parcel for a cost
of $3,131,311, which equates to a per acre purchase price of $111,833. The purchase price appears to be
reasonable and likely to occur as projected.
The total costs related to the construction of the building total $9,061,912, which inclutles the following line-items;
$3,948,295 for assembly/e�rusion space, $2,705,277 for warehouse space, and $2,408,340 for interior offices. The
construction costs equate to approximately $69.65 per square foot for total development costs, with the assembly
space costing approximately $65 per square foot, the warehouse space costing approximately $57 per square foot,
and the office space costing approximately $110 per square foot. The proposed construction costs, while preliminary
in nature, appear reasonable based on a comparison to the RSMeans Quickcost Estimator, which is an online
resource for reviewing construction cost estimates.
The developer provided a cost estimate for the site work of $1,036,881, this cost is estimated on a per square foot
basis in relation to the size of the building; with the site costs estimated at $7.97 per square foot of building. The
Developer including professional service costs of $1,088,000 and fees and permits of $817,015. The professional
fees equate to approximately 7% of the total project costs, but this also includes other costs associated with the
development of the site, The application details the intlividual fees and permits totaling the butlgeted amount of
$817,015.
Sources of Funds
" ::�Sources of Funds: � " '� t ` , ;
• _ . _ . �. . . _. ..�.. .
Private E uit $3,572,727
Private Financin 10,500,000
Tax Abatement 1,000,000
Total Sources $15,072,727
The Developer has indicated they wili expecting the terms of their private lending to require equity of approximately
30% of the project cost, or $4,072,727. The private financing is projected to be based on a term of 20-years at a rate
of 7%; which are reasonable assumptions. The Developer estimates the up-front value of the Tax Abatement at
$1,000,000. For the purposes of the operating pro forma analysis we assumed the total initial equity investment
would be $4,072,727, and the tax abatement would be received on an annual basis.
Financial Analysis of Trystar Application for Tax Abatement
3/6/2012
Page 3
Return Analysis
In order to understand the potential return realized by the Developer, with and without the Tax Abatement assistance,
we utilized the information in their supplied pro forma to perform an internal rate of return (IRR) analysis. The IRR
analysis allows for measuring the potential return to the developer over an operating period, while accounting for the
time value of money. In this case the Developer prepared an operating pro forma basetl on an 11-year period. The
purpose of evaluating the operating pro forma is to understand the potential return to the Developer through the initial
development of the project and the operation of the enterprise over a period of time. The use of an 11-year period to
illustrate the return is not indicative of the Developer's intended investment period.
The first step in analyzing the return to the Developer is to determine if the costs presented are reasonable, We have
discussed a portion of the costs above and have commented on the impact of potential project cost savings. If cost
savings occur absent any other changes, the Developer woultl realize a greater return than projected. Though the
costs outlined above are estimates, and subject to future change, the assumptions do appear to be reasonable.
The second step in calculating the return to the Developer is to determine if the operating revenues and expenses
are reasonable. '
• The Developer proposes a triple net lease rate of $8.24 for the initial phase one development. The proposed
lease rate is the amount necessary to accomplish a debt coverage ratio, with tax abatement, of 1.20,
• The Developer is assuming all operating expenses will be paid by the tenant.
� We use a two percent inflator in the analysis of the pro forma.
The third step in performing an internal rate of return analysis is to assume a hypothetical sale of the asset at the end
of the pro forma review period, which in this case is 11-years, The use of a hypothetical sale in this analysis is only
, for purposes of calculating the potential return to the Developer, and is by no means indicative of the likelihood of a
sale in Year 11. in order to accurately perform the return analysis all assets have to be converted to a cash position
at the end of the pro forma, in order to calculate the return on the initial equity investment. The Developer has
indicated they intend to own and lease the building for an extended term greater than the 11-years analyzed for
purposes of calculating the return. For the purpose of accounting for the value of the building asset in year 11 of the �
operating pro forma, we used a capitalization rate of 8.5% to determine the building value. For the purpose of
calculating the return to the Developer we atlded this hypothetical' sale to the operating pro forma; which was not
originally inclutled in the Developer's pro forma.
The table below shows the Developer's base pro forma with the rate of return with and without abatement.
Y Base Developer � �'''�' �` With �`� 1 � �� ��'�
`1
�Pro=Forma � -. a Tax�Abatement�� r � #�Tax' ��r �s`��
' �(Leveraged) s � � � . � �' Abatementfi. �
._;��.., � �� b . , t;:;: ��: � � ......,2..,�... _; � ,. _
11.17% ' 8.94%
t ��.
. $
Financial Analysis of Trystar Application for Tax Abatement
3/6/2012 `
Page 4 :
Typically, in the review of development projects of this nature we define the typical reasonable rate of return as a
range of.IRR between 10% - 20%. An additional measure of project feasibility is the debt coverage ratio, which is a
calculation detailing the ratio that project revenues exceed the debt-service of the project. In this case the Developer
is aiming for a debt coverage ratio of 1.20 with the tax abatement on a pay-as-you-go basis; basetl on this the
Developer has calculated an estimated lease rate of $8.24 per square foot, In order for the debt coverage ratio to
exceed 1,20 without the tax abatement assistance the lease rate would have to be increased by approximately 10% '
� to $9.01 per square foot,
In reviewing the internal rate of return without assistance the return to the Developer is 8.94%, while the return with
assistance is 11.17%. Typically in projects of this nature, we assume a feasible rate of return is greater than 10%.
The additional revenue provided by the tax abatement allows for the project to be feasible at the projected lease rate
of $8.24 while also maintaining a debt-coverage ratio of 1.20. Given that this lease rate is on the higher-end of rates
for developments of this type, it is unlikely the tenant would be willing to lease at a higher rate, Based on this
analysis, it could be statetl the Developer would be unlikely to undertake this project, as proposed, "but-for" the
provision of the Tax Abatement assistance as requested,
Additionally given our review of the Developer's projected rate of return, antl the assumptions on which this analysis
is based, the projected return with assistance of 8.94% with assistance is reasonable and not in excess of typical
market expectations.
Forma.t Dynanucs :: C1eanPrint :: http://www.karel l.com/news/article/960772/391/Eden Page 1 of 1
� � � �-
�
K;�1RE �.COCYI ;�� .
rearFaaaus I st Pw�
�� n u rsi n 65 and older wili spend time in one of the
Eden Prairie . g nation's 16,000 nursing homes this year
� home named and for those 85 and older, the chances
are more than one in five.
among best in US The numbers add up to about 3.3 million
� Americans. The chailenged for those �
people and their families is finding the best
9:57 AM, Feb 7, 2012 � comments source of good care.
� Written by
KaRE � � (Copyright 2012 by KARE. All Rights
FILED Reserved. This material may not be
UNDER published, broadcast, rewritten or
. Local News redistributed. )
„ EDEN PRAIRIE, Minn. - An Eden Prairie
� nursing home is being honored as among
the nation's best, according to government �
ratings and a list released by U.S. News.
"The Colony at Eden Prairie" is among just
39 nursing homes of 15,500 reviewed . .
by U.S. News in 2012to receive four
straight quarters of perfect five-star ratings
from the federal Centers for Medicare and .
Medicaid Services in three crucial areas
- health inspections, nurse staffing aIICI Advertisement
quality of care.
U.S. News says while the perfect 5-Star �������� �� ����° �E? 1�l►ORE.
ratings are no guarantee a home is free of
shortcomings or that it's ideal for a specific r J�
person, it can provide some piece of mind. d��— - --�-�-
�,�.a �� �
.<
The website afso provides a list of nursing __ � ��'._
,.
. ,:
homes in and that received 5-Star, but -` � �
not perfect ratings. �
LEARN MO�2E A? HP.COM l /�
� The information is important, and timely. U.
. N ws s one in v n Am rica
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