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Home My WebLink AboutCity Council - 09/05/2006 AGENDA HOUSING AND REDEVELOPMENT AUTHORITY TUESDAY, SEPTEMBER 5,2006 7:00 PM, CITY CENTER Council Chamber 8080 Mitchell Road HOUSING AND REDEVELOPMENT AUTHORITY MEMBERS: Chair Nancy Tyra- Lukens, Commissioners Brad Aho, Sherry Butcher, Ron Case, and Philip Young CITY STAFF: City Manager Scott Neal, Parks&Recreation Director Bob Lambert,Public Works Director Eugene Dietz, City Planner Michael Franzen, Community Development Director Janet Jeremiah, City Attorney Ric Rosow, Finance Director Sue Kotchevar and Recorder Deb Sweeny I. ROLL CALL/CALL THE HRA MEETING TO ORDER II. APPROVE MINUTES OF HRA MEETING HELD ON AUGUST 1,2006 III. APPROVE PROPOSED 2007 HRA PROPERTY TAX LEVY AND ACCEPT PROPOSED 2007 BUDGET(Resolution) IV. PUBLIC HEARING ON ESTABLISHMENT OF TIF REDEVLOPMENT DISTRICT—SUPERIOR OFFICE CENTER PROJECT (FORMER PHYSICAL ELECTRONICS) (Resolution) IV. ADJOURNMENT ITEM NO=HRA UNAPPROVED MINUTES HOUSING AND REDEVELOPMENT AUTHORITY TUESDAY,AUGUST 1,2006 7:00 PM,CITY CENTER Council Chamber 8080 Mitchell Road HOUSING AND REDEVELOPMENT AUTHORITY MEMBERS: Chair Nancy Tyra- Lukens, Commissioners Brad Aho, Sherry Butcher,Ron Case, and Philip Young CITY STAFF: City Manager Scott Neal,Parks&Recreation Director Bob Lambert,Public Works Director Eugene Dietz, City Planner Michael Franzen, Community Development Director Janet Jeremiah, City Attorney Ric Rosow, Finance Director Sue Kotchevar and Recorder Deb Sweeny I. ROLL CALL/CALL THE HRA MEETING TO ORDER Case called the HRA meeting to order at 7:12 p.m. Tyra-Lukens was absent. II. APPROVE MINUTES OF HRA MEETING HELD ON JULY 18,2006 HRA MOTION: Aho moved, seconded by Butcher,to approve the minutes of the HRA meeting held on July 18,2006. Motion carried 3-0-1 with Young abstaining. III. PUBLIC HEARING ON ESTABLISHMENT OF TIF REDEVLOPMENT DISTRICT—SUPERIOR OFFICE CENTER PROJECT(FORMER PHYSICAL ELECTRONICS) (Resolution) Neal said discussion is ongoing with the applicant for TIF assistance. The proponent asks and Staff agrees that the public hearing be continued until September 51'. HRA MOTION: Butcher moved, seconded by Young,to continue the public hearing on Establishment of TIF Redevelopment District—Superior Office Center to the September 5t'City Council Meeting. Motion carried 4-0. IV. ADJOURNMENT MOTION: Butcher moved seconded by Aho, J to adjourn the HRA. Motion carried 4- 0. The HRA meeting adjourned at 7:15 p.m. HOUSING AND REDEVELOPMENT AUTHORITY DATE: AGENDA September 5, 2006 DEPARTMENT/DIVISION: ITEM DESCRIPTION: ITEM NO.: HRA III. Office of the City Manager/ Resolution approving proposed 2007 HRA Finance, Sue Kotchevar property tax levy and accepting the proposed 2007 budget Requested Action Move to:Adopt the resolution to approve the proposed 2007 property tax levy to be$200,000 and accept the proposed 2007 budget of$200,000. Background Information Minnesota Law authorizes the HRA to levy a tax with the consent of the City Council. Per Minnesota Statute, Housing and Redevelopment Authorities can levy a tax of up to .0144 percent of taxable market value.The proceeds may be spent on planning and implementation of redevelopment and/or low-rent housing assistance programs with the City. The limit for the City of Eden Prairie is approximately $1.3 million. Attachments Resolution CITY OF EDEN PRAIRIE HENNEPIN COUNTY,MINNESOTA HOUSING AND REDEVELOPMENT AUTHORITY H.R.A.RESOLUTION NO. -2006 A RESOLUTION APPROVING THE HRA PROPOSED 2007 PROPERTY TAX LEVY AND ACCEPTING A PROPOSED BUDGET FOR GENERAL OPERATIONS WHEREAS,the Housing and Redevelopment Authority of the City of Eden Prairie has reviewed the proposed 2007 budget and tax levy; and WHEREAS, the Housing and Redevelopment Authority has decided to accept these recommendations at this time. NOW, THEREFORE, BE IT RESOLVED that the Housing and Redevelopment Authority: 1. Approves the following proposed taxes on real and personal property within the City of Eden Prairie for the 2007 budget contingent upon City Council approval. Levy on Tax Capacity $200,000 The proposed total Levy may not be exceeded when the City Council sets the final tax levy for 2007. 2. Approves the 2007 proposed budget totaling $200,000 at this time. ADOPTED by the Housing and Redevelopment Authority on September 5, 2006. Nancy Tyra-Lukens,Mayor ATTEST: Kathleen Porta, City Clerk HOUSING AND REDEVELOPMENT AUTHORITY DATE: SECTION: Public Hearing September 5,2006 DEPARTMENT/DIVISION: ITEM DESCRIPTION: ITEM NO.: HRA IV. Community Development: Establish TIF Redevelopment District- Janet Jeremiah/David Lindahl Superior Office Center Project(former Physical Electronics site) Requested Action: Move to: • Close the HRA public hearing: and • Adopt Resolution establishing Redevelopment Project Area No. 6 and adopting a project plan therefore, and establishing Tax Increment Financing District No.20 therein and adopting a Tax Increment Financing Plan therefore; and approving a Development Agreement relating thereto Synopsis: This public hearing is continued from the August 1,2006, Council meeting. The purpose of establishing a Redevelopment District is to help defray costs associated with the redevelopment of the former Physical Electronics site in the Golden Triangle Area. If the TIF Plan is approved, a total of$728,204 in pay-as-you-go TIF would be provided to United Properties over a fifteen year term. Twenty percent of the total increment expected to be generated, or approximately$400,000 will be pooled by the City and used to help pay for future road improvements in the GTA. Background: United Properties purchased the 15-acre former Physical Electronics headquarters site in June 2003.At the time of the acquisition the 200,000 square foot building was largely vacant due to a significant downsizing at Physical Electronics. United Properties purchased the building with intentions of leasing it or possibly redeveloping the site but were unable to secure tenants for the building, so have instead decided to redevelop a 10-acre portion of the site into a new 90,000 square foot office building called Superior Tech Center. The remaining 5 acres and a portion of the existing building were sold to Mount Properties for a new Foss swim club. The remaining 137,000 square feet of building was razed and United Properties is asking the City to consider providing Tax Increment Financing to assist in paying for the demolition costs. An inspection of the existing building was completed by LHB September 28,2005. The TIF Plan calls for a fifteen year Pay-As-You-Go Redevelopment District with up to 80%of the increment provided or no more than $728,204 to offset qualified costs(demolition)and the balance will be pooled by the City to help pay for future transportation improvements in the Golden Triangle. A similar pooling arrangement was approved by the City Council for the TIF district created for the Bluffs at Nine Mile Creek apartment project located on Flying Cloud Drive in the GTA in 2002. The building was inspected by the architectural firm of LHB Inc. and was found to be structurally substandard and qualified as a Redevelopment District. Springsted,the City's financial advisor,was retained by the City to analyze the redevelopment pro-forma to verify that financial gaps do indeed exists due to the demolition and other redevelopment related costs. The attached memo from Springsted summarizes the analysis and suggests that a subsidy is needed to achieve the desired redevelopment results. The attached development agreement details the terms of the TIF proposal and includes two key terms that were negotiated by staff: 1. When the project is 95%leased or in 18 months from time of completion the project will be reevaluated(at the developers cost)to determine if it is leased at higher rents then projected in the pro-forma. If the rents are high enough to negate the need for public assistance,the developer/owner is required to reimburse the City for all TIF received to date. 2. If the developer/owner sells the project anytime prior within the term of the TIF district,they are required to reimburse the City for all TIF received to date. Attachments: Resolution TIF Plan Development Agreement Springsted Memos Redevelopment Plan United Properties Letter dated June 29, 2006 CITY OF EDEN PRAIRIE HENNEPIN COUNTY,MINNESOTA HOUSING AND REDEVELOPMENT AUTHORITY H.R.A.RESOLUTION NO. -2006 RESOLUTION ESTABLISHING REDEVELOPMENT PROJECT AREA NO.6 AND ADOPTING A PROJECT PLAN THEREFOR, AND ESTABLISHING TAX INCREMENT FINANCING DISTRICT NO.20 THEREIN AND ADOPTING A TAX INCREMENT FINANCING PLAN THEREFOR;AND APPROVING A DEVELOPMENT AGREEMENT RELATING THERETO BE IT RESOLVED by the Board of Commissioners (the `Board") of the Housing and Redevelopment Authority in and for the City of Eden Prairie, Minnesota (the "Authority"), as follows: Section 1. Recitals. 1.01. It has been proposed that the Authority establish Redevelopment Project Area No. 6 and adopt a Project Plan (the "Project Plan") therefor pursuant to and in conformity with applicable law, including Minnesota Statutes, Sections 469.001 through 469.047, all inclusive,as amended,all as reflected in the Project Plan,and presented for the Authority's consideration. 1.02. Further, it has been proposed that the Authority establish Tax Increment Financing District No. 20 (the "TIF District") and adopt a Tax Increment Plan (the "TIF Plan") therefor(the Project Plan and the TIF Plan are referred to collectively herein as the "Plans"), all pursuant to and in conformity with applicable law, including Minnesota Statutes, Sections 469.174 to 469.1799, all inclusive, as amended, all as reflected in the TIF Plan,and presented for the Authority's consideration. 1.03. The Authority has investigated the facts relating to the Plans and has caused the Plans to be prepared. 1.04. The Authority has performed all actions required by law to be performed prior to adoption and approval of the proposed Plans, including, but not limited to, notification to Hennepin County and Independent School District No. 272, and the holding of a public hearing upon published notice as required by law. 1.05. Certain written reports (the "Reports") relating to the Plans and to the activities contemplated therein have heretofore been prepared by staff and consultants and submitted to the Authority and/or made a part of the Authority or City files and proceedings on the Plans. The Reports include data, information and/or substantiation constituting or relating to the basis for the other findings and determinations made in this resolution. The Authority hereby confirms, ratifies and adopts the Reports,which are hereby incorporated into and made as fully a part of this resolution to the same extent as if set forth in full herein. Section 2. Findings for the Adoption and Approval of the Plans. 2.01. The Authority hereby finds that the Plans, are intended and, in the judgment of this Board,the effect of such actions will be,to provide an impetus for development in the public 1 purpose and accomplish certain objectives as specified in the Plans, which are hereby incorporated herein. Section 3. Findings for the Establishment of Tax Increment Financiniz District No.20. 3.01. The TIF District,based on the information in the TIF Plan,representations of the developer, and other information presented to the Authority, contains the following conditions, which are reasonably distributed throughout the TIF District: Parcels comprising at least 70% of the area of the District are occupied by buildings, streets, utilities, or other improvements, and more than 50% of the buildings (not including outbuildings) are structurally substandard requiring substantial renovation or clearance. The Authority finds that the foregoing conditions exist in the TIF District as a whole. Therefore, the Authority hereby finds that the TIF District qualifies as a "redevelopment district" within the meaning of Minnesota Statutes, Section 469.174,Subdivision 10. 3.02. In addition, the Authority has been advised that the Project includes the redevelopment of a portion of the former Physical Electronics building in the City, including demolition thereof and asbestos abatement with respect thereto, and construction of a new 91,000 square-foot,one-story office building. 3.03. The Authority further finds that the intended development of the property involved,the proposed development would not occur solely through private investment within the reasonably foreseeable future and that the increased market value of the site that could reasonably be expected to occur without the use of tax increment financing would be less than the increase in the market value estimated to result from the proposed development after subtracting the present value of the projected tax increments for the maximum duration of the TIF District permitted by the TIF Plan,that the Plans conform to the general plan for the development or redevelopment of the City as a whole; and that the Plans will afford maximum opportunity consistent with the sound needs of the City as a whole, for the redevelopment or development of the TIF District by private enterprise. 3.04. The Authority further finds, declares and determines that the Authority made the above findings stated in this Section and has set forth the reasons and supporting facts for each determination in writing,attached hereto as Exhibit A. Section 4. Public Purpose 4.01. The adoption of the Plans conforms in all respects to the requirements of Minnesota state law and will help encourage, ensure and facilitate development by the private sector of projects used or useful for producing or processing products of agriculture, to provide employment opportunities, to improve the tax base and to improve the general economy of the State and thereby serves a public purpose. Section 5. Approval and Adoption of the Plans and Development Agreement;Filing. 5.01. The Plans,as presented to the Authority on this date,including without limitation the findings and statements of objectives contained therein, are hereby approved, ratified, established, and adopted and shall be placed on file in the office of the Hennepin County Administrator. 2 5.02. The staff of the Authority, the Authority's advisors and legal counsel are authorized and directed to proceed with the implementation of the Plans and to negotiate, draft, prepare and present to this Authority for its consideration all further plans,resolutions,documents and contracts necessary for this purpose. 5.03 The staff of the Authority is authorized and directed to request that the County Auditor of Hennepin County certify the original net tax capacity of the TIF District, as described in the Plans, and to certify in each year thereafter the amount by which the original net tax capacity has increased or decreased; and the City is authorized and directed to forthwith transmit this request to the County Auditor in such form and content as the Auditor may specify,together with a list of all properties within the TIF District, for which building permits have been issued during the 18 months immediately preceding the adoption of this resolution. 5.04. The Authority is further authorized and directed to file a copy of the Plans with the Commissioner of Revenue and the Office of the State Auditor pursuant to Minnesota Statutes 469.175,Subd.4a. 5.05. The Authority hereby approves the Development Agreement between the Authority and United Properties, Inc. as contemplated by the TIF Plan in substantially the form presented to and on file with the Authority. Adopted by the Housing and Redevelopment Authority in and for the City of Eden Prairie,Minnesota,this 5th day of September,2006. Nancy Tyra Lukens, Chairperson ATTEST: SEAL Scott H.Neal,Executive Director 3 EXHIBIT A RESOLUTION NO.2006- The reasons and facts supporting the findings for the adoption of the Tax Increment Financing Plan for Tax Increment Financing District No.20 as required pursuant to M.S., Section 469.175, Subd. 3 are as follows: 1. Finding that the Tax Increment Financing District No. 20 is a redevelopment district as defined in M.S., Section 469.174, Subd. 10. Tax Increment Financing District No.20 is a contiguous geographic area within Redevelopment Project Area No. 6, delineated in the TIF Plan, for the purpose of financing redevelopment and economic development in the City through the use of tax increment. The TIF District consists of a property in Redevelopment Project Area No. 6, which is in the public interest because it will facilitate the redevelopment of the site, including asbestos abatement, and construction of a 91,000 square-foot, one- story office building, which will increase employment in the state, and preserve and enhance the tax base of the state. The factual basis for this finding is also set forth in the LHB,Inc.Report of Inspection Procedures and Results for Determining Qualifications of a Tax Increment Financing District as a Redevelopment District dated September 28, 2005, the Springsted Incorporated Memoradum United Properties Request for Financial Assistance—Final Internal Rate of Return Analysis dated July 25,2006, and the Springsted Incorporated Memoradum United Properties Financing and Development Agreement dated July 25,2006 attached hereto. 2. Finding that the development, in the opinion of the Authority, would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future and that the increased market value of the site that could reasonably be expected to occur without the use of tax increment financing would be less than the increase in the market value estimated to result from the proposed development after subtracting the present value of the projected tax increments for the maximum duration of Tax Increment Financing District No. 20 permitted by the TIF Plan. The proposed development, in the opinion of the Authority, would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future: This finding is supported by the fact that the redevelopment and development proposed in this TIF Plan contemplates extraordinary costs associated with the redevelopment of the site including asbestos abatement. The costs of site improvements and utilities makes development of this site infeasible without financial assistance. The increased market value of the site that could reasonably be expected to occur without the use of tax increment financing would be less than the increase in market value estimated to result from the proposed development after subtracting the present value of the projected tax increments for the maximum duration of the TIF District permitted by the TIF Plan: The Authority supported this finding on the grounds that the costs of site improvements and utilities add to the total redevelopment cost. Historically, site development costs in this area have made development infeasible without tax increment assistance. Further, United Properties, Inc., the developer, has stated that the Project is not feasible without this assistance. Therefore, the Authority reasonably determines that no other development of similar scope is anticipated on this site without substantially similar assistance being provided to the development. The factual.basis for this finding is also set forth in the Springsted Incorporated Memoradum United Properties Request for Financial Assistance—Final Internal Rate of Return Analysis dated July 25,2006 and in the United Properties, Inc. letter to Springsted Incorporated dated June 29,2006 attached hereto. 4 A comparative analysis of estimated market values both with and without establishment of the TIF District and the use of tax increments has been performed as described above. If all development which is proposed to be assisted with tax increment were to occur in the TIF District, the total increase in market value would be up to$12,160,768. The present value of tax increments from the TIF District is estimated to be $1,161,369. It is the Authority's finding that no development with a market value of greater than$10,999,399 would occur without tax increment assistance in this TIF District within fifteen (15)years. This finding is based upon evidence from general past experience with the high costs of site improvements in the general area of the TIF District. See the Springsted Incorporated Memoradum United Properties Request for Financial Assistance—Final Internal Rate of Return Analysis dated July 25, 2006 attached hereto and Page 5 Section J of the TIF Plan. 3. Finding that the Tax Increment Financing Plan for Tax Increment Financing District No. 20 will afford maximum opportunity, consistent with the sound needs of the City as a whole,for the development of Redevelopment Project Area No. 6 by private enterprise. The project to be assisted by the TIF District will result in increased employment in the City of between 350-400 jobs, and increased tax base of the City and the State of a minimum of$10.6 million, and add a high-quality development to the area. 5 Housing and Redevelopment Authority in and for the City of Eden Prairie City of Eden Prairie, Minnesota Tax Increment Financing Plan for Tax Increment Financing (Redevelopment) District No. 20 Within Redevelopment Project Area No. 6 (Superior Office Center Project) Dated: July 26, 2006 (DRAFT) Approved: Prepared by: SPRINGSTED INCORPORATED 380 Jackson Street,Suite 300 St. Paul,MN 55101-2887 (651)223-3000 WWW.SPRINGSTED.COM TABLE OF.CONTENTS Section Page s A. Definitions.....................................................................................................................................................................1 B. Statutory Authorization.................................................................................................................................................1 C. Statement of Need and Public Purpose......................................................................................................................1 D. Statement of Objectives...............................................................................................................................................1 E. Designation of Tax Increment Financing District as a Redevelopment District........................................................1 F. Duration of the TIF District...........................................................................................................................................3 G. Property to be Included in the TIF District...................................................................................................................3 H. Property to be Acquired in the TIF District..................................................................................................................3 I. Specific Development Expected to Occur Within the TIF District..............................................................................3 J. Findings and Need for Tax Increment Financing.......................................................................................................4 K. Estimated Public Costs................................................................................................................................................6 L. Estimated Sources of Revenue...................................................................................................................................7 M. Estimated Amount of Bonded Indebtedness..............................................................................................................7 N. Original Net Tax Capacity............................................................................................................................................7 O. Original Tax Capacity Rate..........................................................................................................................................8 P. Projected Retained Captured Net Tax Capacity and Projected Tax Increment.......................................................8 Q. Use of Tax Increment...................................................................................................................................................9 R. Excess Tax Increment...............................................................................................................................................10 S. Tax Increment Pooling and the Five Year Rule........................................................................................................10 T. Limitation on Administrative Expenses.....................................................................................................................11 U. Limitation on Property Not Subject to Improvements-Four Year Rule..................................................................11 V. Estimated Impact on Other Taxing Jurisdictions......................................................................................................11 W. Prior Planned Improvements.....................................................................................................................................12 X. Development Agreements.........................................................................................................................................12 Y. Assessment Agreements...........................................................................................................................................13 Z. Modifications of the Tax Increment Financing Plan..................................................................................................13 AA. Administration of the Tax Increment Financing Plan................................................................................................13 AB. Filing TIF Plan,Financial Reporting and Disclosure Requirements........................................................................14 Map of the Tax Increment Financing District................................................................................................EXHIBIT I b Assumptions Report......................................................................................................................................EXHIBIT II Projected Tax Increment Report.................................................................................................................EXHIBIT III Estimated Impact on Other Taxing Jurisdictions Report............................................................................EXHIBIT IV Market Value Analysis Report......................................................................................................................EXHIBIT V Projected Pay-As-You-Go Note Report......................................................................................................EXHIBIT VI Housing and Redevelopment Authority in and for the City of Eden Prairie, Minnesota Section A Definitions The terms defined in this section have the meanings given herein,unless the context in which they are used indicates a different meaning: "Authori "means the Housing and Redevelopment Authority in and for the City of Eden Prairie. My means the City of Eden Prairie,Minnesota;also referred to as a"Municipality". "City Council"means the City Council of the City. "Coun "means Hennepin County,Minnesota. "Redevelopment Project Area" means Redevelopment Project Area No.6 in the City, which is described in the corresponding Redevelopment Plan. "Redevelopment Plan"means the Redevelopment Plan for the Redevelopment Project Area. "Proiect Area"means the geographic area of the Redevelopment Project Area. "School District"means Independent School District No.272,Minnesota. "State"means the State of Minnesota. TIF Act means Minnesota Statutes Sections 469.174 through 469.1799 all inclusive. "TIF District"means Tax Increment Financing(Redevelopment) District No.20. "TIF Plan"means the tax increment financing plan for the TIF District(this document). Section B Statutory Authorization See Section B of the Redevelopment Plan for the Redevelopment Project Area. Section C Statement of Need and Public Purpose See Section C of the Redevelopment Plan for the Redevelopment Project Area. P 1 Section D Statement of Objectives See Section D of the Redevelopment Plan for the Redevelopment Project Area. Section E Designation of Tax Increment Financing District as a Redevelopment District Redevelopment districts are a type of tax increment financing district in which one or more of the following conditions exists and is reasonably distributed throughout the district: (1) parcels comprising at least 70%of the area of the district are occupied by buildings,streets,utilities, paved or gravel parking lots, or other similar structures and more than 50% of the buildings, not including SPRINGSTED Page 1 Housing and Redevelopment Authority in and for the City of Eden Prairie, Minnesota outbuildings,are structurally substandard requiring substantial renovation or clearance. A parcel is deemed 'occupied' if at least 15% of the area of the parcel contains buildings, streets, utilities, paved or gravel parking lots;or other similar structures. (2) the property consists of vacant, unused,underused, inappropriately used,or infrequently used railyards,rail storage facilities,or excessive or vacated railroad right-of-ways;or (3) tank facilities, or property whose immediately previous use was for tank facilities, as defined in section 115C.02,subdivision 15,if the tank facilities: (i) have or had a capacity of more than 1,000,000 gallons; (ii) are located adjacent to rail facilities;and (iii) have been removed or are unused,underused,inappropriately used,or infrequently used. For districts consisting of two more noncontiguous areas, each area must individually qualify under the provisions listed above,as well as the entire area must also qualify as a whole. The TIF District qualifies as a redevelopment district in that it meets all of the criteria listed in (1) above. LHB was hired in 2005 to inspect and evaluate the property within proposed TIF District No.20 to determine qualification as a redevelopment district. A report of inspection procedures and results for determining qualifications of a tax increment financing district as a redevelopment district dated September 28, 2005 was prepared. This report and additional supporting facts and documentation will be retained by the Authority for the life of the TIF District and are available to the public upon request. substandard is defined as buildings containing defects or deficiencies in structural elements essential co a "Structurally � 9 9 utilities and facilities, light and ventilation,fire protection (including egress), layout and condition of interior partitions, or similar factors. Generally, a building is not structurally substandard if it is in compliance with the building code applicable to a new building,or could be modified to satisfy the existing code at a cost of less than 15%of the cost of constructing a new structure of the same size and type. A city may not find that a building is structurally substandard without an interior inspection, unless it can not gain access to the property and there exists evidence which supports the structurally substandard finding. Such evidence includes recent fire or police inspections,on-site property tax appraisals or housing inspections,exterior evidence of deterioration, or other similar reliable evidence. Written documentation of the findings and reasons why an interior inspection was not conducted must be made and retained. A parcel is deemed to be occupied by a structurally substandard building if the following conditions are met: (1) the parcel was occupied by a substandard building within three years of the filing of the request for certification of the parcel as part of the district; (2) the demolition or removal of the substandard building was performed by a developer under a development agreement with the authority,approved in conjunction with the TIF Plan dated August 1,2006, (3) the authority found by resolution ( u before such demolition or removal occurred that the building was structurally substandard and that the authority intended to include the parcel in the TIF district,and (4) the authority notifies the county auditor that the original tax capacity of the parcel must be adjusted upon filing the request for certification of the tax capacity of the parcel as part of a district. In the case of(4)above,the County Auditor shall certify the original net tax capacity of the parcel to be the greater of (a)the current tax capacity of the parcel, or (b)a computed tax capacity of the parcel using the estimated market value of the parcel for the year in which the demolition or removal occurred,and the appropriate classification rate(s) for the current year. SPRINGSTED Page 2 Housing and Redevelopment Authority in and for the City of Eden Prairie, Minnesota At least 90 percent of the tax increment from a redevelopment district must be used to finance the cost of correcting conditions that allow designation as a redevelopment district. These costs include, but are not limited to, acquiring properties containing structurally substandard buildings or improvements or hazardous substances, pollution, or contaminants, acquiring adjacent parcels necessary to provide a site of sufficient size to permit development, demolition and rehabilitation of structures, clearing of land, removal of hazardous substances or remediation necessary to develop the land, and installation of utilities, roads, sidewalks, and parking facilities for the site. The allocated administrative expenses of the Authority may be included in the qualifying costs. Section F Duration of the TIF District Redevelopment districts may remain in existence 25 years from the date of receipt by the Authority of the first tax increment. Modifications of this plan(see Section Z)shall not extend these limitations. The Authority reserves the right to allow the TIF District to remain in existence the maximum duration allowed by law (projected to be through the year 2033), but anticipates that the TIF District will be decertified prior to that time (see Section P)to coincide with the City's current TIF policy( afi of 15 years. All tax increments from taxes payable in the year the TIF decertified y a District is dece ied shall be paid to the Authority. Section G Property to be Included in the TIF District The TIF District is an approximate 10.36-acre area of land located within the Project Area. A map showing the location of the TIF District is shown in Exhibit 1. The boundaries and area encompassed b the TIF District are p Y described below: Parcel ID Number Legal Description 01-116-22-13-0037 Lot 1, Block 1. Superior Office 6509 Flying Cloud Dr. Center. Eden Prairie,MN The parcel ID number and legal description listed above reflects the new ID for the portion of the property that will be included in the TIF District. The original property was 15.42 acres and had a parcel ID of 01-116-22-13-0034. A portion of the original property was sold and the entire property replatted to become two parcels, one of which is included in the district and listed above. The area encompassed by the TIF District shall also include all street or utility right-of-ways located upon or adjacent to the property described above. Section H Property to be Acquired in the TIF District The Authority may acquire and sell any or all of the property located within the TIF District; however does not anticipate acquiring property at this time. Section I Specific Development Expected to Occur Within the TIF District The proposed project includes the redevelopment of a portion of the former Physical Electronics building in the City of Eden Prairie. The redevelopment project includes demolition, including asbestos abatement, of an existing building and construction of a new one-story office building of approximately 91,000 square feet. The existing building has been inspected and found to be substandard by resolution in 2005 The Authority anticipates using tax increment to finance a portion of the extraordinary site improvement,demolition and asbestos abatement costs, and any related administrative costs. The Authority anticipates reserving 20%of the annual increment for pooling for SPRINGSTED Page 3 Housing and Redevelopment Authority in and for the City of Eden Prairie, Minnesota affordable housing and/or transportation needs within the project area. The remaining 80%of annual increment will be available for reimbursement to the developer of eligible tax increment costs. The proposed project is expected to be fully constructed in 2007 and be 100% assessed and on the tax rolls as of January 2,2008 for taxes payable in 2009. At the time this document was prepared there were no signed construction contracts with regards to the above described development. Section J Findings and Need for Tax Increment Financing In establishing the TIF District,the City makes the following findings: (1) The TIF District qualifies as a redevelopment district; The City of Eden Prairie hired LHB to inspect and evaluate property within the proposed Tax Increment Financing District No. 20 to be established by the Authority. The property is located at 6509 Flying Cloud Drive. The site consisted of an interconnected building "complex"originally built in 1974 with a major addition in 1978. The building consisted of multiple occupancy types for a single tenant including office, warehouse, manufacturing, assembly and athletic facilities. The purpose of the evaluation was to determine if the proposed district met the statutory requirements for coverage and if this building complex met the qualifications required for a Redevelopment District. The final report prepared by LHB for the City, and kept on file in the City offices for public inspection, contains the details of the findings summarized below regarding the substandard qualifications: • parcels consisting of 100 percent of the area of the proposed TIF District were occupied,exceeding the 70 percent coverage test; • 100 percent of the buildings in the proposed District contained code deficiencies exceeding the 15 percent threshold. A complete Building Code and Condition Report was completed for the one building in the District; • 100 percent of the buildings are structurally substandard to a degree requiring substantial renovation or clearance,because of defects in structural elements or a combination of deficiencies in essential utilities and facilities, light and ventilation, fire protection including adequate egress, layout and condition of interior partitions, or similar factors which defects or deficiencies are of sufficient total significance to justify substantial renovation or clearance, exceeding the more than 50 percent substandard test;and • the substandard building is reasonably distributed throughout the geographic area of the proposed TIF District. (2) The proposed development, in the opinion of the City, would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future and the increased market value of the site that could reasonably be expected to occur without the use of tax increment financing proposed would be less than the increase in the market value estimated to result from the ro osed development after subtracting the present value of the projected tax increments for the maximum duration of the district permitted by the TIF Plan. Factual basis: Proposed development not expected to occur.• SPRINGSTED Page 4 Housing and Redevelopment Authority in and for the City of Eden Prairie, Minnesota The proposed development consists of the construction of an approximate 91,000 square foot office building in the City of Eden Prairie on the site that housed the former Physical Electronics building. The structure was found to be substandard by the Authority by resolution in 2005 after a detailed inspection and evaluation by LHB with planned demolition shortly thereafter. The developer has provided detailed information to the City demonstrating that the redevelopment of this site is not financially feasible without the assistance provided in this TIF Plan,based on the extraordinary costs associated with redevelopment of the site including site improvements,demolition,and asbestos abatement costs. No higher market value expected. The unique characteristics of the land within TIF District No. 20 require additional redevelopment expenditures related to site preparation, grading, and landscaping. In order to commence building the new structure,the site required demolition of the existing structure, site improvements, and asbestos abatement, and various other redevelopment activities. The financial assistance provided under this TIF Plan will help offset the costs of these corrections. Given the unique nature of this property, there is no reasonable expectation of any development occurring that would generate as much market value increase as is estimated to be generated by the proposed development. To summarize the basis for the City's findings regarding alternative market value, in accordance with Minnesota Statutes,Section 469.175,Subd.3(d),the City makes the following determinations: a. The City's estimate of the amount by which the market value of the site will increase without the use of tax increment financing is $3,112,819 (current land value of$1,998,000 with 3%annual market value inflator applied for 15 years to coincide with term of the district). b. If the proposed development to be assisted with tax increment occurs in the District,the total increase in market value would be approximately$12,160,768, including the value of the building (See Exhibit II). C. The present value of tax increments from the District for the maximum duration of the district permitted by the TIF Plan is estimated to be$1,161,369(See Exhibit V). d. Even if some development other than the proposed development were to occur,the Council finds that no alternative would occur that would produce a market value increase greater than $10,999,399(the amount in clause b less the amount in clause c)without tax increment assistance. A comparative analysis of estimated market values both with and without establishment of the TIF District and the use of tax increments assumes no development of this type and nature will occur on the site due to the condition of the existing building (i.e. vacant, obsolescent structure requiring asbestos removal and high cost upgrades). We assume the estimated market value without creation of the district would only increase at most by an incremental inflationary amount. The increase in estimated market value of the proposed development (less the indicated subtractions) exceeds the estimated market value of the site absent the establishment of the TIF District and the use of tax increments. (3) The TIF Plan will afford maximum opportunity, consistent with the sound needs of the City as a whole,for development of the Project Area by private enterprise. Factual basis: The proposed development is the construction of a commercial building with approximately 91,000 square feet of office space,in the Project Area that is expected to create substantial new tax base for the City and SPRINGSTED Page 5 Housing and Redevelopment Authority in and for the City of Eden Prairie, Minnesota the state, as well as expected future private development. The development clearly meets the Citys redevelopment objectives contained in Section D of the Redevelopment Plan. (4) The TIF Plan conforms to general plans for development of the City as a whole. Factual basis: The City Planning Commission has determined that the development proposed in the TIF Plan conforms to the City comprehensive plan. (5) The Authority elects the method of tax increment computation set forth in Minnesota Statutes, Section 469.177,Subdivision 3(b)(see method(b)in Section P). Section K Estimated Public Costs The estimated public costs of the TIF District are listed below. Such costs are eligible for reimbursement from tax increments of the TIF District. Land/Building acquisition 0 Site Improvements/Preparation costs 728,204 Installation of public utilities 0 Parking facilities 0 Streets and sidewalks 0 Public park facilities 0 Bond principal payments 0 Bond interest payments 0 Loan Principal payments 728,204 Loan Interest payments 342,188 Capitalized Interest payments 100,985 Administrative expenses (1% of projected tax increment) 20,557 Other—redevelopment costs within district(19%of projected tax increment) 390,590 Other— pooling outside district (surplus increment after projected payment of TIF Note) 473,213 Total $2,783,941 The Authority anticipates reserving 20% of the annual increment for administrative expenses and pooling for affordable housing and/or transportation needs within the District and Project Area. Based on the assumptions listed in this TIF Plan,that amount is estimated to be$411,147. The remaining 80%is expected to be available for payment of the developer TIF Note, which is estimated to be $728,204 of principal, $342,188 of interest and $100,985 of capitalized interest costs. Approximately$473,213 is expected to be surplus increment that may be used for qualified project expenditures within the district or project area, pending eligibility. The Authority reserves the right to administratively adjust the amount of any of the items listed above or to incorporate additional eligible items,so long as the total estimated public cost is not increased. SPRINGSTED Page 6 Housing and Redevelopment Authority in and for the City of Eden Prairie, Minnesota Section L Estimated Sources of Revenue Tax Increment revenue $2,055,737 Interest on invested funds 0 Bond proceeds 0 Loan proceeds 728,204 Real estate sales 0 Special assessments 0 Rent/Lease revenue 0 Grants 0 Other 0 Total $2,783,941 The Authority anticipates providing financial assistance to the proposed development through the use of a pay-as- you-go technique. As tax increments are collected from the TIF District in future years,a portion of these taxes will be distributed to the developer/owner as reimbursement for public costs incurred(see Section K). The Authority reserves the right to finance any or all public costs of the TIF District using pay-as-you-go assistance, internal funding, general obligation or revenue debt, or any other financing mechanism authorized by law. The Authority also reserves the right to use other sources of revenue legally applicable to the Project Area to pay for such costs including, but not limited to, special assessments, utility revenues, federal or state funds, and investment income. Section M Estimated Amount of Bonded Indebtedness The Authority does not anticipate issuing tax increment bonds to finance the estimated public costs of the TIF District, but reserves the right to issue such bonds in an amount not to exceed$728,204. Section N Original Net Tax Capacity The County Auditor shall certify the original net tax capacity of the TIF District. This value will be equal to the total net tax capacity of all property in the TIF District as certified by the State Commissioner of Revenue. For districts certified between January 1 and June 30, inclusive, this value is based on the previous assessment year. For districts certified between July 1 and December 31,inclusive,this value is based on the current assessment year. The Estimated Market Value of all property with the original parcel ID of 01-116-22-13-0034 comprising of 15.42 acres as of January 2, 2005, for taxes payable in 2006, is $3,133,000. The area within the proposed TIF District boundaries is 10.36 acres,therefore we assume the value of the portion within the boundaries of the TIF District to be $2,104,921 and the current net tax capacity of the property is$41,348. The original parcel was replatted to reflect the subdivision of property to be contained within the boundaries of the proposed TIF district and a current market value of$1,998,000 was applied as of January 2,2005 for taxes payable in 2006 to the new parcel 01-116-22-13-0037. The portion of the parcel within the boundaries of the district contained a substandard building that was demolished in late 2005. The greater of the current net tax capacity or the estimated market value of the parcel for the year in which the building was removed, applying class rates for the current year must be used to calculate the original net tax capacity. Therefore, upon establishment of the TIF District, and subsequent reclassification of property, it is estimated that the original net tax capacity of the TIF District will be approximately$41,348. SPRINGSTED Page 7 Housing and Redevelopment Authority in and for the City of Eden Prairie, Minnesota Each year the County Auditor shall certify the amount that the original net tax capacity has increased or decreased as a result of: (1) changes in the tax-exempt status of property; (2) reductions or enlargements of the geographic area of the TIF District; (3) changes due to stipulation agreements or abatements;or (4) changes in property classification rates. Section 0 Original Tax Capacity Rate The County Auditor shall also certify the original tax capacity rate of the TIF District. This rate shall be the sum of all local tax rates that apply to property in the TIF District. This rate shall be for the same taxes payable year as the original net tax capacity. In future years,the amount of tax increment generated by the TIF District will be calculated using the lesser of(a)the sum of the current local tax rates at that time or(b)the original tax capacity rate of the TIF District. At the time this document was prepared, the sum of all local tax rates that apply to property in the TIF District, for taxes levied in 2006 and payable in 2007, was not yet available. When this total becomes available, the County Auditor shall certify this amount as the original tax capacity rate of the TIF District. For purposes of estimating the tax increment generated by the TIF District,the sum of the local tax rates for taxes levied in 2005 and payable in 2006,is 101.089%as shown below. 2005/2006 Taxing Jurisdiction Local Tax Rate City of Eden Prairie 28.782% Hennepin County 41.016% ISD#272 23.187% Other 8.104% Total 101.089% Section P Projected Retained Captured Net Tax Capacity and Projected Tax Increment The Authority anticipates that the redevelopment will be completed by December 31, 2007, creating a total tax capacity for TIF District No. 20 of $252,164 as of January 2, 2008. The captured tax capacity as of that date is estimated to be $134,724 and the first full year of tax increment is estimated to be $136,191 payable in 2009. A complete schedule of estimated tax increment from the TIF District is shown in Exhibit III. The estimates shown in this TIF Plan assume that commercial class rates remain at 2.0% of the estimated market value over$150,000 and assume 1%annual increase in market values. Each year the County Auditor shall determine the current net tax capacity of all property in the TIF District. To the extent that this total exceeds the original net tax capacity, the difference shall be known as the captured net tax capacity of the TIF District. SPRINGSTED Page 8 Housing and Redevelopment Authority in and for the City of Eden Prairie, Minnesota For communities affected by the fiscal disparity provisions of Minnesota Statutes, Chapter 473F and Chapter 276A, the original net tax capacity of the TIF District shall be determined before'the application of fiscal disparity. In subsequent years,the current net tax capacity shall either(a)be determined before the application of fiscal disparity or (b)exclude the product of any fiscal disparity increase in the TIF District(since the original net tax capacity was certified)times the appropriate fiscal disparity ratio. The method the Authority elects shall remain the same for the life of the TIF District, except that a single change may be made at any time from method(a)to method(b)above. The Authority elects method(b),or M.S.Section 469.177,Subdivision 3(b). The County Auditor shall certify to the Authority the amount of captured net tax capacity each year. The Authority may choose to retain any or all of this amount. It is the Authority's intention to retain 100% of the captured net tax capacity of the TIF District. Such amount shall be known as the retained captured net tax capacity of the TIF District. Exhibit II gives a listing of the various information and assumptions used in preparing a number of the exhibits contained in this TIF Plan, including Exhibit III which shows the projected tax increment generated over the anticipated life of the TIF District. Exhibit VI shows the projected pay-as-you-go note with the maximum amount of $728,204 associated with reimbursement of TIF eligible redevelopment costs. Section Q Use of Tax Increment Each year the County Treasurer shall deduct 0.36%of the annual tax increment generated by the TIF District and pay such amount to the State's General Fund. Such amounts will be appropriated to the State Auditor for the cost of financial reporting and auditing of tax increment financing information throughout the state. Exhibit III shows the projected deduction for this purpose over the anticipated life of the TIF District. The Authority has determined that it will use 100% of the remaining tax increment generated by the TIF District for any of the following purposes: (1) pay for the estimated public costs of the TIF District(see Section K) and County administrative costs associated with the TIF District(see Section T); (2) pay principal and interest on tax increment bonds or other bonds issued to finance the estimated public costs of the TIF District; (3) accumulate a reserve securing the payment of tax increment bonds or other bonds issued to finance the estimated public costs of the TIF District; (4) pay all or a portion of the county road costs as may be required by the County Board under M.S. Section 469.175,Subdivision 1a;or (5) return excess tax increments to the County Auditor for redistribution to the City,County and School District. Tax increments from property located in one county must be expended for the direct and primary benefit of a project located within that county, unless both county boards involved waive this requirement. Tax increments shall not be used to circumvent levy limitations applicable to the City. Tax increment shall not be used to finance the acquisition, construction, renovation, operation, or maintenance of a building to be used primarily and regularly for conducting the business of a municipality,county,school district,or any other local unit of government or the State or federal government,or for a commons area used as a public park,or a facility used for social, recreational, or conference purposes. This prohibition does not apply to the construction or renovation of a parking structure or of a privately owned facility for conference purposes. SPRINGSTED Page 9 Housing and Redevelopment Authority in and for the City of Eden Prairie, Minnesota If there exists any type of agreement or arrangement providing for the developer,or other beneficiary of assistance,to repay all or a portion of the assistance that was paid or financed with tax increments,such payments shall be subject to all of the restrictions imposed on the use of tax increments. Assistance includes sale of property at less than the cost of acquisition or fair market value, grants, ground or other leases at less then fair market rent, interest rate subsidies, utility service connections, roads, or other similar assistance that would otherwise be paid for by the developer or beneficiary. Section R Excess Tax Increment In any year in which the tax increments from the TIF District exceed the amount necessary to pay the estimated public costs authorized by the TIF Plan,the Authority shall use the excess tax increments to: (1) prepay any outstanding tax increment bonds; (2) discharge the pledge of tax increments thereof; (3) pay amounts into an escrow account dedicated to the payment of the tax increment bonds;or (4) return excess tax increments to the County Auditor for redistribution to the City,County and School District, The County Auditor must report to the Commissioner of Education the amount of any excess tax increment redistributed to the School District within 30 days of such redistribution. Section S Tax Increment Fooling and the Five Year Rule At least 75%of the tax increments from the TIF District must be expended on activities within the district or to pay for bonds used to finance the estimated public costs of the TIF District (see Section E for additional restrictions). No more than 25%of the tax increments may be spent on costs outside of the TIF District but within the boundaries of the Project Area, except to pay debt service on credit enhanced bonds. All administrative expenses are considered to have been spent outside of the TIF District. Tax increments are considered to have been spent within the TIF District if such amounts are:[M.S.Section 469.1763,Subdivisions 2-4] (1) actually paid to a third party for activities performed within the TIF District within five years after certification of the district; (2) used to pay bonds that were issued and sold to a third party,the proceeds of which are reasonably expected on the date of issuance to be spent within the later of the five-year period or a reasonable temporary period or are deposited in a reasonably required reserve or replacement fund. (3) used to make payments or reimbursements to a third parry under binding contracts for activities performed within the TIF District, which were entered into within five years after certification of the district;or (4) used to reimburse a party for payment of eligible costs(including interest)incurred within five years from certification of the district. Beginning with the sixth year following certification of the TIF District,at least 75%of the tax increments must be used to pay outstanding bonds or make contractual payments obligated within the first five years. When outstanding bonds have been defeased and sufficient money has been set aside to pay for such contractual obligations,the TIF District must be decertified. SPRINGSTED Page 10 Housing and Redevelopment Authority in and for the City of Eden Prairie, Minnesota The Authority anticipates that tax increments will be spent outside of the TIF District(including a portion for allowable administrative expenses) for transportation, redevelopment and affordable housing qualified pooling expenditures. The Authority anticipates reserving 20%of the annual increment for pooling expenditures. Section T Limitation on Administrative Expenses Administrative expenses are defined as all costs of the Authority other than: (1) amounts paid for the purchase of land; (2) amounts paid for materials and services, including architectural and engineering services directly connected with the physical development of the real property in the project; (3) relocation benefits paid to, or services provided for, persons residing or businesses located in the project; (4) amounts used to pay principal or interest on,fund a reserve for, or sell at a discount bonds issued pursuant to section 469.178;or (5) amounts used to pay other financial obligations to the extent those obligations were used to finance costs described in clause(1)to(3). Administrative expenses include amounts paid for services provided by bond counsel,fiscal consultants,planning or economic development consultants, City staff time, and actual costs incurred by the County in administering the TIF District.Tax increments may be used to pay administrative expenses of the TIF District up to the lesser of(a) 10%of the total estimated public costs authorized by the TIF Plan or(b) 10%of the total tax increment expenditures for the project.[M.S.Section 469.176,Subdivision 31 Section U Limitation on Property Not Subject to Improvements-Four Year Rule If after four years from certification of the TIF District no demolition,rehabilitation,renovation,or qualified improvement of an adjacent street has commenced on a parcel located within the TIF District, then that parcel shall be excluded from the TIF District and the original net tax capacity shall be adjusted accordingly. Qualified improvements of a street are limited to construction or opening of a new street, relocation of a street, or substantial reconstruction or rebuilding of an existing street. The Authority must submit to the County Auditor, by February 1 of the fifth year, evidence that the required activity has taken place for each parcel in the TIF District. If a parcel is excluded from the TIF District and the Authority or owner of the parcel subsequently commences any of the above activities,the Authority shall certify to the County Auditor that such activity has commenced and the parcel shall once again be included in the TIF District. The County Auditor shall certify the net tax capacity of the parcel,as most recently certified by the Commissioner of Revenue, and add such amount to the original net tax capacity of the TIF District.[M.S.Section 469.176,Subdivision 6] Section V Estimated Impact on Other Taxing Jurisdictions Exhibit IV shows the estimated impact on other taxing jurisdictions if the maximum projected retained captured net tax capacity of the TIF District was hypothetically available to the other taxing jurisdictions. The Authority believes that there will be no adverse impact on other taxing jurisdictions during the life of the TIF District, since the proposed development would not have occurred without the establishment of the TIF District and the provision of public assistance. A positive impact on other taxing jurisdictions will occur when the TIF District is decertified and the development therein becomes part of the general tax base. SPRINGSTED Page 11 Housing and Redevelopment Authority in and for the City of Eden Prairie, Minnesota The fiscal and economic implications of the proposed tax increment financing district, as pursuant to Minnesota Statutes,Section 469,175,Subdivision 2,are listed below. 1. The total amount of tax increment that will be generated over the life of the district is estimated to be $2,063,163. 2. To the extent the project in TIF District 20 generates any public cost impacts on city-provided services such as police and fire protection, public infrastructure, and borrowing costs attributable to the district,such costs will be levied upon the taxable net tax capacity of the City,excluding that portion captured by the District. 3. The amount of tax increments over the life of the district that would be attributable to school district levies, assuming the school district's share of the total local tax rate for all taxing jurisdictions remained the same,is estimated to be$473,231. 4. The amount of tax increments over the life of the district that would be attributable to county levies,assuming the county's share of the total local tax rate for all taxing jurisdictions remained the same is estimated to be $837,112. 5. The amount of tax increments over the life of the district that would be attributable to city levies, assuming the city's share of the total local tax rate for all taxing jurisdictions remained the same is estimated to be $587,421. 6. No additional information has been requested by the county or school district that would enable it to determine additional costs that will accrue to it due to the development proposed for the district. Section W Prior Planned Improvements The Authority shall accompany its request for certification to the County Auditor (or notice of district enlargement), with a listing of all properties within the TIF District for which building permits have been issued during the 18 months immediately preceding approval of the TIF Plan. The County Auditor shall increase the original net tax capacity of the TIF District by the net tax capacity of each improvement for which a building permit was issued. [M.S. Section 469.177,Subdivision 41 There have been no building permits issued in the last 18 months in conjunction with any of the properties within the TIF District. Section X Development Agreements If within a project containing a redevelopment district,more than 25%of the acreage of the property to be acquired by the Authority is purchased with tax increment bonds proceeds (to which tax increment from the property is pledged), then prior to such acquisition,the Authority must enter into an agreement for the development of the property. Such agreement must provide recourse for the Authority should the development not be completed.[M.S.Section 469.176, Subdivision 5] The Authority anticipates entering into an agreement for development,but does not anticipate acquiring any property located within the TIF District. SPRINGSTED Page 12 Housing and Redevelopment Authority in and for the City of Eden Prairie, Minnesota Section Y Assessment Agreements The Authority may, upon entering into a development agreement,also enter into an assessment agreement with the developer,which establishes a minimum market value of the land and improvements for each year during the life of the TIF District. The assessment agreement shall be presented to the County or City Assessor who shall review the plans and specifications for the improvements to be constructed, review the market value previously assigned to the land,and so long as the minimum market value contained in the assessment agreement appears to be an accurate estimate, shall certify the assessment agreement as reasonable. The assessment agreement shall be filed for record in the office of the County Recorder of each county where the property is located. Any modification or premature termination of this agreement must first be approved by the City, County and School District. [M.S.Section 469.177, Subdivision 8] The Authority anticipates entering into an assessment agreement. Section Z Modifications of the Tax Increment Financing Plan Any reduction or enlargement in the geographic area of the Project Area or the TIF District;increase in the amount of bonded indebtedness to be incurred; a determination to capitalize interest on the debt if that determination was not part of the original TIF Plan; increase in the portion of the captured net tax capacity to be retained by the Authority; increase in the total estimated public costs;or designation of additional property to be acquired by the Authority shall be approved only after satisfying all the necessary requirements for approval of the original TIF Plan. This paragraph does not apply if:(M.S.Section 469.175,Subdivision 4] (1) the only modification is elimination of parcels from the TIF District;and (2) the current net tax capacity of the parcels eliminated equals or exceeds the net tax capacity of those parcels in the TIF District's original net tax capacity, or the Authority agrees that the TIF District's original net tax capacity will be reduced by no more than the current net tax capacity of the parcels eliminated. The Authority must notify the County Auditor of any modification that reduces or enlarges the geographic area of the TIF District. The geographic area of the TIF District may be reduced but not enlarged after five years following the date of certification. Section AA Administration of the Tax Increment Financing Plan Upon adoption of the TIF Plan, the Authority shall submit a copy of such plan to the Commissioner of Revenue and the Office of the State Auditor. The Authority shall also request that the County Auditor certify the original net tax capacity and net tax capacity rate of the TIF District. To assist the County Auditor in this process,the Authority shall submit copies of the TIF Plan,the resolution establishing the TIF District and adopting the TIF Plan, and a listing of any prior planned improvements. The Authority shall also send the County Assessor any assessment agreement establishing the minimum market value of land and improvements in the TIF District,and shall request that the County Assessor review and certify this assessment agreement as reasonable. The County shall distribute to the Authority the amount of tax increment as it becomes available. The amount of tax increment in any year represents the applicable property taxes generated by the retained captured net tax capacity of the TIF District. The amount of tax increment may change due to development anticipated by the TIF Plan, other development,inflation of property values,or changes in property classification rates or formulas. In administering and implementing the TIF Plan,the following actions should occur on an annual basis: SPRINGSTED Page 13 Housing and Redevelopment Authority in and for the City of Eden Prairie, Minnesota (1) prior to July 1, the Authority shall notify the County Assessor of any new development that has occurred in the TIF District during the past year to insure that the new value will be recorded in a timely manner. (2) if the County Auditor receives the request for certification of a new TIF District,or for modification of an existing TIF District, before July 1,the request shall be recognized in determining local tax rates for the current and subsequent levy years. Requests received on or after July 1 shall be used to determine local tax rates in subsequent years. (3) each year the County Auditor shall certify the amount of the original net tax capacity of the TIF District. The amount certified shall reflect any changes that occur as a result of the following: (a) the value of property that changes from tax-exempt to taxable shall be added to the original net tax capacity of the TIF District. The reverse shall also apply; (b) the original net tax capacity may be modified by any approved enlargement or reduction of the TIF District; (c) if laws governing the classification of real property cause changes to the percentage of estimated market value to be applied for property tax purposes,then the resulting increase or decrease in net tax capacity shall be applied proportionately to the original net tax capacity and the retained captured net tax capacity of the TIF District. The County Auditor shall notify the Authority of all changes made to the original net tax capacity of the TIF District. Section AB Filing TIF Plan,Financial Reporting and Disclosure Requirements The Authority will file the TIF Plan,and any subsequent amendments thereto,with the Commissioner of Revenue and the Office of the State Auditor pursuant to Minnesota Statutes,Section 469.175,subdivision 4A. The Authority will comply with all reporting requirements for the TIF District under Minnesota Statutes,Section 469.175,subdivisions 5 and 6. SPRINGSTED Page 14 Exhibit 1 MAP OF TAX INCREMENT FINANCING(REDEVELOPMENT)DISTRICT NO. 20 \ , IN nt VI� y s � .`:,,_ fi :. ° � and •• ��i,f� �\�"�� \� �\ � - �� ` rf Tax Increment Financing \ , Redevelopment District#20 \ ter; Superior Tech Center \ United Toperties �s MWE 41 \ r r ti Al # A L � J x c,� � � .. �AIF�3\ice,.•.. �� 'h y$ `s D„ x City of Eden Prairie Tax Increment Redevelopment District#20 ems' Superior Tech Center SPRINGSTED Page 15 Exhibit 1 MAP OF REDEVELOPMENT PROJECT AREA NO.6 �5 •a..< '+ems'. \ \ \ Project Area#6 \ .t \ it iy ` uP \\ \\\ 5 \\IM ..\ a F Cit of Eden Prairie Y �\ffimmmm\ MW h� ��u y,`� Tax Increment Redevelopment Project Area#6 SPRINGSTE D Page 16 Exhibit/l Assumptions Report City of Eden Prairie, Minnesota Tax Increment Financing (Redevelopment) District No.20 Superior Tech Center Project Scenario 1 -15 yr term -20%Admin/Pooling-June 2006 Type of Tax Increment Financing District Redevelopment Maximum Duration of TIF District 25 years from 1st increment Projected Certification Request Date 09/01/06 Decertification Date 12/31/22 (15 Years of Increment) 2006/2007 Base Estimated Market Value $2,104,921 " Original Net Tax Capacity $41,348 Assessment/Collection Year 2006/2007 2007/2008 2008/2009 2009/2010 Base Estimated Market Value $2,104,921 $2,104,921 $2,104,921 $2,104,921 Less: EMV of Existing Bldg &Land Value ($106,921) ($106,921) ($106,921) ($106,921) Increase in EMV of New Bldg 0 2,132,777 10,685,212 10,792,064 Total Estimated Market Value 1,998,000 4,130,777 12,683,212 12,790,064 Total Net Tax Capacity $39,210 $81,116 $252,164 $254,301 City of Eden Prairie 28.782% Hennepin County 41.016% ISD#272 23.187% Other 8.104% Local Tax Capacity Rate 101.089% 2005/2006 Fiscal Disparities Contribution From TIF District 36.0941% Administrative Retainage Percent(maximum= 10%) 1.00% Pooling Percent 19.00% Bonds Note(Pay-As-You-Go) Bonds Dated NA Note Dated 09/01/06 Bond Issue @ 6.00%(NIC) NA Note Rate 6.50% Eligible Project Costs NA Note Amount $728,204 Present Value Date&Rate 09/01/06 6.50% Notes *Value of the land&building prior to demolition(2005/06 valuation)must be used according to state law. PID 01-116-22-13-0034: prior to building demolition,total EMV, including land &bldg is$3,133,000 for 2005/06, For purposes of estimating base EMV of District,assume allocation based on acreage(10.36/15.42 acres). PID 01-116-22-13-0037: replatted after building demo, EMV, land only$1,998,000 for 2006/07. No assumptions made regarding future changes to class rates and tax capacity rates. Includes 1%annual market value inflator. Estimated value of new building is approximately 75%of estimated cost of construction, estimated cost/square floot is approx.$156,therefore value/square foot is approx. $117. Assume construction 20%complete by 12/31/06 and 100%complete by 12/31/07. SPRINGSTED Page 17 Exhibit 111 Proiected Tax Increment Report City of Eden Prairie,Minnesota Tax Increment Financing(Redevelopment)District No.20 Superior Tech Center Project Scenario 1-15 yr term-20%Admin/Pooling-June 2006 Less: Less: Retained Times: Less: Less: P.V. P.V. Annual Total Original Fiscal Captured Tax Annual Stale Aud. Adm./Pooling Annual Annual Annual Period Net Tax Net Tax Disp.0Net Tax Capacity Gross Tax Deduction Retainage Net Net Rev.To Retalnage To Ending Capacity Capacity 36.0941% Capacity Rate Increment 0.360% 20.00% Revenue 09/01/06 09/01/06 1 2 3 4 5 6 7 9 1 6.5 ° 6.50° 12/31/06 41,348 41,348 0 0 101.089% 0 0 0 0 0 0 12/31/07 39,210 41,348 0 0 101.089% 0 0 0 0 0 0 12/31/08 81,116 41,348 14,354 25,413 101.089% 25,690 92 5,120 20,478 17,960 4,490 12/31/09 252,164 41,348 76,092 134,724 101.089% 136,191 490 27,140 108.561 89,402 22,350 12/31/10 254,301 41,348 76,863 136,090 101.089% 137,572 495 27,415 109,662 84,797 21,199 12/31/11 256,460 41,348 77,642 137,469 101.089% 138,966 500 27,693 110,773 80.428 20,107 12/31/12 258,640 41,348 78,429 138,862 101.089% 140,374 505 27,974 111,895 76,284 19,071 12/31/13 260,841 41,348 79,224 140,269 101.089% 141,797 510 28,257 113,030 72,355 18,088 12/31/14 263,065 41,348 80,027 141,690 101.089% 143,233 516 28,543 114,174 68,626 17,156 12/31/15 265,311 41,348 80,837 143,126 101.089% 144,685 521 28,833 115,331 65,091 16,273 12/31/16 267,580 41,348 81,656 144,575 101.089% 146,150 526 29,125 116,499 61,737 15,434 12/31/17 269,871 41,348 82,483 146,040 101.089% 147,630 531 29,420 117,679 58,556 14,639 12/31/18 272,185 41,348 83,318 147,519 101.089% 149,125 537 29,718 118,870 55,539 13,885 12/31/19 274,522 41,348 84,162 149,012 101.089% 150,635 542 30,019 120,074 52,677 13,170 12/31/20 276,883 41,348 85,014 150,521 101.089% 152,160 548 30,322 121,290 49,963 12,491 12/31/21 279,267 41,348 85.875 152,044 101.089% 153,700 553 30,629 122,518 47,389 11,847 12/31/22 281,675 41,348 86,744 153,583 101.089% 155,255 559 30,939 123.757 44,947 11,237 12/31/23 0 0 0 0 101.089% 0 0 0 0 0 0 12/31/24 0 0 0 0 101.089% 0 0 0 0 0 0 12/31/25 0 0 0 0 101.089% 0 0 0 0 0 0 12/31/26 0 0 0 0 101.089% 0 0 0 0 0 0 12/31/27 0 0 0 0 101.089% 0 0 0 0 0 0 12/31/28 0 0 0 0 101.089% 0 0 0 0 0 0 12/31/29 0 0 0 0 101.089% 0 0 0 0 0 0 12/31/30 0 0 0 0 101.089% 0 0 0 0 0 0 12/31/31 0 0 0 0 101.089% 0 0 0 0 0 0 12/31/32 0 0 0 0 101.089% 0 0 0 0 0 0 12/31/33 0 0 0 0 101.089% 0 0 0 0 0 0 12/31/34 0 0 0 0 101.089% 0 0 01 01 0 0 2 063 1 $7,425 $411,147 $1,644,591 $925,751 $231,437 SPRINGSTED Page 18 Exhibit IV Estimated Impact on Other Taxing Jurisdictions Report City of Eden Prairie,Minnesota Tax Increment Financing(Redevelopment)District No.20 Superior Tech Center Project Scenario 1 -15 yr term-20%Admin/Pooling-Total EMV$12.2M-June 2006 Without Project or TIF District With Project and TIF District Projected Hypothetical 2005/2006 2005/2006 Retained New Hypothetical Hypothetical Tax Generated Taxable 2005/2006 Taxable Captured Taxable Adjusted Decrease In by Retained Taxing Net Tax Local Net Tax Net Tax Net Tax Local Local Captured Jurisdiction Capacity(1) Tax Rate Capacity(1) + Capacity = Capacity Tax Rate(*) Tax Rate(*) N.T.C.(*) City of Eden Prairie 90,698,663 28.782% 90,698,663 $153,583 90,852,246 28.733% 0.049% 44,130 Hennepin County 1,229,390,982 41.016% 1,229,390,982 153,583 1,229,544,565 41.011% 0.005% 62,986 ISD#272 87,090,651 23.187% 87,090,651 153,583 87,244,234 23.146% 0.041% 35,549 Other(2) --- 8.104% --- 153,583 --- 8.104% --- --- Totals 101.089% 100.994% 0.095% * Statement 1: If the projected Retained Captured Net Tax Capacity of the TIF District was hypothetically available to each of the taxing jurisdictions above,the result would be a lower local tax rate(see Hypothetical Adjusted Tax Rate above) which would produce the same amount of taxes for each taxing jurisdiction. In such a case,the total local tax rate would decrease by 0.095%(see Hypothetical Decrease in Local Tax Rate above). The hypothetical tax that the Retained Captured Net Tax Capacity of the TIF District would generate is also shown above. Statement 2: Since the projected Retained Captured Net Tax Capacity of the TIF District is not available to the taxing jurisdictions, then there is no impact on taxes levied or local tax rates. (1) Taxable net tax capacity=total net tax capacity-captured TIF-fiscal disparity contribution,if applicable. (2) The impact on these taxing jurisdictions is negligible since they represent only 8.02%of the total tax rate. SPRINGSTED Page 19 Exhibit V Market Value Analysis Report City of Eden Prairie, Minnesota Tax Increment Financing (Redevelopment) District No. 20 Superior Tech Center Project Scenario 1 - 15 yr term -20%Admin/Pooling -June 2006 Assumptions Present Value Date 09/01/06 P.V. Rate- Gross T.I. 6.50% Increase in EMV With TIF District $12,160,768 Less: P.V of Gross Tax Increment 1,161,369 Subtotal $10,999,399 Less: Increase in EMV Without TIF 0 Difference $10,999,399 Annual Present Gross Tax Value @ Year Increment 6.50% 1 2008 25,690 22,531 2 2009 136,191 112,155 3 2010 137,572 106,378 4 2011 138,966 100,898 5 2012 140,374 95,700 6 2013 141,797 90,770 7 2014 143,233 86,093 8 2015 144,685 81,658 9 2016 146,150 77,450 10 2017 147,630 73,460 11 2018 149,125 69,675 12 2019 150,635 66,085 13 2020 152,160 62,680 14 2021 153,700 59,450 15 2022 155,255 56,386 16 2023 0 0 17 2024 0 0 18 2025 0 0 19 2026 0 0 20 2027 0 0 21 2028 0 0 22 2029 0 0 23 2030 0 0 24 2031 0 0 25 2032 0 0 26 2033 0 0 $2,063,163 $1,161,369 SPRINGSTED Exhibit VI Projected Pay-As-You-Go Note Report City of Eden Prairie,Minnesota Tax Increment Financing(Redevelopment)District No.20 Superior Tech Center Project Scenario 1 -15 yr term-20%Admin/Pooling-Total EMV$12.2M-June 2006 Note Date: 09/01/06 Note Rate: 6.50% Amount: $728,204 Semi-Annual Loan Net Capitalized Balance Date Principal Interest P&I Revenue' Interest Outstanding (1) (2) (3) (4) (5) (6) (7) 728,204.00 02/01/07 0.00 0.00 0.00 0.00 19,722.19 747,926.19 08/01/07 0.00 0.00 0.00 0.00 24,307.60 772,233.79 02/01/08 0.00 0.00 0.00 0.00 25,097.60 797,331.39 08/01/08 0.00 10,239.00 10,239.00 10,239.00 15,674.27 813,005.66 02/01/09 0.00 10,239.00 10,239.00 10,239.00 16,183.68 829,189.34 08/01/09 27,331.85 26,948.65 54,280.50 54,280.50 0.00 801,857.49 02/01/10 28,220.13 26,060.37 54,280.50 54,280.50 0.00 773,637.36 08/01/10 29,687.79 25,143.21 54,831.00 54,831.00 0.00 743,949.57 02/01/11 30,652.64 24,178.36 54,831.00 54,831.00 0.00 713,296.93 08/01/11 32,204.35 23,182.15 55,386.50 55,386.50 0.00 681,092.58 02/01/12 33,250.99 22,135.51 55,386.50 55,386.50 0.00 647,841.59 08/01/12 34,892.65 21,054.85 55,947.50 55,947.50 0.00 612,948.94 02/01/13 36,026.66 19,920.84 55,947.50 55,947.50 0.00 576,922.28 08/01/13 37,765.03 18,749.97 56,515.00 56,515.00 0.00 539,157.25 02/01/14 38,992.39 17,522.61 56,515.00 56,515.00 0.00 500,164.86 08/01/14 40,831.64 16,255.36 57,087.00 57,087.00 0.00 459,333.22 02/01/15 42,168.67 14,928.33 57,087.00 57,087.00 0.00 417,174.55 08/01/15 44,107.33 13,558.17 57,665.50 57,665.50 0.00 373,067.22 02/01/16 45,540.82 12,124.68 57,665.50 57,665.50 0.00 327,526.40 08/01/16 47,604.89 10,644.61 58,249.50 58,249.50 0.00 279,921.51 02/01/17 49,152.05 9,097.45 58,249.50 58,249.50 0.00 230,769.46 08/01/17 51,339.49 7,500.01 58,839.50 58,839.50 0.00 179,429.97 02/01/18 53,008.03 5,831.47 58,839.50 58,839.50 0.00 126,421.94 08/01/18 55,326.29 4,108.71 59,435.00 59,435.00 0.00 71,095.65 02/01/19 57,124.39 2,310.61 59,435.00 59,435.00 0.00 13,971.26 08/01/19 13,971.26 454.07 14,425.33 14,425.33 0.00 0.00 02/01/20 0.00 0.00 0.00 0.00 0.00 0.00 08/01/20 0.00 0.00 0.00 0.00 0.00 0.00 02/01/21 0.00 0.00 0.00 _ 0.00 0.00 0.00 08/01/21 0.00 0.00 0.00 0.00 0.00 0.00 02/01/22 0.00 0.00 0.00 0.00 0.00 0.00 08/01/22 0.00 0.00 0.00 0.00 0.00 0.00 02/01/23 0.00 0.00 0.00 0.00 0.00 0.00 08/01/23 0.00 0.00 0.00 0.00 0.00 0.00 02/01/24 0.00 0.00 0.00 0.00 0.00 0.00 08/01/24 0.00 0.00 0.00 0.00 0.00 0.00 02/01/25 0.00 0.00 0.00 0.00 0.00 0.00 08/01/25 0.00 0.00 0.00 0.00 0.00 0.00 02/01/26 0.00 0.00 0.00 0.00 0.00 0.00 08/01/26 0.00 0.00 0.00 0.00 0.00 0.00 02/01/27 0.00 0.00 0.00 0.00 0.00 0.00 08/01/27 0.00 0.00 0.00 0.00 0.00 0.00 02/01/28 0.00 0.00 0.00 0.00 0.00 0.00 08/01/28 0.00 0.00 0.00 0.00 0.00 0.00 02/01/29 0.00 0.00 0.00 0.00 0.00 0.00 08/01/29 0.00 0.00 0.00 0.00 0.00 0.00 02/01/30 0.00 0.00 0.00 0.00 0.00 0.00 08/01/30 0.00 0.00 0.00 0.00 0.00 0.00 02/01/31 0.00 0.00 0.00 0.00 0.00 0.00 08/01/31 0.00 0.00 0.00 0.00 0.00 0.00 02/01/32 0.00 0.00 0.00 0.00 0.00 0.00 08/01/32 0.00 0.00 0.00 0.00 0.00 0.00 02/01/33 0.00 0.00 0.00 0.00 0.00 0.00 08/01/33 0.00 0.00 0.00 0.00 0.00 0.00 02/01/34 0.00 0.00 0.00 0.00 0.00 0.00 $829,189 $342,187.99 $1,171,377.33 $1,171,377.33 $100,985.34 Surplus Tax Increment 473,213.67 Total Net Revenue $1,644,591.00 Semi-annual net revenue is estimated to be 80%of the projected annual tax increment The remaining 20%will be retained by the City for eligible affordable housing and/or transportion pooling expenditures,and adminstrative expenses. SPRINGSTED DRAFT 7-25-06 DEVELOPMENT A E BY AND N THE HOUSING AND LOPMENT RITY IN AND FOR THE CITY IRIE, SOTA A 2006 TABLE OF CONTENTS ARTICLE I DEFINITIONS ........................................................................................................... 1 SectionI.I. Definitions.................................................................................................... 1 ARTICLE II REPRESENTATIONS AND WARRANTIES.........................................................3 Section 2.1. Representations and Warranties of the Authority a ...................................3 Section 2.2. Representations and Warranties of the Develo ....... ..............................4 ARTICLE III UNDERTAKINGS BY DEVELOPER AND A Y................................. 5 Section 3.1. Project; Site Improvements/Preparatio I ........... - . ................................5 Section 3.2. Intentionally left blank Section 3.3. Tax Increment Note; Reimburse t to leveloper..... k.......................6 Section 3.4. Compliance With Income an ent Requirements............ ..... ............7 Section 3.5. Business Subsidies Act.... ........... ................7 Section 3.6. Assessment Agreement................ . .....................7 ARTICLE IV EVENTS OF DEFAULT ............................. ................................................. 8 Section 4.1. Events of Default ........................ ............................................ 8 Section 4.2. Remedies on Defaul .............. 8 Section 4.3. No Remedy Exclusiv ........... . 9 Section 4.4. No Implied Waiver..... ..... R . .... ... .............................................9 Section 4.5. Agr o Pay Attorn- , ees an penses.......................................9 Section 4.6. I mni of Author ...................................................................... 9 ARTICLE V ADD I PR SIONS Section 5.1. Res tr :. ctio se ............................................................. 10 Sect'. , , -onflic nteres . .... . . ...................................................................... 10 S, on 5.3. of A s and Sections................................................................... 10 ction5.4. and ................................................................................ 10 on5.5. Cou arts..... ....................................................................................... 11 Se5.6. Law ruin .......................................................................................... 11 SectiExpirat .:. ................................................................................................... 11 Section Provis' s Surviving Rescission or Expiration.......................................... 11 SIGNATURES.......... ......................................................................................................... 12 & 13 EXHIBIT A: LEGAL DESCRIPTION.....................................................................................A-1 EXHIBIT B: FORM OF TAX INCREMENT NOTE...............................................................B-1 EXHIBIT C: COMPLIANCE CERTIFICATION.....................................................................C-1 EXHIBIT D: ASSESSMENT AGREEMENT.........................................................................D-1: 1 \ DEVELOPMENT AGREEMENT THIS AGREEMENT,made as of the 1st day of August, 2006,by and between the Housing and Redevelopment Authority in and for the City of Eden Prairie,Minnesota(the "Authority"), a public body corporate and politic organized and existing under the laws of the State of Minnesota, and , a Minnesota (the"Developer"). WITNESSETH: WHEREAS,pursuant to Minnesota Statutes, Section 46 ough 469.047,the Authority has formed Redevelopment Project Area No. 6 (th roje ea") and has adopted a Redevelopment Plan therefor(the"Redevelopment Plan" • n WHEREAS,pursuant to the provisions of M', sota Statutes, Sectio .174 through 469.1799, as amended(hereinafter the"Tax Incre ct"),t Authority has ; within the Project Area, Tax Increment Financing(Red ve t)D', * t No.20(the' Increment District"),the legal description of which is attached her exhibit A and has dopted a tax increment financing plan, dated August 1, 2006,therefor ax Increment Plan"),which provides for the use of tax increment fin in connection certain development within the Project Area;and WHEREAS, in order to achieve the "'ectiv`;' ede lopment Plan and particularly to make the land the Project Ar able elopment in conformance with the Redevelopment Plan ity has det' ined to as;" t the Developer with the financing of certain costs of a P ct(ash after define to be constructed within the Tax Increment District as more p set fo in this Agree • and WHE the Au :, development and construction of the Project, and fulfill 'I reem e vital an a in the best interests of the Authority and meet the rede: opment go he co hensive plan of the City of Eden Prairie and are in acco with the pub ose ovisions of the applicable state and local laws and require under which t ro'ect s been undertaken and is being assisted. q J g NOW, BEFORE, consideration of the premises and the mutual obligations of the parties hereto, ea them oes hereby covenant and agree with the other as follows: ARTICLE I DEFINITIONS Section 1.1. Definitions. All capitalized terms used and not otherwise defined herein shall have the following meanings unless a different meaning clearly appears from the context: Agreement means this Agreement, as the same may be from time to time modified, amended or supplemented; Assessment Agreement means the Assessment Agreement between the Authority and the Developer in the form set forth as Exhibit D hereto; Authorijy means the Housing and Redevelopment Authority in and for the City of Eden Prairie,Minnesota; Board of Commissioners means the Board of Commissioners of the Housing and Redevelopment Authority in and for the City of Eden Prairie,Minnesota; Business Day means any day except a Saturday, Sunday or a oliday or a day on which banking institutions in the State are authorized by law or ex= ive order to close; Qty means the City of Eden Prairie,Minnesota; Compliance Certificate means the Compliance at in subst ly the form attached hereto as Exhibit C.- Cou=means Hennepin County, Minne ta, Developer means , a Minnesota its successors a assigns; Development Property means the r legally des in Exhibit A attached to this Agreement,which is the same real prop as s the 1rx Increment District; Event of Default of the even scribed i ection 4.1 hereof, Land Ac ui eans t cquisition o e Development Property as described in the Tax Increment Financin ; Le al_ .:_. inistra x en " the fees and expenses incurred in connection with the ption o Inc t Financing Plan;the preparation of this Agreement,the Asses I Cot Agreement, 11 oth ed documents;the making of the Loan (as defined in Sects and the issua f the ncrement Note; Note ent Amou I eans the amounts due under the Tax Increment Note; Note Pay n ate ans August 1,2008, and each February 1 and August 1 of each year thereafter to an ing February 1, 2023;provided,that if any such Note Payment Date should not be a Busin Day,the Note Payment Date shall be the next succeeding Business Day; Prime Rate means the rate of interest from time to time publicly announced by U.S.Bank National Association in Minneapolis,Minnesota, as its"reference rate"or any successor rate, which rate shall change as and when that prime rate or successor rate changes; Project means the Superior Office Center to be constructed on the Development Property; 2 Project Area means the geographic area of Redevelopment Project Area No. 6 as provided in the Redevelopment Plan for Redevelopment Project Area No. 6, dated August 1, 2006, and approved by the Authority on August 1, 2006; Redevelopment Plan means the Redevelopment Plan approved in connection with the Project Area; Site Improvements means the site improvements described in the Tax Increment Financing Plan, specifically including demolition/environmental (asbes _s abatement); State means the State of Minnesota; Tax Increments means the tax increments derived se ua in the Tax Increment District which have been received and retained by the Aut, ri in acco. e with the provisions of Minnesota Statutes, Section 469.177, less thority adm ative/pooling retainage of 20%; Tax Increment Act means Minnesota St a to , .y tions 174 through 4 799, as amended; Tax Increment District means Ta crement Financi edevelopment)District No. 20 located within the Project Area,the legal on of which i o on Exhibit A attached hereto,which is a redevelopment district ui er ncrement • , Tax Increment Financin2 Plan means mere ancing plan approved for the Tax Increment District b "' Council and Board of 'ommissioners of the Authority dated August 1,2006- Tax Increment ean Tax Increm evenue Note(Superior Office Center Project)to bee a,uted by ed to the Developer pursuant to Article III hereof,the is a d hereto "''xhibit B; and unavoidable De, eans outside the control of the party claiming its occ rre hich are the t resul strikes, other labor troubles,unusually severe or prolonged eather, acts od, ire or other casualty to the Project, litigation commenced by third parti ch,by inj ition or other similar judicial action or by the exercise of reasonable discr direct,; esults in delays, or acts of any federal, state or local governmental unit the Authority)which directly result in delays. ARTICLE II REPRESENTATIONS AND WARRANTIES Section 2.1. Representations and Warranties of the Authority. The Authority makes the following representations and warranties: 3 (a) The Authority is a housing and redevelopment authority duly organized and existing under the laws of the State of Minnesota and has the power to enter into this Agreement and carry out its obligations hereunder. (b) The Tax Increment District is a"redevelopment district"within the meaning of Minnesota Statutes, Section 469.174, subdivision 10, and was created, adopted and approved in accordance with the terms of the Tax Increment Act. (c) The development contemplated by this Agreement is in nformance with the development objectives set forth in the Redevelopment Plan. (d) To finance certain costs within the Tax Increme 0, t,the Authority proposes, subject to the further provisions of this Agreement appl Increments to reimburse the Developer and to reimburse the Authority f- f i s advan o the Developer for certain of the costs of the Site Improvements/Preparati ed in corm with the Project as further provided in this Agreement. e The execution delivery, and erform f thi eement and other ( ) rY, p , documents or instruments required pursuant to this Agr y th Authority does not, and consummation of the transactions conte plated therein an lfillment of the terms thereof will not, conflict with or constitute on th of the Authori each of or default under any existing (i)agreement or instrument tow ' thority is a y which the Authority or any of its property is or may be bound, o .ii) a act, con tion or other proceeding establishing or related to the, establishment o he fficers or its resolutions. (f) There is nor to the t of the Au ority's knowledge is there threatened, any suit, n or pr ing against a Authority before any court, arbitrator, administrative age y er go . ental auth at materially and adversely affects the validity of any of the trans ' n lated he y,the ability of the Authority to perform its obligations he or as mp r thereby, or the validity or enforceability of this Agre No memb he Bo `'; Commissioners or officer of the Authority has either a direct o _, irect financia rest i is Agreement within the meaning of Minnesota Statutes, Sections 41 and 471.8 (h) T P . thori a ill reasonably cooperate with the Developer with respect to any litigation commence , d parties with respect to the Development. Se ion 2.2. Representations and Warranties of the Developer. The Developer makes the following representations and warranties: (a) The Developer has the power to enter into this Agreement and to perform its obligations hereunder. (b) The Developer will cause the Project to be constructed substantially in accordance with the terms of this Agreement,the Redevelopment Plan, and all local, state and federal laws 4 and regulations (including,but not limited to, environmental,zoning, energy conservation, building code and public health laws and regulations). (c) The construction of the Project would not be undertaken by the Developer, and in the opinion of the Developer would not be economically feasible within the reasonably foreseeable future,without the assistance and benefit to the Developer provided for in this Agreement. (d) The construction of the Project will commence on or be re September 1, 2006, and, barring Unavoidable Delays,the Project will be substantially co by December 31, 2007. (e) The Developer will use commercially reason effo obtain, or cause to be obtained, in a timely manner,all required permits, license n prova will meet, in a timely manner, all requirements of all applicable local, e, d federal la d regulations which must be obtained or met before the balance o e Project may be law nstructed. (f) Neither the execution and delivery of gree the consum ion of the transactions contemplated hereby,nor the fulfillment o liance with the terms and conditions of this Agreement is prevented, limited by or co s with or results in a breach of, the terms, conditions or provision of any actual restrictio 'deuce of indebtedness, agreement or instrument of whatever natu` , the Develo w a party or by which it is bound, or constitutes a default under any the g. (g) The Develo 011 cooperate R 'ith the rity with respect to any litigation commenced w' o the Projec ARTIC ER , z OPER AND AUTHORITY Sects ct• Site Im rovements/Pre arations. The total cost of the Prod011 stimated to b 034, and includes Site Improvements/Preparations, addition struction co nd lei , development, architectural, engineering, and other costs. The I 'es agree tha a Site Improvements/Preparations to be constructed by the Developer ar ntial to uccessful completion of the Project. The costs of the Site Improvements ation hich shall include engineering and all other costs directly related to the Site Improve reparations, are estimated to be at least$728,204. The costs of the Site Improvements arations shall be paid by the Developer. Subject to the terms hereof and the Tax Increment N te,the Authority shall reimburse the Developer up to $728,204, plus interest, for costs of Site Improvements/Preparations actually incurred and paid by the Developer as further provided in Section 3.3 hereof. The Developer shall pay all Legal and Administrative Expenses. Section 3.2. Reimbursement. a.) Reimbursement Upon Sale. Should the Developer sell the Project at any time prior to February 1,2023 the Developer shall immediately, 5 repay to the Authority the total amount of principal and interest paid to the Developer under the Tax Increment Note. In addition the Tax Increment Note shall be cancelled and no payments shall thereafter be due by the Authority under the Tax Increment Note and this Agreement shall terminate. b.) Reimbursement Based on Project Leases. At uch time as the rental space of the Project is 95%leased or 18 mont completion of construction,whichever first occurs, Devel shall submit an executed copy of each lease to the Authority for r e Authority shall conduct a review of the leases to dete e if t oject, as leased, continues to qualify for Tax Incre -. a istance. a aggregate square footage of the leases on a triple a'. varies less 6,$1.25 from $14.50 psf,then the Note Pa nt Amount shall not be ted.If the variation is greater than$ above 4.50 psf,then a mal Rate of Return(IRR) analysis will b I illizing the the current project information including actu s and lease rates(rather than estimates) and a %capitalization r the sale of the building in the I II year. If such s results in an ith assistance of less than 15%then the Proje :`w to qualify ncrement assistance and the Note Paymen o" not be sted. If the analysis results in an IRR with ist an 15%,then the Note jPap ount shall b creased u the IRR is not greater than 15%. Section 3.3Increm- Note:Reimrsement to Developer. Provided that the Developer has sub& idenc o the Authori t costs of the Site Improvements/Preparatio ` v ed paid by the Developer,the Authority shall reimburse s ma the e " under Section 3.1 in accordance with the Author* ax n _ t Not ubstantially the form attached to this Agreement as Exhibit B su t to the follo onditr (a The Tax Incr nt N e shall be dated, issued and delivered on August 1,2006. (b) rincipal ount of$728,204 and interest on the Tax Increment Note, at an annual rate of six nt( /o), shall be payable solely from eighty percent(80%)of the Tax Increments. Interest ax Increment Note will compound semi-annually, except that the total amount of capita ed interest that shall be payable by the Authority under the Tax Increment Note is limited to, shall not exceed, and shall not be less than, $100,985, as provided in the Tax Increment District's Tax Increment Financing Plan. (c) On each Note Payment Date and subject to the provisions of the Tax Increment Note,the Authority shall pay against the outstanding principal balance of and accrued interest on the Tax Increment Note, eighty percent(80%) of the Tax Increments received by the Authority from the Tax Increment District since the preceding Note Payment Date or, in the case of the first Note Payment Date,prior to such first Note Payment Date. All payments shall be first 6 applied to interest accrued on the Tax Increment Note and then to the unpaid principal of the Tax Increment Note. The Authority shall not be required to make any payments on the Tax Increment Note subsequent to February 1, 2023, and any balance of principal and interest remaining unpaid subsequent to the payment made on February 1, 2023 shall be deemed forgiven by the Developer. In no event shall the total principal Note Payment Amounts paid under the Tax Increment Note exceed the maximum amount of$728,204.00. (d) Any interest accruing on Tax Increments held by the Authority pending the Note Payment Dates shall accrue to the benefit of the Authority. (e) The Tax Increment Note shall be a special and lim' obligation of the Authority and not a general obligation of the Authority or the City, and o ncrements shall be used to pay the principal of and interest on the Tax Increment Not (f) The Authority's obligation to make p A e Tax In nt Note on any Note Payment Date or any date thereafter shall be c itioned upon the requi t that(A) there shall not at that time be an Event of Default s occu d and is cont'n W der this Agreement and(B)this Agreement shall not have bee in V rsuant to Sect 4.2(a) hereof. (g) The Tax Increment Note e governed by ayable pursuant to the additional terms thereof, as set forth in E he issuance Increment Note pursuant and subject to the terms of this Ag em ere by aut . zed and approved by the Authority. (h) The Dev of assign t °- ax Incre nt Note without the Authority's consent, which conse = all not nreasonabl ithheld. T � Sectioi; ess Subsidi Act. The Loan and tax increment financing assistance pro,, ' the ity ` . ess subsidy"because it is"assistance redevelop ollu e contaminants"and"assistance for redevelopment when the recipie , investment urch f the site and in site preparation is 70 percent or more of the 's current ye imate cet value"as such terms are defined in Minnesota Statutes, Jon 116J.993, ivisi s 3 and 3(4)and 3(17).Applying that formula results in the followin rchase of$_ 25,208 plus Site Preparation Costs of$728,204, divided by Assessors Cu arket V of$1,998,000= 158%. Therefore,the provisions of Minnesota Statutes, Sections .993 ough 1161995 are not applicable. Se .4. Assessment Agreement. The Assessment Agreement shall be executed by the Deveper and the Authority as of the date hereof, and the Developer shall cause the Assessment Agreement and an executed Assessor's Certificate, in the form attached thereto,to be recorded against the Development Property. 7 ARTICLE IV EVENTS OF DEFAULT Section 4.1. Events of Default Defined. The following shall be "Events of Default"under this Agreement and the term"Event of Default"shall mean whenever it is used in this Agreement any one or more of the following events: (a) Failure by the Developer to cause the construction of the roject to be substantially completed pursuant to the terms, conditions and limitat' this Agreement; (b) Failure of the Developer to observe or perform W covenant, condition, obligation or agreement on its part to be observed or perfo nde Agreement; (c) A proceeding under any bankruptcy, reo ibn, arrang : t of debt, insolvency,readjustment of debt or receivership law statute is filed(i)agai - e Developer and an adjudication or appointment is made or or , relief i : ntered, or sue ding remains undismissed for a period in excess of sixty( ys, by the Devel r; or the Developer makes an assignment for the benefit of credi e Developer takes any corporate action to authorize any of the foregoing- (d) The Developer becomes in W.-A, fails genera ay its debts as they become due; (e) The Develo oluntarily or i arily es or is dissolved, or terminates or is terminated; or (f) A re stee iquidator of veloper, or of the Project, or part thereof, shall be appointed in any eed' ught again e Developer, and shall not be discharged within sixty(6 �das after " the Developer consents to or acquiesces in such appo' } Sectio R on Default. Whenever any Event of Default referred to in Se , i 4.1 occurs an conting,the Authority, as specified below,may take any one or more o following ac s after the giving of thirty (30)days' written notice to the Developer, b if the E t of Default has not been cured within said thirty (30)days or such longer peri " time s reasonably necessary to cure the default,not to exceed 120 days,provided th I eloper commences the cure with the 30-day period and diligently pursues the same to c letion: (a) The Authority may cancel and rescind the Agreement. (b) The Authority may withhold any and all payments under the Tax Increment Note and may terminate the Tax Increment Note. (c) The Authority may suspend its performance under this Agreement until it receives assurances from the Developer, deemed adequate by the Authority,that the Developer will cure its default and continue its performance under this Agreement. 8 (d) The Authority may take any action, including legal or administrative action, in law or equity,which may appear necessary or desirable to enforce performance and observance of any obligation, agreement, or covenant of the Developer under this Agreement. Section 4.3. No Remedy Exclusive. No remedy herein conferred upon or reserved to the Authority is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing on any default shall impair any such right or power or shall be construed to be a waiver ' but any such right and power may be exercised from time to time and as often as m :, a deemed expedient. Section 4.4. No Implied Waiver. In the ent eement contained in this Agreement should be breached by any party and the e waived other party, such waiver shall be limited to the particular breach so wa' an shall not be ed to waive any other concurrent, previous or subsequent breach h der. Section 4.5. A eement to Pa evs'�L and Ex Dense enever any Event of Default occurs and the Authority shall em orneys or incur other expenses for the collection of payments due or t ecome due or for nforcement or performance or observance of any obligation or agreem the part of the oper herein contained, the Developer agrees that it shall, on deman ay to the A the reasonable fees of such attorneys and such other expenses so pu Authori Section Indemnificat Autho (a) The D oper re s from and venants and agrees that the Authority, its governing body in fficers ents, includi independent contractors, consultants and legal counsel, servan e ,thereof reinafter, for purposes of this Section, collectively t ifie Jes liable for and agrees to indemnify.and hold harmless n arti inst any loss or damage to property or any injury to or death of any son occurrin abou es ting from any defect in,the Project provided, howl e Developers of be ' red to indemnify any Indemnified Party or be liable for any claim h results fro a neg ence or malfeasance of such Indemnified Party. (b) evelope` grees to protect and defend the Indemnified Parties, and further agrees to hold thee- said" less, from any claim, demand, suit, action or other proceeding whatsoever by any p r entity arising or purportedly arising from the actions or inactions of the Developer(or othe ersons acting on its behalf or under its direction or control)under this Agreement, or the transactions contemplated hereby or the acquisition, construction, installation, ownership, and operation of the Project;provided,that this indemnification shall not apply to the warranties made or obligations undertaken by the Authority in this Agreement or to any actions undertaken by the Authority which are not contemplated by this Agreement but shall, in any event, apply to any pecuniary loss or penalty(including interest thereon from the date the loss is incurred or penalty is paid by the Authority at a rate equal to the Prime Rate) as a result of the Project, as constructed and operated by the Developer,causing the Tax Increment District to not qualify or cease to qualify as a"redevelopment district"under Section 469.174, subdivision 10, 9 of the Tax Increment Act, or to violate limitations as to the use of Tax Increments as set forth in Section 469.176, subdivision 4j, of the Tax Increment Act. (c) All covenants, stipulations,promises, agreements and obligations of the Authority contained herein shall be deemed to be the covenants, stipulations,promises, agreements and obligations of the Authority and not of any governing body member, officer, agent, servant or employee of the Authority, as the case may be. ARTICLE V ADDITIONAL PROVISIONS Section 5.1. Restrictions on Constructia se. eveloper agrees for itself, its successors and assigns and every successor in_i a Ao the pment Property, or any part thereof,that the Developer and such success ssigns shal te, or cause to be operated,the Project as provided in Section 3.4 eof and shall devote th elopment Property to, and in accordance with,the uses sp in this reement. The per further agrees for itself, its successors and assigns,t ac 'on, construct and operation of the Development will be carried out in ace e with all applicable federal, state and local laws. Section 5.2. Conflicihwmrest. No mem governing body or other official of the Authority shall have a fin terest, dir I or indirect, in this Agreement,the Development Property or th roje ct, agreement or other transaction contemplated r or be unde there r with respect thereto,nor shall any such member of body or oth official participate in any decision relating to the Agreement whi ects his er personal erests or the interests of any corporation, partnership or ass 'cia whi a or she is di or indirectly interested. No member, official or employee of th'._ tath ,". be per : ally liable to the Authority in the event of any default k by the . loper, or or on any obligations under the terms of this Agr ent. Section Tit Articles and Sections. Any titles of the several parts, articles ctions of the eern are inserted for convenience of reference only and shall be disregar construin : interpreting any of its provisions. Won Notices and Demands. Except as otherwise expressly provided in this Agreement, ' , demand or other communication under this Agreement by any party to any other shall be s: iciently given or delivered if it is dispatched by registered or certified mail, postage prepaicreturn receipt requested, or delivered personally, and (a) in the case of the Developer is addressed to or delivered personally to: (b) in the case of the Authority is addressed to or delivered personally to the Authority at: 10 Housing and Redevelopment Authority 8080 Mitchell Road Eden Prairie,Minnesota 55347 Attention: Executive Director of HRA or at such other address with respect to any such party as that party om time to time, designate in writing and forward to the other, as provided in this ion. Section 5.5. Counter2arts. This Agree ma xecuted in any number of counterparts, each of which shall constitute one and th sa instru Section 5.6. Law Governing. T Agreement will be ed and construed in accordance with the laws of the Stat Section 5.7. Ex iration. This A a xpire on Februuary 1, 2023, unless earlier terminated or rescinded in accordance with' rms. - Section 5.8. Provisic ' " ivin Resciss Ex iration. Sections 4.5 and 4.6 and the Developer's payment obh r ',- Section 3. survive any rescission, termination or expiration of this Agreemen ith r or aris' 'g out of any event, occurrence or circumstance existing prior to d , the ` b 11 IN WITNESS WHEREOF,the Authority has caused this Agreement to be duly executed in its name and on its behalf and its seal to be hereunto duly affixed, and the Developer has caused this Agreement to be duly executed in its name and on its behalf, on or as of the date first above written. THE HOUSING AND REDEVELOPMENT AUTHORITY IN AND FOR THE CITY OF EDEN PRAIRIE By Its Chair By- 1 �; tive Did-ctor X 3' [This is a signature page to the Development Agreement by and between the Housing and Redevelopment Authority in and for the City of Eden Prairie and 1 12 By Its [This is a signature page to the Development Agreement by and between the Housing and Redevelopment Authority in and for the City of Eden Prairie and 1 13 EXHIBIT A LEGAL DESCRIPTION A-1 EXHIBIT B FORM OF TAX INCREMENT NOTE No.R-1 UNITED STATES OF AMERICA STATE OF NHNNESOTA COUNTY OF HENNEPIN CITY OF EDEN PRAIRIE HOUSING AND REDEVELOPMEN TY IN AND FOR THE CITY OF E TAX INCREMENT RE NOT P,OF 2006 ( JECT PRINCIPAL AMOUNT: $728,204 INTEREST RATE: 6.5% The Housing and Redevelopme ` '' ity in and City of Eden Prairie, Minnesota (the "Authority"), hereby ackno led to be in ed and, for value received, hereby promises to pay to A., ,, , or its registered assigns (the "Registered Owner"), but the manner, a times, the sources of revenue, and to the extent hereinafter i principal a ount state above with interest, from the date hereof, at the rate pe ' um stat ove. This Tax Increm ev to of 2 ( Project) (or "Note") is issued pursu provi of evelopment Agreement, dated as of August 1, 2006, as am ame from time to time (the "Development Agreement"), by and betwe e Housing Rede t Authority in and for the City of Eden Prairie, Mi the"Authori d (the"Developer"). Prov at the De per has submitted evidence to the Authority that costs of the Site Improvements rations defined in the Development Agreement) have been incurred and paid by the Deve as vided in the Development Agreement, the principal and interest amounts due under t e (the"Note Payment Amounts") shall be payable on August 1, 2008, and on each February PV " d August 1 thereafter to and including February 1, 2023, or, if the first should not be a Busi ess Day (as defined in the Development Agreement) the next succeeding Business Day(the"Note Payment Dates"). On each Note Payment Date the Authority shall pay, by check or draft mailed to the person that was the Registered Owner of this Note at the close of the last Business Day preceding such Note Payment Date, eighty percent (80%) of the Tax Increments(as hereinafter defined)received by the Authority from the Tax Increment District(as hereinafter defined) since the preceding Note Payment Date or, in the case of the first Note Payment Date, prior to such first Note Payment Date, as provided in the Development Agreement. All payments shall be first applied to interest accrued on the Note and then to the B-1 unpaid principal of the Note. The Authority shall not be required to make any payments on the Note subsequent to February 1, 2023, and any balance of principal and interest remaining unpaid subsequent to the payment made on February 1, 2023 shall be deemed forgiven by the Developer. In no event shall the total Note Payment Amounts paid under this Note exceed the maximum amount of$1,171,377. Interest on this Note will compound semi-annually. Notwithstanding the interest rate provided herein, the total amount of capitalized interest that shall be payable by the Authority under this Note is limited to, shall not exceed, and shall not be less th $100,985 as provided in the Tax Increment Financing Plan for Tax Increment Financing (Re ent)District No. 20 (Superior Office Center Project), dated August 1,2006. The Note Payment Amounts due hereon shall be pay e sol in a portion of the tax increments, less twenty percent (20%), from the Devel : eikprope ' hin the Authority's Tax Increment Financing (Redevelopment) District N "Tax Incre District") within its Redevelopment Project Area No. 6, which are to the Authority and the Authority is entitled to retain pursuant to the provisions o esota S utes, Sections 4 through 469.1799, as the same may be amended or sup me m time to t. e (the "Tax Increments"). This Note shall terminate and be of no force and effect following the last Note Payment Date defined above, on date upon whi Authority shall have cancelled and rescinded the Development Agree ursuant to S 4.2(a) thereof or the Note pursuant to Section 4.2(b) of said Develo " eement, or o' ate that all principal and interest shall have been paid in full, wh eve earlies The Authority makes no representation or covenant, express or impli th t(80%) of the Tax Increments will be sufficient to pay, ' e or in part, amounts ich are or may become due and payable hereunder. The Authority's ent igations here r shall be further conditioned on the fact that no Event of Defaul to ent Agreement shall have occurred and be continuing pay m leis of . ue hereunder, but such unpaid amounts shall become a le i vent A efault shall thereafter have been cured; and, further, if pursu to the occurr of an _ of Default under the Development Agreement the Autl r ects to cancel rescin e Development Agreement, the Authority shall have no further de obligation u r this- ote whatsoever. Reference is hereby made to all of the provisions o evelopme greement, including without limitation Section 3.3 thereof, for a fuller statement e rights d obligations of the Authority to pay the principal of and interest on this Note, and s xo ons are hereby incorporated into this Note as though set out in full herein. This Note is a special, limited revenue obligation and not a general obligation of the Authority and is payable by the Authority only from the sources and subject to the qualifications stated or referenced herein. This Note is not a general obligation of the Housing and Redevelopment Authority in and for the City of Eden Prairie, Minnesota, and neither the full faith and credit nor the taxing powers of the City are pledged to the payment of the principal of and interest on this Note and no property or other asset of the Authority, save and except eighty percent (80%) of the above-referenced Tax Increments, is or shall be a source of payment of the Authority's obligations hereunder. B-2 This Note is issued b the Authority in aid of financing a project pursuant to and in full Y tY g P J i conformity with the Constitution and laws of the State of Minnesota, g includin Minnesota Statutes, Sections 469.174 through 469.1799. This Note may be assigned only with the consent of the Authority, which consent must not be unreasonably withheld. In order to assign the Note, the assignee shall surrender the same to the Authority either in exchange for a new fully registered note or for transfer of this Note on the registration records for the Note maintained by the Authority. Each permitted assignee shall take this Note subject to the foregoing conditions and subject to 11 provisions stated or referenced herein. IT IS HEREBY CERTIFIED AND RECITED that conditions, and things required by the Constitution and laws of the State of Minni. to ne, to have happened, and to be performed precedent to and in the issuanc f is Not e been done, have happened, and have been performed in regular and d o time, and r as required by law; and that this Note, together with all other ind dness of the Authority landing on the date hereof and on the date of its actual issuance. ive s not cause th tedness of rY the Authority to exceed any constitutional or statutory ti on. IN WITNESS WHEREOF, the_ ousing and Re ment Authority in and for the City of Eden Prairie, Minnesota, by it d of Commissi has caused this Note to be executed by the manual signatures of its xecutive Di d has caused this Note to be issued on and dated as of August 1, 2 Executive Director it B-3 CERTIFICATION OF REGISTRATION It is hereby certified that the foregoing Note, as originally issued on 2006, was on said date registered in the name of , and that, at the request of the Registered Owner of this Note, the undersigned has this day registered the Note in the name of such Registered owner, as indicated in the registration blank below, on the books kept by the undersigned for such purposes. NAME AND ADDRESS OF DATE OF SIGNATURE OF REGISTERED OWNER REGISTRATION r ECRETARY 2006 9Fp� F9 tad, 5� pt; B-4 EXHIBIT C COMPLIANCE CERTIFICATE The undersigned officer of , does hereby certify that during the calendar year ending on the December 31 preceding the date of this Certificate, the Project(as defined in the Development Agreement, dated as of , 2006,between the Housing and Redevelopment Authority in and for the City of Eden airie and was operated in complianc . e provisions of Section 3.4 of said Development Agreement.Attached hereto is ing, as of the end of said calendar year, of the units in the Project which are designated w Income Units,which listing sets forth, for each such Low Income Unit, (i)the mos rren ' 'fied income for the individual or family occupying(or most recently occupyi s Low e Unit and(ii)the current rent charged for such Low Income Unit. Dated this day of t, C-1 EXHIBIT D FORM OF ASSESSMENT AGREEMENT THIS AGREEMENT is dated as of August 1, 2006 and is between the HOUSING AND REDEVELOPMENT AUTHORITY IN AND FOR THE CITY OF EDEN PRAIRIE, MINNESOTA, a public body corporate and politic organized and existing under the laws of the State of Minnesota(the"Authority"),and , a Minnesota (the"Developer"). IN CONSIDERATION OF the mutual covenant efits herein described, the Authority and the Developer recite and agree as follows: Section 1. Recitals. 1.01. Project Plan. The Authority. eretofo :.developed a R ment Plan(the"Project Plan")outlining certain developm tiviti I be undertaken d has adopted a Redevelopment Plan therefor(the"Redevelo `,an" which inclu es the construction of a (the "Project") and related site improvement other improvem x f a public nature. The Project is to be owned by the Developer. 1.02. Tax Increment FinancinAwk Di . ant t the Minnesota Tax Increment Financing Act, esota Statutes e s 4 o 469.1799, as amended(the "TIF Act"),the City and ity have ap ' ved a tax" "rement financing plan (the "Financing Plan"),w ' is the sed metho r financing the development activities currently proposed.: dertak ursuant to th .ect Plan relating to the Project. Pursuant to the Financing Plan,T e ancing(R velopment)District No.20 (the"District") has been esta as a re . 'p = der the TIF Act. 1.03. , : A enta The Authority and the City of Eden Prairie,Minnesota (the" , have each a dzed axe cted their respective officers to take all actions necess plement an ry outs 9j'e Project Plan and the Financing Plan. The Project Plan and the Fin Plan prop that the Authority finance certain costs of or related to the Project,payab m tax inc ent(as defined in the TIF Act)derived from the District("Tax Increment"). 1.04,D opment Agreement. The Authority and the Developer have entered into a Development A eement, dated as of August 1, 2006 (the"Development Agreement"), which provides that the Developer will improve the real property described in Exhibit A hereto (the"Land")by the construction of the Project thereon. The Development Agreement provides that upon the execution and delivery of the Development Agreement the Authority and Developer are to enter into this Assessment Agreement. D-1 Section 2. Minimum Market Value. 2.01. Agreed Upon Minimum. The Developer agrees that the minimum market value of the Land and the Project for ad valorem tax purposes, for the assessment made as of January 2,2007, shall be not less than$4,100.000.00, and for the assessment made as of January 2, 2008, and continuing throughout the term of this Assessment Agreement, shall be not less than $12,600,000.00, and shall not be reduced by any action taken by the Developer(other than a deed in lieu of, or under threat of, condemnation by the City of Eden Prairie,Hennepin County or other condemning authority),to less than the said amount, and that d ing the term of this Assessment Agreement no reduction of the market value therefor be ' minimum market value shall be sought b the Developer r anted 'c ial or court except o b an public o t m g Y P t�' Y Y P P accordance with Minnesota Statutes, Section 469.177, subdivi is minimum market value shall apply only to the Land,the Project and any other- ilities ed on the Land. In the event of involuntary conversion of the Land and the P ' c r any r' (other than condemnation by a public entity),the minimum mark ue hall not be r d to an amount less than said minimum market value. The Developer acknowledges and agre t t d and the Protect are subject to ad valorem property taxation and that such property to nstitute taxes on"real property" (as provided in Section 469.174, subdivons 4 and 7(d) o IF Act) and,to the extent reflecting net tax capacity rates of taxin 0 ctions levied a the captured net tax capacity of the District,tax increment. 2.02. Higher Market Value. -thin ment Agreement shall limit the discretion of the coun , or of the Ci den Pra or any other public official or body having the duty t " e e market v e of the L nd,the Project and other facilities on the Land for ad v tax p ses, to assi .-- o the Land, the Project or to any other improvements cons uc r .n the d, on a nondi inatory basis and treated fairly and equally with all other prop " m the pective counties, a market value in excess of the mini value ifie 1 1 2.01. The Developer shall have the normal remedies ilable a la ntest any estimated assessor's estimated value in excess of said um market v but o ;e extent of the excess. .03. Subst I Coin' letion. For purposes of this Assessment Agreement and the determin of the mar " 'value of the Land and the Project for ad valorem tax purposes, the Developer a that th cject shall be deemed to be completed in accordance with the Development Agr t a- August 1, 2006 (the required date of completion),whether in fact completed or not. Section 3. Filing and Certification. 3.01. Assessor Certification. The Authority shall present this Assessment Agreement to the city assessor of the City of Eden Prairie and request such assessor to execute the certification attached hereto as Exhibit C. The Developer shall provide to the assessor all information relating to the Land and the Project requested by the assessor for the purposes of discharging the assessor's duties with respect to the certification. D-2 3.02. Filing. Prior to the recording of any mortgage, security agreement or other instrument creating a lien on the Land and in any event not less than 30 days after the execution of this Assessment Agreement,the Developer shall cause this Assessment Agreement and a copy of Minnesota Statutes, Section 469.177, subdivision 8, attached hereto as Exhibit B,to be recorded in the office of the County Recorder or Registrar of Titles of Hennepin County, and shall pay all costs of such recording. Section 4. Relation to Development ment Agreement. The covenants and agreements made by the Developer in this Assessment Agreement are separate fro nd in addition to the covenants and agreements made by the Developer in the Developme ement and nothing contained herein shall in any way alter,diminish or supersede the; ies and obligations of the Developer under the Development Agreement. Section 5. Miscellaneous Provisions. 5.01. Binding Effect. This Assessm Agreement shall inure e benefit of and shall be binding upon the Authority and the er and ,eir respective s ors and assigns, and upon all subsequent owners of the Land e Pr 5.02. Severability. In the event any provisi ` this Assessment Agreement shall be held invalid or unenforceable b 41court of compet '" indiction, such holding shall not invalidate or render unenforceable an vision hereo . 5.03. Amendments Change d M S. Except as provided in Section 5.04, this Assessme eement may e. ; 'ende Y of its terms modified only by written amendment aut executed by e Authori and the Developer and otherwise in compliance with S. °::fin 469. _ subdivision of the Act. 5.04. Furt ' .r° ss and Corre a Instruments. The Authority and the Developer agr u they w H _ m xecute, acknowledge and deliver, or cause to be execute- 1 d or" red, suc " '` pplements hereto and such further instruments as may sonably be d for cting any inadequate or incorrect description of the Land or t ct, or for ca ut thessed intention of this Assessment Agreement. Y 05. Exec uti Counterparts. This Assessment Agreement may be simultaneousl uted in s fral counterparts, each of which shall be an original and all of which shall cons t but o and the same instrument. 5.06. icable Law. This Assessment Agreement shall be governed by and construed in accordan e with the internal laws of the State of Minnesota. 5.07. Cations. The captions or headings in this Assessment Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions or Sections of this Assessment Agreement. 5.08. Effective Date. This Assessment Agreement shall be effective as of August 1, 2006. D-3 5.09. Termination Date. This Assessment Agreement shall terminate upon the termination of the District in accordance with Minnesota Statutes, Section 469.176, subdivision 1. 5.10. Definitions. Terms used with initial capital letters but not defined herein shall have the meanings given such terms in the Development Agreement, unless the context hereof clearly requires otherwise. :3> D-4 IN WITNESS WHEREOF,the Authority has caused this Assessment Agreement to be executed in its name by its duly authorized officers and the Developer has caused this Assessment Agreement to be executed in its corporate name. HOUSING AND REDEVELOPMENT IN AND FOR THE CITY OF EDEN PRAIRIE, MINNESOTA By Its Chair By , Its Executive or STATE OF MINNESOTA ) COUNTY OF HE ) The fore ins ent was ackn dged before me this day of . 2006,' ": the Chair and Execu ctor respectively of the Housing and Redevel. ent Aut - an he City of Eden Prairie,Minnesota, a public body corporate and p organized an ting u r laws of the State of Minnesota, on behalf of the pub c Notary Public D-5 By Its STATE OF MINNESOTA ) )ss. COUNTY OF ) The foregoing instrument was ac - ,ged be a me this 20_by of , a Minnesota , on behalf of the . blie D-6 EXHIBIT A DESCRIPTION OF LAND z :u D-7 EXHIBIT B COPY OF MINNESOTA STATUTES, SECTION 469.177, SUBDIVISION 8 Assessment agreements. An authority may enter into a written assessment agreement with any person establishing a minimum market value of land, existing improvements,or improvements to be constructed in a district, if the property is owned or will be owned by the person. The minimum market value established by an assessment agreement may be fixed, or increase or decrease in later years from the initial minimum market value. If an a ement is fully executed before July 1 of an assessment year,the market value as provided u < agreement must be used by the county or local assessor as the taxable market value o e property for that assessment. Agreements executed on or after July 1 of an asse ar become effective for assessment purposes in the following assessment year. An a smen cement terminates on the earliest of the date on which conditions in the assess a ement" rmination are satisfied,the termination date specified in the agreeme , or t date when crement is no longer paid to the authority under section 469.176, divisio 1. The assess eement shall be presented to the county assessor, or city Navin e powers of th my assessor, of the jurisdiction in which the tax incremen ci ict and the perry that is the subject of the agreement is located. The assessor sha ew the plans and specifications for the improvements to be constructed,re ' the market valu iously assigned to the land upon which the improvements are to be c ted and, so lon he minimum market value contained in the assessment agreement app , ' udgment o " ssessor,to be a reasonable estimate, shall execute the follo g ce upon a agreement: The under essor,bein. ally respo le for the assess of th ve describe roperty, certifies that the mar es assi to the land d improvements are reasonab The assess ant sha filed for r rd and recorded in the office of the county recorde the regist tles h county where the real estate or any part thereof is situa fter the agree beco ective for assessment purposes,the assessor shall value th erty under se 273. except that the market value assigned shall not be less than the mi m market va es tab ished by the assessment agreement. The assessor may assign a markI ue to the erty in excess of the minimum market value established by the assessment agree The er of the property may seek,through the exercise of administrative and edies, a reduction in market value for property tax purposes, but no city assessor, county a sor, county auditor, board of review,board of equalization, commissioner of reve e, or court of this state shall grant a reduction of the market value below the minimum market value established by the assessment agreement during the term of the agreement filed of record regardless of actual market values which may result from incomplete construction of improvements, destruction, or diminution by any cause, insured or uninsured, except in the case of acquisition or reacquisition of the property by a public entity. Recording an assessment agreement constitutes notice of the agreement to anyone who acquires any interest in the land or improvements that is subject to the assessment agreement, and the agreement is binding upon them. D-8 An assessment agreement may be modified or terminated by mutual consent of the current parties to the agreement. Modification or termination of an assessment agreement must be approved by the governing body of the municipality. If the estimated market value for the property for the most recently available assessment is less than the minimum market value established by the assessment agreement for that or any later year and if bond counsel does not conclude that termination of the agreement is necessary to preserve the tax exempt status of outstanding bonds or refunding bonds to be issued,the modification or termination of the assessment agreement also must be approved by the governing bodies of the county and the school district. A document modifying or terminating an agreement, i ding records of the municipality, county, and school district approval, must be filed for r . The assessor's review and certification is not required if the document terminate agreement. A change to an agreement not fully executed before July 1 of an assessment y is ffective for assessment purposes for that assessment year. If an assessment agreeme as be dified or prematurely terminated,a person may seek a reduction in market val t through xercise of any administrative or legal remedy. The remedy may not vide or reduction market value below the minimum provided under a modified as ent agr ement that rem` in ect. In no event may a reduction be sought for a year of ` r T e c t taxes payable r. D-9 EXHIBIT C ASSESSOR'S CERTIFICATE The undersigned, being the duly qualified and acting assessor of the City of Eden Prairie, Minnesota, hereby certifies that. 1. I am the assessor responsible for the assessment of the Land described in the foregoing Exhibit A; 2. I have read the foregoing Assessment Agree ed as of August 1, 2006; 3. I have received and read a duplicate on ' f the pment Agreement referred to in the Assessment Agreement; 4. I have received and reviewed th hitectur and engineers n d specifications for the Project agreed to be cons the L ursuant to the elopment Agreement; 5. I have received and rN wed an estimate ed by the Developer of the cost of the Land and the Project to be con thereon; 6. I have reviewed the mark walu sly assi., "ed to the Land on which the Project is to be constructed, and the minimum. ar , va" ssigned to the Land and the Project by the Assessmen ent is a reas a estima ,and 7. I certify : ,t the market lue assigned to the Land and the Project described on the forego r xhibi '4 by the Asses t Agreement is reasonable and the market value assigned to the Lan ,,. th sessment January 2, 2007, shall be not less than $4,100 d fort essmei as of January 2, 2008, and continuing through e term Asse N' t Agreement, shall be not less than$12,600,000.00. Dated City Assessor, City of Eden Prairie, Minnesota D-10 Springsted Incorporated 380 Jackson Street, Suite 300 Saint Paul,MN 55101-2887 Tel: 651-223-3000 Fax: 651-223-3002 mmspringsted.com MEMORANDUM TO: David Lindahl,Manager of Economic Development Janet Jeremiah,Community Development Director FROM: Mikaela Huot,Assistant Vice President/Consultant Paul Steinman,Vice President/Consultant DATE: July 25,2006 SUBJECT: United Properties Tax Increment Financing and Development Agreement The purpose of this memo is to provide information related to the Housing and Redevelopment Authority in and for the City of Eden Prairie (HRA) and City Council approval of a Tax Increment Financing Plan and Redevelopment Plan and Development Agreement with United Properties for the redevelopment of the former Physical Electronics building located at 6509 Flying Cloud Drive. When Tax Increment Financing is involved in a redevelopment project,actions by the public entity(HRA and/or City Council)will have two primary parts: • Consideration of the Tax Increment Financing(TIF)Plan and Redevelopment Plan ■ Gives the HRA/City authority to utilize the Tax Increment Financing tool and to provide a TIF subsidy to a Developer/project • Consideration of the Development Agreement ■ Specifies the mechanics of providing a subsidy and the amount of such subsidy 1)Consideration of a Tax Increment Financing(TIF) Plan and Redevelopment Plan The Tax Increment Financing Plan for Tax Increment Financing District No.20 is a newly proposed redevelopment district that is anticipated to be adopted on August 1,2006. The Redevelopment Plan for Redevelopment Project Area No.6 is a newly proposed project plan that is also anticipated to be adopted on August 1,which provides the underlying statutory authority for a public body to create a Tax Increment Financing Plan. The TIF Project includes the acquisition and demolition of an existing building complex that was found to be substandard in 2005. The Pub 'c Sector A€v sors City of Eden Prairie, Minnesota Summary Memo, TIF 20 and Development Agreement July 25, 2006 Page 2 developer is proposing to construct a 91,000 square foot office building called Superior Office Center. It is proposed that tax increment will be used to reimburse the developer for a portion of the site improvements/preparations associated with redevelopment of the site. The HRA will be the authority of the district and asked to approve the creation of the TIF Plan and Redevelopment Plan on August 1. MN Statute requires the City Council to hold the public hearing and pass a resolution approving creation even though the approving body is the HRA. LHB, a local planning/architectural firm,was hired in 2005 to inspect and evaluate the property within the proposed TIF(Redevelopment)District No.20. The building was determined to have met the statutory requirements necessary to be found substandard as described in the Tax Increment Financing law. The HRA passed a resolution on November 1, 2005 which found the building to be substandard, prior to its demolition late in 2005. A final building analysis report has been completed and is kept on file in the City offices. The term of TIF District No. 20 is estimated to be 15 years. The budget contained in the plan is $2,783,941 and includes the following public costs: ➢ Site Improvement/Preparation Costs of$728,204 ➢ Loan principal and interest payments,including capitalized interest,of$1,171,377 ➢ Administrative expenses(1%)of$20,557 ➢ Pooling for redevelopment/transportation/affordable housing(19%)of 863,803 The revenues of the district total$2,783,941 and are as follows: ➢ Projected tax increment of$2,055,737 ➢ Loan proceeds of$728,204 Approval of the TIF and Redevelopment plans does not constitute an agreement between the HRA and United Properties to provide a subsidy to the project rather, it provides the mechanism to collect tax increment due to an increase in value of the redevelopment property. 2)Consideration of the Development Agreement between the HRA and United Properties The Development Agreement between United Properties and the HRA contains the provisions of the proposed development and specifies the amount of the subsidy and how it is to be provided. The development agreement contains the following primary points related to how much subsidy is to be provided and the provisions under which such subsidy is provided: • The principal amount of subsidy is$728,204. • The principal amount will be paid to the Developer by the City over a term of 15 years and will include interest at 6.5%. City of Eden Prairie, Minnesota Summary Memo, TIF 20 and Development Agreement July 25, 2006 Page 3 • The maximum Note payment amounts over the term are$1,171,377. • Should the Developer sell the project anytime prior to February 1, 2023, the Developer will repay to the Authority the total amount of principal and interest paid to the Developer. • When the rental space is 95% leased, or 18 months passes from completion of construction, the leases shall be provided to the Authority and a re-examination of the lease rates will be undertaken. If there is greater than$1.25 psf variation above an average triple net lease rate of$14.50,then an IRR analysis shall be completed using current project information, including actual costs. If the analysis results in an IRR with assistance of less than 15%,then the project will continue to qualify for the same TIF subsidy,and if greater than 15%with assistance, such assistance shalt be adjusted accordingly so that the IRR does not exceed 15%. • The principal amount plus interest shall be solely payable to the Developer from 80% of Tax Increments received. • The Business Subsidy law does not apply because of the provision stating such assistance is not a business subsidy if it is "assistance for redevelopment when the recipient's investment in the purchase of the site and in site preparation is 70 percent or more of the assessor's current year's estimated market value". As stated in the development agreement,the Developer's acquisition and site preparation is 158% of the assessor's current year's estimated market value. Springsted completed an analysis of the projecfs sources and uses, including an internal rate of return analysis, as part of the detailed project review. The results of that analysis are included in a memo to City Staff dated July 25, 2006 entitled"United Properties Request for Financial Assistance—Final Internal Rate of Return Analysis". Springsted Incorporated 380 Jackson Street, Suite 300. Saint Paul,MN 55101-2887 Tel: 651-223.3000 Fax: 651-223-3002 www.springsted.com MEMORANDUM TO: David Lindahl,Manager of Economic Development Janet Jeremiah,Community Development Director FROM: Mikaela Huot,Assistant Vice President/Consultant Paul Steinman,Vice President/Consultant DATE: July 25,2006 SUBJECT: United Properties Request for Financial Assistance—Final Internal Rate of Return Analysis The purpose of this memo is to outline the financial components of the United Properties proposal to construct an office building on approximately 10.36 acres within the proposed Tax Increment Financing District No.20. The developer estimates the total cost of the project to be$14,034,837. The developer's request for tax increment financing assistance is$1,044,244. City staff will recommend to Council/HRA that the developer be reimbursed solely for demolition and asbestos removal costs,which the developer estimates to be$728,204. The annual amount of gross tax increment based upon a final market value of$12,683,000(land-$1,998,000,building- $10,685,000)as estimated for taxes payable 2009 is approximately$136,191. We recommend the City retain 20%of the tax increment for pooling for affordable housing, redevelopment and transportation costs and related administrative expenses,with the remaining 80%pledged for payment to the developer. Assuming a present value rate of 6.50%we estimate it will take approximately 12 years to pay off a TIF Note of$728,204, including capitalized interest. The City's current Tax Increment Policy limits the amount of assistance to 15 years. Our assumptions also include a 0%annual market value inflator. But-For Analysis The but-for test is used to determine whether or not a project will proceed as proposed without the use of public dollars. To complete this analysis we examined two 10-year commercial project pro-formas,one showing a result if the developer receives the subsidy and one showing a result if the developer does not receive a subsidy. The following assumptions and parameters were used in the proformas: ➢ Revenues and expenses provided by developer o Total acquisition costs were reduced by the amount of accrued interest,$280,460,since the time the property was purchased,subsequently increasing the amount of equity required. o Total acquisition costs were reduced by the amount of real estate taxes paid,$75,101,since the property was purchased,subsequently increasing the amount of equity required. o Total acquisition costs used in our analysis did not include$60,000 of additional other costs indicated by the developer as acquisition costs. Lease rates provided by developer o $14.50 per square foot for office space Pubt'c Sector Adlv'sors City of Eden Prairie, Minnesota Final IRR Analysis,TIF 20 July 25,2006 Page 2 Vacancy rates provided by developer o 5% ➢ Equity investment of$3,119,276 without assistance(estimated) ➢ Equity investment of$2,391,276 with assistance(estimated) Annual inflation rates as provided by developer applied to rental incomes ➢ 3%inflation rates applied to expenditures ➢ Present value rate equal to 6.50%(developer financing) ➢ Developer provided financing terms of 6.50%,$10.5 million,30 year term—paid in full at time of sale Springsted has reviewed the developers projected lease rates and finds them to be within a reasonable range of rates in the Eden Prairie and surrounding area market. Springsted performed an industry standard analysis using the Internal Rate of Return mechanism to estimate the proposed project's rate of return. ♦ Internal Rate of Return(IRR) o measures the average annual yield on an investment The following table summarizes the results of the IRR analysis: Without Assistance With Assistance Internal Rate of Return(year 11) 9.12% 12.79% Calculated Sale $11,980,291 $13,123,038 Developers are typically interested in the cash on cash rate of return and return on investment to determine the profitability of income producing properties. The cash on cash method is an annual test and considers the before-tax cash flow as a measure of the equity invested to determine the developer's cash return. An investor is typically interested in the internal rate of return of the project to determine the return on their initial investment,generally over a longer period. It is our understanding that in this case United Properties holds the position as both developer and investor. The internal rate of return measurement is typically what is used by public agencies to determine the need for a subsidy. Our methodology is to estimate the calculations to help measure the project's financial performance with and without the assistance in order to meet the but-for analysis,which tests whether the project will proceed"but-for"the subsidy. Should the IRR lie below a reasonable range without a subsidy, we can assume the project will not move forward without such subsidy. Should the IRR lie within a reasonable range with a subsidy,we can assume the amount of subsidy tested is appropriate for the project. All such estimates should be viewed as general indicators of performance and not exact forecasts. The number of current and future variables affecting these estimates and actual results are great. Tenant improvement costs and lease commissions will occur at the start of the project before the rental incomes and potential tax increment revenues are fully realized. We estimate the overall cumulative cash flow of the project in the early years will be poor because of the upfront costs. Cash flow is not covered in the initial years but proves solid and growing through 10 years in both scenarios. Debt service coverage is estimated to be 151%without assistance and 164% with assistance in year three. The developer uses a 5% vacancy rate which is also a reasonable assumption for this type of product given the current market. City of Eden Prairie,Minnesota Final IRR Analysis,TIF 20 July 25,2006 Page 3 Without assistance this project is expected to generate an internal rate of return of 9.12%in 2017. The calculation of the internal rate of return includes a hypothetical sale of the building in year 11 (2017). Using the Net Operating Income of year 11 and a capitalization rate of 9.5%,the estimated sales price would be$11,980,291. Using those same assumptions, with the TIF assistance we calculated the project would generate an IRR of 12.79%, with a calculated sales price of$13,123,038. ♦ Capitalization Rate(Cap Rate) o a ratio used to estimate the value of income producing properties United Properties has submitted an updated request for TIF assistance dated June 29,2006 for a total amount of $1,044,244. This includes the following project costs: Demolition and Asbestos Removal 728,204 Earthwork(excess fill removal) 141,300 Retaining Wall 86,040 Storm Water Ponds 47,500 TIF Support Fees 16,200 Related Engineering Fees 25,000 Total $1,044,244 United Properties also provided the following updated estimated sources and uses of funds related specifically to the proposed redevelopment parcel: Sources of Funds Total Uses of Funds Total First Mortgage Amount 10,500,000 Land Acquisition 2,425,208 Equity 2,806,837 Construction/Demo Costs 9,054,144 TIF 728,000 Soft Costs 1,955,485 Development Fee 600,000 Total 14,034,837 Total 14,034,837 Conclusion The developer indicates in the request that assistance is necessary due to unusual land costs,including demolition of the existing blighted building,asbestos abatement and extensive site work including grading and removal of excess fill,retaining wall and storm water pond construction,and that TIF assistance will help to offset these unusual costs and make the project more feasible. In our analysis we used a land acquisition cost of$2,009,647,and an equity amount(with assistance)of$2,391,276 vs.what is shown above on the developers'sources and uses. The differential between the land acquisition cost we used and the developer's,is$280,460 in accrued interest,$75,101 in real estate taxes paid since purchase,and$60,000 of other additional costs borne by the developer. The calculated internal rate of return supports the fact that a subsidy may be necessary to provide a return adequate to complete the project as proposed. Without the assistance the timeline and type of project ultimately constructed may be adversely impacted. In conclusion,it appears such assistance is necessary to obtain the redevelopment results the City desires on the proposed site. Thank you for the opportunity to be of assistance to the City of Eden Prairie. Please contact us at(651)223-3000 or mhuot@springsted.com and psteinman@springsted.com with any questions or comments. Housing and Redevelopment Authority in and for the City of Eden Prairie City of Eden Prairie, Minnesota Redevelopment Plan for Redevelopment Project Area No. 6 Dated: July 26, 2006 (DRAFT) Approved: Prepared by: SPRINGSTED INCORPORATED 380 Jackson Street,Suite 300 St. Paul,MN 55101-2887 (651)223-3000 WWW.SPRINGSTED.COM TABLE OF CONTENTS Section Pa e s ADefinitions.....................................................................................................................:......... 1 BStatutory Authorization .......................................................................................................... 2 C Statement of Need and Public Purpose ............................................................................... 2 DStatement of Objectives ........................................................................................................ 2 E Boundaries of the Project Area ............................................................................................. 3 FProperty Acquisition ............................................................................................................ 3 GPayment of Public Costs ....................................................................................................... 3 H Environmental Controls;Land Use Regulations .................................................................. 3 1 Park and open Space to be Created .................................................................................... 3 J Property Acquisition and Proposed Reuse .......................................................................... 4 K Administration and Maintenance........................................................................................... 4 LRelocation .......................................................................................................................... 4 MAmendments .......................................................................................................................... 4 Mapof the Project Area............................................................................................................................. EXHIBIT I Housing and Redevelopment Authority in and for the City of Eden Prairie, Minnesota Section A Definitions The terms defined in this section have the meanings given herein,unless the context in which they are used indicates a different meaning: "Authority'means the Housing and Redevelopment Authority in and for the City of Eden Prairie. y means the City of Eden Prairie, Minnesota, a municipal corporation and political subdivision of the State of Minnesota. "City Council"means the City Council of the City. "Coun "means Hennepin County,Minnesota. "Governing Body"means the Board of Commissioners of the Authority. "HRA Act" means the Minnesota Municipal Housing and Redevelopment Act, Minnesota Statutes, Sections 469.001 through 469.047,both inclusive. "Land Use Regulations"means all federal,state and local laws, rules, regulations,ordinances and plans relating to or governing the use or development of land in the Project Area, including but not limited to environmental, platting, zoning and building code laws,regulations and ordinances. "Project Area"means the geographic area of Redevelopment Project Area No.6. "Public Costs" means the costs of land acquisition, public and site improvements, repayment of debt service on tax increment bonds, and other eligible costs as set forth in the Redevelopment Plan and Tax Increment Financing Plan(s). "Redevelopment Plan"means the Redevelopment Plan for the Project Area. "State"means the State of Minnesota. "TIF Act"means Minnesota Statutes,Sections 469.174 through 469.1799,all inclusive. "TIF District"means any tax increment financing district presently established or to be established in the future in the Project Area. "TIF Plan"means the 9P respective tax increment financing Ian for each TIF district located within the Project Area. P SPRINGSTED Page 1 Housing and Redevelopment Authority in and for the City of Eden Prairie, Minnesota Section B Statutory Authorization The HRA Act authorizes the Authority to exercise all the powers relating to a housing and redevelopment authority granted under Minnesota Statutes,Sections 469.001 to 469.047,or other law. It is the intention of the Governing Body, notwithstanding the enumeration of specific goals and objectives in the Redevelopment Plan,that the Authority shall have and enjoy with respect to the Project Area the full range of powers and duties conferred upon the Authority pursuant to the HRA Act,the TIF Act, municipal housing and redevelopment authority laws,and such other legal authority as the Authority may have or enjoy from time to time. Section C Statement of Need and Public Purpose The Authority finds that there is a need for redevelopment within the City and the Project Area in order to provide employment and housing opportunities,to improve the local tax base,and to improve the general economy of the City and the State. The economic security of the people in the City depends upon proper development of property that meets any one of a number of conditions, including properties whose values are too low to pay for the public services required or rendered and properties whose lack of use or improper use has resulted in stagnant or unproductive land that could otherwise contribute to the public health,safety,and welfare. The Authority finds that in many cases such property cannot be developed without public participation and assistance in various forms including property acquisition and/or write-down,proper planning,the financing of development costs associated with clearance, grading and soils correction, and the making of various other public and private improvements necessary for development. In cases where the development of property cannot be done by private enterprise alone,the Authority believes it to be in the public interest to consider the exercise of its powers,to advance and spend public money,and to provide the means and impetus for such development. The Authority finds that in certain cases property within the Project Area would or may not be available for development without the specific financial aid to be sought, that the Redevelopment Plan will afford maximum opportunity, consistent with the needs of the City as a whole, for the development of the Project Area by private enterprise,and that the Redevelopment Plan conforms to the general plan for the development of the City as a whole. The Authority further finds that the Project is a"redevelopment project"within the meaning of Minnesota Statutes, Section 469.002,subd.14 of the HRA Act Section D Statement of Objectives The Authority seeks to achieve one or more of the following objectives with respect to the Project Area, as the Authority may deem appropriate and necessary. (1) To promote and secure the prompt development of property within the Project Area,such property which is not now in its most productive use,in a manner consistent with the Comprehensive Plan of the City,thus realizing Comprehensive Plan,land use,and tax base goals. (2) To assist development in the Project Area through the acquisition or write-down of certain interests in property which is not now in productive use or in its highest and best use,to make or defray the cost of soil corrections or site improvements on said property,and to construct or reimburse for the construction of public improvements and other facilities on or for the benefit of said property, thereby promoting and securing the development of other land within the Project Area. (3) To secure the increase of industrial and commercial property subject to taxation within the Project Area. SPRINGSTED Page 2 Housing and Redevelopment Authority in and for the City of Eden Prairie, Minnesota (4) To promote and secure additional employment opportunities within the City and to prevent the loss of existing employment opportunities,thereby preventing the loss of valuable human resources. (5) To provide funding for an ongoing development strategy and to prioritize the use of available resources. (6) To implement and revise from time to time, as may be deemed necessary or desirable, a consolidated and unified Redevelopment Plan and to finance the associated development costs on an area-wide basis. (7) To employ any of the powers of the Authority for the benefit of the Project Area in such cases and upon such terms as the Authority may deem appropriate. (8) To construct or acquire facilities deemed desirable for the development of the Project Area. Section E Boundaries of the Project Area The property within the City which constitutes the Project Area includes the property as illustrated on the map attached as Exhibit I. The City reserves the right to expand the boundaries of the Project Area in the future. Section F Property Acquisition The Authority may acquire property,or appropriate interest therein,within the Project Area as it deems necessary or desirable to assist in the implementation of the Redevelopment Plan. Section G Payment of Public Costs It is anticipated that the Public Costs of the Project Area will be paid primarily from tax increments or proceeds of tax increment bonds. Such costs are identified in the TIF Plan(s)for the corresponding TIF District(s) located within the Project Area. The Authority reserves the right to use other sources of revenue legally applicable to the Project Area to pay for such Public Costs including,but not limited to,special assessments,federal or state funds,and investment income. Section H Environmental Controls; Land Use Regulations All authority actions, public improvements and private development shall be carried out in a manner consistent with existing environmental controls and all applicable Land Use Regulations. Section I Park and Open Space to be Created Park and open space created within the Project Area will be done so in accordance with the zoning and platting ordinances of the City. SPRINGSTED Page 3 Housing and Redevelopment Authority in and for the City of Eden Prairie, Minnesota Section J Property Acquisition and Proposed Reuse The Redevelopment Plan contemplates that the Authority may acquire property and reconvey the same to another entity. Prior to formal consideration of the acquisition of any property,the Governing Body will require the execution of a binding development agreement with respect thereto and evidence that tax increments or other funds will be available to repay the Public Costs associated with the proposed acquisition. It is the intent of the Authority to negotiate the acquisition of property whenever possible. Appropriate restrictions regarding the reuse and redevelopment of property shall be incorporated into any development agreement to which the Authority is a party. Section K Administration and Maintenance Maintenance and operation of the Project Area will be the responsibility of the Community Development Director who shall serve as administrator of the Project Area. Each year the administrator will submit to the Governing Body the maintenance and operation budget for the following year. The administrator will administer the Redevelopment Plan pursuant to the provisions of the HRA Act; provided, however, that such powers may only be exercised at the direction of the Governing Body. No action taken by the administrator pursuant to the above-mentioned powers shall be effective without authorization by the Governing Body. Section L Relocation Any person or business that is displaced as a result of the Redevelopment Plan will be relocated in accordance with the provisions of the HRA Act and other applicable state law. Section M Amendments The Authority reserves the right to alter and amend the Redevelopment Plan subject to the provisions of state law regulating such action. SPRINGSTED Page 1 Exhibit l Map of Redevelopment Project Area No.6 101 \ \\ \ \ \ „t �rr Q j� A' S ' }W eyw;i Smug City of Eden Prairie Tax Increment Redevelopment Project Area#6 d R I UNITED PROPERTIES June 29,2006 Ms.Mikaela Huot Springsted, Inc 380 Jackson Street, Suite 300 St. Paul, MN 55101-2887 RE: 6509 Flying Cloud Drive Eden Prairie,MN Dear Ms.Huot: United Properties has submitted a TIF application to the City of Eden Prairie requesting j TIF support in the amount of$1,044,244. United Properties recently demolished an obsolescent structure that had been formally determined to be blighted. The decision to demolish was made by United Properties because we had no interest by prospective tenants in the existing building because It had an inflexible space plan due to multiple phased expansions with a lot of structural bearing walls, various ceiling heights,a partial basement level and older architectural design,in addition to asbestos materials throughout the older structure_ United Properties decided to demolish the obsolescent structure and replace it with a new single-story office building that would be more attractive to current tenants in the marketplace. The decision to construct a one-story office building is also dictated by the marketplace. The site does not have freeway Visibility and is surrounded by similar one-story office and industrial properties. The marketplace will only pay a rent that supports one-story construction,which is less than for multi-story buildings. United Properties anticipates starting construction in September 2007 on a new one-story speculative office building containing 91,000 square feet. The costs to construct this project are too high due to unusual land costs, including demolition of the existing blighted building, asbestos abatement,and extensive site work including grading and removal of excess fill,retaining wall and stormwater pond construction. Obtaining TIF support to offset these unusual land costs will help make the project financially feasible and put it on an equal playing field with competitive properties. The project is not feasible without this assistance. The following is a cost breakdown for the amount of the TIF request: Demolition and Asbestos $728,204 Removal Earth Work(excess fill removal) $141,300 Retaining Wail $86, 040 Stormwater Ponds $47,500 TIF Support Fee $16,200 Related Engineering Fees $25.000 Total $1,044,244 3500 American Blvd.W. Minneapolis.MN 55431 • 952.831.1000 0 fax 752.893,8206 www uproperties.corn Ms. Mikaela Huot June 29, 2006 Page 2 Please call me if you have any questions. We respectfully request approval by the City of Eden Prairie for tax increment financing in the amount of$1,044,244. Very truly yours, Dale J. Glowa Senior Vice President Development DJG/jlk M