But-For Determination Report & Cost-Benefit Analysis October 14, 2015 Tom Denaway – Assistant Vice President Springsted Incorporated 9229 Ward Parkway, Suite 104 Kansas City, Missouri Baltimore Redevelopment Project

Introduction Overview of Springsted Incorporated 1640 Baltimore Redevelopment Project But-For Determination Report: –Springsted Approach –Statutory TIF Question –Sensitivity Analysis –Conclusion 1

2 Springsted Approach Springsted was retained to review the financial feasibility of the proposed project to determine if the project would not reasonably be anticipated to be developed without the adoption of the TIF Redevelopment Project Evaluate if the Developer’s expected rate of return without the requested subsidy is reasonable, within the current marketplace and at the present time

3 Springsted Approach Reviewed 10-year operating cash flow prepared by the Developer Utilized operating cash flow to prepare an Internal Rate of Return (IRR) for both with and without assistance, to use as a measure of project feasibility Reviewed project cost and operating assumptions to evaluate reasonableness with current market conditions, and performed sensitivity analysis to determine rate at which assumptions would have to change for project to be feasible

Incentive Request Assistance has been requested for project in the form of: Statutory TIF: –Capturing PILOT Revenue –Sales Tax EATS –Earnings Tax EATS –Utility Tax EATS 4

5 Statutory TIF Question: Is a public incentive needed for this project? Compliance with Missouri Statute –Redevelopment not anticipated to occur without TIF Reflective of only the specific development scenario presented and requested assistance Can the project generate a reasonable profit without the requested TIF or other requested assistance, within current marketplace and time? Study results are preliminary estimates from which actual results will vary.

6 Report conclusions based on developer’s anticipated income from the project 1.Examine proposed redevelopment costs and operating income for reasonableness 2.Project the developer’s profit with and without incentive –Measured as unleveraged and leveraged Internal Rate of Return (IRR) 3.Perform sensitivity analysis on factors: –Greatly influencing the developer’s return; and –For which there is a degree of uncertainty 4.Compare results to the current market for like projects

7 Return Analysis for the Project Unleveraged Market range is 5.50% to 11.00%; with average of 7.34% –From Korpacz/Price Waterhouse Cooper Real Estate Investor Survey Springsted Pro Forma With Full Assistance Request Without Assistance Unleveraged 6.76% 4.44% Leveraged 7.92% 3.51%

8 What if developer’s project costs were lower?

9 What if developer’s operating revenue were higher?

10 What if there are both cost savings and higher operating revenue?

11 But-For Determination Conclusions Based upon –Affidavit provided by the Developer –Our But-For Determination The proposed project would not occur on this site at this time without a public incentive.

12 But-For Determination Report Questions?

Cost-Benefit Analysis Introduction 1640 Baltimore Redevelopment Project Cost Benefit Analysis –Development Assumptions –Per-capita Costs and Revenues 13

14 Development Assumptions Assumptions used in building model include: –Renovations will occur in 2015 and 2016; operations begin 2017 –Project costs $13.2 million; includes 2005 building acquisition cost of $1.8 million –Personal property is estimated to be $384,620, which is depreciated and replaced on a 7-year cycle –Spending by construction workers is expected to add $272,000 in taxable sales –Project expected to add $1.64 million in assessed value to the property, with increases of 2% every other year

15 Development Assumptions (cont.) Assumptions (continued): –Retail component is estimated to generate $1.7 million in taxable sales in 2017 –30% of gross salaries will be spent on taxable goods and services –Consumer spending will be 60% in Kansas City, 70% in Jackson County, and 80% in Missouri –New employment will add 3 new students to the School District’s enrollment

Employment Impacts Creation of 75 new jobs (45 architectural jobs, 25 other office jobs and 5 retail positions) and retention of 75 architectural jobs; estimated payroll $9.7million in 2017 Moving existing jobs into TIF results in earnings taxes being re- directed to pay for project reimbursements –$26,250 in 2017, growing with inflation 16

Multiplier Impact Indirect job growth of 62 additional jobs with additional payroll of $2.3 million Indirect jobs result in revenues relating to: –Property taxes (residences for new families) –Earnings taxes on combined payroll –Sales taxes on local spending Indirect revenues are not captured by TIF 17

18 100% Per-Capita Costs and Revenues Financial statements are used to derive revenues and costs: –Per Capita –Per Employee Calculated based on average values, not marginal basis. –Result is that each new resident & worker has a pro-rata impact on all revenue & cost line items Full average cost is a conservative approach –Does not account for fixed costs –Errs toward overstating per-capita impacts

19 100% Per Capita Cost Scenario - Results Indirect and induced economic activity results in positive net impact for jurisdictions with sales and earnings tax revenues Jurisdictions reliant on property taxes show negative impacts due to per-capita costs related to new workers and residents

100% Per Capita Cost Scenario - Results 20

50% Fixed Cost Scenario Alternate scenario illustrates impact on analysis if some portion of costs were fixed Likelihood is that not all costs will be increased on a per-capita basis Prepared an alternate scenario for illustrative purposes to illustrate the impact if 50% of the revenues and costs were fixed and not increased on a per-capita basis Actual percentage of fixed costs will be unique to each jurisdiction 21

50% Fixed Cost Scenario - Results 22

23 Cost-Benefit Analysis Questions Thomas J. Denaway, Assistant Vice President Springsted Incorporated 9229 Ward Parkway, Suite 104 Kansas City, Missouri 64114