1. But-For Determination Report & Cost-Benefit Analysis May 11, 2016 Thomas Denaway, Assistant Vice President Springsted Incorporated 9229 Ward Parkway, Suite 104 Kansas City, Missouri 64114 816.333.7294 tdenaway@springsted.com Grand Reserve Hotel Redevelopment Project

2. Introduction Overview of Springsted Incorporated Grand Reserve Hotel TIF Plan But-For Determination Report: –Springsted Approach –Statutory TIF Question –Sensitivity Analysis –Conclusion 1

3. 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 Plan Evaluate if the Developer’s expected rate of return without the requested subsidy is reasonable, within the current marketplace and at the present time

4. 3 Springsted Approach Reviewed 10-year operating cash flow prepared by the Developer Pro forma included a hypothetical sale, and calculated an Internal Rate of Return (IRR) for both with and without assistance, to use as a measure of project feasibility Reviewed project cost and hotel 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

5. Incentive Request Assistance has been requested for project in the form of: Statutory TIF City Sales Tax Dedication Agreement CID Chapter 100 (Property Tax Abatement and Sales Tax Exemption on Construction Costs) 4

6. 5 Statutory TIF Question: Is a public incentive needed for this project? Compliance with Missouri Statute 99.810 –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.

7. 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

8. 7 Return Analysis for the Project – Unleveraged Unleveraged Market range is 8.50% to 13.00%; with average of 10.48% –From Korpacz/Price Waterhouse Cooper Real Estate Investor Survey

9. 8 What if developer’s project costs were lower?

10. 9 What if operating revenue were higher?

11. 10 What if there are both cost savings and higher operating revenue?

12. 11 But-For Determination Conclusions Based upon –Blight Study –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.

13. 12 But-For Determination Report Questions?

14. Cost-Benefit Analysis Introduction Grand Reserve Hotel Redevelopment Project Cost Benefit Analysis –Incentive Request –Development Assumptions –Per-capita Costs and Revenues 13

15. 14 Incentives Measured Model focused on following incentives: –Statutory TIF –City Sales Tax Dedication Agreement –CID –Chapter 100 (Property Tax Abatement and Sales Tax Exemption on Construction Costs)

16. 15 Development Assumptions Assumptions used in building model include: –Renovations and construction occur 2016-2017; operations begin 2018 –Acquisition of property approximately $15.1 million –Construction and renovation costs approximately $116.8 million –Results in $9.6M in real property assessed value –Personal property will add $5.1 million in assessed value, which is depreciated and replaced on a 7-year cycle –30% of gross salaries will be spent on taxable goods and services

17. 16 Development Assumptions (cont.) Assumptions (continued): –Consumer spending will be 70% in Kansas City, 80% in Jackson County, and 80% in Missouri –Estimate 11 new students to the School District –Estimate that nearly all of the new employment will come from the local labor pool –Estimate only 10% of the newly created positions represent workers new to the City

18. Multiplier Impact Project will create 245 new direct jobs with average annual earnings of $34,413 Indirect job growth of 193 additional jobs with additional payroll of $10.7 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

19. 18 50% Per-Capita Costs and Revenues Financial statements are used to derive revenues and costs: –Per Capita –Per Employee Calculated based on marginal basis. –Result is that each new resident/employee has a 50% pro-rata impact on all revenue & cost line-items Average cost is a conservative approach; does not account for fixed costs, and errors toward overstating cost of project.

20. 50% Fixed Cost Scenario Likelihood is that not all costs will be increased on a per-capita basis Prepared a scenario for 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 19

21. 20 50% Fixed Cost Scenario – 10-Year Results

22. 21 50% Fixed Cost Scenario – 23-Year Results

23. 22 Cost-Benefit Analysis Questions Tom Denaway 651-223-3075 Springsted Incorporated 9229 Ward Parkway, Suite 104 Kansas City, Missouri 64114