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Regular City Council Meeting Monday, October 22,2012 Page 22 a proposed 4,500 square foot office/clubhouse; with preliminary renderings provided in Attachment C to the RCA. Mr. Trudgeon summarized the developer's estimated total project costs, their equity and mortgage, with a remaining funding gap of approximately $2.3 mil- lion. Mr. Trudgeon advised that the City's TIF Consultant from Springsted, Mikaela Huot, was present at tonight's meeting to review their detailed analysis of the project and financing gap (Attachment E); and their determination that the pro- ject would not be able to proceed without TIF assistance, therefore meeting the required "but for"test for TIF financing. Mr. Trudgeon highlighted financial impacts and staff's recommendation (lines 52 — 66) of the RCA; and sought City Council direction as to whether staff should proceed to negotiate a TIF Development Agreement with the developer for future City Council review and approval. At the request of Mayor Roe, Ms. Huot reviewed their written analysis dated October 16, 2012, previously identified as Attachment E to the RCA; and noted that part of their review included an analysis of the project pro forma. Councilmember Pust questioned how Springsted ascertained that the develop- ment met the "but for" test, since any development would prefer use of TIF funds, and if this was just a different way of presenting numbers. Ms. Huot reviewed the process used in analyzing pro formas; and variables in their analysis, based on the 2011 preliminary letter of financing, a contingency for any request for financial assistance to address a funding gap. Without "pay as you go" funding, and based on impacts to the project based on various as- sumptions, Ms. Huot opined that the project could not go forward without in- creasing equity and/or the first mortgage, or by decreasing the scope of the pro- ject itself. Ms. Huot advised that if the first mortgage was increased, the debt service would not be sufficient for any lending institution; and when determin- ing the actual amount, this was a significant determining factor in whether or not the overall project was viable. Ms. Huot advised that, if the Council di- rected moving forward, the first step would be to require the developer to pro- vide an updated letter of intent from a financial institution; clarifying that the original letter was considered a preliminary financing letter, not a letter of commitment, and contingent in part on the City agreeing to accommodate a funding gap. Ms. Huot noted other variables included the loan to value ratio and other factors that could limit a first mortgage. Discussion ensued regarding the $2.3 million funding gap and additional fund- ing gap required to be filled by the developer beyond TIF funds from the City; construction costs and land acquisition as part of the overall picture versus op-