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� � � � � � � - --- � O� ��Sr9'W{� �Nl� When a municipality purchases a large redevelopment area, it is typically doing just that - protecting itself from higher future costs. The other component of the market, related to the price a developer is willing to pay for land, is a developer's rate of retum. Rate of return can be measured in a multitude of ways, and is driven by vanous factors including the type of project being constructed. Projects that produce a higher rate of retum may allow a developer to increase its land pnce, which could help offset some of the extraordinary redevelopment costs. It is important to understand that market land prices and rate of retum cannot be examined in a vacuum. There are numerous factors, many af them subjective, which influence both sides af the equation. 4. What is Redevelopment Assistance? Redevelopment assistance can be defined in any number of different ways, but in �a typical redevelopment project it would likely be defined as "the difference � between what a developer pays for the land, and the cost of readying the land for development". � ,� a � � ,� � � � � ,� � � � �Acquisition, relocation, remediation, demolition]—[$ developer is willing to pay for the land] = redevelopment assistance O� (750,000 actual cost] —{�� price paid by developer] = 250,000 redevelopment assistance It is important to understand that the $250,000 referenced in the above example, although sometimes referred to as a"subsidy", does not necessarily provide a direct monetary benefit to the developer. For example, the same project might just as easily be proposed on an existing vacant piece of property in another nearly identical market, therefore requinng no assistance. If both projects are constructed, one will require assistance, the other will not, and both will net the developer a rate of retum on investment, all other things being equal, which is almost identical. Most requests for assistance in a redevelopment project are typically necessary to "level the playing field" so that the redevelopment property can compete with other "development ready", or vacant, properties in the marketplace. 5. How Do We Measure an Appropriate Amount of Assistance? Arriving at a specific amount can be a fairly subjective task. There are, however, some defined steps that can be taken to achieve a companson. One is simply to determine the market value of the land given the proposed new use, and providing funding to that level. This method works well when the redeveloper is pnncipally a land redeveloper, and not the end user, which is oftentimesthe case. Another method is to determine the "Intemal Rate of Retum", or IRR, which is a method of analyzing a project which allows for the consideration of the time value af money and finds the interest rate that is equal to the dollar retums projected from the project. The IRR which a developer might find acceptable can vary widely based on their financial capacity and their understanding and acceptance of SPRINGSTED Page 12