Client: Village of Sugar Grove (IL)
A developer, Crown Community Development (“Crown”), proposed developing approximately 454 acres of land in Sugar Grove for industrial uses. Crown provided a forecast of the anticipated build-out of the project and a request for a considerable TIF subsidy to the Village of Sugar Grove. The Village retained Gruen Gruen + Associates (GG+A) to help the Village evaluate the proposed development and requested subsidy and provide analytical and negotiation support.
To put the forecasts and requested subsidy into context, Gruen + Associates completed interviews with knowledgeable, leading industrial real estate brokers, an active industrial space developer, and a land owner with significant land development and industrial park and building space development experience. GG+A synthesized the interviews and field inspections to identify the primary advantages and disadvantages of the location and evaluate the market potential for industrial space. We also directed the interviews to obtaining information and insight about the real estate economics of investing in and financing, developing, operating, and selling stabilized industrial building space. We used the information obtained to structure a discounted cash flow analysis of the proposed development first from the point of view of potential buyers of the land and developers of industrial space. Conclusions were drawn about the ability of would-be buyers of the Crown land to pay the anticipated land prices and feasibly develop industrial space. Conclusions were also drawn about whether the forecast land absorption and industrial space build-out were reasonable as well as whether the property tax estimates were credible.
GG+A also used land development cost estimates provided by Crown and the land absorption and building space development forecast and related estimates to create horizontal land development cash flow projections. GG+A created a comprehensive model that cover the project as a whole as well as individual components. One version replicated all of Crown’s assumptions about development costs, the timing of these expenditures, the timing of future finished lot sales, and so forth. The second version reflects changes to some assumptions that were found to not be reasonable. Outputs included residual land values supported by the land development under unlevered and levered return thresholds; the amount of TIF increment that would be needed to achieve the return threshold; and the resulting total and per acre residual land value.
Conclusions were drawn about the subsidy request and how the proposed structure allocated risk and reward. Given the conclusions an alternative transactions structure and lower amount of subsidy was recommended.
GG+A prepared presentations and counseled the Village staff, officials and legal advisors; engaged in discussions with the developer and responded to questions and issues that arose during the course of the negotiation process. GG+A updated the financial analysis as new estimates were developed and the alternative transaction structure was considered by the developer. Concurrently the developer was pursuing planning approvals of the project. It withdrew its application for development approvals before negotiations were completed.