A proposed tax increment financing agreement could reduce a planned hotel’s initial returns.

“If the return on cost exceeds 10 percent, then the principal amount of the TIF note will be reduced,” states the agreement for the 250-room hotel planned at the former location of Virgil’s Auto Clinic, at the intersection of Second Street Southwest and 11th Avenue,

The element in the proposed agreement comes four weeks after the Rochester City Council voted 4-3 to clear a path for a proposed $1.8 million in tax increment financing, or TIF. It could limit investor returns to after the project is stabilized.

Prior to the July 22 vote that created the TIF district to make way for the public financing option, Council Member Nick Campion said he’d like an assurance that the city’s help isn’t simply increasing investor profits.

“It’s probably time for us to be generally thoughtful on financing a hotel project,” he said, before voting against the TIF district.

The added clause calls for the city to revisit the agreement after the project stabilizes. If the returns on investor costs are less than 10 percent, the agreement will stand.

If the returns are greater than 10 percent, city support will be reduced to hit that mark.

Tax increment financing is typically used to help developers fill financing gaps that would otherwise sideline a project deemed a potential asset to the city.

The financing tool returns to developers a portion of new property tax revenue generated after construction begins. It does not reduce local tax revenue below the point collected when the agreement is signed.

The project, dubbed Eleven 02, is expected to eventually generate approximately $770,000 in potential new property taxes for the city, county, school district and state. By paying a rebate on a portion of the added tax revenue, the proposed TIF payments are expected to be completed within five years.

In July, Council Member Mark Bilderback noted the short-term return is unique compared to other local TIF projects, which can see payments spread over two decades.

Other council members, however, questioned whether the support is warranted.

Council Member Michael Wojcik said he likes the proposed project, but feels the city has already helped by providing options for added room density to help make it a success.

Jason Bass, director of finance for EKN Development, said such incentives also came with changes that added cost to the project, such as moving parking out of pedestrians' sight and seeking to blend with the nearby neighborhood.

EKN, which has joined Western State Lodging and Napean Capital to create Rochester Hotel Partners LLC, initially applied for up to $6 million in TIF assistance through a joint application that would have been reviewed by the city and the Destination Medical Center Corp. board.

They eventually withdrew that request. The new application only needs city approval.

Patrick Seeb, DMC Economic Development Agency director of economic development and placemaking, said the change followed a discussion with the developer.

“We did advise the developer that the DMC board is really keen on moving more toward public infrastructure, transportation investment, public realm, sewers and sidewalks, and certainly some private projects will be confirmed and likely receive support,” he said.

He also noted the city has broader objectives than DMC, which could be used to support the approval for a TIF agreement.

The City Council is slated to consider the proposed agreement when it meets in its role as the city’s economic development authority following the 7 p.m. City Council meeting Monday in council chambers of the city-county Government Center, 151 Fourth St. SE.

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