City Assistance for Mixed Use Revitalization Projects

City Assistance for Mixed Use Revitalization Projects
by: Bob Voelker

Inner city revitalization can involve costly site acquisition, demolition, environmental remediation and infrastructure upgrades and unproven markets for retail, restaurant office or residential tenants or owners. To fill gaps in the budget or buy-down the inherent marketing and development risks of these projects, developers frequently request City assistance, which can take many forms. These forms of City financial aid to the project are typically outlined in a Development Agreement between the City and the Developer.

Discounted Land and Environmental Clean-Up: With a view toward redevelopment, the City may condemn dilapidated structures or buy up land in the path of a new transit line. The City can then attract developers and associated new job growth, enhanced retail taxes, etc. by donating or discounting the land – whether sold in fee or long term ground leased to the developer. As part of the land sale or lease, the City can also agree to remediate any environmental contamination on the site.

Relocation Assistance: Many of the larger urban revitalization projects involve the acquisition and demolition of existing buildings and, either by local law or as a requirement of the City's Request for Proposal under which the redevelopment is occurring, existing tenants in these buildings must be compensated for their moving costs and the costs of renting new space – even if their leases are expired or are expiring – and the developer can ask the City to fund this compensation to existing tenants.

Favorable Zoning: The developer and City planners can collaborate to enhance the function and desirability of the project with zoning that creates synergistic value through higher rental rates for retail, office and residential tenants and property values for the for-sale components of the project (restaurant out parcels, residential condominiums, hotels, etc.).

Public Infrastructure: Inner City land parcels are often not served by adequate roads, parking, water, sewer, telecommunications and other infrastructure to support a dense urban development. As part of the overall package offered to the developer, the City can fund upgrades to this infrastructure. The City may have Community Development Block Grant (CDBG) or other forms of federal money that can be tapped for these improvements.

TIF's, PID's & Issuance of Public Supported Indebtedness: Without diving into the myriad rules on what can and can't be financed with tax-exempt versus taxable debt issued (and possibly backed) by the City/county, many of the "public" improvements that are part of the redevelopment can be funded through the issuance of long-term bonds supported by the increased tax revenues (property and/or sales taxes) generated by the new development. These funding mechanisms are frequently referred to as Tax Increment Financing ("TIF's" or sometimes "TIRZ's") and/or Public Improvement Districts ("PID's"). Obviously, the current credit crisis has dramatically curtailed the current use of tax-exempt bond financing.

Support for Other Governmental Financing: For redevelopment projects located in lower income neighborhoods, federal funding may be available for certain portions of the mixed-use project, such as New Market Tax Credits (typically for office, retail and warehouse type improvements) or Low Income Housing Tax Credits (for multifamily housing); however, securing these funds may requires political support, homeowner support, local financial support, etc. which the City can facilitate.

Tax Abatements: Developers can also ask the City, county, school district and other taxing authorities to abate taxes, and if the abatement period is long enough this reduction in expenses of the project (and subsequent increase in net cash flow) can be capitalized into a larger mortgage on the project, providing more financing. School districts (which typically make up the vast majority of the property tax burden) may be sensitive to these requests, particularly if the redevelopment will increase school attendance.

Waiver of Permit, Inspection, Impact and Other City Fees: As part of a significant revitalization effort, and the resulting increased tax and employment base, most cities will offer a full or partial waiver of these fees.

Enhanced Public Space: The City can improve adjacent parks, roads, bike paths, pavilions and convention centers, add City uses to the area by relocating libraries, City halls and other City offices and fund "public art" in the area.

City Contribution Toward Common Area Charges: Post-construction, most urban mixed use projects have common area charges assessed through leases, restrictive convenants, owner associations, etc. To the extent that the project's sidewalks, trails, lakes/ponds, landscaping, bicycle racks, etc. benefit the public at large, the City can agree to contribute its share of the cost of constructing maintaining these facilities.

Public Façade Dedication: If the redevelopment involves either the retention of an existing historical building or the creation of fascades to match existing historical structures in the area, the developer may be able to claim that these facades are really "public improvements" and request that the City retain ownership of the facades (with a resulting lowering of the tax base for the balance of the structure) and contribute funds toward the cost of the renovation, construction, dedication and/or maintenance of the facades. In addition, in redevelopments with prime street frontage the City may desire public art display storefronts, which can also be dedicated to and paid for by the City.