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Alternative Infrastructure Finance Spurs Development
Targeted development tools such as special assessment district financing and tax increment financing can put investment in motion and transform real estate values within a community, according to two development finance experts who spoke last week during the latest in a series of webinars on infrastructure being presented by NAHB’s Land Development Department.
The webinar, “Understanding Infrastructure Finance Tools That Are Successful Alternatives to Impact Fees,” was co-sponsored by NAHB and the Council of Development Finance Agencies (CDFA).
“The goal of targeted financing tools is to catalyze investment and transform the real estate values of a geographic area,” said Toby Rittner, president and CEO of CDFA.
Rittner noted that special assessment district financing and tax increment financing often overlap and can work in conjunction with each other as layered financing mechanisms.
In a special assessment district, he said, special tax assessments can be provided to enable business, industry, commercial districts and governments to generate financing.
Tax increment finance (TIF), on the other hand, captures the future tax benefits of real estate improvements to pay for the present cost of those improvements. It is used to channel investment for improvements to distressed or undeveloped areas where development would not otherwise occur.TIF is often used to address blight, promote neighborhoods, inspire transit oriented development and transform communities.
“TIF generally has focused on industrial development, commercial/office development and — in some states — retail development,” Rittner said. “Mixed-use projects have become particularly popular.”
Developers and property owners who use TIF must be aware of three elements critical to the success of TIF districts, he said:
- Transparency — Open meetings, open records, all laws followed, sound boards, community events, Web/newsletters, single point of contact, etc.
- Due Diligence — Go through all the step necessary, crunch all the numbers, request more data, do the math, be thorough.
- Accountability — Be accountable to stakeholders, report success/failure, draft policies that meet goals/objectives.
Kenneth Powell, managing director of Stone & Youngberg LLC, a financial services company that helps structure public finance arrangements for large-scale development projects, discussed a number of case studies of development projects that have successfully used special assessment district financing and TIFs.
Among the examples was the Farms of New Kent in New Kent County, Va., about 30 miles east of Richmond, where the developers established a special assessment district to fund roughly $85 million in public infrastructure improvements — including road, water and wastewater improvements. The development includes:
- 1,450 age-restricted units
- 300 estate lots
- 450 single-family homes
- 100 resort cottages
- 830,000 square feet of commercial space
- An 18-hole Rees Jones Golf Course
- A winery, vineyards, polo complex, farmer’s market
Another example cited was Peninsula Town Center in Hampton, Va. — a traditional shopping mall that was seeing declining traffic and was in danger of closing.
The developers used incremental tax revenues (including real property, sales, meals and amusement taxes), special retail assessment, special property tax and back-up special assessment to finance $92 million in improvements. They included public road, water and wastewater improvements; landscaping; a parking structure; sidewalks; parks and acquisition of land.
The project transformed an auto-focused mall into a pedestrian-friendly retail center with open space, sidewalks and extensive landscaping. The effort helped the City of Hampton retain its largest source of tax revenues.
To view the webinar, click here.
Click here for a PDF of the webinar on www.nahb.org/infrastructurefinance.
For more information, e-mail Thais Austin at NAHB, or call her at 800-368-5242 x8583.
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