building your tax base: creating and using redevelopment incentives

BUILDING YOUR TAX BUILDING YOUR TAX BASEBASECREATING AND USING REDEVELOPMENT CREATING AND USING REDEVELOPMENT

INCENTIVESINCENTIVES

Presented by:

Robert P. Franke, AICP - Robert P. Franke & Associates

Jeffrey L. Oris, CEcD - Planning and Redevelopment

Consultants, Inc.

Corey W. O’Gorman, AICP - PLACE Planning and Design

APA FLORIDA ANNUAL CONFERENCE

Tampa, Florida September 16, 2010

CRA OVERVIEW

TYPES OF INCENTIVES

ESTABLISHING INCENTIVE POLICIES

TARGETING INCENTIVES

KNOW THE RISKS OF INCENTIVES

PRO FORMAS

RETURN ON INVESTMENT (ROI)

September 16, 2010APA FLORIDA

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Authorization for CRA’s was passed in the Redevelopment Act of

1969 which became Chapter 163 Part III of the Florida Statutes

As of last review there are 202 CRA Districts registered with the

Florida Department of Community Affairs

Currently the only form of Tax Increment Districts in widespread

use in the State of Florida

CRA’s may be created by a City or County to assist in the

elimination of slum and/or blighting conditions

State is not involved in the creation of CRA’s

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APA FLORIDA September 16, 2010

Every CRA is required to have a Community

Redevelopment Plan

The CRP is the guiding document of the CRA outlining the

projects and programs to be undertaken

Projects/programs not outlined in the CRP cannot be

undertaken by the CRA

The Plan can be amended through a public process as

determined appropriate

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F.S. 163.345 - Encouragement of Private Enterprise

Any county or municipality, to the greatest extent it

determines to be feasible in carrying out the provisions of

this part, shall afford maximum opportunity, consistent

with the sound needs of the county or municipality as a

whole, to the rehabilitation or redevelopment of the

community redevelopment area by private enterprise.

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The county or municipality shall give consideration to Private Enterprise in the: Formulation of a workable program Approval of:

Community Redevelopment Plans Communitywide plans or programs for community redevelopment General neighborhood redevelopment plans

Development and implementation of community policing innovations Exercise of its zoning powers Enforcement of other laws, codes, and regulations relating to the use

of land and the use and occupancy of buildings and improvements Development of affordable housing Disposition of any property acquired, subject to the limitations of s.

73.013 Provision of necessary public improvements.

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In giving consideration to the objectives outlined, the

county or municipality shall consider making available the

incentives provided under the Florida Enterprise Zone Act

and Chapter 420.

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Limitations on the type, size, height, number, and proposed

use of buildings.

Property intended for public improvements

Identify any publicly funded capital projects to be

undertaken within the CRA

Contain a detailed statement of the projected costs of the

redevelopment

Provide a time certain for completing all redevelopment

financed by increment revenues

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Acquire and hold property

Demolish buildings

Dispose of property at FAIR VALUE

To develop property (including affordable housing)

Install, construct, and repair Streets

Parks

Utilities

Playgrounds

Other public improvements

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Solicit proposals for re/development (Developer RFP’s)

Borrow money or accept funds/grants from any source

(borrowing subject to approval of the Governing Body)

Close, vacate, plan, replan streets, sidewalks, other

places

Petition for changes to land use, zoning

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A CRA can borrow money with the approval of the Governing Body

This borrowing can be in the form of: Revenue Bond Bank Loan – including line of credit Loan from Governing Body

Repayment period cannot exceed the life of the CRA

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Any project or program a CRA wishes to undertake must be outlined in the Community Redevelopment Plan (CRP)

IF IT IS NOT IN THE PLANIF IT IS NOT IN THE PLAN

YOU CAN’T DO IT !!!!!YOU CAN’T DO IT !!!!!

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CRA District Assessed Value

2000Base Year

$100,000 valueTax $200.00

City and CountyReceive$200.00

in tax payments

2005Year 5

$150,000 valueTax $300.00

City and CountyReceives$300.00

($200.00 + $100.00) Redevelopment Trust Fund

Receives$100.00

Remits Increase 14


Downtown Development Authorities

Neighborhood Improvement Districts

Special Assessment District

Main Street

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Administrative

Financial

Planning and Land Use

Marketing


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Streamline development review (one-stop approval)

Recruiting assistance / job fairs

Site selection assistance

Restructure permit fees for CRA projects

Waive demolition fees

Provide technical assistance for property owners, small

businesses, and small business start-ups

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Tax credits, tax abatements and tax increment rebates

Loans, interest or rent subsidies

Local, State, Federal Grants or Loans

Micro loans to small businesses

Public assembly of land / land donation /reduced land cost

Shared cost of upgraded / new utilities

Environmental remediation cost

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Relocation costs / training costs

Per Job Bounty

Cash Payments for Developer’s Costs

Reduce impact fees

Commercial interior space build-out

Signage upgrades

Façade improvement grants and loans

Affordable housing loans and grants to developers

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Land use / zoning amendments

Reduced parking requirements

Non-conforming use amendments

Shared infrastructure agreements (parking, stormwater, etc.)

Create density bonus program

Mixed use land use designation

Land banking

Prepare and complete streetscape projects

Prepare architectural plans for development on CRA owned

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Prepare market analysis

Assist with local business promotion

Hold design competitions to generate interest

Promote grand openings, ground breakings and ribbon cuttings

Recruiting assistance / job fairs

Prepare inventories of available land, buildings and storefronts

Provide how-to seminars

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Use of Public funds MUST have a Public Purpose

For CRA, Public Purpose is related to: Findings of Necessity

Redevelopment Plan

Challenges to CRA activities Political

Legal

Formulate & adopt policies and programs BEFORE you

need them

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Applicant

Predictable process and criteria

Public Agency

Transparency

Accountability

Reduces public objection

Reduces chance of successful challenges

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Establish Operating Parameters for Agency

Budgeting

General finance

Incurring debt

Purchasing

Incentives

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Identify the activities to incentivize New Construction Renovation – Adaptive Re-use Beautification Economic development Affordable housing Business retention and recruitment Zoning and development regulations Based on Redevelopment Plan and Established operating

policies and procedures

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Writing the program

Public Involvement

Ensuring sufficient program advertising

Ensuring consistent and equitable administration

Parameters for public expenditures

Determining grant versus loan

Staff capacity to implement

Incentive timing

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Timing – when does the Public money go in???

Upfront

On-going

Upon completion

Determination of Need

Agency Risk

Nature of incentive

Negotiation

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Agency Risk Minimize Agency Risk Ensuring project success

Minimal Agency Risk after project completion

Highest Agency Risk prior to construction

Don’t be a “spec” developer

Reimbursement Basis

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Advertising

Accept and review applications

Grant & Loan Agreements

Issuing payments

Compliance monitoring

Program review

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Advertising

Direct mail to businesses / developers / residents

Advertising in local newspapers

Agency Web Site

Public Posting

Social network sites

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Acceptance and Review of Applications

Review by staff

Clear, understandable, objective criteria

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Grant/Loan Agreements

Simple grant agreement for façade improvements

Detailed developer agreements for construction of new

buildings or establishing new employers

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Issuing Payments Reimbursement based on paid receipts

Monitoring Regular review of project to ensure that it complies with grant

agreement and other requirements

Evaluation Criteria Funds paid Goals met Market changes Jobs created Facades improved

Fiscal year-end review Changes for new FY

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Highest pay-off / increase taxable value Qualified groupsEmployment-based / job creation Location-basedHousingHistoric preservation

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CRA-owned land = zero taxable value

As downtown redevelopment has progressed, the City’s urban center has received an influx of new residents, offices, shops, and restaurants.

The redevelopment of city-owned lot resulted in downtown’s first hotel and conference facility.

The mixed-use development will offer approximately 124 hotel rooms, conference and meeting facilities, and ground floor retail space.

– GAINESVILLE

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Through the Commercial

Rent Subsidy program,

recipients receive

assistance with rent for the

first year for a new or

expanding business. It will

pay one-half or up to $600

a month to the landlord for

qualifying businesses.

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Businesses agree to generate a minimum value of five (5) new or

relocated qualifying jobs

The award amount shall be calculated based on the annual wages

that are paid to the qualifying employees at the start of employment.

The maximum grant award is $50,000.

Targeted projects are Class “A” office buildings and associated uses

5%, 10%, and 20% of all certifiable annual wages -up to $10,000 per

job or $50,000 per year for five years depending on target location


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Must be a retail and/or targeted commercial property

Property must be located in a participating CRA (Drew Park, East Tampa and/or Ybor City 1 and 2)

May be further restricted to target areas within each CRA

Funding limit is 50% of the project costs, up to $50,000

Funding can be used for exterior renovation, restoration and rehabilitation as well as landscaping improvements


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Intended to increase homeowner occupancy in the CRA in order to provide economic support to the downtown businesses

Designed to attract new residents to targeted areas within the CRA

There is no income limitations Persons currently residing

/claiming homestead exemption in the CRA district are not eligible

Multifamily or Office Conversion to be restored to single family: $20,000.00

Single family detached housing (zoned RB-2, RPB or currently renter occupied): $10,000.00

Single family detached infill housing: $10,000.00


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This historic landmark was one of the few lodgings in South Florida that welcomed African-Americans during the segregation era of the 1950s and 1960s

After much consideration, the community reached a consensus that affordable housing for low-income seniors would be the most desirable long-term use of the property


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The Risk with incentives is that the public will pay for a desired outcome which is not achieved. Jobs not created or eliminated shortly after incentives Business operations not continuing for sufficient period Buildings left vacant or abandoned after construction or

attraction of tenant(s)

Bad PR from money paid without meeting objectives (in total or in part) also poses a great risk.


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Competing goals with CRA Increase employment Increase economic activity Increase property values Elimination of slum and/or blighting influences

Other types of organization have a more clear cut objective Increase employment base


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Riskiest incentives are those that come up-front and are not dependent on desired outcome to occur or there is nothing tangible “purchased”

Any incentive without clear objectives and guarantees Up-front Direct Cash Business (Tenant) -Based Incentives

Rent Subsidies Tenant-specific improvements Cash for job creation

Construction Fee Payment Direct Loans Loan Guarantees/Interest Subsidies Landscaping Improvements


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Moderate Risk are those that are less likely to not meet or abandon objectives:

Installation of On-Site Improvements Parking Water/Sewer Visual Enhancements to Property

Interest Buy-Down on Loans Reimbursement-Based Incentives for

Job Creation Matching of Other ED Grants

Land Buy-Down Other Incentives with “Claw Back” provisions


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Low Risk are those that are not likely to not meet or abandon objectives:

Installation of Public Improvements Roadway enhancements Water/Sewer mains Public Parking facilities

Man-Power Incentives Development Liaison


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Risk can be reduced Keeping incentives to realm of items that are publicly

owned Full review of pro-forma for projects Delayed payment provided only after payment of property

taxes (source of CRA funding) Reduce exposure through limited return related to

Increment generated Strong agreements:

Clearly outlined desired outcome(s) Claw-back provisions Defined mile-marker dates Clearly defined non-performance measures Lien Property where appropriate


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Risk can be reduced

Utilize the “But For” Test

Do Not Get Caught in “We Need More” Spiral

Attach Liens or Other Claw-Backs Where Possible

Wherever Possible Fund Publicly Owned Infrastructure as

Your Incentive

Delay Incentive Payments Over Time and at Defined

Milestones


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Cash is risky when nothing tangible is purchased

Provision of public infrastructure is preferable

Risk can be reduced through:

Full review of pro-forma for certain projects

Delayed payment provided only after payment of property

taxes (source of CRA funding)

Reduce exposure through limited return related to

Increment generated


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When incentives are large or risky (real or perceived), it is best to undertake a review of the project Pro Forma to determine if the incentives are necessary.

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The Pro Forma is the developers financial expectations of the project and includes:

Anticipated Costs Construction Land Consultants Borrowing Return on Investment Developer Fees

Anticipated Revenues Sales Rentals


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Example of a Development Pro Forma and Budget Appleberry Apartments 40 Units of Family Supportive Housing

Project Development Budget

Acquisition vacant land $ 1,000,000

Construction Costs:New Construction 40,000 s.f. $ 4,400,000 Construction Contingency 10% $ 444,000 Architect 5% $ 220,000

Development Costs:Construction Period RE Taxes received abatement $ --

Construction Period Insurance $ 30,000 Construction Period Interest $ 15,000 Title and Recording $ 12,000 Furnishings and Equipment $ 150,000 Appraisal $ 5,000 Survey $ 5,000


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Professional Services: Legal:

Financing $ 10,000 Transaction $ 30,000 Syndication $ 5,000 Tax Opinion $ 10,000

Tax Credit Application Fee $ 1,000 Accounting $ 7,500 Soil Borings $ 4,000 Environmental Report $ 5,000 Marketing and Leasing $ 20,000 Developer Fee $ 610,000 Consultant Fee $ 40,000

Reserves:Operating Reserve $ 250,000 Tax and Insurance Escrow $ 20,000

Total Development Costs $6,389,500Costs per Unit (excluding reserves) $ 152,988

From Family Matters: A Guide to Developing Family Supportive Housing

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Excessive Developer Fees

Excessive Contractor Fees

Excessive Return on Investment

Excessive Interest Rate on Loans

Undervalued or Overvalued Revenues based on current

market

Lack of Developer Risk (own money in the project)


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The Return on Investment or ROI is the percentage of money

over or above the original investment that is returned to the

investor. (Commonly referred to as the investor’s “profit”)

ROI is the determining factor for an investor in placing their

money in a development project or seeking another option

for investment (i.e.. stock market, land, emerging business

venture)

When ROI is higher or the project less risky than other

investment options, development is more likely to happen.


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Standard Rate of Return on Development Projects

Historical

Average - 8 – 14 %

2005 - 16 – 20 %

2008 - 12 – 15 %

2010 - ??????


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Government influences Return on Investment through:

Regulation

Efficiency of Approval Process

Efficiency of Permit Process


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Costs which can not be easily estimated influence ROI negatively by increasing contingency and possibility of unforeseen costs:

Unclear development regulations

Inconsistent interpretation of development regulations

Unpredictable time frames for development

Risk of being denied by Board even when project meets

code

Arbitrary changes to requirements during design

More importantly arbitrary changes to requirements during

construction

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Regulation can add cost

Consistently applied regulation can add value

Predictability in interpretation is key towards

determining costs

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Governmental Agencies have their own list of wants and needs. Promoting items on this list is the reason for offering incentives:

Job Creation

Attraction of New Development

Tax Base Enhancement

Retail Attraction

Establishment of Public Spaces

Increasing Design Expectations


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Government ROI is much more difficult to determine as True ROI takes time to determine due time to recognition of return (in order of recognition of return)

Attraction of New Development

Job Creation

Tax Base Enhancement

Retail Attraction

Other Factors

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http://frankeplanning.comhttp://www.placepnd.comhttp://www.parconsultantsinc.comhttp://www.delraycra.orghttp://www.kissimmeecra.comhttp://www.gainesvillecra.comhttp://www.boyntonbeachcra.comhttp://www.tampagov.net/dept_economic_and_urban_development/programs_and_serviceshttp://www.redevelopment.net


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Florida Redevelopment AssociationCertification Program

Redevelopment 1019:00 am – 4:00 pm

Tuesday, October 12, 2010Peabody Orlando Hotel

Contact: Jan Piland @ (850) [email protected]


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building your tax base: creating and using redevelopment incentives

Real Estate