How Public-Private Relationships in Real Estate Development Are Growing

My previous blog post considered why public-private relationships in real estate development are being more widely utilized and are creating more investment opportunities. Let’s continue that discussion…

THE WHY

Here’s a quick recap of why I think this is happening:

• Emergence of high density-mixed use product
• Growing project size
• Need for public financing (both for community impact developments and supporting infrastructure)

While the public sector has become more involved in the actual developments, it also has offered financial incentives to private interest to encourage certain types of developments in certain places.

I’ll call these THE WHAT

• Community improvement districts (CIDs)
• Tax allocation districts (TADs)
• Special public interest districts (SPIs)
• Opportunity Zones
• Bond financing

Community Improvement Districts (CIDs)

In Community Improvement Districts (CIDs), jurisdictions allow businesses in established districts to self-tax in order to make internal improvements. Often property owners pay a fee to participate in the district, and district members, led by a district director, assess needed improvements.

According to the Georgia Cities Foundation, CIDs are “mechanism[s] for funding certain governmental services including street and road construction and maintenance, parks and recreation, storm water and sewage systems, water systems, public transportation systems, and other services and facilities.” Since the legislation was passed in 1985, 20 CIDs are in operation in metro Atlanta, with 9 of those being created since 2010.

One example of a well-established CID is the Buckhead CID. To help demonstrate the purposes of a CID, here is the Buckhead CID’s Mission Statement:

“The mission of the Buckhead Community Improvement District is to create and maintain a more accessible and livable urban environment.  We meet the challenges of growth by investing tax dollars collected from commercial property owners within the district, as well as other funds we leverage from outside the district, to make meaningful improvements in the transportation network and public realm that connect people and places.”

Active projects of the Buckhead CID include the PATH400 Greenway Trail, GA400/Marta Pedestrian Bridge, Buckhead Village Streetscape, Charlie Loudermilk Park and the Piedmont/Habersham Intersection. The Cumberland CID and the Perimeter CID are two other well-established CIDs in Atlanta.

Tax Allocation Districts (TADs)

One of Atlanta’s key economic development tools, Tax Allocation Districts (TADs) are created to generate investment by financing redevelopment in underdeveloped areas using public funds. Invest Atlanta, the official economic development authority for the City of Atlanta, offers this explanation of how public and private entities use TADs to work cooperatively:

“Also known as tax increment financing (TIF), tax allocation financing is a redevelopment and financing tool by which governments can provide financial assistance for eligible public and private capital projects within a TAD.”

To further clarify, a TAD is a geographic area in which a TIF can be used. Some cities use these terms interchangeably, but Atlanta does not. Again, with this set-up, we see the intersection of government and private development.

Invest Atlanta lists 10 TADs on its website, including the Atlanta Beltline TAD, possibly Atlanta’s most extensive revitalization effort to date. Also listed are the Eastside TAD and the Westside TAD, who in conjunction offer incentives to developers to attract and maintain residents, jobs and retail in downtown Atlanta.

Special Public Interest Districts (SPIs) + Opportunity Zones + Bond Financing

The City of Atlanta created Special Public Interest Districts (SPIs) to stimulate inner core development by promoting dense, mixed use projects that offer walkability.

Invest Atlanta defines opportunity zones as “Georgia’s best tax credit for job creation.” If located in an eligible zone, businesses who create 2+ net jobs within a tax year could earn a State tax credit of $3,500 per employee. Businesses can utilize the Georgia’s Department of Community Affairs’ Interactive Map to determine their opportunity zone.

Lastly, as mentioned in my previous blog post PUBLIC-Private Relationship in Real Estate Development, counties often turn to bond financing as a means of funding when development projects serve a more public purpose, like the new SunTrust Field and the Mercedes-Benz Stadium.

THE RESPONSE

Although a hint of impropriety sometimes occurs in this process, the increasing role of the public sector in real estate development has overall been good for developers, investors, business and the public in general.

And here’s why:

• Local money is being spent.
• Communities are being enhanced.
• New opportunities are being created for real estate investors and developers.

It’s evident that this trend is here to stay, so my plan is to embrace it and take advantage of it by investing in those areas where these activities occur.