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Breaking the TIF Barrier in New York State – Part 1

4/10/2016

 
In a state where real estate developers are accustomed to an alphabet soup of development incentives—think of NMTC, LIHTC, PILOT and EB-5—there is one incentive that has gone largely unnoticed and unused. But, elsewhere in America, it has been tapped repeatedly to cleanup brownfield sites and to build sewer systems. It has financed the construction of parking garages and drainage facilities; it has funded the development of public roads and site preparation. It has even been used to build stadiums and bridges.
 
Throughout the U.S., tax increment financing (TIF) is a municipal finance innovation adopted to raise public sector capital for a variety of redevelopment projects. And given the staggering infrastructure investment needs in New York State, it should have been welcomed as one more important tool in the economic development toolbox. The logic is simple and as potent as the arguments for workplace diversity: more diverse tools, more diverse solutions. Granted, there was justification for lack of interest prior to 2012. Back then, the authorizing sections under the New York State Municipal Redevelopment Law complicated TIF’s use in most cities and villages. However, it was in 2012 that educational efforts conducted by retail real estate industry volunteers (including yours truly) would eventually yield fruit: The governor and the legislature approved important changes to the law. Of course, it was also helpful to have great counsel to guide us through the labyrinth of state politics.
 
We New Yorkers proudly think of ourselves as leaders in the national culture and economy. We gave the republic six presidents, including Teddy Roosevelt and Franklin D. Roosevelt—that bipartisan duo being particularly notable for how they led the nation. New York also takes credit for breaking the color barrier in professional sports with the 1947 debut of Jackie Robinson on the Brooklyn Dodgers. But in the field of tax increment finance, New York State has been a laggard—its municipalities have sat on the bench, content to let other programs take their swing at bat. That’s probably attributable, primarily, to a lack of awareness of TIF’s benefits. (Former Assembly Speaker Sheldon Silver was reputed to be loath to the notion of using TIF in New York City.) I discovered that many lawmakers were unfamiliar with TIF when I was recruited several years ago to provide guidance to the Yonkers City Council.
 
Prior to 2012, Yonkers was the one major exception to this failure to get in the game. I was enlisted as a consultant to their city council to help them review a major financing proposal: the $200 million revenue bond issue for a proposed mixed-use project in downtown Yonkers. Those bond proceeds would have financed the construction of a parking garage, new roads and the redevelopment of a combined sewer system almost a century old. In total, the planned improvements and retail and residential development would have brought vitality to the downtown of that riverfront city. And then the Great Recession arrived.
 
Although the City of Yonkers stepped up to the plate to pioneer, what may have been, the largest use of TIF financing in state history, the underlying project did not move forward. The City didn’t strike out: It did its part; it took a disciplined approach to vetting the deal and obtaining the necessary approvals—and those approvals were contingent upon the developers’ ability to execute. But such are the vagaries of development, and, at least, Yonkers attempted to build its way out of its fiscal difficulties.
 
However, New York now has another forward-thinking city ready to join the ranks of American jurisdictions that have used TIF. That city is Glen Cove, which is located on the Long Island waterfront in the Greater New York area. As a proponent of TIF in New York State, I will be sharing my observations of its proposed TIF deal during a panel on brownfields redevelopment entitled “Challenges & Opportunities: Redeveloping the ‘Undevelopable’.” That forum will include the mayor of Hernando, MS and other brownfields experts; it will be hosted on May 23rd at the annual convention of the International Council of Shopping Centers (ICSC) in Las Vegas. So, just as the Brooklyn Dodgers broke the color barrier by placing Jackie Robinson on the playing field, Glen Cove appears poised to do the same with the state’s de facto TIF barrier by fielding a $100-million TIF bond issue. We should all root for the successful structuring, approval and execution of that effort. For if Glen Cove succeeds, other cities may follow suit: In that sense, “build it and they will come.”
 
At that ICSC panel presentation in May, I will also discuss other TIF deals—ranging from a $16mm bond financing for one of my projects in San Diego (City Heights Retail Village), to a $145mm financing in Stamford, CT. That presentation will highlight the scalability of TIF as a funding source, as well as how TIF deals can be structured to manage public sector risks. To be clear, TIF is not going to be selected as MVP for every redevelopment problem. It is not a solution for every economic development initiative. However, it should, at the minimum, be scouted for its ability to accomplish public-private partnership objectives in New York State. San Diego’s redevelopment agency recognized this in the late 1990s, and the video clip below shows the City Heights Retail Village project made possible with support from tax increment financing. Follow this blog for future posts on tax increment financing and public-private partnerships. – Lamont Blackstone 
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The Latest Thought Leadership for Mixed-Use Affordable Housing Development

4/4/2016

 
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​As a retail real estate specialist, I really don’t consider the typical urban multifamily building with ground-floor commercial as being “mixed-use.” I will discuss why in another post. However, the term has been widely accepted as part of the multifamily industry’s lexicon. So why fight it? What is more important is designing—and doing it well—the commercial space that is incorporated into mid-rise and high-rise multifamily structures.
 
I find that goal to be an interesting exercise in problem-solving, a process in which the horizontal dimension—the typical framework of retail real estate planning—must be coordinated with vertical development. And that is why I was happy to provide a small assist to a new publication issued by Design Trust for Public Space, a non-profit think tank. That guide is entitled Laying the Groundwork: Design Guidelines for Retail and Other Ground-Floor Uses in Mixed-Use Affordable Housing Developments. Granted—that title is a mouthful, but it describes the mission that organization adopted on behalf of the New York City Department of Housing Preservation & Development.
 
Even though commercial spaces in most housing projects are relatively minor elements, mixed-use development requires cognitive diversity, i.e., diverse real estate perspectives—if it is to be done well. It is not sufficient for an architect or developer to just be really good at programming housing. An 80/20 rule or phenomenon can operate to impact project success: 20% of the building space (i.e., the commercial component) can cause 80% of the operating problems or project risk, if the commercial space is un-leasable or obsolete.
 
Consider what would happen to your project loan underwriting if 10,000 sq. ft. of ground-floor retail space remained vacant for several years or was leased at rates substantially below projections. When the East Harlem Pathmark supermarket was originally developed, the construction lender was—understandably—risk averse regarding the leasing prospects of 5,500 sq. ft. of small-shop space attached to the 50,000-sq.-ft. store. There were suggestions that it should be eliminated. I had, however, conservatively projected rents for that space at $25 per sq. ft., and we found a way to finance it. That first-mover anchor project, on what was then a highly blighted corridor, eventually catalyzed the redevelopment of nearby parcels. Those sites were activated with retail and commercial projects commanding asking rents of $50 per sq. ft.—yes, and within nine months of the groundbreaking of the supermarket.
 
So, the housing developer’s perspective must be amicably married with an understanding of commercial space users—otherwise a lost opportunity can result. And even now in some of NYC’s most challenged inner-city districts, which are where many affordable apartment units have been built, commercial rents can approach and surpass $40 per square foot. Therefore, even a 10,000-sq.-ft. ground-floor component can represent millions of dollars in capitalized value to the owner.
 
In NYC, there has been a widespread assumption (for over two decades) that many inner-city neighborhoods have been underserved with quality retail amenities. That is why I joined, back in 1994, the management team of The Retail Initiative, Inc. (TRI), which was the first national commercial real estate investment fund to spearhead inner-city retail development. However, the configuration and scarcity of available parcels in NYC has limited the opportunity to develop inner-city marketplaces—exceptions being two TRI projects, the 134,000-sq.-ft New Horizons Shopping Center in the Crotona section of the Bronx and that 55,500-sq.-ft. Harlem Pathmark Project on East 125th Street. That is also apparently why mixed-use development has been pushed by the City as a means of addressing two important economic development objectives: the production of affordable housing and the expansion of quality retail outlets.
 
However, I have observed that some affordable housing developers approach retail warily: They don’t understand it, and they see the obligation to incorporate it as a liability—not an asset. The Design Trust’s new publication should mitigate some of that wariness with its attention to the design considerations of various mixed-use building systems. The guide includes sections on the design of facades and signage, exterior access and streetscapes, electrical systems and sample configurations for ground-floor retail tenants. As a member of Design Trust’s peer review committee for the publication, I was pleased to contribute insights regarding the proper programming of ground-floor spaces in order to meet the requirements of small format supermarkets and other commercial users. To obtain a copy of the publication, click here. (Image: an example of effective mixed-use design by MAP Architects) 

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