Commercial Real Estate Development

I-35W is About to Get Ugly!

Interstate I-35 (I-35) is one of the longest interstates in America and stretches from southern Texas. Laredo, to Duluth, MN.  It is one of the key north/south transportation routes for those who live in the center of the U.S..  Many people who live in this area of the U.S., admonish I-35 in almost the same realm as the Mississippi River.  We cannot recount the numerous times we have been up and down this interstate over our lifetimes.  Believe it or not, the Greater MSP area is the only area along this 1,500+ mile stretch where it splits into two interstates.  I-35E runs through the St. Paul CBD and I-35W runs through the Minneapolis CBD, before re-joining to the north of the Greater MSP area. 

One of the most traveled areas of I-35W, is along the southern edge of the Minneapolis CBD where the interstate connects with the east/west routes of I-94.   At 50+ years of age, I-35 needs a few "nips and tucks" to keep looking proud.  this process has begun.  Replacing the Franklin Ave. bridge is one of the first closings and it will reopen around the middle of 2018.  The 38th Street bridge will close tomorrow, March 2, and then the level of activity will start to pick up.  Bridge closures and replacements/repairs reaching south to the 40th Street pedestrian bridge, will continue throughout the project.  Ramp closures will stretch from downtown Minneapolis to the 46th South Street ramp.

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Over this summer, the west bound I-94 ramp will be closed and upgraded.  This is long overdue in my opinion!  I-35W between 43rd Street and downtown will have lane closures as north bound will be limited to three lanes and southbound will be limited to two lanes.  This is expected to extend through the fall of 2021........are we ready?  In the end there will be many needed improvements, including a new access off of Lake Street, which will be welcomed by those working and living in the Uptown area.  

To add to the congestion, there will be two other significant projects impacting those coming from the north and south metro.  The I-35 W resurfacing project involving repaving I-35 W from University Ave. to just south of County Road C in Roseville will occur from July 6th to October of this year.  This will be unison with the I-35W MN River Bridge replacement between Burnsville and Bloomington.  This project will run from July 2018 through November 2021 and will stretch from Cliff Road to the south and 106th Street to the north.  When completed, the project will raise the bridge out of the flood plain and create a new trail for pedestrians from Cliff Rd. in Burnsville to Lyndale Ave. in Bloomington.  For those who like to bike and enjoy the terrific new trail along the MN River valley, this will be a welcomed improvement.

For those coming from the north and south of the Minneapolis CBD, the next three and a half years are going to be major challenge.  If you have to drive, Hwy. 100 or Hiawatha may be good alternatives to alleviate the reduced traffic lanes that will stay open through each of these projects.  We do not envy MNDOT with this historic project but we are so glad we have the people at MNDOT to continue to improve our roads.  It is difficult to even imagine the level of planning that goes into a project of this magnitude.  Keeping our eyes on the goal will do us all good.....it sounds like similar advice needed to grow a young company in a mature marketplace!  Through it all, remember IAG Commercial to help you with your space and real estate investment needs.

 

 

North Metro Connection = Opportunity for business

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The long anticipated 610 connection was completed last fall. It connects Interstate 94 to Interstate 35W via Hwy 610/10. This connector provides greater access and convenience across the north metro. It has resulted in a great opportunity for commercial real estate development. At almost every exit there are new commercial developments. Many warehouses, charter schools, shopping developments, distribution centers, and Target North Campus have been built along this Highway. There is still a lot of undeveloped land available along 610 in both Maple Grove and Brooklyn Park. It may even be part of the site that Maple Grove submitted for Amazon’s second corporate headquarters. With access points at HWY 252, HWY 169, HWY 10, and I-94 it is a great place for greater access to the region. It will also be connected at West Broadway and 610 to downtown with the Blue Line extension.

Growing a Business

Growing a Business

Jeff shares a little of our history and how we work tirelessly to help our clients grow their business.

TIF vs. Tax Abatement

What’s the Difference Between a TIF and a Tax Abatement? A compare and contrast of the two subsidies.

 

Now that you have been introduced to both TIF and Tax Abatements, let’s take it a step further by comparing these two public subsidies. First, tax increment financing (TIF) is the ability to capture and use the most of the increased local property tax revenues from new development within a defined geographic area for a defined period of time without approval of the other taxing jurisdictions. On the other hand, Tax Abatement is the ability of one or more taxing jurisdictions to capture and use all or a portion of their share of local property tax revenues within a defined geographic area. It is in a sense a rebate rather than an exemption from paying taxes. A city approves a TIF while in a tax abatement, cities, counties, school districts, and townships can approve. If a developer is wanting to redo substandard or obsolete buildings then they could use a Redevelopment TIF, Renewal and Renovation TIF or an Abatement. If the developer is looking at purely affordable housing, then they could use a Housing TIF or Abatement. Both an Economic Development TIF and Abatement are tied to job and tax base creation.

 

If looking at a redevelopment project, TIF can be used to redo substandard/obsolete buildings, 15% of each parcel must be improved, 70% of the district area must consist of improved parcels, more than 50% of the buildings must be substandard and reasonable distribution of conditions. An abatement has no coverage or inspection requirements in a redevelopment scenarios. What about renewal and renovation projects? For these types of projects, a TIF can be used when redoing substandard/obsolete buildings. It has the same coverage requirements as a redevelopment TIF, 20% of the buildings must be substandard and 30% obsolete, and have reasonable distribution of conditions. With Abatements there are no  coverage or inspection requirements.

 

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For housing, a TIF is more liberal on the rules for pooling, the income test is the main qualification, and it can include market rate housing to help contribute TIF to affordable housing. If using Abatement, there are no income requirements. For economic development projects, a TIF has job creation goals attached to the project, a majority of new space must be manufacturing, warehouse, distribution, telemarketing, and/or research and development, small city retail, border city retail, tourism, or bedrock. With Abatement there are no use requirements. In a TIF, the TIF district must be in a project area, which sets boundaries for TIF expenditures. The project area may contain multiple TIF districts, and the FIF district defines parcels for capture of value. With Abatements, parcels with taxes being abated must be identified. Project areas for TIF district are established by the City, EDA, or HRA. Some increment can be spent outside the TIF district, but in the project area pooling. For terms in an Economic Development project a TIF is 9 years while an Abatement is 15 years if all three political subdivisions are participating. A Renewal and Renovation TIF project is 16 years.  A Redevelopment project for a TIF is 26 years and a Housing TIF term is 26 years. In an Abatement, participation by one or two political subdivisions is 20 years and if the resolution is silent as to the term of the Abatement, then it is an 8 years term.

 

Concerning the approval process, a TIF requires notification to the County and School District, but does not require approval from other jurisdictions while an Abatement requires a public hearing by each participating political subdivision. In a TIF the City hold a public hearing and adopts a resolution with findings while in an Abatement, each political subdivision adopts a resolution with a statement of public benefit and term of abatement. A TIF captures only the increase in value while an Abatement may capture existing values. TIF requires annual reports that are filed with the Office of the State Auditor by August 1 while an Abatement has not reporting requirements other than what the political subdivision requires and the Department of Employment and Economic Development. Both a TIF and Abatement require business subsidy reports. 

 

There is no maximum on the annual increment generated or number of TIF districts, while an Abatement requires that the maximum cannot exceed the greater of $200,000 or 10% of the net tax capacity. In a pay-as-you-go note both a TIF and Abatement  requires that the developer assumes the risk and is paid back over time with interest. In a General Obligation Tax Increment Bond, the issuer assumes the risk and at least 20% of the debt must be supported with tax increment. While, when using a Tax Abatement the issuer assumes the risk and the Abatement must support 100% of the principal. In TIF Revenue Bonds, the investor in bonds takes the risk. TIF must be used on activities including acquisition, demolition, site improvements, public utilities, streets and sidewalks, and administration, general government use is prohibited as well as recreational use. While an Abatement has very few restrictions on use and one cannot abate taxes on a parcel located in a TIF district. Tax Abatements are special levies and outside levy limits, the amount of abatement must be added to the total levy for the current year, and the proposed levy and certified levy must include the current levy abatement amounts, while a TIF has geographic restrictions and pooling. Other factors affecting future funds are local tax rates, state law changes in class rates, interest rate of borrowing, timing of the project, and inflation/deflation of the market value. If you are considering the use of public subsidies for your next project please contact Brian Beeman, Senior Advisor, IAG Commercial. Bbeeman@iagcommercial.com

What is a Tax Abatement, Part II

For each property, the annual abatement granted by a political subdivision cannot be greater than the subdivision’s total net tax capacity tax on the property. Abatements may reduce all or part of the qualifying property tax amounts on a property. The total abatements granted by a political subdivision in any one year may not exceed the greater of: 10% of the net tax capacity of the subdivision for the taxes payable year which the abatement applies or $200,000. The limit on the total abatement for a political subdivision does not apply to uncollected abatements from prior years or abatements for utility property.

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Abatements cannot be longer than 15 years but they can be shorter and the duration period begins in the year which the abatement is paid of retained. A second abatement cannot be granted to a property for at least 8 years after the first abatement expires. If a political subdivision proposes abatement participation from  another political subdivision and that subdivision declines or fails to respond, the duration limit for abatements on the parcel is increased to 20 years. Property that was previously in a TIF district can qualify for an abatement after TIF expires.

 

The taxes on a parcel of property receiving a tax abatement must be paid by the taxpayer when due in the same manner as other property taxes, as if there were no abatement. After the taxes have been paid, the political subdivision must, in accordance with the abatement resolution, do one of the following: Pay the abatement amount back to the property owner, pay the bondholders, retain the abatement to pay public infrastructure costs, or keep a record of deferments and eventually collect them, according to the repayment schedule.

 

One thing for companies to remember is that since they are receiving a public subsidy, they are subject to annual reports until the established goals are met. Normally, the deadline for submission of information is early spring each year. The political subdivision then submits the information to the State of Minnesota’s Department of Employment and Economic Development.

It’s a good idea to hire a professional consultant when attempting to seek a public subsidy rather than trying to navigate the tangled government process alone. For more information please contact Brian Beeman, Senior Advisor, IAG Commercial.bbeeman@iagcommercial.com.

What is a Tax Abatement, Part I

You may have heard developers talk about tax abatement for some of their development projects, but what is tax abatement and how can it be used? A tax abatement used for economic development purposes is a deferral of taxes and/or penalties and can be used as a rebate of property taxes to the property owner, a reallocation of taxes to pay bondholders, a reallocation of taxes to pay for public infrastructure costs, or a deferment of property taxes. A single political subdivision (city, county, town, or school district) may grant only one type of abatement per parcel. More than one political subdivision may grant an abatement to the same parcel at the same time. The benefits of the abatement must be at least equal to the cost or intend for the abatement to phase in a property tax increase and the abatement must be in the public interest. Consent of the owner is not required when a political subdivision grants an abatement on a property. A public hearing is required as well as an adoption of a resolution.

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What constitutes a public interest? According toMinnesota State Statutes, 

  • Increasing or preserving the tax base

  • Providing employment opportunities in the political subdivision

  • Providing or helping the acquisition or construction of public facilities

  • Helping provide access to services for residents of the political subdivision

  • Financing or providing public infrastructure

  • Phasing in a property tax increase as a result of an increase of 50% or more of the EMV in one year not attributable to improvements on the parcel

  • Stabilizing the tax base through equalization of property tax revenues with respect to utility property valued under Minnesota Rules, Chapter 8100

What is TIF, Part II

TIF's can only be used in conjunction with other financing; it doesn't work by itself. For example, TIF is only used when the development project meets the “But For” test or analysis. State Statues specify that Cities, Counties, or other governmental organizations cannot award a TIF to a project unless the project is not feasible on its own without financial assistance. In other words, the development project would not occur “But For” the financial subsidy and the project must be located within a TIF district. The market value of the TIF development must be higher than what would occur on the site, if TIF were not used. 

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 So, why is the "but-for test" used? It is used to prevent excessive or unnecessary use of TIF. If a development would have been done anyway, why should TIF be used to assist it? The test is also used to protect the interests of other, overlapping governmental unite (like the County or School district), which would lose tax revenue unnecessarily if TIF funds supported developments that would be built anyway.

For more information on the use of TIF and other gap financing programs please contact Brian Beeman, Senior Advisor at IAG Commercial, your commercial real estate advisors.  

Disclosure: Nothing in this blog is meant to be legal advice. Please consult with your attorney and be sure you fully understand TIF before considering using this type of financial tool.