Real estate developments can bring dilapidated buildings back to life, revitalize neighborhoods, provide affordable housing, create jobs, and advance other important public policy goals. But the most worthwhile real estate developments are often the most challenging. In many cases, the easy projects have been completed. The critical projects that remain can face significant financial challenges.
Successfully completing the most difficult projects requires an understanding of how to identify, negotiate, and utilize all available financial tools. Some of the most important options are public incentives.
When a real estate development helps a community meet its goals, there are often financial incentives available to improve the feasibility of the project. The financial incentives may come from the federal, state, or local level of the government and can include grants, loans, and tax credits. Commonly used financial incentives include:
- Tax Increment Financing
- Historic Tax Credits
- Brownfield Incentives
- Low Income Housing Tax Credits
- New Markets Tax Credits
The landscape for financial incentives and programs in the United States has become increasingly complex and each of these programs requires skill and understanding to be successfully optimized. Many of the most powerful financial tools are encumbered with regulations and compliance requirements that require specialized assistance. Developers that seek out expert assistance can navigate these financial incentives and programs to provide substantial benefit to projects without undue burden.
The primary challenge for developers is not identifying sources of capital but rather knowing how to effectively compete for the capital, negotiate the best terms, structure the deal, close transactions, and stay compliant with regulations related to the financing. Competing for and negotiating incentives requires an understanding of how government programs are funded and of the potential value of incentives to the client and the project’s capital structure. This evaluation requires a comprehension of public finance to gauge how much funding could be available, tax accounting expertise to understand the incentive benefits to the client, and investment banking knowledge to properly create a complex capital structure. Because of these factors, there are no “rules of thumb” for negotiating incentives. Each negotiation must be based on a unique analysis of potential sources and benefits to the client and project.
For more information on this topic, or to learn how Baker Tilly Capital specialists can help, contact our team.