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E4 Tax Increment Financing

  1. 1. The Art of Tax Increment Financing John Simone President & CEO Connecticut Main Street Center
  2. 2. Where Visions are Built The Art of Tax Increment Financing Kent Schwendy, P.E., LEED AP, CNU-A President & CEO Corporation for Independent Living
  3. 3. Hello. My name is Kent Schwendy… …and I’m a developer.
  4. 4. Common view of the developer: Developer Developer’s Minion (typ) Town, Neighbor, or Consultant
  5. 5. Or, perhaps…
  6. 6. Really?
  7. 7. Corporation for Independent Living We are a diverse, nonprofit development organization founded in 1979 to meet the needs of individuals, nonprofit agencies, cities, and towns. We develop and sustain housing and other community resources that provide affordability, accessibility and independence to those in need. We create a range of housing opportunities as well as office and program space designed to enhance the quality of services provided.
  8. 8. We strive to create and sustain communities where everyone is not only allowed, but welcomed.
  9. 9. The Gap
  10. 10. Simple Truths • Projects cost a certain amount • Projects are worth a certain amount – This is what allows developers to invest/borrow money • If a project costs more than it’s worth, there is a “gap” • Gap financing is the difference between being a dreamer and being a developer
  11. 11. TIF (and other unconventional sources) can help bridge the gap.
  12. 12. First Town Square, Windsor
  13. 13. First Town Square, Windsor
  14. 14. Sherwood Falls, Kensington (Berlin)
  15. 15. Sherwood Falls, Kensington (Berlin)
  16. 16. Jim Burke, AICP Director of Economic Development Town of Windsor The Art of Tax Increment Financing: First Town Square
  18. 18. WHY WAS THIS PROJECT IMPORTANT • Community planning goal • Priority site • Housing the highest and best use - best site for density
  19. 19. WHY WAS THIS PROJECT IMPORTANT • Historic structure • Environmental issues • Large, mostly vacant structure concerns
  20. 20. DECISION MAKING PROCESS • Project Challenges – Public access – Remediation – Relocation • Project Feasibility – Market demand – Developer interest – Project size • Measures of Assistance – Short term repayment – Ratio of public-to-private investment
  21. 21. DECISION MAKING (HOW TO FINANCE) G.O. Bonds vs. Revenue Bonds – Interest Rate Assumption 3.65% 5.14% – Issuance Costs $30k $180k – Reserve Fund $0 $108k – Projected Total Debt Service $995k $1,384k
  22. 22. DEAL STRUCTURE • Project Cost Estimate (at approval) $9,499,000 • Anticipated Annual Tax Revenue $175,388 • Town Assistance $884,000 Remediation Grant $800,000 Amtrak Acquisition $84,000
  23. 23. DEAL STRUCTURE (TERMS OF AGREEMENT) • Grant Amount: $800k • Use of Funds: Environmental Remediation • Installment Payments • Completion Of Active Remediation $200k • C.O. For Building A $200k • C.O. For Core Bldgs B and C $200k • Final Certification By LEP $200k • Transfer to Tax-exempt Entity or Leasing Units Prohibited • Developer to Indemnify Town • Conditions Precedent to Signing Agreement
  24. 24. PROJECT SUCCESS Preserved Historic Building Leveraged Large Private Investment Expanded Tax Base Increased Spendable Income Environmental Remediation Gained Support For Redevelopment
  25. 25. The Lofts At Sherwood Falls A Berlin Success Story Christopher Edge Economic Development Director Town of Berlin
  26. 26. Sherwood Mill 2009
  27. 27. The Plan – Town of Berlin • The Town of Berlin in coordination with CIL creates a Redevelopment Area Plan for the Sherwood Mill • Objectives: – Eliminate unsafe and blighted condition of property – Stop deterioration of existing structures – Create new market-rate residential units in Berlin – Preserve physical and architectural features of mill – Eliminate hazardous environmental conditions – Reinforce and stimulate additional development in Berlin
  28. 28. CIL – Their Plan • Create 71 market-rate condos within the 4-story mill structure and 14 condo units across the street on the other portion of the Sherwood Tool property • $18.7 million project – Clean-up cost of $2.46 million – CIL funding - $1.36 million – LOOMING GAP - $1.1 million • Huge challenge to find financing for environmental clean-up • Town determines it must step in to make the project a reality
  29. 29. The $1,100,000 Answer • Berlin used General Obligation (GO) Bonds in order to fill the gap in the project (empowered under Chapter 130 in the CT State Statues – Tax Increment Financing) • Town chose to use GO bond rather than TIF because few TIF precedents in CT. • GO leads to lower interest rate • Justified the project to the Town Council as we would a TIF – that the project would pay back the Town’s investment.
  30. 30. Working Together • Agreement between Berlin and CIL • $1.1 million provided by the Town of Berlin • Four installments of $275,000 each 1. Environmental clean-up and building permit for 24 units 2. Demolition of 1 Main Street and COs for 24 units 3. COs on 30 more units, inside and outside work done 4. Completion of 14 units across the street from the mill and the Environmental Land Use Restriction filed with DEEP To date, CIL has accomplished steps 1 through 3.
  31. 31. Work Underway Late 2010
  32. 32. “Our recent experience in Windsor has encouraged us to become involved in this project. We have received tremendous support and cooperation from the Town of Berlin and look forward to working with the Town on this exciting project to convert an abandoned factory into high quality homeownership opportunities,” stated Martin Legault, President and CEO of CIL.
  33. 33. Why Did Berlin Choose This Route? • Important to the Town’s history and future • Other mills in Connecticut had not yet been redeveloped due to fires time and weather all significantly complicating the redevelopment process • TRUST between CIL and Berlin’s Leadership • Windsor was a model – Jim Burke • Part of the project – a financial partner with CIL • Long-term payback in tax revenue to the Town of Berlin significantly exceeds the $1.1 million investment • Cost share with DECD - $550,000 in brownfield monies
  34. 34. Completed and Decked Out Unit
  35. 35. The Lofts at Sherwood Falls - 2015 • Property (all units combined) assessed at $9.7 million • Annual taxes of approximately $300,000 • Mill building turned into condos - all but 1 sold • Over 100 residents now call the Lofts home • CIL has been awarded as our Developer of the Year in: – 2012 (Sherwood Falls) – 2015 (Depot Crossing)
  36. 36. The Lofts @ Sherwood Falls An Amazing Transformation By Working Together
  37. 37. Questions, Answers, and Discussion