NEGOTIATING & MAKING DEALS: SUCCESSFULLY WORKING WITH URBAN RENEWAL
Dealmaking with Urban Renewal & the Downtown Toolbox
In August 2019, Downtown Colorado, Inc. (DCI) the Town of Florence requested support to align private and public initiatives for downtown redevelopment. DCI was pleased to develop a program and team to focus maximizing impacts in downtown with Urban Renewal, how to collaborate with Business Improvement Districts, Downtown Development Authorities, and downtown management programs. DCI’s team included representatives from Brownstein Hyatt Farber Schreck (BHFS), Butler Snow, City of Loveland, the City of Colorado Springs Urban Renewal, City of Loveland Urban Renewal and the City of Wheat Ridge Urban Renewal. Our approach focused on basic education around tax increment financing (TIF) with an increasing level of complexity delving into layered resources available to revitalize their downtown.
The City of Florence recently implemented a recommendation from the DCI 2014 Downtown Assessment to form an Urban Renewal Authority. The innovative community leadership is focused on how the TIF tool might be used to drive the community vision as laid out in the newly updated Master Plan, and several new private initiatives focused on revitalizing historic buildings. The City engaged DCI to plan and facilitate this training as DCI is Colorado’s association for building awareness, education, and training for URAs and special districts in our state.
Downtown Colorado, Inc. believes that urban renewal and special district financing tools are an important tool to encourage good development and land use in Colorado. Building an informed and aware Board of Directors for urban renewal authorities creates a stronger network of urban renewal advocates across the state.
Attendees Included: Brownstein Hyatt Farber Schreck, Butler Snow, Central Block Properties, City of Florence, City of Loveland, Colorado Housing and Finance Authority (CHFA), Downtown Colorado, Inc., Emergent, Florence Citizen News, Fremont County, The Mezzanine, Northland Securities, Second-61, Upper Ark Development Corp.
Speakers, facilitators, and event planners included: Steve Art, Wheat Ridge URA; Wade Broadhead, City of Florence; Katherine Correll, Downtown Colorado, Inc.; Caitlin Quander, Brownstein Hyatt Farber Schreck; and Monica Rosenbluth, Butler Snow, Mike Scholl, City of Loveland.
Dealmaking with Urban Renewal Part I
Florence’s Dealmaking with Urban Renewal sessions included a two-part approach, starting with a private session for the Florence URA Board to discuss current initiatives, vision, and how to get it done. The training opened with a URA and TIF introduction and an Urban Renewal Case Study. The goal was to determine priorities and vision for the Florence URA. Main discussion topics included Catalyst and Priority Properties, Incentives/Regulations for property owners and developers, what is TIF, and determining the appropriate TIF Area and considering your funding toolbox.
Dealmaking with Urban Renewal Part II
Day two included a public session with a deeper dive into case studies and all special districts options and financing tools. Presentations focused on visioning for downtown and other special district options such as a Downtown Development Authority (DDA) and Business Improvement Districts (BID), as well as the benefits of downtown management programming.
Using the Ivywild School as a case study from Colorado Springs’ Urban Renewal Authority, participants gained a broader understanding of why some projects are more costly and the ways that the public sector can encourage redevelopment of challenging priority sites. Next, an overview of the Florence Unbridled Campus opened discussion around current investment happening in Florence and the opportunities that are within grasp if the community partners with the private sector.
Afternoon discussions focused on filling the gap on challenging priority sites with presentations from Colorado Housing & Financing Authority, Colorado Springs URA, and City of Loveland. Participants were able to build awareness and ask questions about tools to bring in housing and how to make historic and previously used sites pencil out. Finally, the presenters discussed how we measure impacts and tell the story including the importance of reporting and showing your impact.
Results from Dealmaking with Urban Renewal in Florence?
In less than two weeks, the City of Florence has voted to create to urban renewal plan areas in the town. The developers, town leaders, and business owners have a greater alignment and are ready to work for a more vibrant downtown!
Glossary of Terms for Colorado URA
- - The Plan Area: Document you have formed that encompasses a certain area of the community. Multiple areas may exist within a city, there is no limit on how many. Within the plan area, TIF boundary may be all properties within the area, or a subpart within the area, or multiple TIF areas.
- - Project Area: Activity or undertaking.
- - URA: Legal entity with jurisdiction of the whole city.
- - TIF Area: The area within a Plan Area that is collecting TIF.
- - Blighting Conditions: Five of eleven required for use of eminent domain.
- - “But for” is the idea that without the support there will be a gap that makes the clean up of blighted conditions for an activity or undertaking not feasible financially.
- - Public Improvement is what is allowed with urban renewal.
- - TIF Clock: is the twenty five years that a URA has to receive TIF revenues from a project area.
- - Board Make-Up: Council-led means that the council is the URA board, which makes up about half of the URAs. The other URAs are board appointed by Council.
- - Tax increment financing: Can include sales or property tax.
Structuring the Agreement
The process for structuring an agreement is individual to each URA. The staff is responsible for working on this and should be the face of the URA in working with partners. The board should be aware of the process that they use.
Types of Financing
Traditional TIF: Use the return on investment to repay/pay for improvements. contributing the difference between the base year tax revenue and the increased tax revenue generated by the project, year over year. This is the least risky type of financing.
- 1. Bond: Requires financial and bond team.
- 2. Bank Loan: Requires financial team.
- 3. Hybrid of all of the above.
URAs are just as transparent as any other public entity. Best practice is to adopt bylaws, though not required by law. Can also adopt policy or other form documents. This is often used to encourage how the URA would like to govern its work including grant guidelines, local hiring, etc.
Conflict of Interest: There are differences from the other Boards and Commissions for the URA Board. URA Board members cannot own property in the area and cannot invest in the property area.
QUESTIONS AND ANSWERS
How do you incentivize investment for property owners who are happy how it is?
There are many ways that special districts like Urban Renewal Authorities (URA), Business Improvement Districts (BID), and Downtown Development Authorities (DDA). Using financing from TIF and mill levies the town could offer facade grants and building improvement grants. They can also establish disinvestment or dilapidation fees or design overlays that require changes. If there was a BID or DDA established then the property owners would most likely be paying into the district’s improvements.
Is there a certain size of project where Urban Renewal doesn’t make sense?
Think about taxable value of the property currently. For example a publicly owned building like a school would = 0. The act of buying it and making it privately owned starts the increase on the taxable value immediately. It’s all about the function of deal structure in terms of it would be a good project for Urban Renewal. Be best friends with your assessor: they differ on the manuals they use and how to calculate the assessed value i.e. from previously when it was a school or unused lot or from when it was bought to be privately developed and managed.
Each plan is different. What tools are best to use?
Each development plan and priorities are different in each undertaking. Some want more residential, or to work with the growth of a university or other entity, sometimes it is more about what you’re getting rid of. If the goal is to draw people in that is great but property owners will want more for their properties. If you’re waiting for a developer, don’t take a project on just to do it. There has to be a gap to fill and community support. Have good people on your team with experience to back you up i.e. good financial, good legal, etc. The Unbridled project at the school is a good growth model to keep some talent and bring more capital in the community as a catalyst. It is proven that because of projects like Ivywild other things are possible. For example, the school district is more open to negotiating better deals.
Do you have to negotiate with taxing entities to get increment?
Again, for a URA to be successful there has to be a gap (but, for….) and community support. There is an option if their mill levy contribution is important enough, after 120 days you have go through mediation. It all depends on the relationship and what the districts impacts are. URA’s work hard to create win-win scenarios. City, library, county have shares. It is important to remember that you are not taking money away from school district because they have back-fill from the state.
If you take out a bond, and someone walks away what happens?
The URA is a separate legal entity and they take out the bond on the promise of increment. Then the situation depends on redevelopment agreement. There generally is a certification process for contractors. Usually there is a construction loan where the company has to prove they built it to get bond.
What if URA doubts the ability of an entity to bring a project to fruition?
URA will often share revenue NOT risk. Create the agreements around revenue created by building the project that increases valuation and results in TIF. Then in the developer doesn’t deliver, other than choosing a bad partner, the URA isn’t out.
Are there ways to fill smaller gaps?
Community banks can be very helpful because they know the community and are probably interested in investing. Sometimes they may not have the expertise to navigate urban renewal financing but you could bring them in and have a consultant advise on the financials. The URA has the ability to take out the loan.
What are the options for financing?
- - URAs can issue bonds or raise money without going to voter approval. They may also choose to do a reimbursement agreement with the developer, where the URA pledges TIF (all or some)
- - Forms a Metro District, allows for control of when and where debt incurred.
- - City can also be a borrower, when TIF goes away faster because City may do a Lease Purchase Agreement because the City has the best credit rating. In this situation, the developer may need to borrow from a bank, build the infrastructure, demonstrate the investment, and then receive payment in tranches from the city.
What are eligible improvements?
This is a public policy decision for the board to make. Most often public improvements, but sometimes private. There should also be a way to verify what improvements have been put in place. In Denver, that requires social policies, well-paying jobs, public art, etc. In Colorado Springs, they usually help with infrastructure improvements. E.g. 1) County might add in additional affordable housing and then that changes the IGAs with taxing entities FIRST, and then with developers. 2) if a community wants more commercial kitchens, they can shape the policy to encourage those types of private improvements.
How to decide how much TIF to dedicate to any project?
- - Could be across the board with a certain percentage. This allows some money for administrative.
- - Can be based on the financing gap as demonstrated by the developer?
- - If it is the whole town, it must be determined project by project.
- - Note: Government Goal is to remedy blight and achieve other objectives, build sidewalks or streets… A win for the public sector may not be reflective of money made…
How to prove the “But for”? There is no way to prove except to do nothing, but in some places, looking at the history (20 years without investment) as a possible future. If communities are trying to make something happen, the do nothing approach is probably not working.
How much is an appropriate amount for a Developer to make? Look at proforma without the TIF and then what it would be if there was a TIF. Then the URA board and determine what profit is acceptable.
How does TIF clock impact a plan area? When you adopt a plan, and authorize TIF in an area of the plan, that authorization to collect TIF is for 25 years. Once TIF area starts in one Plan Area there are 25 years and that money must be used in that area.
If development is happening, how does the URA justify projects in the area using the “but for” test?
The “But for” test is a policy decision imposed by the bodies using URA, not in the statute. The reason it is important is because it demonstrates that URAs are not just giving money to developers. However, even if development is happening, it isn’t always the quality or standard that the community needs. If the market currently only supports a three story walk up with surface parking, but the community wants affordable, accessible housing with a parking structure, this tool allows the community to help the private sector meet the community vision even if the market doesn’t currently support that level or quality of development.
Do Developers like working with TIF or is it brain damage?
Some developers specialize in this. They understand how to work with communities and how the give and take works. This is a small pool and they do very well. However, this requires a higher level of transparency and close scrutiny of proforma and profits. It costs more, takes more, and requires a significant review. Most developers don’t do this unless it is necessary to have a public private partnership.
What effect does working with TIF have on the developer beyond transparency?
Developers want to leave a legacy they can be proud of and public private partnerships result in greater quality, from finishes to sustainability, connectivity, etc. But you do need to agree with the public sector about how much profit you will make. The public sector can’t burden the developer, but they can ask for improvements if the TIF can support the additional cost.
Why choose a plan area with a new TIF clock, rather than taking a plan area and adding a new TIF area in the area?
The statutes says to plan the Area as narrowly as possible to address the blight. It is also disadvantageous to start a TIF clock if there is not interested in investing as there could then not be enough time/money to have a real impact on development.