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Explore the benefits of alternative financing sources like TIRZs/TIFs, B-Bonds, tax exemptions, and public financing for development projects. Panelists share case studies and insights.
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Getting the Most Out of Alternative Financing Sources Moderator: Tom Dixon, Boston Capital Panelists: Raquel Favela, City of Dallas Steve LeClere, Monarch Private Capital Ray Miller, City of Houston
Tax Increment Reinvestment Zone (TIRZ)Tax Increment Financing (TIF) TIRZs/TIFs are specified areas created by a municipality to attract new investment in an area. TIRZs/TIFs help finance costs of redevelopment and encourage development in areas that would otherwise not attract sufficient market development Taxes attributable to new improvements are set-aside in a fund to finance public improvements within the boundaries of the zone.
TIRZ Case Study In Houston, a local TRIZ was used to finance $2M of public infrastructure that included sidewalks and other public improvements for a mixed use affordable housing development The TIRZ will entered into a reimbursement at completion of the improvements ( at certificate of occupancy) and will provide increment reimbursements over a period of five years No out of pocket expense incurred by the developer. Construction costs were bridged by the construction lender and the increment is bridged with a five year loan provided by the local housing finance agency.
B-Bonds • What are they? • Secondary (or tertiary) tranche of tax-exempt bonds. Purchasers are private individuals or entities – private equity. • How does it work? • Size A Bond Tranche to a 1.35 DSCR. • B Bond Debt Service is residual receipt, cash flow dependent debt. Any interest not paid currently accrues. • B Bonds are secured by a subordinate mortgage and are nonrecourse to the developer, general partner, and guarantor. • Rates vary but are typically 100-300 basis points higher than agency permanent debt typical on 4% transactions. • Pros • Reduces dependence on public funds • Allows developers to fill gaps in sources & uses with subordinate debt. • Cons • Ability to Raise Funds • Exit Taxes – Limited Partners will have large negative capital accounts at end of Compliance Period.
Tax Exemptions and Other Public Financing • Lever additional permanent financing with full or partial property tax exemption though joint venture partnerships with certain entities • CHDO – Eligible up to a 50% tax exemption applicable in certain counties • Housing Agency or Housing Authority • Loan and grants provided with other federal programs administered by state or local municipalities • Section 8 • HOME • CDBG (eligible for acquisition costs) • Other local funding grants