SPECIAL ADVERTISING SECTION: THE ROLE OF LENDING INSTITUTIONS IN CORPORATE REAL ESTATE

ublic and private development finance agencies and partnering lending institutions play a critical role in the corporate real estate process. In most communities, the economic development marketing, attraction and business retention efforts are led by groups, agencies and other entities that represent both the business and public side of the community. However, behind the scenes in this effort are the finance agencies and private lending institutions partnering to establish financial packages that assist with project development. These financing agencies generally receive little of the publicity but are fundamental in the process to spur development and encourage corporate real estate projects.

   The typical development finance agency has a number of financing tools at its disposal. Within the finance agency’s toolbox are debt and equity tools, partnership lending resources and accessible state and federal funding sources. For the purpose of corporate real estate projects, finance agencies provide a variety of resources. Some of the most popular tools include industrial development bonds, tax increment financing, loan programs, tax credits and incentive provisions.

   Industrial development bonds, commonly know as IDBs, have been used for the past 30 years to assist small to medium sized manufacturers with plant expansion, relocation and new investment into machinery and equipment. IDBs, which can only be issued through a local issuing finance agency, provide manufacturers with access to low interest financing. The attractiveness of IDBs is so appealing that many manufacturers use this tool repeatedly.

   Tax increment finance (TIF) is the most popular form of local finance today. TIF is a special authority provided to agencies which allows them to allocate specific tax revenues towards the redevelopment, development or renovation of the built environment. This tool is a mechanism used to capture the future tax benefits of real estate improvements to pay the present cost of those improvements. TIF uses the increased property or sales taxes that new development generates to finance costs related to the development. Such costs can include public infrastructure, land acquisition, relocation, demolition, utilities, debt service and planning expenses.

   Finance agencies also have access to a variety of loan programs from revolving loans to low-interest SBA financing. Loan programs, operated through a finance agency, often provide lower interest rates and more agreeable loan terms. In many cases, these programs are operated through a partnering financial institution such as a bank, credit union or the state/federal government.

   In recent years, tax credits have begun to play a greater role in the development finance industry. Tax credits can be used for major new investment in distressed areas, brownfield redevelopment and historic rehabilitation. The available pool of tax credits at both the state and federal level is staggering. Most states have several programs that are targeted directly at specific industries and business types. These programs provide significant tax benefits for relocation and new investment.

   The final area of influence for finance agencies is in the provision of incentive packages that help secure new investment. Incentives tied directly to performance measures (i.e. job creation, investment, expansion, etc.) have been highly used throughout the country. These provisions can include land buy-down, various tax abatements, work-force development assistance and other financing components.

   As a whole, public and private development finance agencies and partnering lending institutions play a vital role in the corporate real estate process. Without them, public finance simply would not exist.

   The Council of Development Finance Agencies is a national association of economic development finance agencies dedicated to the advocacy, education, research and advancement of the development finance industry. To learn more about these and other programs, visit CDFA’s Online Resource Database at www.cdfa.net.