Category: Development Finance Initiative

The Development Finance Initiative (DFI) at the UNC School of Government assists local governments with attracting private investment for transformative projects by providing specialized finance and development expertise. DFI partners with communities on projects including building reuse, community development, downtown revitalization, economic development, neighborhood redevelopment, and small business finance. Click here for DFI contact information.

» Federal Opportunity Zones: What Local Governments Need to Know

Opportunity Zones are the latest effort by the federal government to encourage investment in low-income census tracts. The Tax Cuts and Jobs Act, enacted at the end of 2017, grants significant tax benefits to investors who reinvest their capital gains in designated “Opportunity Zones.” The market potential is enormous, with some analysts estimating that trillions of dollars could be available for investment in these zones. The U.S. Department of Treasury has certified more than 8,700 Opportunity Zones nationwide and 252 in North Carolina. Local governments are now asking what they can do in order to take full advantage of the investment potential. This post answers some common questions asked by local government officials about Opportunity Zones and offers advice for next steps. Read More…

» Opportunity Zones at a Local Level

The Opportunity Zone (OZ) program was rolled out this year, creating a new community economic development tool. Prior posts on the CED blog have covered this topic — an overview of OZs can be found here and a discussion of North Carolina’s selection of zones here. This post will discuss how OZs relate to other community economic development tools and how different local contexts may affect OZ investment. This post will also include strategies for local government participation in concert with these programs to maximize the impact of OZ investment in communities to meet community development goals.  Read More…

» Maintenance of vacant or neglected commercial buildings: options for NC local governments

The downtown buildings in the Town of Old Well have “good bones.” The structures lining the four downtown blocks of Main Street are solid brick and reflect their historic character, harkening back to a time when downtown was thriving with retail on the ground floor and residential units on the second floor. The very center of downtown is in fairly good shape, and some committed merchants have established a pocket of commercial activity there. However, even that central area is pocked with a handful of underutilized and neglected retail buildings. The downtown blocks immediately outside of the center, where vacant buildings outnumber those with active uses, are not inviting to pedestrians.

Residents and downtown merchants have complained to Town officials about the privately-owned vacant buildings within and surrounding the center of downtown. Some of the vacant structures are in fair condition but are used for storage; peering through the wide display windows reveals piles of boxes, dusty floors, litter, or worse. Some display windows are papered over to conceal the interior. While a handful of vacant buildings appear to be in good condition, others look visibly worse than those with active uses. Can Town officials enact any regulations to govern the appearance and general maintenance of these commercial buildings? Yes, they can. Read More…

» Natural Hazard Mitigation Saves Lives, Money, and Property

In December 2017, the National Institute of Building Sciences published Natural Hazard Mitigation Saves: 2017 Interim Report. This report shows that acting to reduce the impacts of floods, hurricane surges, wind, earthquakes, and wildfires is a sound financial investment. Such action, often called mitigation, can result in significant savings of lives, money, and property. The Institute’s objective is to provide information to key decision-makers at federal, state, and local levels so they can develop more resilient communities that can better withstand natural disasters. This post summarizes the report’s findings.

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» Local Government Owners of Historic Property Asked to Convey Property by End of 2017: What Public Officials Should Know

Federal tax reform is likely to be enacted before the end of the year. While the final form of the bill has not been determined, it is nearly certain that federal historic preservation tax credits—an important financing mechanism for preservation of historic properties—will be significantly affected. In fact, most observers anticipate that the value of the tax credits will be diminished by tax reform, thereby making historic preservation projects more difficult to finance and complete. For that reason, some real estate developers have asked local government owners of historic properties to convey those properties to new ownership before the end of the 2017 tax year (December 31, 2017) in order to “grandfather” those projects under the older, more favorable rules. This post briefly describes how federal tax reform could affect historic rehabilitation projects and offers some guidance for North Carolina public officials who wish to respond (on a very tight deadline) to a request to transfer historic properties owned by local governments. Read More…

» Legal and Business Reasons Why Downtown Development Programs Should Involve Secured Loans—Not Grants

Dr. Blaine Beeper is a retired hospital administrator who was recently elected to council in the Town of Bushwood. Dr. Beeper thinks he has figured out how to jumpstart revitalization of Bushwood’s historic downtown. He proposes for the Town to offer annual cash grants to any owner who redevelops a commercial property within the downtown. Dr. Beeper reasons that redeveloped properties will carry a higher tax assessed value, and the additional tax revenue can be “granted back” to the owners in the form of cash grants for five years, calculated as some percentage of the additional property taxes received by the Town.  When Dr. Beeper floats this idea, he runs into resistance from the Town Attorney and the Economic Development Director, each for different reasons. The Town Attorney raises serious concerns about the legality of such a program, while the Economic Development Director says it doesn’t make good business sense and a loan program would better address owners’ financing needs. This post explains the legal and business reasons why Dr. Beeper’s proposed grant program should be scrapped in favor of a loan program. Read More…

» Conveyance of property in a public-private partnership for a “downtown development project”

Downtowns across America are experiencing a renaissance. Population growth in downtowns has outpaced growth in the broader regions in which those downtowns are located. North Carolina downtowns are likewise experiencing record growth. To capitalize on this renewed interest in downtowns, private developers and local governments are increasingly seeking to partner on relatively larger, coordinated development projects that involve construction of both public and private facilities.

Often these public-private partnerships are necessary because the local government owns property downtown and needs a private partner to develop it. When a municipality (not a county) seeks to partner with a private developer for development of a downtown parcel involving construction of both public and private facilities, there is a statute designed just for that purpose: G.S. 160A-458.3 Downtown development projects. The statute makes some potentially confusing references to a variety of other statutes when authorizing disposition of real property and therefore requires some explanation. This post provides historical context for the statute and describes the property disposition procedures. Read More…

» DFI Case Study: Attracting Private Investment for the Redevelopment of a Downtown Parking Deck

Water-St-Deck_aerial_sizedThe City of Wilmington, North Carolina, hired the Development Finance Initiative (DFI) in 2013 to conduct a pre-development process for the Water Street Parking Deck. The parking deck is an aging public parking facility prominently located in the city’s historic downtown on the Cape Fear riverfront.

Wilmington is one of North Carolina’s largest and fastest growing cities and a popular tourist destination. Its downtown area is an economic and social hub for the region. With a nearly 300-block historic district, the area includes cobblestone streets with ancient trees and lovingly restored historic homes, restaurants, shops, music and art venues, hotels, a river walk, a college campus, and a convention center.

The Challenge

The two-story Water Street Parking Deck was constructed in the 1960s and sits on 1.2 acres along Water Street overlooking the Cape Fear River. Though it is nearing functional obsolescence, the parking deck serves as primary public parking for tourists and locals alike. Surrounded by vibrant retail and entertainment businesses, the parking deck is an eyesore.

City officials long believed that a parking structure alone was not the highest and best use for the high-profile location. They envisioned a future for the site that would spur additional private investment while respecting the historic fabric of the surrounding built environment.  Read More…

» Development Finance Initiative (DFI) helps revitalize NC towns – University Gazette

This article was originally published in the University Gazette on September 9, 2014, as “Carolina program helps revitalize NC towns.” It is republished here with permission.

Tyler Mulligan leads a class for public officials at the School of Government.
Tyler Mulligan leads a class for public officials at the School of Government.

They call them “wicked problems,” the complicated, long-term, seemingly impossible, hard-to-wrap-your-head-around issues for which solutions seem far away.

The team involved in the School of Government’s Development Finance Initiative (DFI) specializes in them, and they’re teaching students how to tackle them, too.

DFI partners with local governments across the state to attract the private investments they need to revitalize their communities. Community revitalization is one of those “wicked problems” said Tyler Mulligan, who teaches both public officials and graduate students about community development, finance and revitalization.

“You don’t always know from the start how you’re going to make it work, and that can be daunting,” said Mulligan.

DFI itself was borne from a perplexing problem: Local government officials often asked Mulligan to visit their towns and assist them with their communities’ needs. But, he couldn’t do it on his own.

“It’s part of my job to advise these officials and answer their calls and emails when they need me, but I couldn’t provide intensive assistance to every community, and the challenges they face require a multi-disciplinary approach,” he said. “It soon became clear that a team of professionals was needed to answer the call for assistance.”

The demand was undeniable. Downtown streets were in desperate need of revitalization, historic buildings were wearing away with neglect and prime parcels of land sat empty without a purpose in many of North Carolina’s towns. Read More…

» How a North Carolina Local Government Can Operate a Land Bank for Redevelopment

Aerial downtownIf America’s cities and towns are to realize their greatest potential as attractive and welcoming places—and as drivers of the new American economy—they must be able to repurpose their vacant, abandoned and foreclosed properties. Those properties—whether the product of the current foreclosure crisis or the remnants of the old economy—diminish the sense of community among neighbors, erase the value of lifelong investment in a home, and make it nearly impossible for cities and towns to attract and keep the creative, innovative, entrepreneurial citizens who will build the next economy.

Dan Kildee, founder of Genesee County Land Bank, in the foreword to Land Banks and Land Banking

Dan Kildee’s sentiment is shared by local governments across North Carolina, but how can they “repurpose” their vacant and abandoned properties and revitalize distressed communities? The answer in Genesee County, Michigan, was a redevelopment tool called a land bank, which is a public authority created to acquire and redevelop vacant and abandoned properties. In the span of a decade, the Genesee County Land Bank acquired more than 10,000 parcels to hold or redevelop, and during the “great recession,” catalyzed more than $60 million in new private investment. Land banks continue to spring up across the nation and are playing an increasingly important role in revitalization efforts in places such as Cuyahoga County, Ohio, and Fulton County, Georgia. A complete explanation of land bank policies and approaches across the nation can be found in a downloadable text, Land Banks and Land Banking.

In Michigan, forming a land bank is rather straightforward, because the Michigan state legislature enacted specific enabling authority for the establishment and operation of land banks. No such land bank legislation exists in North Carolina. Nonetheless, local governments in North Carolina can perform the basic functions of a land bank by cobbling together existing statutory authority. In this way, the local government itself serves as the land bank and performs the major activities of a land bank:

  1. Acquire and hold troubled properties
  2. Stabilize properties and eliminate encumbrances
  3. Convey properties to a redeveloper

Each activity will be addressed in turn. Read More…

» When May NC Local Governments Pay an Economic Development Incentive?

Shell building under construction 2News outlets regularly report about the latest company that was lured to North Carolina through the payment of a cash economic development incentive by a local government and the state. Local government cash incentives often take the form of an annual cash payment to a company that is contingent on the company’s creation of jobs, investment in taxable property in the jurisdiction, and timely payment of property taxes, among other conditions. The statutory authority for making the incentive payment is supplied by G.S. 158-7.1, and the local government is required to approve and account for how the incentive payment is expended by the recipient company pursuant to G.S. 158-7.2. The accounting of payments is accomplished through an incentive agreement in which the recipient company agrees, typically, to create jobs at a facility that involves leasing or purchasing land, constructing a building, and/or installing equipment in the jurisdiction.

For most of the last century, however, North Carolina local governments were not permitted to make such incentive payments. It wasn’t until 1996, following the loss of economic development projects to other states, that the North Carolina Supreme Court finally decided that economic development incentives serve a constitutionally-permitted public purpose—under certain conditions. These conditions continue to impose limitations on incentives today, so this post reviews the relevant limitations and summarizes the conclusions of a 2013 North Carolina Law Review article entitled, Economic Development Incentives and North Carolina Local Governments: A Framework for Analysis. Read More…

» Mezzanine Financing in Community Economic Development
Post Renovation
Post Renovation

Mezzanine financing, or mezz debt, can play a critical role in the funding of a community economic development project and has other advantages discussed in this post, but what exactly is it, and how does it work?

Financing the renovation of historic buildings is far more complicated than new construction on vacant land. Reuse of an older building adds both risk and limitations to the project. For example, the removal of hazardous chemicals adds risk, or low ceiling heights limit potential future uses.

Because of this increased risk, traditional lenders are even more conservative when analyzing these projects and will often only lend up to 50% of the total redevelopment costs. If the developer defers the majority of their fee and does a great job applying for and receiving tax credits and grants, they can get up to 30% equity to finance the project. But, after all this work, there is still a 20% hole, or gap, in the financing; this is where mezzanine debt comes into play. Read More…

» Small Business Access to Capital (Part IV): Funding Sources to Capitalize Revolving Loan Funds

Azariahs-CCPFunding sources to capitalize revolving loan funds is the fourth topic in a series on tools local governments can use to assist small businesses. As discussed in Part II of this blog post series, local governments across North Carolina are using revolving loan funds to support their small businesses. A difficulty in establishing revolving loan funds is capitalizing them. The federal government currently offers at least five programs to assist local governments and nonprofits capitalize revolving loan funds: Read More…

» Small Business Access to Capital (Part II): Revolving Loan Funds

Kinston NC #6554Small business success is one of the cornerstones to the vitality of our communities. A variety of tools are available to local governments interested in supporting their small businesses. In this continuing series of blog posts about how local governments can assist small businesses, we will review common tools used to offer financing, how to capitalize these finance tools, methods to promote entrepreneurship, and new trends such as crowdfunding.

Across North Carolina, multiple local governments operate some type of loan fund to support their local businesses. These programs operate with several common goals including business recruitment/expansion, job creation, and increase in quality of life. The majority of these loan funds are operated as revolving loan funds. Read More…

» Federal grant funds for redevelopment: Overcoming challenges with “security” and cash flow

The STARworks Center for Creative Enterprise is located in Star, North Carolina. The organization is a product of the Central Park North Carolina Regional Partnership, a non-profit partnership between seven counties in the south-central region of North Carolina. The mission of both STARworks and Central Park is to support a new economy through entrepreneurship and job creation in the creative, agricultural, and alternative energy industries throughout the region. STARworks supports small businesses by providing inexpensive work space, technical assistance,and shared resources.

STARworks recently received a $1.175 million grant from the Economic Development Administration (EDA) of the U.S. Department of Commerce. The grant was awarded to support redevelopment of a 187,000 square foot, former textile mill into a new home for Central Park NC Regional Partnership and STARworks. The excitement of receiving a sizable federal grant was quickly quashed when the organization’s leadership learned details of the grant’s security requirements and payout provisions. Adequate security for the grant meant that the value of the project provided sufficient collateral and, in cases where additional funding had been provided by other sources, the EDA maintained an acceptable lien position.

Given the particular circumstances, STARworks needed an innovative solution in a short time period in order to meet EDA’s requirements. Read More…

» Using a Redevelopment Area to Attract Private Investment

The neighborhood of Doherty Heights has seen better days. Once a vibrant residential neighborhood that was home to families and retail businesses close to the downtown core, Doherty Heights is now better known for its vacant storefronts and dilapidated houses. The majority of the city’s housing code complaints come from Doherty Heights. Police have identified Doherty Heights as an area of concern. To make matters worse, the neighborhood lies along Main Street, so every visitor to the city gets to see the blighted housing stock and commercial buildings first-hand. As part of a larger effort to revitalize Doherty Heights, city officials are exploring ways to attract private investment to the community, and they want to know how a redevelopment area can help them achieve their goals. The School of Government Development Finance Initiative has been working with city officials on various options, and as part of that effort, Read More…

» Using Historic Tax Credits to Transform a Landmark
Before Renovation

After sitting empty for twenty odd years this abandoned department store was in need of a total transformation.  The property had a solid foundation, a beautiful facade, and held rich memories for the locals, but behind the broken/boarded up storefront was a building begging for a wrecking ball.  The building lacked plumbing, electrical service, required fire safety, or even a safe way to get to the upper floors (ie no elevator or internal stairs)!  To get to the upper floors of this 5 story building you had to climb a dilapidated fire escape.

The amount of investment required to redevelop this historic landmark would clearly exceed the cost of new construction on a suburban green field.  This harsh reality helps explain why so many North Carolina downtown buildings remain empty and why Federal and State historic tax credit programs have been created to encourage private investment into core properties like this one. Read More…

» School of Government Grants Community Revitalization Award to Rockingham County Business & Technology Center

Participants in the School of Government’s recent Development Finance Toolbox course, led by faculty member Tyler Mulligan, received more than training in economic development finance. This year’s participants were invited to submit project proposals for a community revitalization award of 30 days of intensive project support from a team of graduate student fellows working with the School’s Development Finance Initiative (DFI).

Course participant Mark Wells, executive director of the Rockingham County Business & Technology Center (RCBTC), submitted a project that aims to establish a fund to assist entrepreneurial businesses in Rockingham County. The project had received an initial intent for funding from a local foundation, but the RCBTC team needed assistance in determining the most appropriate type of fund and developing a plan for implementation and management. Read More…

» Local government assistance for a real estate development project—without making a grant

Al Czervik is a real estate developer who has invested in several shopping malls and mixed-use developments across the Tar Heel state. He is planning a mixed use development called “Gopher Commons” in your community, but “in order to make the numbers work,” he claims that he needs local government assistance to address a “financing gap.” He wants the local government to provide him a cash grant to be paid out over five years, with the annual grant amount equivalent to 50% of the additional tax assessed as a result of the higher taxable value of the property upon completion. He hasn’t locked down any commercial tenants yet, so he can’t promise any jobs. He’s also not exactly sure what kinds of tenants might occupy the space, but he’s certain that the retail businesses will need to hire new employees.

The city council wants to support the project because it generally comports with the council’s vision for development in this area. But the council is not interested in offering grants to real estate developers. The claims about new jobs ring hollow, since the developer can’t promise any, and retail establishments generally don’t pay high wages. Besides, the council reasons, any new jobs at this development will likely come at the expense of retail establishments elsewhere in the community. There certainly is no interstate competition for this project—the developer can’t threaten to take his development elsewhere. The city attorney has raised concerns about the developer’s request right from the start. Is there a way for the council to offer support for this real estate development without offering a grant or other direct subsidy? Read More…

» Housing Assessment in Kinston, NC

The Development Finance Initiative (DFI) and the Kenan Institute at UNC have teamed up to prepare a comprehensive housing assessment for the City of Kinston. The housing assessment, which combines public records with qualitative data collected through an on-the-ground property survey, will provide City leaders with detailed information on the housing stock in particular areas of town. It will provide a baseline to help staff prioritize redevelopment investments.

The following are anticipated benefits of a comprehensive housing assessment: Read More…

» What services are available from DFI?

DFI services support implementation of local community and economic development priorities that require private investment. DFI can be thought of as an extension of a local government’s finance, planning, economic and community development departments. DFI services include:

  • Real estate finance and structuring, including identification of investors, lenders, tax credit equity sources and other partners
  • Advising on public-private partnerships and development incentives
  • Assessment of distressed properties
  • Creation of Requests for Proposals (RFPs) to attract private development into underserved areas
  • Development of small business finance programs
  • Assistance with pre-development including program design, market assessment and valuation, cost assumptions, and pro forma creation
  • Evaluation of development proposals, agreements and contracts
  • Assessment/review of development team experience and capacity
» What development finance tools can DFI help our community to implement?

The DFI team’s experience touches on a broad range of development finance tools that are designed to attract private investment into local community and economic development projects including:

  • targeted financing/incentive programs (Tax Increment Financing (TIF), Business Improvement Districts (BIDs))
  • tax credit financing (historic preservation, new markets, brown fields, low-income housing)
  • loan funds (revolving loan funds, microenterprise loans, and innovative debt and equity hybrid products)
  • secondary market and securitization programs (loan loss reserve funds)
  • equity (individual investors, foundations, community development venture capital)
  • federal grant programs (CDBG, HUD, EDA)