"The city shouldn't be giving money to developers!"
It’s a common argument from those opposing a development project. Often in these cases, the developer is requesting Tax Increment Financing (TIF) to help fund a project. Based on their statement, it's evident that the opposition doesn’t understand TIF!
Tax Increment Financing is a clever tool for helping pay for new infrastructure at little or no cost to the city. In this week’s Ridgeview Report, we’ll explain how it works using our very own Pineview Townhomes as a case study.
Requesting TIF
Back in 2018, the city of Jordan, MN, hadn’t had any rental housing development for 5+ years. A local developer approached the city and requested TIF to build a 28-unit townhome complex.
The city approved $266K in TIF for the development, plus added a few stipulations. In return for the TIF, the developer will keep 20% of the units income-restricted for the life of the TIF. Also, the developer will build a playground and a basketball court next to the property. These amenities will be dedicated to the city.
Fulfilling their agreement with the city, the developer built the 28-unit townhome complex, complete with the playground and basketball court. The project was completed in 2019.
The developer decided to sell the property shortly after completion. Ridgeview Property Group purchased both the complex and the TIF note in July 2021. Since Ridgeview assumed the original development agreement with the city, all stipulations must still be followed, including keeping 20% of the units income-restricted.
From property tax revenue comes TIF payments
Over the last 3 years, the city has paid out ~$60K per year in TIF payments on average. These payments do not originate from the city of Jordan’s coffers, however. Since the complex was built, the property tax revenue has ballooned from $8K to $80K, and it's from this $72K revenue increase that the city can fund those payments.
The Endgame
Once the $266K TIF note has been fully paid off, the city will no longer make TIF payments to Ridgeview. They will now receive $80K+ in property tax revenue in perpetuity! In addition, the city of Jordan has added a new public playground and basketball court and, most importantly, 28 units added to its housing stock.
-Ben Michel
Ben Michel is the founder of Ridgeview Property Group, an investment firm specializing in acquiring multifamily real estate. Register Here to be notified of available investment opportunities.