Re: [CPEO-BIF] Re: Brownfields Digest, Vol 35, Issue 19

[Lenny Siegel <lennysiegel@gmail.com>]

Larry,

I assume that a $7 billion (or even a $100 million) project in New York 
City is a high-rise development. Presumably, for such a project, 
cleaning the dirt, or even the groundwater, is a small fraction of the 
total cost. So the only environmental issue is time: How long does it 
take to obtain environmental approvals for development on the site?

It's hard to imagine that such a project needs a hefty government 
subsidy to take place, unless the subsidy supports particular public 
interest pieces such as parks, transit connections, or below-market 
housing. But in California, at least, such public benefits are often 
required - at the developer's expense - as a prerequisite for local 
government approval.

I realize that you didn't say that the $7 B project was subsidized, but 
if it was, or similar projects were, what is the justification for 
either tax credits or grants. The value of the property seems high 
enough to stimulate development without subsidies. In fact, it's high 
enough to pay for the cleanup.

From what you say, developers of such projects need efficient review 
processes, not subsidies.

Lenny

lschnapf@aol.com wrote:
> It would be interesting to see how many of those 300 developers were to 
> for profit deals as opposed to affordable housing projects. It would 
> also be interesting to see how much interest there would be in grants if 
> they were told it would take 1 to 2 years to get the money.
>
> Time is a very critical issue with private real estate developers. The 
> beauty of tax credits is that you dont have to wait for approval of your 
> grant application by numerous government agencies and incur construction 
> loan interest. The developers use the tax credits to attact other 
> investors and can minimize their own investments and risk. Most of my 
> brownfield deals are in a race to get temporary certificates of 
> occupancy as soon as possible and cant wait for understaffed government 
> agencies to go through their normal process of reviews, approvals, and 
> execution of documents by layers of bureaucrats. There is just too much 
> impatient, high-risk money eating away at project rates of returns to 
> wait for these approvals. 
>
> Based on the email string, it looks like there may be some number of 
> deals where a state or federally funded funded assessment or cleanup 
> might be a good alternative for projects with thin margins or areas with 
> serious economic problems that need alot of upfront work to be funded by 
> the government. If a local government is implementing a ten year plan to 
> revitalize an area, well then upfront funding and perhaps 
> state-implemented cleanups might work. But I honestly do not see this as 
> a viable approach on the coasts, Florida, Texas, Nevada, Arizona, or the 
> other areas with economic demand. The more privitiazied the system, the 
> more efficient the development.   
>
> However, in the private equity markets I deal with both representing 
> developers and the securizations, this process simply takes too long. 
> There was a $7 billion deal last month in NYC that closed in TEN days. 
> Everyone I work with complains about the time pressures of deals. The 
> pace of deals has accelerated dramatically in the past five years and I 
> have yet to a state agency that has enough staff and resources to meet 
> the needs of all of these rocket speed deals.  
>
>
>
> Larry
>
>  
>
>  
> Larry Schnapf
> 55 E.87th Street #8B/8C
> New York, NY 10128
> 212-876-3189 home
> 212-756-2205 office
> 212-593-5955 fax
> www.environmental-law.net website
>
>
> Attached Message
> From: 	Lydia Tan <ltan@bridgehousing.com>
> To: 	Kris Wernstedt <krisw@vt.edu>; brownfields@list.cpeo.org
> Cc: 	Peter B. Meyer <pbmeye02@louisville.edu>
> Subject: 	RE: [CPEO-BIF] developers stated preferences re subsidies
> Date: 	Mon, 23 Jul 2007 09:16:07 -0700
>
> Kris:
>
> Interesting survey results...Yes, it all depends on your tax status.
> Those who are working from a taxable entity would probably want tax
> credits and at the same time eschew grants, since grants would be
> taxable and therefore only 70 cents per grant dollar would be going to
> the project.
>
> If BF tax credits work the way low income housing tax credits work, we'd
> have to give away the majority of ownership to a tax paying entity in
> order to take advantage of the credit, which doesn't really work if you
> are accessing pension fund dollars to take on redevelopment.
>
> The other way we have done projects that meet a public benefit goal is
> to contract with the public agency to do the work.  We actually are then
> able to conduct our own contracting process (hence avoiding low
> unqualified bidder), and the "income" that comes in for the work is
> offset by the expenses we incur, which is something that might not be
> able to happen if we were the developer taking a grant and having to
> capitalize the expenses instead as a result. An interesting question for
> a tax attorney or accountant.
>
> Lydia Tan
> Executive Vice President
> BRIDGE Housing Corporation
> 345 Spear Street, Ste 700
> San Francisco, CA  94105
> 415.989.1111
>
>
>
> -----Original Message-----
> From: brownfields-bounces@list.cpeo.org <mailto:brownfields-bounces@list.cpeo.org>
> [mailto:brownfields-bounces@list.cpeo.org <mailto:brownfields-bounces@list.cpeo.org?>] On Behalf Of Kris Wernstedt
> Sent: Monday, July 23, 2007 7:42 AM
> To: brownfields@list.cpeo.org <mailto:brownfields@list.cpeo.org>
> Cc: 'Peter B. Meyer'
> Subject: [CPEO-BIF] developers stated preferences re subsidies
>
> Lydia and other CPEO list types,
>
> Peter Meyer and I, along with two other researchers (Lauren Heberle and
> Anna Alberini), ran a survey of over 300 private developers a couple
> years ago.
> One of the questions we asked was about the relative attractiveness of
> cash vs. tax credits at properties with known or suspected
> contamination.
> Specifically, we presented to our developer respondents the statement:
>
> "Tax credits are better than cash reimbursement grants as incentives for
> developers" 
>
> And the breakdown of responses we got from the private developers was:
>
> "Never" or "Almost Never":  45%
> "Sometimes":  40%
> "Always" or "Almost Always":  15%
>
> If you can't syndicate the credits, it makes sense they would be less
> valuable to those with no tax liabilities.  But I think the range of
> responses we got is interesting.  
>
> We also posed a question of whether the developers preferred subsidies
> offered in cash or in the form of waivers of equivalent value in public
> fees associated with the project (such as those for curb cuts or for
> sewer or water hookups)?  The breakdown on that question was:
>
> prefer cash subsidies:   23%
> prefer fee waivers of equivalent value:  12% cash subsidies and fee
> waivers of equivalent value equally attractive:  65%
>
> Another interesting finding in light of the ongoing subsidy discussion
> on the listserve.
>
> Kris
>
> *************************************
> Kris Wernstedt
> Urban Affairs and Planning
> Virginia Polytechnic Institute and State University Alexandria Center
> 1021 Prince Street, Suite 200
> Alexandria, Virginia 22314
> 703-706-8132 (voice), 703-518-8009 (fax) krisw@vt.edu <mailto:krisw@vt.edu>,
> www.uap.vt.edu/thePeople.htm <http://www.uap.vt.edu/thePeople.htm>
> *************************************
>
> > -----Original Message-----
> > From: brownfields-bounces@list.cpeo.org <mailto:brownfields-bounces@list.cpeo.org>
> [mailto:brownfields-bounces@list.cpeo.org <mailto:brownfields-bounces@list.cpeo.org?>] On
> > Behalf Of Lenny Siegel
> > Sent: Monday, July 23, 2007 2:31 AM
> > To: Brownfields Internet Forum
> > Subject: [Fwd: RE: [Fwd: RE: [CPEO-BIF] Brownfield Subsidies]]
> >
> > Date: Sun, 22 Jul 2007
> > From: Lydia Tan <ltan@bridgehousing.com <mailto:ltan@bridgehousing.com>>
> >
> > Tax Credits work well for tax paying private developers, but given 
> > that much of the equity that is invested in these larger scale 
> > developments (at least in California) comes from pension funds (who 
> > don't pay taxes), tax credits are not as powerful a tool across the 
> > board as an outright grant to a developer.
> >
> > Lydia Tan
> > Executive Vice President
> > BRIDGE Housing Corporation
> > 345 Spear Street, Ste 700
> > San Francisco, CA  94105
> > 415.989.1111
> >
> >
> > -----Original Message-----
> > From: brownfields-bounces@list.cpeo.org <mailto:brownfields-bounces@list.cpeo.org> 
> > [mailto:brownfields-bounces@list.cpeo.org <mailto:brownfields-bounces@list.cpeo.org?>] On Behalf Of Lenny Siegel
> > Sent: Saturday, July 21, 2007 11:37 PM
> > To: Brownfields Internet Forum
> > Subject: [Fwd: RE: [CPEO-BIF] Brownfield Subsidies]
> >
> > Ignacio wrote a few replies to my earlier query. With his permission, 
> > I am sending one of them out to the list. I think it's useful to our 
> > current discussion. He warns, however, that this is a simplified, 
> > incomplete response and reminds us that the New York state tax credit 
> > is totally different that tax increment financing.
> >
> > Lenny
> >
> > Date:     Sat, 21 Jul 2007
> > From:     Ignacio Dayrit <idayrit@ci.emeryville.ca.us <mailto:idayrit@ci.emeryville.ca.us>>
> >
> >
> >
> >
> > Fiscal impact analysis is routinely done in large development 
> > agreement projects in CA.  The impacts of the project are estimated 
> > based on the employment, traffic, other environmental impacts, cost of
>
> > public services (est. of police, fire, school, recreation, parks, 
> > water, power, etc.).  These can be costed out - cities have their own
> formulas.
> > This is calculated against the benefits - taxes (business, property), 
> > fees, cash contributions (yes, many developments give subsidies but 
> > yet, give contribitions as well) and any multiplier effects.  Then, of
>
> > course, less the subsidies. The flow of subsidy (all cash vs. over 
> > time) may have an impact.
> >
> > You can calculate the difference in financial impact of the TIF area 
> > by simply comparing the tax distribution within and outside the TIF.  
> > I.e., the TIF may distribute taxes by 50% TIF agency, 25% city, 10% 
> > school, 10% transit district, 5% community college, vs the non-TIF 
> > area would have distributed 35% city, 20% school, 15% transit, 10% 
> > comm college, 5% park district, xx% other special tax districts).  
> > Housing funds are typically included in the city or TIF agency pots.
> >
> > The kind of consultants that do this in CA include Keyser Marston, 
> > Economics Research Associates, Rosenow Spevacek, Applied Development 
> > Economics, Hausrath Associtaes, etc.
> >
> > My own 2 cents is that if a city wants to throw $ into any deal, call 
> > it what it is.  Calling all of those subsidies a "brownfields tax
> credit"
> > give brownfields subsidies a bad name.  Portions of these are job 
> > creation, infrastructure, housing AND environmental subsidies.  I 
> > figure it would have created too much political opposition if the 
> > subsidy was called too many things.
> >
> > Take care.
> >
> > -----Original Message-----
> > From: brownfields-bounces@list.cpeo.org <mailto:brownfields-bounces@list.cpeo.org> on behalf of LSchnapf@aol.com <mailto:LSchnapf@aol.com>
> > Sent: Fri 7/20/2007 7:44 PM
> > To: brownfields@list.cpeo.org <mailto:brownfields@list.cpeo.org>
> > Subject: [CPEO-BIF] Brownfield Subsidies
> >
> > thanks all for your comments. Not being an economist, I was just 
> > wondering if there was some formula that can be applied to figure out 
> > the taxes that are likely to be thrown off by a project without going 
> > into a detailed study if the project results in a "net" benefit to the
>
> > state as  a whole.
> >
> > For example, if we know a developer will be building a $200 million 
> > project, arent there multipliers are other metrics that can be used to
>
> > figure out the jobs created, income taxes generated, sales taxes from 
> > raw  materials used and sale of condos, property taxes from the 
> > development, etc. This might simplistic but at least it presents an 
> > estimate of some of the benefits thrown off by a project that can 
> > offset the tax credit liability generated by the project.
> >
> > I do not think that the creation of an environmental fund for use by 
> > the state to acquire, remediate and then sell property to developers 
> > makes any sense. First, the state cannot cleanup as many sites as 
> > developers can and certainly not in the time frame required by the 
> > market. The Wollman Rink in Central Park was a perfect example. The 
> > City tried for years to get it reconstructed.
> > Trump stepped in, hired contractors that were incentivized to  
> > complete the work within certain time periods (and without having to 
> > do the bidding
> > procedures) and had the rink built in a year. When the state gets 
> > involved, the low bids frequently up with sloppy and sometimes  tragic
>
> > results like what happened with the Boston Harbor tunnel.
> >
> > Having done a numerous brownfield sites across the country either 
> > representing developers or lenders, my experience is that tax credits 
> > are the  most efficient and fastest way to redevelop contaminated 
> > properties. Loans and  grants may be ok for local governments to 
> > perform assessments but tax  credits work great for developers since 
> > they dont have to deal with bureaucratic delays and inadequate 
> > staffing, and the developers along with their contractors  are 
> > incentivized to get the project done quickly so they can then file  
> > for their financial benefits.
> >
> > Also, there was a comment about subsidies and  trivial level 
> > contamination.
> > Regulators and environmental  professionals may view some amounts of 
> > contamination as trivial but  contamination still sends shudders 
> > through the development and lending community  because of the cost and
>
> > timing uncertainty.
> >
> > Despite liability reforms, many developers are still nervous about 
> > touching even slightly contaminated properties. I've been involved in 
> > situations where I  have spent more than a year explaining the 
> > benefits of a state brownfield program before a client was willing to 
> > pull the trigger on  a project. These projects are viewed as risky and
>
> > high risk money demands  high rewards. With construction costs 
> > increasing 5-10% a month, any  delays can have devastating effects on 
> > the rate of return and  make projects uneconomical.
> >
> > And of course, it seems each year we become concerned about more types
>
> > of chemicals at ever lower levels of exposure. Thus, I would never 
> > underestimate the impact of "trivial" amounts of contamination at a 
> > site or the incentives needed to convince developers to take a risk on
>
> > a contaminated property instead
> >    of a nice undeveloped parcel or land with a fairly benign  use.
> >
> > Larry
> >
> > Lawrence  Schnapf
> > 55 E.87th Street #8B/8C
> > New York, NY 10128
> > 212-876-3189  (h)
> > 212-756-2205 (w)
> > 212-593-5955 (f)
> > 203-263-5212  (weekend)
> > www.environmental-law.net <http://www.environmental-law.net/>
> >
> >
> >
> > ************************************** Get a sneak peek of the all-new
>
> > AOL at http://discover.aol.com/memed/aolcom30tour
> >
> >
> >
> >
> > --
> >
> >
> > Lenny Siegel
> > Director, Center for Public Environmental Oversight c/o PSC, 278-A 
> > Hope St., Mountain View, CA 94041
> > Voice: 650/961-8918 or 650/969-1545
> > Fax: 650/961-8918
> > <lsiegel@cpeo.org <mailto:lsiegel@cpeo.org>>
> > http://www.cpeo.org <http://www.cpeo.org/>
> >
> > _______________________________________________
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> > http://www.cpeo.org/mailman/listinfo/brownfields
> >
> >
> >
> > --
> >
> >
> > Lenny Siegel
> > Director, Center for Public Environmental Oversight c/o PSC, 278-A 
> > Hope St., Mountain View, CA 94041
> > Voice: 650/961-8918 or 650/969-1545
> > Fax: 650/961-8918
> > <lsiegel@cpeo.org <mailto:lsiegel@cpeo.org>>
> > http://www.cpeo.org <http://www.cpeo.org/>
> >
> > _______________________________________________
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> > http://www.cpeo.org/mailman/listinfo/brownfields
>
>
>
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--


Lenny Siegel
Director, Center for Public Environmental Oversight
c/o PSC, 278-A Hope St., Mountain View, CA 94041
Voice: 650/961-8918 or 650/969-1545
Fax: 650/961-8918
<lsiegel@cpeo.org>
http://www.cpeo.org


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