Back to the News Archive

Encouraging Redevelopment

March 23rd, 2005

By Carter T. Froelich

As the growth of the metropolitan Phoenix area jumps the White  Tank Mountains to the west; approaches Lake Pleasant to the north, expands onto the tribal lands to the east and melts into Pinal County to the south; the development community has begun looking inward for other development opportunities which will allow potential buyers to live and work in the same proximity.  Over the years one has seen a number of small scale redevelopment projects in the downtown Phoenix area consisting of new apartment construction, office conversions to loft space, warehouse conversions to retail and restaurant uses as well as new condominium construction.  One is also beginning to see  redevelopment activity occurring in downtown  and south Scottsdale and this trend will only continue with the expansion of the metro Phoenix boundaries.

 

While the metro Phoenixs redevelopment activity has been spotty at best, if the larger, more established cities which make up the metropolitan area wish to encourage large scale redevelopment of urban areas, the local jurisdictions need to establish proactive Community Redevelopment Agencies (CRA) to encourage redevelopment efforts.  In most states the benefits of establishing a CRA are that the CRA is given the tools of eminent domain and tax increment financing (TIF) to assist in the redevelopment effort.

 

Eminent Domain

The most significant impediment to redevelopment is the pattern of landownership. The fractionalized pattern of landownership which makes up most redevelopment areas makes it difficult for the private development community to assemble parcels in the critical mass required to make development financially feasible.  The CRAs power of eminent domain can be used to assist the private development community in assembling any holdouts who may be preventing the assemblage of sufficient property to make a redevelopment project economically and/or physically possible.

 

TIF

Unlike affordable housing where tax credit equity investors and developers can function with a reasonable level of certainty, there is little consistency in or history of private sector investment in commercial mixed use projects in redevelopment areas.  For this reason one of best tools in the CRAs tool box is the provision of financing in the form of TIF.  TIF is a financing mechanism whereby the taxable value of a property in the redevelopment area is frozen in the year in which the redevelopment boundary is established.  Substantially, all of the incremental ad valorem tax revenue generated in successive years on the appreciated assessed value of the property over the base year assessed value is used for the improvements within the redevelopment area or to repay indebtness (e.g. bonds) incurred to accomplish the redevelopment objectives, such as infrastructure improvements, land acquisition, beautification, etc.

 

While TIF financing is allowed in almost every other state in the United States, Arizona Revised Statutes do not allow for the use of TIF financing.  Clearly, if every other state in the Union allows for the use of TIF financing, the governmental leaders of Arizona should be able to determine how to provide the same level of financing for the Arizona development community.  This issue will have to be resolved prior to any degree of any significant redevelopment activity occurring.

 

Alternatively, and until the TIF issue is resolved, the CRA and the jurisdictions in which the redevelopment area is established may create other incentives to help offset the huge costs and risks associated with redevelopment.  These incentives may include the provision of CRA owned property at or below cost, waiver of building fees, waiver of impact fees, rebate of sales tax revenues and the establishment of community facilities districts to facilitate the construction and/or repair of public infrastructure.

 

Zoning Regulations

Lastly, the jurisdictions in which the redevelopment area is located may pave the way for redevelopment by adopting flexible and coherent zoning regulations.  Many cities have a vision for an integrated, mixed use urban core however, their zoning codes do not allow for the desired commercial, retail, residential and other compatible uses to coexist on the same parcel.  When this type of flexible and coherent regulation is in place, development success is achievable.  If these zoning regulations are not in place, the development may stall for many months (or not occur at all) while the developer attempts to navigate the extremely burdensome variance process.

 

In conclusion, the establishment of proactive CRAs empowered with regulatory and financial tools will provide the catalyst for successful redevelopment efforts which will not only benefit the public and private sectors, but will also serve the greater good of the community.

 

Carter T.  Froelich is a managing member of the Development Planning & Financing Group (DPFG).  DPFG has offices in Phoenix, AZ, Orange County, CA, Las Vegas, NV and Sacramento, CA and the professionals at DPFG have been involved in multiple redevelopment projects throughout California.

 

Back to the News Archive