By Emily Moser and Jason Rittenberg
Local governments across the United States contemplating redevelopment financing may find plenty of useful insights from some of the many projects being undertaken in Ohio.
Consider the former Jeep plant near Toledo, Ohio. There has been little to slow down the 125,000 motorists who pass the site each day on Interstate I-75. But, thanks to a creative financing plan that is spurring cleanup and redevelopment on the 111-acre site, there may soon be plenty of reasons to do so.
The Toledo-Lucas County Port Authority (TLCPA), a regional economic development and financing entity, purchased the land in 2010 and leads the site’s redevelopment into Overland Industrial Park.1 The site has excellent highway and rail access, and the first phase of the project removed existing structures and updated roadway, water, and sewer lines in 2013. A building is currently under construction and will be marketed to potential leasees.
Transforming the site is not easy—or cheap. The spec building is financed with bonds issued by TLCPA and a grant from JobsOhio, one of the state’s development arms. Earlier redevelopment phases were funded with a $5 million Ohio Jobs Ready Site grant, a $3 million Clean Ohio grant, and a $1 million HUD Cleanup grant, as well as $12 million from TLCPA and a match from the Ohio Department of Transportation. A bond-backed tax increment finance structure is being considered to finance future development of the site.
This multifaceted approach to brownfields sites redevelopment is complex and aggressive, but also sometimes necessary. Paul Toth, Jr., president and CEO of TLCPA, says organizations like his understand the importance of having “many sources of funds and creative ways to move projects forward.”2 This view is shared by local governments throughout the country, and particularly in Ohio.
Development Finance Toolbox
Economic development agencies frequently use incentives to help spur business and other economic growth within the community. Not all of these incentives are created equal. Some programs simply fund development, while others can leverage private funds through access to a smaller amount of public funds.
Further, no one incentive is capable of encouraging all kinds of growth equally well. A variety of programs is necessary to develop a balanced regional economy.
Helping communities support and grow a strong economy is why the Council of Development Finance Agencies (CDFA) advocates for the development finance toolbox. This approach to economic development encourages local governments to ensure that projects and stakeholders can access a full range of financing tools.3 Not all tools need to be offered by a single agency, but all tools should be accessible within each community.
The development finance toolbox includes five types of tools: bedrock, targeted, investment, access to capital, and support. The specific tools and programs that fit into these areas are private activity bonds, tax increment financing, revolving loan funds, tax credits, and federal grants.
Not all tools need to be used by a single project in order to demonstrate the effectiveness of this approach. Many projects will greatly benefit from just one or two programs, but having a variety of accessible tools will help maximize public leverage for each project.
Applying the Toolbox to Redevelopment
Redevelopment of brownfields sites is an area of economic development that can particularly benefit from a toolbox approach. The former Jeep site has already accessed grants, bonds, and loan funds and will likely access at least tax increment financing and bonds before the project is complete.
Here are additional projects in Ohio that used one or more development finance tools to stimulate cleanup and redevelopment of brownfields sites.
Oakley Station in Cincinnati has effectively used tax increment financing (TIF), which freezes current tax collections and applies increased collections to development costs for a set period of years. TIF is frequently associated with redevelopment and can be critical to addressing blight in communities.
Formerly a Cincinnati Milacron international machine tool operation, the 74-acre site has been reimagined as a mixed-use development and will include 300,000 square feet of office, 225,000 square feet of retail, and a 300-unit apartment complex, anchored by a movie theater.
The Port of Greater Cincinnati Development Authority is issuing $6.8 million in TIF bonds, which are paying for the construction of new and improved street infrastructure and storm and sanitary sewers. Additional financing support for the project is in the form of a special assessment, a tool that applies an additional tax assessment for a specified purpose, a grant for $2.9 million from the adjacent TIF district, and $3.3 million in Clean Ohio funds from the state.
The project’s use of TIF has been successful in stimulating investment: A large Kroger Marketplace is expected to open in 2015 and serve as a retail anchor for the development.
Federal and state tax credits, which are designed to encourage private investment into projects that advance specific public benefits, have also proven effective in stimulating investment for brownfields projects.4 The programs most commonly associated with redevelopment are historic rehabilitation and New Markets Tax Credits (NMTC).
State and federal historic rehabilitation tax credits (HTC) were critical to the redevelopment of the Atlas Building in Columbus. The building is one of the city’s first skyscrapers and continued to house offices until financial and structural distress forced the Atlas out of service.
The unique architectural design compelled a local developer, Schiff Capital Group, to rescue the building from tax delinquency, environmental distress, and years of neglect in order to put the property back into use.5
The new Atlas offers 98 micro-luxury apartments and 6,500 square feet of retail on the ground floor. The main lobby and rear tenant entry (once a barber shop) and other areas throughout are being restored with marble floors, while some units feature historic original plaster crown molding. New mechanical, electrical, and plumbing systems are being installed.
This comprehensive restoration was made possible through more than $6 million in state and federal HTCs awarded to the project. Grants from the state and the Green Columbus organization assisted with assessment and cleanup costs on the project, and the city of Columbus provided $250,000 for streetscape improvements near the site.
Joel Lilly, chief financial officer for Schiff Capital Group, believes the grants and historic tax credits have been vital to the project. “Traditional construction financing would not have been enough to restore the building and provide quality apartments at current market rates. The demand has been strong with tenants wanting to lease units in our one-of-a-kind Atlas Building that stands apart from the traditional new construction projects currently under development.”6
The Ironville Terminal project in Toledo applied NMTCs to help finance redevelopment costs. When TLCPA purchased the former Gulf Oil and Chevron refinery site in 2008, it anticipated a 10- to 15-year redevelopment period for the 172-acre site. As a result of $15.5 million in NMTC financing provided through the Finance Fund and PNC Bank, the project far exceeded expectations.
The site’s redevelopment was able to include an additional 15,000 feet of rail, connecting to the Norfolk Southern rail line. River channel and shoreline improvements enhanced docking for large barges and ocean vessels. The final phase of development included installation of a multimodal delivery system to improve efficiency of unloading freight and a warehouse designed with rail spurs and an overhead crane.
The Ironville Terminal also secured stimulus funding and a grant from the state, but the tax credits provided the necessary financing to fast-track the project.
Public loan funds, as well as tax credits, helped to finance the redevelopment of the American Can Company building in Cincinnati. Revolving loan funds (RLFs) provided additional financing to fill the remaining capital gap. RLFs are versatile tools that can provide access to capital at lower rates, or higher levels of risk, than a project could access through a bank.
These tools were required to catalyze the redevelopment of a five-story, 180,000-square-foot building formerly used to manufacture tin-can-making machinery. Cincinnati developer Bloomfield/Schon + Partners converted the building into 110 market-rate, loft apartments and 12,000-square-feet of commercial space.
The American Can project was able to move forward due to a combination of multiple development financing tools. State and federal HTCs provided more than $7 million, along with $1.4 million in stimulus funds, $8 million from a HUD 221(d)4 loan, and a Clean Ohio grant for $750,000. The redevelopment project, however, could not have moved forward without gap financing assistance from revolving loan funds.
Cincinnati issued a loan for $2.3 million and a Brownfield Revolving Loan Fund provided a final $800,000. The project has stimulated the redevelopment of an adjacent former lumber yard and brownfields site that the city has been looking to redevelop for several years.
Susan Thomas, vice president of public finance for the Port of Greater Cincinnati Development Authority, says the redevelopment has made a major impact. “American Can Lofts project would not have been feasible without the public investment in remediation activities. The building is now a regional destination, historic landmark, and anchor for renewed development in Cincinnati’s Northside neighborhood.”7
Nearly the entire development finance toolbox was accessed in order to catalyze the Flats East Bankredevelopment in Cleveland. The $275 million first phase of the project was funded and financed with grants, federal programs, and a mix of development finance tools.8
Bond financing, a debt tool that sells large loans to investors, was critical to the project, as was the EB-5 Visa Program, which accesses loans and investments from foreign individuals who are then eligible for a special visa. In addition to the variety of financing sources, four federal agencies, the state, two county agencies, and the city all provided access to at least one tool or program in order to finance this undertaking.
The bond finance component of the Flats East Bank project particularly highlights the creativity that can come into play for redevelopment of brownfields sites. Approximately $145 million in bonds were issued for the project.
Traditional bond investors purchased nearly $72 million in first mortgage bonds. Ohio Enterprise Bond Fund, Cleveland-Cuyahoga Port Authority, and Development Finance Authority of Summit County provided access to their bond funds for $28 million of the issuance, and EB-5 investors purchased an additional $45 million in project bonds through the coordination of the Cleveland International Fund EB-5 Regional Center. These additional bond purchasers helped to ensure sufficient market appetite to cover the entire issuance, securing a competitive rate for the project.
The Flats East Bank project is a massive, high-profile redevelopment for Cleveland. The total project is expected to include more than $500 million in overall development and will include a 450,000-square-foot Class “A” office tower, 150-room hotel, and eight new restaurants.
Without this complex and creative financing package, these 24 acres on Lake Erie would have languished as a former lumber and industry hub. Instead, this site is a cultural and commercial hotspot that is revitalizing Cleveland’s East Bank.
Bringing the Toolbox Home
Communities throughout Ohio have successfully applied the development finance toolbox to brownfields projects, but this model can work anywhere in the United States. Comparable examples could be pulled from Maine, Georgia, Wisconsin, and Oregon.
The challenge for a community interested in this approach is rarely a need to develop new authorities—every local government has access to bond financing, TIF can be used in 47 states, and federal tax credits cover the nation.
Joseph Reidy, an environmental lawyer with Frost Brown Todd LLC, works on redevelopment projects in Ohio, including the Atlas Building, and can attest to the need for knowledge and creativity when implementing the toolbox. “By layering the various local, state, and federal financial tools available for the redevelopment of brownfields, significant challenges can be turned into tremendous opportunities.”9
Development finance tools can be complex, but they are not inaccessible. Learning to reach beyond “brownfields”-labeled programs to access the full toolbox can be the difference between a community featuring a downtown with blight and abandoned buildings, and a community experiencing revitalization and building a vibrant economy.
Endnotes and Resources
1 Schull, R. (June 13, 2013). Port Authority and Industrial Developers Break Ground on Spec Building at Overland Industrial Park. Retrieved from: http://www.toledoport.org/.
2 Toth, P. (Personal communication January 23, 2015).
3 Rittner, T. (2009). Practitioner’s Guide to Economic Development Finance: Building and Using the Development Finance Toolbox. Columbus, OH: Council of Development Finance Agencies.
4 World Bank. (2014). Financing Mechanisms for Addressing the Remediation of Site Contamination. Washington D.C: World Bank.
5 Ball, B.R. (August 16, 2013). ‘Unloved’ Atlas Building getting new life as apartments. Columbus Business First. Retrieved from: http://www.toledoport.org/.
6 Toledo Port Authority. (October 221, 2013). Ironville Terminal Redevelopment Near Completion. Retrieved from: http://www.toledoport.org/.
7 Thomas, S. (Personal communication January 30, 2015).
8 Starnisha, S. (2011). Flats East Bank Neighborhood: Cleveland, OH. Retrieved from: http://www.cdfa.net/cdfa/cdfaweb.nsf/ordredirect.html?open&id=ieb5wc13-strnisha.html.
9 Reidy, J. (Personal communication January 29, 2015).
CDFA Brownfields Technical Assistance Program
The Council of Development Finance Agencies (CDFA), Columbus, Ohio, operates the Brownfields Technical Assistance Program, which is a U.S. Environmental Protection Agency-funded effort to help communities throughout the country access the development finance toolbox to support brownfields redevelopment. The program includes educational resources and technical assistance that is free to all communities.
Visit http://www.cdfa.net to access a monthly newsletter, resource center, financing toolkit, and webinar series, as well as to learn more about the project marketplaces and project response teams that connect communities to brownfields redevelopment financing experts.
National Brownfields Conference
To learn more about brownfields redevelopment, attend the National Brownfields Training Conference, September 2–4, 2015, in Chicago, Illinois. For more information about the conference and to register, visit www.brownfieldsconference.org.