Donjek :: The Cents of Place Blog

Donjek Project: Historic Hudson Manufacturing Building Reuse

I'm currently in the process of concluding work with a historic reuse team focused on next steps for the H.D. Hudson Manufacturing Building in Hastings, Minnesota. The City-owned Hudson Building is of substantial size, and offers open floor plans and high ceilings - a blank, solid canvas. The Hudson was featured as a "hot property" recently in the Minneapolis Star Tribune.

From a finance perspective, the chief hurdle for historic reuse is reconciling long-term lease rates or purchase prices, with a rehabilitation investment that may include remediation, demolition, site costs, and a collection of items that can petrify typical investors: HVAC, roofs, stormwater management, vertical circulation, accessibility improvements. My role on the team, led by Will Stark of Stark Preservation Planning, has been to:

• Evaluate and quantify the long-term financial gap between the value of the building's net income and its required investment
• Identify funding sources and mechanisms that private and public parties could employ to make reuse of the building feasible in a financial sense
• Inform scenarios for the City's next steps with the building, with financial analysis. Cost, speed, and scale of reuse each impact the financial outlook for its future
• Narrate findings related to the downtown marketplace and project finance, to citizens, the City Council, and other stakeholders.

Historic structures offer uncommon attributes for the very reason that their construction occurred in a different marketplace. In the late 1800s when the Hudson Company put up the Hastings facility, materials including stone and lumber were available at lower real cost than today. The proximity of the building to the Mississippi River distinguishes the building regionally, in part because regulations have evolved to protect the river from development impacts. The reuse or demolition of the structure will, either way, continue to influence the health of downtown Hastings.

Related Articles:

• Victory in the Minneapolis Riverfront Design Competition!
• Layers of Stone, Layers of Finance at Historic Fort Snelling
• St. Paul's Rice Park: Part Catalyst, Part Message

Hudson Building image courtesy of Stark Preservation Planning and Peter Musty

Donjek Project: Glossary of Transit-Oriented Development Finance

Access is valuable. In metro regions effective passenger transportation is a critical ingredient of continued competitiveness and quality of life. Due to a range of economic and political factors, rail transportation is expanding as a mode for moving freight and people alike.

Shared experience of regions in the U.S. and internationally suggests that rail transit infrastructure endows nearby property with a substantial value premium. Economist Joe Cortright analyzed 94,000 home sales in 15 metropolitan U.S. markets, and found that homes located within walking distance to varied amenities are valued more highly in the marketplace than comparable property situated elsewhere. Examining two neighborhoods in Charlotte, North Carolina, Cortright identified that a typical home in the Wilmore demands a premium of $34,000 or 12% of median value, compared to much less pedestrian-accessible Ashley Park. The experience of other metro areas including Jacksonville, Chicago, Sacramento and Austin reflect premium levels of $10,000 or more for homes of median value in neighborhoods with high levels of non-auto access.

Early evidence of light rail transit (LRT) lines in this region is consistent with Cortright’s findings. The University of Minnesota’s Center for Transportation Studies released preliminary results of a second-phase study of property appreciation near the Hiawatha LRT Line in Minneapolis.  The process, using residential sale data, has found positive impacts of roughly 25% on single- and multi-family housing located near station areas. Candidly, the Hiawatha Line has been a success in terms of ridership but isn’t particularly effective in stitching neighborhoods together with downtown. If effects are favorable here, they will be so for coming lines that connect Saint Paul and Minneapolis, and Minneapolis’ downtown to its south side and suburbs beyond.

It’s not just residential property values that are influenced by accessibility. Analyses undertaken for the Urban Land Institute and the National Association of Realtors found a 23% premium in California’s Santa Clara County land values within ¼ mile of light rail transit stops.  Another study of the San Diego LRT system found land value premiums as high as 72-91% for commercial land located near station areas on particular lines; the same study found that commercial land on other lines was discounted by the presence of the LRT stations. A 2007 study of the dense network of Dutch rail stations concluded that commercial property within ¼ mile of a rail station exhibited a land-value premium of over 12%.

Recently, Donjek was hired by a client in the Southeast U.S. to explore national models for financing development adjacent to LRT investments. We focused on multiple tools used to great effect nationally:

• Transportation Development/Improvement Districts (TDDs, TIDs)
• Special Assessment Districts (SADs)
• Tax Increment Financing (TIF) / Project Development Financing Districts
• Tax Abatement 
• Joint Development 
• Transportation Utility Fees (TUFs) 
• Air Rights, Grants and Loans

Each region is distinct in its history, its disposition about public/private partnerships, its attitudes toward transit, and how high-impact regional decisions are formulated and implemented. These tools are applicable in degrees depending on these and other factors.

LRT and fixed-rail transit infrastructure doesn’t belong everywhere. And as the Federal Transit Administration has made clear in the last week, the federal government doesn’t intend to build systems that can’t be supported by ridership in the long term. 

One key element to making transit work – for the environmental and fiscal health of the country and its communities – is concentrating development and redevelopment potential where it will be most accessible. These public finance tools can be part of that equation.

Donjek Project: Picturing Value in Walkable Neighborhoods

Over the last several months, I have been working with developer and consultant Michael Lander (Lander Group) and urban designer Peter Musty (Peter Musty LLC) to develop a concise, visual statement about the prospective impact that transportation investments can stimulate. Hopefully, you'll find the graphic product below clear and persuasive - and you can download a pdf version here if you prefer.

Value Capture Finance: Seeing is Believing

One of the trends I've observed here over the last year, is that multiple factors are prompting more consideration of value capture finance - the mechanics of "capturing" development values and benefits to pay for elements of the development itself.  Among the drivers are:

• Diminishing public willingness to support funding for services traditionally considered to be core public functions; 
• Increasing gathering of data and readiness of access to this data; and
• Improving ability to use this data to measure property value, patterns of how people use places, and the economic health of small or large areas (just to cite a few examples) using geographic information systems (GIS).

Value capture finance, in summary, is a method of using future financial or economic benefits precipitated by a development, to repay part or all of the debt incurred to create the development in the first place.  A typical example is tax increment finance (TIF), authorized in forty-eight U.S. states, which allows increased tax revenues (property and/or sales) generated by redevelopment to be channeled to the project’s debt service or other uses.  A less typical example, not currently contemplated in Minnesota law, is the financing of public fixed-rail infrastructure through commercial districts, using neighboring properties’ increased tax revenues caused by enhanced access to LRT or streetcar service. 

I’ve just completed some analysis for the Midtown Community Works partnership pursuing this line of inquiry:  If state law could be amended to allow for a "transit TIF" district, for example, what kind of value could be captured in future years?  How much capital could be raised by borrowing against these future tax receipts?  What planning and equity issues demand consideration in exploring such an approach?  

This concept may strike some readers as marginal to the planning and public finance worlds.  I don’t agree.  The three forces described above are at the root of analysis commissioned by the Minnesota Legislature earlier this year, and continuing economic impact analysis of the state’s first LRT line, the Hiawatha.  Identifying what value is created by transit infrastructure is a critical step in leveraging this value for investment in a regional system, and made more feasible by improvements in GIS technology. 

And regardless of whether the infrastructure is constructed by a private, public or public/private entity, the end outcome - investment in places that work for people - represents an increasingly important competitive advantage for regions in the U.S. and abroad.

Donjek Tools: Tax Increment Financing Made Visual

Planners, architects and developers have long been masters of the visual.  It’s difficult to deny the power of a colorful drawing to communicate design, use and how changes to the landscape can improve the spirit of a place; projecting the image on a large scale can further amplify this kind of communication.

The financial mechanics that underlie any plan are not only more difficult to convey in a physical sense – they also place a presenter in jeopardy of alienating and boring an audience.  Still, an understanding of how master plans and site plans will be financed, and how their development will affect the larger financial health of a community, are critical issues that require public discussion before moving ahead.  Full understanding of these issues by key members of your audience will streamline your process and align expectations with reality. 

Tax increment financing (“TIF”) districts are a redevelopment tool employed in every U.S. state except Arizona.  While publicized abuses have tarnished the political image of this tool, it remains a critical mechanism, trapping incremental property tax revenue from redevelopment for repayment of the debt used to finance the improvements in the first place.  Structuring a TIF district requires a discussion of variables ranging from the state’s tax treatment of different types of property to the post-redevelopment value of parcels, projected appreciation rates, absorption of redeveloped space into the market, and the cost of capital.  See the eyes of the audience glazing over?

The Donjek InstanTIF decision tool allows audiences to engage TIF in an interactive way thanks to a number of attributes.  The tool:

• Allows a presenter to show the various parcels in a proposed TIF district as a map on a screen, with colors to reflect assumptions about appreciation in the future.

• Illustrates the essential items for calculations, allowing a presenter to convey more detail if desired.

• Gives members of an audience real-time feedback about how changes to one or more variables would change TIF cash flows and consequently the amount of borrowing the district can sustain.

• Can be presented in tandem with graphic data layered through GIS software, to illustrate demographic and market trends of significance.

The InstanTIF tool is custom tailored for each proposed TIF district.  Moving forward, consider this decision tool for future discussions with investors, public officials or community members, and extend the communicative power of pictures to project finance.

InstanTIF software design, text, graphics, and mechanics are Copyright 2007 by Jon Commers. ALL RIGHTS RESERVED. Any use of this software, including reproduction, modification, distribution or republication, without the prior written consent of Jon Commers, is strictly prohibited.