Tax Increment Financing Explained
TIF stands for Tax Increment Financing in the context of real estate. It is a public financing tool used by many state and local governments to fund improvements and redevelopment projects within specific areas, or specific sites, known as TIF districts. The fundamental idea behind TIF is to capture the incremental increase in property tax […]
![](https://hagemancapital.com/wp-content/uploads/2024/04/DJI_0733-scaled.jpeg)
TIF stands for Tax Increment Financing in the context of real estate. It is a public financing tool used by many state and local governments to fund improvements and redevelopment projects within specific areas, or specific sites, known as TIF districts. The fundamental idea behind TIF is to capture the incremental increase in property tax revenue that results from the property development or redevelopment of the designated area or site.
How Is TIF Used in Local Communities?
TIF is a crucial tool used in real estate development, it can stimulate economic growth, fund essential public infrastructure, and incentivize private investment in local communities. By designating a TIF district, cities can entice private development projects that may otherwise remain financially unviable. This strategic approach not only bolsters economic growth within the TIF district but also spurs private development.
What Are Some Benefits Of TIF for Developers?
Mechanically, developers use TIF to supplement their capital stack, by including the TIF incentive as equity dollars within their project. This ensures the real estate project returns to be higher, making the project more financially feasible for both equity investors, and banks, alike. Without TIF, many projects would not have been built.
TIF provides a range of benefits for both cities and developers. For cities, TIF is a valuable tool that can provide increased revenue, allowing them to capture increased property tax revenues generated by the development once the TIF term ends. This increased revenue can be allocated towards public services and to improve community infrastructure, including parks, schools, and public transportation. Additionally, TIF can drive economic growth by attracting private investment and creating jobs in these areas.
For developers, TIF offers a multitude of benefits. TIF serves as a valuable funding source, providing developers with access to funds that may not be readily available through conventional financing. This financial support can be instrumental in making projects more financially feasible while simultaneously mitigating some of the associated financial risks. As areas around their project undergo improvements, overall property values tend to rise, offering developers the prospect of increased property values for their projects.
The Role Of TIF In Private Development
In conclusion, Tax Increment Financing (TIF) is a valuable tool in real estate development, offering a win-win scenario for cities and developers alike. It allows municipalities to stimulate economic growth, improve infrastructure, and incentive private development. Developers are provided access to additional funding sources, reduced financial risk, and the ability to benefit from increased property values. TIF has been instrumental in transforming local communities and will likely continue to play a pivotal role in fostering sustainable development and revitalization.
Hageman Capital is a leading capital provider for TIF in the Midwest. By purchasing Developer-Backed TIF bonds, Hageman Capital provides upfront financing to developers.