Uncategorized Archives - Hageman Capital

Hageman Capital was created in 2021 by Hageman Group to help real estate developers maximize their tax increment financing (TIF) incentives by buying and monetizing TIF Bonds.

We aim to “Create Shared Successes” for developers, municipalities providing the TIF incentives, and us, by investing in community development projects that generate value for years to come. With an understanding of both public financing incentives and real estate, Hageman Capital finds creative ways to structure and monetize TIF bonds that maximize value for everyone involved.

How Does Tax Increment Financing Work?

Tax increment financing is a public financing tool used by local governments to fund improvements and redevelopment projects within specific areas, or specific sites, known as TIF districts.

TIF districts aim to capture the incremental increase in property tax revenues that results from the new development or redevelopment of a designated area or site. These revenue increases can be used as an incentive to a developer and monetized to provide upfront financing.

How Does Hageman Capital Help Developers Monetize TIF Bonds?

Hageman Capital purchases developer-backed TIF bonds in a real estate development deal, providing capital for the project without contributing additional equity. In turn, by selling the TIF, developers can achieve a higher rate of return on their real estate projects.

Additionally, construction lenders are more inclined to loan on a deal where the TIF is sold, rather than being monetized through a construction loan. This allows more deals to close, especially in a higher interest rate environment.

Hageman Capital helps developers monetize TIF bonds at the beginning of each project. This is because we’ve found that municipalities are much more reluctant to support a developer’s project through their own credit. However, we’ve seen an uptick in developer-backed TIFs bonds, which require developers to support the debt service of the bonds, and ultimately find ways to monetize their TIF incentives with their own resources.

Hageman’s experience in real estate and TIF created an avenue to build Hageman Capital as a solution for developers who have had challenges in monetizing their TIF incentives.

Where Does Hageman Focus Its Investments?

Many of Hageman’s investments focus on assets built from the ground up. From our agricultural investments to our commercial real estate holdings, Hageman believes in “investing in tomorrow, from the ground up,” and has focused our investment strategies on agriculture, real estate, and entrepreneurship.

Our investments have spanned over multiple generations, with Gene Hageman buying his first 80 acres of farmland in 1952. The Hageman family then went on to create Remington Seeds in 1984, which reshaped the U.S. seed corn and seed soybean industry.

The success of Remington Seeds allowed for the creation of the Hageman Group, which allows us to create shared successes for our partners by investing in their projects. Our history of enriching the communities we invest in led the way to the creation of Hageman Capital in 2021, which helps solve problems for developers looking to invest in their own communities.

Partner with Us Today

Hageman Capital looks to create lasting relationships with groups that share our values. By investing in developers like Old Town Companies actively developing in their communities, Hageman can create shared successes with our partners.

Interested in partnering with Hageman Capital? Contact us today to learn more.

Tax increment financing (TIF) serves as a powerful tool for developers seeking to revitalize communities (TIF districts) and undertake ambitious economic development projects. However, the gradual disbursement of TIF incentives over an extended period can pose financial challenges. This is where TIF monetization comes into play, offering a strategic solution to convert future tax revenues into immediate capital.

What is TIF Monetization?

TIF monetization is a process to generate upfront value from a tax increment financing incentive received over time. Since TIF incentives are derived from incremental real estate taxes tied to a specific project, their disbursement can be paid out over 15 to 30 years, depending on the jurisdiction. TIF monetization methods enable the incentive holder to sell those cash flows to an investor in exchange for upfront capital.

If a developer receives TIF incentives, they have the option to securitize those cash flows through a TIF bond or a TIF note and subsequently sell them to an investor. The investor, in turn, pays the present value of those future incentive cash flows, and the bond/note grants them the right to capture those future payments.

Why Monetize Your TIF Incentive?

There are several advantages of TIF monetization. In short, monetizing TIF and selling TIF bonds at the start of construction allows a developer to contribute less equity into a project, borrow less debt from a lender, or a combination of both. In many cases, selling or monetizing a TIF bond can enhance the developer’s return on the project.

How Does TIF Monetization Differ From State to State?

TIF legislation varies between states, and depending on the jurisdiction, TIF monetization methods may differ. In Indiana, TIF monetization is typically executed through the sale of a developer-backed bond, where the developer is obligated to monetize the TIF incentives or retain the bonds and collect the cash flows over time. The advantage of utilizing a bond is that it is already packaged in a securable instrument, which isn’t always the case with a loan or a note.

Alternatively, in some other states, such as Illinois, TIF notes are more commonly used. The note (similar to a bond) allows the holder to capture incremental tax revenue generated from a project. In many cases, TIF notes and TIF bonds are used interchangeably. However, investors in a TIF note must ensure the instrument is transferable, necessitating additional due diligence and structuring expertise.

Ultimately, the key variable for any TIF monetization requires a securable instrument, either a TIF bond or a TIF note, which can be freely transferred to an investor.

The TIF Monetization Process

Most TIF monetization processes involve the developer engaging an investor for the purchase of their TIF bonds or TIF notes. Throughout that process, a developer will engage in the following.

Negotiate With the Investor

The developer negotiates with investors on acceptable terms and pricing levels. This is typically the time when an investor will bring up covenants specific to them and give a framework for pricing.

A Due Diligence Period

Investors will look to analyze the real estate project, the taxing authority, and tax history. Additionally, on new developments, investors are taking on development and construction risk.

Memorialize Bond/Note Documents

Attorneys work to memorialize transaction documents that may vary between states.

Close and Fund on a Specific Date

Typically, the bond/note funding date will be when the construction loan closes.

On a pre-construction completion TIF, the developer will typically work with the municipality or local governments in conjunction with the purchaser to issue the security directly to the purchaser.

In the dynamic world of real estate, where challenges and opportunities coexist, TIF monetization emerges as a strategic ally, offering a roadmap to transform visions into tangible, impactful realities. Hageman Capital can help empower your journey as you navigate the intricate landscape of TIF incentives, unlocking value and maximizing returns in the process.

Embarking on a real estate development journey often involves navigating a complex financial landscape, and tax increment financing (TIF) bonds emerge as a strategic tool within this realm. In this blog, we unravel the intricacies of a specific subset — Developer-Backed TIF Bonds — shedding light on their significance, mechanisms, and the pivotal role developers play in securing their success.

What is a Developer-Backed TIF Bond?

A tax increment financing (TIF) bond is a financial instrument used to fund certain portions of development projects within a designated area, often referred to as a TIF district. In a TIF district, the increase in property tax revenue generated by the development is earmarked to repay the bonds.

Developer-backed TIF bonds are a type of TIF financing mechanism where a real estate developer supports and guarantees the repayment of bonds issued by local governments for a specific development project. This means that the developer of the project takes an active role in supporting and securing the TIF bonds.

These types of TIF bonds typically involve the developer committing to contribute a portion of the project costs and taking on responsibilities to ensure the project’s success. By backing the TIF bonds, the developer aligns their interests with the successful execution of the project, adding a layer of assurance for investors and stakeholders.

What are the Requirements for a Developer to Receive TIF Incentives?

Requirements for a developer to receive TIF incentives can vary depending on the specific regulations and policies of the local government or municipality involved. However, there are some common elements and considerations that are often taken into account:

Does the developer’s project require the funds to be commercially viable? This means the current returns of the project are not high enough for investors, lenders, and the developer to start the development. This is more commonly known as the “but-for” test.

Has the municipality determined whether the project contributes to public well-being through increasing economic development in a specific area or increasing the existing tax base?

Is the type of project (whether apartments, office, retail, or industrial) additive to the municipality?

Essentially, for the city or other municipality to determine whether to grant developers TIF incentives, they may weigh both the “but-for” test, and whether the project contributes to the public well-being. Depending on the jurisdiction, some municipalities may even use a scorecard for each project to determine whether there will be incentives provided.

When is a TIF Bond Required?

A TIF bond or a TIF note is a financial instrument used to memorialize a developer’s TIF incentive. While TIF bonds and the TIF incentive are sometimes used interchangeably, they are not the same.

Typically, a bond is required when a developer needs to monetize the bonds (i.e. sell the bonds), which allows those proceeds to be used in their project. While some developers may choose to hold the bonds and collect the incentive cash flows over time, many developers opt to sell the bonds upfront. The bond is the easiest way to sell that interest.

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.

Click here to listen to this podcast on kentritter.com >>

Key Points From The Episode:

– Xiao’s background, how he and Kent met.
– What are TIF Bonds and how they work.
– How TIF Bonds work with deals and what developers need to know.
– The positive tax benefits associated with TIF Bonds.
– Why investors should not rely on bonds to make their underwriting work.
– How investors can get started with TIF Bonds.

Throughout any transaction, Hageman Capital provides tremendous value through our structuring expertise, or what we call, “Value Add Propositions.” This is heavily emphasized throughout our Proven Process and continues to be the core of how we maximize value for the developer.

Contact our team to learn how we can work together on your next solution.

Xiao Ou Yuan, our Managing Director at Hageman Capital, was recently on the Wealth Matters Podcast with Alpesh Parmar and talked about the ins and outs of tax increment financing and how it works. If you want to learn more about why real estate investors and developers care about TIF, be sure to check it out

Hageman Capital can provide real value to municipalities and real estate developers by purchasing TIF bonds and maximizing cash proceeds available for investment into real estate projects. Click to learn more!
TIF bonds can help spark economic growth in cities across the country and finance projects that otherwise would not have happened. Click on the video below to learn more about how TIF bonds work and how Hageman Capital sparked economic development in a northern Indianapolis suburb by purchasing bonds related to a mixed-use project.

Hageman Capital Managing Director Xiao Ou Yuan recently joined the Peer 2 Peer Real Estate podcast with William Morales to discuss TIF bonds. Click on the link below to learn more about how Hageman Capital was formed, the benefits of TIF bonds and how they can help spur economic development in communities across the country.

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