Tax Increment Financing Bonds can be a powerful economic tool to help finance a developer’s project. Historically, monetizing TIF, specifically developer-backed TIF, is challenging. Hageman Capital provides capital for developers along with expertise and a proven process to maximize bond proceeds.
As more municipalities support projects through incremental taxes generated by single-site developments, commercial real estate developers need innovative and thoughtful investors for TIF bonds. Hageman Capital is eager to build a relationship with developers and be a single-source investor to monetize their bonds. The team at Hageman Capital has experienced how single-site projects supported by TIF can enrich communities by sparking economic development.
The process designed by Hageman Capital delivers exceptional value to developers – from discovery through closing and funding of the bonds.
Municipalities are increasingly favoring developer-backed TIF for certain projects because they balance serving the good of the public directly.
When a city wants to incentivize private development, developer-backed tax increment financing bonds are powerful tools to spark growth in the community. TIF allows municipalities to support developers without committing public funds to the project. Developer-backed TIF is based on the completed project’s merits, without other taxpayers’ support.
However, while the private developer ultimately owns the property and receives direct benefits from the completed project, the developers may still need the support of the municipality to help transform an empty lot into a multifamily apartment building that will provide long-term value to the municipality.
Without TIF to alleviate the cost of the project, many projects would not be commercially viable or offer an attractive return to the investor. TIF is meant to turn a project that would have never been built into a commercially viable project.
To understand TIF by its most condensed definition, consider that a vacant piece of land has limited tax revenue. If a new 300-unit apartment unit project is developed, there would be a significant increase in future tax revenue. The incremental taxes or the additional tax generated from the new development are “tax increment financing revenues,” which can be packaged to secure a developer-backed TIF bond. Developers can hold the bond as additional cash flow, or they can monetize (in this case, sell) the bond to finance the project as a part of their initial capital stack.
Municipalities benefit from developer-backed TIF in several ways. First, the financial risk of the development shifts to the developer and their project. Second, the city or town gains the development project in their community, which can generate future development in the area. Third, after the TIF period expires, the municipality collects the full taxes from the project.
Developers benefit from TIF by turning a financially unviable project into something they can make into a reality. However, in order to derive the highest value from their TIF incentive, many developers require capital and expertise from outside sources.
Commercial real estate developers and investors understand property taxes, but when packaged with a bond vehicle and a capital markets execution, most developers and even investors enter unfamiliar territory. The result often is that developer-backed bonds are an illiquid financial instrument. Developers who cannot find appropriate capital to monetize the bond may choose to hold the TIF bond, which can hurt real estate returns. So even when developers want to move forward with a project, the inability to monetize the bond can create a challenge.
Hageman Capital was founded on solving this problem for developers looking to capture the greatest benefit of TIF.
Hageman Group first experienced developer-backed TIF bonds on their own real estate project. On a multi-family development in Lawrence, Indiana, the Hageman team explored a way to monetize TIF by selling or financing the bond. Hageman Group noticed towns and cities were shifting away from supporting projects with their municipal credit rating. Like other commercial real estate developers, Hageman Group needed a solution to fill the lack of liquidity to adapt to these changes.
Hageman Group first considered the factors for why traditional bond investors were not buying developer-backed TIF bonds. Many bond buyers value security and are looking to place capital on more than a single-site project. Secondly, most of these bonds are not rated, which is a characteristic that investors value.
Additionally, negotiating the purchase of single-site TIF bonds is complex. TIF bonds require expertise in both bond structuring and real estate financing, as these two sides have different nuances. Hageman Group understands the benefits developers gain by merging transactional experiences in both sectors into one entity. Developers need a credible and authoritative partner to solve the problem of TIF monetization.
Hageman Group believes in investing in projects that create lasting impacts on communities.
As a family office that was started by the sale of Remington Seeds in Remington, Indiana, Hageman Capital’s philosophy for growth is from the ground up, and that has carried over to the way we invest.
Most of Hageman Group’s investments are in commercial real estate and other ground-up investments. As a general partner (GP) and limited partner (LP) investor in close to half a billion dollars in real estate projects, Hageman Group possesses a wealth of real estate knowledge. As Hageman Capital’s founders studied tax increment financing and its ability to invigorate needed growth in communities, the team was driven to provide capital to other projects by buying TIF bonds.
Hageman Capital was formed with the goal of providing capital for developer-backed TIF bonds, by purchasing bonds on behalf of developers. Its leadership team includes professionals who served in roles within municipal government and specialists in public finance, investment banking, and real estate development. With experts in all of these areas, Hageman Capital has a unique perspective on Tax Increment Financing. Hageman Capital is providing tremendous value by financing TIF bonds that developers and municipalities could not monetize in the past.
The benefits of TIF for developers start at the macro level. As developers help their communities grow with new vibrant projects, it is also in their best interest that the project fits in with the existing characteristics of the town and the vision of the municipality. TIF can help commercial real estate developers collaborate with the municipality to create better alignment for a new project.
Both developers and the municipalities want new projects to be successful and well-received by the community, and TIF provides an avenue for all stakeholders to voice their priorities, while also creating long-term value for the community.
When developers buy their own bonds, additional equity is needed at the close of construction, making project returns lower. Selling the bonds allows developers to generate higher returns for the project.
Hageman Capital buys your bonds for the most money, allowing you to maximize bond proceeds to be used as equity on projects. When developers work with Hageman Capital, they can sell the TIF bonds immediately and use that capital for first-day money, infrastructure requirements, or bricks and sticks. For developers looking to monetize secondary market bonds after the completion of their project, selling the bonds to Hageman Capital provides liquidity that traditional construction or bank financing cannot.
Hageman Capital’s value proposition is reframing TIF as an asset and shifting the real estate risk so developers can focus on completing projects.
The most successful application of developer-backed TIF is when new developments are well received by community members and the momentum leads to further growth in the community.
Examine a case study in how TIF works with the help of Hageman Capital.
The team at Hageman Capital values relationships and developers who care deeply about their community. Whether or not a project is a right fit for Hageman Capital, the team consults with developers to better educate and empower their understanding of TIF. Hageman Capital’s structures, innovations, and processes are designed to make sure a project is successful.
Old Town is a master developer who has successfully partnered with Hageman Capital.
Hageman Capital understands TIF from every angle, including challenges facing developers, the viewpoint of municipalities, and bond structuring. This provides a one-stop investor for developer-backed TIF. Developers no longer have to buy their own bonds or draw on multiple aggregate sources for funding.
Hageman Capital specializes in monetizing TIF bonds before construction is completed so developers can engage with experts early in the process and mitigate construction risk. Most pre-construction TIF sales involve approval from the municipality; Hageman Capital delivers value-added best practices when developers are negotiating with the city on terms. Most developers will typically work with the municipality in conjunction with Hageman Capital to issue the security directly to Hageman Capital.
Real estate transactions are complicated, and with the addition of tax increment financing, developers can greatly benefit from the services and partnerships offered by Hageman Capital.
For example, financing transactions have become more complex within the current macroeconomic environment. TIF bonds are impacted by interest rate volatility, which means developers cannot accurately gauge the final proceeds of a transaction prior to closing. As always, Hageman Capital is at the forefront of designing mechanisms to empower developers through these complexities.
Hageman Capital offers developers the option to lock in the TIF bond’s interest rate before the bond closes. This rate-lock mechanism affords developers greater certainty in their capital stack. Hageman Capital understands how critical reducing risk and securing returns is to the process. Even in volatile markets, Hageman Capital solves complex problems and provides guidance throughout every stage of the process.
From the very first consultation, Hageman Capital provides commercial real estate developers with a clear and open process. Hageman Capital has designed a proven method for monetizing TIF efficiently. In the discovery phase, the team builds an initial rapport to learn more about the developer and their project. Hageman Capital also answers questions about developer-back TIF bonds and consults with developers to set expectations when negotiating with the municipality.
During the due diligence process, Hageman Capital reviews real estate pro forma and project details. The team then applies their experience to estimate TIF revenues. Hageman Capital discusses the taxpayer agreement in detail with developers during this phase as well.
The most distinct part of the process developed by Hageman Capital is estimating TIF proceeds. In order to maximize proceeds for developers, Hageman Capital dives deep into each project with the developer. Every situation is unique so this intensive process includes consultation with developers including structuring bonds in person, discussing financing assumptions, and estimating available proceeds that can be generated by available TIF revenues. Hageman Capital’s personalized approach ensures a seamless experience from start to finish.
Hageman Capital helps developers rise through challenges.
When preparing a purchase offer on bonds, developers will receive projected bond proceeds and negotiate preliminary purchase terms. Hageman Capital executes a letter of intent with agreeable terms.
Hageman Capital understands that TIF monetization should not distract from the broader project. Therefore, the final phases are designed to move smoothly toward funding. Hageman Capital works with developers to maximize bond proceeds by finalizing due diligence, bond economics, bond documents, and taxpayer agreement.
Hageman Capital’s process is designed to close simultaneously with the construction lender and fund proceeds on the bonds immediately. Hageman Capital considers developers to be partners and will communicate openly and directly with each one.
A successful round trip from start to finish with Hageman Capital.
For developers, Hageman Capital is a partner with a deep-rooted understanding of how to successfully use TIF to its potential. Most importantly, the team at Hageman Capital is committed to helping developers maximize the proceeds of their TIF bonds. When contacting Hageman Capital, developers can shift construction and real estate risk while also increasing the rate of return on projects.
Hageman Capital is committed to developers who are building community from the ground up. When developers monetize with Hageman Capital, they gain a partner with passion and expertise in TIF Bonds.
Have questions about our TIF purchase process or want to talk to one of our team members? Contact us below.
Have questions about our TIF purchase process or want to talk to one of our team members? Contact us below.