Friday, May 23, 2008

Government Assistance Can Make Weak Markets Attractive

As the capital markets continue to make it harder to get all but the best deals done it's important for developers to be creative in how they can make their projects attractive to investors and lenders, especially in markets that have been hit hard by the economic downturn and housing slump.

One way to make projects in tough markets pencil out is to get local or state governments to pony up for a portion of a project's costs, something more and more municipalities are willing to do in order to have more say in the way development shapes their communities. In Michigan, one of the hardest hit areas in the recent downturn, the city of Troy is working with developers to redevelop a brownfield site into a town center in hopes of creating the walkable downtown that Troy has never had (Article).

Another great example of government assistance making otherwise impossible developments pencil out comes from Camden, NJ. There the Victor Apartments, completed in 2004, would have never penciled out, even during the times of easy capital, without the state selling the building for $1 to offset environmental remediation costs and investing $900MM in a light rail line linking Camden to the state capital in Trenton as well as other infrastructure improvements. The success of this building and continued government investment has subsequently spurred office and now hotel development along the Camden waterfront.

If you're looking to develop in a weak market in today's tough environment getting government assistance with development costs should be a top priority.

Llenrock Group

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