MBJ Special Report: Cities learn value of partnering for retail
by Ted Carter
Published: August 21,2014
Mississippi’s mayors and county supervisor chairs relish putting on hardhats and grabbing a shovel for groundbreakings on new retail developments.
But to get to that point, communities are learning they must shape partnerships with developers instead of depending on a developer’s determination to walk over hot coals in bare feet to get a project built.
Cities and counties have come realize that developers of retail properties have plenty of choices of where to go, said Monte Luffey, a partner in Southeast Commercial Management’s Biloxi office and state director for the Alabama/Mississippi chapters of the International Council of Shopping Centers.
The incentives the partnerships with developers involve are not “handouts,” Luffey said in an interview. Typically, the incentives cover the cost of road work, signalization, drainage improvements and utilities extensions – all of which enhance community infrastructure, he said.
“Cities, towns and counties by putting in the road work can create value for themselves as well as their communities. They make property that is hard to get to more developable,” he added.
Tax Increment Financing districts, or TIFs, are the most commonly retail development incentives used in Mississippi, Luffey said. “They are also the simplest form for both communities and developers.”
TIFs derive their revenue from increased taxable valuations created by the improvements undertaken by both the community and the developer. Bonds backed by the TIF cover the cost of the improvements.
Business Improvement Districts, or BIDs, are starting to catch on in Mississippi as well, according to Luffey.
With a BID, property owners pay a set percentage of tax that goes exclusively for public improvements in the district, he said. Luffey said he expects bids to become more prevalent on the Mississippi coast where business owners are still trying to recover from Katrina damage. Jackson has had a BID for its central business district for several years, as has Hattiesburg.
Developer Eric Seitz, principal of the Dallas-based Seitz Group, has done Mississippi commercial projects from Hattiesburg to Olive Branch. TIFs and other incentives that accompany partnerships with cities and counties have been hugely important in the viability of the projects, Seitz said in an interview. ”Without those things the retailers I work with wouldn’t be coming to the market.”
“It is really just infrastructure costs,” he said. “Most of them are set out pretty clearly by the state on what you can be reimbursed for.”
The projects generally are large in scope, Seitz said, because small ones seldom create the bump-up in taxable valuation a TIF must have to cover costs of the improvements.
Projects that build from the ground-up are the easiest when using a TIF, according to Seitz. “It is going to create something out of nothing,” he said.
A redevelopment, on the other hand, often involves rehabbing or demolishing older structures. “It is a lot more difficult and harder to quantify,” he noted, and thus less impressive to the public officials who must be persuaded to participate in the TIF partnership or whatever public-private arrangement is used.
Further, a redevelopment may need several incentive arrangements to succeed, Seitz said.
“You may need help with acquiring parcels and tearing some things down,” he added. “You’ve got to have a lot of different buckets to dip into to make it happen.”
Seitz said he is attempting a project in Madison that involves a large tract of land for which he is looking for TIF and Planned Investment District, or PID, help, “When you have to build these big retention ponds you really have to have some help,” he said.
With a PID, a property owner pays for improvements such as roads and drainage and is later rewarded by selling the property to a developer at a higher price.
What Seitz says he looks for in working with local governments are “very practical solutions to big problems.” And local governments, he said, are looking “to the private side to create these roads and drainage.”
The only way it can work is to have a project with significant building density and property revenues from a TIF or PID to help with the costs, according to Seitz.
Retailers are following population patterns, he noted. That’s why he is also doing projects in Olive Branch and D’Iberville and remains active in Madison, a place he said retailers “want to be.”
Though a planned Target store for Madison is on hold as the national retailer tries to fix problems relating to hacking of its debit card system, other retailers are looking around the city as well as Rankin County’s Flowood, according to Seitz.
He said he will soon announce a project on a “very prominent” 38-acre parcel in Madison that will involve construction of big box stores for a national sporting goods retailer and a national crafts retailer.
He also has done a couple of projects in Hattiesburg, one of which is anchored by a Target and another by an Academy Sports. TIF money was key to both, he said.
“Basically, it made money available to provide traffic lights and roads and to defray some of the costs of utilities which had not been extended.”
Hattiesburg has been a pace setter of sorts for the use of tax increment financing and will rely on it to accomplish the ambitious “Midtown Master Plan,” a commercial redevelopment that will cover 15 to 20 city blocks and involve more than 70 property owners. “It is going to be trick,” said Pattie Brantley, Hattiesburg’s director of Urban Development.
“We have not done a TIF to this level,” she said. “Normally it is a single developer and land that is to be developed.”
The Midtown project takes in the University of Southern Mississippi and the commercial blocks across Highway 49 from it.
Many of the buildings that will come down with the redevelopment are from the 1950s, ‘60s and ‘70s, Brantley said, describing them as “typical baby-boomer stomping grounds, hamburger places and the like.”
Estimates are that the target district anchored by USM, Forest General Hospital and the Hattiesburg Clinic each weekday draws 25,000 students and visitors to doctors’ offices and shoppers. “It is a high-density area,” Brantley said.
The Midtown plan reflects a vision of an earlier American downtown, laid out with wide sidewalks and buildings up to the property lines, she said. Many buildings will be storefronts with residential space on upper floors along with a mix of apartments, cottages and single-family homes.
“It really is a neat plan,” she said. “It has codes and regulations to go with it.”
Brantley said she expects the grandfathering of current uses likely will mean that completing the midtown redevelopment will take 20 to 25 years. In the meantime, Hattiesburg is waiting for developers and owners of existing properties to come and redo the district in accordance with the midtown plan, she said.
When they come, the TIF will be there to help.
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