A streetscape in Belmar lit up at night.
The development program can thus respond to market cycles through time by shrinking or growing certain types of uses within the project. However, this makes the entitlement process significantly more complex. Pursue Patient Equity Private and public sources of patient equity can help reduce the financing requirements of conventional debt and equity. According to Leinberger, the presence of patient equity in the capital structure of a mixed-use redevelopment can overcome the existing orientation of real estate finance towards short term acquisition, repositioning, and re-selling of assets (Leinberger, 2008). Public and private entities have provided a range of sources of patient equity in each of the case study projects (Table 2, above). Private entities have deferred fees, contributed land, and provided cash. The developer of Belmar deferred $8 million in fees and contributed $26 million in their own equity because they intend for long-term ownership of the project. Together, this money comprised nearly 20 percent of the total development costs of the initial phase. The engineer and lawyer for Willingboro Town Center earned a portion of their fees below the cost of services and exchanged the remainder for ownership in the project. The project developer contributed his own cash because he also plans to retain long-term ownership in the project. Long-term ownership means that they can participate in the creation of value associated with a critical mass, which, as described by Leinberger might command higher rents and sales prices (Leinberger, 2007). The public sector has provided patient capital in the form of land, infrastructure development, and other local public sector financing
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mechanisms. Patient equity provided by the public sector is typically at the bottom of the capital structure and earns returns in the form of increased tax revenues and improved quality of life for the municipality (Leinberger, 2007). For instance, Boca Raton spent $29.5 million, or 49.5 percent of the total development cost, on new infrastructure and public space for Mizner Park, and it will receive a steady stream of cash flows from the ground lease. However, by the completion of the project in 2001, the assessed value of Mizner Park had nearly doubled from $35.2 million to $68 million while the overall assessed value of the downtown grew from $83 million to $229 million (Sobel, 2006). Local governments finance this patient equity through mechanisms that fall into four categories: direct investment, indirect subsidies, financial assistance, or no municipal risk (Table 3, above; Pagano & Bowman, 1995). Besides writing down land costs and financing the construction of infrastructure, the most common type of financial assistance is tax increment financing (TIF). TIF is a mechanism that harnesses future tax revenues from new development to pay for current expenditures. However the new revenue is reallocated from the general fund of a municipality to a smaller “district” (Weber and Gooderis, 2007). TIF is ideal for dead-mall-tomixed-use redevelopment because the mixed-use program is typically a high-density program that quickly transforms an underutilized parcel to more active and intense uses. Three case study municipalities utilized two different types of TIF. “Pay-as-you-go” forces the developer to take on some risk and pay for their own development expenses up front. The municipality reimburses the developer for TIF-eligible expenses as the TIF district produces incremental revenues. The developer of Belmar,
which built the infrastructure and public space upfront for the municipality, is receiving property tax revenue and sales tax revenue on an annual payment schedule from the municipality. Mizner Park and Downtown Park Forest utilized TIF bond financing, which requires the municipality to issue bonds to pay for expenditures within the district. The subsequent increment, a dedicated revenue stream, repays the bonds over time. Each of the developers noted that it could not have implemented their redevelopment plan without municipal financial assistance. According to the developer of Mizner Park, a single developer could not have transformed the downtown with links to the highway and rail. The municipality had to build the infrastructure to encourage new development. Downtown Park Forest could not have happened without TIF financing because it attracted both the senior housing developer and the single-family developer. The residential projects have provided a critical mass to support the retail component of the redevelopment.
Conclusion Areas for Further Research Dead mall redevelopment finance is a topic that requires further exploration and analysis. First, since the universe of dead mall redevelopments is so small, a more exhaustive survey that includes all projects would be helpful in identifying additional or similar approaches to overcoming the obstacles to obtaining financing. Second, further research should obtain the perspective of project financiers to determine real and perceived risks involved in the redevelopment of dead malls into mixed-use districts. Third, real estate professionals should have a greater understanding of the financial performance of these projects over time. A multi-year comparative analysis of the various uses within a redevelopment project to its conventional counterparts would provide insight as to whether the mixed-use programs command a premium and if they accrue value over time. Similarly, further research should compare the rates of return during the life cycle of single-use development to the life cycle returns of mixeduse development. An Evolutionary Process Obtaining financing for mixed-use development will become less of an obstacle as financiers gain a greater understanding of the mixed-use