The POD & The TOD of Reuse and Redevelopment

What is a POD?

The abbreviated answer...a walkable community...the more common term, Pedestrian Oriented Development (POD). The more complex answer refers to a community that engages in pedestrian access to restaurants, schools, cultural, commercial and residential; where public transportation is also in walking distance. POD's will require incorporating wider sidewalks, bicycle paths, lower speed limits with narrower streets, greater access to public transportation and proper landscape orientation. This is easier said than done. Our society drives everywhere, uses more fossil fuel than any other country in the world, and shows no signs of changing from this destructive lifestyle. POD's require a 180 degree shift in our current ways of living. As Reid Ewing, professor of land use and transportation at the University of Utah stated “The future belongs to walkable communities". He argued that POD's will work in small and mid-sized communities, where planning and building can be accomplished on a POD/TOD focus, with Mix-used development playing a key role. In addition, Ewing cited the importance of two other factors in a successful POD: shorter blocks and higher density....two to three times’ higher density.

What is a TOD?
The key to Transit Oriented Development (TOD) is a combined mixed-use community of residential, retail and commercial all working as a sustainable community, which is termed "Smart Growth". A study by the Federal Transit Administration (FTA) shows that communities are growth-oriented due to close proximity and higher density and are designed where people can walk, bike and take transit and leave their automobiles parked at home. Modes of transportation include buses, railway, light rail and street cars. The same FTA study also defines a slightly different form of TOD called Joint Development. Joint Development is project specific development that takes place above, on or adjacent to transit stations and transit properties.

The Benefits of  POD & TOD
Shifting to new design criteria for mixed use developed POD's & TOD's carry many lasting benefits. The most important and the least sought after are the Environmental Health, Human Health and Social Health benefits. Our environment has suffered greatly at the hands of the automobile. Not so long ago, factories were also a contributor, but a large part of our industry has moved out of the United States. The more air pollution we spew, the more damage we do to our environment and to our health. What POD's & TOD's do is reduce automobile travel, thereby reducing harmful carbon monoxide gasses that affects our Ozone Layer. In addition, we become active by walking a distance that our doctor's would most likely recommend. Currently, 55% of all adults are considered obese. By walking and biking, you can reduce the risk of stroke and or heart attacks. Walking, biking and public transportation also provide opportunities for social interaction, which in turn,  promotes greater social health. Close knit communities generate economic growth and become keenly aware of their community environment.

The Reuse & Redevelopment of Superfund/Brownfield Properties

What is a Brownfield?
A Brownfield is a property that is perceived to have the presence of contamination and is in consideration for reuse/redevelopment. These properties are generally abandoned buildings/factories that have produced hazardous materials during processing and overtime, the property becomes contaminated. There are four specific challenges in Brownfield Development that are unique compared to other real estate developments. They are: Environmental liability, Financial barriers, the Clean-up process and the plans addressing the reuse. Typically, there are also four steps in the redevelopment process:Pre-Development plan, Securing the property and the necessary financing, clean up and development and the Property Management aspect.

 The Role of The Environmental Protection Agency (EPA)
The Environmental Protection Agency (EPA), private and public sectors of development and state/local governments realized in the 80's that Superfund and Brownfield sites were becoming a greater liability to human health and welfare. In 1980, Congress took measures to involve the public in the Superfund and Brownfield problems by establishing the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). In 1986, Congress further strengthened the role of community involvement with the passing of the Superfund Amendments and Re-authorization Act (SARA).

The EPA Superfund & Brownfield Grants Programs 
In 1986, Congress authorized the EPA to begin a program called Technical Assistance Grants (TAGs). This is a grant that provides money to help the community to make informed decisions regarding their Superfund site. The grant awarded can be up to $50,000. For Brownfield sites, which are considered less risk for human health than Superfund sites, grants are awarded based on the Small Business Liability Relief and Brownfields Revitalization Act of 2002. The statute authorizes the use of two separate grant programs: a competitive program (Section 104(k) that addresses specific sites and a non-competitive program (Section 128) to support state clean up efforts. In addition to these grant programs, the EPA has grants for Environmental Workforce Development and Job Training, Research and Technical Assistance, Sustainability programs, and State and Tribal Response Programs.

Adaptive Reuse/Redevelopment and Building Codes - A New Era

 What is a Building Code?
A Building Code is basically a set of rules that are applied to buildings and non-building structures to protect public health, safety and general welfare as they relate to building construction and occupancy. A particular jurisdiction will vote a building code in to law. Further, it is the responsibility of the jurisdiction to employ individuals to monitor buildings under the guidance of the enacted building code. The history of the Building Code is generally thought to be from the Code of Hammurabi where the leader spelled out clearly the punishment that would befall the builder for an inferior building. In the United States, the City of Baltimore is credited with the first building code adapted in 1908. Currently, the most widely used code in the United States was developed by what is now called the International Code Council, which has 14 different codes and updates the codes every few years.

The Challenge of Building Codes and Adaptive Reuse
There is no arguing the importance of Adaptive Reuse. Old, vacant buildings and sites are getting re-purposed. But this new trend comes with many challenges. While these old buildings are thought to be built to last forever, rehabilitating them can be an Engineering/Architectural nightmare. Building codes have changed over the years and many materials used fifty years ago are now considered hazardous material (i.e. asbestos). Generally, the first step in rehabilitation of an old structure is generating hours of physical inspections and inspection reports, one such being, the Phase I Environmental Study. Enter "Smart Codes". In a nutshell, Smart Codes are codes that have been adapted for Reuse and Redevelopment. Smart Codes take into account the historical value and offer a little leeway from the standard building codes. Examples of Smart Codes can be found all over the United States. One example in the Rehabilitation Sub-Code that the City of Newark, New Jersey has enacted. The city found that using the newer codes impeded the rehabilitation process, so new Smart Codes were designed with the age of the structure in mind. Keeping the focus of the core issues of occupancy safety and accessibility, the Smart Codes are regulated and evaluated differently than the standard building codes. Shortly after the New Jersey codes was enacted, the State of Maryland followed with their version. HUD followed in 1997 with its version of the Smart Codes called Nationally Applicable Recommended Rehabilitation Provisions (NARRP). The HUD Smart Code details code development adaption and calls attention to areas of concern such as accessibility issues and structural strengthening. The HUD Smart Code (NARRP) defines four areas of Rehabilitation Work: Repair, Alteration, Addition and Change of Occupancy. One of the most strict but highly efficient Smart Codes is the one that the City of Los Angeles, California adapted in 1999. One of the obstacles in rehabilitation in Los Angeles is the lack of structural integrity that the old structures lacked. The City of Los Angeles worked closely with Structural Engineers in California and developed alternative guidelines to address the structural strengthening issue to address the strict seismic requirements. The results of the adaptation of Smart Codes throughout these and many more cities has brought about a rehabilitation surge that is answering many of the cities problems such as blight, housing and overall social well being.

Tax Increment Financing - The "TIF" Explained

Tax Increment Financing or TIF, is a financing method used for subsidizing redevelopment for infrastructure and other community related improvement programs. How this TIF program works is this: As a site increases in value, more tax revenue is generated. When there is an increase in tax revenues, the revenues are set aside to be used for these improvement programs. TIF districts are created, generally in low-income, distressed, or underdeveloped areas. There are currently thousands of TIF districts operating in the United States, with the exception of California, which discontinued it's TIF programs. Two good examples of TIF programs are: The State of Indiana and The State of Texas. Indiana. Indiana, like many other states, establishes TIF districts either as a redevelopment area or an economic area. A redevelopment commission of five members is developed and the district is then designated by the commission as either a redevelopment area or economic development area. The commission then decides the boundaries of the area and prepares a plan for development or re-development of the area. In The State of Texas, TIF's are located in Chapter 311 of the Texas Tax Code. The code states that TIF's may only be initiated by a city. If the property is located outside a city, it is not eligible for TIF. There are two ways that TIF can be initiated: The first is by a petition started by the property owners of the affected area. The second way is thru the City Council. The City Council will determine based on the area's present condition and if the area is impairing the cities growth. The City Council can determine the boundaries of the area to receive the TIF. There are ten steps involved in the process of obtaining TIF, with the last step pertaining to strict reporting by the City to the Attorney General State of Texas. TIF is not without criticism. The process is often politically charged and there have been fears that favoritism would be given to certain developers, lawyers and economic development officials. Also, districts are not the same size and can be drawn too large and capture value that would have been increased anyway. But, for all it's critics, the TIF program, with it's inception in 1952 in California, has incredible success stories, which are generally attributed to excellent government management and transparency.

Mortgage Guarantee Programs Thru HUD

The Housing and Urban Development (HUD) sector of the U.S. Government was established in 1965 for the original purpose of policy making for housing and city development. Since the mid-1970's, HUD's focus has moved primarily to housing. One of HUD's primary functions is a lending facilitator(loan guarantee) for low to middle income level people trying to acquire a loan to purchase a home.HUD works closely with other housing loan programs such as the Federal Housing Administration (FHA), the Federal National Mortgage Association (FNMA or Fannie Mae), the Federal Home Loan Mortgage Corporation (FHLM or Freddie Mac) which is a Government Sponsored Enterprise (GSE) In short, a GSE is a stockholder-owned, privately managed corporation(s) chartered by Congress in 1970, with the purpose of keeping money flowing to mortgage lenders. Some examples of HUD/FHA guaranteed loan programs are: FHA's Section 203(b) program of One-to-Four Family Home Mortgage Insurance, which will provide insurance to finance home ownership,  FHA's section 203(k) program for Rehabilitation Loan Insurance which insures loans to finance One-to-Four Family property Rehabilitation, FHA programs to prevent foreclosure, FHA's Insurance for Condominium Units section 234(c), Adjustable Rate Mortgages section 251, Manufactured Home Loan Insurance Title I,  Energy Efficient Mortgage Insurance, which is insurance to finance energy efficient improvements made to a dwelling, and Insured Mortgages on Indian Land section 248. In addition, HUD provides capital advances for supporting housing for the elderly section 202 and grants for substantial repairs to eligible multifamily projects owned by private nonprofit organizations. In the last decade, HUD has turned their attention to the Community as a whole and has initiated Community Development Block Grants (CDBG), dividing grant money between Entitlement and Non-Entitlement development needs, CDBG technical assistance grants, CDBG for disaster relief, and CDBG grants for Insular areas of the United States. Please note, these are only a handful of programs that fall under HUD's jurisdiction. For further information, please access the HUD website provided.

U.S. Government Funding Programs on a "Community" Scale

 What Is A CDE?
The Federal Government has devised programs that target the "Community" for funding Low Income housing and other projects. One such program is the Community Development Entity, or CDE. Loosely defined, the CDE is a domestic corporation or partnership that acts as an intermediary for the provisions of loans, investments and finance counseling for Low Income Communities. Being certified as a CDE will open the door for applying to a Community Development Financial Institution fund (CDFI). By applying to the CDFI, the CDE will be eligible for New Market Tax Credits (NMTC) allocations which will be offered to investors in exchange for equity investments in the CDE.

What is a CDBG?
The Community Development Block Grant (CDBG) is one of the longest running programs linked to the Housing and Urban Development (HUD) sector of the government. The CDBG program was enacted in 1974 as part of the Housing and Community Development Act of 1974. It's goals were to attempted to end poverty and "urban blight". Originally, the funds were used for community development activities such as affordable housing, anti-poverty programs and infrastructure improvements. The program has expanded to include prevention and elimination of slums, real estate acquisition (which can include relocation, demolition and rehabilitation of commercial and residential buildings), and public service projects such as water, sewer, utilities, streets and sidewalks. In addition, CDBG funds can be used for restoring historical properties in economically depressed areas.The funds are allocated to local and state governments using a formula. When the program was re-authorized 1978, a two part formula was used to attempt to balance the different areas of the country with their different requirements. Part A of the formula was based based on poverty rate, population and overcrowding conditions and typically benefits rapidly growing cities with higher poverty rates. Part B of the formula addressed age of housing, poverty rate and growth. Formula B tends to benefit older cities with greater housing deterioration. Additionally, a fund was set aside to address rural areas of the country. In order to receive the funds, communities must communicate to the city/state "urgent needs". In relation to other government funded community programs, CDBG is a much broader program that addresses poverty and blight and is less restricted than other programs such as the Urban Development Action Grants (UDAG). Closer to home (Texas), The State of Texas, through the Texas Department of Agriculture has initiated a CDBG for the state's rural areas. The goal of the rural CDBG is as follows: " The primary objective of the Community Development Block Grant program is to develop viable communities by providing decent housing and suitable living environments, and expanding economic opportunities principally for persons of low-to-moderate income". The specifics of the CDGB are as follows: "Non-entitlement cities under 50,000 in population and non-entitlement counties that have a non-metropolitan population under 200,000 and are not eligible for direct CDBG funding from HUD may apply for funding through any of the Texas CDBG programs".

The "Magic" of Reuse and Redevelopment - Tax Credits

The "Magic" Part
When you view before and after photos of different reuse and redevelopment sites, you have to ask yourself "how did they do that? Was it magic?" In fact, there are many criteria and "tools" that developers will use when acquiring distressed properties and sites. The Federal Government has initiated a program known as the Federal Historic Preservation Tax Incentives Program. Basically, the program has two parts. There is a 20% tax credit for the certified rehabilitation of certified historical structures and a 10% tax credit for the rehabilitation of non-historic, non-residential buildings built before 1936. A tax credit is not the same as a tax deduction. Where a tax deduction lowers the amount of income subject to tax due, a tax credit will lower the amount of the tax owed by swapping a dollar of tax credit for a dollar of tax owed. The program is jointly managed by the National Park Service (NPS) and the Internal Revenue Service (IRS) and both partner with the State Historic Preservation Offices (SHPOs).

What It Takes
To certify a structure (the structure can not be a ship, bridge, railroad car or a dam) the owner of the building must complete Part 1 of the Historic Preservation Application. The owner submits the application to the SHPO who reviews it and sends it on to the NPS. It's the NPS that determines if the structure has any historical significance. If the NPS approves, the structure can be certified historical. Part 2 describes the what the rehabilitation will encompass. After the work is completed, the owner will submit Part 3, which is a request of Certification of Completion. There are of course, fees involved. Fees are assessed by the cost of what the rehabilitation is. The IRS requirements are: The building must be depreciable (that is, it must be used as a business or in a trade), the rehabilitation must be substantial, the rehabilitation process may be in phases, and the property must be placed in service as a certified historic structure. Also, the owner must hold the building for five years. If the owner decided not to keep the building within the first year, 100% of the credit is "recaptured".


More of What It Takes
If you are an owner or owner developer with intentions of rehabilitating a historic structure, you may chose an alternate or an added Tax Credit program, called New Market Tax Credits (NMTC). Congress passed the NMTC program in 2000. The NMTC program encourages investments for low income communities. The NMTC program allows users to write off 39% of qualifying costs over a seven year period. There are a number of entities that are involved in the NMTC process. Basically, a Tax Credit Investor and Commercial lender will pool into an investment fund. A Community Development Entity (CDE) will act as managers and receive a set fee. Now for the good news....Historic Tax Credits (HTC's) and New Market Tax Credits (NMTC) can be used together. This process is known as "twinning". The "twinning" process has brought about great success in reuse and redevelopment of old, abandoned structures. The $23 Million redeveloped abandoned Colt weapons factory in Hartford Connecticut, into a mixed-use, high density loft apartment complex over a ground floor retail/commercial venture and the long vacant, severely contaminated Albers Mill, a former cereal mill located in Tacoma, Washington, which was redeveloped into market rate lofts with ground floor retail, are just two examples of the "twinning" process of tax credits.

Last but Not Least 
The most successful tax credit program in the country today is the Low Income Housing Tax Credit (LIHTC) program. As part of the Tax Reform Act of 1986, the program has provided the necessary financing for the development of 2.4 million affordable rental homes and directly or indirectly, has supported 95,000 jobs. In addition, it finances about 90% of all affordable housing annually. This is not all Federal Government. The success of the Housing Credit lies in the public-private partnership that forms a Qualified Allocation Plan (QAP) that addresses and prioritizes what affordable housing projects that will be built. The job of the private sector of the partnership manages site selection, underwriting and compliance with the program. In addition to these tasks, the private sector assumes all of the construction and lease-up risk. In 2008, the Housing and Economic Recovery Act was enacted and this created a 9% fixed floor rate for new construction and substantial rehabilitation. The 9% fixed rate was installed to remove financial uncertainty and risk associated with underwriting properties using a "floating rate" system.