Maximizing Returns: Navigating State and Local Tax Credits for Multifamily and Mixed-use Developments
As demand for housing continues to rise nationwide, developers and business leaders have identified multifamily and residential mixed-use developments as practical solutions to meet this need. Whether through new construction or the rehabilitation of existing facilities, this industry shows no signs of slowing down. Thankfully, economic development tools are available to help offset the costs of these projects, allowing developers to extend their efforts to other communities in need and maximize their return on investment.
According to statistics published by the National Multifamily Housing Council, new apartment construction generates an economic impact of over $220 billion, and apartment renovations contribute an additional $77 billion. Together, these activities are estimated to create over 1.3 million jobs.
Incentivizing Growth: State and Local Government Tools
Capital expenditures, job creation, new resident attraction, and community development are some reasons state and local governments incentivize housing projects. By assisting developers with upfront costs, communities benefit for years to come. Attracting new residents results in additional tax revenue, spending in the community, and the potential for new businesses in the area.
Mixed-use developments integrate multiple functions—such as residential, commercial, and recreational—into one space, building, or neighborhood. These projects appeal to communities because they offer creative housing solutions, encourage community interaction, and consolidate amenities into a convenient location.
Federal incentives are particularly relevant for projects considering low-income housing options, but state and local programs should not be overlooked. Local communities offer a variety of tax reduction tools that can encourage development. One of the most well-known and commonly pursued is Tax Increment Financing (TIF).
Understanding Local Property Tax Incentives
TIF is a financing tool typically approved at the local level based on the future increase in tax revenue that will result from the incentivized project. TIF proceeds can be used for infrastructure improvements such as street development, sidewalks, parking facilities, and other public amenities. Multifamily and mixed-use developments typically already have parking solutions and sidewalks built into their blueprints, making this an appealing financing option.
Other widely recognized property tax savings tools at the local level include real property tax abatements and payments instead of taxes (PILOT). Although they may have different names, such as Ohio’s Community Reinvestment Area (CRA), they serve the same purpose: encouraging development and offsetting project costs through property tax reductions.
Maximizing State and Local Incentives
State incentives can often be combined with local incentives for new construction or renovations. Eligibility requirements vary by state but can typically apply to residential developments, rehabilitation of underutilized properties, new construction, and mixed-use projects.
For example, in Ohio, a project that combines any two or more elements—such as retail, office, residential, recreational, or structured parking facilities—could qualify for both local CRA benefits and a Transformational Mixed-Use Development Program (TMUD) tax credit. The TMUD state incentive is worth up to 10% of the estimated development cost and is transferrable. This local and state incentive deal is possible because the funds come from different sources.
Similarly, a developer rehabilitating an underutilized building into multifamily apartment units in Indiana may be eligible for the state’s Redevelopment Tax Credit, in addition to a local property tax abatement or TIF if supported by the local community.
The Strategic Advantage of Incentive Planning
By strategically incorporating credits and incentives into the planning of mixed-use and multifamily projects, investors could achieve savings of 20-25% on their project costs.
Partnering with McGuire Sponsel ensures that developers, brokers, and investors have a strong advocate when negotiating incentives with state and local communities. Our Location Advisory Services team has the expertise to maximize incentive offers while mitigating the risks of potential clawbacks in future years. Beyond securing the best deal for your project, we also manage the annual compliance necessary to realize these benefits in the long term.
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Ben Worrell, MBA
As a Shareholder for McGuire Sponsel’s Location Advisory practice, Ben Worrell fosters client relationships by guiding clients through the intricate compliance requirements associated with credits and incentives benefits.
Ben builds confidence in the McGuire Sponsel client relationship by working with clients throughout the duration of their project – not just in a one-off transaction.
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