Infrastructure Finance Strategy for New Development

The Alter Group

SB Friedman has assisted both developers and municipalities with issues related to infrastructure financing.  This includes work related to impact fees for transportation, schools and parks. Recent work includes an assignment for The Alter Group with regard to its Cornerstone Development in Grayslake, IL.  For this project, SB Friedman designed a strategy to support an omnibus infrastructure bond for on-site and off-site improvements. These are to be repaid from revenues generated by the development, including special service areas and business development districts among other sources– essentially resulting in bootstrap financing from project.

The project involves multi-use development of approximately 600 acres in suburban Chicago, and includes industrial, office, residential, and retail commercial uses.  The development site does not contain existing sewer, water, natural gas, and electrical infrastructure, nor is it located adjacent to the Village’s existing infrastructure.  Working from the developer’s cost pro-forma and projection of build out, we estimated the potential revenue generation and present value for financing of:

  • Special Service Areas
    • Residential with Pre-Pay Requirement
    • Commercial
    • Industrial
  • Business District Sales Taxes
  • Infrastructure Local Option Sales Tax
  • Permit and Fee Revenues
  • Local Share of General Sales Taxes
  • Developer Payments toward Infrastructure
  • Land Sales Revenue

Tax increment financing was not an option due to local policy and eligibility concerns.

Results: The concept was advanced of using a conduit bond structure and/or multiple bond issues to maximize access to financial markets and the potential of tax exempt financing for infrastructure. The Development Cost Agreement for Cornerstone was unanimously approved by the Village Board on December 7, 2010 authorizing substantial infrastructure funding assistance towards the project. The terms of the agreement include up to $10.4 million in fee waivers and other Village revenues, and approval for additional assistance through Special Service Area and Business District Sales Taxes.

The financing techniques and names of tools may vary from locale to locale.  However, these types of bootstrap financing techniques can be used wherever infrastructure investments will stimulate or facilitate development and can be used for all types of public improvements including transportation facilities.