Neptune Company - Tax Revenue Pledges

Neptune Company purchases tax revenues that are pledged to development projects and private parties. The tax revenue pledge usually is evidenced by a note, a disposition and development agreement (DDA), Owner Participation Agreement (OPA), or some form of tax rebate, public facility or affordable housing reimbursement agreement.

Background

Cities are faced with the requirement of increasing revenues in order to provide critical services and quality of life expectations to its residents. Real estate development projects are the primary driving force that creates new revenues. New projects create jobs, increase tax base, and generate sales and transient occupancy tax revenues for the cities.

The major problem that cities are faced with is that the projects they desire do not make economic sense to develop, i.e. the rent or sales revenues do not justify the project's cost. As a result, many cities have found it necessary to offer financial assistance to key real estate projects in order to make them economically feasible.

The objective of a public assistance package is to make the project financially attractive enough to warrant the investment of capital. There are three ways to make an infeasible project attractive:

·	Reduce project costs
·	Increase revenues
·	Capitalize project cost using less expensive financing. For additional information regarding inexpensive mezzanine debt, please see www.apexequityfund.com.

The historical approach used by cities to make a project feasible has been to reduce project costs to the extent that excess resources are available (which is becoming more unlikely), and pledge incremental tax revenues to the project until an acceptable return on cost is achieved.

These methods of public assistance include:

Land Write Down. The city, usually through the redevelopment agency, either contributes the land or "writes down" its cost thereby reducing the overall project cost.

Fee waivers. The city will waive all or a portion of development fees to reduce the project's cost.

Tax Revenue Pledge. The city will pledge a portion of the new tax revenues to the project to increase the project's net operating revenues. Project tax revenues consist of:

Property Tax Increment. Redevelopment agencies and government agencies in certain states are empowered to use property tax increment to finance and assist their activities. Within a redevelopment plan area, as new real estate projects are developed, the property assessed values increase. The increase in assessed value generates additional property tax revenues. The additional tax revenues are called "tax increment", "captured assessed value", etc.

All redevelopment agencies (at least in California) have bonded indebtedness that is secured by tax increment. The bond proceeds are used primarily to acquire properties within the redevelopment plan area.

A new development project will generate additional tax increment revenues that are not necessarily encumbered by existing bond issues. Many developers negotiate with the redevelopment agency for a participation in the future tax increment generated by the developer's project.

As an example, the developer of an affordable housing project might receive a pledge of 50% of the net tax increment for 30 years as a vehicle to reimburse the developer $2 million in lost profits related to selling housing units at below market rates.

Sales Tax and Transient Occupancy Tax Revenues. Retail projects generate sales tax revenues. Hotel projects generate transient occupancy tax revenues. As in the previous example, many developers are able to negotiate a participative interest in the new tax revenues generated by their project.

Neptune Company purchases tax revenues pledged to development projects or private parties. If you have a tax revenue pledge or are negotiating for tax revenues with a city, please contact us to determine what we can offer.