FEATURE ARTICLE, NOVEMBER 2005

RUSH TO REDEVELOPMENT
Redevelopment projects are becoming more attractive throughout the Midwest markets.
Alan Wasserman

The recent news regarding new residential housing in much of the Midwest has not been encouraging for developers.

Demand is softening slightly and housing inventories are increasing, even in recent growth areas. This downward cycle for new housing is coming at a time when public policies and programs favoring infill and redevelopment projects have come into vogue. Farmland preservation is in and greenfield developments are out. Sustainable development is in and sprawl is out. State expenditures frequently favor rehabilitation of existing infrastructure over financing new roads and sewers. “Fix it first” is a popular political staple.

This combination of factors is making residential redevelopment projects a more attractive option than conventional suburban tract development. However, developers need to bear in mind that there are substantive differences between conventional suburban development and redevelopment projects.

First, as a general matter, the local landscape is vastly different.

Conventional suburban projects often face opposition from many sources over a number of common concerns. These issues typically include density, traffic, and changes in land use. Environmental issues, such as open space preservation, wetlands preservation and sewage disposal are also common. There is even a growing aesthetic in fringe communities, which attempt to maintain their rural character by restricting new development. In some cases, objections come from longtime residents opposed to any new development; in other instances, recent arrivals object to anyone else following them into the country.

In contrast, the issues for a redevelopment project are very different. Often, the local unit of government strongly backs redevelopment as a way to build back lost tax base and attract population back to existing areas. If there are concerns over infrastructure they are typically regarding fixing old or aging roads and sewers rather than building new ones. Environmental issues are not closely tied to changes in land use, but instead involve clean up and demolition, particularly when the original development was commercial or industrial. Local residents are less likely to be opposed to redevelopment on land use grounds, but more sensitive to societal issues such as racial and economic equity.

For developers who are considering in-fill redevelopment projects, there are a few tips that can help make the process more manageable.

Often the single biggest obstacle to in-fill redevelopment projects is land assembly and cost. Developers, especially in residential and retail, are accustomed to tracts of land that allow for large footprints. Expectations have to change for redevelopment projects. In mature communities, residential lots are often much smaller, and available land is scarcer. In Michigan, for example, many older urban and inner suburb areas have patches of available land ranging in size from a few lots on a residential block to several acres of abandoned buildings and parking.

To address the problem of land acquisition, it is crucial to work in partnership with the local unit of government. The local government often has inventories of tax reverted land it can consult for suitable parcels, and it also may have targeted areas where it wants to start a revival of residential and/or commercial development. As mentioned above, they are often politically motivated to help a project happen — this motivation can help a developer on many levels beyond acquisition. A developer may also find that higher densities and mixed uses are permissible, and even welcomed, in redevelopment projects. This can change the economics so that even a modest parcel (by conventional standards) can yield a very nice project.

Another important advantage for redevelopment projects is that there are many direct and indirect incentives available for them that are not available for conventional suburban development.

Developers may be able to take advantage of a range of public incentives, in the form of tax increment financing (TIF), brownfield financing, single business tax credits, and even grants or low interest loans for cleanup and construction of infrastructure improvements. There are also less obvious incentives that can help the bottom line. Utilities, for example, are generally far more interested in providing service to projects that are already within their existing infrastructure. Roads, schools, and other amenities already exist. And don't underestimate the fact that there may be pent up demand for new housing in existing towns and cities. Market studies have shown that in some older communities, families want to stay and would welcome the opportunity to move to new housing stock within their metropolitan area.

Finally, developers that are able to approach redevelopment projects with patience will find that patience rewarded.

The pace of these projects can be slower than conventional projects, especially during the land assembly phase. It takes uncharacteristic patience for a developer to wait while title is cleared up on lands that have tax-reverted, and while public financing sources are lined up and approvals obtained. However, if the process is seen through to conclusion, a favorable reputation and relationship can be established between the developer and the local unit of government that can provide assurance that the first project will be followed with a second. Developers will also have the satisfaction of knowing that instead of contributing to urban sprawl, they are taking an active role in revitalizing communities.

Many of the issues associated with redevelopment, particularly environmental concerns, can be legally complex. However, developers who work with an experienced attorney may find the rewards to be significant and well worth their time and investment.

Alan Wasserman is a member of Williams Acosta, PLLC, a Detroit-based law firm. He concentrates his practice in environmental law and regulation.

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