Do you remember Matthew Lesko, the “FREE MONEY” guy who touted his books on late-night infomercials and wore a loud suit with question marks? Of course, as we all know, something like “free money” is too good to be true. And that is why Mr. Lesko got in trouble with the Federal Trade Commission.
But if you are a real estate developer looking to purchase and remediate some distressed property on the cheap, there actually is such a thing as “free money.” Sort of. The Michigan Brownfield Redevelopment Financing Act – also known as Act 381 – provides real estate developers throughout Michigan with financial incentive to help remediate and develop certain contaminated properties.
Brownfield incentives are treated differently in each community and it is not a simple grant where you file an application and get your check. The terminology and the mechanics of tax-increment financing (“TIF”) are also complex. It is definitely worthwhile to retain an expert attorney to assist, but the good news is that the incentives obtained through the Brownfield process will more than offset any legal fees that you may incur. In other words, Brownfield developments pay for themselves!
Here are 9 essential questions and answers about Brownfield incentives:
- What is a Brownfield anyway? Brownfields are properties that have a level of envirnomental contamination. These properties may be old industrial sites that have contaminants leaking into the ground or simply old buildings that were built with asbestos.
- So does the government just give me money for Brownfield development? No. Under Act 381, the developer creates additional tax value by improving the target property. The tax value goes up, but that “increased” tax value is captured and used to reimburse the developer for eligible activities. This is called tax increment financing or “TIF”
- What are “eligible activities”? Eligible activities is work related to improving the property, and include preliminary items like a Phase I assessment, as well as costs of the actual remedial work like demolition. The full list is found in Act 381.
- What is a Brownfield Authority? The community where your target property is located may have established a Brownfield Redevelopment Authority, which is the contact entity for a developer seeking incentives. The Authority may establish a Revolving Fund, where the excess tax revenues are deposited and then disbursed to the developer.
- Are there direct grants available as well? Sometimes. The Authority may have funds available from the EPA or the Michigan DEQ as part of a grant for certain Brownfield Redevelopment Activities. For instance, St. Clair County received a $1 million grant from the EPA in 2010, 100% of which was spent to help with Brownfield redevelopment. In 2017, St. Clair County received another $400,000 in grant funds towards the same objective.
- Does TIF capture state-level taxes for faster reimbursement? Yes. A separate work plan must be submitted to the Michigan DEQ or the Michigan Strategic Fund for approval before tax capture can include state-administered school taxes. More tax basis to capture means faster reimbursement for the developer.
- Are there Brownfields near me? Probably! Brownfields are not confined to urban areas – there are numerous eligible properties in communities like Northville Township and Port Huron, as well as on the west side of the state. Check out the State of Michigan’s interactive map showing Brownfield success stories all over the state.
- What happens if I do not finish the redevelopment? You may owe money to the government. Be especially careful when entering into an agreement to receive grant money or for tax increment reimbursement. The community or Brownfield Authority will often insist on a reimbursement agreement, where the developer must return the money if they fail to complete the project, for whatever reason. The development may also have other conditions – another reason to have any agreement or Brownfield plan reviewed by a professional.
- Other than an attorney, who do I need to hire? Choose the right environmental engineers – some communities may have special ties or preferences with respect to certain environmental firms. It is important to select the right person for the job. You may also want to consult with your CPA about possible impacts to your taxes, especially about how TIF and grant money is treated for income tax purposes.
Michigan has some really great incentives for property owners willing to develop distressed properties. Contact Dan Artaev for a consultation about using Brownfield incentives on your next project at email@example.com or at 248-380-0000. We can also put you in contact with expert environmental engineers, insurance providers, lenders, and CPAs to facilitate your next investment.