When More is Better.
Commercial Real Estate (CRE) owners who participate in CIDs can see a return of 10x on their investments to pay for infrastructure that benefits their properties. It also looks at how different types of commercial submarkets — from dense, office-heavy centers to industrial parks — fare in that regard.
Across submarket types, the average leverage ratio is 1:5. Meaning, for every dollar in revenue collected, CIDs attract five dollars in outside funding. This outside funding pays for the majority of the CIDs' project costs.
Concentrated, office-heavy submarkets leverage the most outside funding, up to 10x. More diverse and spread-out submarkets leverage 3x, and industrial-heavy submarkets leverage 50% more than they put in (or .5x).
CIDs around metro Atlanta, a leading example of the use of CIDs and BIDs, generated almost $1 billion in CID commercial property assessments for improving public infrastructure. This is a remarkable amount of money considering these assessments are initiated voluntarily by the commercial property owners but benefit the greater good.
CIDs have influenced an estimated $6 billion in improvements around metro Atlanta. This speaks not only to their ability to contribute in meaningful ways, but also to their ability to create successful public-private partnerships over the long term.
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“The quickest way to double your money is to fold it over and put it back in your pocket,” mused Will Rogers many years ago. This premise — creating financial upside — is a guiding principle for business. Folding money over to make that happen? Maybe not so much, but Will Rogers had a point: Multiplying the dollars you already have is a smart move.
Public-private organizations that allow businesses to stretch dollars are a unique way to do just that. Business and Community Improvement Districts (BIDs and CIDs) enable commercial real estate owners, developers, and investors to improve the performance of their properties and portfolios. How? By using their money to attract greater sums of public funding to pay for important infrastructure improvements.
A Bigger Bang for the Buck
CIDs essentially enable commercial real estate owners to leverage their own money to create significantly larger pools of funds, effectively turning smaller contributions into bigger dollars. Through an annual assessment, local property owners create an initial pool of funds. This acts as seed funding, which, in turn, attracts larger sums of money from governments. (Think of the recently enacted federal Infrastructure Bill.) Combined, those monies are reinvested back into planning, designing, and building community improvements. Not a bad way to build roads, bridges, transit, and other capital projects that add value to properties. And, with the Feds flushing new money into electrification and other advanced mobility infrastructure technologies, CIDs are well positioned to bring some of that money home along with the traditional asphalt, concrete, and cement.
So what exactly are “self-assessments”? These are the funds that provide the revenues for CIDs. They are derived from real estate owners within the local district and are a percentage of the commercial parcel’s value. CIDs determine that percentage by adopting an annual millage rate. They may choose to fluctuate their millage rates each year if their governing bodies wish to adjust their property taxes.
In metro Atlanta, the average CID millage rate was 4.5 mills or $4.50 for every $1,000 in assessed property value.
On a single property valued at $1 million, the owner would pay $4,500 ($1,000,000 x .0045) in assessments.
Bringing that up to the district level, a CID (made up of many properties) with perhaps $50 million in assessed property value would levy $225,000 ($50,000,000 x .0045). This is the CID's annual revenue and is adjusted as the value and/or millage rate fluctuates each year.
My 2021 report found that CID revenues vary widely. One may pull in $100,000 a year, while another may pull in $10 million. It all depends on the commercial area’s property valuation. The chart below illustrates the remarkable amount of funding CIDs sourced over the years as they grew from one in 1988 to 34 in 2019.
Those locally sourced funds leverage an average of 5x. For every one dollar in seed revenue collected, CIDs attract five dollars in outside funding. That same report found that over the past 30 years, metro Atlanta CIDs brought in almost $1 billion in assessments to the table, which leveraged $6 billion in constructed infrastructure (those figures are likely much higher since not every CID shared data for the report). THIS is the real benefit for commercial real estate owners and the reason metro Atlanta has so many CIDs.
How Submarkets Vary
Because CIDs are so successful at attracting public funding to pay for projects important to their businesses, they are proven tools. However, there are differences depending on the type of submarket. Concentrated, office-heavy submarkets (aka "Established Markets") leverage the most, up to 10x. More diverse and spread-out submarkets (aka "Pioneer Markets") leverage 3x, and industrial-heavy submarkets (aka "Industrial Markets") leverage 50% more than they contributed, or .5x.
These differences are likely due to a variety of factors (age, density, value, etc) and do not necessarily dictate the quality of the CID if non-financial metrics supersede their financial ones. It's also important to recognize that one submarket can't be compared to another. So don't worry if your industrial submarket's CID isn't getting 10x like an in-town CID. That's an apples-to-oranges comparison.
The Take-Aways
CIDs are excellent tools for commercial real estate interests interested in doing more with less. Businesses in commercial activity centers that establish and support CIDs get more value out of it than what they put in. Although a submarket’s ability to leverage funds varies by type, all submarkets experience a net benefit to their contributions. Combined, these public-private partnerships enable all involved to accomplish more. And that’s a proven way to multiply your money.