Welcome to the Recovery Zone
About 100 developers and business owners learned last week at a recovery workshop held in DeVos Place that the city of Grand Rapids and Kent County have $80 million available in lower-cost financing for their construction projects, renovations and property acquisitions at a time when credit is tight.
Almost every business category can qualify and the financing can be applied to almost everything except a refinancing effort.
“It’s a rather interesting financing opportunity,” said Rick Chapla, vice president of redevelopment at The Right Place, the region’s economic development agency.
The financing comes in the form of tax-exempt bonds through the American Recovery and Reinvestment Act approved by Congress earlier this year. It’s available here because the county and city commissions declared their respective Recovery Zones due to the locale’s high unemployment and foreclosure numbers.
The city and the county can now issue tax-free debt securities on behalf of private entities, which reduces the cost of borrowing. But the financing, known as Recovery Zone Facility Bonds, is only available through the end of next year, and every applicant has to have a creditworthy project and a commitment for funding from a lender.
The bonds are being called unique, as it’s not often that a for-profit borrower can get tax-exempt financing.
“Those changes are the most important changes to the bonding code in 23 years,” said Dick Wendt, a partner at Dickinson Wright PLLC, which sponsored the workshop put on by the county, the city and The Right Place.
“The IRS is still working on additional guidances,” he added.
The recovery act allocated $54.8 million in RZF bonds to Kent County and $25.1 million to the city. The city’s Economic Development Corp. will review applications filed with the city and will issue those bonds. The Right Place will appraise the applications made to the county and the Michigan Strategic Fund will issue those bonds.
“We have a short time to issue these bonds,” said City Economic Development Director Kara Wood.
But neither the city nor the county will pledge their full faith and credit to the securities.
“Job creation is a major emphasis of the criteria,” said Chapla of the guidelines to qualify for a bond. “It is required that the bonding commitment be in-hand with the application.”
All the qualifying criteria, evaluation factors and applications are available online at the city and The Right Place Web sites. One evaluation factor — and quite likely a decisive one — is the amount of tax dollars a project will generate. That factor is likely to give a decided edge to a for-profit firm over a competing nonprofit organization.
“A nonprofit project will be given less consideration than one that generates taxes,” said Chapla.
Projects that are planned for under-developed areas will likely get a leg up in the selection process, too, as will environmentally sound projects.
“We want to stimulate investment in a corridor that needs investment. Old gas station sites and other things like that are given a priority,” said Wood. “Not necessarily LEED certified, but LEED eligible (are a priority).”
In addition, an application for financing should meet a certain investment requirement.
“If the bond is less than $2 million, it probably doesn’t make much sense,” said Wendt. “So a bond should be for at least $2 million.”
Applicants can apply to the city or the county as all 864 square miles of Kent County are designated a Recovery Zone. But Wendt said the fees at the city’s EDC are lower than what the state agency charges. At the same time, though, projects that have bonds issued through the city must pay workers a “prevailing wage,” while those that get financed through the MSF don’t.
“The city of Grand Rapids would prefer that bonds be issued by the EDC (rather) than the MSF. The fees are less,” said Wendt.
Residential rental properties, golf courses, county clubs, massage parlors, hot tub and suntan facilities, racetracks, casinos and any store whose principal business is the sale of alcohol aren’t eligible for the RZF bonds. But hotels, restaurants and other commercial buildings are.
Wood said the standard incentives, like brownfield designations and state tax credits, are available to those that get financing through the federally backed bonds. Owners of properties in the city’s Renaissance Zone can apply for the financing.
Chapla said applicants should be ready to start their projects within 90 to 120 days. “We probably won’t make any recommendations until late September or early October,” he said.
Applications recommended by The Right Place will go before county commissioners for approval. Those recommended by the city’s Economic Development Department will go before city commissioners for approval.