The Top 8 Government Incentives for Commercial Real Estate
First, Why Does the Government Offer Commercial Real Estate Incentives?
Federal, state, and municipal authorities offer numerous potential incentives for commercial real estate developers. These incentives are intended to help:
Attract new businesses
Retain profitable businesses
Boost the economy
Strengthen corporate and industrial landscapes
Of course, knowing that incentives are out there and actually capitalizing on them are two very different things. To secure the best financial footing possible, the first step is to understand the types of incentives your project may qualify for. Read on to learn about the eight most common government incentives for commercial real estate, and how Modern CRE can help you make the most of them.
What Are the Most Common Commercial Real Estate Government Incentives?
Most commercial real estate incentives fall into one of eight categories. We break down each of these categories below, highlighting which projects qualify and what levels of government are most likely to offer them.
1. Brownfield Incentives
A Brownfield is defined as a “real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant or contaminant" [Comprehensive Environmental Response, Compensation and Liability Act §101(39)].
These ecologically contaminated sites pose additional costs to prospective developers, which can deter mitigation and prolong the risks faced by the surrounding community. So, the federal government has implemented Brownfield incentive funding, designed to offset the costs of remediation and encourage redevelopment of these sites. Note that these incentives require the completion of an Environmental Site Assessment (ESA) before proceeding.
2. Capital Improvement Projects (CIPs)
A Capital Improvement Project (CIP) is meant to serve the betterment of the community. Common examples include renovating government service buildings, repairing public roads, or replacing aging pipes. CIP incentives may be offered at the federal, state, or municipal level for any project that will implement permanent, structural improvements to facilities or infrastructure as part of their development plan.
3. Discretionary Incentives
A discretionary incentive is typically offered by either municipal or state governments. They’re meant to attract and support projects that will create new job opportunities or generate capital investment. These incentives are typically offered in the form of income rebates or reductions in relevant taxes.
4. Energy Efficiency and Green Incentives
Green incentives are provided for energy-efficient or green building designs and improvements. They may be offered by federal, state, or municipal bodies. The most prominent examples of this incentive type are the federal government’s Energy Star tax deductions for commercial buildings.
5. Historic Preservation Tax Credits
These types of tax incentives are designed to help offset the costs of rehabilitating qualified historic properties. They are typically offered at the federal and state levels, and require the building to be registered with the National Register of Historic Places (NRHP) and/or with your state’s historic preservation office.
6. Job Credits
Job credit incentives are typically offered as federal or state tax credits. They are calculated based on the number and type of jobs your project is likely to create. To read more about job creation incentives, specifically in manufacturing, check out our blog post dedicated to the subject.
7. Real Estate Tax Abatement
A real estate tax abatement reduces your commercial real estate taxes for a set period. This type of incentive is most likely to be offered to projects that will drive local economic growth. As such, they’re offered mostly at the state or municipal level.
8. Tax Increment Financing
Finally, tax increment financing (TIF) is a uniquely structured financial incentive designed to support the redevelopment of substandard properties. With TIF, the government invests directly in a commercial real estate redevelopment project. Then, over time, it earns back that investment via increased tax revenue from the improved property. This type of incentive is only available in designated TIF districts, typically established at the municipal level.
How Do I Begin Navigating and Maximizing Potential Incentives For My Business?
With so many incentive types available, it takes an expert to find the best path forward for any new commercial real estate project. At Modern CRE, we’ve built our expertise over decades, navigating the complex incentive landscape for numerous clients. Our step-by-step, painstaking process ensures all applicable options are identified and helps you determine the optimal solution for your unique project.
Don’t leave anything on the table. Get in touch with our team today to start exploring your commercial real estate incentive options.