Boston Business Journal
IN DEPTH: REAL ESTATE & DEVELOPMENT
From the August 27, 2004 print edition

Eyeing DIF dollars - Communities have high hopes to spur commercial development via a new state-sanctioned funding tool
by Michelle Hillman
Journal Staff

Philip Niddrie hopes DIF makes all the difference.

The chief development officer for the city of Worcester says his city is keenly interested in spurring commercial development. And come next month, Niddrie will have a tool in his arsenal he thinks will help Worcester on its way.

Starting this fall, cities and towns in Massachusetts will have access to a new development tool designed to help them revitalize blighted districts and create a way to finance infrastructure improvements.

Known as district improvement financing (DIF), the measure allows a city or town to borrow money to pay for infrastructure improvements related to the revitalization of a certain district -- master planning, road resurfacing, new water mains, parking improvements and the like -- and then earmark real estate taxes generated by the district improvement specifically to pay off the loan for the infrastructure work.

For a developer, such a setup means not having to cover the infrastructure costs associated with a project. For a municipality, it means not digging into public coffers to pay for project improvements. Prior to DIF, the most prevalent so-called tax-increment financing incentive cities and towns offered was to negotiate property tax breaks on specific development projects.

Such cities as Lowell and Worcester have already pegged likely projects they hope can benefit from DIF, and a number of other municipalities are exploring how the tool could push urban-renewal projects forward.

"We are very conscious of the fact that we are a city that needs to entice private development," said Niddrie. "Now this gives us a chance to partner with private developers."

The Massachusetts chapter of the National Association of Industrial and Office Properties (NAIOP) has been holding meetings across the state to help communities understand the benefits of DIF.

The Legislature approved district improvement financing last year.

NAIOP has been championing the concept for the better part of a decade, said David Begelfer, chief executive officer of NAIOP, which first drafted a bill calling for DIF in 1994. He said the measure will give communities a valuable tool to pay for infrastructure improvements, attract business and increase their tax bases.

"It's a very useful tool in about 48 states in the country that already have it," said Begelfer.

The Economic Assistance Coordinating Council (EACC) -- a state committee charged with reviewing and implementing the regulations -- approved the final regulations in July.

Patricia Singer, project director of the EEAC, said she's seen a respectable level of interest from cities and towns regarding DIF.

Prior to DIF, communities financed infrastructure improvement projects via grant programs or through the general fund -- not always the most attractive option for poorer communities, Singer said.

Officials in Lowell have targeted two potential projects they believe could benefit from DIF.

One is the redevelopment of between 15 and 18 acres of land in the Hamilton Canal District. The mixed-used project includes 800 to 1,000 units of market-rate housing as well as commercial development. The town has purchased the land but needs to pay for the cleanup of the property and select a master planner. The DIF program could help the city pay off the bond or loan for master planning of the site. Without it, the money would have to come from the city's general fund, said Adam Baacke, chief planner for the city of Lowell.

A number of cities are interested in creating redevelopment districts, including Holyoke, New Bedford and Attleborough, said Kathy McCabe, principal with McCabe Enterprises and a certified planner. McCabe chaired the district improvement financing committee for NAIOP.

"I think there's interest," said McCabe. "I think people want tools in the toolbox."

McCabe said the interest will depend on the size and scope of a project. Initially, the program will apply to large-scale projects.

One project that could qualify for the new financing tool would be the large-scale redevelopment of the Worcester Common Outlets, a 1 million-square-foot downtown mall recently purchased by Berkeley Investments Inc., which is redeveloping the site to incorporate housing, office, retail, restaurants and entertainment.

Worcester is one of a growing number of municipalities looking at reusing existing sites and connecting development with transportation, housing and public space, said Young Park, president of Boston-based Berkeley Investments.

In Worcester, Park intends to salvage two existing office buildings totaling 450,000 square feet and build 1.6 million square feet of new construction, bringing the total project to 2.1 million square feet. The new construction will consist of approximately 300,000 square feet of retail, 50,000 square feet of entertainment space and 900 units of housing, including both condominiums and rental units.

The entire project will take between five to seven years to complete, said Park, who is hoping the project will be among the first to receive DIF approval.

"Whether the actual grant and subsidy program will translate into effective new resources, we don't know yet," Park said. "Certainly, they are saying the right things."

Niddrie said Worcester wants to encourage private development, and DIF gives Niddrie a tool that doesn't require him to rely solely on public funds.

Another project Worcester officials believe could benefit from DIF is the South Worcester Industrial Park, a redevelopment of 11 acres of former industrial properties.

Over the past 10 years, Worcester has spent in excess of $100 million in public funds, both state and federal, to pay for such public projects as the $32 million renovation of Union Station and the ongoing Gateway Park redevelopment project -- a revitalization project targeting 55 acres of land in the downtown area.

MICHELLE HILLMAN can be reached at mhillman@bizjournals.com

© 2004 American City Business Journals Inc.

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