Resources

Investment into certain kinds of activities – like low income housing, historic buildings, or renewable energy facilities – generates federal tax credits. Each of these tax credits has a certain value. For example, federal historic tax credits (HTCs) are equal to 20% of the qualified rehabilitation costs of a project, meaning a building with $5 million in qualified costs will generate $1 million in tax credits. You can convert those credits into cash for your deal by finding a third party that does have income tax liability to “buy” the $1 million in credits from your project at a discount (say $850,000). That cash – net of transaction costs – is the “free money” that shows up for your project. The State of Alabama offers a parallel tax credit for historic projects worth 25% of qualified rehabilitation costs – and unlike the federal credit, it can be refunded for investors without tax liability (meaning you do not need to find a “purchaser” to buy your credits at a discount). OPAL specializes in working unique tax credits like state and federal historic tax credits, New Markets tax credits, state investment tax credits, and others into capital stacks. For more on tax credit transactions and how OPAL can help, see our Tax Credits Guidebook.

City and county governments across Alabama can incentivize private economic development through the use of special purpose entities (like cooperative districts or redevelopment authorities), or directly through the powers created by Section 94.01 (a/k/a Amendment 772) of the state constitution. The powers that localities have to incentivize development are uniquely broad in Alabama, and we encourage you to reach out to OPAL to scope their full potential for your project. However, their most common applications are:

• Abatements: Abatements typically mean no sales taxes during a construction period or property taxes on purchased materials, land, or a building – except for any portions of those taxes that are earmarked for educational purposes. Abatements can run anywhere from a few months to 10+ years, depending on the degree of economic benefit the deal creates for the locality. 
• Revenue Sharing: Revenue sharing comes from the idea that a project will generate new tax revenue for the city or state over time (e.g., a vacant parcel generates $0 in tax revenue, but one with a retail center on it will generate millions annually in sales and property taxes). Some or all of that new “increment” of tax revenue can either be (a) “shared” with the project – meaning ongoing cash subsidies over time – or (b) borrowed against to provide an up-front cash incentive at no cost to the project. 
• Infrastructure: Most commercial real estate projects need substantial public infrastructure (from new water and sewer lines to parking lots and curb cuts). Cities and counties can perform this work for a development or reimburse the development for building the improvements and “dedicating” them to public entities.

The State of Alabama makes a litany of incentives available to major economic development projects happening in Alabama – particularly in its rural areas. The Department of Commerce maintains most of these programs, and provides a helpful overview here, but to understand how state incentives might apply to your project, reach out to the OPAL team.

Depending on the nature of the project, there may be other sources of capital to tap. These could be anything from grants for infrastructure improvements affiliated with the project to crowdsourced donations from platforms like Kickstarter, GoFundMe or IndieGoGo to fund predevelopment work or a pocket park or lighting to activate an alleyway. The OPAL team can help you scope your project to determine if there are any such buckets available and – if there are – what strategy you might pursue to get them.