Many states and cities offer economic incentives to attract and retain profitable businesses contributing to their local economies. These incentives are in place not only to help businesses grow, but to attract other businesses and improve the local corporate community as a whole. No matter the sector, business owners should capitalize on these incentives to offset the costs of their commercial real estate portfolio.
9 Types of Incentives in Commercial Real Estate
1. Job Credits
These credits are based on the amount and type of jobs that will be created by your project. The higher the count of high-paying and skilled jobs created, the more attractive (or lucrative) the incentives become. These types of incentives include, but aren’t limited to:
- Payroll tax credits
- Local and state level credits
2. Real Estate Tax Abatement
These programs abate real estate taxes for the increased value of the property due to the project for a specified term. In short, tax abatement is a reduction of taxes granted by a government to encourage economic activity and growth. This lasts for a set period of time and can vary from jurisdiction to jurisdiction. Some common forms of real estate tax abatement include:
- Property tax abatement
- Municipal tax abatement
3. Tax Increment Financing
This is a property-tax-based program that offsets a portion of the costs for developers making an investment that requires substantial improvements. Local tax authorities establish a fixed valuation for respective property values specific to a special improvement district.
4. Capital Improvement Projects (CIP)
Capital improvement projects are public funds used for economic incentives towards developments that contribute to the greater good of the community. For example, a local government may identify a need for public road and utility improvements, and provide incentives to businesses that can help reach their goals.
5. Discretionary Incentives
Discretionary incentives usually apply only to expansion projects that promise to create new jobs and/or incur capital investment. These are commonly seen as cash grants or above-the-line savings, which may include personal income rebates or abatement, sales, or property taxes.
6. Energy Efficiency Incentives
A variety of tax deductions are available to businesses that make energy-saving upgrades to building features like lighting, heating, and cooling. The most widely known incentive is PACE, which is designed for energy-efficient improvements to commercial properties.
7. Brownfield Incentives
Brownfield incentives are a collection of funding sources that can be used to help plan, assess, and remediate brownfields, which are underutilized property that usually possess the potential presence of environmental contaminants. Brownfield redevelopment is becoming more common in cities, as they look to revitalize specific areas with growing populations and businesses.
8. Historic Preservation Tax Credit Program
This incentive provides a tax credit to businesses that leverage the private redevelopment of historic buildings. These types of incentives are becoming increasingly common as cities and towns of varying sizes seek to revitalize existing properties.
9. COVID-19 & Health Incentives
COVID-19 and other health incentives are time-sensitive, temporary, and in flux. However, with the pandemic far from over, local and state governments are offering pandemic-prompted incentives. These also range wildly, yet many include updating HVAC systems with UV components to ensure safer air circulation and filtration. These are relatively small steps business across industries can take—and take advantage of.
3 Tips to Maximize Your Incentive Benefits
- Research and identify all relevant commercial real estate incentive opportunities. Consider benefits at the federal, state, and local levels as you look to expand your commercial real estate portfolio.
- Draft a formal request for incentive (RFI). Submitting a formal RFI could open the discussion to possible opportunities you didn’t know existed. A request for incentive is typically sent concurrently with your request for proposal (RFP), to multiple communities. Similar to an RFP process, the goal of submitting multiple RFIs is to incite competition and receive the best incentives.
- Weigh the impact of each incentive. Before wasting time and resources to apply for incentives, be sure that you (1) qualify for the benefits and that they (2) make sense for your overall business objectives.
State and local governments are full of incentive opportunities for those with commercial real estate portfolios. Take the time to research and apply for the government incentives that make the most sense for your organization.
How well do you maximize incentives?
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