10 Commercial Real Estate Government Incentives to Capitalize On

Many states, counties and cities offer government 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 government incentives to offset the costs of their commercial real estate investment.  

What Are Government Incentives?

Government incentives are used by local and state governments to entice commercial real estate use and development. For many large CRE investments, incentives play a critical role in location decisions, and can even influence overall project approval. 

Tax credits and government incentives generally fall into one of two categories: discretionary or statutory.

Discretionary incentives, or negotiated incentives, are often negotiated directly with the government and require you to demonstrate that your CRE investment would not be possible if it weren’t for the requested incentives. Discretionary government incentives usually require regular reporting of activities, like employment levels or capital expenditures, to prove that you’re meeting the agreed upon performance milestones. 

In contrast, statutory incentives do not typically have material requirements. Instead, these government incentives are legally available to all eligible organizations. Eligibility requirements can include: 

  • Leasing or owning CRE in underdeveloped areas. 
  • Hiring employees from underserved populations. 
  • Developing new prototypes or products through R&D. 
  • Producing or using alternative fuels in business.  

10 Types of Government Incentives in Commercial Real Estate

1. Job Credits 

Job credits are based on the amount and type of jobs that will be created by your CRE project. The higher the count of high-paying and skilled jobs created, the more attractive (or lucrative) the incentives become. These types of government incentives include, but aren’t limited to:

  • Payroll tax credits. 
  • Local and state level tax 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.

>> Read how this global manufacturer secured over $7 million in commercial real estate incentives, including a 30-year real estate tax abatement. 

3. Tax Increment Financing

Tax increment financing (TIF) is a geographically targeted economic development program, often available for sufficiently large development projects. It captures the anticipated increase in tax revenues generated by the project, and applies that revenue to subsidize the development. TIF tax diversions can last for years and can also be renewed. 

4. Capital Improvement Projects (CIP)

Capital improvement projects are public funds used for economic incentives towards new 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 these as  incentives to businesses that can help reach their goals. 

5. 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 energy-efficient government incentive is PACE, which is designed for energy-efficient improvements to commercial properties. 

6. Brownfield Incentives 

Brownfield government incentives are a collection of funding sources that can be used to help plan, assess, and redevelop 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.

7. Historic Preservation Tax Credit Program 

Historic preservation tax credit programs provide a tax credit to businesses that leverage the private redevelopment of historic buildings. These types of government incentives are becoming increasingly common as cities and towns of varying sizes seek to revitalize existing properties.

8. Health Incentives 

Health incentives are time-sensitive, temporary, and in flux. Most recently, local and state governments have offered pandemic-prompted incentives. These also range wildly, yet many include updating HVAC systems with UV components to ensure safer air circulation and filtration. 

9. Opportunity Zone Funding 

Companies and individuals that invest in qualified opportunity zones (QOZs) may be eligible for preferential tax treatment, known as opportunity zone funding. QOZs are economically distressed communities that were first designated in 2018. 

10. New Markets Tax Credit Program

Created in 2000, the New Markets Tax Credit (NMTC) program encourages investment in businesses and real estate projects located in economically distressed communities. The tax credit totals 39% of the original investment amount and is claimed over the course of seven years.  

3 Tips to Maximize Your Government Incentive Benefits 

  1. Research and identify all relevant government incentive opportunities. Consider benefits at the federal, state, and local levels as you look to expand your commercial real estate portfolio.
  2. 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 the RFP process, the goal of submitting multiple RFIs is to incite competition and receive the best incentives. 
  3. Weigh the impact of each incentive. Before wasting time and resources to apply for incentives, be sure that you qualify for the benefits and that they make sense for your overall business strategy
  4. Work with an experienced commercial real estate advisor. Navigating and negotiating government incentives requires expertise and time that your team may not have. Partner with a knowledgeable CRE broker, like Allegro Real Estate Brokers & Advisors, to secure the best incentives for your CRE investments.   

State and local governments offer a range of commercial real estate incentives for businesses. Take the time to research and apply for the government incentives that make the most sense for your organization. 

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Editor’s note: This post was originally published in 2021, and has been updated and republished.

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