Thoughts about business and economic development in rural areas.

 

May 2017
S M T W T F S
« Mar    
 123456
78910111213
14151617181920
21222324252627
28293031  

Land as an Incentive.

One topic that every community struggles with is how to price land in their industrial or business park. If there’s enough competition for space that you can charge market rates that cover your costs and provide a profit that’s great. In fact, if that’s the case your community probably should just step aside and let private developers handle land development. There’s no real need for you to be involved. But for most communities, especially in rural areas, that’s not the case. In fact, communities usually develop land for business use because no private developer is willing to take the risk.

So how do you charge for the land and does it even matter if you intend to provide the land as part of an incentive package that encourages development? Some communities will set their land price at a level that covers all of their investment costs and not negotiate at all. They feel that the fact that the land is fully developed and ‘ready to go’ is incentive enough. Other communities will go to the other extreme and say the land is free to any ‘good’ employer that wants to build a business here. (I once asked a Mississippi utiltiy rep at a national conference what the going rate was for industrial land in his state and he just laughed and said, “I don’t really know, we’ve never charged anyone for land.”)

Both approaches have merit so what do you do? My answer lies somewhere in between the two. I suggest developing a “Land Price Formula” that discounts the cost to the business based on three factors: the number of jobs created, the quality of the jobs (pay & benefits) and the taxable investment being made by the business (the building and other improvements).

So how do you figure out the discounts? Well, first set your end points. What is a reasonable cost for the business park land. Look at your investment costs and look around at your competition, both nearby parks and the cost of green site development in other areas of your community. Pick a number in that range. Then determine what you consider to be a ‘great’ prospect. How many jobs would they have to create and at what quality level and how much of a building would they have to build to get us to say, “Omigosh, we really want to find a way to ‘give’ them five acres to make this project happen!”

Now do the math. What discounts do you have to give to get to ZERO for your ‘great’ client? Run several scenarios and the numbers will start to fall in place.

Once you have your “Land Price Formula” you can now say ‘yes’ to those warehouse distribution requests that eat up land but don’t create big job numbers or to those small businesses that need a couple of acres and only have one or two jobs. They end up paying a fair price for the land and receive a minimal discount while someone who creates more jobs and makes a bigger facility investment will receive a more substantial discount. The community provides more substantial incentives to projects that provide more substantial return while still being fair to other projects.

Everyone knows where they stand and you avoid listening to ‘the community bends over backwards for an outside company and doesn’t do anything for the ones who are already here’ complaint. The same rules apply whether it’s someone local or a business from outside your area. Fair to everyone involved and you can figure the price in 5 seconds using the formula that the community has agreed to in advance. No need for silly delays as you go back to the City Council or Economic Development Committee to discuss this part of the incentive package because it’s all cut and dried.

Plus the business knows the exact value of the incentive they are receiving. If community ‘A’ gives five acres to a prospect for free because they never charge for land, then that incentive has no real cash value. If community ‘B’ has a base price of $10,000/acre and provides five acres discounted to $1 then the cash value of that incentive is $49,999.

Two critical points. First: Always take your discounts against the total cost of the acreage involved and not against the per acre cost. Doing the latter just encourages the prospect to take more land than they need. Second: Always include a performance guarantee in your contract for the sale of the land. If the prospect does not meet the agreed upon levels of employment or investment in a set time period then the community should retain a legal right to a reimbursement for a portion of the incentive not earned. A ‘clawback’ provision is essential and any legitimate client will understand that this is just a good business practice on the part of the community.

And a final point about the amount of acres to provide for a project. Every business will want more land than they are likely to use. From their point it makes sense for them to plan for future expansion. But your community shouldn’t be tying up valuable developed land that may never be used by that business. You also don’t want to encourage any land speculators to take advantage of your community’s investment. What to do? Your proposal involving incentives should include just the land essential for the initial project and then include a ‘right of first refusal’ offer on any additional land that the client might have an interest in. It protects their future and doesn’t needlessly tie your hands when it comes to working with future development prospects.

Land can be free…..if the incentive is fair to all involved.

Comments

Comment from Johnna Holshue
Time: April 16, 2011, 12:44 am

It’s the best time to make some plans for the future and it’s time to be happy.

Comment from Aletha Zachry
Time: April 16, 2011, 6:41 pm

Fantastic beat ! I wish to apprentice while you amend your website, how can i subscribe for a blog site?

Comment from Rigoberto Coster
Time: April 18, 2011, 8:28 am

This blog appears to get a great deal of visitors. How do you get traffic to it? It gives a nice individual spin on things.

Comment from Willian Buzzard
Time: April 19, 2011, 5:02 am

I’m wondering how I could be notified whenever a new post has been made. I have subscribed to your RSS which must do the trick! Have a great day!

Comment from Effie Cusson
Time: April 20, 2011, 9:56 pm

I guess having something real or substantial to give info on is the most important factor.

Comment from Harley Whitely
Time: April 21, 2011, 11:29 pm

merely have got to point out you put together several really good points and will post a variety of choices to add on after a day or two.

Comment from supratkshoes
Time: April 29, 2011, 3:36 am

dwqfn29@homil.com

Comment from louis vuitton designer handbag
Time: December 26, 2011, 6:01 pm

Hello there, just became alert to your blog through Google, and found that it’s truly informative. I am going to watch out for brussels. I will appreciate if you continue this in future. Numerous people will be benefited from your writing. Cheers!

Comment from Inteligentny dom
Time: February 14, 2012, 5:42 pm

I almost never drop remarks, but after browsing through a few of the comments here BLUE CHIP MUSINGS » Land as an Incentive.. I do have 2 questions for you if you tend not to mind. Is it only me or do some of these comments come across like they are left by brain dead individuals? :-P And, if you are posting on other places, I would like to follow you. Could you list of the complete urls of all your social sites like your Facebook page, twitter feed, or linkedin profile?

Comment from Sammie Sexdating
Time: February 24, 2012, 7:24 pm

Hello friends, fastidious piece of writing and nice arguments commented here, I am in fact enjoying by these.

Comment from Kareem Norals
Time: February 26, 2012, 4:09 pm

Hello, Neat post. There is an issue along with your site in internet explorer, may check this… IE nonetheless is the marketplace chief and a huge section of other folks will leave out your fantastic writing due to this problem.

Comment from Nanette Porno
Time: April 11, 2012, 9:36 am

Hi there to every , because I am really eager of reading this blog’s post to be updated on a regular basis. It contains nice data.

Comment from Major Livesex
Time: April 20, 2012, 10:27 am

Downloading information from this website is as straightforward |as clicking the mouse rather than other blogs which move me here and there on the web sites.

Comment from viagra,cialis,comprooro shit
Time: May 28, 2013, 4:23 pm

What’s Taking place i’m new to this, I stumbled upon this I have found It absolutely useful and it has helped me out loads. I am hoping to contribute & help other users like its helped me. Good job.

Comment from sexdaten
Time: May 1, 2015, 3:20 pm

I’m no longer sure where you’re getting your information, howevver
good topic. I needs tto spend a whiloe studying mucxh more
or understanding more. Thank you for great info I
used tto bbe in search of this information for my mission.

Comment from buy shares in google
Time: February 19, 2016, 5:29 pm

I do like the way you have framed this challenge plus it does indeed offer us a lot of fodder for thought. Nevertheless, coming from everything that I have seen, I simply just hope when the actual opinions stack on that people today remain on point and in no way start on a tirade regarding some other news of the day. Anyway, thank you for this exceptional piece and though I do not really concur with this in totality, I respect your point of view.

Comment from pinterest repins
Time: February 20, 2016, 1:24 pm

Virtually all of the things you articulate is astonishingly appropriate and that makes me ponder the reason why I hadn’t looked at this in this light previously. This piece really did turn the light on for me personally as far as this specific topic goes. But at this time there is just one factor I am not really too cozy with so whilst I attempt to reconcile that with the actual core theme of your issue, allow me observe what all the rest of your readers have to point out.Very well done.

Write a comment