Public Land as an “In Kind” Payment in Return for Construction of Public Infrastructure
This financing approach is viable if a municipality owns a parcel of land that has market value greater than the estimated cost of infrastructure required. One reason that cities may want to consider this approach is that it can be more cost effective for a single entity—the private developer—to coordinate construction. The less attractive alternative would be that the public sector leads the horizontal development process with one construction team. Then, once infrastructure has been completed, a private developer would bring its own construction team to the site to begin vertical development.
Public sector-led construction projects require that contract bidding processes comply with public procurement regulations. Relative to private sector contracting, these involve longer procurement and implementation time frames and higher costs. An additional benefit of this financing approach is that it can help reduce an urban regeneration project’s overall capital financing risk because contributions of public land toward infrastructure joint ventures generate funds in an up-front manner. Therefore, it reduces some financing uncertainty, which can make it easier for a developer to secure construction financing. Lastly, this approach is a lower cost source of financing relative to borrowing from the capital markets. Box below summarizes the land exchange arrangement used in Washington, DC.
Land in exchange for redevelopment: An experiment in Washington, D.C.
