A variation of the in-kind payment approach is when a municipality uses the value of its land as an equity contribution toward a joint venture with a developer. In this scenario, a public entity might enter into a partnership with private sector investors for the purpose of redeveloping a targeted urban area. The public sector “invests” the value of its land assets and the private sector partner invests cash. Among the benefits of using a negotiated disposition of municipal land and a negotiated use of land value as in-kind payment are that this approach allows a city to invest in improvements without tapping other (more costly) sources of funding. Further, this approach causes minimal negative fiscal impact; that is, it does not require a municipality to reallocate a portion of existing operating revenues.
One real-world example of this approach concerns contributing the value of land into a special purpose entity (SPE). One example of an SPE created for the purpose of redeveloping a target area is the Solidere effort in Beirut, Lebanon. Created in the mid-1990s, it was empowered to lead the planning and redevelopment of Beirut’s central business district. The implementation concept was that land owners within the target area could exchange their property for shares in Solidere, a company whose shares are now listed on the stock exchange.
Another example is detailed in box in this section, which describes the case of Puerto Madero, Argentina, where federally owned land was used as an equity contribution to the development corporation in charge of regeneration of the port area. Although this case did not involve a joint venture in its purest meaning, it did involve a public-private corporation.
Corporación Antiguo Puerto Madero Sociedad Anónima (CAPMSA) was established in Buenos Aires following the approval of the Economic Emergency Law (1999), which allowed for the privatization of federal property. The main objective of this quasi-private corporation was the regeneration of 170 hectares of federal land formerly belonging almost entirely to the General Administration of Ports (AGP). According to CAPMSA’s first charter, the board would be initially composed of six directors: four representing the federal government and two representing the city of Buenos Aires (see figure 1.7 for the organizational structure). In October 2003, the Statute of the Corporation was amended for the formation of the board to equally represent the nation and the city.
The capital stock was subscribed to by the federal and city governments in equal parts. The company had the ability to issue shares in order to attract private, national, or foreign funds. The decree also transferred the property of the 170 hectares of federal land to the corporation.
The first investment in the area came from CAPMSA itself and consisted of a land survey of the 170 hectares and the mapping of almost 70 users (tenants, irregular occupants) in the former AGP domain, as well as security services to prevent land invasions. After the tenant mapping, a plan was developed to end the concessions and to start charging rent. Apart from these rents, other early resources for CAPMSA consisted of the sale of demolition material, the rental of parking lots, and sets for the television and film industry. The revenues went to cover the costs of office rental, the design of the master plan, and the marketing strategy used to create the conditions for the first tender to sell the warehouses.
CAPMSA then auctioned the land in stages, starting with the area closest to the central business district. It did so by issuing tenders in 1991. The sale of land allowed CAPMSA to generate sufficient funds to finance its administrative expenses and pay for the necessary infrastructure. According to the Lincoln Institute of Land Policy, as of July 2013, CAPMSA had sold property for a total value of around US$300 million. In addition, it had invested US$113 million in public infrastructure with a total operational cost since the creation of the corporation of US$92 million. Public and private investment in 2009 amounted to US$1.7 billion and was estimated to reach US$2.5 billion when completed. By 2010, a total of 2.25 million square meters had been built in Puerto Madero (L. J. Ramos Brokers Immobiliarios 2009).
CAPMSA was established as a temporary corporation to facilitate the development of Puerto Madero. Upon the completion of the project, CAPMSA finalized the first transfer of rights for the infrastructure and public spaces to the Autonomous City of Buenos Aires. However, the largest transfer followed an agreement between CAPMSA and the city of Buenos Aires in February 2011. In this agreement, the parties negotiated a transition period for the free transfer of the domain of public spaces and the responsibility for the provision of maintenance from CAPSMA to the city. CAPMSA registered the areas to the city and then gradually transferred the responsibility for maintenance. In late 2012, the complete transfer of maintenance responsibilities had been accomplished and according to CAPMSA, this eliminated the annual expense of US$3 million from the operating costs of the corporation.
Source: Based on the case study of Buenos Aires in Chapter 4
