Transformational Mixed-Use Development Credit: Preliminary Insights for the FY 2025 Cycle

July 10, 2024

As the Ohio Statehouse works to complete its work on biennial appropriations for public infrastructure projects and one-time strategic community investments, the Ohio Department of Development (ODOD) is in the process of promulgating updated guidelines for several key programs for Northeast Ohio developments, to be released near the start of the new fiscal year.

ODOD recently announced that it will begin accepting applications for the Transformational Mixed-Use Development Program (TMUD) on Friday, August 23rd, at 10 a.m. This round’s TMUD application window closes on 4 p.m. EST on Friday, Oct. 4, 2024.

The TMUD credit program, created in 2020 and governed by R.C. 122.09, O.A.C. Chapter 122:29, as further defined by ODOD guidance, is one such state incentive that can help winning Ohio applicants to plug to financing gaps and bring projects to completion. The program provides winning applicants with a tax credit award up to 10 percent of total project costs. Notably, each applicant must prove that the proposed project would generate new income, lodging, real property or sales taxes exceeding the amount of the awarded credit upon completion. Project applicants can use TMUD credits alongside other various local, state and federal credits and incentives to attain financing necessary to complete their projects.

What Is a Transformational Mixed-Use Development?

Under the Revised Code, a TMUD is generally defined as “a project that consists of new construction or the redevelopment, rehabilitation, expansion, or other improvement of vacant buildings or structures, or a combination of the foregoing, and that:

(a) Will have a transformational economic impact on the development site and the surrounding area;

(b) Integrates some combination of retail, office, residential, recreation, structured parking, and other similar uses into one mixed use development”

Major City (Large) v. General (Small) TMUD Projects

A TMUD project located within ten (10) miles of Akron, Cincinnati, Cleveland, Columbus, Dayton or Toledo corporation limits (a Major City Project)  must also “include at least one new or previously vacant building that is fifteen or more stories in height or has a floor area of at least three hundred fifty thousand (350,000) square feet, or after completion will be the site of employment accounting for at least four million dollars ($4,000,000) in annual payroll, or includes two or more buildings that are connected to each other, are located on the same parcel or on contiguous parcels, and that collectively have a floor area of at least three hundred fifty thousand (350,000) square feet.”  General Projects can be smaller in scope and are those projects located outside of Major City Project boundaries. General Projects include “at least one new or previously vacant building that is two or more stories in height or has a floor area of at least seventy-five thousand (75,000) square feet or two or more new buildings that are located on the same parcel or on contiguous parcels and that collectively have a floor area of at least seventy-five thousand (75,000) square feet.

Aside from size and location considerations, there are many other nuances necessary to analyze to determine a project’s eligibility for the program as well as the likelihood of a TMUD program award for a project.

Award Structure

For each award round, $100 million is available in allocation authority, $80 million of which is reserved for Major City Projects. General Projects are allocated $20 million. The program is authorized through only fiscal year 2025, so we expect that the application cycle will begin in summer 2024 with applications due in early fall, consistent with recent years. Furthermore, since lawmakers have yet to move forward with introducing legislation to reauthorize the program, the FY 2025 application could prove to be the last opportunity for Developers to obtain the transformational mixed-use development credit.

Scoring Rubric

The FY 2024 scoring rubric, which is subject to change in FY 2025, is shown below.

Developers planning to pursue the TMUD Credit must provide detailed information with regard to project scope, financial commitments, implementation, and economic and community impacts to ODOD. Each category under the program requires detailed analysis, and developers are advised to prepare as early as possible in the application cycle. In the most recent (FY 2024 round), the project with the lowest number of points that still won an award was the Assembly development in Columbus, which received 72.14 points out of a possible 100 points.

Strategic Decision Making and Project Scoring

Applicants must also make strategic decisions regarding their approach to multiple categories of the application. For example, 15 percent of the project scoring in FY 2024 was allocated to project scope, the majority of which is based on the square footage of buildings to be completed, relevant to the square footage of the largest project that applies in a given round. Developer decisions to provide for a diversity of project uses and break down a development into appropriate phases can significantly affect project scoring. It is incumbent on the developer to illustrate community and economic impacts that have the potential transform a project’s surrounding area to ODOD. Maximizing project mix points requires a thoughtful combination of apartments, retail, hotel, office, and/or parking uses, as well as integration of recreational space components in the application.

Economic Impact Points and ROI

As another example, 35 percent of project scoring in FY 2024 was allocated to economic impact points (the sum of the points for sales generated, taxes generated and jobs & new payroll created by the development). Per the ODOD scoring matrix, the scoring for each economic impact category is initially based on an “ROI” ratio which measures the given economic impact, over the tax credit request amount. Points are then assigned based on where a Project’s ROI falls in the standard deviation among all projects in its category (Major City or General). Therefore, past determinations of economic impact points were not only determined by a Project’s relative economic impact, but also the competitiveness of how much in state support that Developers requested in the application. Under the parameters above, applicants can also increase the numerators of their ROI ratios through modeling metrics such as surrounding area impacts, catalytic projects, and tenant payroll correctly. Input-output modeling and an economic impact statement (EIS) is required to be performed by a third party, and scoring guidelines are subject to change in FY 2025. Applicants are advised to adhere closely to ODOD’s Economic Impact Statement guidelines for any given application round.

KJK’s work with TMUD applications has resulted in including multiple clients receiving TMUD awards. KJK is involved in a large number of development projects, primarily in Northeast Ohio, and is available to assist on applications in the FY 2025 cycle. KJK appreciates opportunities to analyze and amplify the impacts of development projects to investors and communities. For more information on how KJK can help, contact Jon Pinney, (jjp@kjk.com; 216.736.7260), Rich Morehouse (ram@kjk.com; 216.736.7292), or Charlie Bolton at chb@kjk.com.