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Value capture (VC) enables the monetization of the appreciation in real property values triggered by infrastructure improvements. This monetization generates future revenues that can be leveraged up front to secure infrastructure financing, thus triggering the value appreciation cycle. Although infrastructure is a critical element, VC revenues are generally derived from real estate projects and not from infrastructure projects.
The use of VC tools can be triggered by either (1) major real estate development projects that require additional public infrastructure capacity (e.g., local roads) or (2) core infrastructure projects (e.g., improved highway corridor or transit corridor extension) that encourage real estate development projects along the corridor. In both cases, value capture is directly linked to the real estate component, and the revenues are captured for purposes of funding the infrastructure component.
Historically, VC techniques have been used primarily in the context of major real estate development projects. Currently, however, the need for VC is becoming more critical in the context of core infrastructure projects so that alternative funding sources can be identified locally to supplement more traditional Federal and State funding sources.2 In general, VC techniques are directly or indirectly linked to land use entitlements, and the revenues thus generated are under the control of local and regional governments. In this regard, for VC to be successful in the context of core infrastructure projects, it is essential for there to be buy-in from local and regional governments.
The goal of this primer is to provide basic information on making the business and economic (B/E) case for using one or more VC techniques. The primer is designed for local and regional governments and other public agencies–including State departments of transportation (State DOTs), metropolitan planning organizations (MPOs), regional transit authorities, rural planning organizations, Tribal governments, and other infrastructure providers–that are responsible for critical infrastructure provisions and that often face major funding challenges.
The primer starts with an overview of the overall VC implementation life cycle and identifies the appropriate timing for making the B/E case. It also discusses the basic building blocks necessary for developing the B/E case. For select prevalent VC techniques, the primer provides comparative qualitative assessments based on the key metrics and evaluation criteria. An important element in making the B/E case is determining the magnitude of potential VC revenues that could be allocated to infrastructure purposes. Using ample case studies, this primer provides detailed, step-by-step quantitative assessments to estimate such VC revenue potential. Finally, the primer discusses the relevance of making the B/E case for VC in different project contexts, whether real estate development, core infrastructure, or projects delivered using a public-private partnership (P3) model.
This primer is organized as follows:
Chapter 2 discusses when jurisdictions usually find it most appropriate to make the B/E case in the context of the overall VC implementation life cycle. Chapter 3 identifies basic building blocks in developing the B/E case, including key VC evaluation criteria. Chapter 4 provides comparative qualitative assessments for select VC techniques based on the evaluation criteria identified in Chapter 3. Chapter 5 provides the detailed quantitative assessment steps necessary to estimate VC revenue potential using real-world examples. The primer concludes with Chapter 6, which discusses the different project contexts for making the B/E case.
