Land Banks and Their Role in Commercial Real Estate Transactions
A land bank partnership is one of the most underutilized partnerships in commercial real estate transactions and development. When people hear the term land bank, they immediately think of a financial institution. Although land banks can provide economic benefits, it is not a traditional financial institution.
A land bank is an entity typically created by local municipalities that acquires and manages vacant, abandoned, and tax-delinquent properties to return to productive use. The primary purpose of a land bank is to stabilize and revitalize neighborhoods by eliminating blight, creating affordable housing opportunities, and promoting economic development. Land banks work with local governments, community organizations, and private investors to acquire properties, clear titles, and develop plans for reuse. They may also provide financing, technical assistance, and other resources to support redevelopment efforts.
One of the critical functions of a land bank is to bank parcels of land. The process of land banking is acquiring and holding undeveloped or underutilized land for future development or redevelopment. In recent years, land banks have become increasingly popular in commercial real estate transactions due to their potential to benefit developers, investors, and local communities.
One of the most impactful ways land banking can aid in commercial real estate transactions is by providing tax reductions, abatements, and financial incentives. Most land banks are statutorily authorized through the state legislature. Most of these statutes provide for the tax abatement of properties owned or banked by the land bank. A developer or investor may enter into a land banking agreement with a land bank to hold or otherwise "bank" their real estate and avoid or significantly reduce their property tax liability. Some land banks even offer lost-interest loans, reduced land acquisition costs, and development incentives to real estate developers and investors.
In addition to financial incentives, land banks also facilitate streamlining the development process. Land banks can take care of property management, title clearance, expedite the permitting process and tax liens by acquiring and holding land, which can often delay or complicate the development process. This is particularly useful in cases where multiple parcels of land and parties are involved in a development project.
Land banks also play an essential role in facilitating the acquisition of strategic parcels of land. Developers and investors can work hand in hand with land banks to identify and acquire critical parcels of land necessary for the successful completion of commercial real estate projects. By acquiring these parcels of land, developers and investors can shield their projects from land use restrictions or conflicts with other stakeholders.
There are many benefits of partnering with land banks, including facilitating community development. By working closely with local communities, land banks can help identify areas where commercial real estate development is needed and where it can have the greatest impact. By partnering with local community organizations and businesses, land banks can help ensure that commercial real estate development is responsive to the local community's needs.
In conclusion, land banks can be valuable partners in commercial real estate transactions. They can facilitate the acquisition of strategic parcels of land, streamline the development process, provide financing and incentives, and facilitate community development. Developers and investors should consider working with land banks to maximize the potential benefits of their commercial real estate projects.
LaTosha Okoiron, Esq.
Okoiron is a member of CREW Houston and serves as In-House General Counsel and Compliance Director for the Houston Land Bank (HLB), where she handles all legal and compliance matters.
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