TIF Monetization

What Is Developer-Backed TIF?

NAIOP is pleased to share a brief overview of newly enacted amendments to Tennessee's Tax Increment Financing (TIF) framework and what they mean for commercial real estate developers across the state. In collaboration with partners including Hageman Capital, the new framework is already drawing interest from cities evaluating how to underwrite the next wave of mixed-use, industrial, and residential growth.

For developers active in Middle Tennessee's high-growth corridors, this legislation reopens incentive conversations that have historically stalled in jurisdictions reluctant to pledge municipal credit.

Tax Increment Financing captures the increase in property tax revenue that a new development generates — called the "increment" — and directs it toward paying for project costs. Under SB 1760, the structure goes a step further: the developer, not the municipality, bears the financial risk.

 

HOW DEVELOPER-BACKED TIF WORKS

THE MECHANISM
Property exists with a base tax value ↓ Developer builds → assessed value rises → increment created ↓ TIF agency issues a developer-backed bond ↓ Increment repays bond debt service over time ↓ Developer guarantees any shortfall — municipality bears no risk

KEY PROVISIONS

• Voluntary "Taxpayer Agreement" between developer and TIF agency
• Developer contractually covers any shortfall in increment revenue
• Municipality never pledges general credit or taxing power
• Taxpayer agreement lien = same priority as property tax lien
• Lien runs with the land — takes precedence over mortgages

 

BEFORE SB 1760
Municipality

Bore credit risk; many cities refused to engage with TIF at all

AFTER SB 1760
Developer

carries all shortfall risk via a legally binding first-priority lien

 

DEVELOPER PERSPECTIVE

Why This Changes the Conversation

Traditional TIF structures have long carried friction in Tennessee — municipalities reluctant to put their general fund at risk, and developers unable to fully access the capital needed to fund site work, public infrastructure, and other eligible improvements. SB 1760 restructures that conversation in three meaningful ways.

Speed to Closing Removing municipal credit risk shortens approval timelines and broadens the pool of willing cities.

Capital Efficiency Developer-backed bonds fund eligible infrastructure up front, freeing equity for vertical construction.

Better Pricing First-priority lien security attracts institutional buyers — translating to tighter spreads and lower cost of capital.

 

TRANSACTION STRUCTURE

Three Coordinated Pieces

A typical developer-backed TIF bond transaction under the amended Act involves three coordinated components that must work together from plan adoption through bond closing.

TIF Plan & Bond Resolution Adopted by the municipality and TIF agency. Defines the project area, eligible improvements (roads, utilities, stormwater, parking, and other public infrastructure), and the term over which tax increment will be captured — typically up to 20 years for an IDB or 30 years for a housing authority.

 

Taxpayer Agreement The contractual commitment by which the developer agrees to fund any debt service shortfall. Secured by a first-priority lien that runs with the land and takes precedence over existing or subsequent mortgages — giving bond buyers the security they need to invest.

 

Bond Issuance A conduit issuance by the TIF agency, privately placed with a lender (not publicly offered). Proceeds fund eligible infrastructure; debt service is paid from captured tax increment, with the developer backstop covering any gap. Non-recourse to the municipality.

 

LOOKING AHEAD Tennessee Is Ready for What Comes Next Tennessee joins a growing list of states with developer-backed TIF frameworks, and Middle Tennessee's growth profile makes it a natural proving ground. As the first transactions move toward closing under the amended Act, NAIOP will continue to track early projects and report back on lessons learned — including how municipalities are interpreting the new taxpayer agreement provisions and how capital markets are pricing the resulting bonds. For developers exploring whether TIF makes sense for a project in their pipeline, the time to start that conversation with city staff is now.