How Does The Bond Work From Developer Perspective?
How IDs Create Free Equity
Financial Perspective
Improvement Districts create “free equity”—particularly for developers and municipalities—by front-loading public infrastructure investment in a way that increases land and property value without requiring immediate out-of-pocket expenditures from developers or taxpayers.
Let’s break down how this works:
What Does “Free Equity” Mean in This Context?
In real estate and development, “free equity” refers to an increase in asset value (land or property) that’s not directly paid for by the developer upfront. It’s essentially value that is created through external mechanisms—like public financing—rather than the developer’s own cash.
How IDs Create Free Equity
Public Financing of Private-Benefit Infrastructure
A City/County creates an ID, then issues bond and imposes special assesments.
· These improvements immediately enhance the value of undeveloped or raw land—making it more attractive to buyers or tenants.
· Developers don’t have to fund this infrastructure with their own capital, freeing up cash for vertical construction or other investments.
Result: The land is worth more (due to infrastructure), but the developer didn’t directly pay for those upgrades—instant equity gain.
Off-Balance Sheet FinancingBecause ID bonds are non-recourse and not carried as developer debt, developers don’t have to reflect them on their own balance sheets.
This improves financial ratios and leverage, which can help them raise more capital elsewhere.
Result: They get the benefits of public infrastructure without burdening their financial position.
Faster Absorption and Higher Prices
Well-serviced lots (with paved streets, utilities, parks, etc.) sell faster and for higher prices than unimproved land.
Since the cost of improvements is paid overtime by future homeowners via property tax assessments, the developer avoids high upfront costs.
Result: The developer captures higher margins and quicker returns, increasing ROI and equity.