The Pennsylvania CRIZ Program: Opportunities for Investors

Real estate investing is like building a fire. You have to create protection so you don’t get burned, ensure the conditions are right, start small, let the spark ignite, and then let it grow with time.

Now let’s add fuel to that fire.

Many programs, strategies, and opportunities can fuel your fire to grow even bigger and brighter. One such fuel source for your investments is the Pennsylvania CRIZ program, which is being rolled out in more cities throughout the state.

What is the Pennsylvania CRIZ program?

The City Revitalization and Improvement Zone (CRIZ) program, established in Pennsylvania in 2013, is a state-driven initiative aimed at stimulating economic growth in economically distressed cities through real estate investment and development.

Designed to attract private investment in urban areas, the CRIZ program allows designated municipalities to utilize state and local tax revenues generated within the zone to fund infrastructure improvements, commercial development, and other projects that will enhance the quality of life and boost the local economy.

For real estate investors, this program presents a unique opportunity to contribute to city revitalization while enjoying potential financial incentives and long-term gains.

To have a CRIZ district, local municipalities must submit an application process that is approved at the state legislation level. The legislation enables qualified local municipalities to establish zones, called CRIZ districts, where a portion of the increased state tax revenue generated by new businesses, improvements, and activities within the zone can be reinvested into the community rather than going to the state.

These funds can be utilized by the municipalities to provide incentives to business owners and investors for property development, new businesses, and infrastructure for the city to help economic growth. The goal is to create jobs, reduce blight, increase property values, and stimulate economic activity through targeted investments.

Currently, there are several active CRIZ districts across Pennsylvania:

Lancaster
Bethlehem
Tamaqua
Reading (just approved)
Erie (in the works)
York (in the works)

Each district covers up to 130 acres within a city and is designated for a 30-year period, providing long-term opportunities for both the municipalities and the investors involved.

How does the program work?

The CRIZ program is structured around the reinvestment of tax revenues, specifically state and local taxes that would otherwise go to Pennsylvania’s General Fund. By diverting these funds back into the CRIZ-designated areas, local governments can directly fund improvements and projects that make the area more desirable for new businesses, tourists, and residents.

This system is particularly attractive to cities that lack the upfront capital to make necessary improvements, as it creates a self-sustaining cycle where economic growth feeds back into local development.

For example, Reading recently received this designation. If they use tax dollars to solve a parking issue in the downtown area by creating more parking options, this can help to attract more businesses to their downtown. The additional tax dollars generated by the new businesses can then help to fund another project that improves the city.

Real estate investors play a critical role in this cycle. By developing or rehabilitating properties within a CRIZ district, investors help to generate increased tax revenues, which in turn fund additional improvements and increase property values throughout the zone.

Eligible tax revenue includes state taxes on personal income, corporate income, sales, and use, as well as local earned income and business privilege taxes.

Benefits for Investors

Investors who are considering CRIZ-designated areas benefit from the increased likelihood that the surrounding infrastructure and amenities will improve over time, making the properties more attractive to tenants and businesses, as well as future buyers.

1. Increased Property Values

Properties within CRIZ zones often see an increase in value due to enhanced local infrastructure, improved aesthetics, and a general boost in desirability. As the area becomes more attractive to businesses and residents, demand for real estate rises, which directly benefits the property owners.

2. Reduced Investment Risk

The CRIZ program mitigates some of the risks associated with investing in distressed urban areas. The tax revenue reinvestment essentially serves as a built-in incentive for future development, which can reassure investors that the community and state are committed to the sustained improvement of the area.

3. Higher Rental Demand

For commercial real estate investors, one of the significant advantages is the likelihood of increased rental demand as businesses look to move into revitalized areas. The CRIZ program’s infrastructure improvements and business-friendly environment can lead to higher occupancy rates and, potentially, increased rental rates.

4. Tax Incentives

While the program does not provide direct tax cuts to investors, the investors may be able to apply for and receive back a credit in relation to the improvements on the property that they have renovated or built. Each CRIZ program has different parameters, so investors should check with the local CRIZ authority for the city they’re considering.

Challenges and Considerations

While the CRIZ program offers considerable benefits, there are also a few challenges that real estate investors should consider before jumping in.

1. Competition

As CRIZ zones develop and become more desirable, competition among investors may increase, driving up property prices and potentially lowering yields if purchase prices climb significantly. Lancaster has seen a clear benefit from having this program in place, with a notable increase in property values.

2. Long-Term Commitment

The CRIZ program is designed for long-term investment, so real estate investors should be prepared for a commitment to the property and area that spans years if not decades. Short-term investors might not fully reap the benefits, as substantial infrastructure improvements and property appreciation can take time to materialize.

3. Dependency on Local Governments

Success in a CRIZ zone depends heavily on effective local governance and the ability of municipal authorities to manage projects and allocate funds effectively. Real estate investors should conduct due diligence to understand how well a particular municipality has managed its CRIZ program.

In Maryland

Several similar economic development programs exist in Maryland to help foster improvement and development within certain cities and towns.

The state government provides a helpful resource to locate communities with these benefits, found here. These programs enhance infrastructure and encourage business development as their overall goal. Below is the map provided by the state.

Conclusion

Pennsylvania’s CRIZ program provides a unique opportunity for real estate investors who are interested in contributing to urban revitalization. With the dual benefit of increased property values and an active reinvestment of tax dollars into local improvements, investors in CRIZ zones are positioned to play a crucial role in transforming struggling cities into prosperous communities.

And who doesn’t enjoy a bigger fire?

We provide the investors we advise with an edge that helps to keep them ahead of the trends, providing key information that helps investors reach their goals. Call us today for a free strategy discussion about your investment goals.