How Developers Can Miss Millions In Infrastructure Recovery
How to Set Up — And Collect — Infrastructure Cost Recovery
In a housing market cross-currented by affordability shocks, consumer hesitancy, and policy whiplash, the developers, investors, and builders best equipped to unlock tomorrow’s land value are those doing the least obvious work today: building the blueprint for future reimbursement.
This second installment of our conversation with Carter Froelich, CPA — founder of Launch Development Finance Advisors as well as an Advisor with Land Advisors Organization — explores how to structure infrastructure financing mechanisms, reimbursement agreements, development impact fee (“DIF”) credits, and cost reduction, elimination and/or deferral mechanisms so they deliver long-term residual land value, regardless of short-term market headwinds.
We’ve entered a market where every dollar of improvement costs has to defend its existence and its timing,” says Froelich. “If it’s not generating revenue — or leading directly to a reimbursable event — then it’s dragging down land value.”
Let’s unpack what that means in the real-world application of special-purpose taxing districts (“Districts”), District structures, cost reimbursement strategies, and inter-agency alignment.
Building the Blueprint for Cost Recovery
Too many landowners and developers spend millions of dollars installing backbone and in-tract public infrastructure, only to realize too late that they’ve lost their chance to recover those costs through a District. Whether it’s because the developer didn’t negotiate these items as part of their annexation and/or development agreement, a District wasn’t formed in time, DIF credits weren’t negotiated, or the opportunity slipped through the cracks, the result is the same: money and, as a result, residual land value was left on the table.
Froelich sees it happen constantly.
One of the biggest issues we see in development is that developers and landowners wait too long to implement a well-thought-out financing structure, which has both a Plan A, Plan B, and Plan C,” he says. “Then, when the financing structure finally gets implemented, they’ve lost the opportunity to recover some of the costs of infrastructure because they have lost their leverage with the jurisdiction and related agencies, or they have not followed appropriate procedures to ensure that infrastructure that has already been built and paid for themselves will qualify for District funding, DIF credits and/or some other reimbursement mechanism. Developers must remember that every battle is won before it is fought, and it is fought in the annexation and/or development agreements."
That timing misstep can erode land value for current and future stakeholders alike. The solution, Froelich says, is to codify a financing plan early — even if the formal formation of a District will come later.
That’s what his firm now advises by default.
We’ve actually developed annexation/development and/or financing agreements… so that even if the District isn’t formed at the time of entitlement, you’ve already received written approval by the jurisdiction and/or agencies as to what facilities will be funded by the District, what will costs will be reimbursed by DIF or DIF credits, as well as what other reimbursement mechanisms will be allowed.”
One example: Froelich’s team recently included a fully executable Community Facilities District (“CFD”) agreement as an exhibit to the Pre-Annexation and Development Agreement, pre-approved by all parties. This ensured that once certain triggers were met — such as completion of the annexation of the property into the city’s incorporated boundary – the CFD would be established pursuant to the CFD Agreement.
As a result, there were no delays, no renegotiations, and no surprise disputes related to the formation of the CFD and what the district could or couldn’t pay for.
Too often we see landowners and developers negotiate hard over the infrastructure obligations in a development agreement, only to leave the outlining of the financing mechanism vague or for future negotiation," Froelich says. “That’s a mistake. If you want to recover value, the framework has to be in writing, and preferably in place, from the beginning.”
Getting that framework in place also strengthens land basis, simplifies underwriting for builders or investors, and reduces legal exposure around who owes what — and when.
Solving the Math in Advance
Another overlooked source of reimbursement potential comes from DIFs. Cities and counties often charge per-lot fees to fund regional infrastructure. But when those same jurisdictions also require developers and/or Districts to build or oversize those exact same facilities themselves, unless the developer has negotiated DIF credits and/or the receipt of DIF payments for such facilities, developers and/or builders can effectively pay twice for the facilities — once in the construction costs and again in the DIF.
In today’s market, infrastructure construction costs often outpace what Districts alone can finance. To bridge this funding gap, project-specific DIFs are now crucial. The most effective approach is to establish project-specific “service areas,” enabling developers to recover the full costs of regional infrastructure through a combination of District and project-specific DIF revenues. This ensures no value is left on the table and every dollar spent on public improvements is accounted for and reimbursed.
In many cases, we typically find that the DIFs being charged by cities/counties are too low and/or not reflective of the actual infrastructure costs required to service the project,” Froelich explains. “This creates an environment where developers are fronting more capital than they should without a mechanism to recover or be credited. The project-specific DIF service area corrects this imbalance.”
Too often, municipalities default to flat fee structures that don’t reflect localized infrastructure realities. Froelich advocates for a “project-specific DIF analysis” early in the entitlement process — even if a jurisdiction hasn’t historically done so.
Do the math. Before entering into a development agreement or breaking ground, Froelich advises developers to analyze their infrastructure obligations against the jurisdiction’s existing DIF programs and capital improvement plans. If you’re building something that is in the city or county DIF program — and is charging a fee for it — it’s time to negotiate a credit or reimbursement structure.
It’s not just about fairness. It’s about liquidity and transparency.
The idea is not to get out of paying fees, but to align them with reality,” he says. “If your project is spending millions on backbone improvements, you shouldn’t also pay an impact fee calculated as if the city were installing that infrastructure itself.”
That means scoping your planned improvements, identifying which ones serve regional benefit, calculating the pro rata value attributable to other landowners, and building a recovery mechanism into the development agreement or District financing agreements.
In Froelich’s experience, the smartest operators don’t wait to see how the jurisdiction interprets things once construction begins. Instead, they force the conversation early — and document the outcome in binding agreements before construction permits are issued.
The same principle applies to DIF credits. If you’re building a trunk sewer line, arterial road, or stormwater system that also serves future phases or surrounding properties, that’s a recoverable cost. But only if you’ve established a method to track and claim it.
You have to be able to identify a defined benefit area,” Froelich says. “Then you can calculate the share of the cost attributable to future users, and build a recovery formula that triggers as those users come online. But if you haven’t built that formula into your legal framework from the start, you may be stuck without a mechanism.”
Avoid the Double Dip
Even experienced developers fall into the trap of paying more than they should, simply because they didn’t reconcile what they were building with what they were already being charged for.
If you're paying a DIF for storm drain capacity, and then the city also requires you to oversize and build that facility yourself, you’ve effectively paid twice,” Froelich says. “It’s not necessarily malice — but it is mismanagement if you don’t fix it.”
So how do you protect yourself?
Start by listing every facility your project is required to build. Cross-reference those with the facilities included in the jurisdiction’s DIF programs. Then negotiate either a DIF reimbursement and/or DIF credit agreement.
It’s not always a fast process. But it’s worth it. Froelich says that landowners and builders who take the time to negotiate and document these financial recovery tools can protect millions of dollars in cost reimbursements, which enhances residual land value — money that otherwise disappears without a trace.
When you establish that clarity upfront, you don’t just recover your own costs — you also create a more marketable, financeable, and resilient land position for whoever comes next," he says. "And because you’ve created this clarity via your entrepreneurial skill set, you should be compensated for this value.”
Coming Next — Part III: Oversizing with Intent
In the next installment, we’ll explore how developers can turn a financial burden — oversizing — into a strategic value play:
- How to establish fair-share reimbursements from other benefiting landowners
- Why you should require full payment at plat recordation or first permit
- How to reduce, eliminate, and/or defer infrastructure build-out requirements
As Froelich emphasizes, this isn’t about gaming the system — it’s about aligning infrastructure cost, value, and timing for the benefit of all stakeholders.