Financing infrastructure with proceeds from selling financial instruments allowing developers more rights

Octávio Frias de Oliveira Bridge

Brazil has a policy named Urban Operations which is used to promote requalification of underdeveloped urban areas through PPPs
First used in São Paulo, which was seeking a way to engage private capital to fund critical infrastructure needs such as the Octavio Frias de Oliveira bridge (USD 113M in 2008)

Developers lack incentives to build in underdeveloped areas that are lacking key infrastructure systems
Developers are also limited in scope of investments by regulations, further complicating building in certain areas
Easing of regulations helps drive profitable business case for developers

CEPACs (Certificates of Additional Construction Potential) are certificates that give the bearer additional building rights (e.g. ability to build larger developments) in space-constrained urban areas
CEPACs are auctioned by federal banks, and proceeds from the sales are reinvested in public developments in the same areas the CEPACs are issued for

City hall through EMURB (Empresa Municipal de Urbanização) – Issues CEPACs
Banco do Brasil – Federal bank, auctions CEPACs with involvement from the Caixa Economia Federal
Comissão de Valores Mobiliários (CVM) – To be auctioned in the stock market, CEPACs must be authorized by the – The Brazilian equivalent of the U.S. SEC

CEPACs facilitate compounding effects between public and private investment, ultimately resulting in property tax increases by 2.7-4.4x the pre-development level due to increased property value and development density
CEPACs have raised over USD 2.7B throughout the last 15 years in the Faria Lima and Água Espraiada Urban Operations, with funds reinvested in developments such as public transit lines, road construction and maintenance, neighbourhood parks, and water lines
São Paulo is contemplating the use of CEPACs in low- income areas and housing developments, after noticing that developments occurred primarily in already wealthy areas

Initiative successful in encouraging development within specific urban areas, as public investment of funds raised by CEPACs benefits private developers‘ business case
Important to balance intention with practical application; as CEPAC funds are tied to specific urban areas, the entire budget must be spent in those areas even if more value could be achieved by investing some of the capital elsewhere
Demand from developers exists due to restrictive development regulations; initiative needs to be adapted to specific regulatory environment and may be less effective in contexts with less- restrictive regulations