How Florida's Disney Problem Could Hit CRE

On April 22, Florida Gov. Ron DeSantis signed a bill into law that would, on its surface, dissolve Reedy Creek Improvement District, Walt Disney Co.'s special taxing district. This move could have significant impacts in terms of taxation and infrastructure which may impact commercial real estate within the wider area.

Covering about 40 square miles in Orange and Osceola counties, Reedy Creek is home to Disney's Orlando theme parks. The district, established in 1967, essentially acts as its own county-level government.

Looming Debt

With its impending dissolution slated for June 2023, there are many concerns about potential impacts on the surrounding areas. For one thing, Orange and Osceola counties would need to begin providing local services — including emergency services, fire protection, utilities, and many others — which today is provided solely by the multinational media conglomerate. This would come with a steep price tag. Today, Disney effectively provides these services by taxing itself to the tune of $105 million every year. The surrounding governments are not optimistic that they could cover these costs without raising taxes in some way.

And that's not all. Reedy Creek also has bond liabilities to consider. The district has issued several series of bonds to cover infrastructural improvements, and the total outstanding bond debt is estimated at anywhere between $1 and $1.7 billion. Should the district dissolve, that debt would not disappear — instead it would transfer to local or county governments, furthering an already large burden.

Sizeable CRE Impacts

How much would it impact multifamily and commercial real estate investors, though? Tax increases are likely top of mind for most involved in the area. Orange County's elected tax collector, Scott Randolph, anticipates property taxes shooting up by between 15% and 20% to cover the losses.

To be clear, these tax increases would not only fall upon those within Reedy Creek Improvement District, but on all assets within both counties. As a result, this could easily lead to a slowdown in investment in much of Orlando, which has historically been a boon for multifamily investors. Similarly, it could stifle corporate expansions within the booming city, potentially signalling a reversal of the metro's major employment gains in recent years.

Or, It Might Do Nothing

But the truth is, it's unclear if the improvement district will actually be dissolved. Disney is expected to mount a legal challenge to the bill, and with more than a year until the date of implementation, the results of such a challenge could be anything from a complete reversal of the law to sending the district into the annals of history.

Either way, it probably won't impact Disney much. While the corporation has realized some profit from the district in terms of tax breaks, the main function of Reedy Creek is to smooth approvals and other bureaucratic government bottlenecks for Disney World to operate as Disney World.

In the end, Gov. DeSantis' action — clearly tied to Disney's public resistance to Florida's "Don't Say Gay" bill — may create far more problems for his state's citizens than it would for Disney itself.