Joseph Cyr, the developer wanting to build The Boland Place apartment project, at Dale and Boland in Richmond Heights, told the city council in a closed session last week that he needs tax abatement to make it possible.
A source shared a document with 40 South — RequestTaxAbatement28022017 — in which Cyr makes his request to the Richmond Heights City Council.
Cyr says the project equity is in place, and he’s in the process of scoring a loan. The lender estimated the real estate taxes 60 percent higher than Cyr planned for. He says the lender has taken the most conservative approach and set tax projections at a very high level.
According to Cyr, the discrepancy has caused a financing gap of $2.5 million, which is stalling the project. He wants the city to utilize Chapter 353 to blight the property, and establish a cap on future real estate taxes for ten years at $276,000.
It seems to me that whenever cities give out some kind of subsidy, the taxpayers always end up footing the bill. While some are worthy, some are just gifts to profit making companies and they really need to stop it, lest people move to less tax heavy areas.
I haven’t looked as closely into what is happening with this property — but there is a great RFT article about an apartment complex on the loop that received a significant tax break.
http://www.riverfronttimes.com/newsblog/2017/03/01/meet-the-everly-1475-month-studios-and-a-128-million-tax-break-from-city-hall
It is a good article and captures some of the troubles with allowing tax abatement. Interestingly though, comparing the Everly project to this project may actually help to see why considering tax abatement on this property is not unreasonable (ugh I can’t believe I said it).
The article states, “Yet the developer won’t be paying any taxes on the new building for ten years — and for another six after that, they’ll be paying half of the assessed value of the improvements.” The result is the city not receiving $12.8MM that it could receive otherwise (assuming that a structure of similar size and value was to be built in its place and didn’t ask for tax abatement itself).
Comparatively, with the abatement, this RH project IS paying $2.6MM in taxes over the 10 year period, but they would be capped and not expanded. The result, using the loaner’s far reaching estimate, would lead to $2.5MM not being collected by RH (again, that is assuming a developer was producing a similar size and value to replace it and not asking for abatement herself). Even still, the city of RH would still gain about $2.5MM more in taxes than the current property produces.
As the article points out, there are associated costs with bringing in more residents, such as police services etc. But the greatest cost probably comes to the school system. The article notes that the Everly at $12.8MM would bring in about $7MM for the school system.
So let’s assume this project with the abatement request will generate about $1.3MM for the MRH school system (using a similar proportion as they did in the article).
Also assume on average, it costs $11,000 of government tax money (includes federal and state) to send a kid to public school for a year. (http://www.npr.org/sections/money/2012/06/21/155515613/how-much-does-the-government-spend-to-send-a-kid-to-school)
So the question on whether to approve the abatement should be, “Does this project plan on adding more than 100 children to the school district (average total cost $1.1MM)?” If it doesn’t then the school system comes out ahead and will gain even more money after the abatement period.
While this is just a rough estimate, it shows that these decisions need to be based in numbers. Also it shows how the school boards need to be vocal when it comes to making these tax abatement arguments since they are the ones most heavily affected.
Bravo!
Doug, any chance the school board would like to make a statement about this project, especially in light of Joe S.’s figures above?
Ha. After all that thinking and trying to simplify, I made an error. The $1.3MM would need to be split over 10 years. That is not one year’s amount. So really it would be about $130,000 each year to the school district which would mean only 10 or so children would be covered through the addition of the taxes. Which no way a 187 unit apartment complex only contributes 10 children to the school district per year. But even without the tax abatement it is unlikely to cover the cost. So it goes to show how much federal taxes play a part in funding education. Im sure there is something that more can be said, but right now enough thinking.
Joe S. if Richmond Heights real estate valuations skyrocket (which is not entirely outside of the realm of possibility) within the next ten years then isn’t the potential revenue losses for the City much greater than what is being mentioned here? Let’s say there is a significant market upswing in years 7-10 of this abatement then this was a much more costly endeavor. Add to this the fact that this and other new (and large) apartment buildings within the central corridor are embracing a rapidly fading trend chasing a higher-end market there is just too much risk involved here http://www.realtor.com/news/trends/luxury-apartment-boom-looks-set-fizzle-2017/ particularly when we talk about a 10 year time frame. By my estimation there will be around 5k new units becoming available within a 5 mile radius of this project over the next 18 months so to say that competition will be fierce is an understatement. This is so so dicey. I can’t believe there isn’t a better deal out there.
I wish that cities would not give in to this form of blackmail. If taxes are reduced for one group (the developer), either taxes will be raised for the rest of us, or our city services will be decreased, or both.
Doug has the City or Amy Hamilton released any statement to you on this? Has this been voted on or will it be voted on and when? I can’t imagine they would continue to remain radio silent about this. The lack of public information/statements about this is highly dubious.
Derek – I think it would be safe to say there’s been no vote on this.
Thanks for keeping us all in the loop Doug, 40 South is awesome!
Like!
And of course the typical Trump supporter will rage on and on about “welfare” and then say absolutely nothing about corporate welfare like this.
Why should the city, and taxpayers, foot the bill for this. I don’t want this. I want the land be left as a green space.
100% agree…why should they get a tax break on this for profit project? I never wanted it int he neighborhood to begin with, but even moreso now if they aren’t even contributing to the city with taxes… and a low tax guarantee for 10 years?! Move along, please.
Yep. I knew that they would be asking for a handout aka TIF… St. Louis has a national reputation with developers for granting TIF for questionable projects. Sad that our elected officials aren’t smart enough or are too desperate to sniff out these bad deals.
They wanted code variances to have less green space, and now they want the city to pay for it… I am sure there are plenty of other developers that would be willing to develop without the TIF.
The City should be smarter than to screw themselves over by giving money away. the market is hot in RH and people are willing to pay. Maybe if he actually build luxury apartments with quality materials opposed 600 sq foot cardboard and plywood rooms he would make a higher profit.
Im not a TIF expert but TIFs should not be viewed as government handing out money. Rather a TIF is a loss of potential money since the company would not contributing to the public trough in the expected amount. It is a small but important difference.
The attached document is greatly appreciated because it provides some insight into the reasoning behind the request. It also gives a decent basis for discussing whether the request is appropriate or not. A summary of the attached document is as follows:
During the planning and approval process the development team met with the city manager and a third party to come up with a projected real estate tax. The number the third party came up with was $276,000 per year. This estimate was established by looking at the cost of the RH complex EVO Living (formerly Manhasset Village). Taxes for that complex were calculated to be ~$300,000 using the 32% of actual market value with real property. That cost split over ~200 apartments came to be ~$1,500 per unit. This per unit cost was then multiplied to the number of units (187) of this project to get the projected $276,000 number.
However the appraisal of the lender came to be $427,000 (about $150,000 more per year in taxes; or about 60% higher than the third party came up with). The appraiser sampled 5 comparables (2 smaller, 3 larger complexes) in the surrounding areas, including Clayton and one on Delmar, that did not receive TIFs but was very conservative in the five chosen leading to a higher estimate. Many of the closer apartments that may be better comparisons were not included due to receiving of TIFs.
The result is a $2.5MM gap in financing being requested (not sure how that number is calculated).
The request by the current development team is to cap the taxes at the prior established estimate by “blighting” the property which currently brings in $11,600 in taxes per year.
Thanks Joe, that’s a helpful summary! I’m guessing the 2.5M is the amortized value of the difference between the estimate and appraisal over 10yrs. It would be helpful if the City had a financial advisory board to weigh in on these types of decisions and provide rationale and guidance.
Yeah I was thinking it had to be something along that line. It would make sense for a city to have an advisory board.
The thing still doesn’t make sense is just because the bank assesses the value of the property at a higher rate doesn’t mean that the the assessor’s office will. So while it would lead to a greater cost for the development company with taking out a larger loan, it may not lead to a larger amount of money actually collected by the city. No?
To correct the original statement- the first bit should swap “TIF” for “tax abatement.” The article has been adjusted as well.
Tax abatement is the tool used by cities which freeze the tax level for a shorter period of time, typically around 10 years as long as certain criteria are met put forth by the city.
Tax increment financing (TIF) sets a baseline cost of a property. As the property is developed and property value increases, the taxes will increase and the developer continues to pay a higher tax rate.
If you don’t have confidence in your project to make it or just want free money, why should the City pay it for you?
It is still $276,000.00 that the city of Richmond is not making presently. Negotiate it to 7 years or a higher cap, but please do the development!
If it is not a good investment, why is developer even looking at location? Just say no.
What a shocker. Another one of these guys wants to get his face in the public trough.
Same as Manchester & Hanley.