Huge break, 1.5 jobs
Apartment complex developer in Albany wants tax relief of $22.8M over 40 years
Published on 3/14/2013 by the Times Union written by JORDAN CARLEO-EVANGELIST Staff Writer
ALBANY — Norstar Development is seeking a nearly 90 percent property tax break worth an estimated $22.8 million over four decades on a proposed Broadway apartment complex, according to an application filed with the city Industrial Development Agency.
The Buffalo-based developer wants the panel to approve the payment in lieu of taxes, or PILOT, agreement for the 70-apartment building that would rise at 733 Broadway across from the Leo W. O'Brien Federal Building.
The nearly $14 million project has been hailed as potentially significant piece of the city's broader vision for downtown's residential future. But without the lengthy tax break, the developer says, the federal Department of Housing and Urban Development won't back financing for the project.
If approved, the tax break averages about $570,000 annually over the life of the agreement and, at 40 years, is considerably longer than the IDA's standard PILOT.
In a letter outlining his tax concerns about the proposal, Councilman Dominick Calsolaro notes Norstar says the project will create only 1.5 permanent jobs — a manager and a maintenance position.
PILOTs are common in large development projects — such as the new medical office buildings built by Columbia Development along lower New Scotland Avenue — and aim to lure builders to invest in the city with the promise of reduced property tax burdens.
But they can also be controversial because one of the main charges of industrial development agencies like Albany's is to create jobs, and the IDAs have come under fire generally from state officials for sometimes approving projects that fail to do so.
Norstar estimates the project will generate a one-year local economic impact of $5.53 million from construction, with more benefits moving forward from the increased commerce the new downtown residents would generate.
Michael Yevoli, the IDA's CEO and the city's development commissioner, said he expected the IDA board to carefully vet the proposal. He said his staff has been working with Norstar for months on the proposal that could have a "catalytic" effect on other downtown development.
"I think there are going to be a lot of questions. And I think Norstar is prepared to explain what their needs and desires are," Yevoli said. "I don't think we're at the point of making recommendations on this. ... This is obviously not a standard PILOT for us, and it is something that is precedent-setting."
Besides the lack of permanent jobs, Councilman Calsolaro, who has been critical of PILOTs in the past, also expressed reservations about the length of the agreement and the fact that Norstar acknowledged in its application the difficulties of getting a private lender to float a long-term loan for the project.
"I think it's a bad precedent to set," Calsolaro said. "I just want to have these questions raised and see what the principals have to say. There might be too much risk here for the IDA to even take."
Lori Harris, the Norstar Development vice president working on the project and the city's former planning commissioner, could not be reached for comment.
Yevoli acknowledged Calsolaro's concern but said job creation, while important, is not the only yard stick by which projects should be measured.
"I dare say we haven't had a project come before our IDA that would have been built without a tax PILOT," Yevoli said, adding that the spillover effect of 70 new, market-rate apartments in downtown would be significant. "Are we most interested in collecting revenue on projects that don't exist or making projects happen?"
Norstar bought the 1.3-acre property just north of Spencer Street in 2004 for $1.4 million and announced plans for a 122-unit, midrise condominium tower called the Capital Grand. Those plans, however, were scuttled amid financing problems in the aftermath of recession, and the project re-emerged as an apartment building.
The land holds a largely vacant 45,000-square-foot building, which would be demolished to make way for the new apartments.
Norstar says the project would cost just shy of $14 million and is also asking to be exempted from an estimated $320,000 in state sales and use taxes associated with its construction as well as $139,995 in mortgage recording taxes.
The market-rate apartments would range from studios to three bedrooms and rent for between $850 and $1,850 a month.
The application also says the $2.7 million in payments over the proposed 40-year pact would be just $740,000 less than would be owed in taxes if the current building were to remain there over the same period.
In 2011, a bid by California developer A.G. Spanos Cos. for a 23-year PILOT on The Alexander, 300-unit luxury apartment complex near the Harriman State Office, was sharply criticized by some city officials and ultimately withdrawn from the IDA before a vote was taken.
But unlike the Norstar project, The Alexander was already built and benefiting from a separate state tax abatement when the developer sought to convert the arrangement into a formal PILOT that some saw simply as a bid by Spanos to more easily attract a buyer.
Also in 2011, the IDA granted a 30-year PILOT to Cass Hill Development to aid the conversion of the former Boyd Printing plant on Sheridan Avenue to a luxury apartment building now known as The Monroe and a 30-year PILOT worth a projected $14.3 million to the owners of the Crowne Plaza at State and Lodge streets to help pay for the renovations that led to its recent rebranding as a Hilton.