Opponents Blast Tax Breaks for 195 Dormitory Deal
Tuesday, November 25, 2014
Following Providence City Councilman David Salvatore's proposal last Thursday that a uniform tax stabilization agreement (TSA) policy be applied uniformly to the 195 projects, critics questioned the use of tax breaks for a proposed 500 bed dormitory and retail space.
"I get it, you can say that they're looking to take politics out of it, but it makes zero sense to do this," said Keith Fernandes with the Providence Apartment Association. "If you want to [use a TSA] to create jobs, but this is going to give us ten long term jobs, I believe. The unions want to build it, of course, but what about the services needed to be provided by the city?"
"What they're doing is creating a separate rental market," continued Fernandes. "They'll have reduced taxes, and so charge reduced rents, and still make a profit, and they're taking the market away from us. We're against this standard, and the City Council should be able to vet it."
Gabe Francis, who owns rentprov.com and has been leasing properties in the city for ten years, spoke to the existing market dynamics -- and why he opposes any tax break for a dorm development.
"Providence charges landlords 33.75 per thousand while they charge owner occupants 19.25 per thousand," said Francis. "Why give a tax break to someone that is going to be running the same kind of business as the other landlords that are now going to have to compete with a brand new building?"
"There is no lack of housing in the Greater Providence Area. If you go on any number of websites you can see that there are tons of vacant apartments all over the city," said Francis. "We do leasing and what we need more of is good qualified tenants -- not more housing."
TSA Scrutiny Continues
"Next steps for PPC Land Ventures include securing the financing needed from both banks and investors, developing detailed architectural and engineering drawings and moving through the 195 Commission’s expedited permitting process. Construction is expected to start in late summer 2015, and be ready for occupancy in September 2017. The project is expected to generate approximately 150 construction jobs and 10 permanent jobs." wrote the Commission in its release.
Providence investor and real estate professional John Jacobson noted that in the realm of TSAs and the development of the 195 land, that he saw several developments occurring concurrently.
"There's four things going on," said Jacobson. "Enforcement of [current] TSA agreements; what to do with the 2001 and 2002 TSAs and their possible extensions and eminent distress or collapse; 195 TSA policy; and a TSA policy that covers the whole city."
"As far as my opinion on 195 TSA policy, I have the humility to understand that I would need to consult professional policy people and economists to get the best policy. The Council hasn't done this and never has. I am curious what the rush is -- why not get everyone at the table and hammer out one amazing deal, " said Jacobson. "If I was Council President or Mayor I would be asking the State to help offset the costs of TSAs as it is the State who benefits from the income taxes and sales tax. Providence has a history of giving away too much and getting too little."
Ric Santurri, a real estate investor and broker and GoLocalProv Mindsetter, put forth what he viewed as a potential "ideal" situation for the city and developer
"$150 a month property tax per bed per month, $900K in yearly property tax which would be full commercial tax rate on half the cost of the building. That's the deal I'd strike," said Santurri. "Around 18% of rent to taxes is high but the deal is still doable, since they have no marketing costs and a ready made market every year."
"The wise thing would be to do a study of what competing landlords pay in property tax and structure the TSA based on that," continued Santurri. "Although so far, it's been developers 80, city 1, when it comes to TSAs. I just want a growing tax base."
Jacobson noted the timing as playing a factor as to whether to grant a TSA -- in the proposed dormitory project -- or for others
The process by which TSAs could be awarded -- and why they are being addressed just now for the 195 land development -- is also being questioned by some in the real estate industry.
"We'd like to see this taken up in the next administration," said Fernandes. "I don't think they've got the votes [currently]. Solomon was behind the last extensions. The next Mayor should be given the courtesy of having that choice."
Jacobson said he'd like to see a broader coalition determining policy for the 195 corridor -- and most importantly, to see that include Governor-elect Raimondo.
"The 195 commission, Jones Lang LaSalle -- who the state had hired to market, [Raimondo's] team (possibly RIEDC), the Mayor and the Council should all put their big boy pants on, collaborate, have a few meetings, and pass the Ordinance, " said Jacobson.
Rentprov.com's Francis noted he wasn't against all TSAs - just that he saw the need downtown as greater for office space than rental units.
"We don't need an economics professor to tell us that if we offer companies a major tax incentive that the state and city will benefit from the income taxes we get as well as getting more people that will spend money at local businesses,"said Francis. "We already have the students and while I have no problem with the current students, I and many other local business owners that I speak with really would like to see office towers downtown. If the city wants to offer a tax incentive to housing they should offer current landlords a rebate on monies that they spend on their properties."
Related Slideshow: Current Tax Stabilization Agreements in Providence
1 Park Row West
Johnston & Wales University Dorms - Capitol Cove, LLC
Approval Date: 3/11/2005
Amendment Date: 3/8/2010
Assessed Valuation: $2,252,500
Actual Tax Prior to TSA: $518,247
2013 True Tax: $82,779
2013 Stabilized Tax Payment: $968,606
Tax Status: Current
End Date of Agreement: 12/31/2023
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