By Patrick Anderson
PBN Staff Writer
By Patrick Anderson
PBN Staff Writer
Editor’s note: This is the second of a two-part series on Providence’s use of tax-stabilization incentives.
Armory Revival Co., owner of the Olneyville mixed-use complex known as The Plant, is facing a roughly 700 percent property tax increase on the renovated former mill when its tax agreement with Providence expires at the end of 2016.
Under The Plant’s 2006 “tax stabilization agreement” with the city, Armory paid $11,730 in taxes on the property last year, instead of the $102,790 it would have paid under a full assessment, according to a report by the city’s internal auditor.
Unlike Providence’s more recent stabilizations, which gradually reduce the break owners receive on their taxes over time, older deals like The Plant’s expire all at once. Still carrying debt from its renovation and with income-restricted affordable housing, those new taxes cloud The Plant’s future.
“When the stabilization ends, it’s kind of like the fiscal cliff,” said Armory Managing Director Barry Preston. “We hope there will be some ability to work out some arrangement to phase in the taxes to whatever the normal amount will be. Otherwise the financial future of these properties would be in doubt.”
The Plant is hardly alone facing a tax problem in the next few years.
Of the 36 active tax stabilizations in Providence, 17 deals worth an estimated $3.5 million are slated to expire by 2017, based on a rough estimate from figures in the internal auditor report. In addition to The Plant, those properties with expiring stabilizations include a number of large and prominent facilities, including The Steel Yard, Conley’s Wharf, The Foundry and Westminster Lofts.
Although a current debate over property tax stabilizations among city councilors and Mayor Angel Taveras’ administration has focused on high-profile downtown properties, many of the deals set to expire are for buildings in less-developed neighborhoods.
A few blocks north of The Plant on Valley Street, Rising Sun Mills, which Armory has taken over for the insolvent Struever Bros. Eccles & Rouse, faces another hard road.
The red brick home of 135 loft apartments and 120,000 square feet of commercial space was taxed $80,535 in 2013 under its 2003 tax-stabilization agreement instead of $615,559 without the deal. The Rising Sun stabilization ends in 2016.
Rising Sun is set to lose its main commercial tenant, Dassault Systèmes, to a new suburban office park in Johnston, and carries $34.5 million in debt, Preston said.
“If taxes go up, rents go up,” Preston said. “It’s not like there is some margin there. It goes right through to renters and some are struggling to pay rents.”
Individual homeowners will also likely be affected.
At Monohasset Mill on Kinsley Avenue, condominium owners have until 2017 before they lose the protection of a 2002 stabilization, which reduces their share of the building’s aggregate tax collections from approximately $160,000 per year to $12,836 per year.
Of the 38 units in the building, 10 were sold below market rate to artists like Robert Houllahan, a filmmaker who also works at post-production studio Cinelab in New Bedford.
Houllahan, who said he makes about $35,000 per year, estimates his taxes will go up from approximately $500 per year to as much as $4,000 per year without the stabilization.
“I don’t know if all the artists are aware of this, but it is a concern,” Houllahan said. “I wouldn’t object to paying somewhat more, but paying the full rate could drive some of the artists who live on sporadic incomes to move out.”
Like those downtown, the expiring tax stabilizations for Woonasquatucket River mill conversions such as Monohasset, Rising Sun and The Plant raise interesting questions about the effectiveness of the city’s tax policy.
John Jacobson, founder of real estate design and development firm JTJ Investments, believes Providence’s unrestrained use of property tax stabilizations in the bubble years financed projects that ultimately may not be sustainable.
“I am not against [stabilizations] – there’s no question they serve a policy role – but I don’t think anyone has used them with as little consideration as Providence,” said Jacobson, who also teaches at Rhode Island School of Design. “If someone is creating a product that will never withstand the real estate market, why subsidize it?”
Five years after the subprime bubble burst, Jacobson said the downtown and West Side real estate markets still haven’t reached a critical mass of demand to make projects viable, and requests for new stabilizations are an attempt to delay the reckoning.
“The same people who said what we have is underperforming are the same people asking for more,” Jacobson said.
Jacobson’s other major issue with Providence stabilizations is their political dimension.
In 2010, the General Assembly passed a bill sponsored by Sen. Maryellen Goodwin, D-Providence, a city economic-development department employee, extending all stabilizations five years.
So far at least, no bills have been filed in the General Assembly this session to create another stabilization extension.
In 2011, the City Council passed an ordinance allowing expedited approval of 10 new stabilizations without individual Council approval.
One of the 10 deals granted under the 2011 expedited stabilization ordinance was for 15 LaSalle Square, the former Blue Cross & Blue Shield of Rhode Island building now being leased by Hasbro.
A departure from many of the historic preservation and adaptive reuse stabilizations, the 136,000-square-foot office building owned by Boston real estate firm Berkeley Investments Inc., was built in 1987 and has an appraised value of $25.1 million.
The tax stabilization allowed Berkeley to pay $46,568 in 2013 instead of the $922,146 it would pay without the deal, according to city records.
Since the real estate market downturn, Jacobson has sold some of his nonstabilized Providence property, including the Walcott Eco Office on Walcott Street, at what he described as a “fire sale.”
But others argue that even with some projects not as successful as imagined during the boom years, the city is coming out way ahead financially from where it would be without them.
Unlike development on virgin land, most of the Woonasquatucket mill conversions deal with heavily contaminated industrial properties that would have become increasing liabilities to the city and surrounding owners.
And when an adaptive-reuse project succeeds, the payoff in tax revenue is usually significant, in many cases larger on a per-acre basis than density-restricted new construction.
Erik Bright, co-founder of the Partnership for Creative Industrial Space, said Monohasset Mill, which he redeveloped with four partners, is about to become a major windfall for the city when its stabilization ends.
Before it was converted to condominiums, Monohasset was generating $22,000 in annual property taxes, Bright said, an amount cut in half by the stabilization starting in 2002, costing the city roughly $160,000 in total collections since then. The tax incentive allowed the group to finance the conversion and sell all of the condominiums.
When the stabilization ends in 2017, Bright said he expects the new tax bill to at least equal, and possibly exceed, the 15 years of reduced collections in one year, with subsequent years providing a substantial tax boost.
In total, the neighborhood’s stabilized mill buildings are producing more tax revenue, he said, than the suburban-style Eagle Square Shopping Center, which utilized another common municipal incentive, tax increment financing.
“We took an abandoned, dilapidated, unsound building that was not up to code and renovated it for $11 million over 10 years,” Bright said. “We will add back $160,000 a year in taxes instead of $22,000. We came out of the project fiscally sound and created 25 percent affordable housing. I don’t think people understand that, as far as rehabbing old mills goes, we don’t have that many tools.” •