The $180 million project to revitalize the Sears Crosstown building won a 20-year payment-in-lieu-of-taxes (PILOT) agreement Thursday, Oct. 10, from the Center City Revenue Finance Corp.
Developers of the Sears Crosstown building won a 20-year tax break Thursday from the Center City Revenue Finance Corp.
(Daily News File/Lance Murphey)
And the Land Use Control Board approved the planned development Thursday with some modifications.
The corporation’s board voted unanimously in favor of a term for the tax breaks that was five years longer than the 15-year cap that has been the board’s policy. The 15-year PILOT was the recommendation of the revenue finance corporation’s staff.
Finance corporation board member Robert Spence moved the 20-year PILOT, citing the catalytic effect on the larger area by the project. Crosstown is projected to include commercial, retail and residential space in the building for founding partners Methodist Healthcare, St. Jude Children’s Research Hospital, ALSAC (the fundraising arm of St. Jude), Church Health Center and Memphis Teacher Residency.
“I think I’m fine with this board coming together with a little more than we normally do,” Spence said.
Downtown Memphis Commission president Paul Morris cautioned that the benefits between the 15th and 20th year of the agreement “become much more speculative and harder to justify.”
But he also acknowledged the broader impact of the project, even as he cited precedent in which the same board had refused to go beyond the 15-year cap for recent projects such as the renovation of the Chisca Hotel and One Commerce Square.
“It’s a tough decision,” Morris told the board.
But McLean Wilson, co-leader of the project’s developer, Crosstown LLC, said his discussions with permanent lenders who would probably become part of the project in the third, fourth and fifth years, indicated the property tax breaks would be crucial to the project and, specifically, its debt service recovery beyond its 15th year.
“In year 16, if we don’t have a PILOT in place, our debt service coverage, given the assumptions we have, drop well below what a permanent lender would allow for,” Wilson told the board. “So we would initially and technically be in default of the loan at year 16.”
Crosstown LLC hopes to begin work on the project in February or March, with the renovation and reconfiguration of the 1927 building taking two years to complete.
The group still has several hurdles left, most notably $15 million in city funding the group is seeking through Memphis Mayor A C Wharton Jr.’s administration for infrastructure work, including some internal demolition of the massive Sears building.
After that, the project needs approval from the state of Tennessee and the National Park Service for tax credits that are integral to its complex financing.
“The stars are almost in alignment,” said developer Tony Bologna. “This is the one shot at getting the project done.
The 20-year payment-in-lieu-of-taxes agreement means Crosstown LLC will pay an estimated $11.9 million in city and county property and sales taxes over the 20-year term. Without such an agreement, they would have paid an estimated $53.8 million in property and other taxes.
The 15-year PILOT would have meant $7 million in city and county property and sales taxes over the 15 years; without that, they would have paid $40.3 million in property and other taxes.
Morris and the developers emphasized that the property tax estimates, with and without the PILOT, are much higher than current property taxes paid on the property in its current condition.
With the 20-year agreement, Crosstown LLC will pay a minimum of $10.2 million in newly generated property tax revenue over those two decades, not counting sales tax generated by construction and operation.
Meanwhile, a PILOT application for the Harbor Island apartment complex on Mud Island was dropped from the revenue finance corporation’s agenda by the developers, L3 Properties LLC.
Morris said developers pulled the item this week because of “changing cost estimates” and a new scope for the project. He termed Harbor Island “no longer a ‘but for’ project,” meaning the developers believe the new cost estimates, including a cheaper cost of lumber, mean they can build the 134-unit apartment complex without a tax break being essential to complete the financing.
The Land Use Control board approval sends the planned development to the Memphis City Council for a public hearing and vote at a date that has yet to be set.
The developers sought and got some changes to the conditions originally set by the Office of Planning and Development, including continuing to allow cars access to the site off Claybrook and holding up changes to the traffic signals at the North Parkway underpass, pending traffic studies the developers are now undertaking.
Bologna told the Land Use Control Board that continued access to the site off Claybrook is essential to the use of that part of the property for access to the Church Health Center clinic there.
The developers also want the city to waive a $2,000-a-year encroachment fee that would be owed the city of Memphis because the building was built atop utility lines. The Land Use Control Board could not waive the fees. That is a decision for city officials to make. But the board did recommend the waiver.