VOL. 132 | NO. 156 | Tuesday, August 08, 2017
Tax Breaks Broaden For Residential, Retail Deals
By Bill Dries
Some changes are coming in the rules surrounding incentives that the Economic Development Growth Engine for Memphis and Shelby County – or EDGE – can use for different kinds of development and for broader use of tax increment financing – or TIF – zones to sustain redevelopment.
As the city has become more focused on building density, EDGE has started to incentivize developments that have a different scope and goal than just creating jobs that pay a certain wage.
It started with a “community builder” PILOT – or payment in lieu of taxes – incentive for the Frayser Gateway project, a $16 million retail center on Hollywood at James Road in Frayser being developed by G2 Ventures.
“In a community builder, because our client is the developer, we can’t hold them to a job commitment. That’s what we expect the retailers to do,” EDGE president and CEO Reid Dulberger said on the WKNO/Channel 10 program “Behind The Headlines.”
“If we get those numbers great, if we do better we’re even happier. But what we really want is to see the grocery store. We want to see the apparel store, the household goods store or the restaurant,” he said. “We want to see the blight eliminated, development there, services for the neighborhood, jobs for the neighborhood, parks strengthened, all of those other benefits that we’re really focused on.”
The Frayser Gateway development is to be the first new shopping center built in Frayser in 30 years.
“You almost have a zero percent vacancy rate in Frayser,” said Shawn Massey, principal of The Shopping Center Group who represents the developers. “The only center that has any vacancy is actually being purchased by Memphis Business Academy. … Now you have a great density of population that is looking for goods and services that are leaking out of the community going to other communities – whether it is Midtown, Wolfchase or Raleigh – that could be spent in the Frayser area.”
But for developers, there is still a gap in the financial numbers that can make it difficult, if not impossible, for them to take a chance in places like Frayser, Massey said.
“On a typical development, we’d go into Frayser or Binghampton or South City or some other place and try to do a standard development. We would never get the rents high enough from the retailers, who base the rent on estimated sales, to justify the construction (costs),” Massey said. “This is an incentive to say if that gap is a little bit smaller and you have a PILOT or some other incentives like a TIF or new market tax credits or historical tax credits, maybe it can work and create some opportunities.”
Massey cites Frayser Gateway’s closeness to Rodney Baber Park, the second largest urban park in the city and a destination on the still developing Wolf River Greenway.
“The edges of that park should be activated; no different than Shelby Farms Park should be active around the edges,” Massey said.
“Behind The Headlines,” hosted by Eric Barnes, publisher of The Daily News, can be seen on The Daily News Video page, video.memphisdailynews.com.
On top of the gap developers need to narrow and the risk, there is the legal requirement that ownership of the property has to be transferred to EDGE in order to get the property tax break. It’s something Dulberger says isn’t likely to change anytime soon.
“At the end of the day, it is still a little bit of a blunt instrument that we are trying to use at the neighborhood level,” he said of PILOTs. “It’s one of the reasons that we create some other kinds of tools to go along with it.”
Massey says TIFs – tax increment financing – zones can sustain a project developed with a PILOT because the PILOT focuses on the development site while a TIF focuses on the area.
“You are getting the incremental tax lift from those other properties that are coming to you to build your project. It’s a little bit more difficult, a little bit more challenging, a little bit more controversial,” he said. “The PILOT is just a good first step.”
Other changes coming through EDGE include residential PILOTs, with the first one being the $14 million Madison @ McLean apartment complex in Midtown. The incentive is a trial program that EDGE plans to do for up to 10 projects and evaluate. Since Madison @ McLean was granted a 14-year PILOT in July, Dulberger said other residential developers have approached EDGE about the incentive.
“We are working within the parkways. We are working with the Downtown Memphis Commission and the Center City Revenue Finance Corp.,” Dulberger said. “I believe that over the next few months they will be modifying their (CCRFC) program and I think they will become even more aggressive and take over … the projects within the (Interstate 240) loop. And then we are going to focus our attention outside the parkways throughout the rest of the city.”
EDGE will be lobbying state legislators to change the rules on residential PILOTs in the upcoming session to “carve out” an exception for Shelby County.
State law currently says an industrial development board can only do a residential PILOT in a defined center city area or a central business improvement district.
“As we sit here today, if a project anywhere outside the parkways came to us, you would have to go to the city council to create a business improvement district in order to do a PILOT,” Dulberger said in comments after Behind The Headlines was taped. “Doable, yes. A pain the rump, absolutely.”
Meanwhile, Massey says supermarkets remain difficult.
“It took me seven years to find a grocery store to go in Binghampton,” he said of the Binghampton Gateway development he is a involved with as a volunteer that is very different from the Frayser Gateway project. “I hope what I learned in Binghampton I can leverage to go into Frayser. Most of the independent grocery stores tend to go with second-generation space. We’re talking new construction.”
Complicating the supermarket option are national trends like the Amazon-Whole Foods purchase and what it means for the delivery of groceries to the doorsteps of consumers.