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What price Falls restoration? Vacant-school project stirs debate on economic development grants

NIAGARA FALLS -- A vacant junior high school about to be transformed into loft apartments in the heart of the city has sparked debate about the value of state economic development grants.

The $14 million proposal to completely renovate and reopen the former South Junior High School on Portage Road as Niagara City Lofts won a $5 million Restore New York grant.

But two competitors have raised questions about the affect of subsidizing the construction of market-rate apartments and commercial buildings.

"It gives these people unfair benefits that aren't available to others," said Carl Paladino, a Buffalo developer who has spent seven years renovating the United Office Building. "It's one thing to say, 'It's just government money,' but what about the guys who put their own money in and invest in other projects?"

Paladino and others have balked at the cost of the South Junior High project and questioned whether it is fair to give one project millions of public dollars when others have forged ahead with less.

But supporters say Niagara City Lofts is the perfect example of the type of reuse project that has the potential to positively impact a neighborhood but that couldn't get off the ground without government help.

The three-story brick school building has sat vacant for nearly a decade in a residential neighborhood between Niagara Falls Memorial Medical Center and a growing arts community at the Niagara Arts and Cultural Center.

"The bottom line is, this is very cost-competitive," said Clinton E. Brown, an architect and managing partner in the Niagara City Lofts project. "This is a very wise use of public funds, and this is a keystone project to complete or complement the revitalization of the hospital and the NACC. No other project can offer these public benefits.

None."

Brown and Syracuse-area developer Murray Gould of Port City Preservation plan to completely renovate the 86-year-old school building into 52 work/live loft apartments. The auditorium, gymnasium and indoor pool in the school building will be turned into commercial and community space.

The apartments would range from 450 square feet to 2,025 square feet, and proposed monthly rents would start at $495 for the smallest apartments and increase to $1,842 for the two largest units, according to revenue projections included in the project's grant application.

The building, according to the application, would seek certification under Leadership in Energy and Environmental Design, or LEED, standards, and would be marketed to "younger folks, professionals, empty nesters and micro-business owners."

It is one of three empty public buildings in Niagara Falls that were awarded Restore New York grants under the latest round of the state program. The old police station and 39th Street School also will be renovated with the help of Restore New York money.

But it is the South Junior High project that elicited a spirited debate in a string of e-mails this month when Jefferson Apartments owner Shawn J. Weber sent out a message questioning the cost of the project to 21 people, including state lawmakers, city politicians and local reporters.

"Can someone explain to me the numbers in the South Junior apartment loft idea?" Weber wrote. "I was always told when applying for assistance with any of my projects that the numbers need to make sense and the project needs to be feasible."

Weber, a frequent critic of state efforts to redevelop downtown Niagara Falls, is a partner in the Jefferson Apartments on Rainbow Boulevard and will be a competitor of the Niagara City Lofts.

The Jefferson Apartments also have received a state grant -- $130,000 from USA Niagara Development Corp. -- for a $336,500 project to turn 10 of the building's 94 units into furnished, short-term apartments targeted to corporate visitors.

Area rents and vacancy rates, Weber contends, would make it difficult to make up the $14 million total investment in South Junior.

>Arguments for

That gap between what it costs to rehabilitate a boarded up school building and what revenue it could generate is exactly why Brown and others believe the Restore New York grant is necessary.

"As the financial model demonstrates, the projected cost of rehabilitation construction is not sufficiently paid for by the mortgage amount which the market rental rates can sustain," Brown's application states. "There is a financial gap."

The building's origins as a 1920s school building, Brown said, make it a different type of project than the renovation of the Jefferson Apartments or the conversion of the United Office Building into apartments and a hotel.

Wide hallways and a large amount of common space mean that only about 60 percent of the building will produce income.

"It's a commodious building," Brown said. "It was built to house hundreds of schoolchildren when New York State was the pre-eminent school builder in the world."

The South Junior High building, for example, has 9- to 12-foot corridors. By law, Brown said, apartments only need 3- to 3 1/2 -foot corridors.

Historic tax credits and the state grant, Brown said, make a project possible at South Junior High where other plans for the building have failed.

"Every developer undertaking a major rehabilitation needs to have a public-private partnership, whether it's a long-term lease, a grant, a loan at a low interest rate," Brown said. "There are many tools out there, but no one can fill the financial gap alone."

Katie Krawczyk, a spokeswoman for Empire State Development Corp., the agency that distributes Restore New York funds, said the South Junior project meets all criteria for the program.

The project, she said, includes commercial investment as a mixed-use building; it will return the building to the tax rolls; it is expected to help revitalize an urban center; and it is projected to improve the value of local housing.

In addition, Krawczyk pointed out, the developer has agreed to invest $600,000 and obtain a mortgage for $4.9 million.

"The developer has a major risk at stake," Krawczyk said.

The building, she said, will offer rental rates that are "consistent with current market conditions."

"Old, long vacant, blighted buildings that are going to be restored to federal and state historic preservation standards often cost much more than rental income can support," Krawczyk said. "If we hope to eliminate blight from distressed communities through rehab of key buildings, they do require some subsidy to enable them to get to market rates."

>Albany's call

Paladino disagrees.

"When they subsidize a project like that, they create an unlevel playing field," Paladino said. "So these people will be able to come in and undercut the competition. Who is the competition? It's Shawn. It's us. We have apartment buildings."

Paladino's project also benefited from state assistance. There is no direct state funding in the United Office Building renovation, but the project was done under a public-private partnership with the state's USA Niagara Development Corp.

Paladino's company agreed to purchase the 20-story building -- appraised in 2002 as worth $50,000 or less -- for a nominal fee of $10. The state spent about $1 million to clear the building's title.

"The one thing that's very clear is that, at least right now and in the immediate future, it's going to take some level of government participation to close the gap on projects," Mayor Paul A. Dyster said.

But debating about why the city is receiving state grants, Dyster said, is better than arguing about being rejected.

"Nothing we do here in the City of Niagara Falls is going to change the philosophy of when the state gets involved in economic development projects," Dyster said. "That's a policy that's decided in Albany."

The city's responsibility, Dyster said, is to aggressively seek that state money.

e-mail: djgee@buffnews.com

***

Public help for private ventures

Two recent projects and a proposal to create new lofts in the former South Junior High School show the varying costs of renovating old buildings for market-rate housing

*South Junior High School

Building: three-story former school

First opened: 1923

Project: estimated $14 million to reopen building as work/live lofts and commercial space

Public money: $5 million Restore New York grant

*

*Jefferson Apartments

Building: eight stories, 94 apartments

First opened: 1926

Project: $1 million to upgrade existing apartments, add short-term furnished rentals and cafe, plus $1.1 million purchase price of building

Public money: $130,000 state grant from USA Niagara Development for furnished rentals

*

*United Office Building

Building:20 stories, 24 apartments, 38 hotel suites, office space

First opened: 1929

Project: estimated $9 million to reopen building, add apartments, hotel and office space

Public money: Ellicott Development purchased the building from the city for the negligible price of $10

Photos by News staff photographers Harry Scull Jr. and Charles Lewis

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