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Graystone shows merits of a flawed IDA policy

Sometimes, something good can come out of something flawed.

That's what happened last week when the Erie County Industrial Development Agency once again tapped into its controversial "adaptive reuse" policy to grant nearly $213,000 in sales and mortgage tax breaks to developer Carl P. Paladino for his $5.3 million project to turn the crumbling Graystone Building in Buffalo into 42 apartments.

In most cases, alarm bells would be ringing over tax breaks for a market-rate housing project. In most cases, it would be yet another instance of IDAs overstepping their bounds to grant tax breaks to a growing list of questionable projects -- from dollar stores and doughnut shops to medical offices and restaurants -- that do nothing to create new wealth in the Buffalo Niagara region.

But the Graystone isn't an ordinary project.

The six-story Graystone Building also is more than a century old, dating back to the mid-1890s. It's one of the first multi-story buildings in the country that was constructed using reinforced concrete technology. That helped the building land a spot on the National Register of Historic Places in 1987, which further complicates efforts to rehabilitate the Graystone.

And there's a lot of rehab work to do. The six-story building needs a total makeover after sitting vacant for more than 20 years. It's been empty for so long it once had 20-foot trees growing through its collapsed roof.

"It's in deplorable shape," says William Paladino, the chief executive officer of Ellicott Development Co., which has owned the Graystone for a decade.

It's a blight on the neighborhood, about a block north of Chippewa Street, and neighbors have long been complaining about the building's deterioration, says Buffalo Mayor Byron Brown.

But because of its historic nature, any rehab work has to meet more stringent historic standards -- and that makes the project a lot more expensive to do.

Just replacing the windows alone will cost an extra $250,000 to meet the higher standards required by the Graystone's historic designation, Paladino says.

Most of the building's interior walls are load-bearing, which makes it harder to alter the Graystone's floor plan. As a result, the Graystone's new apartments will have a different look than most modern-day units, with smaller rooms and unique hallways, says John Cappellino, the IDA's executive vice president.

Brown hopes the new apartments, despite their old-fashioned layout, will lure more young people to the city and help revive important neighborhoods close to downtown.

It's also an important example of how the often-abused adaptive reuse policy -- aimed at breathing new life into vacant buildings -- can give struggling neighborhoods a shot in the arm by giving IDAs a little more flexibility over the types of projects it can assist.

"There absolutely has to be wiggle room," Brown says. "There are legacy buildings in downtown Buffalo that are very difficult to develop. Without these benefits, these projects probably would not be developed."

And that's the key difference between the Graystone project and a new doughnut shop in Clarence.

The new apartments could be ready as early as November if Ellicott's revamp plans -- and its all-important request for $1.2 million in historic tax credits -- get approved by state officials within a couple of months, Paladino says.

Without those tax credits, though, the project will stop dead in its tracks. And it could be a very long time before another developer steps forward to revitalize the building.

"It's not a project that's going to make a return in a short amount of time," Paladino says.

County Executive Mark Poloncarz says the Paladino project could be the Graystone Building's last chance. It would be almost impossible for any developer to rehab the building required by its historic designation without the state historic tax credits. Yet if the IDA didn't back the project and the state fails to deliver the tax credits, it's unlikely that another developer will step forward to make another try.

That would leave the Graystone facing two unappealing options: To continue to sit vacant, or face demolition -- itself a difficult task because of its historic designation.

"At the end of the day, the last thing I want to see is the building sit there for another 20 years," Poloncarz says.

The county executive nonetheless voted against the IDA tax breaks because of a squabble over Ellicott's refusal to immediately commit to Erie County Legislator Betty Jean Grant's insistence that two to four of the apartments be set aside for low-income residents.

That's a case of not seeing the forest for the trees.

"It's an example of what adaptive reuse should be," says John J. LaFalce, the IDA's chairman. "If this was taking place in the Town of Clarence, it might be totally different."