Krog Corp.’s ambitious project to redevelop the former Trico Products Corp. building in downtown Buffalo into a mixed-use facility is now a lot costlier than originally expected, and the firm wants government help to make it happen.
The Orchard Park-based firm, the designated developer for the sprawling complex on the edge of the Buffalo Niagara Medical Campus, has applied to the Erie County Industrial Development Agency for a package of tax breaks in support of the effort, which it now estimates will cost $90.5 million.
That’s nearly twice as much as the earlier estimate of about $50 million, as expected expenses for repairs, remediation and renovation ballooned. ECIDA help would save Krog $3.16 million in sales taxes and $502,500 in mortgage recording taxes. The developer will also apply for property tax breaks through a “payment-in-lieu-of-taxes” or PILOT.
A public hearing on the request will be held Aug. 1, at 9 a.m., at ECIDA’s offices at 95 Perry St. Public comment will be accepted through Aug. 23.
Krog wants to redevelop the 617,000-square-foot complex – actually five buildings constructed between 1890 and 1954 – into a 479,475-square-foot combination of residential, hotel, educational, commercial and retail space.
Current plans call for a 138-room extended-stay hotel, primarily for medical-campus patients and visitors, to be run by Krog’s partner, Buffalo-based Hart Hotels Corp. Additionally, the building would house a new Buffalo Culinary School, as part of an expansion of the city’s Emerson School of Hospitality.
There would also be 130 to 150 loft-style market-rate residential apartments, ranging from 1,200 to 2,000 square feet in size, aimed at medical campus employees and graduate medical students, plus commercial office and some retail space to meet medical campus and neighborhood needs. The developer is marketing the commercial space to an existing local business that is seeking to expand its corporate headquarters, and wants 35,000 square feet closer to the medical campus. The building would also have a parking ramp.
Krog says the project would create about 130 jobs, paying an average annual salary of $53,850, but ranging as high as $85,000. Those include about 100 new teachers for the culinary school and 25 hotel workers, plus building maintenance and management employees. Commercial tenants could also employ up to an additional 500.
But the project is costly because of the condition of the building, which has been vacant and “unattended” since 2005 and “has fallen into significant disrepair,” creating “numerous structural and environmental challenges,” Krog said in its application. Those factors include the falling roof system and “contaminants that must be dealt with in order to bring the building back to life,” especially for school and residential use. The building has a fence around it to prevent pedestrians from getting too close.
“The existing state of the site presents a public safety hazard,” Krog wrote. “Portions of the building have fallen off and dropped to the sidewalk below. The structural integrity of the building will continue to erode if the building is not renovated.”
Also, Krog wrote, the building’s size and design “is not conducive to redevelopment” so crews would conduct partial demolition to create “more manageable floor depths and daylighting opportunities.” And the building’s listing on the National Historic Register means the work must be conducted according to strict guidelines, adding more expense. Finally, the building lacks sufficient parking, especially for commercial tenants, so parking must be created within its confines.
According to the firm’s application to the ECIDA, Krog pegs renovation costs at $71.9 million, plus $7 million for furniture, fixtures and equipment, and $11.5 million for various professional services expenses.
It expects to fund the project with $18.09 million in investor equity, including from Peter Krog personally, plus $50.25 million in bank financing. It also plans to use $22.15 million in federal and state historic tax credits, state brownfield tax credits and a grant from National Grid Plc, as well as to seek a low-interest loan from the Buffalo Building Reuse Program. Krog said it’s been working with Goldman Sachs Group, J.P. Morgan Chase & Co. and Bank of America Corp. as possible investors in the historic tax credits, which may also determine the source of bank loans.
Additionally, according to the application, Krog officials have been talking with Buffalo and ECIDA officials about a special financing program called “PILOT Incremental Financing,” which would take Krog’s reduced property tax payments and plow them back into paying for additional parking or other public improvements to the area. Such programs, permitted under state law, are not common, but city officials have talked of pursuing them more often to support redevelopment initiatives. Alternatively, it may seek a separate city tax break under a standard program.
Without the assistance, Krog says it won’t proceed with the project. But other developers have been unable or unwilling to proceed with renovations, and the deteriorating condition may require emergency cleanup and demolition by the city, at a cost of $5 million to $8 million, Krog added.
“If this project fails, it is unlikely that anyone will ever attempt to redevelop this parcel,” Krog wrote. “The building will be demolished, and a significant piece of Buffalo’s history will ultimately be gone and taxpayers will foot the bill.”
The building at 791-817 Washington St. is currently owned by the Buffalo Brownfields Restoration Corp., an affiliate of the Buffalo Urban Development Corp. nonprofit economic development agency. But it’s been under contract for months to be acquired by Krog for $35,000, pending the long-delayed completion of due diligence. Once Krog takes possession of the two-acre property, it plans to remediate it under the state Brownfields Cleanup Program. It’s already been approved to participate, and also to receive $18 million in federal and state historic tax credits.
If approved, Krog hopes to start work by September, complete the hotel and commercial space by August 2018, and the rest of the project by March 2019.