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Report: Tax breaks for redevelopment spurred $659 million in projects

Giving tax breaks to encourage adaptive-reuse development projects that include apartments and hotels has been controversial among government critics and taxpayer advocates, but a new report by the county's economic development agency claims it's paying off.

The report by the Erie County Industrial Development Agency, conducted by Redevelopment Resources and issued Thursday, found that the agency's policy has encouraged more than 53 redevelopment projects in and around Buffalo since it went into effect in 2008.

Those projects, totaling $659 million in value, include Bethune Lofts, Sinclair, Foundry Lofts, 500 Seneca and Phoenix Brewery Apartments.

Specifically, the report found the incentives led to:

  • 4 million square feet of vacant space converted to new use
  • 1,141 new apartments
  • 338 new hotel rooms
  • A tripling of assessed value of the properties, from $60.8 million to over $200 million, which generates $4.7 million in added property tax revenues, mostly for the City of Buffalo

Critics have long derided the use of tax breaks and other government incentives to encourage development, calling the benefits taxpayer giveaways to business and asserting that they're not necessary for many projects. They've called for reforms to economic development agencies like the ECIDA and changes to their rules to ensure more transparency and accountability, or even eliminate certain programs.

The new ECIDA report is intended to blunt criticism by highlighting what the local policy has accomplished. By supporting redevelopment, the agency claims, it aims to help eliminate urban blight, encourage infill development, return obsolete buildings to new uses and meet the goals of the region's vision for development, the Framework for Regional Growth.

"Developers who undertake these projects have a vision and passion for this type of redevelopment, as well as a significant amount of creativity," the report said. "As lofty as these aims appear to be, every adaptive-reuse developer is acutely aware of the fact that the economics of the deal must also make sense."

The Bethune Lofts on Main Street. (Robert Kirkham/Buffalo News file photo)

Erie County Executive Mark Poloncarz, however, said the continued use of the tax breaks needs to be reviewed.

“We expected the report to note the successes of the adaptive-reuse policy,” Poloncarz said. “However, we need to review the policy now that most of the building stock is being reused in key areas, as well as what is an appropriate project for the ECIDA to support when rents for residential real estate adaptive-reuse projects are greater than $1,500 per unit and we reduce the number of affordable housing units downtown.”

In all, the ECIDA approved almost $27 million in reduced or eliminated property, sales and mortgage-recording taxes for 29 different developers, sometimes stretching over 10 years.

The report drew calls to expand the adaptive-reuse policy from a wide range of voices, including the Buffalo Niagara Partnership.

“The transformational results of this program can be seen on nearly every block in downtown Buffalo,” said Dottie Gallagher-Cohen, president and CEO of the Buffalo Niagara Partnership and an ECIDA board member.

Assemblyman Sean Ryan, D-Buffalo, a frequent critic of tax breaks and overdevelopment, also supported its expansion.

“Adaptive reuse should be the first option to be considered for any project,” Ryan said. “Far too often, developers go into a project relying on demolition, when adaptive reuse would work best to preserve the character and fabric of a community.”

The ECIDA developed its policy in response to a flat real estate market and the long-term economic decline in the region, which had resulted in a large supply of existing but "functionally obsolete and blighted properties." That, in turn, created concerns that these deteriorating buildings contributed to the rise of slums, crime, pollution and falling property values.

The agency's adaptive-reuse policy provides incentives to encourage redevelopment and reuse of structures that are at least 20 years old and have been vacant or underused for at least three years. They must generate much less in rental income than their potential.

The developers must also show the projects would not get done without help because of the extra costs inherent in renovating older buildings.

According to the report, the properties targeted by developers in the program included abandoned warehouses, factories, office buildings and even car dealerships, in 13 ZIP codes, mostly in downtown Buffalo. Of the 53 projects, 34 included new apartments, while 1.56 million square feet of leasable commercial or office space was also created.

The most active developers were Carl and William Paladino's Ellicott Development Co. and Rocco Termini's Signature Development Buffalo, with seven projects each. Overall, 19 developers did only one project, while 34 of the projects were completed by repeat participants. Private-sector investment on each project ranged from $400,000 to $90 million.

The Hotel Lafayette. (Derek Gee/Buffalo News file photo)

The agency said its adaptive-reuse program does not focus on job creation, but the incentives produced 900 direct jobs – including 365 that were specifically "induced" by the benefits. That's $30,000 in tax incentives per job, or about equal to their average annual salary of $33,333.

The report cautioned against making "adjustments or changes" to the program without considering both challenges and opportunities in the market, and potential risks facing developers in the future.

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