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Black Rock Freight House developers seek ECIDA tax breaks

Higher construction costs and rising interest rates are prompting developers Karl Frizlen and Jason Yots to seek tax breaks for their Black Rock Freight House conversion project, as the increased expenses threaten the effort's feasibility.

Frizlen and Yots, through their Buffalo Freight House LLC, are pursuing an adaptive reuse of the 29,640-square-foot former New York Central Railroad freight house building. The duo are working with BRD Construction, whose principals Mike and Dennis Masters are also part-owners of the project.

Constructed in 1906, the long, slender building sits on 1.68 acres at 68 Tonawanda St., just north of Niagara Street. Plans for what is now a $10.25 million project call for slicing the one-story building into 35 loft-style apartments, with a mezzanine floor for some of the units on the north end to create an upper level with an extra bedroom.

The building, which will total about 42,115 square feet of mixed-use space upon completion, also will have about 3,043 square feet of retail space, as well as 65 parking spaces behind and to the side. And its location near SUNY Buffalo State, the Niagara Street transit corridor, the Black Rock Commercial District and the multi-use Scajaquada trailway could "spur additional investment in the surrounding area," according to an application by the developers to the Erie County Industrial Development Agency.

The project was approved by the city more than 18 months ago, and Frizlen Group and Yots' Common Bond Real Estate bought the building from Atlas Steel, which had used it for fabrication. The building has been underused for 57 years and is currently vacant, and crews are getting ready for the brownfield remediation, which will help qualify the project for state tax credits. The developers hope to finish the work by December.

With its vaulted ceilings and original features, it's also eligible for listing on the National Register of Historic Places. So the developers are working with the State Historic Preservation Office and National Park Service on the preservation project, which they hope will qualify it for state and federal tax credits.

But the increase in costs "have threatened the financial viability of the project," the developers noted in their ECIDA application, in which they are seeking $344,500 in sales and mortgage recording tax breaks. The sales tax exemption would be "particularly important," they say, because of the rise in construction costs. They noted that the masonry "has deteriorated significantly" and bids for repairing the stonework "have come in higher than anticipated."

Frizlen wins approval for Tonawanda Street conversion

Additionally, they argue, the costs of the brownfield cleanup – estimated at $500,000 for petroleum and other contaminants – and "detailed masonry reconstruction caused by prior uses and conditions make this site more difficult to redevelop than the average redevelopment project."

Total renovation costs alone for the $10.25 million project are now $7.27 million, not counting $2.23 million in professional services and other "soft" costs and the original $750,000 acquisition price. Financing includes $69,691 in equity and a $6 million loan from Evans Bank, plus $3.49 million in tax credits, for a total of $9.55 million. Officials also applied for a $1 million Better Buffalo Fund loan.

Also, the developers are deliberately trying to make the project affordable for those earning less than the area median income, and even just over 80 percent of the median. So the current projected residential rents are below market-rate levels, which are already below the rates for comparable projects in other cities.

Without the ECIDA's help, the developers say, they "will be forced to increase rents," but "it is unclear that the market could support such higher rents, causing the project to be unable to obtain the financing required."

According to data cited by the developers, a two-bedroom apartment in Buffalo priced at $1,346 per month would be affordable to a tenant earning 80 percent of the area median. The development team plans to charge $1,393, including garbage pickup, water and internet. That's just above that price point but "comfortably affordable" for those earning 100 percent of the median, the developers said in their ECIDA application.

The developers also are negotiating potential leases with "several prospective commercial tenants," including a recording studio, a food processing company and other "small-scale" businesses. But no agreements have been signed yet, they cautioned.

Meanwhile, the building – which was long used mostly for storage – is now vacant. And since the developers already bought the building, they could wind up obligated to proceed with the environmental cleanup "without any practical and viable use for the space," resulting in a potential loss of the $1.3 million they have already invested "with no practical hope for recovery."

"The building will continue to be largely vacant and a blighting influence on the surrounding area," they wrote. "Erie County will be adversely impacted as the opportunity for small businesses to develop in a transit-oriented area on the city's West Side will be further constrained."

A public hearing on the ECIDA application will be held at 9:30 a.m. Monday at 95 Perry St.

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