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Talks between Jemal and Buffalo could lead to deal that funds cars returning to Main Street

Talks between Jemal and Buffalo could lead to deal that funds cars returning to Main Street

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One Seneca Tower-Douglas-Jemal

Douglas Jemal stands outside One Seneca tower in August 2016. (Harry Scull Jr./News file photo)

Douglas Jemal, the owner of Seneca One tower, wants to put his tax dollars to work – in the area around downtown's tallest building.

Jemal's Douglas Development Corp. is working with the City of Buffalo and the Erie County Industrial Development Agency on a unique and special financing arrangement that could ultimately provide as much as $20 million for Cars Sharing Main Street and other public infrastructure projects.

The proposal – negotiated directly by Buffalo Mayor Byron W. Brown and Jemal but which is still under discussion – would exempt Jemal from paying tax on a new mortgage loan, but not on the value of the property itself.

That means he would still pay full real estate taxes on Buffalo's tallest building, with no break.

More details of the plan are expected to be announced as part of Brown's State of the City address Feb. 20. But the plan would allow the city to take what Jemal does pay and funnel it directly into infrastructure improvements for the area around the tower – including to fund the program to return cars to Main Street.

That could be critical for the effort to restore car traffic alongside the Metro Rail trains on Main Street in the Central Business District. The initiative is facing a major potential financing shortfall after the city failed last fall to win another big federal grant for the project.

“We’re giving money, not taking money,” Jemal said. “I gave up everything to give the city taxes to Buffalo.”

The exact amount of funding that could be available hasn't been determined, and depends on a range of factors, and city officials did not want to cite any specific numbers. But had Jemal pursued traditional property tax breaks – such as the city's 485-a program, which offers more lucrative subsidies over a longer period of time than the ECIDA – he estimated that he could have saved as much as $20 million over the life of the incentive.

That would have been an enormous benefit as he presses ahead with his $120 million effort to redevelop the 38-story tower, the city's tallest building.

Indeed, he still left open the possibility of seeking that tax break if the other plan falls through or the ECIDA rejects his request.

"Without the agency's financial assistance, the huge costs associated with the project render it prohibitively expensive," Jemal's team wrote in their application to the ECIDA, in which they are still seeking $337,500 in mortgage recording relief on $45 million in mortgages from M&T Bank Corp. and Bank on Buffalo.

That tax break is small in the grand scheme of the project. But it's critical to facilitate Jemal's ability "to contribute to the Cars on Main Street initiative, as well as other vital infrastructure work, which will service Buffalo's Main Street Corridor," the application said.

Jemal and city officials explained that they are working on assembling a possible new infrastructure fund supported by what's known as PILOT Incremental Financing, or a PIF.

Normally, in those types of agreements, a developer's reduced property tax payments are used to pay for targeted public improvements. In this case – as with previous projects at 500 Seneca and the Conventus Building on the Buffalo Niagara Medical Campus – there's no reduction in taxes, but the money is still targeted for specific infrastructure needs.

The ECIDA application referenced the discussions around creating a PIF District, but did not provide any details. ECIDA spokeswoman Robbie Ann McPherson said the agency wasn't involved in those talks yet, and only the mortgage tax exemption would be coming to the agency's board in the near future.

But the mortgage tax application is the first step in setting up a mechanism to create the bigger fund, using the authority of the ECIDA, said Brendan Mehaffy, executive director of the city's Office of Strategic Planning.

Details of such a fund – including its size, how it would be used, and the boundaries of the geographic target area – are still in flux, Mehaffy said. Cars Sharing Main Street would be eligible for money, but "so would other infrastructure improvements," he added. And other developers or landlords may either be able to contribute tax dollars to the fund or create separate similar funds.

"It’s open at this point in time. The big thing right now is to be able to create a fund and then roll up our sleeves and figure out exactly what we could spend it on," Mehaffy said. "This is not being done to limit what we can do in and around that area and throughout the city of Buffalo. ... We're just laying the foundation so that we are able to do it."

But Jemal's application cautions that denial of the request could cost Erie County "an opportunity to see millions of dollars invested into its largest urban area, in addition to its most prominent man-made landmark."

Last year, Brown announced in his State of the City address that Jemal had pledged to inject as much as $10 million into the Cars Sharing Main Street effort, to help finance the next phase of work on the portion of the road that includes Seneca One. That commitment – which the proposed new fund would formalize – stemmed from a direct request by the mayor.

“Douglas Jemal and I have formed a real bond and extremely strong relationship over the years that I have known him,” Brown said. “He is providing an extraordinary gift to downtown Buffalo and the people of this city.”

At the time, the city was also counting on securing a $25 million federal transportation grant, following its prior success with earlier grant applications.

It didn't get it, but Mehaffy said the city is "not giving up on the grant for one minute."

"We will continue to pursue that grant and every other funding source out there to complete not only Cars Sharing Main Street but every other infrastructure project," Mehaffy said. "We will make sure to leverage our tax dollars with other money that is available to lessen the impact."

Jemal, the Washington, D.C.-based developer who burst onto the Western New York scene with his $12.6 million purchase of the vacant tower, is in the midst of a radical remake of the 1.2-million-square-foot complex. The project entails creation of a mixed-use development, with residential, retail and restaurant space alongside a technology-focused office building built around a new tech hub for M&T Bank.

His initial efforts centered around the plaza level, the base of the tower and the two four-story annex buildings. He has created 115 new apartments in the annexes and lower tower, created a new driveway entrance and added other features to soften the building's appearance. He constructed two retail structures on the plaza, and erected two new stone clubhouse buildings in front as future gathering spaces.

Now he is preparing to welcome M&T's tech hub into the building as its anchor tenant, occupying the two base levels of the complex as well as 11 floors of the tower for the bank's new technology hub. Occupancy will start next month, and more than 1,500 M&T workers are expected to eventually take up the space, giving new life to a building that just a few years ago had faced an uncertain future.

Jemal is not seeking subsidies for the work he has already completed, such as the apartments and the space that M&T is occupying. Rather, he is turning his attention to the rest of the building, which remains empty.

Citing the expectation that 43North will relocate to the tower with its incubator companies and about 100 employees, the application notes that Jemal "intends to utilize the momentum of the M&T lease in concert with this project to attract additional tenants to the IT hub and, ultimately, bring additional new residential space and life to Buffalo's downtown."

According to the application, the new mortgage will support the "massive redevelopment" of the rest of the building into Class A office space. It also includes refinancing an existing $35 million loan.

The work will cover improvements to the lobby, mechanical spaces, a cafeteria and basement spaces, as well as enhancements to the building's interior, the application said. That includes $15.2 million for elevator work, fire protection work, internet and technology improvements, plumbing and stormwater and sanitary sewer systems.

The project – which would begin next month and last through year-end 2024 – also includes $4 million in furniture, fixtures and other equipment. But it does not include tenant-specific needs.

The Buffalo News: Good Morning, Buffalo

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