The Riverhead Industrial Development Agency voted unanimously yesterday to approve a 30-year agreement with Georgica Green Ventures granting the developer of the proposed downtown apartment building a property tax abatement under a state law that aims to promote affordable rental housing.
The total value of the abatement over 30 years will be $2,352,750, IDA counsel Richard Ehlers said. The property owner will pay $6,093,433 in total PILOTs (payments in lieu of taxes) and special district taxes over that period of time, he said.
Under state tax law, the assessed value of all commercial property is determined using the capitalized operating income method — the actual net income that remains after all operating expenses are deducted from gross income, but before mortgage debt service and book depreciation are deducted.
“Market value of a property doesn’t enter into it,” Ehlers said. “So you can have a property selling for $1 million with an assessed value of $100,000 if its capitalized income is low due to vacancies, for example.”
Under section 581-a of the New York State Real Property Tax Law, the assessed value of a qualified residential rental property must exclude federal, state or municipal income tax credits, subsidized mortgage financing, or project grants provided to offset the development cost and lower rents. This drives down the net operating income of a commercial property — and hence its assessed value for taxation purposes, Ehlers said.
The 581-a assessed value of Georgica Green’s Riverview Lofts development was determined by the IDA to be $1,063,129, based on an opinion letter obtained by the applicant from the law firm of Schroeder and Strong, Ehlers said.
To qualify for 581-a tax treatment, a development must restrict occupancy of at least 20 percent of the units to tenants who qualify under an income test.
Georgica Green Ventures plans to develop 116 rental apartments on East Main Street and McDermott Avenue. The apartments will all be subject to income limits established by the U.S. Housing and Urban Development agency. Eighty-seven apartments will be for households earning a maximum of 60 percent of HUD’s adjusted median income for Suffolk County — currently, a single person earning up to $46,500 or a family earning up to $66,500 per year. (In 2017, the AMI for a family in Suffolk is $110,800.) Thirteen units will be for households at 80 percent of AMI and 15 will be for households at 130 percent of AMI.
Georgica Green’s site consists of two separate tax parcels. One, at 201 E. Main St., is developed with a long-vacant retail storefront. The other, 31 McDermott Avenue, is developed with a building occupied by multiple commercial and residential uses. The owners of the two tax parcels currently pay $29,634 per year in combined school, town and county taxes, according to data provided by the IDA.
The developer will enter a PILOT — or a “payment in lieu of taxes” — agreement with the Riverhead IDA setting forth its payment obligations to cover school district, fire district, town and county property taxes through 2051. There is no abatement in the upcoming tax year and the tax bills for the 2018-2019 and 2019-2020 tax years will be based on the parcels’ current total assessed value of $174,400.
In year one of the PILOT agreement (2020-2021), the property owner will pay school, fire district, town and county taxes of $58,000. The PILOT amounts increase incrementally each year through year 15, the 2034-2035 tax year, when the tax bill will reach $76,530. The PILOT will double in year 16 (2035-2036 tax year) and then increase incrementally each year through year 30 (2050-2051) when the final PILOT is $324,197. The total PILOTs to be made during the life of the agreement is $5,053,318.
The PILOTs do not include special district taxes: Riverhead Ambulance District, Riverhead Water District, Riverhead Sewer District, Riverhead Business Improvement District, Riverhead Parking District, and Riverhead Street Lighting District. These special district taxes are not abated.
Under the terms of the PILOT agreement, the developer is also provided a sales and compensating use tax exemption not to exceed $1,293,118, on eligible goods and services valued up to $14,992,673.
The total project cost is estimated at $57,072,763.
Riverview Lofts was granted final site plan approval from the town board last week and a special permit from the town board last month.
The plan has drawn vocal opposition from some residents and business owners, who complained that the town failed to give the proposal adequate scrutiny under the State Environmental Quality Review Act and that the impacts of the project on an already overburdened parking district would be detrimental to downtown businesses. Other complaints centered on the size and scale of the building, which critics say is out of place with the character of the Main Street historic district. Other critics said the development would add children to the school district without paying sufficient school property taxes to support the services the new students would require.
Some town officials have promoted rental apartments as the key to downtown district’s revitalization. Others point to the dire need for affordable workforce housing.
The Georgica Green plan represents “a prudent opportunity for the town to invest in workforce housing and downtown revitalization, while leveraging substantial federal state and county funds,” IDA board member Lori Pipczynski said yesterday. It’s consistent with the vision of the town board, she said, “and the benefits and advantages of the model are endorsed by nearly every planning and economic organization in the region,” she said.
“This project removes an albatross that’s been vacant for all but four of the last 20 years or so and will serve to meet the housing needs of qualified tenants of a mix of ages and incomes,” Pipczynski said.
Ian Lyons, executive director of Clinical Care Solutions at 30 W. Main St., sought to address the board before it voted on a resolution authorizing the PILOT agreement but he was rebuffed by IDA board chairman Thomas Cruso.
Cruso told Lyons he would not allow public comment. “This is the IDA deliberating on a proposal,” Cruso said. A hearing on the application was already held, he said. “You were here at a public hearing and spoke a good 15 minutes and I thought you were done with what you needed to say.”
Editor’s note: Katie Blasl contributed reporting.