A proposed PILOT for The Gramercy would stipulate an annual fee of $78,000, about twice as much as the properties currently generate in taxes but about $100,000 less than what the completed project might pay.
City Council introduced an ordinance for the 20-year PILOT during a meeting last month after developer R2-N2 Urban Renewal Properties, LLC, requested a 30-year PILOT. A public hearing and final approval on the ordinance will be held at the governing body’s meeting tonight.
The five parcels on East Cherry Street that will become The Gramercy project currently are assessed for about $714,400, which normally would generate property taxes of about $45,000. Some of those parcels, however, are owned by the Redevelopment Agency and Parking Authority, making them exempt from taxes. The lots that do pay taxes generate about $23,000.
The $78,000 PILOT works out to about $1,813 per unit. The annual PILOT will increase by 1.5 percent each year, according to the application, which eventually will bring payments to more than $120,000 by Year 30 and just over $100,000 by Year 20. Over the course of 30 years, PILOT payments would total $2.928 million, and over 20 years, they would total $1.8 million. PILOT payments are generally split between the city (95 percent) and county (5 percent).
By my estimate, the $10-million development likely would yield property taxes of almost $179,000 once completed. Even if that estimate never changed (which isn’t usually the case with property taxes), over 30 years, that would total $5.37 million, or almost twice as much as the PILOT payments. Over 20 years, static taxes would total $3.58 million, or about $652,000 more — if they remained the same during that time period. Assuming an average 2 percent tax increase each year, after 20 years, that total would be $4.35 million, or $2.5 million more than accumulated PILOT payments (See the math here.)
To be clear, these estimates are mine alone, based on comparable buildings that I’ve chosen. The PILOT application includes data about what the properties currently are assessed for and how much they pay in property taxes. An important part of any public discussion, however, also should include some perspective on what any new development would normally generate in property taxes. I’ve previously examined new developments and their potential tax bills and while not exactly on the mark, it certainly was in the ballpark.
To come up with an estimate of what The Gramercy eventually might be assessed for, I averaged the per-unit assessments of three other buildings: Meridia Water’s Edge, Meridia Grand, and River Place. None have retail space like The Gramercy and River Place recently was renovated so comparables don’t usually match up exactly, which is why I averaged the three, at $65,851 per unit. Using that per-unit average, 43 units would create an assessment of $2.831 million. You can check my math here.
The PILOT application, obtained last week through an Open Public Records Request (OPRA), breaks down the costs, timeline and other details of the $10.4-million project. The 26-page application, including designs of the five-story project, can be found here. The redevelopment agreement has been approved in principal but has not yet been finalized.
The application was filed by R2-N2 Urban Renewal Properties, LLC, which has Planning Board approval for a five-story, 43-unit rental development to encompass 38-52 E. Cherry St. R2-N2 is a partnership between Richard Radici of DMR Construction and Nicholas Netta of Netta Architects, according to the application.
The 43-unit project is expected to have monthly rents of $1,000 for studios (6), $1,500 for one-bedroom units (20), and $1,900 for two-bedrooms (17), generating annual rental revenue of about $819,600 and net operating income of $552,383. The estimates take into account a 4 percent vacancy rate.
The timeline for completion of the project is June 2018, with the foundation getting installed in July after demolition of the existing buildings.
The estimated cost of the project is $10.436 million and includes $2.5 million in owners’ equity and $7.5 million in financing. About $8 million is budgeted for hard costs of construction. About $1 million is budgeted for land acquisition, including $450,000 for 34-38 E. Cherry St.; $250,000 for the barber shop building; $206,000 for the Police Assistance Center, and $140,000 for the Parking Authority parcel.
Executive Director Leonard Bier said the developer is contributing to road improvements and the cost for the extension of Monroe Street from Main to East Cherry streets.
The project will have 61,055 gross square feet and 35,728 in rentable square feet. The ground floor will include about 1,175 square feet of retail and 19 parking spaces.