The developer of a proposed multifamily housing project on Third and Pierce Streets is pushing to secure a Government Property Lease Excise Tax agreement, or GPLET, just two weeks after the state made major changes to the controversial incentive.
GPLET is an agreement that allows the city to take over the rights to a piece of land and lease it back to a developer at a reduced rate of property tax than would traditionally be assessed.
Chicago-based CA Ventures, the development group behind the project, is awaiting formal council consideration and approval of its GPLET application by the city on April 19.
If it does receive approval, the project will not be subject to the recently passed standards because developers submitted their request prior to the beginning of this year, said Christine Mackay, the Director of Community and Economic Development for the city.
A final bid for old measures amid new reforms
A grandfathering provision will allow CA Ventures to secure former GPLET standards if approved. At the formal council meeting next week, Mackay said city staff will recommend the development receive a 20-year GPLET agreement.
The project is slated for development in three phases, with a tower built in each phase said Mackay.
The staff will recommend the first phase, or tower, receive an eight-year tax abatement, followed by a 12-year excise tax. A eight-year tax abatement will also be recommended for the other two phases, or towers, Mackay said.
At the end of the eight-year tax abatement period, the property will be taxed at a traditionally assessed rate.
Development projects that apply for GPLET at the beginning of this year onward, however, will face tighter standards to receive the tax incentive as well as changes to some of its terms.
Under the reform bill, HB 2213, any development project applying from beginning of this year on will see the following changes, according to Mackay:
1. Projects located in both a redevelopment area and the central business district will only be eligible to receive a maximum eight-year tax abatement, during which no excise taxes are paid.
2. Projects located in a redevelopment area will be eligible to receive a maximum 25-year excise tax level at 80 percent excise tax for the first 10 years, and full excise tax rate for the remaining length of time.
3. A requirement to pay the K-12 school districts taxes, even during the eight-year abatement period.
4. A requirement that excise tax levels are assessed by the city and subject to change based upon fluctuation of the producer price index (PPI), a calculation for the national average change in prices paid by producers.
The overlap of a redevelopment area and central business district constitutes 1.6 square miles of land in downtown Phoenix according to Mackay.
These changes scale back earlier, more lax GPLET terms, potentially impacting the incentives use as a key economic development tool by the city. Mackay said the incentive has been fundamental for getting developers to take on riskier and more costly redevelopment projects in the urban core.
Despite the latest reforms, she maintains the incentive is still a productive measure to encourage redevelopment.
“Through really good discussions, I think we (state legislators and the city of Phoenix) came up with a tool that is still really useful to get redevelopment done,” Mackay said.
According to Mackay, because tenants foot the real estate tax, insurance and maintenance of a building, any savings a developer secures through GPLET are passed down to tenants.
On track for approval
An approval of a GPLET for the CA Ventures project, located on the northeast corner of Third and Pierce Streets, will put the building in the company of a handful of surrounding, GPLET-approved apartment structures.
Neighboring apartment complexes Skyline Lofts and Roosevelt Point both have a GPLET agreement for eight and 25 years, respectively.
An integral part of that approval process requires developers to hold open discussions at the community level.
According to Dorina Bustamante, President of the Evans Churchill Community Association, CA Ventures has been working with the group for about a year to create a plan that offers community benefits that will justify it receiving a GPLET agreement.
“We are very excited about the much needed density and residential use. Also, the community benefits — we see that as a huge community benefit in exchange for GPLET,” Bustamante said.
Specifically, the project will fall in line with the Roosevelt Row arts district strategic plan. The developer has agreed to offer half of its ground floor retail space to artists, incubators, pop-ups and nonprofit organizations at no cost for the first two years, according to Mackay.
The developer is also working with the Downtown Voices Coalition through the development process. It recently received letters of support from both community groups for approval of its GPLET application and current design plans.
Chair of Downtown Voices Coalition, Tim Eigo, said the group reserves its right to rescind approval if the project does not reflect what has been presented so far. The community group, which sees GPLET as a useful tool for development, has rejected its use for projects in the past Eigo said.
He said the developer has stated it will be near impossible to complete the proposed project if it does not receive approval.
A more stringent future for GPLET
“Historically, it probably was a little too easy to get a GPLET in the past,” Eigo said.
Although the city and both community groups express approval of the CA Ventures project and its application for a GPLET, critics of the tax incentive say it is unfairly awarded to only a few, large developers.
According to Eigo, a project needs to go “above and beyond” just meeting code to gain approval from community groups. The Downtown Voices Coalition recently created a GPLET subcommittee to better understand the tax incentive and its use.
Another stipulation of GPLET approval is that the developer expresses financial infeasibility to complete the project if it does not receive the tax incentive. If an applicant fails to do this, awarding the tax incentive will be seen as a gift by the city to a corporation, which is banned by the state’s Constitution said Eigo.
Eigo said it is standard procedure for developers to say a project is contingent upon receiving the tax incentive, but whether this is accurate is hard to judge.
“Currently, it (GPLET) is the only incentive for infill development. It has become a priority for many community leaders to understand and to know when and when not to support a project. It really takes a lot of time and various commitment to ongoing engagement,” Bustamante said.
A project pending approval
Ryan Sadowy, the senior project manager at CA Ventures assigned to the project, said in its current form, the project would be very problematic to complete without a GPLET.
In a Downtown Voices Coalition meeting earlier this year, Sadowy presented the most current design plan for the project. The three-tower project will feature a 29-story tower, and two smaller towers standing 25 and 19-stories high, according to mockups of the plan.
CA Ventures has previously developed student housing in Tempe. This apartment will be its first residential project in the downtown Phoenix area, Sadowy said.
According to Sadowy, the architecture of the project will feature an abundance of glass windows in order to take advantage of views of the downtown area.
However, the fruition of these proposals depends upon the financial support the city decides to award the project next Wednesday.
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Clarification: April 15, 2017
An earlier version of this article stated that DVC has never refused a GPLET to date. It has been changed to state that the DVC has rejected GPLET approval for specific projects before, though it approves the tax incentive as a whole.