Council hears second Woodruff tax abatement request

The Woodruff building developers scrapped their original financing plans, prompting a return to Springfield City Council last night to seek an amended 25-year tax abatement plan.

The Vecino Group now is using traditional financing for the project dubbed Sky Eleven, 331 Park Central East, after a U.S. Housing and Urban Development loan fell through. At last night’s council meeting, Springfield Director of Planning and Development Mary Lilly Smith introduced a new plan on behalf of the development group, which had been approved for Chapter 353 tax abatements in May 2013.

“The developers at that time anticipated being able to take advantage of a very favorable HUD loan guarantee program – a 40-year fixed rate,” Smith said. “They were unable to secure that financing. It’s a very difficult process, and instead went for traditional financing. So, their borrowing costs increased significantly. In order to maintain feasibility, they had to reconfigure their project.”

If approved, the new plan would net an estimated $2.17 million in tax abatements, Smith said. Because of the new business model, however, she said improvements would increase additional taxes associated with the property to $839,000 over 25 years from $396,000 with the old model.

Smith said the increase is because developers now are pursuing a 90-unit apartment complex with a pay-per-bed lease arrangement model. Lease income and upfront expenses both have increased compared to Vecino Group’s initial proposal of 96 market-rate apartments with first-floor commercial space. As an added amenity, they also now are planning a pool, which increases the original planned redevelopment area by six-hundredths of an acre, Smith said. Because the previously secured abatement was tied to the original plan, Smith said the developers needed to request a new abatement for the new plan.

According to the plan introduced last night, amortization went to 25 years from 40 years and the interest rate increased to 4.75 percent from 3.55 percent.

To secure the Chapter 353 abatement, the development group – led by downtown developer Matthew Miller and commercial broker Tim Roth – has to show the project would not move forward “but for” the help of the tax abatement.  

Citing the plan, Smith said Vecino’s return on investment would be 4.84 percent without the abatement. With the tax break, the return is estimated to be 10.26 percent.

“At that point, it makes financial sense for them to invest their money in this project rather than putting their money in some other project,” she said.

Under state statutes, redevelopment in blighted areas can be eligible for up to 25 years of tax abatements on new improvements with property taxes frozen at current levels for the first 10 years and cuts on 50 percent of improvements in years 11-25.

The proposal is expected to receive a second reading and vote at the Feb. 9 Springfield City Council meeting.[[In-content Ad]]