City Beat: Hotel Vandivort developers seek tax incentives

An incentives proposal by the developers of a boutique hotel at the former Vandivort office building spawned ideological questions Springfield City Council members will need to answer before the measure is put to a vote Oct. 7.

At issue: Are incentives for redevelopment eroding the tax base? Should a single property be approved for more than one 25-year property tax abatement agreement?

Through MBH LLC, siblings Billy and John McQueary are remodeling the 107-year-old downtown Springfield building, 305 E. Walnut St., into a $13.4 million, 50-room boutique property dubbed Hotel Vandivort. To make the project financially viable, the owners are asking council to approve up to $9.9 million in industrial revenue bonds to support their redevelopment plans.

Represented by Husch Blackwell attorney Shawn Whitney at the Sept. 23 council meeting, the brothers formally asked council members to sign off on 100 percent abatement for 10 years and at least 50 percent property tax abatement for the following 15 years.

Springfield Economic Development Director Mary Lilly Smith introduced the proposal. As part of a tax impact analysis conducted because of the request, Smith said the value of the abatement would be $2.8 million and as much as $3.5 millio n should the building secure Leadership in Energy and Environmental Design-Silver certification when renovations are complete.

The Chapter 100 bond request calls for 75 percent abatement for years 11–25 should a LEED-Silver designation be achieved on the building remodel.

Smith said the move is similar to a Chapter 353 tax abatement, except the property, which was remodeled in the mid-1980s, was not deemed to be suffering from blighted conditions.

Chapter 353 abatement is designed to offer tax relief on redevelopment of blighted properties. Chapter 100 bonds allow for tax abatement on real property and equipment purchases, where the city actually owns the property while the developer pays back the bond debt.

“They will be required to make payments in lieu of taxes based on the taxes that are currently being paid on that property, so there is no loss to the taxing jurisdiction on the taxes being paid,” Smith said. “They are not requesting personal property tax exemptions on furniture or equipment and they are not requesting a sales tax exemption on construction materials. Both of those items are permissible under Chapter 100, but they are not requesting that.”

Kraft Foods most recently received approval for industrial revenue bonds dedicated to equipment upgrades at its east Springfield plant. Last year, Kraft was granted a $26 million abatement on new equipment, and in July, the manufacturer received approval to work with the city on a $70 million tax abatement plan.

During the course of the 25-year Hotel Vandivort abatement, Smith said property taxes would increase when improvements are made.

According to the tax impact analysis, she said nearly $723,000 would be collected through 25 years of property taxes if no redevelopment occurred, while $1.56 million would be collected with the abatement in place, assuming no LEED-Silver status. If redevelopment occurs and the abatement is not in place, property taxes are estimated to be $4.4 million. With a LEED-Silver designation in place, $909,000 would be paid through the total abatement period.

Whitney said the project would create 70 new jobs, not counting construction jobs, with at least 20 of those being full-time positions. The designs feature 12 suites and 27 rooms designed for extended stays.

In addition, Hotel Vandivort would include an 8,700-square-foot addition, three meeting rooms, new elevators and multiple lounge areas. For the McQuearys, of the McQueary Drug Co. family, this project represents their first foray into hotel development. But the property has been redeveloped before.

Councilman Craig Hosmer pointed out the East Walnut property had received 25 years of tax abatement beginning in the mid-‘80s, when the Vandivort was remodeled to attract office tenants.

“It seems like the taxing jurisdictions never get the money out of these projects,” Hosmer said. “We’ve been told after 25 years that the taxing jurisdictions are going to get this windfall out of these projects because they increase the value so much. Yet, every 25 years we can give a new abatement.”

Smith, however, said this is the first instance in Springfield where the same property could receive two rounds of 25-year tax abatement plans.

Councilman Jeff Seifried said downtown could use a signature hotel.

“If downtown hadn’t turned into a dump in the late ‘90s, we wouldn’t have to be doing an abatement like this,” Seifried said.

Hosmer countered that a lack of sufficient police presence in downtown might have led to a decrease in desire to invest in the heart of the city, which he said underscores the need to protect revenue for city services.

Parking code changes
The proliferation of center city student housing in recent years prompted city staff to recommend a reduction of parking requirements for certain projects, according to Springfield Planning and Development Director Ralph Rognstad.

Rognstad said developers of microefficiency apartments – units up to 400 square feet – have asked the city to allow one parking space per unit instead of the current 1.5-space requirement.

“What we are finding is that when you build a housing unit that small, there typically is only one person who lives in it,” Rognstad said at the meeting, adding he’s heard developers say many students are not bringing cars to campus.

In a separate bill introduced by Rognstad, student housing developers are asking those who provide bicycle parking be allowed to reduce off-street parking requirements by 20 percent. Currently, the city allows a 10 percent reduction in off-street parking if additional bicycle parking is provided.

Councilwoman Cindy Rushefsky, who lives in the Rountree neighborhood, said student parking is an issue of concern for many of her neighbors.

“I have a real, vested interest in not seeing the overflow from lack of parking move into the neighborhood,” Rushefsky said. “I understand that with units that small, one parking space seems to be reasonable except that kids are very social creatures, and they tend to visit each other.”

Council is expected to vote on the bills during its Oct. 7 meeting.