Sep 15
2022
Big subsidies for luxury apartments
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State and local governments eagerly offering tax subsidies to a luxury, waterfront apartment project sounds like something out of a developer’s fantasy.
But that’s exactly what’s happening in North Tonawanda.
The Niagara County Industrial Development Agency on Wednesday unanimously approved — without debate — a $7.2 million subsidy package for a developer building 110 apartments along the Niagara River marketed as “luxurious living in elegant surroundings.”
The project is a third phase of developer VisoneCo’s aims for the section of River Road just north of Tonawanda Island. The first, which is finished, features apartments, townhomes and commercial space. The second, which is under construction, will feature apartments, commercial space and a restaurant.
The tax subsidies for the third-phase apartments on the back of the 624 River Road property break down like this:
- A 15-year payment-in-lieu-of-taxes agreement valued at $6,267,420.
- A one-year sales tax exemption valued at $814,835.
- A mortgage tax exemption valued at $145,955.
Without the PILOT deal, VisoneCo would have paid $9.6 million in city, county and school taxes over 15 years. With the PILOT deal, VisoneCo will pay $3.4 million in property taxes.
VisoneCo’s 624 River Road project is set to receive state brownfield tax credits, too, because the apartments will be built on a former industrial site. It’s not clear what the value of those credits will be, but VisoneCo’s project next door at 600 River Road has received $2.8 million in credits, according to state data.
The state brownfield tax credit program allows developers to claim three different credits. The first allows developers to recoup up to 50 percent of cleanup costs. The second allows developers to recoup up to 50 percent of ongoing groundwater monitoring costs.
The third allows developers to receive a percentage of the improvements they make to a site. That can total up to three times the cost of cleanup or $35 million, whichever figure is lower. In the event VisoneCo is eligible for more tax credits than the cleanup cost, the state cuts a check and the developer can pocket the difference.
Tom Celik, VisoneCo’s chief operating officer, said the company expects to spend $2 million on site remediation. The company told the Niagara County IDA it expects to make $19.3 million worth of improvements to the site.
VisoneCo appears eligible to recoup at least 10 percent of the cost of the improvements it makes — in addition to recouping cleanup and monitoring costs — meaning the developer could be eligible for up to $2.9 million in brownfield tax credits.
Investigative Post asked VisoneCo how much it expected to receive in brownfield tax credits but Celik wouldn’t say.
“It’s a hard number to put a finger on,” he said.
A state Department of Environmental Conservation spokesperson, too, declined to provide an estimate.
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Together, that means the public is financing the project to the tune of $10.2 million. The developer said the project will employ six people full-time and six people part-time. Using a full-time equivalent calculation, that comes out to $1.1 million per job. The jobs will pay between $35,000 and $70,000 per year.
VisoneCo said in August that the apartments will rent for at least $1,750 per month. Apartments at the neighboring complex VisoneCo recently completed rent for $2,000 per month or more.
The IDA, the developer and the North Tonawanda Mayor Austin Tylec all defended the project, saying the subsidies exist to be given out and that developers like Visone wouldn’t build projects like 624 River Road without incentives.
“People just aren’t going to build here unless they have incentives to help them to do that,” Niagara County IDA Chairman Mark Onesi said Wednesday. “It’s expensive to do business here so we help as many people as we can.”
But others question that logic.
“At the end of the day, if it’s market-rate housing, it should stand on its own,” said Jason Knight, an associate professor of geography and planning at SUNY Buffalo State.
The subsidies also raise a bigger question: Should industrial development agencies be incentivizing market-rate housing at all?
“When we start subsidizing really expensive housing,” Knight added, “I have some serious concerns about that.”
State Sen. Sean Ryan agreed.
“After the apartments are built you’re not going to have dozens of employees working there,” he said. “It’s not economic development policy, really, it’s just a giveaway of taxpayer money.”
The Erie County IDA, by comparison, does not subsidize newly built market-rate housing.
Luxurious amenities
The River Road sites VisoneCo has begun developing are prime real estate. Boat ramps and docks — for both the public and residents — offer direct access to the Niagara River, and Raymond Klimek Veterans Park is just steps away.
But CEO Lucian Visone and others from his firm argued that building apartments on that prime real estate has proven to be more expensive than they anticipated. The land was host to the Niagara River Iron and Steel Corp. from 1872 to 1972, meaning the ground was contaminated with metals and other byproducts of iron-making.
After sitting empty for 45 years, Visone began the process of remediating the site and building apartments on it.
First came the townhomes, apartments, tennis courts and pool at 600 River Road, which Visone received $2.8 million from the state to remediate. That involved packing in fill dirt and asphalt to keep the toxic elements in place. The Niagara County IDA, in addition, approved $4 million in property, sales and mortgage recording abatements for that project.
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Visone is now attempting to do similar cleanup on the neighboring site, 624 River Road, and told the Niagara County IDA in August that he discovered tunnels and other issues on the property, meaning more fill dirt and asphalt would be needed for remediation.
That led him to ask the IDA for a 15-year payment-in-lieu-of-taxes deal, rather than the 10-year deal he’d initially applied for. He told the IDA that his remediation costs had increased.
“We truly don’t know how we’re going to handle it. We have no way of knowing what’s under that building,” Visone told the IDA in August. “I’m eating up money very fast.”
For both 600 and 624 River Road, Visone told the IDA he couldn’t complete the project without their assistance.
Celik said the total cost of the project would be around $24 million, including $2 million to remediate the brownfield. In an interview, he defended the company asking for an IDA subsidy and argued the project was growing the local tax base, not taking away from it.
“We’re singlehandedly growing the tax base … that’s forever,” Celik said. “[There are] people at 600 River Road who would have never lived there, never would have gone to the local businesses. That is the point, to move people there, to help create jobs.”
Tylec defended the project, too, and said Visone’s projects have increased density, grown the tax base and helped to clean up a contaminated site. He said even if a project like that comes with tax breaks, it’s a net positive.
“You have to balance it out. You don’t want to give away everything but you want good things to happen,” Tylec said. “I’m not of the mind to give things away for free but you also have to work with developers.”
Subsidies “beyond the pale”
The neighboring Erie County Industrial Development Agency does not provide tax breaks for market-rate housing.
“The Erie County IDA’s current practice is we do not incentivize new-build market-rate housing projects,” Erie County IDA Executive Director and CEO John Cappellino said in an email. “Historically, the agency has never incentivized market-rate housing.”
Ryan said the argument that subsidies for market-rate housing spur economic growth was “specious.”
“It really doesn’t create economic development because economic development is the trade sector, bringing money in from outside the community,” he said. “Building housing doesn’t do that.”
Erie County does subsidize some housing, Cappellino said, but only under its “adaptive reuse” program — in which a developer includes housing as an element of a broader rehabilitation project — and under a policy designed to support housing for senior citizens.
Most recently, the Erie County IDA awarded Cedarland Development $592,000 in tax breaks to renovate a historic East Side building into affordable housing, affordable daycare and an urban farm. The agency has done similar projects in the recent past, including a $400,000 award in 2020 to a firm that said it would preserve 138 affordable housing units.
Knight, of Buffalo State, said IDAs subsidizing affordable housing “makes sense to some extent” but argued that subsidizing market-rate housing does not. He pointed out that the residents of the new apartments will require the same services — fire protection, schools, roads — as everyone else, but will essentially pay less than everyone else.
“There’s definitely some harm. The IDAs [are] handing out subsidies that strip out money from education budgets,” he said.
That happens with all subsidies, he noted, but “it’s seriously problematic when we start doing that on the housing side.”
“That’s beyond the pale for me.”
