More subsidies for high-end apartments
Industrial development agencies were initially in the business of creating or retaining jobs. Their mission these days includes finding new uses for old buildings.
The Amherst IDA last month approved $1.88 million in tax breaks for a project that does neither.
The planned construction of apartments and retail space at 5877 Main Street in Williamsville will create only two permanent jobs. And the older building that was located on the site — Milos Restaurant — is slated for demolition.
A four-story building will go up in its place. The first floor will include Excuria Salon and Spa and retail space. The other three floors will include 28 apartments.
The apartments will create two new jobs — managers for the apartments — making the cost-per-job north of $940,000. Those jobs will pay $45,000 per year.
All but three of the apartments will rent at market rates. The developer’s application did not state what the apartments would rent for. According to Zillow, one-bedroom apartments in Williamsville rent for between $1,200 to $1,400 per month. Two-bedroom units fetch $1,400 to $1,800.
The other three apartments will be reserved as “workforce housing” for residents earning 80 percent of the area median income.
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The subsidies mark the continuation of IDAs in Western New York using their powerful tax subsidies to help construct market-rate housing, something that critics argue should be controlled by market forces, not subsidized by government agencies.
Russell Weaver, research director for Cornell University’s Industrial Labor Relations Buffalo Co-Lab, said that based on federal figures, monthly rent for the affordable units could be as high as $1,750 per month, higher than other market-rate apartments in Williamsville and far higher than affordable units elsewhere. Fair market rent in the Williamsville ZIP code is $1,200 to $1,400.
That led Weaver to conclude that the apartments shouldn’t be subsidized, he said.
“This development project is one that will generate new streams of wealth … for the owners of Excuria and their developer partner, but it won’t create broad-based community wealth that would make it worthy of receiving public funding,” he said.
He added that the project could even “exacerbate” the area’s housing affordability problem, another reason the project is “certainly not worthy of almost 2 million public dollars.”
“Given that this parcel is situated in a high-traffic, walkable area of a desirable suburban community, it is reasonable to assume that development can and will occur here without handing over valuable public resources,” he said.
“In this particular case, the proposed use of public dollars would be little more than a handout to a budding private landlord operating in an already strong real estate market where new units will presumably command high prices.”
The subsidies also exist in a gray area of IDA policy. In Erie County, subsidies for housing are allowed if a project reuses an old site or building, prevents blight or otherwise keeps an area afloat economically. The Erie County IDA, for example, only subsidizes housing projects that renovate existing buildings or are built for senior citizens.
But other IDAs fit newly-built, market-rate housing into those broad definitions. In September, the Niagara County IDA approved $7.2 million in subsidies for new-build, market-rate apartments on the Niagara River in North Tonawanda, arguing that the site being a former brownfield warranted the assistance. Those apartments were marketed as “luxurious living in elegant surroundings.”
The Williamsville subsidies mark at least the third set of subsidies for market-rate housing the Amherst IDA has granted in recent years, and the second subsidies for new-build market-rate units.
The subsidies also rank as the largest subsidy-per-unit the Amherst IDA has given to a market-rate housing project.
In 2020, the IDA approved $525,000 in tax breaks for Utah developer PEG Companies to convert a hotel to 112 market-rate apartments. That equates to $4,688 per unit.
Then, in 2021, the Amherst IDA gave developer Paul Bliss $1.3 million for a mixed-use project — also on Main Street — that included office and retail space and 67 market-rate apartments. Those subsidies equated to $19,402 per unit.
And now, the salon-plus-apartments mixed-use project at 5877 Main Street has won $1.88 million from the IDA, subsidies that equate to $67,143 per unit.
The subsidies break down like this:
- A payment-in-lieu-of taxes property tax break worth $1,242,108 over seven years.
- A sales tax exemption worth $546,875.
- A mortgage tax exemption worth $93,000.
Amherst IDA Executive Director David Mingoia defended the subsidies and noted that they only apply to the apartments, not to the salon and retail space. Subsidies for retail businesses are generally not allowed under New York law.
“New development fitting the community’s comprehensive plan, architectural wishes and new tax revenues are just some other reasons that a project warrants assistance,” Mingoia said. “I’ve always said there are three reasons incentives are necessary for a project: to get someone to do something they may not want to, to fill a gap for a supported project and to get something done now.”
Mingoia added that the subsidies were needed to prevent “blight” in Williamsville’s bustling Main Street corridor.
“Historically, we’ve…[taken] a prescriptive medicine approach instead of letting the possibility of blight occur,” Mingoia said.
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The Williamsville project originated with Excuria Salon and Spa, which was looking to expand prior to the COVID-19 pandemic.
In 2019, salon owners Margaret and Paul Grenauer purchased Milos restaurant, intending to convert the eatery to a larger salon. The pandemic changed those plans, according to IDA records, and the project transformed into a four-story, mixed-use building.
Rather than renovate the restaurant, the Grenauer’s would demolish it and build the new building in its footprint.
Paul Grenauer, the project lead, did not respond to interview requests.
That makes it the second new-build market-rate apartment project the Amherst IDA has subsidized in recent years. A third new-build housing project was designated as student housing near University at Buffalo’s campus in Amherst.
Subsidies for renovations are more common, and the Amherst IDA has subsidized two projects that converted hotels into apartments. What’s more, the IDA has subsidized five projects in which developers renovated existing affordable housing.
Those types of subsidies, called adaptive reuse, are relatively common and often entail a developer turning an abandoned building into apartments, offices and stores. The Trico building on Washington Street in downtown Buffalo is one such example. Developer Peter Krog is transforming the former plant into office space and 243 apartments. The Erie County IDA is subsidizing the project to the tune of $3.6 million.
The Erie County IDA had three adaptive reuse projects in both 2019 and 2020, five in 2021 and four so far this year. In each of those projects, developers renovated an existing space rather than build new.
Some IDA watchdogs criticize subsidies for housing projects because they create few jobs.
State Sen. Sean Ryan said the lack of jobs is one reason why he opposes subsidies for market-rate housing.
“After the apartments are built you’re not going to have dozens of employees working there,” he told Investigative Post in September. “It’s not economic development policy, really, it’s just a giveaway of taxpayer money.”