Redevelopment project wins tax abatement

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A $43 million apartment and retail project on a prominent but blighted Midtown corner cleared a key hurdle last week with approval of a partial tax abatement for 15 years.

Redevelopment of the southwest corner of Union Avenue and McLean Boulevard would produce a net increase of $1.7 million in city and county property taxes during the term while saving developers about $10.5 million.

But Downtown Memphis Commission officials were quick to point out that the tax saving was a “fictional/moot number” because the project wouldn’t happen without the incentive.

Homegrown Belz Enterprises and Harbour Retail Partners of Marietta, Ga., propose to raze three buildings, including a vacant and deteriorating hotel and office building, and erect 188 apartments, a 513-space parking facility and 41,000 square feet of retail space anchored by an unidentified national gourmet grocery store.

Officials called it a transformative, high-impact project that couldn’t go forward without tax abatement. They said it was big enough to justify granting an incentive outside the core area of Downtown.

If all goes according to plan, construction would begin next June and the project would be completed by October 2017.

Belz president and chief executive Ron Belz said the Center City Revenue Finance Corp. action was a critical step, but didn’t make it a sure thing. Developers must complete negotiations with the anchor tenant, work with the site’s residential neighbors and navigate challenges of removing an underground parking garage to make the site buildable, Belz said.

Harbour Retail’s Jim Cheney has been negotiating to buy the vacant former Artisan Hotel and office building out of bankruptcy. The sale has U.S. Bankruptcy Court approval and is expected to close in December, the developers said. Delinquent city and county taxes totaling more than $1 million would be paid after closing.

Belz owns a shopping strip at Union and Idlewild that houses a minor medical clinic and other facilities operated by Methodist HealthCare.

Developers say construction would create 421 direct and indirect jobs and more than $61 million in economic impact. The project would result in 482 direct and indirect jobs and annual economic impact of $51.8 million postconstruction, they said. Annual combined city and county taxes after development would be $250,173 and rise to $955,576 after 15 years, compared to the current $134,763.

Cheney said developers had to push apartment rents to the high side for Midtown to make the project attractive to bankers. The application projected monthly rents ranging from $964 for a 665-square-foot studio to $1,559 for an 1,130-squarefoot two-bedroom unit.

The approval came against a backdrop of continued discussion about the board’s role in providing tax abatements, known as payments in lieu of taxes, outside Downtown. The board is authorized to approve incentives in an area inside the Parkways (North, South and East Parkway), plus the Mid-South Fairgrounds. But officials said the only two projects approved by the commission outside Downtown in at least 15 years were Sears Crosstown redevelopment and a commercial area of Legends Park at the former Dixie Homes site.

Board policy allows PILOTs outside Downtown for high-impact projects but doesn’t define the term. The board in recent months has discussed defining high-impact as $30 million, with at least 150 residential units and a 200-space parking garage or structure. After approving the Midtown project, the board decided to leave high-impact undefined for now.

In another policy matter, the board ended its practice of granting PILOT recipients a 100 percent abatement of higher city tax assessments resulting from projects. PILOT recipients in the future will pay city taxes on 25 percent of increased values, the same increment that applies to Shelby County taxes.

Commission President Paul Morris said the change will mean higher tax bills while projects are under PILOTs, but “we don’t think it’s large enough to kill projects going forward.”

The change won’t apply to the Belz HRP Partners project in Midtown or others in progress. Morris said it will apply to new projects that haven’t been the subject of an initial meeting with commission staff.