Developer sees opportunity at old Bethlehem icehouse
BETHLEHEM – An old icehouse has languished for decades in south Bethlehem as a forgotten relic of the once burgeoning cold storage industry in the 19th century.
Relegated by Lehigh University most recently for storage, the five-story bricked warehouse at the corner of Adams and Fourth streets now commands the attention of investors hoping to capitalize on a new federal tax break that has Wall Street buzzing.
A capital gains tax incentive, created in the 2017 Tax Cuts and Jobs Act, is helping to finance the $9.5 million project underway to turn the Romanesque Revival building into the next cool place to live. Set to open in June, Brinker Lofts will include 30 market-rate apartments and a first-floor cafe that spills out into a courtyard in an economically fragile neighborhood.
In the same place that once produced 40 tons of ice daily, apartments being leased for $995-$1,625 a month are taking shape. During a hard hat tore Friday evening, developers pointed out how the exposed brick walls will accent the living space equipped with modern amenities.
Charles C. Jefferson, whose Jefferson-Werner LLC company is developing the project, said Brinker Lofts was a challenging one because of the relatively small number of units in a building that has been used historically for industrial purposes.
What made the difference, he said, was the “cheap capital” obtained through the new Qualified Opportunity Zone tax incentive. The tax incentive aims to attract long-term, private investment in economically distressed neighborhoods as measured by U.S. poverty levels.
Under the new program, individuals can defer and reduce their federal tax bill by reinvesting their capital gains from the sale of an asset, for example stock, into an Opportunity Fund. The fund then invests in projects located in designated neighborhoods. Meanwhile, the federal taxes on the appreciation of that investment are forgiven if it’s held for a decade.
But perhaps, just as bewitching as the tax benefits for the investor is the potential to transform some of America’s poorer neighborhoods. U.S. Treasury Secretary Steven T. Mnuchin predicted in October that the zones could funnel $100 billion in private capital into those communities.
Pennsylvania identified 300 census tracts, including eight in Northampton County and five in Lehigh County, to be included in the opportunity zone.
Because it’s a private investment with no requirements to disclose localities, state officials say they have no estimates on how widely opportunity zones are being used unless the developer discloses it. The Internal Revenue Service has no data on it yet, just recently releasing rules on its implementation.
Those studying the new tax benefit, however, say Brinker Lofts is among the inaugural class of projects.
“The project in south Bethlehem is absolutely one of the first, and among the first substantial ones anywhere in the country,” said Evan Weiss, deputy director at the Pennsylvania Economy League’s central division.
Brinker Lots is financed by PNC Opportunity Zone Investment, traditional financing with PNC’s Community Development Banking and the use of historic tax credits, according to PNC’s web site.
Brinker Lofts, which has been in the works since before the opportunity zones became law, made the decision to pursue the incentive even before formal regulations were finalized.
Alicia Miller Karner, Bethlehem’s director of the community and economic development department, said the project is in a “fragile” South Side neighborhood that has attracted investment in recent years but has the potential for more.
“When we came up with a list of recommended areas for the incentive, we looked at it in a couple of different ways — not just the low-income population areas but areas that could absorb the development,” she said.
Brinker Lofts is near the edge of campus where Lehigh is looking to expand as it aims to add another 1,800 students over seven years. Plans are underway for new dorm and academic buildings. And private investors have recently opened Gateway at Greenway Park office and commercial building and Five10Flats projects that were aided, in part, by state tax incentives.
Jefferson has high hopes for
Who is Brinker Lofts named after?
the federal incentive, saying it factors into another project he has undertaken: replacing the shuttered Boyd Theatre on Bethlehem’s Broad Street with a $22 million apartment and commercial project.
While local officials say they do not know of any other projects that have committed to using the opportunity zone incentive, they say there is much potential.
Allentown officials say they hope to layer the incentive on other powerhouse tax incentives like the Neighborhood Improvement Zone, which has transformed downtown Allentown.
Brinker Lofts building was erected in 1893 by the Lehigh Valley Cold Storage Co., headed by President Adam Brinker, a Civil War veteran and businessman.
The building remained a cold storage facility until the 1950s, when Lehigh University took it over for storage and service space. Lehigh is relocating the items stored there to its Mountaintop campus.
nicole.mertz@mcall.com Twitter @McallBethlehem 610-778-2253