Tax credits spurring development

BREATH OF LIFE: The former Island Machine Co. mill, built in 1874, will be turned into exhibition, work and living space for local artists. / PBN PHOTO/RUPERT WHITELEY
BREATH OF LIFE: The former Island Machine Co. mill, built in 1874, will be turned into exhibition, work and living space for local artists. / PBN PHOTO/RUPERT WHITELEY

NeighborWorks Blackstone River Valley found itself on the receiving end of an unexpected gift in December.
The nonprofit development agency, based in Woonsocket, received approval for a little more than $1 million in state historic-preservation tax credits, after another project in line ahead of it had fallen through. It squeaked onto a list authorized by the R.I. Division of Taxation, becoming the 25th project approved since lawmakers released additional funds for historic-preservation projects in 2013.
The flurry of activity seen in the past 18 months may not continue. The historic-tax-credits program did not receive new funds in 2014, despite a request from former Gov. Lincoln D. Chafee. And a newly seated legislature and Gov. Gina M. Raimondo face immediate budget pressures.
It wasn’t clear last week whether new funds will be made available in 2015. Neither Raimondo nor House Speaker Nicholas Mattiello could be immediately reached to comment. Mattiello spokesman Larry Berman said no bills have been filed on the issue in the House.
The tax credits will allow NeighborWorks to seek private financing, making the renovation of a 19th-century mill economically feasible, according to Joseph Garlick, executive director. The former Island Machine Co. mill, built in 1874, will be turned into exhibition, work and living space for local artists.
“The tax credit is a large part of the financing plan,” Garlick said. Without it, the mill purchased by the organization 18 months ago likely would have remained vacant.
After being suspended in 2008 during a fiscal crisis, the tax-credit program was replenished in 2013 when lawmakers approved $34.5 million for a new round of credits. The funds, when paired with money that remained from the initial years of appropriations, created a pool of $42.5 million for historical preservation, according to Sanderson.
To date, $28.2 million of the available funds has been committed to projects, according to the R.I. Division of Taxation list.
The reopening of the program pipeline created a backup among interested developers, and the state used a lottery system to create a list. The Rhode Island Historical Preservation and Heritage Commission reviewed development plans and approved 16 projects in the last year alone, according to Ted Sanderson, commission executive director. The Rhode Island program offers credits worth 20 percent of the cost of rehabilitating an historic building, with another 5 percent if the project includes commercial space. The application is almost identical to a federal tax-credit program, and many of the developments qualify for both. The credits can be sold to brokers or other third parties, to lessen their tax liability.
The list is heavily focused on former mills. Six of them in the last year were approved for redevelopment, including the former Island Machine Company site. In addition, former office buildings, a historic YWCA building in Providence and a former livery stable made the list.
Five additional projects are under review this year by the state’s architects, Sanderson said. They include plans to preserve the Hope Mill in Scituate, the Pontiac Mills in Warwick, Rosella Mill in West Warwick, Potter Hill Mill in Westerly and the Irons and Russell building, on Chestnut Street in Providence, Sanderson said.
Initial proposals would convert the Hope Mill and Potter Hill Mill to apartments. Pontiac Mills and Rosella Mill would be refurbished as business and commercial space, with the 1920s-era Rosella, a former felt mill, potentially converted to medical office space, according to Sanderson and Virginia Hesse, the principal historical architect for the state’s Historical Preservation and Heritage Commission.
The Irons and Russell Building, approved by the preservation commission for an office-space conversion, may be redesigned for apartments, Hesse said. The property owner, Hecht Development, could not be reached for comment last week.
While state officials will decide the future of the program, the projects in line for tax credits continue to be vetted. Other projects, approved in 2013 and 2014, are moving toward the construction phase or are now being renovated.
Apartment units have figured heavily in the recent approvals. The Arnold Building, a 120-foot-wide by 12-foot-deep building on Washington Street in downtown Providence, received authorization for $150,000 in tax credits in February. It will be reconfigured to accommodate four ‘linear’ apartments on the upper floors, with retail space on the ground level, potentially a coffee shop, Hesse said.
Demand for downtown apartments is keen, particularly among younger adults and empty-nesters, which is now shaping some of the more recent development proposals. “Almost all of our residential properties have filled up immediately,” Hesse reported.
Sanderson and other advocates for historical preservation argue the economic return is real.
The projects not only employ contractors and their workers, but often create new spaces for businesses, or apartments that return funds through rents to the local economy. People living and working in a location spend money, as well.
“When one of these projects occurs, it doesn’t just save a historic property, it puts hundreds of people to work,” Sanderson said. “It’s not a fly-by-night fix for the economy. It’s something that’s enduring.”
Because historic-preservation projects often are complex, ideally the state would create a multiyear allocation that would allow the applicants to prepare adequately, Sanderson said. Knowing a tax credit will be available, two to three years out, would encourage better planning in development of projects, he argued.
Cornish Associates, which has preserved eight historic properties in Providence, is now rehabilitating the Kinsley Building on Westminster Street. The project qualified for $2.5 million in historic-preservation tax credits.
The five-story brick and terra cotta building, constructed in 1912, originally hosted street-level retail with office space in the upper floors. Under the approved plan, the renovated building will reopen with ground-level retail but the upper four floors will be converted to apartments. Historical details, including a vaulted ceiling over the entrance lobby, will be uncovered and retained.
The Kinsley Building will be the eighth historic project for the company in Providence, according to Arthur “Buff” Chace Jr., the company’s managing general partner.
When completed, the Kinsley apartments will be marketed for “workforce” housing – smaller, affordable units for people who want to live downtown. Rents would vary by unit size and features, but range from $900 to $1,200 a month, he said.
In other buildings redeveloped by Cornish, apartments have attracted a diversity of tenants, including retired professors and people who work in the suburbs but want to live downtown. The housing is part of an economic plan for downtown to create a space where people want to live and work. “We think that young people being able to live downtown is a priority,” Chace said. “Part of retaining the talented young people is having an urban environment that is attractive to them.” Tax credits for historic developments, he said, help bridge the gap between the cost to renovate a vacant, historic property, and the value that can be reclaimed through business or apartment rentals. The state historic credits, he said, form one leg of what he calls a three-legged stool that supports the preservation of historic buildings. Federal tax credits and tax-stabilization agreements, which typically spread out the additional tax for improvements, are the other pieces, he said.
The credits are considered an expense in state budgeting, but there is a discrepancy in that the state can’t then “credit” its books with the revenue produced when an unused building becomes productive again, he noted.
Property taxes go to the local municipality, for example. “You have to book the expense. But they can’t allocate any revenue. We all know the revenue exists.”
In Woonsocket, Garlick had not expected to receive any tax credits through the 2013 allotment. The project came in just under the cutoff established by the state when it created its list, he explained.
“It was a great call,” let me tell you, he said.
The tax credits, valued at $1,062,500, will cover about 20 percent of the preservation project, estimated to cost $5 million. The credits allow projects to move forward because they make the cost of rehabbing historic properties feasible, by reducing the portion that has to be financed and repaid through tenant rents. The cost to preserve an historic, industrial space is often prohibitive, developers say.
“It’s construction capital; it’s adding real, necessary capital to the project,” said Christian Caldarone, deputy director of NeighborWorks Blackstone River Valley, who is overseeing the Island Machine Co. project.
Once the work is completed, under the plan approved by the state, artists will have combined live-work space on the upper two floors of the old mill, which was built originally to serve as a carriage repair and blacksmith shop, and later served as a machine shop for other mills in Woonsocket.
When completed, the first floor of the stone mill will be connected to the artists’ work as well, providing exhibition and retail space. NeighborWorks hopes to begin construction by the end of the year. •

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