Friday, October 12, 2012

Philly's Real estate tax abatement policy in play

by Natalie Kostelni

Developers fear a proposal to alter the 10-year real estate tax abatement has the potential to derail strides made in the Philadelphia residential market during the last decade and dampen future construction activity.
These developers contend the abatement has been one of the most successful economic development policies the city has instituted and any changes to it now, especially as the housing market begins to show signs of recovering, is misguided.
A bill introduced by Philadelphia Councilman W. Wilson Goode Jr. would dramatically change the 10-year tax abatement. Goode is proposing reducing it to five years, and other changes include cutting the amount of the abatement over the course of those five years. A 100 percent abatement would be taken in the first year and then reduced by 20 percent each of the remaining four years. The changes would apply to the construction of new residential developments beginning with any abatement sought on or after Jan. 1, 2014. Goode’s proposal would not affect the 10-year abatement on the conversion of existing buildings into apartments, for example.
Several developers interviewed for this story believe that without the abatement, the city would not have experienced the revitalization currently under way as well as the population growth that effectively stemmed a decades long slide in the number of people living in Philadelphia. They also agree any changes to the policy would have deleterious effects on future development.
“We would absolutely not be doing the level of development that we are doing today,” said Jonathan Stavin, executive vice president at PMC Property Group.
The abatement, which was adopted in 2000, gives developers constructing new residential and commercial projects a 10-year break on real estate taxes. Once the abatement burns off, the taxes begin to be assessed at a property’s full value.
Take 2121 Market St. as an example of how the taxes eventually go up along with the amount of revenue the city can take in. PMC Property paid $71,000 in taxes in 2011, the last year it qualified for the abatement. In 2012, the tax bill on 2121 Market was $517,000 and next year will be $536,000.
Since the abatement was put in place PMC Property Group has spent $750 million completing 20 projects that created more than 5,000 market-rate apartment units. The Philadelphia company has 1,000 rental units in three developments under way.
A developer “absolutely needs” the full 10 years to get the benefit and offset the upfront costs associated with new construction, Stavin said. Any reduction would make a project unfeasible and would discourage development in the city. Developers such as PMC Property would tend to focus their work in other markets that offer better incentives.
“I think, in general, people who think of doing this have very short memories of what the city was like before 1997,” said Carl Dranoff of Dranoff Properties, which constructed Symphony House as well as 777 S. Broad and has been involved in other residential projects.

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