Drip, drip, drip.
That's the sound of residential development in Harrisburg
in the absence of efforts to level the early playing field on property taxes.
Harrisburg's core real estate investors have been very selective during the
last five years about which properties they buy and how much money they need to
invest to realize a return.
Most have managed to buy low on vacant and older office
buildings in the downtown, then renovate those spaces into residential rental
units to meet market demand among young professionals and others seeking an
urban lifestyle.
“We're providing a new product in an older building.
We're serving a market that has been underserved with a more upscale product,”
said J. Alex Hartzler, managing partner and founder of WCI Partners LP.
WCI, which has about 100 multifamily units in its city
portfolio, has seen strong rental demand in the Olde Uptown neighborhood in
Midtown Harrisburg. That has encouraged the company to invest more in downtown
recently, with residential projects on State, Locust and Walnut streets.
The city developer also has a proposed 33-unit apartment
project at the former Ronald Brown charter school on North Third Street in
Midtown.
Like its peers, WCI is “comfortable” adding a project or
two and a few dozen market-rate rental units each year. That's not much in the
near term, but it becomes substantial over the long run, Hartzler said.
“The city needs density in order to be thriving,” he
added. “Having residents live downtown and walking to things is critical.”
Passing a new 10-year tax abatement ordinance — which is
in the works — likely would turn a slow drip of redevelopment into a
free-flowing spigot of projects, including deals involving outside parties who
have wanted to invest in the capital city, said Brad Jones, president and CEO
of Harristown Enterprises Inc.
Harristown, which owns the mixed-use Strawberry Square
complex downtown, is among that core group of long-term investors in the city.
It, too, has a residential conversion project in the works that would turn more
than 25,000 square feet of office space along North Third and Market streets
into 22 apartments.
“Some of these deals are happening because some of the
buildings were offices that were not as desirable or maybe they were vacant for
a while,” Jones said. “Repurposing an asset to residential is a calculation.”
Many are opting to make cost-conscious investments to
generate positive cash flow, he said. In some cases, including Vartan Group
Inc.'s recent conversion of the Briggs House at 17 N. Front St., residential
use is getting a building back on city tax rolls.
The Briggs House was last used by the County
Commissioners Association of Pennsylvania.
“I don't think anyone is making big windfalls on returns
on these projects,” Jones said. “It's slow and steady progress which is being
driven by demand factors on the residential side and some vacancy factors on
the office side.”
Tax abatement would entice developers to “kick the tires
and take on other projects,” as opposed to one or two per year, he said. That
could mean some ground-up projects, which are rare in Harrisburg, where there
is limited land available.
Suburban developers would likely follow the abatement,
which is what city investors want most.
“We need more competitors coming in who are now
interested in the city,” Hartzler said. “That's what we need, more developers
entering the market.”
Residential growth could generate greater synergy for
retail and other nonresidential development, Jones said: “Each project is
synergistic for the next one.”
Tax abatement ordinance in limbo
Last month, Harrisburg City Council passed a full 10-year
tax abatement on residential improvements. That ordinance also provides for tax
breaks for improvements and new construction for commercial projects for a
decade. The size of the latter depends on job creation.
The city’s previous abatement sanctioned under the
state’s Local Economic Revitalization Tax Assistance Act program, known as
LERTA, was set for 10 years.
That program expired at the end of 2010. That incarnation
gave owners who added value to any property within the city 10 years to phase
in their higher tax rates at increments of 10 percent each year.
Tax abatements are popular incentives used to encourage
economic development and boost the local tax base, while expediting redevelopment
of abandoned and blighted properties.
The ordinance passed by council still requires action by
Dauphin County and the city school district.
No immediate action has been scheduled. School board
President Jennifer Smallwood said August may be the earliest that the district
revisits the issue.
Source: Central
Penn Business Journal
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