Redevelopment of Former County Building Seeks City Assistance
A building that was once home to the Kenton County jail and county government offices is closer to redevelopment - but only if the Covington city commission agrees to incentive requests as will be presented by city staff on Tuesday.
The report from staff suggests myriad financial and long-term complications for the proposal.
303 Court Street, which has been vacant since the county moved to the old Bavarian Brewery building which it purchased and renovated, is expected to include 133 market-rate apartments and approximately 6,000 square feet of restaurant and retail space.
The county is planning to sell the building for $10 as part of its own incentive offering (it is valued at $1.85 million) to make way for the $31.4 million project from Al Neyer and Urban Sites.
The 10-story, 148,000-sq. ft. building will have two more floors of apartments added to its top, according to plans to be presented to the Covington city commission on Tuesday night during which potential incentives will be discussed.
The developer currently faces a more than $8.5 million financing gap.
That could be mostly made up over the 20-year history of a payment-in-lieu-of-taxes (PILOT) option offered through the issuance of industrial revenue bonds (IRB). If approved, the move would act as a 20-year property tax abatement in which only 20 percent of the property tax value would be paid, saving approximately $415,000, or $8.3 million over the life of the agreement.
Additionally, the developer originally requested $2 million from the city's tax increment financing (TIF) district fund, but only $500,000 of their request was found to be applicable, including $240,000 for site utilities, $110,000 for sidewalks, and $150,000 for streetscape improvements.
According to the documents to be presented to the commission on Tuesday, the IRB request meets the city's requirement except for not gradually increasing over the term, and assignability of the IRB component.
The city documents suggest that the project's numbers would not work with a gradual increase in the PILOT program, and that assignability (in which the developer sells the property down the road) is only permitted through express written consent after sale terms are disclosed.
Meanwhile, the TIF funds are also complicated, the documents show.
City staff expressed concern that the Court Street project would not generate the revenue necessary to replenish the TIF funds, an issue that could complicate the need for such funds when the IRS site is redeveloped or when other projects come forward. In fact, the documents suggest that the TIF funds could be at capacity, though there is currently room to assist the Court Street project.
The Covington Economic Development Authority (CEDA), which has already given its blessing to the project for consideration at the city commission, discussed those concerns at its meeting, and determined that with Planning & Development Services of Kenton County moving to the new Kenton County government building on Simon Kenton Way, the annual payroll tax increase of more than $70,000 collected by the city would provide closer to the necessary return in the investment.
City staff determined that overall, with the project and PDS's move considered, the city would see a 17% cash-on-cash return on investment.
A third-party appraisal of the property, ordered by the City of Covington, determined that public assistance would be necessary for the project, primarily because of the complicated nature of the construction. The building will have to be stripped to its concrete core, and the old jail infrastructure remains inside, too, and will have to be removed.
But even with the approval of the city incentives, the project is still projected to be $2.1 million short of the full $31.4 million needed currently. The county is also offering 164 parking spaces in its parking garage across the street at no cost for ten years with an option to extend.
The city documents to be presented Tuesday indicate that the developers plan to make up the remainder of the budget shortfall through equity investment, diminishing their own potential return, with the hopes of making that up when the property is later sold with the IRB agreement in tact.
The documents note that office space would be preferred because it leads to payroll tax revenue, and such space is currently limited in Covington. Development of a commercially zoned tower as a residential space would strip that opportunity. However, the city is hopeful that the second phase of Duveneck Square, a mixed-use development at Pike and Washington streets will add office space to the city's offerings.
If the project moves forward, it is expected to have 35 studio apartments, 59 one-bedroom units, and 39 two-bedroom units with rents ranging from $1,111 to $1,714 per month.
The city commission meets Tuesday at 6 p.m.
-Michael Monks, editor & publisher