SYRACUSE, N.Y. – Out-of-state developers spent millions of dollars buying Syracuse buildings just to tear them down, because there was money to be made putting up apartments for wealthy college kids. Hundreds of students have flocked to the new apartment buildings. They pay up to three time the average local rent. Amenities include wood-style flooring,
SYRACUSE, N.Y. – Out-of-state developers spent millions of dollars buying Syracuse buildings just to tear them down, because there was money to be made putting up apartments for wealthy college kids.
Hundreds of students have flocked to the new apartment buildings. They pay up to three time the average local rent. Amenities include wood-style flooring, 50-inch TVs and on-site fitness centers.
It’s a booming business. And it gets a lot of help.
Luxury student housing in Syracuse is heavily subsidized by city taxpayers. The developers get some of the biggest tax breaks in town.
The three most recent apartment complexes, which opened last fall – Theory Syracuse, The Marshall, and The 505 on Walnut — will save more than $42 million combined over the next 12 years in avoided property taxes and other incentives.
In the city of Syracuse, where money is always tight, the forgiven property taxes would be enough to hire 20 cops or teachers. That’s not counting taxes the projects avoid paying to Onondaga County and New York state.
Most of the developers’ savings will come from a standard tax exemption anyone can take if they renovate a commercial building to include apartments. But none of the three projects was a renovation. Syracuse assessors bent over backwards to let developers claim the lucrative exemption despite doubts about whether the projects qualified.
On top of that, the city’s industrial development agency gave exemptions from sales and mortgage taxes, although there was no evidence the developers would walk away without the help.
High-end student apartments create relatively few permanent jobs. But some student housing gets more tax relief than major manufacturers.
Theory Syracuse, for example, promised 15 jobs, records show. It will save an estimated $20 million in tax breaks over 12 years. That’s more than medical manufacturer Hill-Rom Holdings got when it promised to create 100 jobs at its Welch Allyn facility in Skaneateles. Hill-Rom got about $15.4 million in state grants, tax credits and local property tax breaks.
Syracuse officials say the city will benefit from the student housing in the long run, after property tax breaks expire on the new multimillion-dollar buildings. In the meantime, they say, new construction makes the city more vibrant and encourages investment.
But vibrancy in one neighborhood may come at the expense of others. Neighborhood groups in the Euclid Avenue area east of SU have sent up flares of worry that a glut of student housing could lead to vacant houses on their streets.
And although tax exemptions don’t require the city to pay out cash, they give breaks to big national companies while other taxpayers, including competing landlords, pay full fare.
Syracuse landlord Ben Tupper, who owns 59 rental properties in the neighborhood along Euclid Avenue, said each year about 10 of his apartment houses get reassessed higher. His houses on Sumner Avenue, for example, got assessment increases of roughly 20 percent this year, records show.
“My taxes are going up,’’ Tupper said. “And faceless, nameless entities from Georgia, or whatever state they’re from, show up and they’re getting millions of dollars in tax breaks. That, to me, just stinks.’’
$1,500 studio apartments
The gold rush in high-end student housing started about five years ago and reached a peak last fall, when three of the largest complexes opened.
The Marshall, at 727 S. Crouse Ave., is an eight-story building on the site of the former Campus Plaza. The 287 tenants pay $1,200 to $1,800 a month per bed.
Several chain restaurants are expected to fill the ground floor, including Blaze Pizza, I Heart Mac & Cheese, The Halal Guys and Kung Fu Tea, co-owner Jared Hutter said.
Hutter’s company, Aptitude Development, of New Jersey, bought the Campus Plaza property for $4.6 million, far above the assessed value. The previous owner bought it for $1.8 million a decade earlier. The site was assessed at $910,000 before the student apartments were built.
Before razing the existing structure, Aptitude hired lawyers to evict the final tenant, a popular college bar called Hungry Chuck’s. The bar owner put up a fight in court.
The Marshall will save about $9 million in property taxes over the next 12 years, paying an estimated $2.2 million during that time.
The project also received $1.8 million in exemptions from sales and mortgage recording taxes. On top of all that, New York state threw in an $800,000 grant.
Theory Syracuse, a sprawling 601-bed complex at 919 E. Genesee St., also opened last fall. Apartments start at $1,500 a month for a 450-square-foot studio.
The Georgia developer, Peak Campus, spent $12.8 million to acquire several parcels on the block, including Liberty Deli and two office buildings, all of which were razed.
The development will save about $17.9 million in property taxes over 12 years, paying an estimated $5.2 million during that time.
The project also received $2.1 million in sales and mortgage tax abatements.
The 505 on Walnut, a 363-bed student building, was built on the site of a former medical office building at East Genesee Street and Walnut Avenue. Rents range from $1,300 for a studio to $4,400 or more for a four-bedroom, according to its website.
The owners will save about $9.5 million in property taxes over 12 years, paying about $2.6 million during that time.
The project also received $1.7 million in sales and mortgage tax abatements.
Stretching the law
The biggest subsidies for these high-end apartments come from a property tax exemption intended to revitalize urban buildings. But the developers didn’t revitalize buildings, they demolished them and built new ones.
To qualify for the so-called 485-a exemption (named for a section of state law), a developer must “convert” an existing commercial property to a mix of commercial and residential use. Syracuse success stories like the State Tower Building and the Pike Block are prime examples.
“Urban centers of New York can be revitalized with the creative reuse of office, warehouse, manufacturing, and retail buildings for residential and commercial mixed uses,’’ state lawmakers wrote in justifying the tax break.
But as syracuse.com reported last year, the 485-a exemption is haphazardly enforced and easily exploited. One developer even claimed that three vending machines in the lobby of his apartment building qualified as a “commercial’’ enterprise. After city assessors cracked down following the report, the developer leased space to a beauty salon.
3 vending machines saved a builder $3 million in property taxes; a NY law exploited
A tax break that is credited with reviving downtown Syracuse is also prone to gimmicks and confusion.
Theory Syracuse, The 505 and The Marshall all were built on sites that were cleared by demolishing older buildings. Yet each project claimed a 485-a exemption for the “conversion’’ of an existing commercial property to mixed use.
There are other exemptions available for new construction, or a developer could request a payment in lieu of taxes from the industrial development agency. But neither option is as lucrative as the 485-a. It exempts 100 percent of improvements from taxation for eight years, then reduces the exemption 20 percent annually for the next four years.
Syracuse assessor David Clifford said he was told, but did not verify, that the three apartment projects planned to retain portions of existing foundations or other interior elements from the demolished buildings, so they could claim they “converted’’ them.
“That’s really abusing’’ the intent of the law, Clifford said.
Nevertheless, he allowed it. City lawyers thought the legislation was too vague to support a denial, he said.
“What is a conversion?’’ Clifford said. “Unfortunately, the law was so loosely written.’’
Who’s in charge?
Assessors are free to interpret 485-a as they see fit. Rochester assessor Michael Zazzara said he has denied 485-a exemptions to several developers who wanted to tear down buildings and construct new ones.
“They’ve asked about it, but we said no,’’ Zazzara said. None sued the city, he said.
Buffalo assessor Martin Kennedy, on the other hand, told the Buffalo News last year that 485-a exemptions can be used even for new construction on vacant land.
The state tax department has declined to provide guidance, leaving the interpretation to each local assessor.
Syracuse officials say they are asking the state for permission to enforce 485-a more strictly. They asked state legislators this year to tighten up the law.
“We propose that the exemption be amended to explicitly spell out that the conversion applies to existing structures, not taking most of a building down and then constructing new,’’ city officials wrote.
Syracuse city councilors expressed concerns about 485-a exemptions last year, after syracuse.com reported how some projects strayed from the law’s intent. But the council has not taken any action since then.
In Rochester, city lawmakers put their own stamp on the exemption. They added local restrictions to the law.
Before 485-a can be used in a municipality, the local government must adopt it. When the Rochester city council adopted 485-a in 2003, they added restrictions unique to their city. They limited the exemption to the central part of the city, for example, and required qualifying projects to devote at least 25 percent of the renovated building to residential use.
Rochester’s law appears to fly in the face of guidance from the state tax department. In a 2003 legal opinion, state tax officials said municipalities did not have authority to amend the rules of the 485-a exemption. A tax department spokesman did not respond to requests for comment.
Student housing developers have made due with tax deals less generous than 485-a.
In Binghamton, which had not adopted the 485-a exemption, the Broome County Industrial Development Agency awarded PILOTs to two Binghamton student apartment developments that are now managed by Peak Campus, the Atlanta company that also developed Theory Syracuse.
Under the 10-year PILOT deals, the Binghamton properties make payments totaling roughly half of what they would otherwise pay on improvements to the property. By contrast, 485-a developments pay nothing on improvements for the equivalent of 10 years.
Do they really need the subsidy?
The average monthly rent in the Syracuse University area is about $630 per bed, according to a 2016 study the city commissioned. The new high-end apartments supported by taxpayers typically charge two or three times that much.
Some typical attractions: in-home washers and dryers, stainless steel appliances, granite countertops, and 24-hour fitness centers. Some have saunas, climbing walls or movie theaters. Some offer garage parking for extra.
Despite the pricey rents, developers say they need tax breaks to make the projects go.
Chris Geiger, of Long Island, a university-area real estate investor, said he believes the new apartments would not get built without tax breaks. Geiger acquired land in the 1200 block of East Genesee Street for The 505 on Walnut before selling it to the New Jersey development company. He also is the developer of two smaller apartment projects nearby on East Fayette Street.
Out-of-state investors would not risk money on Syracuse projects without some relief from high property taxes, he said.
“It’s the nature of New York state,’’ Geiger said. “Very few projects will ever get approved by investment groups, much less invested in by out-of-town developers, without that.’’
Jared Hutter, who developed The Marshall, said he never analyzed whether the project could be done without tax breaks, because he knew they were available. But Hutter said The Marshall would not have been as good a project without the help.
He said the public reaps a benefit, because the project will encourage other owners to invest in their properties.
“Development induces development, so it becomes a domino effect,’’ he said. “I mean, look, Marshall Street’s a dump. (It) needs to be bull-dozed and restarted. I couldn’t do that — I don’t own Marshall Street. But I’m hoping that what we do will ultimately induce people to redevelop their properties as well.’’
Syracuse officials say they don’t evaluate a developer’s need before awarding subsidies. Instead, they try to encourage projects that dovetail with city goals such as urban density, while seeking the greatest private investment for the least public subsidy.
“It’s not an exact science,’’ Mayor Ben Walsh said.
As national companies scouted University Hill for building lots, prices soared. And developers paid.
Geiger, for example, put together the land for The 505 on Walnut. He acquired about 11 lots on both sides of the 1200 and 1300 blocks of East Genesee Street.
One of the last parcels he bought was a building at 511 Walnut Ave. Geiger paid $200,000 for it. The previous owner bought it a year earlier for $117,000, property records show.
Geiger then sold his East Genesee Street properties in 2017 to an affiliate of The Michaels Organization. The New Jersey company developed The 505 on Walnut and plans another apartment complex across the street. Geiger received $8.35 million, about $2 million more than he paid for the parcels over the previous decade, according to property records.
Did the availability of property tax breaks inflate land values on University Hill?
“That’s a fair question,’’ Geiger said. “I think it all is part of the recipe.’’
Clifford, the city assessor, said the prices developers paid far exceeded local property values. But developers were willing to pay extra to secure a piece of the luxury housing business, he said.
Peak Campus paid $12.8 million for its building site, for example. Clifford assessed it at $3.4 million, not counting the new building. He defended assessing the site at about one-quarter the sales price, saying developers paid much more than what the land would be worth if resold.
“I couldn’t justify assessing stuff at what they were buying it for,’’ he said. “What they’re doing is buying market share.’’
Too much housing?
Walsh, who was the city’s economic development director before he ran for mayor, points out that the city began giving incentives to student housing developers more than a decade ago.
At the time, city officials faced fierce complaints from university-area homeowners about the number of single-family and two-family homes that were being converted to student housing.
The solution was to encourage the development of large private apartment buildings, Walsh said. Area homeowners supported the projects, and university officials welcomed new student housing that did not require the school’s capital.
The first projects, including Park Point on Comstock Avenue and University Village on Colvin Street, were built on land leased from Syracuse University that was previously tax-exempt.
Park Point received a 20-year PILOT that will save the owner about $7 million through 2030. University Village got a 15-year deal that will save about $7.5 million through 2024. Both projects preceded Syracuse’s adoption of the 485-a program in late 2010.
More recently, as apartment construction on University Hill took off, both Syracuse University and neighborhood groups have started to complain about the number of developments.
Before The Marshall, The 505 and Theory Syracuse opened last fall, at least four other University Hill apartment projects had already claimed 485-a tax exemptions worth roughly $14 million. Since 2013, new apartments for roughly 2,000 students have opened as a result.
“We have heard loud and clear from Syracuse University that they are concerned about the number of private student housing units coming on the market,’’ Walsh said. “We have heard loud and clear from neighborhood reps that they are concerned about the impact on the neighborhood from these projects.’’
In the future, the city might put the brakes on.
“What’s important is that we continue to adapt to changing community needs and changing market trends,’’ Walsh said. “It’s fluid.’’
Tim Knauss is a public affairs reporter for syracuse.com/The Post-Standard. Contact him anytime: email | twitter | | 315-470-3023