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Incentives no help if hard to use, developers say: Program used on northwest side can be too much of a good thing

November 21, 2005

A year and a half ago, Indianapolis officials announced an incentive program designed to lure businesses to the vacancy-plagued commercial area surrounding Lafayette Square Mall on the northwest side.

To date, just one developer has taken advantage of the community revitalization and enhancement district, or CRED, and its project was in the works before the program began. The developer built a movie theater and grocery store in a former Cub Foods near 38th Street and Lafayette Road.

Smaller developers may be hesitant to jump into the program in part because of its structure. The CRED program, run by the state, offers developers tax credits worth up to 25 percent of their investment in the district. That's a hefty tax break-so large that developers without huge tax bills may have a hard time using the full credit.

The development group for the Cub Foods project, for instance, has used only about $20,000 of its approximately $450,000 in tax credits, said Clint Fultz, lead partner in the group and principal of locally based Prime Site Brokers.

The credits can offset a variety of state taxes, including corporate and personal income tax, but not property or sales taxes. At the current 4-percent individual state far exceed what they could use, said REI President Michael Wells.

REI and White turned to Indianapolisbased House Investments Inc., which brought in two lenders, National City Bank and Irwin Union Bank, as owners of the project through a limited liability company. The lenders can use the tax credits to offset the state financial institutions tax, and the developers reduced their debt on the project, said House Director Patty Batesole.

The deal worked out well for REI, but Wells acknowledged getting lenders involved as owners might be more difficult for smaller developers without REI's and White's track records.

"If it were a little easier to dispose of the credit, it probably would make it easier for more developers to do it," he said.

Discussions in the General Assembly in recent years to alter the CRED law have gone nowhere. But the Indiana Chamber of Commerce is among those now championing the cause, not only for CRED credits but also for tax credits granted through other incentive programs, said Chamber President Kevin Brinegar.

Until that happens, cities with CRED districts are trying to structure more deals like the one for the Bloomington hotel. Fort Wayne is examining ways to allow more developers to participate in a CRED program in its downtown, said Fort Wayne Mayor Graham Richard.

Its first CRED district attracted more than $80 million in development to the area around the former Southtown Mall, Richard said.



income tax rate, Fultz estimates the partners in his group would need to make more than $11 million in taxable income in the coming years to use all the credits.

At least one other project is in the pipeline for the Lafayette Square CRED area, said Gordon Hendry, the city's economic development director. Hendry wouldn't discuss that potential deal, though real estate sources say Arkansas-based Wal-Mart Stores Inc. is eyeing the area for a store near Interstate 65 and Lafayette Road.

If developers are shying away because they don't see the value of the incentives, they haven't told the city, Hendry said.

But Fultz and others would like to see state law governing the CRED program changed so credits could easily be transferred or sold. Developers would like to be able to transfer credits to a lender, for instance, in return for cash or a down payment. As the law is written, CRED credits can be used only by the owner of a development or by its tenants.

"If we had to do it over again, we'd have structured it so we could have given them to the lender [on the project] on day one," Fultz said.

Developers of a hotel project in a CRED district in Bloomington managed to transfer credits to lenders despite the restrictiveness of the law.

Indianapolis-based REI Investments Inc. and Valparaiso-based White Lodging Services, which are jointly building a Hilton Garden Inn at Seventh Street and College Avenue in downtown Bloomington, quickly realized the tax credits available for the $17.2 million project would
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