Rochester creates residential owner-occupied tax abatement program for downtown

Over the past several decades, the city of Rochester's Economic Development Department has focused considerable resources on retaining commercial businesses within the central business district (CBD). Some commercial businesses traditionally located in the CBD, such as law firms and financial/investment companies, began relocating outside the city to suburban office parks. This growing vacancy in class A and B office space had significant negative impacts on the city's revitalization efforts for downtown. Downtown Housing Strategy While the city has created new financial assistance programs to retain commercial businesses and attract new commercial tenants to downtown, the office vacancy rate remained relatively high at 30% (Rochester Downtown Development Corporation-RDDC, May 2007, Office Space Survey). In the late 1990s, the city adopted a strategy to increase the number of market-rate residential units in the downtown area. Since the commercial office market in the Rochester area was stagnant, the city committed resources to capitalize on the growing residential demand for downtown. Many of the older, class B office buildings were ideally positioned to be converted to loft-style housing. The city's strategy to incentivize the development of downtown housing included: * Expansion of financial assistance programs to include residential development. * Adoption locally of the state's 485(a) tax abatement program offering real property tax abatements for the conversion of commercial and industrial space into mixed-use residential buildings. * Securing grants from the State's Restore New York program for residential mixed-use projects within the CBD. Since 2000, 600 new residential units (primarily market-rate rental) were constructed in the downtown district. In 2006-07 alone, 260 new units were opened in the downtown market, bringing the total number of residential units to 2,692 (RDDC, June 2007). The vacancy rate for these units remained relatively low at 6.7%. Downtown Owner-Occupied Housing While these incentives have been very successful in attracting investment related to rental housing, only 62 of the total 2,692 were owner-occupied. The success of downtown as an emerging city "neighborhood" would also depend on the ability of the city to attract owner-occupants to the district. To incentivize the private sector to create more owner-occupied units in downtown and to make the opportunity more attractive to buyers, the city considered the creation of a real property tax abatement program specifically for this market. Unfortunately, under NYS law, there was no vehicle by which a midsize city such as Rochester could provide such property tax abatements. Core Housing Owner Incentive Exemption - CHOICE Program Working with the County of Monroe Industrial Development Agency (COMIDA), mayor Robert Duffy and the city devised a strategy to create a real property tax abatement program through COMIDA. The Rochester city council adopted a policy for the tax abatement program and COMIDA would implement the policy through a sales-leaseback arrangement with residential unit owners. Each project, as a whole, would be approved by COMIDA and as each unit sold, the purchaser would enter into the sales-leaseback agreement at closing. The CHOICE program offers an exemption on the increase in assessed value resulting from the project. The exemption applies to city of Rochester, Rochester city school and county of Monroe property tax levies. The exemption is 90% in year one, and decreases by 10% annually until the property is fully-taxed in year ten. Projects likely to receive the most benefit under the program would be new construction, multi-unit developments and those where the initial land assessment value is low. CHOICE Program Impact Since the program was initiated last year, over 200 new owner-occupied units are either under construction, or proposed. Several property owners of rental residential buildings are also considering upgrading and converting units to for-sale condominiums. The CHOICE program and other downtown residential strategies are proving successful in creating a "24-hour" downtown, decreasing the amount of building vacancies and, ultimately, attracting more essential neighborhood businesses such as retail, grocery stores and other consumer services back to the city. Carlos Carballada is the commissioner of economic development in Rochester, N.Y.