Economic turnaround in Hampden area makes mill rehab ineligible for tax credit
By By Natalie Sherman and The Baltimore Sun
Dec 09, 2013 at 7:56 PM
The makeover of the mills along the Jones Falls into a hub of trendy restaurants and residences has succeeded so well that parts of the area no longer qualify for the federal tax credit that helped finance some of the work.
A $19 million proposal by Terra Nova Ventures to convert Whitehall Cotton Mill into apartments, offices and shops will need to be funded without New Markets Tax Credits, which are designed to spur development in low-income areas.
In the census tract that includes Whitehall Cotton Mill along Clipper Mill Road, the median family income shot from about $30,500 in 2000 to $70,500 in 2010, according to information from the accounting and consulting firm Novogradac & Co., which tracks the data from the U.S. Census and its American Community Survey.
The transformation of the neighborhood, identified as severely distressed in 2000, means projects there no longer qualify for the tax credits, which are mostly limited to use in areas with poverty rates of at least 20 percent or median household incomes of 80 percent or lower than the surrounding area.
"The bad news for us is with the new 2010 census data, it's no longer distressed," Terra Nova Ventures founder David Tufaro told the Baltimore City Council last week as it reviewed his plans for apartments, offices and shopping on the 3300 Clipper Mill Road property, currently a warehouse for an adult novelty goods distributor. "The good news is that development has occurred in the area over time. ... That's the goal we're trying to achieve."
About $13 million in New Markets credits helped finance the Clipper Mill projects along Clipper Park Road where Woodberry Kitchen is located, according to Novogradac & Co.
Developers for the other mill renovations, including Mill No. 1 and Union Mill, used the program to help secure investors, who receive a break on their federal income taxes when they purchase the credits from community development enterprises.
"That's a lot in a small area," said Elaine DiPietro, vice president of Columbia-based Enterprise Community Investment Inc, which was involved in the Mill No. 1 financing and has received $722 million in New Markets credits since the program's start in 2000, making it the fourth largest recipient of the credits in the country.
"Having all three of those vacant and abandoned or underutilized buildings rehabbed and bringing in literally hundreds of new people to live there — that should have an impact on the community that could be seen over time," she said
Seema Iyer, associate director of the Jacob France Institute at the University of Baltimore, which tracks demographic data for the Baltimore Neighborhood Indicators Alliance, said the use of the New Markets tax credits in the Hampden area coincided with other signs of revitalization and economic investment.
The percentage of the population 25 or older with some college education in the neighborhood increased, up to 61 percent from 46 percent in 2000, and the unemployment rate fell from 6 percent to 5 percent. Between 2000 and 2010, median annual household income in the entire Medfield-Hampden-Woodberry area rose from $34,000 to $49,000, according to the alliance.
"All indicators are pointing to the fact that those investments were increasing in this neighborhood, and you can see the results in some of the other economic indicators that we track," she said. "From a neighborhood perspective, Hampden is definitely one of the neighborhoods that is becoming more healthy. … We just know that this is what has happened in these areas, but if New Markets tax credits really drove that in this area, then it's a success story."
The New Markets Tax Credit Coalition, which is lobbying to incorporate the credit into the federal tax code permanently, has found that the businesses financed by the credit directly generated about 360,000 jobs, about 250,000 of which were in construction, making for a cost per job to the federal government of $19,500.
Baltimore has made good use of the program, said Gary Perlow, a member of the coalition and managing partner for the mid-Atlantic region at accounting and advisory firm CohnReznick, pointing to the Everyman Theatre and development near the Johns Hopkins medical campus in East Baltimore.
"I don't think without all the New Market subsidies they would have been able to find the funds to get the deals done," he said.
For his part, Tufaro, who used New Markets tax credits for his company's rehabilitation of Mill No. 1, said he was looking for ways to bring down the overall cost of the Whitehall construction, including renegotiating the price of the land, which he agreed to purchase in 2012, before the 2010 census data were incorporated into the new markets program.
The Whitehall Cotton Mill, which would include 27 apartments and a 6,000-square-foot restaurant, is eligible for up to $6 million in federal and state historic tax credits, though the state applications are still pending, he said.
Tufaro said he hopes to start construction in early 2014. He said he believes he will find the money, although it might require putting more of his own funds into the project.
"We're at a critical juncture right at the moment, waiting for the financial proposals to come back from the lending institutions," he said. "But the city shouldn't worry about the fact that we can't get New Markets tax credits for it. They should be pleased with the result of their efforts over the years."