A unique taxpayer incentive Greenwood officials are weighing for a luxury apartment developer may be the first of its kind in Indiana for a solely residential development.
The Garrett Company, a Greenwood-based national multi-family developer, is building a 180-unit, high-end apartment complex, recently dubbed VERGE Luxury Flats, on 6 acres across the street from its headquarters on Greenwood Springs Boulevard, on the city’s north side.
The city’s redevelopment commission unanimously approved the incentive, and now, because the tax break is valued at more than $1 million, the city council must decide whether to approve it.
Here’s how it works: The company has realized that it can charge higher rents in other states and asked the city to make up the difference in its revenue — about $1.24 million — so that the company can charge comparable local market rates on the new complex in Greenwood. The company has the cash it needs to build the project, so for the next nine years, the city will return most of the company’s property tax payment to it, basically paying an incentive over the course of several years rather than a one-time cash handout.
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So the company will get its own property tax payment back until the city has repaid the company its $1.24 million investment, plus interest, to total $1.72 million.
Construction has already started. The incentive request came later.
"That is called a super abatement," said Michael Hicks, an economics professor and director of the Center for Business and Economic Research at Ball State University.
"They don’t have to pay taxes, which allows them to spend more money on the things that they want. But that’s problematic for the other taxpayers."
Traditionally, TIF funds could not be used on housing unless there was some sort of economic development benefit to that TIF district. In this case, Garrett’s headquarters is located in the same TIF district and having this showcase apartment complex nearby is expected to improve business, officials said.
"I’m not suggesting that it’s a mistake. But it’s important for the taxpayers to know that there is a trade-off," Hicks said.
That trade-off is less money going into the city’s east-side TIF, which is taxpayer dollars that are set aside for economic development and infrastructure purposes, instead of that money being funneled to other public tax entities such as fire, police, schools and libraries.
Last year, state lawmakers made it so that TIF funds can also be used to support residential developments, Hicks said.
"There are several reasons why communities might be interested in this, particularly if they’re rentals or they’re looking to expand their residential footprint. I think local governments are realizing that the primary source of local wealth is people, not capital. More and more, communities are realizing the chase for factories and machinery isn’t doing what they need it to do, and they need to instead be looking for more people."
Ball State recently did a housing study that showed that new market-rate housing developments are not likely to be profitable in Indiana due to an excess of blighted housing from the recession a decade ago, Hicks said.
“It’s always a tough and dubious proposition. To be doing these sorts of deals, the city should be asking more questions," Hicks said.
“Like any other supply and demand, the question needs to be: What kind of residents is Greenwood really going to add (by doing this)?”
Johnson County, and specifically Greenwood, is not facing housing shortages, Hicks said. So it would not be in the city’s best interest to offer this type of incentive very often, he said.
This would be the first time Hicks has seen this type of abatement used on a solely residential development, and Greenwood leaders aren’t sure yet how often it will be used, or whether they want it to set a precedent.
"The jury is still out on that," Greenwood Mayor Mark Myers said.
The city will watch the project closely to see how quickly Garrett fills the 180 apartments, he said.
Myers says this sort of upscale development is needed due to a lack of executive-style housing in Greenwood. It is exactly what young professionals, such as Cummins employees who may transfer to Greenwood or be hired on once the new office building is built, would want to live. Its proximity to the highway is a benefit too, he said.
"This is the first time we’ve done this, and it’s because of the type of dwelling that we’re willing to do a developer-backed bond," he said.
He pointed to the atmosphere — a clubhouse, resort-style pool, lounge area, dog park — and high-end finishes, such as the hardwood floors, stainless steel appliances and granite countertops the developer is promising, as reasons why he supports the abatement. Rents will range from $900 for a one-bedroom apartment, to $1,450 for a three-bedroom.
The development has been compared to The Timbers, which is just minutes away, but on the Indianapolis side of County Line Road. Garrett says it wants to build higher-quality apartments, but offer competitive rates, which is why they’re seeking a tax break.
But it may be the first time it’s been done in the state.
In 2015, Carmel offered a similar incentive to a developer, to use its own property taxes to pay off a $5.9 million bond used for infrastructure improvements needed on a $60 million mixed-use development.
And just this month, the Indianapolis City-County Council approved similar developer-backed bonds for two separate downtown real-estate projects. One of them includes plans for 76 apartments, but also retail space and a parking garage. The other will serve as an office building, with retail space as well. Again, the bonds will be repaid through property taxes generated by the projects.
For the most part, this type of incentive has only been used on mixed-use developments and hotels.
When asked what examples the city had looked at when it decided to hire a financial adviser to prepare this incentive package, Myers listed several hotel projects.
"I can’t answer that," Myers said when asked if he knew of any examples of residential developments — multi-family or otherwise — that used a developer-backed bond and site-specific TIF incentive.
"Somebody’s got to be a pioneer," he said. "This is the exact same as the (Greenwood) Aquatics Center. People said if we built it, we’d lose money. But since we’ve developed it, we’ve never been in the red.
So somebody’s got to take a leap of faith, and I fully believe that this will work out in our favor."
