wtf? 18 E. Fourth St. – where abatement worked!

18 E. Fourth

18 E. Fourth, the old Fourth National Bank building, now condos.

Some Readers might have gotten the impression that I am anti-abatement, but that’s not true.  I just think they should make make economic sense.

The condo development at 18 E. Fourth St. is a perfect example of a great investment for the City of Cincinnati.   18 E. Fourth Development purchased the 99 year old office building in 2003 for $457,900, the developer invested over 4,000,000 in improvements in 21 gorgeous luxury condos and the city abated property taxes to make the property more desirable for residents to move downtown.  Today the total value according to the auditor is $6,836,550.  And annual taxes will go from $10,514 in 2003 to $156,976 when everybody pays, an eye-popping 1393% improvement that will come in every year.  That’s what I call a good investment.

(Oddly enough, even here we have an inconsistency in the abatement on units in the same building, all rehabbed at the same time by the same developer.  While 20 of 21 units show the property abated from 2006 – 2015, taxable in 2016, payable in 2017 – one unit is special.  Notes for Unit #901 show the property abated until 2021.  Mistake?)

Once again our good friend, Anonymous, works his spreadsheet magic and includes his accompanying notes.  Once again, we also have to thank Terry Munz and his assistant, Becky, in the Auditor’s office for digging through records to find an accurate purchase price for the building.

The table below shows the gross and estimated net real estate taxes for:
  1. The original purchase price of $457,900
  2. The original purchase price + rehab investment of $4,457,900
  3. The abated values of the current residential units
  4. The actual market values of the current residential units
In order to find the gross and estimated net real estate taxes I used the Auditor’s nifty new tool that calculates these taxes. Since all of these residential units are currently abated those estimates were used to find the real estate taxes for #3 above. I then used the cool calculate your own taxes with a certain value tool that the auditor’s website provides to find the taxes for #1, #2 and #4.
The data shows that property tax revenue from a building that is valued at $457,900 is estimated to be just over $10,000 per year. The current abated revenues from property taxes of 22 units with a total market value of $6,836,550 is $57,892. So even with the CRA abatement the building brings in nearly 6 times more property tax revenue than if no rehab was performed at all. Without the abatement (which is due to end in two years) the building will generate $156,976 in property tax revenues per year.
Seems like a win for the city, taxpayer, developer and building residents.

Total Market Value

Gross Real Estate Taxes

Estimated Real Estate Taxes

Purchase Price as Provided by Hamilton County Auditor

$457,900

$16,788

$10,514


Purchase Price + Estimated Rehabilitation Investment

$4,457,900

$163,438

$102,359


Total Combined Value of Residential and Commercial Units (with current CRA abatement)

$6,836,550

$92,132

$57,892


Total Combined Value of Residential and Commercial Units (without current CRA abatement)

$6,836,550

$250,646

$156,976

Gross real estate taxes do not account for any reductions or credits due to the property owner for various reason (owner occupancy, homestead, etc). The estimated real estate taxes do take these reductions and credits into account and are a more accurate picture of what the county will receive.

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5 thoughts on “wtf? 18 E. Fourth St. – where abatement worked!

  1. cranewoods

    Oh I see how you are – pick someone else’s condo development as a great investment hahahaha.

    Just kidding.

    Abatement return on investment is not just real estate tax related. They are multi-purpose financial and intangible energy drivers:

    1. They get a warm income tax paying body in to the area that has an abatement in play, who otherwise MIGHT have not moved there. Encouraging both development and warm tax paying bodies is a major factor in abatements.
    2. The warm body in 1 above eats sushi, swills wine/beer, goes out to dinner, to the symphony etc etc etc in the target area – which not only keeps M1 money in that area, but also makes a correctly targeted area vibrant.
    3. They allow younger buyers to afford a residence in the target area. We convert the abatement to “how much more home you can afford.” This is an intangible (non-spreadsheetable).
    4. In Cincinnati, with so much of the abatement tied to LEED, it encourages the construction of energy efficient residential units. This some of the growth pressure off of future power plant capital expansion – and energy bill increases as a result. If the abatements were to disappear I suspect LEED in relation to residential construction would disappear form our vernacular. Again, an intangible (non-spreadsheetable).

    So abatements are complicated – and where or how much they make sense are again above my pay grade. I do know that when I buy a failed project, redesign it, recapitalize it and sell it out, abatements are a HUGE sales tool. But it would be kinda like asking my broker “would you rather have me put in a $500 refrigerator or a Sub Zero in the unit you are about to sell – which one would help you sell the unit”? Take a wild guess.

    I have an obvious conflict of interest, as I am trying to do everything I can to help my buyers “Pick Me Pick Me” (waving arms). What areas should get them, what the goals are, how much, how long, LEED level dependency etc are so far above my pay grade that I just got a headache typing this.

    Just another “not worth a cup to pour coffee in” two cents. This one with an added self serving conflict of interest twist. I am an open book.

    Andy

    Reply
  2. executivedreamer Post author

    With 114 units, my building would be an even more amazing example. We were just being lazy in terms of number crunching when we picked 18 E. 4th with 21 units.

    Your 2 cents is a very valuable 2 cents. Cincinnati wants development and more residents. Kathy Holwadel wants development and more residents. But that doesn’t mean all incentives are great. Each one has to be thought about carefully – and unlike you and most of the other folks with an opinion on this issue, I AM completely objective. I don’t have a job or want one. and don’t invest in commercial real estate. I just care about Cincinnati – a lot.

    Thanks for taking the time to share your observations and perspective. A more real-estate literate electorate will make better decisions about our city.

    Kathy

    Reply

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