Staff photo by Dave Flessner / Part of the Market City Center apartments are being used for commercial tenants, including Strayer University which is opening a local campus facility on the first floor. The city and county are limiting property tax breaks previously granted for the building where the building is not being used for apartments. / Staff photo by Dave FlessnerFor the first time ever, Chattanooga and Hamilton County may take back tax breaks given for a downtown housing project.
One of the biggest apartment complexes in Chattanooga's central city is getting a bigger property tax bill after it converted half of its rental units into Stay Alfred Vacation Rentals. The Market City Center, a 125-unit apartment complex granted tax breaks in 2015 in exchange for keeping at least 25 of its apartments available for low- and moderate-income residents, may lose some of those tax breaks because of its move this summer to convert 53 of its apartments units into hotel rooms.
"We don't give PILOTs (payment in-lieu-of-tax breaks) to hotels," said Donna Williams, administrator for Chattanooga's Office of Economic and Community Development.
The Chattanooga Housing Facilities Board Wednesday affirmed the decision to revoke part of the property tax breaks given for the Market City Center because of the move earlier this month to begin renting out some of the apartments as short-term vacation rental suites. In a letter to the Atlanta-based Simpson Organization, which developed the $30 million project in the 700 block of Market Street in 2015, Chattanooga Mayor Andy Berke and Hamilton County Mayor Jim Coppinger said converting apartments to hotel rooms "is in violation" of the tax agreement with the city and county.
"While the city and county believe it is vitally important to be welcoming to tourists, the PILOT program that was originally used for this development was specifically targeted to increase the number of permanent housing units," Berke and Coppinger said in a joint letter to Simpson. "Therefore, Market City Center will not be assessed the full amount of the property taxes owed on the units that have been converted to short-term vacation rental units (STVRs)."
Although the Hamilton County Trustee's Office said property tax payments were current on the building, the mayors said in reviewing the project the city also told Simpson "you are delinquent on your taxes for the commercial space within the development, space which was always excluded from the PILOT agreement."
"Accordingly, we will be sending you a bill for all STVR units in your building and commercial space," Berke and Coppinger said.
Helen Burns Sharp, president of Accountability for Taxpayer Money (ATM), welcomed the city and county action to limit the tax breaks for Market City Center.
"Even prior to the partial conversion (of the apartments to hotel rentals), this complex was out of compliance with the obligation to lease at least 25, or 20%, of the units to low- and moderate-income persons," she said. In January, only two of the 125 units had been leased to those within the required income levels, Sharp said.
But Simpson has objected to the change in property tax status on their project, contending that it is still setting aside 25 of its apartment units for those with 80% or less of the adjusted median income in Chattanooga, as originally agreed.
"I don't understand us leasing those for hotel units has any impact on the agreement," Simpson leasing agent Gail Battle said earlier this year. "According to the PILOT, we have our 25 units. They've never not been available. The impact on the PILOT is neutral."
The city created the PILOT program five years ago to help encourage downtown apartment developers to make some of their units affordable for low income persons. A January 2014 market study showed Chattanooga had pent up residential demand that could accommodate the development of more than 2,300 rental units and the property tax breaks were designed to help spur developers to meet that demand and keep some units affordable for low- and moderate-income residents.
But as Chattanooga has added housing units faster than employment has grown in the past decade, Market City Center has struggled to find both residential and commercial tenants. Most of the 36,183-square-foot facility remains vacant, although a Bantam and Biddy opened in January and Strayer University is building a new facility in the first floor of the Market City Center.
Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340