Stewart Motors held hostage for developer’s tax incentives

By Bob Graham, Motley Design Group

The developer of Circle on Central, the planned redevelopment of the historic Stewart Motor Co. Studebaker building at Central & McKinley, has apparently decided to play hardball as they plow ahead in their quest to secure GPLET tax incentives from the city of Phoenix despite mounting public opposition.

On March 28, the Empire Group pulled a permit for the complete demolition of the un-designated historic building, constructed in 1947 as the Studebaker dealership located in the heart of Auto Row, as Central Avenue north of Van Buren was known. While the developer denies that they have any plans to demolish the building within the 30-day life of the permit, they made clear in a public meeting this Tuesday that they would seriously consider complete demolition of the building if their request for property tax incentives from the City is denied.

The Story So Far

Phoenix preservation advocates approached the developer earlier this year to open discussions on the affect of their proposed development on the historic building. They were shown a 19-story mixed-use addition that would obliterate nearly three-quarters of the building. Alarmed at the impact of the design, a letter was circulated requesting that the developer consider alternative approaches that would leave the building substantially intact. To date, the developer’s plans have remained unchanged.

Whatever one thinks about the merits of the development, there is little meaningful leverage available to the community on its impacts because the property does not have any historic preservation protections (due to the resistance of the prior and current owners) and because the development conforms to zoning requirements without apparent need for variances or use permits. As public knowledge of the project has grown within the downtown community, attention focused on one of the few elements of the project that requires a special approval process: participation in the Government Property Lease Excise Tax program, or GPLET.

For the full background on this story, the reader is referred to the prior article, Storm Clouds Circle.

GPLET for Dummies

The basic idea of GPLET is that after the project is finished it is placed under City ownership for a certain period of time and leased back to the developer. This removes the property from the property tax rolls because the City is not subject to property tax. A substitute excise tax is paid in its place (at a much reduced amount).

GPLETs have been handed out by past City Councils for years as one of the few tools available to incentivize downtown revitalization. They have been evaluated on a purely monetary basis – that the economic impact of a particular project will justify the reduction in tax paid by the developer over the course of the GPLET. The program has become controversial in recent years because of the tax implications on properties not receiving GPLETs – the other downtown property owners have to pay higher taxes to make up the difference. Reduced tax revenues to the public school system have also been made an issue, although recent agreements include provisions intended to make the school revenue whole.

Many in the downtown community have been asking that the city re-evaluate its GPLET program and stop handing the incentives out so readily. At some point, downtown has to be deemed a redevelopment success that no longer requires public subsidy; at which time GPLETs could incentivize the other kinds of goals that are not yet being addressed. A precedent was set just this year: Council’s approval of the Derby project was predicated on the inclusion of attainable housing in the project, at the request of the community. In the case of the Circle on Central development, it is fair to ask: no matter the economic benefit, should we be providing public subsidies to private projects that destroy valued historic buildings?

So, the Threat

Most people were quite surprised to learn of the developer’s application for demolition permit. Up to this point, the development team has seemed quite open and has implied, if not explicitly stated, that the project was still in its formative stages and that they would be happy to engage in a discussion with downtown stakeholders with the aim of improving the preservation impact of the project.

The developer was invited to present their project to the Roosevelt Action Association, which represents the neighborhood within which the project is proposed. They accepted and the developer attended a meeting on the evening of April 5, accompanied by his architect and his attorney.

Empire’s bottom line could be paraphrased as follows: The project is not going to change. We are only going to preserve the southeast corner of the building. We will throw you a bone by committing to a façade easement on the part that we don’t plan to tear down, and by putting historical displays inside. And if we don’t get GPLET, we will probably tear down even that last bit of the building.

There Are Alternatives

Aesthetics aside, architectural design is largely an exercise in reconciling competing values and requirements. Some, such as the ability to stand up or be safely fled if there is a fire, can’t be compromised. Other requirements are often found to be at odds and a decision must be made as to which gets priority. For instance, the client may want to make a window larger, but doing so will increase the heat load. Which do you want? A bigger air conditioner or a smaller window? This mundane example could be one of thousands of similar trade-offs that architects make in the course of designing a single project.

“Historic preservation” in the case of Circle on Central has become one of those values that have been compromised in favor of other aspects of the project that the developer finds more important.

We know that the developer’s program can be accommodated on this site with a drastically reduced impact on the Stewart Motors building, because prior to the public meeting, an alternative scheme was shared with the developer’s architects that could provide similar or greater development intensity while preserving enough of the building to retain National Register eligibility. This plan is arrived at if you value preservation as a higher priority than, say, reducing the building height or eliminating curb cuts along Central Avenue.

Assume as a given that the project has to accommodate about 310 apartments and about 330 cars. This density is capped by the zoning. One way to reduce the amount of building destruction that must take place is to reduce the footprint of the new addition and make it taller. You would not be losing any units or square footage. You would probably lose some efficiency and therefore increase the cost overall. However, the zoning also provides height and density bonuses for projects that preserve and rehabilitate historic buildings. In this case, by preserving the building, you could increase the yield of the property from 310 units to as many as 540 units under the code. As a practical matter, because of the limits of parking feasibility, you could probably achieve only about 100 additional units, but going from 310 to 410 units is a significant increase and should help offset the loss of efficiency.

The alternative proposal would preserve more of the building and all of the facades

CCBG Rendering 1 — The current proposal (CCBG Architects)

Minor alterations to the shape of the building would also result in a significantly increased level of preservation. Just by stepping the façade back where the new addition meets the old building, you can preserve all of the historic streetscape along Central. If you reopen the historic driveway entrance to the service bays, you can use that as an entrance to your parking garage.

Circles Reimagined - Picture # 1 — The whole Central Avenue side, preserved!

Finally, the project may qualify for historic preservation tax credits or other incentives if a successful compromise can be reached. The biggest hurdle would be convincing the National Park Service that placing a 350-foot building next to/atop the historic building would not result in an unacceptable change to its historic context. But it would be worth exploring. If the expense to rehabilitate Stewart Motors were $200 per square foot, the tax credit would be worth half a million dollars.

Where is the Stewardship?

Admittedly, the design concept presented above is pretty rough in comparison to the developer’s plan, but we don’t have the benefit of eight months in design development. What I hope this example demonstrates is that the developer’s plan can’t be considered the one and only plan that works. The developer has made a conscious decision from the start to sacrifice 75% of the building because they thought they could. And by right, they can; but that does not mean that we should dedicate public money to it.

Donovan Rypkema, noted advocate for the economics of preservation, recently posted on FaceBook:

“This argument of ‘historic preservation versus property rights’ has become a stale cliché that continues to be the framing of the argument. I’m waiting for the enlightened journalist to instead write about ‘owner intransigence vs. property responsibilities.’ Historic preservation is a property responsibility movement — the responsibility of stewardship, not just the right of ownership; the responsibility to one’s neighbors, not just one’s self; the responsibility to generations of children not yet born, not just the right to muck up a historic property for the whim du jour.”

It couldn’t be better said, and speaks to Empire Group’s approach to this design. They need to understand that just because they own the property, that doesn’t mean they don’t have a responsibility of stewardship. And the community should not knuckle under to the “whim du jour” because one piece of the building is being held hostage, while the rest is already under a death warrant.

A change of mindset when a project is conceived and designed can help to stretch construction dollars

By Bob Graham, Motley Design Group

Architecture is distinguished from most other arts by one requirement: you have to meet a budget. It’s a given that a building has to stand up, has to meet safety standards, has to comply with zoning, and so on, while also looking good. The tricky part is that you have to accomplish all of these goals within a specific cost. Without budget limits it’s not really that hard to design a building that meets the requirements. For me, the true art in architecture is being able to put together a successful project for a cost that someone else is willing to pay for.

Good design doesn’t have to be expensive. In fact, it’s not how much you spend; it’s where you spend it that counts most. Here are 6½ strategies that I’ve learned over my career that apply to the initial conception of a project and to the design process that can help get the most out of construction dollars, and at the same time, can lead to more interesting projects. (It was going to be seven strategies, but six-and-a-half is more economical!)

1. Buy used.

Not used materials, used buildings. It’s usually less expensive to buy an existing building and fix it up or modify it than it would be to build new. This is why during recessions the volume of rehab work goes up while new construction falters. From a real estate perspective, you can get a lot of building for a little money because the initial construction costs have already been depreciated, and because many people can’t imagine the possibilities offered by an existing structure. The perceived value of the building may be far less than its true worth in terms of embodied energy, materials, and construction time.

There are some risks with buying an older building, but also potential rewards. Obvious pitfalls include hazardous materials, structural defects, and geometric limitations that may not suit the new use. Each of these risks can be mitigated by commissioning the right studies during the typical due-diligence period of commercial purchase contracts. The cost to cure any identified deficiencies can be recycled into the purchase negotiations. Conversely, there may be unseen benefits that are only borne out by study, such as eligibility for tax credits, historic preservation grants, or zoning incentives.

2. Work with existing conditions, not against them.

Don’t try to impose an artificial or academic design concept on a building or site that‘s not compatible with your vision. It’s a popular modernist approach to be guided by an abstract idea, and it’s also easy to fall into a particular architectural style in order to bring order out of chaos. But re-imagining a building can add a lot of cost, compared to working to reinforce or compliment what you have.

This strategy applies to every project, new construction or rehabilitation. If the site has topography, roll with it. If there is an existing building, fit new uses to spaces that will require the least modification. If a building already makes a strong design statement, don’t try to make it into something it’s not.

3. Make the codes work for you.

Many of today’s building and zoning regulations have been rewritten to eliminate disincentives to adaptive reuse and historic preservation projects. For example, revisions to zoning ordinances can use a form-based strategy, instead of one focused on building use, allowing for more flexibility. Because these changes have been relatively recent, many plan reviewers seem to have a poor grasp of the newer allowances. Try to understand the codes better than your plan reviewer, and don’t take no for an answer if you have a reasonable interpretation that leads to a more economical solution.

Did you know that registered historic buildings are exempt from the Energy Code? Not that we should be designing inefficient buildings, but following prescriptive requirements of the IECC has resulted in many historic buildings suffering the costly addition of new energy features, damaging the historic character of the building for marginal benefits. It was my co-workers at the Wildecom builders Mandurah office that made me realize that, I did not know that under the Existing Building Code, features that would not meet modern building codes are often allowed to remain unchanged? Did you know that adaptive use guidelines enacted by Phoenix and many other municipalities provide relief from a host of burdens that were written for large new construction projects? All of these allowances and changes were hard won victories – take advantage of them.

4. Embrace imperfection.

Modernism is back at the cutting edge of architectural design theory. I like Modern architecture, but some strains of Modernism rely on everything being perfect in order to look right. Edges must be crisp, curvy forms must be just-so, and everything must be clean and neat.

22 Jackson Interior — Rough brick, exposed ductwork and conduit, and industrial lights make for an interesting contrast with new features

However, perfection equals cost, especially when you’re dealing with a building showing its age. Corollary to the strategy of “working with, not against” is the idea of “working with what you’ve got.” If you don’t like rough interior plaster that shows some wear and tear, resist the urge to replace it or cover it with something new. Don’t think of wear as “imperfection,” but as “free character.” These days, people go to a lot of trouble to create faux-distressed finishes. They can be particularly effective when contrasted with some new, modern features.

In the new-construction arena, designs that require strict symmetry or “cosmic” alignments can be wasteful. An informal design strategy that allows for each space to be optimized for its use can also help shave costs.

5. Partner early with a creative contractor.

“Creative” and “contractor” are not usually words used together. Many construction professionals see their job as building whatever is on the page, nothing more. As for architects, unless we are involved in design-build or have a lot of personal hands-on construction experience, many of us don’t have a good grasp of construction cost, and are hesitant to try unusual approaches that could result in cost savings. An early partnership between architect and contractor, where both are working toward realizing the architect’s vision in the most efficient way, is essential to cost control.

6. Think inside the Big Box.

I like to call this the “Home Depot Rule.” Wherever possible, pick materials and products that you can get off the shelf at Home Depot (or Lowe’s). They will almost always be more cost effective than products that are specialized, custom, rare, unusual, and have to be ordered through a special supplier.

6½. Go after the light fixtures.

Custom Light Fixture — A custom light fixture made of steel pipe, an off-the rack globe, a trash can and a toilet plunger was designed in place of a manufactured fixture costing thousands

(This strategy is related to #6, so I’ll only give it half a number.) The lighting package is one of the most expensive and highly specification-sensitive things on a construction project. Many electrical engineers don’t know the cost of the fixtures their lighting sales rep is selling them. They are focused more on how many watts they use and many lumens they get, in the right place. The Home Depot Rule applies double in this category. The difference in the per-fixture cost between off-the-shelf and everything else is usually in the hundreds of dollars. Multiply that by a hundred or so light fixtures in a typical project and the potential savings is obvious.

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Category: Construction

Back Off or the Building Gets It