Summit Greenfield’s 2012 real estate tax projections for Chappaqua Crossing

Tuesday, December 2, 2014

Editor’s Note: The finances of Chappaqua Crossing were again a topic of discussion in the November 18 public hearing. With the public hearing on Tuesday, December 2, NCNOW is reprinting a piece by Jason Chapin from August 2013, setting out Summit Greenfield’s tax revenue projections for Chappaqua Crossing.  Chapin provided the piece in response to a statement in August 2013 by then-Supervisor Susan Carpenter that the revenues from Chappaqua Crossing were “just projections,” and that the Town Assessor could not determine the value of the property and its taxes until the proposed retail was leased and operating.  They may indeed be “just projections,” but in Chapin’s view they are projections that count.  Below is his thinking.  NCNOW has added some bracketed information, for clarification.

On pages 664-680 of a 744-page document—Volume 1, Section III, Appendix Chappaqua Crossing SEIS—is a memo from Hudson Property Advisors to developer Summit Greenfield on the projected tax revenues of the proposed grocery-retail project at Chappaqua Crossing, compared to the project already approved by the Town Board that includes an unlimited number of office tenants and 111 units of housing.

Town Board member Jason Chapin referred to this report in a comment to NCNOW’s August 16, 2013 article, “Financial benefits to the town of SG’s grocery-retail are “just projections” says Supervisor.”  Chapin wrote:

I’d be happy to provide some additional information about Chappaqua Crossing taxes and projected taxes. A few facts:

– Summit Greenfield has paid an average of about $1.625 million in property taxes since 2008.

– The assessed value of the property is down significantly since then, mostly due to Readers’ Digest walking away from their 20 year lease.

– Summit Greenfield is grieving their taxes and is likely to see their taxes decreased since only 20% of the office space is currently occupied and at least 20% is considered unrentable due to the age and condition of two buildings.

– Property value and tax projections provided by Hudson Property Advisors show that converting 120,000 sf to retail including a 50,000 sf grocery store would generate about $1.142 million in property taxes.

– Adding retail would increase the assessed value of the property and generate $3.061 million in property taxes.

– Taxes for the already approved 111 units of housing would generate additional property taxes.

– A typical grocery store is 46,000 sf and generates $385k in sales per week and $20 million per year.

– Only 3.3% of the Town’s tax base is commercial property.

– Chappaqua Crossing currently represents about 30% of our commercial tax base. [1.0% of 1.3% —Editor]

– Adding 120,000 sf of retail at Chappaqua Crossing would increase the Town’s commercial tax base by 60%. [from 3.3% to 5.28%—Editor]

Based on what we know from Hudson Property Advisors and other data from two market analysis reports, I’m comfortable with the preliminarly tax projections. The ultimate tax figures can’t be calculated until a plan is approved, a project is completed and current market conditions are factored in.

I still need to be convinced that potential traffic, neighborhood and environment impacts can be mitigated before I can support the current proposal.

I hope the additional information is helpful. A NewCastleNOW article with more retail and tax analysis is at
http://www.newcastlenow.org/index.php/article/index/new_a_primer_on_the_proposal_for_a_grocery_and_retail_at_chappaqua_crossing

MEMO

TO: Summit Development, c/o Andrew V. Tung, ASLA, Esq., LEED AP, , Divney Tung Schwalbe, LLP, One North Broadway, 14th floor, White Plains, NY 10601

FROM: Hudson Property Advisors, LLC

RE: Real Estate Tax comparison (FEIS vs. SEIS ), Chappaqua Crossing

October 11, 2012

[Click HERE to view the entire 16-page memo.]

This memo is prepared in response to your request concerning the potential taxes that could be generated from the commercial component of the Chappaqua Crossing mixed‐use project. It involves a comparison of real estate taxes that would likely be generated by retail use vs. office use for 120,000 sq. ft. of space at Chappaqua Crossing. Please note that this memo is based partly on assumptions and data contained in our earlier work on this project and cannot be fully understood without review of our previous work.

Potential taxes were projected under three scenarios:

Approved Project: (662,000 sq. ft. office).

SEIS Alt. 1: 542,000 sq. ft. office and 120,000 sq. ft. retail, including a 36,000 sq. ft. grocery store.

SEIS Alt. 2: 542,000 sq. ft. office and 120,000 sq. ft. retail, including a 50,000 sq. ft. grocery store.

SEIS Alt. 3: 542,000 sq. ft. office and 120,000 sq. ft. retail, including a 65,000 sq. ft. grocery store.

BACKGROUND

In April 2011 the New Castle Town Board issued a Findings Statement for the Chappaqua Crossing mixed‐use project. Subsequently the Town Board adopted zoning changes that permit the re‐use of the 662,000 square foot existing office facility by multiple tenants and would permit, following additional Town review and approvals, the construction of 111 multi‐family residential units in the eastern portion of the site. This Memorandum relates to the commercial component only.

In July 2012, the Town Board issued a Draft Local Law that would permit creation of a “retail overlay district” for certain property in the B‐RO‐20 zoning district (such as Chappaqua Crossing). Within this retail overlay district, plans call for a full‐service grocery store anchor tenant and provision for other retail uses in what is now known as the SEIS‐ Proposed Project.

TAX PROJECTIONS

The projection for taxes for the Approved Project is based on the same criteria included in our prior work and incorporates basic assumptions consistent with those in the FEIS.

The projection for taxes for the SEIS Alt. 1 through Alt. 3 are based on a drawing entitled “Master Site Plan, SP‐1.0”, dated September 14, 2012 as well as additional narrative information provided by Divney Tung Schwalbe, LLP. The SEIS Proposed Project calls for replacing 120,000 square feet of existing office space with an equivalent amount of new retail space, to include a “full service grocery store and other retail uses” (the total amount of commercial space on the site would remain at 662,000 square feet. This includes locating the grocery store in a to‐be‐renovated portion of the existing office facility, with freestanding retail stores to be located in what is currently an office parking area. In addition, plans call for reopening a reconfigured south driveway to Roaring Brook Road and removing the gates at the west and east driveways so that there would be three free‐ flowing access points to the office and future residential and retail uses on the site. In addition, construction of additional parking areas on‐site to serve both retail and office uses will be provided.

Owing to the fact that some of the space in the SEIS project represents retail use, the tax projection for the SEIS requires several revisions for some of the basic assumptions. Key revisions include:

Rent levels applied for the various space types based on retail usages..

Overall vacancy rate for the retail space is reduced from 10% (for the pure office use) to 5% reflecting the lower vacancy level likely to be achieved for retail use.

Since the retail leases are expected to be “net” leases, expenses (insurance, utilities and general operating expenses) are not applied as landlord expenses.

Management expense is increased from 3.0% of EGI to 5.0% of EGI reflecting the additional cost relating to retail use.

Basic Overall Capitalization rate for the retail portion is reduced from 8.25% to 7.75% (retail use typically commands a lower capitalization rate compared to office use).

The equalized tax rate is NOT added to the OAR because the leases are net (tenants paying taxes). It is important to note that although this is not the typical method of analysis used for tax certiorari. Typically for tax certiorari, rent is estimated under the assumption that the landlord would be responsible for taxes then the equalized tax rate is in included in the OAR). Exclusion of the rate and taxes assumes that the tenant will pay the stated rents regardless of what amount of taxes are charged.

For demonstrative purposes, we prepared a supplemental calculation (Methodology 2) which does include an equalized tax rate in the overall rate for the retail component. This second calculation shows what the amount of taxes would be if the landlord were responsible for the full tax burden at the calculated equitable level. While this is contrary to market norms (which call for net leases – with the tenants paying their pro‐rata shares of real estate taxes), it nevertheless indicates a total tax amount of for the retail use if the landlord were responsible for the full tax burden. The figures are included for demonstrative purposes only. It is noted that the results achieved under both methodologies are similar.

SUMMARY

On the following pages are three tax projections for the commercial component of the Chappaqua Crossing mixed‐use project along with a summary of tax rates for 2012.

Under the office use scenario, taxes are projected to be $2,344,965,000

Under the three SEIS (mixed office and retail use) scenarios, taxes are projected to range from $3,016,148 to $3,060,708. Using a second methodology (see comment 6), the taxes are projected to range from $2,979,944 to $3,021,718. The two methodologies result in tax projections within 3.0% of each other; this difference is considered insignificant.

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