(Editor’s Note: Main Street Association Director Shane Marler answers questions regarding the Baker Building development in downtown Peabody.)
If the City of Peabody buys the buildings, does that mean the buildings will be taken off the tax rolls?
Marler: No. Because of the ownership structure of the project, the buildings will continue to be subject to property tax. Ultimately, the City of Peabody is not the actual owner of the properties.
In nearly every housing development project, a Limited Liability Corporation is formed. The corporation consists of several entities including the equity partner who purchases the tax credits at the completion of the project. If one of the entities of the Limited Liability Corporation is “for profit,” the properties are subject to paying property tax. In this case, the City of Peabody will be acting as the “general partner.” The general partner manages day-to-day operations and the long-term ownership of the properties.
Traditionally, a developer fills this role. The developer receives a “developer” fee for the creation of the housing units. The developer also receives the profits created by selling the tax credits, and the residual income from the rents generated over the lifetime of the properties.
In this case, the city has hired Christy Davis of Davis Preservation to act as the developer. She will receive the developer fee. The City of Peabody will receive the profits generated from the sale of the tax credits and the rents generated from the properties.
The annual property taxes generated by the properties are calculated into the project costs. This means that the City of Peabody will not be drawing from their own coffers to pay the property taxes. Instead, the federal government will be paying the property taxes via the housing and historic tax credit programs.
Contact Marler at (620) 938-2113 or at firstname.lastname@example.org for more information.