[iW7 ■ CDI-3-- UMASS/AMHERST 312Dbb DE70 7b3b D Commonwealth of Massachusetts Edward J. King, Governor FINAL REPORT Massachusetts Executive Office of Communities and Development Byron J. Matthews, Secretary Removing Obstacles to Building Reuse and Community Conservation at the Local Level ,.^v- i ^M ■■'.'■'..; . ' "-.- . ^^WMMHI w , ^^. BP5#f3nKfe fill ' "*"*■ '!SfT!SSS^H ► 5 ! ! ™ P^ •*■.»*• ^„ iwwwtijj!j »iwi#nn m 1 9 Br — qb — Tils sasiis B B H i E IB B B B B B B 3 B B n n °n BB sena in aannnaa ■n°- aa ^HH uu nni1nnOnOn ieoe B B B B BBB SQ9QBB a a — REAR ELEVATION 1 I I 1 1 1 1 1 ■™™™szy B B B B B B _mBB nl I 1 I 1 m K ,BiBB 'B.B B B B B B B bVb' 'B !i B n B ! B B B B B □ SIDE ELEVATION - sears bldg. SIDE ELEVATION - jackson st. 31 Renovating and Reusing Upper Story Space in Downtown Commercial Buildings The Problem "^ "^ e turn of the century in Massachusetts, "downtown" was where people lived, worked, and shopped. Retail trade flourished on the first floors of downtown build- ings, while upper stories were occupied by businesses or apartments. As residential development pushed out- ward from old urban centers , and as more and more pur- chasing power was located outside older cities, the value of space in downtown multi-story commercial build- ings declined, in some communities more than in others. Even in instances where first-floor retail uses were able to hold their own, vacancies on upper floors became increasingly common. The ultimate blow for many older downtown buildings was the building of large commercial malls serving a regional market. Usually the most successful businesses moved out to these malls, leaving behind more marginal businesses which had difficulty competing. The fact that successful businesses tended to relocate in malls, while less prosperous businesses as a rule remained downtown, of course reinforced the popular conception that locating in malls was a key ingredient ensuring commercial success. Unable to afford to move outside, and unable to compete, downtown businesses declined. The declining income of first-floor downtown retail establishments in turn meant that there was less and less income available to building owners to maintain their buildings (and in particular to carry the unpro- ductive vacant upper-story space). The interaction of these combined factors accelerated the rate of dis- investment, resulting in the deterioration and decay of thousands of multi-story downtown buildings through- out Massachusetts. Clearly, the rehabilitation and reuse of multi-story downtown commercial buildings is an essential component of the revitalization of older Massachusetts cities. Without effective reuse strategies for such buildings, it will be difficult to draw people and economic activity back to city centers. The most challenging aspect of the task is devising ways to upgrade, reuse, and market 32 upper-story space for business or residential use. Upgrading and marketing upper-story space is important not only in its own right, but also contributes to making first floor retail and business uses profitable once again (since these uses will no longer have to produce so much extra revenue as to support 2-3 unpro- ductive upper floors). Southbridge, the Whitford Building The Whitford Building was selected for intensive exami- nation primarily because of its prominent location. It is a corner building, located at one end of the central downtown retail block. The mass of the building, and the way it rounds a major downtown corner, make it the most visible of any building in the downtown — a kind of bookend. This visual prominence makes the fate of the Whitford Building especially important to Southbridge. The fact that the building owner seemed eager to put his building to more productive use seemed to be an advantage of the Whitford Building. However, this appar- ent advantage turned into a liability when it was learned that the building owner /developer already had two very large mortgages on the building. This large existing indebtedness, placed on the building as collateral in support of the owner's other business interests, proved to be a serious obstacle to developing feasible reuse schemes. In essence, the pre-existing indebtedness forced the Building Reuse Project to develop reuse schemes that involved major financing and the introduc- tion of uses into the building that would generate a flow of income higher than that typically found in Southbridge. High indebtedness is not typical of most older buildings. It is much more typical for older downtown properties to have been held by the same owner for many years , and therefore to carry very small out- standing mortgages. Buildings which have been largely paid for and amortized obviously represent a greater asset to the potential renovator than those that are already heavily mortgaged. Status of Building at Time of Study When first examined in the fall of 1977 » the Whitford Building was approximately 50% occupied. Seventy-five percent of the first floor was occupied for retail use, and 100% of the second floor was leased for office use. However, most of the space on the third and fourth floors was vacant , with only one small apartment leased on the third floor and a small dance studio occupying the fourth. One of the most serious conditions presented by the Whitford Building was the fact that it had a large, 33 unenclosed central staircase which occupied a large portion of the building's interior. This large stair- case significantly reduced the amount of potential leasable floor space in the building, and also repre- sented somewhat of a fire hazard (since a fire could spread within the building from one floor to another , and occupants of the upper floors would have only the central staircase as a means of escape in case of emergency) . Recommendations As suggested above, the Whitford Building in recent years had been relatively unsuccessful as a residential structure, with only one occupied apartment on its upper floors. Given this past history it initially seemed wise to investigate the feasibility of develop- ing all of the upper floor space for commercial use. Cost of renovation per square foot would be lower than for a residential conversion, and office use would be entirely compatible with the building's location. None- theless, the market for upper story office and/or commer- cial space in Southbridge was untested, and it proved to be impossible to convince local bankers that it would be possible to lease upper story office space at $5.00 per square foot (the rental charge needed to cover pro- jected cost of renovation plus the past indebtedness on the building) . Skepticism of local banks was increased by high office vacancy rates in the area, and by the fact that suburban office space just outside the center was available in the $^.00 per square foot range. The recommendation of the Action Plan was therefore that the building retain its mixed-use scheme, with commercial uses on the first two floors and with an improved layout of apartments on the top two floors. The introduction of twelve units of housing on the third and fourth floors was intended to diversify the building's sources of income, and thereby to minimize the risk perceived by a private lending institution financing the project. Two alternative reuse schemes were outlined in the Action Plan. Scheme A called for a somewhat smaller level of investment (enclosing the central staircase to provide an increased level of fire protection for occu- pants) than Scheme B, which called for the construction of two new enclosed stairwells and the introduction of a new elevator. The estimated 1978 cost of renovation per apartment unit was $20,910 under Scheme A, and $23,^-28 under Scheme B. In weighing the benefits of Schemes A and B, the Action Plan noted that Scheme B would produce more leasable floor area; also, the addition of the elevator would make upper-story space more marketable and possibly leasible at a somewhat higher rent level. 3^ The Action Plan recommended that the Southbridge Housing Authority apply to the Massachusetts Department of Community Affairs for an award of leased housing subsidies (under the Chapter 707 program) on behalf of the Whitford Building. These leased housing subsidies, if committed, would allow rents for renovated apartments in the Whitford Building to rise slightly above compara- ble current market rents in the Southbridge area. Rents for apartments covered by the state 707 program are guaranteed for a minimum of five years ; the actual amount of rent paid by individual tenants is scaled to their respective incomes. This targetting of state rental subsidies was viewed as having a dual advantage: (l) it would make available renovated apartments in a central downtown location; and (2) it would help to make private financing for the renovation feasible, since income from the building during its riskiest period (i.e., its first five years) would in effect be guaranteed. Lessons Learned The reuse schemes that were recommended for the Whitford Building were expensive, largely because of the large indebtedness on the building. This meant that the reno- vation of the Whitford Building would be difficult to accomplish without public subsidy — local banks being reluctant to finance such an expensive renovation alone without some lease guarantee. In retrospect, the proj- ect should probably have : 1. Developed a moderate rehabilitation scheme to be accomplished over an extended period (_e.g., phased renovations) that might have eventually improved prospects for private financing. 2. Brought local banks into the reuse planning process much earlier. 3. Given more attention to exploring alternate private and public financing strategies, including HUD 312, CDBG, UDAG, SBA, etc. Another lesson, not sufficiently appreciated prior to preparation of the Southbridge Action Plan, was that banks as a rule refuse to allow income generated by first (and second) floor commercial uses to be credited toward meeting part of the cost of upper-story residential renovations. In other words, to qualify for private financing, most banks request that income generated by upper-floor apartments be entirely sufficient to cover the cost of renovating those floors. To make matters worse, this unwillingness to have the feasibility of upper-story renovation hinge in the economic success of first-floor businesses has been adopted as a guideline of the state 707 leased housing subsidy. The net result 35 of this administrative practive, in short, is to place a mixed-use project such as the Whit ford Building at a distinct disadvantage, since income generated by busi- nesses located on lower floors is often essential (and sufficient) to make a downtown renovation project feasible. One final lesson learned by the project is that, for technical assistance to be effectively translated into local action, it is extremely important that there be a full-time staff planner/community development director at the local level with which to work. In the Town of Southbridge, there was no single public official who could devote the time necessary to assure that proj- ect recommendations were acted upon, such as the recom- mendation that the Housing Authority apply for 707 sub- sidies. (As it turned out, the Housing Authority failed to apply for these subsidies by the appointed deadline). In the absence of a full-time planner, initiative in attempting to move the renovation forward had to be largely carried by the Director of the local area Chamber of Commerce. The Town Administrator was extremely sup- portive of the action plan recommended, but obviously had many other responsibilities that reduced the amount of time he could devote to the project. Summing Up The final outcome resulting from the preparation of the Southbridge Action Plan is as yet unclear. It can be said with reasonable certainty that technical assistance rendered by the project heightened local awareness of renovation opportunities in Southbridge, and contributed to a more positive climate for reinvestment. This im- proved attitude toward renovation and reinvestment may ultimately result in a number of additional renovations, even if the hoped-for renovation of the Whitford Build- ing is not the first. The owner of the Whitford Build- ing has been encouraged to recognize his building as an asset , and to realize that the building has the' potential for being much more profitable in the future, given his willingness to invest in renovation. Perhaps the most encouraging impact of the project has not been on the Whitford Building, but rather on the downtown area as a whole, which is composed of numerous multi-story buildings in a similar situation. Southbridge ' s town government now recognizes that these buildings, taken collectively, represent a viable and important district worthy of substantial public invest- ment . One-half million dollars of public funds were invested in public improvements during the course of the project (sidewalks, tree planting, attractive light- ing scaled to pedestrian activity, etc.), and this 36 indication of public confidence should spark renewed priyate interest in downtown properties. In July, 1979 5 an application was submitted by the Town of Southbridge, through Rural Housing Improvement Corporation, proposing to target Section 8 moderate rehabilitation monies for 12 units of housing in the Whit ford Building. The rent role assured for 15 years under the Section 8 program should make it possible for the owner of the Whitford Building ot obtain up to $250,000 in private financing to carry out the renova- tions proposed in the Action Plan. Lawrence the Sears Block ^■' le reuse °^ "^^e Sears Block in Lawrence was obviously a more complex problem than that presented by the Whit- ford Building, inasmuch as the block contained nine different buildings owned by five different owners. The block was selected because architecturally it was one of the most attractive and interesting blocks in the city. During a period that saw many of Essex Street's older multi-story buildings give way to sleeker one-story storefronts of mercantile architecture, the Sears Block had managed to survive completely intact, presenting to the street a pleasing unity. Location was also an asset of the Sears Block: adjacent to the County Court House, across the street from the City Hall, and one block from the City Common. The importance of the Sears Block was increased by the fact that the city, prior to the Building Reuse Project study, had commissioned an architectural firm to come up with a plan to physically improve the appear- ance of downtown and to make improvements to public areas — a plan that would clearly enhance the Sears Block. Status of the Block at Time of Study The Sears Block was composed of three- and four-story brick buildings separated by party walls at intervals of 25 to 30 feet. The exception to this pattern was the Sears Building itself at the west end of the block. The Sears Building, which formerly housed a Sears Roebuck Department Store , was by far the largest building on the block, with approximately 8,000 square feet per floor. At the time of the study, the Sears Building had been vacant for a number of years , and had suffered serious deterioration as a result. The biggest obstacle to renovation of the block was its multiple ownership. Because of this, and because the buildings also differed in their layouts, conditions, construction (and the readiness of their owners to invest in renovation), it was concluded that there was no single homogeneous solution for revitalizing the block as a 37 "whole. Instead, what was recommended was a phased approach involving a variety of uses. Recommendations The Action Plan concluded that the ends of the block were the most likely places for renovation to "begin. This conclusion was "based on a recognition that build- ings on the end had the best initial chance of economic success, and also that renovation of these highly visi- ble buildings would have the greatest positive impact on the downtown. Renovation of opposite ends of the block was seen as a way to anchor the block for subse- quent renovation of interior portions. Finally, the seriously deteriorated condition of the Sears Building absolutely dictated that its renovation be accomplished in the first phase. Since it stood adjacent to the Court House, and across the street from the City Hall, the Sears Build- ing was felt to be most suited to commercial/retail development. The other end of the block, on the other hand, seemed oriented to less intensive development, and to be compatible for residential use (buildings in the east portion of the Sears Block traditionally had housing on upper floors, tending to reinforce this choice) . One reason for recommending that the block be reno- vated in stages was that it would allow for a test of the relative strength of the market for housing, office space, and retail space in downtown Lawrence. By phasing development, and by holding back some investment until first-phase investments served to define the market poten- tial for various uses , the proper ultimate mix of uses in interior portions of the block could be determined — i.e., how much for office and commercial space, and how- much for housing. Regardless of the exact mix of upper story uses, the Action Plan assumed maintaining retail uses on all first floors, and called for increased local efforts to improve merchandising on Essex Street. In recommending phased development of the block, it was recognized that building owners who invest first are faced with greater risk than those who develop their properties later. Therefore, stronger public incentives were recognized as necessary for renovations undertaken in the first phase. Lessons Learned First and foremost, the experience of the project in Lawrence served to show that implementation of success- ful strategies for building reuse requires private as 38 veil as public commitment. Even with a strong commit- ment from a city government, it is clear that without an equal private interest in renovation, very little can be accomplished. No action has been taken on the renovation of the Sears Block, due in large part to the lack of initia- tive on the part of key building owners. Despite the fact that the city has committed itself to making major financial investments in improving streets, sidewalks, and parking serving Essex Street, no individual build- ing owner in the Sears Block has as yet seen fit to invest in substantial renovation. At a public presen- tation of the final Action Plan, two building owners indicated a willingness to invest in renovation, and may still act. However, the absentee owner of the Sears Building has shown no interest whatsoever in being a developer, and in fact doubled his asking price for the building while the Action Plan was being prepared. Impetus for immediately going forward to implement the reuse schemes contained in the Action Plan was also slowed by city elections which brought in a new mayor and a new director of community development in January, 1978. The new mayor and his administration was as committed to revitalizing the downtown as his predeces- sor ; however , he himself had not been party to the decision to initially target reuse efforts on the Sears Block. In point of fact, upon entering office the new mayor was confronted by a number of other urgent develop- ment issues, including the need to decide whether to renovate the existing downtown Lawrence High School, or instead to construct a new high school facility outside the city. (The mayor decided to scrap plans for new school construction, and to renovate the old high school . ) In 1978, the City of Lawrence was awarded funding to construct 80 units of elderly housing under the state Chapter 667 program. This funding could have been used to renovate the upper floors of the Sears Block for apartments; but instead a largely vacant site across the street was chosen. The state's reluctance to chose the Sears Block was based on a feeling that the block's multiple ownership would make acquisition difficult and expensive. Also, the state elderly housing program has felt the need to keep per unit construction costs of all its elderly housing projects in line with an overall acceptable average cost, and this has discouraged the undertaking of somewhat more expensive renovations (projects that might nonetheless be desirable from the point of view of downtown revitalization) . From the strict viewpoint of housing production, it seems reason- able to place a lid on per unit construction costs. On the other hand, it is also true that the state has 39 increasingly tried to chose centrally located sites for elderly housing, and to give priority to the rehabilita- tion of existing "buildings where it is feasible and possible. Indeed, state and local officials recognize that state housing investments do more than simply pro- duce housing units — indeed, they can be a powerful tool for revitalizing cities and for stimulating broader community reinvestment. To achieve these latter goals may in some cases justify spending more than the average cost for housing. In the case of Lawrence, it was the feeling of the Building Reuse Project that selection of the upper floors of the Sears Block for elderly housing would have been an extremely desirable and productive state investment , and that the extra per unit construc- tion costs could be more than justified by subsequent public and private benefits accruing from the project. At the very least, the project would have succeeded in stabilizing a group of buildings whose continued decay casts a shadow over the rest of Essex Street (and the new elderly housing being constructed across the street) The City of Lawrence could have chosen to use a portion of its CDBG funding to offset the extra cost of renovating the Sears Block, over and above the state cost ceiling. However, the new city administration felt it was more urgent to target this federal funding to rehabilitate old residential structures in a troubled downtown neighborhood. Summing Up As was the case in Southbridge, the final chapter has yet to be written for the Sears Block. There was clear- ly a resurgence of interest in renovation occasioned by the preparation of the Lawrence Action Plan, although exactly how that interest will eventually be expressed is difficult to tell at this time. The City of Lawrence is struggling to overcome a range of economic forces that have over the years weakened the integrity and viability of its downtown and its neighborhoods. The city's resources are extremely limited, especially when weighed against the extent of its problems. For the city to act alone is not enough; revitalization of Lawrence will require a high degree of private initia- tive, and matching state and federal support. Six months after the presentation of the Action Plan, a fire swept through the upper floors of two buildings within the center of the Sears Block. The space gutted by the fire had formerly been in use for very low-rent tenement-style housing. This portion of the block is now boarded up and empty. Whether or not the fire will lead to further discouragement, or in fact speed up the process by which a single developer Uo might acquire and renovate a major portion of the block, remains to be seen. Even though no tangible results have as yet been produced in Lawrence, project staff do not regard this portion of the technical assistance effort to have been a failure. The task of trying to prompt cooperation by 5 different building owners was, after all, an extremely difficult one. Moreover, of the four communities select- ed for technical assistance, physical and economic prob- lems faced by downtown Lawrence were clearly the most severe. Trying to bring about reinvestment in the Sears Block is an example of an extremely complex problem, which defies simple solution. Reversing the decline which has characterized the block, and which indeed plagues much of downtown Lawrence, will require a com- plex layering of strategies. It will require private, state, and federal commitment in addition to the resources the city can commit. Technical assistance alone cannot erase the problems , but in combination with other commitments and resources it can play a guiding role . Prospects for renovating the Sears Block are better now than they would have been had no Action Plan been prepared. How much better, only time will tell. Examples of Other Projects Involving Reuse of Upper Floors in Massachusetts Most recent successful renovations involving upper floor space in downtown commercial buildings have been achieved through the use of federal and state housing subsidies. Most of these projects have involved large multi-story structures under single ownership. Brockton, Massachusetts In downtown Brockton, an architectural/development firm acquired four buildings. The largest of the four build- ings (which was across the street from the other three buildings) was a corner five-story building. When acquired for development, the building had retail ten- ants on the first floor and office space on its upper floors. Under the renovation scheme, retail space was retained on the first floor, but upper floors were gutted so as to accommodate fifty units of housing. The original elevator was too small to meet require- ments for handicapped access, and had to be replaced and enlarged. Also, to meet fire safety requirements, an entirely new sprinkler system was installed, as well as entirely new mechanical systems. Rents for commer- cial tenants on the first floor were kept at the same kl level as before renovation, with the exception that tenants are now required to pay for their own heat and utilities. The three buildings across the street are also intended to have commercial tenants on the first floor, with apartments above {hk units). The average total development cost for all apartments in the project was $35,000/unit in 1978. Federal financing at 7h% was available to this project under the 23 Tandum Plan, which obviously helped increase its feasibility. This particular federal program expired in September, 1977 • Fitchburg, Massachusetts In 19^7 9 when the Johnsonia Building was purchased by its present owner, the cost of operating the building was already beginning to exceed the revenues it gener- ated. The top three floors of the building were unten- anted, and in fact had been closed off from the rest of the building. At that time, the owner spent $27,000 to modernize the second floor of the building for office space, but the market for office space in downtown Fitch- burg had declined to such a point that this too proved to be unrentable. Thus it was that for years this seven-story downtown building was carried with only one of its floors occupied. As a last resort, the building owner decided to try to convert his upper floor space into apartments. Local banks showed no interest in financing the project, and so the building owner applied to the Massachusetts Housing Finance Agency for funding. The project was approved by M.H.F.A. A 121A tax agreement was negotiated with City specifying that the project would pay 15 percent of its rent roll to the City in lieu of taxes. Twenty- four of the 70 housing units were leased to the Fitchburg Housing Authority — the remaining h6 units being rented to persons with moderate incomes. Apartments are attractive and varied. Ceilings are 12 feet high, and windows are large . Old woodwork in the building was left intact, creating a feeling of distinction in the building. The renovation of the Johnsonia Building has served to make use of surplus upper story space to provide attractive apartments, and in the process has helped to create new interest and vitality in downtown Fitchburg. But without the willingness of a state agency to fund the project, it would never have been done. k2 The Beaver Mill, North Adams, Massachusetts Artist's Rendering in 1930. 1*3 Renovating and Marketing Industrial Space in Older Multi-Story Buildings The Problem Older, multi-story industrial buildings, usually located in the centers of cities and towns, have increasingly "been viewed as obsolete for industry and for purposes of economic development. New indus- trial parks have been developed on the fringes of many communities , often with federal and/or state financial assistance. The focus of local industrial development efforts has by and large been to entice firms to locate in these new facilities, reflecting the dual assumption that (l) an outlying location is better suited to industry, and (2) that multi-story industrial space in not functional in terms of the needs of modern industry. Disinvestment in older centrally located industrial facilities has increased. High vacancies in many build- ings have meant that inadequate income is available for building maintenance and repair. Even in cases where space is fully rented, the exceptionally low rents charged in order to lease the space leaves very little (after taxes and heat /utilities) to put back into building maintenance. The adaptive reuse of old industrial buildings to housing has gained considerable public attention in recent years: The A. C. Lawrence Tannery in Peabody, the Pilling and Stackpole Mills in Lowell, the Chicker- ing Piano Factory in Boston, and the Card, Tap, and Dye Mill in Mansfield have all been converted to apartments. But the most obvious and most frequently overlooked reuse alternative is to reuse industrial buildings for industry . Many types and configurations of industrial buildings are ill-suited for conversion to housing — being too wide, or having too large an expanse of floor area in relation to window space. Also, the locations of many industrial buildings, surrounded by other indus- trial activities, or having poor access/orientation to natural sunlight, are unfavorable to housing. Some types of industry can and should be kept in or near downtowns, and can prosper in older buildings. Some of the arguments in favor of maintaining at least hk Advantages of Using Old Industrial Buildings For Industry some industries in downtown locations are as follows: 1. Small amounts of rentable space, suitable for occupancy by small firms, are typically not available in new industrial parks . Small, newly established firms often wish to be able to lease small amounts of space, such as 1-5,000 square feet or even less, but often find such small amounts of space difficult to rent. Large industrial one-story buildings typically offer a minimum of 10-20,000 square feet, with few opportunities to subdivide, and* the cost per square foot of such space is relatively high. 2. As a rule, space in older multi-story industrial buildings is extremely flexible, and ideally suited to small firms . Space in older multi-story industrial buildings can be subdivided to serve multiple tenants. Not only can different firms occupy different levels within a building, but in many cases individual floors can be subdivided to serve two or more smaller firms. Serving multiple tenants may require installation of additional loading dock facilities, but additional expenses may be justified by an increased overall rent roll . 3. Maximizing industrial employment in older downtown industrial buildings can be a way of adding to the vital- ity of adjacent retail areas . It can also reinforce the desirability of older nearby neighborhoods, since employees may wish to rent or buy homes from which they can walk to work. h. Small firms, which are attracted to occupy space in older downtown industrial buildings , are often labor intensive, and may provide more employment per given floor area than larger firms . Also, centrally located industrial locations are generally served by public transportation — an especially important consideration given the increased proportion of households in which both husband and wife work, and the increased cost of owning a second automobile. 5 . Suburban industrial locations are comparatively costly for municipalities to serve , often requiring extensions of roadways , sewer and water lines , and other public utilities into previously undeveloped areas. In turn, outlying industrial locations tend to encourage the spread of low density outward development , adding still further to overall public costs. Public infra- structure serving older centrally located industrial buildings is generally in place, and can often be up- graded at significantly lower cost . Also, spin-off development occasioned by reusing existing industrial buildings need not occasion significant additional public cost. ^5 6. Many light, modern industries can function extremely well in old buildings in downtown locations , "benefitting from being part of a network of inter-related, small- and medium-sized businesses. Such firms are often characterized by high value-added products which are lightweight , and which therefore involve comparatively light truck traffic. 7. Small firms have growth potential for the future . Diversification of small businesses contributes to economic stability, and helps a community avoid becoming overly vulnerable and dependent on the fortunes of a single industry. Also, small firms can offer greater prospects for future growth than larger, well-established firms. Most of the economic growth that has occurred in the U.S. in the past decade has been contributed by comparatively small firms having 50 or fewer employees . 8. Maintaining and marketing space in existing build- ings for small firms is an essential part of a balanced , vertically-integrated economic development strategy . Small firms that become established in a community often want to stay in the same community when they grow larger. Having space for small firms is thus an in- direct way of obtaining the larger firms that a commu- nity desires. North Adams, the Beaver Mill The purpose of the North Adams Action Plan was to address the problems of the underutilized Beaver Mill. North Adams is a city of approximately 20,000 persons which has always been primarily industrial. Established originally to serve New England's textile industry because it had ample water power, the city's major employer now is Sprague Electric Company. Nonetheless, the city's recent industrial history has been clouded by progressive decline, with an increasing proportion of the city's mill space standing vacant. The Beaver Mill in North Adams was selected because it epitomized the problem of underinvestment and under- utilization of older industrial buildings. Another reason for selecting this particular building for study was that it was owned by the city's Economic Development Commission. Thus recommendations made to the city regarding the renovation and upgrading of the building could be directly acted upon by one of its appointed agencies . Status of Mill at Time of Study The Beaver Mill is actually a collection of attached four- and five-story structures , most of which were built between 1850 and 1896. In all, the mill contains 1+6 approximately 100,000 square feet of space, almost all of which was vacant at the time the study began. Examination of the building's condition, not sur- prisingly, revealed signs of deterioration and neglect. The roof of the building was in bad repair and leaked in a number of areas. Truck loading facilities and interior elevators were inadequate. And energy costs to heat the building were high. Nonetheless, the build- ing was structurally sound, and centrally located, making it a potentially valuable resource to the city's overall program for economic revitalization. Recommendations The city's Economic Development Commission received the Beaver Mill in the fall of 1977 as a donation from the Sprague Electric Company. Donation of the Mill and its site eliminated acquisition costs (and also gave Sprague Electric a substantial tax deduction) , so that the city could develop job-producing industrial space for a frac- tion of the cost of developing new space in an industrial park. Given this advantage, the action plan estimated that the mill could be adequately rehabilitated and equipped, ready for occupancy, at a cost of only $5.00/ square foot (1978 dollars). One important recommendation of the plan was that initial capital should be invested in upgrading a por- tion of the mill. This renovated portion would have the demonstration value of showing how inherently functional and attractive space in an older industrial building can be. This renovated portion would serve as a model area to stimulate the tenanting of space in the rest of the building. Study of the Beaver Mill revealed that the E.D.C., prior to the study, was leasing space to tenants at rates below what was required to reach a break-even point. The reuse plan calculated operating costs, as well as rehabilitation costs, so as to provide a more realistic basis for setting rent schedules. The plan went beyond merely addressing physical renovation needs to recommend that a portion of the project's capital budget be devoted to a working capital revolving loan fund, through which loans could be made to deserving tenants to encourage their growth. In addition to containing specific recommendations and cost estimates for improving the Beaver Mill, and for making it more attractive and marketable to indus- trial firms, the Action Plan devoted major attention to an Energy Conservation Study. This study was designed to indicate specific ways of increasing energy efficiency and of making investments which would offer good return in reducing operating costs. hi Lessons Learned The hardest task in facilitating the renovation and tenanting of the Beaver Mill was convincing the City that the project was worthwhile and feasible. Prior to the preparation of the action plan, the City had seemed to place its greatest priority on developing two outlying industrial park sites. The Building Reuse Project, however, convinced city officials that the Beaver Mill offered a unique development opportunity which would "be permanently lost if not acted upon promptly (due to erosion of the building's value due to deterioration). The City, as a result of the project's technical assistance, came to recognize that upgrading and marketing surplus existing industrial space could offer immediate rewards in terms of economic develop- ment . Also the city came to recognize that industrial rehabilitation for smaller firms did not rule out or contradict its long-run goal of finding industrial tenants for new industrial park sites outside the downtown area. As a result, the City agreed to commit $175,000 of its HUD Small Cities Grant toward the rehabilitation of the Beaver Mill — representing half of the recommended capital budget. Another $97,000 commitment of funds was obtained for renovation from a special Department of Interior preservation grant made through the Massachu- setts Historical Commission. This latter grant is especially noteworthy, since it signifies an innovative use of preservation monies to further the purposes of economic development and energy conservation. Summing Up Having gained major commitments of local, state, and federal funding for the cost of building renovations , progress is rapidly being made in upgrading and tenant- ing the Beaver Mill. By June, 1979 s even before renova- tions to the building were begun, approximately k0% of the space in the building had been rented. The Execu- tive Vice-President of the North Adams Chamber of Com- merce is serving as the project manager for the build- ing, and the local Industrial Development Commission is serving as the principal marketing agent for attracting and signing-up tenants. Work on renovating the building was begun in June, 1979 • Meanwhile, additional sources of funding are being sought, such as potential E.D.A. funding for improved truck access and loading facilities. It is estimated that by the summer of 1980 almost all build- ing renovations proposed in the action plan will have U8 "been completed, and the building should be fully tenanted and self-supporting. Long-term energy conservation measures examined in the action plan, such as the possi- bility of utilizing water power (and possibly solar power using the large expanse of the building's roof) may also be pursued through special purpose demonstration grants. All in all, the reuse project with the Beaver Mill in North Adams has been extremely successful, and is just what this older city needed to reverse the outflow of industry and economic activity. It has also helped as a useful by-product to create a positive outlook and a sense of pride and accomplishment in North Adams. Haverhill, the Hayes Home, and Wingate Buildings Downtown Haverhill has always been heavily industrial , and through the 1930 ' s was a leading center for the manufacture of shoes. Since that time Haverhill's leather and shoe industry went into prolonged decline , and many of its older multi-story industrial buildings became increasingly vacant and underutilized. New interest is now being shown in downtown Haver- hill, primarily along Washington Street Shoe District. An old industrial warehouse complex, known as Phoenix Row, has been converted into apartments with the help of Section 8 rental subsidies, and an increasing number of commercial properties on Washington Street are being renovated. Both these developments seem to point toward an improved climate for retail and residential uses within the Washington Street Shoe District. Just north of the shoe district, however, is an area containing a mixture of industrial properties that are unlikely to benefit from this retail/residential renaissance. The buildings are not oriented favorably on the street , are closely aligned to other industrial uses, and are generally unattractive for conversion to housing. Three of these buildings built around the turn of the century — the Home, Hayes, and Wingate Buildings — were selected as targets for technical assistance. Unlike the Beaver Mill in North Adams, discussed pre- viously, floor areas in the three Haverhill buildings were relatively small — each floor contained approxi- mately U,000 to 7,000 square feet of space. Also, column- spacing in the Haverhill buildings was relatively tight — usually 8 feet on center — thus compounding the difficulty of converting the building to other uses. The buildings were chosen because they seemed proto- typical of small- and medium-sized multi-story indus- trial buildings throughout the Northeast that are well suited to meeting the needs of small industrial firms, but which are often neglected as a resource for economic development . h9 Status of Buildings at Time of Study None of the three "buildings was completely empty, yet high vacancy rates combined with low rents for space (on the average between 67^ and 85^ per square foot) made the buildings unprofitable. At the time the study began 15% of the space in the Hayes Building was vacant, 31% of the space in the Wingate Building was vacant, and 5^% of the space in the Home Building was vacant. Rates of vacancy tended to increase as one moved up from floor to floor within the buildings, with the highest vacancies on the fifth, sixth, and seventh floors. Inadequate income generated by the buildings threatened their long-term viability, inasmuch as very little money could be invested in repair and mainten- ance. In the years leading up to the present study, the city has received little in terms of property taxes from the three buildings. Recommendations The key concept presented in the Action Plan was the need for improved space planning within the buildings, and the desirability of subdividing space within floors to meet the special needs of smaller firms. At present, owners of older buildings are reluctant to subdivide floors because of the extra cost , and because of added management expenses. Instead, they prefer to try to rent an entire floor to a single tenant, and in return to charge a very low rent per square foot. In effect, this means that firms are encouraged to lease more space than they want and need, and sometimes (even though the cost per square foot is low) to pay more per month than they would really like to pay. An alternative to this practice, which might serve the interests of the building owner, as well as small firms wishing to lease space, would be to raise build- ing rents/square foot to more reasonable levels, combined with the owner's willingness to subdivide floors so as to rent smaller units of space. Indeed, smaller firms might be desirous of paying a higher rent per square foot in an improved (better maintained, more secure) building, especially if it could mean being able to rent a smaller amount of floor area (and possibly even to pay less per month in total rent). The concept of space planning provides the basis for two parallel objectives of the Action Plan: up- grading of space and increasing efficiency to reduce cost. To achieve these objectives, the recommended development plan places emphasis on making building improvements that improve access to upper stories (passenger and freight elevators) to improve possibil- 50 ities for tenanting this space. Safety of the build- ings is also a major issue addressed "by the plan, which calls for the addition of second means of egress and fire safety equipment. Operating efficiency is to he improved by the introduction of a number of energy- saving measures, most particularly weatherproof ing, insulation, and equipment so as to be able to control the flow of heat to different zones within the build- ings. (This is extremely important if the buildings are to operate efficiently in serving multiple tenants who may have different periods of peak operation, and which may have differential needs for heat. In terms of energy conservation, it is worth emphasizing that multi-story industrial buildings are inherently more energy-efficient than one-story industrial buildings, because they have a higher ratio of floor area to surface area, and also typically have large windows which allow a high degree of natural, i.e., free, lighting and ventilation. Finally, the development plan recommends physical improvements (cleaning and refinishing of interior wood surfaces, painting, im- proved lighting, etc.) to brighten space in the build- ings , and make it more attractive and marketable to potential tenants. The Haverhill Action Plan suggests that rehabili- tating and successfully marketing industrial space in the Home, Hayes, and Wingate Buildings can likely be achieved privately, with private financing, with encouragement from the city in terms of predictable taxes, and improved truck access and parking to serve the area. To increase the feasibility of this private under- taking, the Action Plan recommends that the three build- ings be treated as a single development entity. In this way, the renovation of individual buildings can be phased, and improvements initially can be made to the Home Building (the one building out of the three that is presently being operated at a deficit) based on the income potential of all three buildings. Finally, the combined space of all three buildings will allow the developer greater flexibility in providing a mixture of spatial arrangements, and much greater ease in putting prospective tenants into exactly the kind of space they need. The ultimate goal of the development plan is to allow three well-located industrial buildings to be owned and renovated for less than $10.00 per square foot , while new buildings in industrial parks are being built , often with state and federal financial assis- tance, at a cost of $15 .00-$25 .00 per square foot. Prospects for realizing this goal seem bright at this time . 51 Lessons Learned Local industrial development commissions and city depart- ments of community development in the same municipality frequently operate relatively independently of one another, even though the problems and opportunities they are addressing are closely interrelated. In the case of Haverhill, the apportionment of respective agency respon- sibilities followed spatial as well as functional lines, with the I.D.C. spending much of its time and energy attempting to attract industries to the city's two new outlying industrial parks, while the city's Department of Community Development had taken the lead in planning for the economic revitalization of the downtown area, (including the industrial district on the northern edge of the Washington Street Shoe District). Helping to unify planning for economic and community development , and bringing the responsible agencies together to carry out a coordinated program for utilizing surplus indus- trial space, was an important task of the project. At the beginning of the planning process, the city's industrial development machinery was geared primarily to attract larger, established firms from outside Haver- hill to locate in its industrial parks. Indeed, Haver- hill has been extremely successful in this regard, having attracted a number of very large firms, the most recent one being Compugraphic (which has constructed a 200,000 square foot facility to employ upwards of 1,000 persons). The success of such strategies need not rule out parallel efforts to broaden the city's economic base in other ways by encouraging the upgrading and tenanting of space in older downtown buildings to small firms . One of the local objections to the successful reno- vation of vacant and underutilized downtown industrial space was that it would aggravate an already congested parking situation in the downtown area. The notion that underutilized buildings in the downtown should be kept underutilized so that parking spaces they might have used can be used instead by other uses nearby, is a troubling one. The city recognizes that a shortage of parking does exist in this densely' developed area. On the other hand, it also realizes that the fact that parking spaces are in demand in the area is a jjositive sign that the area is becoming economically vital. Hopefully some public measures, such as possibly the construction of a parking structure to serve the indus- trial district, can be taken to minimize the severity of parking problems in the area,. In the meantime, it does not seem desirable to discourage utilization of existing buildings simply to gain some marginal and temporary saving in parking spaces. 52 One final lesson learned "was that local officials sometimes fail to appreciate the significance of events occuring in or near their own communities. When the D.C.A. Building Reuse Project staff "began work in Haver- hill, they found two dramatic instances of older indus- trial buildings "being renovated for industrial/commer- cial use right in the center of Haverhill — renovations that had occurred without much public notice or fan- fare. In one case, a vacant nine-story industrial "building containing 90,000 square feet of space was acquired for back taxes ($23,000) and renovated by a local furniture manufacturing company; and in another, a local industrialist renovated and completely tenanted an industrial "building close to the Home, Hayes, and Wingate Buildings. These renovations served as shining examples of the feasibility and desirability of reusing old industrial buildings for contemporary business and manufacturing uses, but the significance of these examples was not fully appreciated in the communities where they occurred until they were pointed out and emphasized by project staff. Summing Up The impact of the Haverhill Action Plan has been very encouraging. The presentation of the draft version, in fact, coincided with the ammouncement that a private locally-based development corporation had purchased the Home, Hayes, and Wingate Buildings from the bank which held the properties following foreclosure. Since that time, significant progress has been made in firming up plans for renovation and for obtaining a commitment for private financing from local banks. Some building improvements, along the lines recommended in the Action Plan, have been made, and rent levels in the three buildings have been gradually raised to a level neces- sary to finance improvements as well as continuing repair and maintenance, which was neglected for so many years. (Some displacement of firms may occur as a result of increasing rents, although it is clear that rental increases are inevitable; the extremely low rents charged in the past were only possible given the total lack of reinvestment in the buildings.) Mean- while, the city is moving forward to commit future CDBG and UDAG funds to improve the economic potential of the downtown industrial district. A new truck access route to the district is planned to be funded using federal highway monies. In a related develop- ment of possible significance to further downtown development and recycling, a bill was filed in the spring of 1979 with the Massachusetts state Legisla- 53 ture "which "would create a local non-profit community development corporation in Haverhill to serve as a tool for revitalizing the city's downtown shoe district. If approved by the Legislature, the "Pentucket Community Development Corporation" would "be able to issue bonds and to acquire and renovate downtown industrial prop- erties, thus carrying forward the recommendations of the Action Plan in an expanded way. ^ 55 Building Code Regulations Affecting the Renovation and Reuse of Old Buildings Do Building Code Regulations Present an Undesirable Obstacle to Renovation? An important aspect of the HUD-funded Innovative Project, in addition to providing technical assis- tance to local communities, was to study the degree to which existing "building code regulations are an undesirable obstacle to the renovation of existing buildings and, if so, whether or not proposed code revisions contribute to a lessening of this obstacle. Adding to the relevance of this effort, the work of the Building Reuse Project began just as the Massa- chusetts State Building Code Commission embarked on the task of developing a new set of building code regulations to specifically apply to the rehabili- tation of existing buildings. In fact, the comple- tion of this Innovative Project report coincides with the adoption of Article 22, a new code article within the Massachusetts State Building Code cover- ing "The Repair, Alteration, Addition, and Change of Use of Existing Buildings." This new article took effect on January' 1 , 1979 • Tasks Performed A detailed 10^-page report was prepared by the Building Reuse Project analyzing the impact of code regulations on the rehabilitation of existing build- ings. The specific tasks performed under that study and its findings and recommendations are summarized below. 1. An analysis of the assumptions, philosophical basis, and implications of the original Massachu- setts State Building Code, a variant on the national BOCA code . This analysis substantiates the fact that (a) code compliance is often much more difficult and onerous for existing buildings than for new construc- tion; (b) that current code regulations, when applied to existing pre-code buildings, are not necessarily cost-effective in maximizing oppor- tunities for life safety; and (c) that strict enforcement of inappropriate or low priority code 56 regulations can haye the unintended effect of prevent- ing planned renoyations and, by contributing to disin- vestment, may actually decrease life safety. 2. A study of building code appeals brought before the State Building Code Appeals Board covering a two-year period after the adoption of the original Mass. State Building Code . This study of appeals cases indicates that (l) a large proportion of appeals brought before the State Building Code Commission involve the rehabili- tation of existing buildings; (b) many of the code provisions "which are the subject of appeals in rehab cases are ultimately waived through the granting of variances; (c) the geographic distribution of appeals is far from even, suggesting varied interpretations of code provisions and varied approaches to enforcement on the part of local officials; and (d) the need to travel to Boston, plus the time delay involved in requesting an appeals hearing and receiving a decision, may be factors that discourage legitimate building code appeals that might originate outside the immediate Boston area. 3. A case-by-case analysis of code issues and varied approaches to code enforcement by field-testing build- ing code provisions on proposed renovations of six specific buildings . These field tests demonstrate that (a) enforcement of code provisions in highly individualized situations must be tempered by reason- ableness; (b) code provisions applied to existing build- ings are not always difficult to meet; but (c) local building inspectors should be in the position of being able to relax certain code provisions in cases where strict compliance would be difficult and costly, and/or where substituting alternative measures might be found to satisfy the intent of the code. Related to this latter point , adequate egress out of a building in case of an emergency, which has been the subject of a large proportion of appeals cases, might be achieved through various combinations of early warning (smoke and heat detectors), fire suppression (sprinklers), fire resis- tivity and containment, and/or the addition of extra exitways ; such additional measures should reasonably be considered as meeting the intent of the code, such as in cases of multi-family rehabilitation where it is diffi- cult or impossible to have two means of egress out of every individual apartment unit. The Role of Local Building Officials The attitudes of building officials., and the problems of administering building code regulations, are as much a cause of appeals as the building code itself. It is important to realize that local building officials are permitted to use their discretion in interpreting 57 requirements for public safety and in enforcing build- ind code requirements on existing buildings even if no rehabilitation is proposed . However, in practice most building officials have not been inclined to take action (except in glaring instances) until such time as a renovation or alteration is contemplated. The prescriptive nature of most building code regulations tends to encourage building officials to merely enforce the letter of the code. It does not require discretion or initiative; it permits it. A more flexible, performance-based approach to protecting life-safety in existing buildings will, by its very nature , require initiative and involvement on the part of the local official, and as a result should be more profes- sionally challenging to local officials. Indeed, such a new code will require building officials who have confidence in their ability to interpret the intent of code provisions and to use good judgment in determining how strictly to enforce different code requirements on existing, pre-code buildings. Some code officials who oppose the development and implementation of more flexible code requirements for existing buildings argue that individual discretion at the local level will weaken the uniformity of the code, and erode the concept of a statewide code. However, our analysis of appeals to the SBCAB indicates that, even with the currently prescriptive code, there is a good deal of variation in the administration and inter- pretation of code provisions at the local level. Some local inspectors will reject proposed renovations based on code provisions that others would feel quite comfort- able ignoring. Indeed, total uniformity in administra- tion may be an illusory goal, especially when it comes to regulating the renovation of existing buildings which are varied and unstandardized (the building stock in one part of the state is different from that in another, and it is not entirely undesirable that this be reflected in different sensitivities in regulation) . Given these realities , it is impossible not to rely on the professional judgment and good sense of the local official, who is most familiar with the case at hand and who can work most closely with the build- ing owner to decide what is most crucial to building safety, what is economically feasible to do now , and what improvements might be phased in later, etc. Nor does local discretion necessarily diminish the state- wide nature of the code, since local building owners still have recourse to appeal local decisions to the State Building Code Commission Appeals Board. On the other hand, it is quite possible that more local discretion might eliminate the need for many otherwise unnecessary appeals. It is perhaps of interest to note that this view of the code as a flexible document , with local inspectors exercising a degree of discretion in 58 applying code proyisions to particular renoyations , tends to conform with, the yiew of most architects who regard the code as a "basis for negotiating building improvements , and not as a hard and fast set of regulations and prescriptions. 1. Rewriting code provisions for existing buildings Summary of Conclusions is essential to avoid preventing rehabilitation of safe and structurally sound structures . 2. New - code provisions for existing buildings should be simple, flexible, and performance based; their intent should not necessarily be to prescribe the way in which an existing building measures up to hundreds of individ- ual dimensions and limitations, but rather to assure that the overall performance of the building provides an acceptable level of life safety for its occupants. 3. Change in use should no longer be a factor which necessarily triggers the need for full code compliance. Nor should "proportion of building value" be rigidly used as a basis for determining the degree of code compliance required. h. The economic feasibility of altering and changing an existing building to meet code provisions should be taken into account. Code officials must be sensitive to the context in which requirements are imposed. Struc- tural changes and/or substitutions of materials that are insisted upon may make moderate-cost rehabilitation unfeasible. The community impact of well-intended strict code enforcement may indeed be to diminish the supply of affordable low- and moderate-income housing, in effect requiring higher cost, major rehab that can only be financed through much higher rents. Many renovation projects are undertaken because they are more economical than new construction, and cost constraints on such projects are therefore typi- cally severe. Moreover, rehabilitation project costs can be substantially increased by rigid code require- ments requiring major building modifications . In moderate cost rehabilitation projects, the imposition of unanticipated code requirements cari, in fact, cause rehab costs to double, or even triple, and this can easily take a project out of the realm of feasibility. In designing a new building, it is merely necessary to know and follow the code's prescriptions — for example, to build staircases exactly the way the code says they must be built. But in an existing building, with fixed walls and structural members, to make an existing stair- case conform with the code can mean having to rip out the entire existing staircase, and to rebuild and re- arrange walls and interior dimensions of a building. It is ironic that in many cases this very expensive restructuring of an existing "building, even if carried 59 out, may result in only a marginal increase in build- ing safety. What if a proposed project fails to go forward? With new construction, the only penalty is that open land may lie vacant a little longer. On the other hand, if an existing building cannot be renovated at reasonable cost, there is a good chance that it will receive less and less investment, and in the end will deteriorate (increasing the hazard to its occupants and those living nearby) . Thus the maintenance and safety of existing build- ings confronts code officials with a set of problems in regulation very different from those they face in regulating new construction. If code provisions for existing buildings are unattainable, then reinvestment is discouraged, and life safety is decreased . Moreover, the social consequences of rigid code enforcement, in the absence of compensating economic and housing assis- tance programs, is to inflate rehab costs and to dis- place persons and households who desperately need low cost housing, forcing them to move to accommodations which are less satisfactory and less safe than they would have enjoyed had their previous residence been allowed to be renovated more economically. 5. Strict enforcement of building code regulations affects some types of rehabilitation activity more adversely than others. Larger developers (who typic- ally undertake much larger projects and usually do gut-rehab) have access to necessary financing, and are often involved in a number of projects at the same time; they can afford to wait out the appeals process and can accept sometimes unfavorable (i.e., costly) decisions by spreading extra costs over many projects. On the other hand, small, less experienced developers doing moderate rehabilitation of small multi-family or commer- cial structures are easily "scared off" by the need to make an appeal (lacking knowledge as to the likelihood of winning an appeal, and not being in a position to proceed with the project should the appeals decision go against them) . 6. An important conclusion of the Building Reuse Project is that the State Building Code presents its most serious obstacle, not to major rehabilitation and adaptive reuse, but to moderate rehabilitation projects . Major rehabilitation projects, such as those funded by the Massachusetts Housing Finance Agency, and written about in Built To Last , most frequently involve what is known as "gut rehab," where virtually the entire inside of a building is cleared and completely rebuilt, very much in accordance with new construction standards. Although the basic structure and foundation is used in a gut rehab project, virtually everything else in the building is "new." Moreover, because of the high 6o overall cost of such, projects — typically $30,000- $40,000 per apartment in 1978 — it is usually not difficult to accommodate the expense of meeting the cost of any additional code requirements that might be imposed. The real code problems for rehab occur in less drastic rehab projects — renovations to improve an existing building while retaining as much of its basic structure, "walls, .and other materials as possi- ble. It is these cases that additional costs for code compliance can be prohibitive. 7. Given the fact that the code presents its greatest impediment to moderate rehabilitation and to small developers, new code requirements governing rehabili- tation should be made as simple and readable as possible. Code requirements should not be so forbidding or con- fusing that their complexity discourages compliance and/or appeals. Intricate and unnecessary cross-refer- encing should be minimized. The ultimate goal of life safety is very simple and straightforward, and can only be achieved if general public understanding as to the possibilities for compliance is facilitated. 8. Rehabilitation of old buildings is desirable, and should be encouraged for the simple reason that it increases the level of investment in old buildings, which in turn obviously increases the private incentive for continued maintenance and repair. The goal of public policy should be to encourage renovation of existing buildings, and to prevent rehabilitation only in cases where the proposed renovation brings a build- ing below a minimum acceptable level of safety. 9. The uneven geographic distribution of appeals cases brought before the State Building Code Appeals Board suggests that in addition to rewriting the code to make it more sensitive to existing buildings, it would also be desirable to modify present administrative arrange- ments for hearing appeals. It is recommended that state-authorized appeals boards be established on a regional basis to replace the present patch-work arrange- ment of local appeals boards. State appeals boards might be established in Worcester, Springfield, New Bedford, Lowell, and Pittsfield, in addition to the one in Boston, and these boards would be empowered to hear appeals from surrounding communities . Regionalizing appeals boards under the auspices of the State Building Code Commission would have the advantage of maintaining physical accessibility while at the same time increas- ing the competence and uniformity of appeals decisions. Setting up regional appeals boards would actually improve statewide uniformity of appeals decisions. At the present time, individual municipalities are permitted to operate their own appeals boards to hear appeals cases within their own municipal boundaries. Appeals deci- sions rendered by these local appeals boards have been 61 difficult for the SBCC to monitor. Thus, setting up regional appeals boards would actually act to central- ize and coordinate statewide review of building code appeals . 10. In the past, the SBCC has insisted that rulings on appeals do not necessarily set a precedent for future cases. While this may be true in a strict legal sense, appeals case rulings can provide insights and guidance to local inspectors faced with possibly analo- gous situations. The change to a more flexible perfor- mance-based rehab code makes it especially important that appeals case rulings be compiled, interpreted, and disseminated to local inspectors. The SBCC presently distributes information on appeals cases, but this informational role should be greatly expanded. Over time, a significant body of knowledge will be built up on the subject of rehabilitation, including principles of accepted practice in allowing variances, substitu- tions, and/or phased compliance. 11. The roles of local building departments and build- ing inspectors should be expanded so as to be of positive assistance to building owners contemplating rehabilitation. The present thrust of public regula- tions is far too negative and punitive. Making avail- able professional building and architectural assistance can help to promote desirable rehabilitation. For example, advice can be given as to how a given renova- tion can be accomplished, possibly at less cost, to achieve a higher level of safety. (increased building safety need not always be costly to achieve.) It should be possible to work with building owners in a positive way to prioritize safety concerns, and to allow for phased compliance in cases where insisting on immediate total compliance could cause plans for rehab to be dropped altogether. 62 Former Bigelow Carpet Mill, Clinton Massachusetts Renovated for Modern Industrial Use "by NYPRO Plastics Company -~^--~-^ 63 Insights Gained from the Project Work with Local Building Owners A number of insights "were gained in the course of conducting this Innovative Project. These insights and observations, which are listed below, relate to crucial issues that affect the ability to successfully stimulate building reuse and downtown development. Communities are sometimes overly concerned with attract- ing large, outside developers, and as a result tend to overlook the opportunity for assisting and working with local building owners. Many local building owners have owned their properties for a long time, and it is easy to take these property owners for granted. But it is wrong to assume that ownership by local people is not as desirable as ownership by larger outside development interests . Working with small local building owners is an admittedly time-consuming process, and sometimes it seems that inordinate effort is required to convince local building owners to make what seem to be rather small-scale improvements. The tendency, thus, is to "swing for the fences," in hopes of landing a major downtown development. But to coin a phrase, communities that swing only for home runs have a tendency to strike- out alot . Small-scale improvements by individual building owners can add up, and can create a positive climate that will in turn make it more feasible at a later date to attract outside investors. Indeed, succeeding in generating local investment by local building owners may be a precondition for attracting more sizable downtown development . Local property owners and local developers are a crucial element in maintaining the stability of older communities. They are essential to assuring continuous investment in maintaining and renovating existing build- ings, and to the achievement of communities which are vital, attractive, and livable. Locally -based property owners can be depended on — much more than absentee 6k interests — to hold onto and maintain their properties in lean times, as veil as during "bullish periods, and to add continuity and stability to the local real estate market . Dealing with existing property owners is especially advantageous in terms of facilitating building reuse. When a building is already owned, acquisition price is not an obstacle. In many cases the building is already paid for, and reuse provides an opportunity to maximize the return from a previous investment. The financial pro-forma for the Sears Building (page 37 of the Lawrence Plan) demonstrates that, assuming he were willing to be the developer, the existing owner would have economic advantage over a new owner, for the very reason that he already owns the property. Technical assistance efforts in the future designed to facilitate rehabilitation and reuse of existing buildings could be especially useful by focusing more attention on incentives for existing local building owners to invest in their properties. Many existing building owners could be easily enticed to invest in improving their properties through just a little inducement from the municipality (possibly some assurance that property taxes would be held steady) . In some cases all that might be needed to leverage a willingness to invest would be the offer of a modest amount of free professional assistance in planning the renovation, preparing plans, and determining the finan- cial commitment required . One important caveat is needed however: A spirit of partnership must exist from the beginning if a public/ private scheme for facilitating building reuse is to succeed. Municipalities should target their efforts on key buildings and locations , but should not exert undue effort without the sincere cooperation and participation of building owners who stand to benefit. In some sense , selecting key owners to work with is more important than selecting key buildings to save — since the real goal o f public policy, in terms of encouraging maintenance and rehabilitation of existing buildings, is to reinforce certain positive forms of behavior, and to reward owners who demonstrate integrity and concern for the welfare of their city by reinvesting in and caring for their properties . Market Studies are not a Substitute for Local Goal Formulation Many communities wrongly assume that the first thing they need to do to attract private investment in down- town rehabilitation and new construction is a thorough, up-dated "market study." However, the preparation of market studies can be a costly exercise that can side- track a community from moving closer to its goal of revitalization. (See discussion of market study 65 limitations in Lawrence Action Plan, pp. 25-26.) Investment and financing decisions are often made, or not made, for reasons -which have little to do with rational market analysis. Businesses and developments are increasingly foot-loose, and are less and less tied to particular locations by traditional locational con- straints. Frequently, a decision is made to locate in a given community because it is perceived to he an attractive community — i.e., because it has a positive image. In turn, the image of a community is heavily influenced by what a community thinks of itself. And so we come full circle to the conclusion that if a community believes in itself, and if local residents and businesses want to stay and invest in the community, then it will not be long before outside interests will want to invest as well . Conservative market studies can depress local initiative and can be self-fulfilling; they can dis- courage depressed small- and medium-sized communities from undertaking efforts to improve themselves by renovating space in existing buildings to increase local business activity. Moreover, for small- and medium-scale building reuse projects, a market study may not be essential to gaining financing. Bank decisions on whether or not to lend money for a partic- ular project are frequently based more on the credi- bility and financial condition of the borrower than on the projected strength of the market. Many of the obstacles to renovating, maintaining, and reusing old buildings are psychological and atti- tudinal. Traditional market studies overlook the important dynamic of community purpose and inspiration that can be created by local leaders, professionals, and people with special character, charisma, and drive. People who have lived in a community, and who love it, can succeed in projects for which larger outside developers would have little enthusiasm. A development in the small community of Bridgewater, Vermont, (population less than 1,000) provides a good illustration of how local efforts can triumph over the disadvantage of a presumably weak market. The Bridge- water Woolen Company closed its doors in 1973. It had operated a large mill in the community for 150 years and had provided a substantial portion of the town's employment and economic base. Its closing shook the town. Today, however, the mill has been successfully renovated into the Bridgewater Mill Mall, with a mix of 17 commercial, retail, and industrial tenants. The reuse of the mill building was accomplished through the efforts of town residents. Local residents and former mill workers organized a meeting, and financial pledges of $30,000 were obtained. The Bridgewater Mill 66 Mall Corporation was formed, with local residents purchasing stock in the company. With the help of a local hank, the mill "building vas bought for $60,0.00. A construction company vas formed composed primarily of carpenters, plumbers, and other craftsmen out of work from the community. Workers renovating the mill were paid a flat rate of $3.00 per hour, plus an equivalent of $1.50 in stock for every hour worked (.1975-1976). Volunteer work was also important and allowed construction of the mall to be completed at an incredibly low cost of $5.00 per square foot. The total mortgage on the property when renovation was completed was $380,000. At the end of 1977, a realtor valued the property at $660,000. The lesson of Bridgewater, Vermont, is that local communities exercise a good deal of control over their destinies, and need not passively rely on what a market study concludes. Market studies are performed princi- pally for the edification of outside parties who other- wise have no attachment or familiarity with a community. Resident property owners and local government rarely need a market study to become interested in their community, and, unfettered hy such impartiality, they can often succeed where others might fail, or not even try at all. Because their roots are in the community, and "because they want to stay, local people can justify making investments of time and money that would seem risky to outsiders. And through patience and perserver- ance, local developers can make a project "work" long after an outside developer would have declared the project a failure and left. The above discussion is not meant as a criticism of all market studies per se . There is an obvious need for collecting sound information on which to base local development decisions. Moreover, it is also clear that financial institutions frequently require the prepara- tion of market studies when they are considering a major loan commitment. Market surveys can be very useful in helping local government to determine what types of new investment and retail activities are most desirable and most likely to produce results that will 1 complement existing structures, businesses, uses, etc. The major point is that the collection of market data at the initial stage in planning for older commu - nities should not he a substitute for, or precede, the formulation of overall local goals and policies for downtown development . The best use of market analysis is to define the feasible limits and constraints for achieving local goals once they have been defined . The best role for professional planners and market analysts is not to define the vision of what can be achieved, but rather to assist local government to achieve and implement what it has set for itself as a goal. 67 Examination of the many successes that Massachusetts communities have had in revitalizing their down- town areas suggests the possible conclusion that the most critical determinant of local success is the depth of local drive and commitment, and the quality of local leadership. The old saying, "Where there is a will, there is a way," is overworked, hut in terms of "building reuse it is especially true. In the final analysis, market studies may merely be another way of describing the attitudes, hopes, and aspirations that basically determine whether proposed reuse schemes will prove feasible. Back Taxes and Tax Abatements can Help or Hurt Prospects for Renovation Previously unproductive and presumably uneconomic old buildings are often torn down by their owners to save on taxes — the taxes on open land being much less than those on "improved" sites with buildings. Owners of buildings which are either vacant or which produce little in the way of income, are able to apply for tax abatements based on hardship so as to reduce their property tax obligations , and hopefully avoid the necessity of demolition. Nonetheless, the burden is on those property owners wishing to obtain abatements to reapply every six months, since abatements are granted only for the immediate tax period in question. It is hoped that municipalities will make every effort to encourage people to hold onto old buildings which are temporarily vacant and/or unproductive, and not penalize them by being unlfexible on tax assess- ments. On the other hand, it is probably not a good idea to grant abatements time after time in cases where there is evidence that the owner is not making a good faith effort to maintain or lease space in a building . To continuously grant abatements for per- sistent vacancies is, in a sense, to remove an incentive for correcting the situation. From our work in the four selected communities, we have learned that local property taxes can have very mixed impacts on whether or not buildings are demolished or renovated. There is often a very fine line between a property tax that is an incentive to renovate and one that so discourages a building owner that it contributes to demolition. Local assessors and community development officials are sometimes not very astute in administering local property taxes in ways most supportive of reinvestment and rehabilita- tion, and it is in this area especially that profes- sional outside technical assistance can be extremely helpful . The case of Haverhill can be cited to show the importance of property tax policy in affecting renova- tion and reinvestment decisions. Many of the vacant 68 and underutilized industrial buildings in Haverhill have been held in foreclosure by a local bank, and have been accumulating substantial back taxes. The city's tax assessments on the buildings have been reduced over time, but still the buildings are pro- ducing little in the way of income to offset these assessments. Each year the back taxes owed on the properties become greater and greater. The only real hope for the city is to find new owners for some or all of the buildings who will be more aggressive in upgrading and marketing space in the buildings. But the back taxes that have accumulated on the buildings due to past circumstances represent a serious impedi- ment to their purchase. The city is understandably reluctant to give up its attempt to collect the back taxes, fearing, among other things, that it will set a bad precedent and encourage further evasion of property taxes by other property owners. On the other hand, the city's community development interests are not served by expecting payments of back taxes that make acquisition of the buildings by responsible new owners unfeasible — or, just as important, that reduce the amount of capital the new owners can invest in improving and renovating the buildings. In Haverhill, the task was to convince local officials that the city should be willing to give up its claim of back taxes in order to leverage substan- tial new investment by new building owners . As our experience in Lawrence showed, however, it is impor- tant that this willingness to eliminate or reduce back taxes not be given away too early without the assur- ance of a private commitment to invest in rehabilita- tion . In the middle of the project's work on preparing an action plan for the Sears Block, city officials in Lawrence acted to substantially reduce the back taxes owed by the owner of the Sears Building — from approxi- mately $80,000 to $30,000. In retrospect, reducing back taxes on the Sears Block without any commitment by the building owner (to either renovate the property or at least to secure it against further weather damage and vandalism) was not a good strategy. Reducing the amount of back taxes owed, reduced the city's leverage with the existing owner, and diminished prospects for finding a new owner more receptive to renovation. It also served to increase the amount of money the present building owner hoped to reap by selling the property. (With $80,000 back taxes owed, selling the property for $80,000 would have netted him -0-; now selling the building for $80,000 will net the present owner $50,000.) In conclusion, reducing- back taxes can be effec- tive in encouraging reinvestment in rehabilitation, but commitments to that effect should be negotiated 69 beforehand. If a decision to reduce back taxes is ill-timed , as was possibly the case with the Sears Building, it will not increase prospects for rehabili- tation, but may do the opposite (and may benefit parties who deserve little or no special public consideration). Negotiate Concentrated Public Improvements The importance of negotiating public financial commit- ments — illustrated in the previous discussion of back taxes — can be extended to instances where municipalities use concentrated public investments in capital improve- ments to leverage private investment in renovation. Concentrated public improvements can often be used successfully to reverse negative market attitudes that are stumbling blocks to renovation, and to create a more positive climate for private investment. In Newburyport , dramatic improvements to public areas, financed through urban renewal and the federal highway TOPICS program, created interest in renovating old buildings that had lain vacant and ignored for years. Other cities throughout the state are following suit by committing federal Community Development Block Grant (.CDBG) funding for capital improvements intended to improve prospects for private investment in older areas. Southbridge recently spent three-quarters of a million dollars on concentrated public improvements for the central portion of its downtown area, including the corner on which the Whitford Building is located. Side- walks were attractively redone, new "period" lighting was installed; "neck-widenings" were constructed to allow for the planting of trees and the installation of pleasant sitting areas, etc. — all these public improve- ments designed to contribute to a more positive atmos- phere in the downtown, and to highlight the private investment potential in downtown buildings. The kind of areawide public improvements concen- trated in downtown Southbridge can make sense in instances where existing building owners are judged to be positive participants in revitalization, and/or where private owners are pledged/committed to making positive contri- butions in response to the city's commitment. Communities which are faced with serious private disinvestment, and which have limited public resources, must, however, be extremely careful where and when they make concentrated investments. If at all possible, such investments should be used as a basis for leveraging firm private commitments. Concentrated public improvements can selec- tively and very dramatically increase the market value and development potential of certain buildings and locations, and such favored treatment should not be given away lightly without negotiating compensating pr i vat e c ommi tment s . TO This above principle can be applied to the Sears Block in Lawrence. As mentioned in the Lawrence Action Plan, the City of Lawrence has announced plans to make a major inyestment in public improvements to enhance the public areas around the Sears Building. These improvements, once made, "will substantially increase the market value of the Sears Building, and under the proper ownership could make renovation and reuse attractive and feasible. Yet, were such public improvements to be made under present circumstances, without some commitment on the part of the present owner, they could, in fact, make the renovation of the Sears Building an even more distant possibility. Moreover, the City of Lawrence can ill-afford to make a major investment in public improvements that may not leverage subsequent private investment. Thus, the city should not move ahead with these costly public improvements without negotiating a suitable commitment from the owner of the Sears Building. To go forward without such a commitment would be, once again, to reward a property owner whose actions have been inimi- cal to downtown revitalization. Increase Local Capacity for Planning and Community Development to Encourage Community Conservation In all too many Massachusetts communities, inadequate staffing contributes to uncoordinated community develop- ment programs and a lack of public support for rehabili- tation. In North Adams, for example, city government has traditionally done without a full-time planner — let alone a department of community development. Plan- ning and community development , functions directly affecting the public interest , are instead delegated primarily to semi -public commissions, such as its Economic Development Commission (a non-profit organi- zation composed of civic-minded businessmen, bankers, and community representatives), and a private, foundation known as Hoosuck Community Resources Corporation, which has carried out a number of the city's historic preser- vation projects, but which has also been used to admin- ister city projects funded through the federal CDBG program. The Town of Southbridge , a community with a population similar to that of North Adams (approximately 18,000), also lacks a full-time planner, placing full responsibility on the local Chamber of Commerce to spearhead and coordinate efforts for downtown revitali- zation. Lack of staff capacity to plan and coordinate public policies affecting community development , and building reuse in particular, is thus a serious problem. The Department of Community Affairs hopes to follow-up the implementation of the action plans in Southbridge and North Adams with technical assistance to those municipalities on how to strengthen their on-going planning and community development functions. Some 71 full-time professional staff, and greater accountability to the local chief executive, "both are needed. By and large in small- and medium-sized Massachusetts commu- nities, local policy affecting growth and development is far too weak, and is cancelled out by the uncoordi- nated efforts of disparate leaders and groups within the community. Moderate Rehabilitation and Interim Reuse Solutions are Too Often Overlooked Both of the reuse action plans prepared by the project dealing with the problem of upper-floor vacancies in downtown areas recommend major and costly renovation. The intent, agreed upon by project staff and partici- pating communities, was to try to make major investments in rehabilitation over a short period of time so as to have the most dramatic impact on local community develop- ment. A major rehabilitation project, accomplished quickly, was felt to be the best way of showing local citizens the importance of preserving and utilizing old buildings, and demonstrating the way in which it can spur community revitalization. The tendency to recommend and implement bold and expensive rehabilitation projects is an understandable temptation for local officials, planners, and developers in that it offers the possibility of reversing years of disinvestment through a single investment having a lasting impact. Moreover, the attractiveness of costly, dramatic rehabilitation as a solution to long-term disinvestment is reinforced by federal and state fund- ing programs which tend to favor substantial, as opposed to moderate, rehabilitation. The major emphasis of the federal Section 8 program, until very recently, has been to finance very costly rehabilitation as well as new construction (the generous rental subsidies available through the Section 8 program are not an incentive to keep project costs low). State housing financing avail- able through the Massachusetts Housing Finance Agency (MHFA) has also emphasized substantial gut-rehab. Adaptive reuse and rehab housing units produced by MHFA are new units in virutally every respect (typi- cally only the basic shell of the building is retained) , and are covered by the same type of i+O-year mortgage that covers MHFA housing units produced through new construction. The federal Section 8 program and the Massachusetts Housing Finance Agency have been extremely successful in making possible many of the dramatic and handsome rehabilitation projects for which Massachusetts is noted across the country (see Built To Last : A Handbook On Recycling Old Buildings ). Nonetheless, the vast majority of buildings in Massachusetts in need of rehabilitation could probably benefit from a more moderate approach to rehabilitation. Timely, modest investments in building 72 rehabilitation could perhaps, if expanded, prove to "be a much more efficient way of maximizing the impact of public monies on the housing stock, and could greatly reduce the frequency with which existing buildings fall into states of complete disrepair. It should be noted that both the Whitford Building in Southbridge and portions of the Sears Block in Lawrence could be signif- icantly stabilized by moderate rehabilitation should major funding for substantial rehabilitation not be available . HUD's announcement in the December 28, 1978, Federal Register of a new Moderate Rehabilitation Section 8 program is extremely encouraging, in that it will assist the upgrading of buildings containing 20 or fewer units (such as those studied in the South- bridge and Lawrence Action Plans). Major gut-rehabili- tation now costs between $30,000 and $^-0,000 per unit; on the other hand, spending $5 ,000-$10,000/unit might substantially improve the quality, livability, mainten- ance, and safety of 3 to 8 times as many units. More importantly, the guaranteed rent levels assured for 15 years for units covered by the Section 8 moderate rehab program can be an effective means of leveraging private financing for more major renovations. Too Generous Public Funding for Housing Discourages Continuation of Other Desirable Uses One final observation is perhaps in order related to the Section 8 substantial rehabilitation program: and that is that while targetting major Section 8 funding for downtown rehabilitation is often thought to be desirable in terms of revitalizing downtown areas, it sometimes can act to preclude and discourage more varied and equally as desirable types of building reuse. The relatively high profitability and low risk that the Section 8 program gives developers (especially as compared to the modest profit and high risk of other types of uses) encourages building owners and developers to convert buildings into housing that might better be kept for other types of uses. For example, some buildings might better be left entirely commercial because of their downtown location, and because commercial use could generate more activity for adjacent properties, more vitality, and more local tax base. To preserve a mix of activities in downtown Lawrence, the Sears Block Action Plan recommended that upper floors of some of the buildings be developed for commercial and office use. Nonetheless, if the economic return of developing upper floors for housing is much greater than that likely for commercial use, it might be difficult to convince the building owners not to convert to housing. The generous public funding available for substan- tial rehabilitation causes developers to try to adapt 73 buildings to housing, even when it involves carving up very unique spaces that are beautifully suited to other uses. In Taunton, Massachusetts, for example, an excep- tional old building next to the City Hall (known as the Antine Buildings) has been proposed, along with a number of other buildings , to be included in a Neighborhood Strategy Area Section 8 housing rehabilitation plan. The building has two retail establishments on the first floor, but above the first floor there is a beautiful theater with a stage and seating for 375 persons. The building has an excellent location and has ample park- ing in back. Downtown Taunton is badly in need of a theater to complement its other concurrent strategies for downtown revitalization. At present, there is no movie theater in or near the downtown area, a fact which has discouraged the establishment of restaurants and associated "night spots," and led to a low level of activity in the downtown after 5 p.m. The Wells Theater, the last theater that stood in the downtown, was demol- ished for urban renewal in 1977. A local architect has proposed two alternatives: 1. Put ik housing units in the building, but save the theater space; and 2. Develop a multi-use complex where the theater could be used as a place for large public gatherings, with a connection to the adjacent City Hall. The theater could be rented to private groups for performances, lectures, or benefits . Housing in downtown Taunton is certainly needed, and in its own way will contribute to increasing the vitality of the downtown. The overall NSA plan to develop and rehabilitate housing units on the upper floors of selected downtown buildings is a good one. Yet housing is not all that is needed, and it would be desirable if unique opportunities such as that presented by the Antine Building could be exploited to complement the housing rehab. There needs to be a balance and a mix of activities in downtown. A greater balance and mix in federal incentives for downtown rehabilitation in this respect (i.e., not just for housing) would help protect and assure this vital mix of downtown uses. High Property Taxes in Urban Centers Discourage Rehabilitation Municipal property taxes in Massachusetts are among the highest in the nation. The high level of property taxes in general within the state is in large part a reflection of the strong tradition of "home rule," under which city and town governments are expected to exercise a high degree of control over expenditures for education, public facilities, etc. The tradition of strong local government in Massachusetts has contributed to an especially heavy reliance on the property tax, since it is the principle revenue source for local government . Ik While property taxes are high throughout Massachu- setts, they are much higher in some communities than in others. In general, local property taxes are high- est in older cities, where a large proportion of vacant, deteriorating and/or underutilized old "buildings are concentrated. Since most developers, and people in the housing market, can chose to make their investment in any number of different communities, disparities in property taxes are often enough to tip the scales from one community to another. Unfortunately, the degree to which the local property tax is an impediment to renovation is becoming worse over time. Not only are property taxes very high in older cities, but they are becoming higher. Indeed, many older cities are caught in a vicious cycle: tax rates increase, which discourages invest- ment, which in turn reduces the total assessed valua- tion, which in turn forces the tax rate still higher, and on and on . . . The following table shows the percent change in total valuation for eleven communities in the Merrimack Valley of Massachusetts. New Total % Change City/Town Valuation (1977) C76-'77) Andover 507,100,000 + 12$ Boxford 108,300,000 + 26$ Georgetown 70,420,000 + 9% Groveland 57,580,000 + 1% Haverhill 389,000,000 - 5% Lawrence 389,000,000 - 3% Methuen 367,100,000 + Q% Middleton 67,570,000 + Q% N . Andover 301,400,000 + 3% N. Reading 168,900,000 + 15% Topsfield 109,700,000 + 25$ Lawrence and Haverhill are older industrial urban centers within this region. Between them they provide the hulk of regional employment for the Merrimack Valley. Nonetheless, private residential and commercial invest- ment in rehabilitation as well as new construction has not kept pace with surrounding communities. In fact, the data shows that all of the communities in the Merrimack Valley except Lawrence and Haverhill experi- enced increases in total valuation — whereas the total value of the tax bases in Haverhill and Lawrence declined. This decline in total valuation is doubly serious given the fact that the equalized property tax rates in Haverhill and Lawrence are already higher than in the other 9 communities. 75 Equalized Valuation Per Capita 1979 For Four Older Urban Centers and Surrounding Communities — A Measure of Comparative Tax Burden 1978 Total Equalized Valuation 1975 Equalized Valuation in Thousands Population 67,803 Per Capita LAWRENCE $ 387,830 $ 5,719 HAVERHILL 389,000 414,231 8,794 N. Andover 301,1+00 14,81*8 20,299 Groveland 57,580 5,025 11,458 Methuen 367,100 35,081 10,464 Boxford 108,000 4,162 25,949 Andover 507,100 24,079 21,059 W. Newbury 39,140 2,388 16,390 Merrimac 36,800 3,284 11,205 SOUTHBRIDGE 113,100 16,631 6,800 Charlton 59,460 4,578 12,988 Dudley 78,760 7,436 10,591 Sturbridge 87,420 4,820 18,136 Brimfield 31,300 1,949 16,059 Warren 30,000 3,815 7,863 NORTH ADAMS 118,400 18,446 6,1*18 Florida 31,150 673 46,285 Adams 82,050 11,696 7,015 Clarksburg 18,110 2,005 9,032 Monroe 3,538 226 15,654 Pittsfield 602, 400 56,790 10,607 76 Comparative Full Value (Equalized) Tax Rates for Four Selected Urban Centers and Surrounding Communities 1970-1978 CITY FY1978 FY1977 FY1976 FY197l*-75 1973 1972 1971 1970 LAWRENCE 57.27 56.28 52.00 1*9.1*0 68.60 66.80 63.10 56.10 HAVERHILL 1*9.90 1*3.50 56.60 1*8.10 69.OO 6U. 10 56.70 55.90 North Andover 25.05 23.85 32.10 27.60 1*6.20 1*1*. 50 39.60 37.60 Groveland 35.-25 29. lU 37.20 31*. 20 61.1*0 1*5.60 1*8.30 1*5.30 Methuen 38.52 38.52 35.00 30.00 59.80 52.1*0 1*8.30 1*1*. 50 Boxford 26.82 2k. 32 30.00 27.1*0 1*3.70 37.00 1*1.80 31*. 50 Andover 31.90 29.15 3>*.70 35.00 1*9.70 1*1*. 50 1*1*. 60 1*1*. 80 W . Newhury 28.70 28.70 35.10 32.80 65.70 1*6.00 1*1*. 50 1*0.00 Merrimac 1*0. 9l* 37.15 1*0.90 37.60 79-10 52.80 62.50 55.70 SOUTHBBIDGE 38.32 37.01 36.20 31*. 00 37.70 1*8.90 1*6.80 1*1.70 Charlton 20.00 21*. 1*0 26.00 25.20 1*9.1*0 39.20 39.20 31*. 50 Dudley 36.01) 35.36 27.50 25.70 1*1.1*0 35.30- 32.90 31.60 Sturbridge 30.82 30.82 38.1*0 31.30 1*6.00 1*0.00 38.00 32.00 Brimfield 33.35 27. 81* 35.20 30.1*0 53.10 1*0. 90 1*0.30 35.70 Warren 3!*.20 31*. 80 30.90 30.60 50.80 1*3.50 1*8.70 1*1*. 50 NORTH ADAMS 55.85 58.1*0 36.00 1*7-50 62.1*0 62.00 61*. 00 59.1*0 Florida 19.00 21*. 36 21.30 17.60 81*. 70 61.60 51*. 10 52.30 Adams 35-1*0 30.60 36.00 1*5.30 57.20 51*. 90 57.20 1*8.70 Clarksburg 32.00 1*1*. 1*6 38.1*0 32.50 1*5.1*0 30.1*0 1*0.00 30.1*0 Monroe 16.38 18. 5 1 * 25.70 25.80 59-20 51*. 00 53.1*0 50.1*0 Pittsfield 1*6.1*0 1*3.85 1*2.30 1*2.20 57.90 51.90 1*9.70 1*9.1*0 77 In the course of this Innovative Project, technical assistance was delivered to four older urban centers to facilitate reuse of key existing "buildings. Equalized tax rates in all four communities were higher than in surrounding communities; equalized valuations per capita for the four communities also reflect a comparatively higher tax burden than the surrounding communities. There are two facets to the property tax problem as it affects existing "buildings in older cities. Firstly, property taxes in older cities are generally higher than in outlying, developing communities. And secondly, property taxes in older cities are more unpre- dictable , in that they have risen abruptly in the past, and in the absence of new state policies could well do so in the future. In order to remove this obstacle to private investment in renovation in older high-tax communities, two things must be done: tax rates and assessments must be made more equitable among commu- nities, and there must be greater stability and predict- ability in local property taxes. As a partial, limited solution to the impediment presented by high and unpredictable property taxes, the Massachusetts Legislature formulated and passed Chapter 121A of the Massachusetts General Laws to allow munici- palities to negotiate long-term tax agreements for specifically-approved developments. The original impe- tus for passage of Chapter 121A was to clear the way for the Prudential Center development in Boston's Back Bay. But this same legislation can apply to renovation projects as well. 121A agreements can be used to reduce the amount of taxes that might otherwise be assessed using conventional assessing practices. But even in cases where taxes per se are not reduced, Chapter 121A has real value in giving tax predictability , which is often an important pre-condition for obtaining private financing. The Massachusetts Department of Community Affairs is empowered to give final approval to all 121A'tax agreements outside the City of Boston; projects in Boston are approved by the Boston Redevelopment Author- ity. The vast majority of 121A agreements approved to- date outside Boston have been for projects involving the construction of low- and moderate-income housing by developers who have specifically qualified under the rigorous guidelines of Chapter 121A. Within the City of Boston, 121A agreements approved by the BRA have covered a more varied array of projects, including many commercial ones such as new high-rise office build- ings, a department store complex, etc. Recent changes in the rules and regulations governing the use of Chapter 121A have been developed by the Department of Community Affairs so that its provisions can be made to apply to large-scale urban redevelopment projects and projects containing mixed uses. 78 The rationale "behind 121A is that it is a tool for helping to "break the cycle of disinvestment that results from steadily increasing tax rates. By granting tax reductions and/or tax predictability to an initial developer, a municipality can hope to rekindle private developer interest in declining areas. Moreover, grant- ing predictability in taxes removes the fear that invest- ing in renovation will result in an increased tax assess- ment. Although tax concessions may reduce the taxes paid by a particular property, the theory is that the city will at least gain some additional revenue (as opposed to none) and may in the process encourage others to make investments in the area. However, 121A is not a permanent solution. It is only a stop-gap measure. The only real solution in the long-run (as noted by the White House Conference on National Growth and Economic Development in July, 1978) is for state government to take the lead in bringing about greater areawide cooperation and fiscal equity among communities through increased tax base sharing, and through a shift away from the property tax as the principal source of revenue for local government. In Massachusetts that would primarily mean changing the way public education is financed, since education is the largest single cost of local government , and the largest single burden on the property tax. Fifty-six percent of all the property tax revenue collected by local government in Massachusetts is allocated for education. Seventy percent of the cost of public educa- tion in Massachusetts is supported by local property tax revenues. In fact, Massachusetts ranks U6th out of the 50 states in terms of state aid to education. The conclusion of the 1978 White House Conference was paralleled in Massachusetts in 1978 by the report of the state Legislature's Committee on Equal Education, which recommended increased state funding for the cost of education as a direct way of equalizing educational opportunities among communities, and of decreasing pressure on the local property tax. Increasing state support for education to finan- cially hard-pressed communities would go to the heart of the property tax crisis in Massachusetts. For example, as noted in a Boston Globe editorial on December 13, 1977, the City of Fall River had to tax property in 1975-76 at more than 3h times the rate of Chatham to support its schools — and still was able only to spend $9^2 per child as compared to $1,828 per child spent in Chatham. The equalized local prop- erty value per child in Chatham is $307,510, while it is $2U,591 in Fall River. Property tax inequities abound in Massachusetts. For each child, the City of Revere has ^hk, r J3h in property value and the City of Lowell has only $2U,636, whereas the Towns of Brookline 79 and Dover both have over $99 » 000 in property value per child. High property taxes discourage real estate investments in older cities; they discourage new con- struction, "but they also wipe away the economic advan- tage that might accrue by rehabilitating an old build- ing in an older community. Finally, high property taxes, combined with comparatively low expenditures per child for education, discourage young families with children from investing in rehabilitating old homes in cities. Some Concerns Regarding the Possible Negative Effects of Chapter 121A Tax Agreements Previous pages of this report have discussed the possi- ble advantages and uses of Chapter 121A to leverage private investment in older high-tax communities. It was suggested that Chapter 121A is not a permanent solution to the tax inequities that discourage invest- ment in older cities, but that it might be a desirable interim tool in advance of more significant across- the-board property tax reform. However, it should be pointed out that older cities plagued by long-term disinvestment and high property taxes are in a weak bargaining position in negotiating with private devel- opers, and the ability of private developers to use the 121A process to extract tax concessions from older cities may have the unintended effect of placing those cities in an even weaker bargaining position. There is a real danger, in fact, that 121A could have the net effect of eliminating the ability of a municipality to be firm in insisting on a fair and reasonable level of tax payments, etc. The following concerns regarding 121A's impact are raised for consideration: 1. The very fact that tax rates vary so drastically among communities, being highest in older communities with dwindling tax bases, militates against the even and equitable application of 121A tax agreements . Communities which are wealthy and in good financial condition, having low tax rates to start with, are in a good bargaining position when they confront private developers. Indeed, most well-to-do communities as a rule refuse to negotiate special tax agreements under 121A. The only communities that are compelled to negotiate 121A tax agreements are those which are desperate for some kind of development. In turn, developers looking to gain the best possible deal will likely negotiate the hardest against communities which are financially in the weakest condition (i.e., that presumably need the development most ) . 2. The financial expertise and bargaining power of a large development firm will often exceed the exper- tise and bargaining power of the local community . Indeed, the pressure on an older declining city to offer a seductively favorable tax deal to a major 80 developer is immense, leaving open the possibility in extreme cases that communities will "be "forced" to give away too much in terms of preferential tax treat- ment (negating the financial value of the development to the community and possibly even forcing the commu- nity to take a loss). 3. The lack of clear guidelines for when, and under what conditions, a 121A tax agreement is appropriate as a right tends to open the door to an uneven process of administration among communities, and even within the same community . Local willingness to award a favorable tax agreement may be influenced by the wrong considerations, and developers who need and deserve tax agreements to undertake worthwhile renovation projects may not obtain them for lack of influence in the political process. The looseness of the criteria for determining the eligibility of projects under 121A is a serious problem. The legislation requires that sites, to be eligible under 121A, must be found to be "blighted," "substandard," or "decadent." These criteria, however, can be easily applied to justify practically any project. For example, in deciding to grant a 121A tax agreement to the Jordan Marsh Company to build a new department store (and to demolish a group of architecturally significant and highly profitable commercial buildings), the Boston Redevelopment Authority in effect declared the 100% corner in Boston's downtown shopping district — Summer and Washington Streets — to be "blighted and decadent." Another of the stated requirements of the Chapter 121A legislation is that 121A tax agreements should be ap- proved only to stimulate developments that would not be feasible without such a public incentive. This require- ment as well seems to have been very loosely applied in the Jordan Marsh case; if it isn't feasible to make a commercial investment at Washington and Summer Streets in Boston without a tax subsidy, then it can hardly be feasible anywhere else in Boston. In conclusion, while recognizing that there may be a need for special tax agreements to stimulate certain types of development in certain circumstances, the present guidelines and procedures for designating devel- opments for special tax treatment under Chapter 121A would seem to be much too loosely defined and adminis- tered. k . One of the frequently cited justifications for granting 121A tax agreements is to stimulate positive spin-off benefits and investment in areas surrounding the 121A project itself. Unfortunately, many new development projects REDUCE development potential in surrounding areas, by creating developments that compete for a limited market with establishments in older build- ings . Recognizing the fact that local officials often 81 favor new construction and dramatic redevelopment, it is likely that, in a large proportion of instances, 121A will be used at the local level to stimulate new construction that will in turn have a negative impact on the flow of investment into renovating older build- ings and previously developed areas. The use of 121A in Boston to stimulate new commer- cial office building construction has led to clear inequities in taxes between old and new office buildings. A report prepared for the Boston Redevelopment Authority by consultant Michael Matrullo (reported on by Anthony Yudis in the Boston Globe , March 19, 1978, "Boston Takes A Look At Its Office Market") notes that the frequent use of tax agreements to stimulate new construction means that expensive new space in newly constructed buildings on the average pays little more in taxes per square foot than older office space leased at much lower rent levels. In other words , the proportion of property taxes to income is much higher for older office buildings than for newer ones . The report notes that Class C office buildings (constructed before i960) pay on the average only 15 cents a square foot less a year that Class A (new) office space, most of which was constructed under 121A tax agreement. The Class C tax payment, according to the report, is about $1.69 per square foot annually, as compared to an average of $1 . 8U per square foot for Class A space (even though Class C space rents for between $^.11 and $6.00 per square foot, whereas Class A space typically rents for more than $10.00 per square foot). The report notes that favorable tax treatment for new construction, and the comparatively harsh tax treatment of older office space, could be one of the reasons for the lack of investment and imaginative remarketing of Class C office buildings. The report's conclusion that Boston's property tax policy has dis- couraged renovation of older office space is buttressed by data showing that Class B office buildings (modern- ized space in old buildings not likely to be covered by tax agreements) almost consistently pay the highest per square foot tax bills: $2.2^ per square foot annually, averaging U0<^ a foot higher than space in Class A new buildings . 5. There is little professional agreement as to the basis for determining what constitutes a FAIR tax agree- ment* . Locally-negotiated tax agreements run the gamut from 7.5% of gross income to over 30% of gross income. Another factor that complicates the negotiation of tax agreements is that local officials are often unable to judge the amount of income that will be gained by syndicating the project, and/or the tax benefits gained as a result of accelerated depreciation; as a result, important economic benefits derived by the developer are overlooked in calculating an agreed-upon tax payment. 82 To make matters worse, municipalities are sometimes even unable to verify the direct income earned "by a development, which is, of course, the primary basis on which a development's tax payment is computed. The Prudential Center development in Boston, which was the first development undertaken under Chapter 121A, provides a case in point. According to an article "by Anthony Yudis in the Boston Globe (March 19, 1978), the directors of the Boston Redevelopment Authority now feel that over the years Prudential has not sub- mitted sufficiently-detailed figures to show how they arrived at the amount to be paid to the city in lieu of taxes. Under 121A, property owners are supposedly limited to an 8 percent return on their equity invest- ment. The BRA suspects that Prudential's return on investment may be much greater than 8 percent, but cannot verify this because it lacks information on how Prudential computed its depreciation, its operating costs, what the sales figures of tenants in the complex are, etc. Prudential has contended that it must protect the privacy of its tenants, and cannot disclose finan- cial information involving sales or leases. Local Property Tax Policy Should Encourage Owner Occupancy (Especially of Multi-Family Residential Structures) The local property tax is a powerful tool in influencing the nature and extent of community reinvestment — perhaps the most powerful tool that local government has at its disposal. In the past local officials have acted to adjust the local property tax to achieve purposes which are assumed to be socially desirable and in the interest of the community — such as levying preferentially lower assessments on open space and agricultural land. Tax abatements and reductions for elderly citizens are also common in many communities, in recognition of the fact that many elderly must live on fixed incomes . Given the precedent of preferential tax policies , it is proposed that consideration be given to the advantage of local tax policies that would encourage owner occupancy of properties (owner occupancy to be construed as either the owner's principal place of residence in the case of a residential structure, or principal place of business in the case of a commercial structure). The experience of the Building Reuse Project during the grant period suggests that problems of neglect and deterioration in existing buildings are often most serious when associated with absentee ownership. Because they lack a direct involvement in the community, absentee owners can tend to feel that they do not have much of a stake in the future of the community. In cases such as the Sears Building in Lawrence, where the owner of the building is inaccessible and not directly concerned with the revitalization of the downtown area, prospects for building reuse are appreciably dimmed. 83 This observation leads to the specific proposal that commercial and multi-family (three or more units 1 structures which are occupied by their owners should receive an Incentive Tax Exemption from the local property tax. This property tax exemption would serve as an incentive to owners to occupy buildings they own (.and, conversely, as a disincentive to owning remote properties purely for speculative purposes). An earlier portion of this final report, dealing with building code issues, pointed out that an owner who occupies a build- ing shares the interests of his tenants in maintaining safe and clean conditions. Moreover, action to repair a building defect is likely to be much faster when it is possible for a tenant to bring a problem directly and immediately to the attention of the owner. An absentee owner who is distant from a building he owns can find it all too easy to tolerate deteriorated and unsafe conditions, at other people's expense. An owner-occupancy incentive tax exemption would be particularly appropriate in terms of encouraging responsible ownership and maintenance of multi-family residential structures which are all too often victim- ized by disinvestment related to absentee ownership. In recent years, small- and medium-sized apartment buildings have been increasingly vulnerable to dis- investment as rising fuel and operating costs have made them less and less profitable to their absentee owners. It is conceivable that whereas small multi- family buildings may be unattractive to absentee interests, individuals and families may find it reward- ing to acquire such buildings, as a means of acquiring attractive and economic living arrangements and possibly even a modest income. By encouraging responsible owner-occupancy, local property tax policies would greatly enhance the likelihood of continued maintenance and reinvestment , and would help to discourage the most glaring disinvestment problems arising out of absentee ownership. 8U Old Building in Boston's South End, Renovated for a Mixture of Commercial and Residential Uses. 85 Appendices Appendix One MICHAEL S DUKAKIS GOVERNOR WILLIAM G FLYNN SECRETARY 3ooi/ea, ,,-/£mj. G?/0