Tax Credits Transform Industrial Buildings in Richmond
By Caitlin Jones & A. J. Johnson
6 min read
Tax Credit Advisor, January 2006: Driving over the 14th Street Bridge into the Old Manchester community of Richmond, VA, one can’t miss the new $16 million residential and commercial complex known as The Commons at Plant Zero.
Developed by Fountainhead Real Estate Development, a local real estate company, the new development is a gateway into the central business district that presents tenants and businesses the chance to realize new growth in an area that is moving beyond its economically distressed history.
The Commons at Plant Zero, which opened in 2007, is composed of two historic buildings that date to the early 20th century: the Dutch Roof building, named after its Dutch Roof style and once used by a boot manufacturer; and the Fountain View building, once used as a clothing plant.
The Commons at Plant Zero includes 44 market-rate apartments renting from $800 and $1,600 per month, and more than 35,000 square feet of office/retail suites. The Dutch Roof building has 21 apartments and the Fountain View building, 23 apartments. The buildings each have commercial space.
The upscale apartments boast high-end details such as laser-etched Italian tiles, granite countertops, stainless steel appliances, custom Brazilian hardwood vanities, bamboo cabinetry and flooring, and modern lighting fixtures.
Fountainhead’s owners, Thomas Papa and Richard Gregory, purchased the warehouse buildings from MeadWestvaco, a paper company that was leaving the Richmond area. Prior to The Commons project, Fountainhead had developed a 100-artist studio center, large event space, fountain, and café to bring visitors to the area, which is in the Manchester Industrial Historic District.
The success of that earlier development led directly to The Commons at Plant Zero, which was meant to enlarge the community by spurring new residential and commercial development. Now, other developers have targeted the neighborhood, planning projects with 80, 90, and 225 units of market-rate apartments.
Unique Project
According to city officials and business professionals involved in the project, The Commons is a unique project because it mixes the city’s growing arts community of painters, sculptors, writers, Web designers, and musicians with professional businesses such as law firms, to create a thriving residential and business environment.
The residential units in The Commons are fully-leased and the commercial spaces nearly all leased. However, the area surrounding the development is still in transition.
The neighborhood has a poverty rate above 30% and residents earn below 60% of the area median income. The site is located in a qualified census tract for redevelopment, an empowerment zone, and an enterprise community, and is in a low-income community as defined under the federal new markets tax credit program.
The juxtaposition of developing a new community in the midst of a traditionally, poor neighborhood is what made the project exciting for Fountainhead, said company executive Vik G. Murthy, who oversaw the project.
“It’s part of the challenge and the risk that you have to take as an historic developer in the area,” he said. “We get higher rents and lower vacancy. We didn’t make the traditional colonial units, normally found in the Richmond area.”
Funding Sources
Funding sources for The Commons at Plant Zero included $4.5 million in equity generated by the sale of federal and state historic tax credits; a $350,000 enterprise zone grant; a $50,000 CARE grant; $1.7 million generated by the federal new markets tax credit; a $7.25 million permanent mortgage; and $2.1 million in developer equity. According to the developer, the project, which also received 10-year tax abatement from the city, was the first development in Richmond to use the new markets tax credit.
Investors purchasing the state historic tax credits were Richmond-based Carlyle Associates, and the Markel Corporation and Markel American Insurance Corporation, based in Glen Allen, VA. Markel was also the federal historic tax credit investor.
With an eye towards stabilizing a neighborhood in transition, Wachovia Community Development Finance (WCDF) invested in the project through the new markets tax credit program, said WCDF Vice President Glen Hatton. Wachovia provided the $7.2 million, subsidized loan for the project.
“It was an opportunity for us to partner with a very innovative developer, to create jobs, and bring some residential and commercial tenants into the neighborhood,” Hatton explained.
He said that while Wachovia’s primary focus is on affordable housing, using the new markets tax credit allowed the bank to pursue its goal of investing in mixed-use, mixed-income projects that transform communities.
Catalytic Influence
Rachel Flynn, Director of Community Development for the city of Richmond, described The Commons project a catalyst for the arts community and a “cool place to live.” The development has sparked interest in an area that was once more industrial, but is now attracting new residents, students, and professionals.
Flynn noted the project’s outward appearance doesn’t reflect its exceptional interior design. She said the exterior was largely unmodified, in keeping with the historic nature of the project. But she predicted that the exterior will likely be redesigned after five years à the end of the federal historic credit recapture period.
Murthy said the initial design concept for The Commons didn’t meet with approval from the Virginia Department of Historic Resources (VDHR), which runs the state historic tax credit program.
Fountainhead’s original design called for all of the commercial space in the Dutch Roof building to face a pedestrian walkway and all of the residential space to face an alley. The firm also wanted to add a new second floor of residential space.
However, that design didn’t meet VDHR’s requirement that the full extent of exceptional truss work in the building’s ceiling be undisturbed, Murthy said. The solution was the design of a new commercial use for the space, using a dramatic combination of glass and steel pods integrated into the truss work.
Murthy’s advice to other developers is to get an historic consultant to work with early on, and answer questions from state historic regulators, before finalizing plans and beginning construction.
The Commons at Plant Zero recently won a 2008 J. Timothy Anderson Awards for Excellence in Historic Rehabilitation from the National Housing & Rehabilitation Association, in the category of Best Adaptive Reuse/Commercial Rehab.
-Stephen K. Cooper
