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Developer explains why he's seeking GCEDC assistance on 96-unit apartment complex in Pembroke

By Howard B. Owens
metzger schmidt pembroke apartments
Engineer Michael Metzger and Developer Michael Schmidt at the Sept. 27  Town of Pembroke Planning Board meeting.
Photo by Howard Owens.

It's more expensive to build an apartment complex in Pembroke than locations to the town's immediate west, according to developer Mike Schmidt, and what he can charge for rent in Pembroke is substantially less than in just about any part of Erie County.

So he wouldn't build in Pembroke if not for the tax abatements he sought and could receive from the Genesee County Economic Development Center.

On Thursday, the GCEDC board of directors voted to move the proposed incentive package for Countryside Apartments LLC to a public hearing at a date and time yet to be scheduled in the Town of Pembroke.

If approved by the board after the hearing, Schmidt, who is planning to invest $15.65 million to build a complex that could eventually contain 96 market-rate apartments -- would receive a sales tax exemption on building materials worth $739,200, a property tax abatement of $2 million, and a mortgage tax abatement of $130,000.  

The location is at 8900 Alleghany Road, Pembroke, which is about halfway between Cohocton Road and Brickhouse Corners.  Immediately to the south of the currently wooded 8.2-acre lot is a farm field and a long-abandoned gas station.  A single-family home is on the land to the north.  The property is zoned limited commercial and agricultural-residential.

The Batavian interviewed Schmidt on Friday because, at a Town of Pembroke Planning Board meeting on Sept 27, it sounded like Schmidt said he was getting no government assistance for the project -- as in, no government subsidies.

At the meeting that night, some residents raised the specter of Ellicott Station and how the project seemed to go from market-rate apartments to low-income housing once state and federal agencies got involved, and Schmidt replied that "They (Savarino Companies) already had all the agencies lined up to work with them. We are here alone. Mike's (Metzger) my engineer. We have no intention of doing that. I can put that into writing. We certainly aren't going to be looking for any state financial aid or any type of anything from the government to help us. (emphasis added)"

Today, Schmidt said he felt bad that maybe he didn't communicate as clearly as he would like. He called himself a straight-shooter and said that he certainly didn't mean to mislead anybody.  In his mind, he was speaking purely in the context of seeing the kind of government assistance that comes from Housing and Urban Development or the state Office of Homes and Community Renewal -- assistance that comes with strings attached on the kind of housing you must develop.

The GCEDC assistance has no such income requirements.  

It perhaps should be noted, too, that GCEDC is not technically a government agency.  It is a public benefit corporation, which places it somewhere between being a government agency -- created through legislation -- and a standard non-profit. However, IDAs, such as GCEDC, are given the authority to grant relief from certain taxes levied by state and local government bodies.

Schmidt said no one with GCEDC or any government agency has approached him about turning his complex into subsidized housing.

"It's not going to happen on this project," he reiterated.

He said that was the only point he was trying to make to the planning board and residents in attendance, and he's sorry if it came across as forgoing all assistance.

"My intention is to do my level best to be as clear as I can with my answers," Schmidt said.

He said he understands that what has happened with Ellicott Station has made people more distrustful of developers. He said he's followed the project closely and that by his count, Savarino Companies has a dozen different government agencies involved in the project.  That isn't the case with his project, he said.

He said he understands that people are concerned about a "bait and switch." 

"That (Ellicott Station) hasn't been real helpful to me," Schmidt said. "The trust level that is normally there between a developer and a town board and a town planning board has kind of been breached."

When asked if his statement that he wasn't seeking assistance might be seen as misleading and leads to further distrust of developers, Schmidt said he disagreed with the idea that he is taking anything from anybody.

He called it a "mischaracterization." 

Nobody is handing him money, he said. He's financing the entire project himself.  However, the tax breaks are the only way to make the project viable because of the disparities in expenses and revenues between Genesee County and Erie County.

"There is no way this project could move forward without the help," Schmidt said. "Without the help, these projects and projects like it won't happen." 

An explanation of the abatements: If nothing is built, there is no sales tax to charge on materials not sold, so the argument from IDA supporters is that it isn't money spent, and the same with the mortgage tax.  On the property tax abatement, in the form of a PILOT (payment in lieu of taxes, meaning the developer pays some fees to local jurisdictions), the abatement is only the portion of the tax increase caused by the increase in assessed value that development creates, so if there's no development, there is no increase in assessed value, and no new taxes to forgive, and no increase in tax revenue when the PILOT ends.

Schmidt listed several Erie County communities where he could get $800 a month more in rent for the same apartments he's planning in Pembroke, where he'll charge from $1,400 a month to $1,700 a month.

And because there are fewer qualified contractors who will take on projects in Pembroke, and it costs more to truck some material to Pembroke, his expenses are higher to build in Pembroke than in other communities.

Additionally, the cost of construction in recent years has gone up substantially in the past few years, he said. Not counting site work, it costs $200 a foot to build an apartment complex, he said.

Financial incentives are the only way he can keep rents affordable.

Asked about getting tax breaks not available to existing landlords in the area, he said his costs are substantially higher than any landlord buying existing buildings.

"When you're buying apartments in an area where you're paying a fraction of the amount per unit than it costs to build new, that's a real benefit to that landlord," Schmidt said. "When I build new units at a higher rental price, those landlords are able to raise their rents, and with higher rents can still say, 'look at what a bargain you're getting from me.'"

Genesee County, in general, and Pembroke in particular, needs more housing, Schmidt noted, especially in light of all the new development coming in -- Plug Power and Edwards Vacuum at WNY STAMP, multiple new projects at Exit 48A, and new mixed-use developments at Brickhouse Corners.  

Because of that, Schmidt believes his project will be successful and fill up quickly, though he recognizes there are no guarantees, which is why he's taking a phased approach to building the complex -- four separate buildings of 24 apartment units each. He's not going to build any units beyond the first phase if it turns out there is no demand, or he will wait for the demand to grow, which could take years.

"I don't know how big the demand will be," Schmidt said. "I can't say. I know it's not a field of dreams where I can build 10,000 units, and they will be full. That's not it. But I'm confident this will be a successful project."

He also thinks he will fill the units with tenants that current Pembroke residents will appreciate as neighbors. And that his tenants will be the kind people who not only make a positive contribution to the community but they will also contribute economically, which benefits all business and property owners

"As I said at the meeting, having more people who are qualified, hardworking people with good jobs drives the value up of every property," Schmidt said. "Undoubtedly." 

Who rents apartments? Schmidt said it's people who don't want the responsibility of owning a home.

"A house is permanent," Schmidt said. "It means you think you're going to stay in the area. You know you have a secure job. You want to be certain that you want to stay in a community. You like the schools. An apartment is a stepping stone into that area."

An apartment dweller doesn't have to worry about putting on a new $18,000 roof, or fixing the dishwasher when it's broken, or plowing the snow, or tree removal after a storm, or spending $300 plus labor on a new sump pump.

"Apartment living is very simple living," Schmidt said. "When you pay rent, you have an all-in number. For $400 a week, you know every expense is covered. People like that.”

He then explained, "I know a guy who sold a $500,000 house and is moving into an apartment -- not senior housing but into a $2,300-a-month apartment. You might say he's insane, but he doesn't want to do snow removal. He doesn't want to mow a lawn any more. He wants to be able to go and come as he pleases."

Schmidt admitted, "Hey, I'm a landlord," so of course, he's bullish on apartments, but he sees the demand. A fellow landlord in Erie County rents his units for $2,600 a month.

"You might think, 'Who the heck is going to pay that,'" Schmidt said. "He has a waiting list."

He added, "New people are coming. They just will be. I don't know how many jobs they're projecting over the next 10 years, but if the projections are just half right, there will be a lot of need for housing." 

But meeting the growing local need for more roofs to put over the heads of more people is only possible, he said, through the financial assistance of an agency like GCEDC.

"Housing is needed in the area, so how are you going to get it, to get investments from people like me, who would normally invest in other parts of the WNY region, more toward Buffalo, if you're not going to work with them and help them, without some sort of financial incentive," Schmidt said.

pembroke apartment rendering
Rendering of a 24-unit apartment building proposed for Route 77 in Pembroke, courtesy of Developer Mike Schmidt.

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