The developers who propose to turn the prominent former Kmart plaza site on Western Avenue into a $50 million to $60 million multi-use project with market rate apartments and a hotel are asking for a bigger tax break.
George Campbell, leader of a group planning to develop the neglected property perched on a hill within walking distance of the state Capitol complex, said the development cost is going to be much higher than first thought, and they’ve had difficulty getting financing for the project that he and others said will have an assessed value that is drastically lower than what building it will cost.
That’s a challenge that has hindered or prevented other similar large housing projects in Augusta and central Maine, where there aren’t very many large comparable property sales for assessors to consider to determine their value. That lack could continue to make it harder for developers to finance such large-scale projects in central Maine until one or more big projects sells and effectively resets market values used by tax assessors to determine how much such properties are worth.
Those challenges have Campbell and his partners, including Augusta contractor Joe LaJoie, a partner in LaJoie Brothers Construction, coming back to the city for a larger tax break, to help offset their anticipated additional costs and make the project more enticing to potential lenders.
The tax increment financing, or TIF, deal approved for the project by city councilors in January would have returned an estimated $4.2 million in property taxes expected to be generated by the development back to the developer over 20 years.
The new proposal, which goes to city councilors for a public hearing and potential vote Thursday, is projected to return $9.9 million to the developers over 30 years. However, unlike the previous deal, and most other TIF agreements the city has approved, it would cap the amount of tax dollars generated that could be returned to the developer at $16 million.
Much of the increase is meant to make the project more attractive to lenders, who have been hesitant to loan money to a project expected to cost $50 million to $60 million to build but due to assessing standards, would initially be assessed at only around $20 million.
“That makes it difficult for the developer to obtain financing,” said Keith Luke, the city’s economic development director. “The challenge is that Maine assessment rules and laws are in place. And it makes it difficult for our assessor to put what we consider a realistic value on the project. It’s a major challenge and one of the big reasons we need a TIF, to show our confidence in our own local economy. There aren’t other projects like this, not only in Augusta but throughout central Maine, so they have no comps to base them on.”
Luke said the addition of the $16 million cap protects the city against unintentionally providing a windfall to the developer, if and when the taxable new value of the project escalates. Once the project generates $16 million in new taxes returned to the developer, all additional new tax proceeds would go to the city, even if it reaches that level within the 30-year lifespan of the TIF.
“Once this project is completed there’s a realistic expectation its taxable value will be significantly higher than today’s conservative estimate,” Luke said. “In effect the city is offering a maximum $16 million incentive, spread over many years, to help unlock a more immediate $60 million private investment on the former Kmart site.”
The current tax revenue generated by property taxes on the existing site, of $111,700 a year, will continue to go to the city in either TIF scenario.
City councilors appeared to respond favorably to the request during their Aug. 14 discussion of it, despite some misgivings about the amount that would go back to the developer.
“I had some concerns, because this is an unusual TIF. We’re losing quite a bit of revenue; we’re giving it back to the developer to kind of move it along, so I wanted to gain a little more information,” Ward 4 Councilor Eric Lind said. “If this is up and running and it runs well it could serve as a springboard for other development in the area, because they can say: ‘Here’s a comp.’ That was the part that got me, and won me over. To look at it not just from the perspective of this developer, but also other development, that’s the value that I saw in it.”
Having a hard time getting financing for large housing development projects in the area is not unique to the Kmart site.
The only central Maine community to see developments on such a large scale appears to be Waterville, where since 2019 Colby College has spent $265 million on capital improvements, including new residence halls and new community venues, including the Paul J. Schupf Art Center that opened in downtown Waterville in 2022.
Last year Saxon Partners listed for sale a parcel of land off Civic Center Drive where it had planned 250 market rate apartments, after being unable to secure financing for the project.
That project, estimated at about $30 million, was granted a needed zoning change in 2018, was approved by the Planning Board in 2019, and received a tax increment financing tax break from the city in 2020.
The property was listed for sale last year with an asking price of $6.5 million. It was advertised as a fully approved site with a significant property tax reduction and architectural plans in place. Earlier this year, the Planning Board extended permits for the project, which would have expired by now.
Luke said at that time the property remains ripe for development as much-needed housing, but commercial financiers have been reluctant to offer financing to such large projects in areas unfamiliar to them like Augusta.
Campbell said he got a call from a representative of that project, who said they were excited to see the Kmart proposal, dubbed the Capitol Heights Center, move forward because they couldn’t get comps for their project and therefore couldn’t finance a project they know is needed and that they know can support itself and be profitable.
The Capitol Heights Center project, at 58 Western Ave., has also been modified, gaining eight new apartments, at 58 units, and plans for addition retail on the site, including a new restaurant.
Site development costs are also projected to be more expensive than the developer first thought. Demolition alone was $420,000 more than expected. The discovery of poor quality soils on the site is expected to increase costs, interest rates are high and supply costs have increased.
The Augusta City Council meets at 7 p.m. in the City Council chamber at the Augusta City Center at 16 Cony St.
