North Kentucky News

COVINGTON, Ky. – Since its construction in 1865, the year Abraham Lincoln began his second term, the cornerstone building at 401 Scott Blvd. has been home to a drug store, a community center, and the Covington Masons.

But with the three-story building underutilized in the modern era, the City of Covington is helping a developer give it new life by using a recently created incentive program designed to activate vacant commercial buildings in neighborhood business districts and on corners throughout the city.

Last Tuesday, the Covington Board of Commissioners approved a Vacant Property Incentive for Covington Commander, a division of Orleans Development, for the restoration of the building.

“Covington derives more than half of its annual revenue from payroll tax revenue, but, due to demand, we have a lack of move-in ready space,” said Assistant Economic Development Director Sarah Allan. “Therefore, partnering with our development community is critical to preserving our historic assets and attracting new employers and residents.”

For developers like Tony Kreutzjans, owner of Orleans Development, the incentive made the project all the more “approachable.”

"As a mixed-use and residential developer, I tend to shy away from exclusively commercial buildings, but 401 Scott was too special to pass up,” said Kreutzjans. “It’s a cornerstone building in the corridor, and it has been long underutilized. The City’s vacant property program made the project more approachable. It’s also a great tool to incentivize future office tenants, as we will be splitting the payroll tax deduction with whomever leases the space."

Kreutzjans said the goal for 401 Scott St. is to have retail on the building’s first floor and office space on the upper floors.

How it works

The Vacant Property Incentive is designed to entice developers and real estate investors to convert vacant, historic buildings into move-in ready, quality commercial space – office and retail – for prospective businesses. Through the incentive, the City pledges 50 percent of the payroll tax from any new tenant to Covington that the developer attracts for 5 years, or 25 percent for an existing Covington tenant.

“While it doesn’t provide upfront capital, the incentive ultimately boosts the developer’s revenues and return on investment,” Allan said.

The program was created in 2013 but was long underutilized. In the last few years the City increased efforts to inform developers about the incentive and has used it to partner on the creation of commercial space at 533 Pike St. and 722 Scott Blvd.

Allan said the City hopes to partner with even more developers to attract new businesses that will add to the vibrancy and momentum of the city’s neighborhoods.

Eligibility

Developers must submit an application for the Vacant Property Incentive before any work begins.

Buildings must be at least 50 years old and have been at least 51 percent vacant for the last two years. Properties citywide are eligible. (If the address sits outside Covington’s TIF (Tax-Increment-Financing) District, the project might also be eligible for a separate incentive that freezes the City’s portion of property tax at the pre-rehab level for five years.)

Reimbursement

The incentive comes in the form of a reimbursement whose value depends upon the tenants that move in. The City’s current payroll tax is 2.45 percent, or 2.45 percentage points.

• If the property attracts a new business to Covington, the developer receives 1.25 percentage points of all taxable W2 payroll created by new tenants for five years (or slightly more than half of the new payroll tax revenue).
• If the property attracts an existing Covington business that relocates, the developer receives 0.625 percentage points of all taxable W2 payroll created by those new tenants for five years (or roughly one-fourth of the new payroll tax revenue).

For example, using industry standards for salaries and space per employee requirements, a developer who renovates a 6,000-square-foot mixed-use building (first-floor restaurant and second-floor office) could theoretically net about $60,000 over five years, while a developer who renovates a larger 15,000-square-foot office space could be reimbursed about $200,000 over five years.

The program is an outgrowth of an ordinance approved by the Covington Board of Commissioners in 2020 that updated the City’s jobs development incentives.

Long-term strategy

The tool ties into key pieces of the Garner Report, the citywide economic development strategy written for Covington by Atlanta-based consultant Garner Economics in 2019.

The report called for access to move-in-ready space (and in particular office space) a “potential Achilles’ heel” for Covington’s continued development, and suggested the City focus on creating a variety of commercial spaces to attract diverse commercial uses.

Original source can be found here.