Tax credits to aid ritzy Savannah project

Developer of Savannah’s $235 million hotel, entertainment complex to benefit from tax credits for historic preservation. Bill passed in final hours of 2015 Legislature.

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Richard Kessler’s latest vision for a more upscale Savannah is centered at a century-old, shuttered Georgia Power plant in the shadow of the Talmadge Memorial Bridge.

The high-end hotel developer plans to spend $235 million turning the power plant and surrounding land into luxury hotels, shops, restaurants and an entertainment venue, employing up to 800 people and creating a classy riverfront district for an area in need of revitalization.

And Georgia taxpayers will help pay for it.

That's because with less than two hours left in the 2015 legislative session, the Georgia Senate gave final approval to upping the potential state tax credits on historic preservation projects from $300,00 to $10 million, a cap more helpful to major redevelopments like Kessler's. That's on top of federal tax credits.

The bill was sponsored by the Legislature’s unofficial business tax credit king, House Economic Development and Tourism Chairman Ron Stephens, R-Savannah, and pushed along by the city’s leading lobbyist and preservationists.

Some conservatives call it yet another giveaway to private businesses, and after it passed it was rumored to be on Gov. Nathan Deal’s veto list. But preservationists explained the tax break could be used for other projects, such as the rehabilitation of the iconic Clermont Hotel in Atlanta, and Deal signed House Bill 308 in the end.

“This will be a game-changer not only for Savannah, but all over the state,” predicted Stephens.

Others see it as part of a disturbing trend of lawmakers picking “winners and losers” by giving tax breaks to select private businesses.

Rep. David Stover, R-Newnan, called it a “horrible bill.

“I can’t stand to see the state invest tax dollars in private entities,” said Stover. “This is something we are seeing happen over and over again because, quite frankly, we don’t have the backbone to say no.”

Senate Majority Leader Bill Cowsert, R-Athens, another opponent, said, “It was such a lavish project but it seemed obvious to me that the developers could afford this project … without $10 million from the state. This is a luxury resort going in to what is not a particularly historic structure.”

The expanded tax break for historic preservation joins a long list of taxpayer-supported ventures.

Lawmakers regularly back sales tax breaks on construction materials for new projects, from the Georgia Aquarium to entertainment venues in the north Atlanta suburbs. And Deal frequently announces incentives worth tens of millions of dollars for companies willing to relocate or expand their businesses in Georgia. The Atlanta Falcons, the Braves and the Atlanta United soccer team are all building facilities with taxpayer millions.

While the state has never been shy about throwing around business incentives, before this year, big historic preservation projects hadn’t been high on the General Assembly’s tax break priority list.

From power plant to boutique hotel

Kessler, who was born in Savannah, had remade several properties in the city and elsewhere into high-end hotels before buying the Georgia Power plant along the river more than three years ago for $9 million. In Savannah, the Kessler Collection includes The Mansion on Forsyth Park and Bohemian Hotel Savannah, where weekend rates climb above $300 a night and, in some cases, above $400 a night.

He’d had his eye on the choice property, home of a power plant built in 1912 and decommissioned less than a century later, for a long time.

After buying the plant and surrounding land, he brought together local leaders and architects to help figure out what to do with the property. The team of architects, led by Christian Sottile, dean of the Savannah College of Art and Design School of Building Arts, quickly came up with plans for a high-end hotel, shopping and entertainment district. Kessler loved the idea.

The power plant building will be turned into a $300-a-night and up hotel, while three hotel buildings next door — called the Three Muses — will offer distinct design features from 18th, 19th and 20th century Savannah. Another building, which will include a parking deck big enough to accommodate locals as well as hotel guests, will also have guest rooms. Kessler envisions the district to have laser shows, concerts, art galleries, wine blending, and a host of other activities and attractions to draw visitors to the site.

The city is spending $14 millions to expand the Riverwalk, the high-traffic pedestrian boulevard that fronts the Savannah River, and the property will be lined with restaurants and shops. The site will include a live entertainment venue and ballrooms.

Besides the state tax credits and city help, Kessler will be eligible for federal tax breaks for rehabbing the property. Federal law provides a tax credit of 20 percent of the cost of the rehabilitation. With the plant rehab expected to cost $80 million, the project will be eligible for $16 million in federal tax credits.

Kessler said his Plant Riverside District provides something Savannah needs: upscale accommodations and businesses. “Eighty percent of the business is going to be high-end tourists, high-end leisure tourism,” he said. “This is not a convention hotel, this is a luxury tourist hotel.”

Selling the project to lawmakers

Stephens and Lee Hughes, Kessler’s lobbyist, helped sell the project by talking up the jobs that would be created in a part of Savannah that hasn’t seen the booming prosperity of historic district tourism over the past few decades. Hughes said the jobs will be within walking distance of one of the state’s poorest areas.

Kessler said it will also revitalize the west end of the river district near the Talmadge Bridge, an area that needs help. He said he thought about trying to buy some nearby properties as well, but the asking prices shot up after he purchased the power plant land and announced plans to create a fancy hotel district.

Joseph Marinelli, president of Visit Savannah, the local tourism office, said more and more Savannah visitors want upscale accommodations, dining and shopping.

The average rate for a hotel room in the historic district has gone from $130 in 2010 to $175 so far this year, he said. That figure is driven up by properties owned by Kessler and boutique hotels that have opened. In the past 8 1/2 years, Marinelli said, the city added 3,500 hotel rooms.

“Can we continue to absorb this? All the soothsayers in our industry, all the folks who do tourism forecasting, are telling us 2016 and 2017 will continue to be strong,” Marinelli said. “I think there is room for (Plant Riverside). I think Savannah’s clientele is changing.”

Preservationists supported proposal

Historic preservation supporters had been pushing legislation to increase tax credits in recent years, with limited success.

Mark McDonald, president and CEO of The Georgia Trust for Historic Preservation, said Georgia was one of the first states to have any tax credit for historic rehabilitation projects. More than a dozen states now have tax credits with no caps on how much rehabbers can get. Before House Bill 308 passed, only a handful of states with tax credits had a lower cap than Georgia’s $300,000 limit.

The credits have been used to rehabilitate properties across the South, including the Humble Oil Building in Houston, the Santa Fe Terminal in Dallas, Texas, and the Olympia Cotton Mills in Columbia, S.C., according to backers. Most of the large projects became residential, hotel or commercial complexes.

“There are 36 states currently that have some form of matching historic tax credit programs that are vital to breathing new life into otherwise empty historic treasures across the country,” said John Campo of Campo Architects, a New Orleans firm that works on historic rehab projects and is working on Plant Riverside.

McDonald said several rehab efforts around Georgia, such as the Southern Mill project in Athens and the Clermont in Atlanta, could benefit from the enhanced tax credits.

Before the law passed, the state tax credit program may have worked well for Georgians wanting to rehab homes, but it didn’t provide much incentive for developers looking to turn factories or other commercial facilities into housing or hotels.

“It wasn’t worth filing out the paperwork,” McDonald said. “These projects are the ones that have the catalytic effect on areas.”

He played down the role the Savannah project had in getting the bill passed.

“The Savannah project is not what moved the needle on this,” he said. “We’ve been working on it for years. In a way, the Savannah project hurt us because this was all of a sudden all about Savannah. The Savannah project wasn’t even on the radar when we started.”

Developer’s support iced the deal

Others disagree. The bill didn’t move much until Stephens and Hughes started pushing it.

Among others, Kessler's son, Mark, worked with Hughes and former longtime Sen. George Hooks, who was lobbying for the trust, to convince lawmakers that the tax breaks would provide the state a return on its investment.

“We could never get some members (of the General Assembly) to understand, or they wouldn’t understand, the fact that there is a return on investment to historic tax credits,” said Mark Kessler. “Where the state may see this as a giveaway, there is an immediate return on investment.”

He said developers can’t get the credit until after the project is completed. In the meantime, he said, the state will be getting income and sales taxes for those working on the project and materials used.

Without the credits, he said, projects like Plant Riverside might not happen.

“It would be much less expensive to take this property and level it (the building) and build something,” he said. “It’s in a historic district and it’s a historic landmark and you cannot do that. Therefore, this building would sit as a power plant and you have what you call demolition by neglect.”

Philip Welker and his partners are planning to spend about $20 million turning the old Clermont on Ponce De Leon Avenue into a boutique hotel by early 2017. Welker may have completed the rehab without the new tax credit, but he said it will help. “It makes some parts of the project happen that wouldn’t have happened,” said Welker, who hired a lobbyist to work on House Bill 308 at the end of the session.

While the bill won a majority approval in the General Assembly, more than 50 lawmakers opposed it, including much of the independent conservative back-bench of the House that often raises questions about tax breaks or spending that benefits select businesses.

As is the case of the state’s film tax credit, rehabbers can and in many cases will sell the tax credits to other individuals or businesses with large enough state incomes to get the full benefit. That was one of the points that perturbed some lawmakers.

Government picks winners and losers?

Many opponents also didn’t like the idea of giving out tax breaks to select businesses.

“I don’t think it’s appropriate for the state to pick winners and losers among developers across the state,” said Cowsert, the Senate leader. “That is what we are doing here is favoring people who rehab historic structures over developers who build newer buildings. I don’t think that is a proper role of government.”

Rep. Mary Margaret Oliver, D-Decatur, said it was also problematic that lawmakers voted on the final version of the tax break on the last day of the session, although an earlier version had been approved weeks before.

“On Day 40, I am predictably suspicious of large tax credits that seem to present a lot of questions,” said Oliver, who opposed the bill. “I kept hearing rumors that this tax credit was for one individual. I wasn’t 100 percent sure it had been vetted in a way that these tax credits need to be vetted.”

But Stephens, who has authored several major tax credits that have become law, says the historic preservation tax break will give developers the incentive they need to fix up dormant and in some cases crumbling structures. And in Savannah, he added, it will help provide jobs for people who desperately need them.

“This will create jobs in one of the most impoverished areas of the state,” Stephens said. “It will change an area that needs to be changed and give some people hope.”