Two apartment developers in Kent will save millions of dollars because of the city’s multifamily property tax exemption that runs for eight years.
The City Council agreed in 2017 to give the tax break for the 492-unit Marquee on Meeker project as part of a deal to sell the city-owned Riverbend Golf Complex par 3 property to Auburn-based FNW, Inc./Landmark Development Group for $10.5 million. Seattle-based Tarragon received the tax exemption from the council when the company opened the 154-unit Dwell at Kent Station in 2016.
The developers still pay taxes on the land value but not on the building value, so no additional taxes are paid to the city, schools, the Puget Sound Regional Fire Authority, King County and other taxing districts.
For Tarragon, the tax savings could add up to an estimated $2.4 million over eight years, according to King County property tax records. The taxable land at Dwell, 443 Ramsay Way, is valued at $1.07 million in 2019. The county assessor doesn’t list a building value because there is no tax collected. Tarragon owes $77,636 for taxes on the land for 2019.
For a comparison about how much Tarragon is saving, taxes owed at the nearby The Platform Apartments, 420 W. Smith St., and a similar upscale complex to Dwell, are $439,034 for 2019. Seattle-based Goodman Real Estate didn’t apply for the city’s tax exemption for The Platform, which opened in 2014, so it is paying the full rate on land valued at $1.20 million and a building value of $33.39 million for a total value of $34.59 million.
With 154 units at Dwell compared to 174 units at The Platform, Tarragon has a slightly smaller building. Even so, the company is saving at least an estimated $300,000 a year in taxes, which would add up to about $2.4 million over eight years, although tax rates and values do change each year.
Monthly rents at Dwell range from $1,129 for a studio up to $2,400 for a two-bedroom, two-bath unit. Monthly rents at The Platform go from $1,289 for a studio to $1,939 for a two bedroom.
Goodman Real Estate also didn’t apply for the property tax exemption for the nearly 300 apartments it is building at the southwest corner of 64th Avenue South and West Meeker Street. The project is going to be another upscale complex.
Tax break going away
Future developers, however, might have a tougher time getting the tax break.
Despite a city staff recommendation to keep the program, the council’s Economic and Community Development Committee decided at its April 8 meeting to let the multifamily property tax exemption program expire June 1. Tarragon and FNW Inc., will still receive their tax breaks previously approved by the council.
“We did not see it as a driving force for bringing in multifamily builders to the city,” Councilmember Satwinder Kaur said in an email about letting the tax break expire. “I think the previous council meant well when they put it in place. They were using it as an incentive for builders/property managements. We do not believe this has had any major influence as we only have two property owners using this exemption. We as a committee do not feel it is necessary anymore.”
Kaur, in her second year on council, disagreed with the decisions by previous councils to award the property tax break.
“Speaking only for myself, I personally was not happy with tax exemptions and I do not believe it would have impacted these owners’ decisions,” Kaur said. “They are business people and know where they will be successful. They knew Kent is a viable market to build as we are a growing city, so I do not think this tax exemption would have made that big of a difference.”
Kaur said she has no interest in seeing the property tax break return.
“No, I would not be willing to bring the tax exemption back, but we will have that conversation as a council,” Kaur said.
Councilmember Marli Larimer and Council President Bill Boyce agreed to let the exemption expire, but each indicated a willingness to bring the tax break back if a developer requested it.
“Yes, if a developer comes forward with a high-quality project that would benefit the city and its residents, I would be willing to revisit the option,” Larimer said in an email.
Larimer, appointed to the council last year, agreed the tax break isn’t needed now.
“My reason for letting the existing (tax break) ordinance expire is that I didn’t see an urgent need to renew the program by the upcoming deadline,” she said. “Only two projects have used the program in the past (Dwell and Marquee on Meeker) and there are no current projects slated to use it.
“I felt it more prudent to let this very specific ordinance expire and instead, take our time to look at our housing and development programs more holistically.”
Boyce is the only one of the three committee members who was on the council when it approved the property tax exemptions. City staff told the council the waiver serves as a tool to help make sure Kent gets a high quality developer. The developer saves tax money and puts that money into the project with better amenities, such as rooftop decks, courtyards, fitness centers and other features.
“Dwell is full, so I assume that is benefiting Kent Station and the city,” Boyce said at the meeting.
City staff emphasized the tax break can help attract developers.
“It is a development incentive because it allows an owner to avoid paying a portion of property taxes for eight years, which can result in improvement value in what they build,” said Matt Gilbert, city deputy director of Economic and Community Development, in a report to the committee.
Gilbert explained the reasons for the tax break.
“We zone for high density, but we can’t make it happen, this is a little incentive to get the market going,” he said. “After eight years there is a windfall from projects that would not be in downtown or out at Riverbend. I think it is a tool worth having.”
The latest tax numbers for the tax breaks came up after research by city staff in response to questions from Kaur at the committee meeting about how much money developers were saving.
Savings worth millions
It’s uncertain how much the developer of the Marquee on Meeker Apartments will save with the multifamily property tax exemption. But with 492 upscale apartments to be built, the savings over eight years will be in the multimillions, certainly much higher than the $2 million saved by Tarragon for Dwell at Kent Station.
The land valuation for Marquee on Meeker is $1.5 million in 2019, according to county tax records. The value of the complex won’t be known until it is complete, but even then no tax valuation will be listed by the county because of the city’s tax exemption. The developer will have to pay taxes on the retail/commercial part of the complex, but not the housing.
Tarragon will start paying additional taxes in 2024 on Dwell while Marquee on Meeker will remain off the tax charts for eight years once the complex is completed.
The state Legislature approved the multifamily property tax exemption a couple of decades ago in an effort to encourage density in downtown areas by attracting developers. The council first approved the tax break in 1998 but no developer took advantage of it until Tarragon three years ago. The council unanimously approved in 2017 to extend Kent’s downtown zone to include the former Riverbend par 3 property so Marquee on Meeker could get the exemption.
Kent received no property tax funds on the golf course as city-owned land, so council members said two years ago they were willing to give the tax break in order to eventually collect tax dollars on the property.
Of the property taxes collected by the county, 13.4 percent goes to the city, according to the county assessor. A total of 32.7 percent goes to local schools, 23.6 percent to the state school fund, 10.9 percent to the county, 6.3 percent to fire and the rest to smaller tax districts including the Port of Seattle and the King County Library System.