by Jordan Green
The Winston-Salem City Council wants to keep downtown affordable, but the real impact of a new loan program might be to replace historic preservation tax credits eliminated by the state of North Carolina.
A year after the state General Assembly eliminated the historic preservation tax credit, a local developer is turning to the city of Winston-Salem for help in financing the rehabilitation of an iconic 1927 building in the heart of downtown.
Mike Coe, who owns the Pepper Building, is requesting a $1.6 million low-interest loan from the city as part of an $8.1 million overall investment to restore the building as a mixed-use project with retail and rental housing that will be anchored by a Cowboy Brazilian Steakhouse chain restaurant on the first floor.
Located at the corner of Liberty and West Fourth streets, the building faces onto Merschel Plaza, a key public space slated for development through voter-approved bond funds, that ties together the downtown government district with the thriving Restaurant Row and the Downtown Arts District to the north on Trade Street.
The financial assistance package would come from the city’s new affordable workforce housing program, which was forwarded to city council for approval on Monday through a unanimous vote of the finance committee. Funds for the housing program also come from general obligation bonds approved by voters last year.
“Every doorway and every hallway is a challenge,” Coe said of the building. “It’s built solid, but it will take a lot to restore it to its former luster.”
Coe said the building predates 1927, the year county tax records list it as being built. Before that, it was the Phoenix Hotel, whose roof was destroyed in a fire.
Coe said the restoration building would be doable without the city’s assistance, but he wouldn’t want to undertake the project.
Jeff Prioreschi, Coe’s partner in the project, said North Carolina once had one of the most attractive historic preservation tax credit programs in the nation, adding that the state is now at risk of losing out on projects.
“The cities of North Carolina will have to be creative in financing historic restoration,” he said. “I live in South Carolina. South Carolina is far superior to North Carolina in its historic restoration tax policy right now.”
The developers are requesting $1.6 million in gap financing from the city. Assistant City Manager Derwick Paige said under the guidelines of the proposed program that the city’s portion of the financing would never exceed 20 percent of the total project cost.
Historic preservation is not the explicit goal of the affordable workforce housing program. In approving the loan program, council members expressed concern that residents with modest incomes are being priced out of a resurgent downtown, increasingly catering to the housing and entertainment needs of highly educated and well compensated tech workers. Councilman Derwin Montgomery noted a worrisome trend in cities across the nation whose downtowns have rebounded while the poor are pushed out to suburban areas with less access to public transportation, jobs and services. Montgomery said the city has an obligation to blunt some of the impact of rising housing values on low-income workers.
Assistant City Manager Derwick Paige said rents for most of the 54 housing units in the Pepper Building are expected to range from $675 to $1,218 per month. To meet the eligibility requirements of the loan, the developers are agreeing to set aside six units for affordable workforce housing, with subsidized rents of $575 per month. Under the guidelines developed by staff, at least 10 percent of total units must be leased to households with incomes 50 to 120 percent of area median income. For a family of four, that would range from $28,050 to $67,300.
The income limit for the affordable housing units would be enforced for 15 years, or the duration of the loan, under the guidelines of the proposed program.
The $1.6 million loan for renovation of the Pepper Building would amount to $266,667 per unit, easily enough to finance the purchase of two modest homes in residential neighborhoods like West Salem, Dreamland, Kimberley Park and Southside.
Comparing the low end of the range for market rents in the Pepper Building with the subsidized rate, the developer would sacrifice $108,000 in rental income over the 15-year life of the loan in exchange for the favorable loan terms of the $1.6 million financing package. Community and Business Development Director Ritchie Brooks said interest rates for loans approved under the program could range from 0 to 7 percent.
Brooks said staff felt that 10 percent as a minimum requirement for the share of units set aside for affordable housing struck a good balance.
“We wanted to present something that would be reasonable as a starting point,” he said. “If you say 25 percent or 30 percent, that may run a developer away.”