The obscure tax break behind some of Charlotte’s biggest new developments

When you think about new luxury apartments, gleaming office towers and industrial-chic shops, you probably don’t picture leaky underground storage tanks, contaminated soil and groundwater mixing with old dry cleaning chemicals.

But that’s the state many of the prime sites for redevelopment – close to the city’s center, near the light rail – have been left in, a reminder of the area’s former status as an industrial hub. Much of the most attractive land is contaminated, and subject to costly cleanup requirements before anything can be built there.

To encourage both redevelopment and cleanup, the state’s “brownfields” program offers developers big tax breaks and legal protection from liability if they stick to a state-approved cleanup plan. Although it’s not discussed much, the brownfields program is driving some of the most prominent redevelopment efforts in Charlotte, including at the former Charlotte Observer site on South Tryon Street, the former Radiator Specialty site on Wilkinson Boulevard and most of the apartments and retail developments along the Blue Line.

“Using the brownfields program has become a nice economic tool,” said Susan Cooper, an attorney with Womble Carlyle who advises clients on development deals. “The tax incentives may be just enough to help make that deal work.”

She was speaking Tuesday at a meeting of CREW Charlotte, a group for women in commercial real estate, where developers and state officials focused on the brownfields program.

While the program takes some property off Mecklenburg County’s tax rolls for years, supporters say it ultimately grows the tax base with developments that wouldn’t otherwise happen. And the program requires some cleanup and abatement of environmental hazards that would otherwise sit there – though it doesn’t require developers to clean a site completely.

Here are four facts about the little-known program developers are using to rebuild old stretches of Charlotte.

▪ The tax breaks are big.

When a developer gets their property approved by the N.C. Department of Environmental Quality for brownfields redevelopment, they’re granted five years worth of property tax exemptions. That starts with a 90 percent exemption in the first year, and goes down each year for the next five, until the exemption ends.

Leo Caplanides of the Mecklenburg County tax assessor’s office told the Observer that almost $206 million worth of property is exempt from taxation this year because it’s in the brownfields program. That means the county is foregoing about $2.7 million worth of tax revenue on those sites this year. But another $257 million worth of brownfields property is subject to taxation (because of the sliding scale, the amount varies each year), meaning Mecklenburg is bringing in about $3.3 million worth of taxes on those sites.

“With all the tax benefits you do have, it lets you dream a little bigger,” said Brett Phillips, executive vice president at Lincoln Harris, which is redeveloping the former Observer site next to Bank of America Stadium. The first phase is a 33-story office tower, anchored by Bank of America. “That’s really frankly because of the incentives the brownfields allowed us to get.”

▪ The types of contamination vary a lot.

The contaminants in various sites offer a peek at a Charlotte that used to look a lot different. At the South Tryon Street site where Beacon Partners is building the RailYard office, apartment and restaurant development, an underground storage tank held fuel oil at a warehouse, according to a state report. A dry cleaning and laundry operation likely left chemicals behind as well. Once the eight-story towers are complete, the site’s grimy past will be effectively buried – another aspect of the city’s rapid redevelopment.

On the Observer’s former site – where newspaper printing operations were located for decade – one of the major contaminants was ink and other residues from the printing process, such as lead.

“You knew there was a bunch of ink there,” said Phillips. “We had some OK soil, some bad soil, some really bad soil.”

To avoid spreading contamination, they decided not to dig deeper and bury more parking in below-ground garages, Phillips said. He also said they will include special features on the bottom of buildings in contaminated areas to prevent vapors seeping into them. Contaminated concrete was crushed and buried on site under a cap, for example.

▪ Developers don’t have to make the sites ‘clean-clean.’

It might sound surprising, but the brownfields program doesn’t require developers to clean the site of all contaminants. Instead, they have to remove enough to make the site safe for its proposed uses, and ensure buildings are sealed against intrusion from any vapors or chemicals that might seep out from contaminated areas.

“It’s not clean-clean,” said Joselyn Harriger, of the state environmental department. “As long as they follow the agreement, they don’t have to clean it up to the lowest screening levels we’ve got.”

To compensate, the agreements contain long-term restrictions on uses allowed at the property. For example, many of the properties can only be developed for commercial uses, and something like a daycare center wouldn’t be allowed on a site with contaminated dirt. And most of the sites carry restrictions against using the groundwater – which usually isn’t a problem for places connected to the city’s water supply.

▪ Most brownfields sites follow the path of redevelopment, especially the Blue Line.

Because brownfields agreements only apply to properties that are being redeveloped, it’s logical that most of them would be in the hottest areas for redevelopment: South End, uptown and the path of the Blue Line extension north to UNC Charlotte.

The bulk of Charlotte’s brownfields sites are in those zones, and the brownfields sites there cover many of the most prominent projects developed or planned in recent years. Both Lincoln Harris’ Observer site and the Crescent Communities office tower planned across South Tryon Street (on the site of a former Goodyear auto shop) are in the program, for example.

“You can see the trend if you look,” said Harringer. “It’s Blue Line-driven.”

This story was originally published November 16, 2017 at 7:25 AM with the headline "The obscure tax break behind some of Charlotte’s biggest new developments."