New tax tools promote urban retail development

"Some of these are complex or have changed, and you just have to have the patience to go through them," said Myriam Simmons, director of credits and incentives at Ryan, LLC.

Keeping up with new legislation is indeed part of the challenge, speakers said. Communities had to play a guessing game of sorts regarding which development incentives would remain intact in the run-up to recent federal tax reform. The reform reinstated the 20 percent Federal Historic Tax Credit, which provides upfront cash for new developments, expansions and even some daily expenses for qualifying projects, but it also eliminated the 10 percent tax credit for rehabilitations of historically uncertified buildings predating 1936, Simmons pointed out.

Congress did, however, create a new community development tool in the Tax Cuts and Jobs Act of 2017, to encourage long-term investment in low-income urban areas. The Opportunity Zones program, as the initiative is called, is a tax incentive for reinvestment in state-sanctioned programs of unrealized capital gains, Simmons said. States favor this program, she noted, "because it is not going to cost cities any upfront money." 

The House of Representatives toyed with the idea of eliminating the New Markets Tax Credit — which has been a vital tool in public-private partnerships and has directed some $80 billion in private investment to redevelopment of some of the nation’s most distressed communities — but the final tax-reform version remains intact for now, Simmons said.

Cities are seeking development solutions that create value and add revenue to compensate for sales-tax losses, said Ken Hira, executive vice president of Kosmont Cos., of Manhattan Beach, Calif., and ICSC's Western Division P3 Private chairman. Kosmont helped a major developer in California that had lost several mall anchors through a site-specific, tax-revenue-sharing arrangement that drew a major retail tenant, moved another tenant into a larger space and facilitated mall improvements. The arrangement also created about $1 million in sales-tax preservation and job generation for the city. "It is a win-win private transaction," he said.

Retail development has a bright future, Hira said, insisting that he does not believe that online sales will ever escalate from the current 9 percent of total retail sales to the 20 percent that some have predicted. For one thing, he said, too much retail space is occupied by restaurants, food markets, pop-ups and any number of entertainment, fitness and similar experience concepts impossible to enjoy online, he said. And with comparatively so few families cooking at home now, there has never been a more fortuitous time for restaurants and restaurant leasing, Hira said. "For the first time in history, restaurant sales have exceeded grocery sales." 

Hira said studies show that fitness spas and gyms in particular are essentially a retail use, because of their role in generating traffic and in helping to retenant shopping centers. And industrial space is now the fastest-rising of all commercial real estate sectors, he noted, in part because of its relationship to retail product distribution, fulfillment and showrooming. "Retail is as much about distribution of goods as it is about the destination," Hira said.

"Retail is not dead," he added. "Boring retail is dead."