As our area continues to emerge from the economic downturn and our core locally based companies continue to add jobs to our community, new apartment and mixed-use developments are still a viable venture for real estate developers. The City of Seattle has created a program to encourage developers to increase the supply of multifamily housing projects within the city. The program is also available to real estate developers interested in developing condominiums.
Qualifying developers will receive a real estate property tax exemption for 12 years, which could be a substantial cash flow savings to them and their investors. The catch – a percentage of the units must be available to low and moderate income households.
How does it work?
To be eligible, the developer must submit an application prior to the first building permit being issued. The development must also be located within the boundaries of one of 39 Multifamily Property Tax Exemption Program target areas. Additional requirements are:
- The development must be a residential or mixed-use project with a minimum of 50% of the gross floor area for permanent residential use
- New construction projects must have a minimum of 4 housing units
If the developer is interested in a rehabilitation or conversion project of existing buildings, the developer must meet certain other requirements to be eligible.
To receive the tax exemption, a minimum of 20% of the units must be rented to households with incomes ranging from 65% to 85% of the median household income. The applicable percentage depends on the type of the unit (studio, 1-bedroom, etc.) within the property. The good news is that if the developer qualifies, the exemption is available for all units contained within the property.
To maintain the exemption, annual reporting with the City of Seattle is required; however, if the developer wishes to opt out of the program they can, as long as they meet certain guidelines of the program.
Another benefit: the exemption is transferrable to a new property owner as long as the new owner continues to meet the eligibility requirements.
Interested in receiving a real property tax exemption?
Prior to preparing and submitting an application, the developer should become familiar with all of the compliance and eligibility requirements of this program. A good starting point is the City of Seattle’s website. The website includes links to FAQs as well as the specific city laws that apply to this program. The professionals in Clark Nuber’s Real Property Group are also available to help guide developers through the process.
Currently this program is set to expire on December 31, 2015, so while there is still time to have your new development projects qualify for this exemption, contact your advisor or a Clark Nuber Real Property professional now to get the process started.
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