The Ithaca Journal has announced that the City will be hosting a public information session on Hart Hotel’s new tower project, now no longer a Holiday Inn-branded project. Hart Hotels has done mostly Holiday Inn-branded projects, but has several homegrown-branded hotels under management. What’s more, they will be applying for a tax abatement (much like the Hotel Ithaca Marriott project) through the Community Investment Incentive Tax Abatement Program.
One of the factors at play may be mortgage interest rates. This project is going from about 3.5% to a likely 4.2-4.4% within the next year, so for a $17.8 million project, that’s about an extra three million in financing costs over the course of a 30-year mortgage. The seven-year tax abatement program would save about $1.24 million in tax expenses (see chart, not counting inflation), assuming taxable improvement equals project cost, and we hold the total mill rate constant. Since the Marriott got an abatement, Hart Hotels would be wise to go for it.
Taxes are awfully high in the City. If the parcel’s total value at the end of construction is assessed at $25 million and they financed $17.8 million at 4.3% for 30 years, debt service payments would be $1.057 million per year, City + County + BID taxes (22.16985 mill rate) would be about $554,246 per year, and School taxes (16.9534 mill rate) would be $423,835 per year holding current rates constant.
Real Estate Taxes: $978,081 per year
Debt Service: $1,057,000 per year
So for this example, real estate taxes are not far from being equivalent to the 30-year financing costs of this project per year. If taxes were significantly lower, there may not be so much financial pressure to participate in the tax abatement programs.