- Covington will consider a financing and tax abatement package for 125 apartments next week
- Approved for construction in March, the apartments will range in price from $1,000 to $2,000 in rent per month, depending on their size
- There was discussion among the commissioners about pricing of the apartments, as well as median incomes.
The Covington Board of Commissioners will vote next week on financing and tax abatement for an apartment complex slated to sit atop the new Kenton County Government Center parking garage, which is being constructed in conjunction with the Brent Spence Corridor project.
The complex will be named Bavarian Flats, a nod to the defunct Bavarian Brewing Company, which once occupied the government center building from 1911 to 1966.
The commissioners heard a financing proposal Tuesday night for the issuance of up to $20 million in industrial revenue bonds, as well as a payment in lieu of tax, or PILOT, agreement that will accompany the financing. The Covington Independent Public Schools Board of Education will also need to sign off on the IRBs later this August.
Industrial revenue bonding is a common municipal financing measure that developers use to gain tax exemptions and cities use to fill vacant lots or rehab derelict buildings.
When the city, or another taxing entity like a school or a county, agrees to issue an IRB, it serves as a kind of conduit of capital financing for a project. The developer will seek financing from an underwriting institution, such as a bank, as a means of injecting capital into the project.
The city then takes on an owning interest in the property, at least on paper, so the developer can use the city’s credit score as a way of obtaining private investment. In exchange, the city grants the developer a tax incentive, the details of which vary depending on the deal. This often takes the form of a PILOT.
PILOTs ensure the city still makes money on the property while reducing the developer’s early investment expenditures. Developers and cities like IRBs because the developers defray their investment costs, and cities get to make money on a property or lot that might otherwise sit unused, thus generating no tax revenue; lower revenue from a PILOT is better than no revenue at all.
The financing debt itself is held by the developer, meaning the city isn’t on the hook for paying back the debt. Usually, when an IRB period ends, the incentives disappear, and the legal ownership of the property reverts back to the developer. If a project fails or the developer goes out of business, the property can be sold to settle the debt.
The PILOT agreement discussed on Tuesday calls for a graduated payment schedule over the 20-year term of the bonds. Specifically, the developer would pay 30% of property taxes for the first 10 years, 50% for the subsequent five and 80% for the last five. The construction is expected to create 212 jobs and generate about $9.5 million in payroll tax.
“We try to structure these to where it kind of ramps up back to a full 100%, rather than stay stagnant for the entire 20 years,” said Covington’s Assistant Economic Development Director John Sadosky.
The County approved the construction of the apartments in March.
The project is a joint venture between Cincinnati-based Merus, previously named Al. Neyer, and Urban Sites. The apartment building will have approximately 125 units. Construction on the apartments is expected to begin once the parking garage is finished. Representatives from Merus told LINK nky Tuesday night the project should be completely constructed by February 2027. The City’s Economic Development Department estimated the overall cost of the project at just under $27.5 million.
Merus and Urban Sites have collaborated on other projects within Covington. In early 2023, the duo completed work on The Hayden, a 133-unit apartment building at 103 E. Third St. The building was once the Kenton County Administration Building and Detention Center.
The apartment complex’s development is part of a larger plan to reinvigorate the vacant property next to the government center. Starting in 2023, Kenton County introduced plans to construct a 248-space parking garage at the corner of Main Street and 12th Street. Many of the parking spaces will be underground.
There was discussion among the commissioners about the project, the structure of the IRBs, and, most notably, the cost of the apartment rents once on the market.
Sadosky put the expected rent at about “$2.20 per square foot.”
Jeremy Fogel, a senior real estate analyst at Urban Sites, gave an easier comparison by apartment size, although he pointed out that each unit would vary. He projected studios would range from $1,000 to $1,200 a month, one bedrooms would hover around $1,400 a month and two bedrooms would range between $1,800 to $2,000 a month.
Sadosky said that about 70% of the units would be targeted at households making 100% of the area’s median income. Sadosky said the median income “in our metropolitan area is $73,000 a year for one person, or $84,000 a year for a two-person household.” The estimated median income for all households in Covington as of 2023 was just under $59,000, according to the U.S. Census Bureau.
“Just for clarity,” asked Commissioner Tim Downing, “we’re targeting the median, not the average?”
“Correct,” Sadosky said.
“The average is lower,” Downing argued, although he did not furnish any figures.
The average income across all households in Covington as of 2023, according to the U.S. Census Bureau, was estimated at $79,569.
The commission placed the financing on its regular agenda for next week, meaning the members will engage in additional discussion on the matter before casting a vote. The commission’s next meeting will take place on Tuesday, Aug. 26 at 6 p.m.
Kenton Hornbeck contributed reporting to this story.