Enterprise zone aims to breathe life into dormant neighborhoods

Posted: March 29, 2014

The Winchester Star

Jeff Javan (left), owner of Cyrus Square LLC, and Stan Corneal, commercial real estate agent with MarketPlace Realty, examine one of the roofs at the Zeropak building this week. The building is in a new enterprise zone, which offers incentives to spur investment in the area. Javan bought the Zeropak building at auction last year and is formulating redevelopment plans for the property. (Photo by Ginger Perry/The Winchester Star)

WINCHESTER — The Zeropak building.

The Sunshine’s Pride Dairy cheese factory.

The Winchester Towers building.

These structures in the North End played an important role in city’s past, yet are largely inconsequential now.

But if city leaders have their way, these and other dormant properties could become key sites in neighborhood revival.

The three properties fall within Winchester’s new enterprise zone, which went into effect on Jan. 1.

The program, administered by the Virginia Department of Housing and Community Development (DHCD), attempts to spur job creation and real-property investment by providing state and local incentives such as tax breaks and loans for entrepreneurs and developers working within a zone.

“I think there are pockets that are ripe for redevelopment,” said John Willingham, the City Council’s president and a local developer. “There’s a compelling reason now for a lot of buildings and areas to be looked at differently than they were before. Hopefully, people will move businesses there to take advantage of the incentives.”

Jim Deskins, Winchester’s economic redevelopment director, said the city’s program focuses on the reuse of obsolete buildings and stimulating entrepreneurship.

Its local incentives range from the small — a micro-loan program providing $1,000 to $10,000 for certain uses — to the significant — a grant providing a rebate of net new taxes for three years for companies involved in a major economic development project.

The city’s program also provides incentives for residential rehabilitation.

The redevelopment of older buildings promotes economic sustainability “and brings back vitality to parts of the city that might have been affected by closures or other changes,” Deskins said, while small-business growth is the key to job creation in the modern economy.

“The future for successful individuals is being able to embrace the notion that you are an entrepreneur and the whole idea that what people think about jobs is, ‘Let me create my own,’” he said. “The more entrepreneurial we become, the more we will prosper.”

Three decades old

Winchester is new to the enterprise zone game, but Virginia has played it for 32 years.

Established in 1982, the program initially offered tax-credit incentives. The General Assembly overhauled its offerings in 2005, deciding to offer the job creation and real property investment grants.

For every job a business creates that pays at least 175 percent of the federal minimum wage and provides health benefits, the state government will pay the business $800 annually for up to 20 years.

Qualified investments in commercial, industrial or mixed-use properties in the city can yield a developer up to $200,000 in grant money.

DHCD data indicate that since 2005, 2,122 incentive requests have been made. Those covered the creation of 9,848 jobs and $2.2 billion in leveraged real estate investment in zones throughout the state.

Virginia now has 57 designated enterprise zones. In 2012, the last year for which an annual report is available, at least one incentive was awarded in 38 of them.

That year, 143 investors received $11.2 million in total incentives for real property investments of nearly $178.8 million. Sixty businesses received another $2.9 million in state grants for creating 1,718 jobs.

State elected leaders could choose to make the incentives available anywhere in Virginia. But Lauren Fink, community development program administrator for DHCD, said the program aims to make them accessible only in areas requiring assistance to attract investment.

“The intent of the policy is to target distressed areas within Virginia jurisdictions,” she said. “We limit the amount of acreage to make sure localities are being strategic in targeting the areas in which they want to see revitalization occur. They need to be focused on the specific areas that require investment.”

Obtaining a designation is a competitive process, and city leaders’ previous efforts to obtain one have been unsuccessful. An area’s “distress score” — based on a locality’s unemployment rate, average income and free or reduced-price lunch participation in schools — and the quality of its incentives are considered.

During this decade, the number of zones designated in Virginia is scheduled to be reduced gradually to 30 as old zones expire, unless the Legislature changes its plan.

“That doesn’t mean the program is winding down,” said Alexis Thompson, community development program manager for DHCD. “We hope to make it more productive, more competitive, more attractive.”

Targeted areas

Though the designation is referred to as though it is a single zone, Winchester has two areas — and perhaps soon a third — in which the incentives can be obtained.

The northern zone encompasses much of the area along Berryville Avenue at the city’s eastern entrance, winds its way downtown, then widens south to capture the Old Town business district and north to take in areas where industrial buildings sit vacant.

Deskins said the enterprise zone incentives could encourage the redevelopment of older properties along Berryville Avenue, including residences that could become commercial properties.

They also can bolster the continued revitalization of the downtown area and encourage the redevelopment of underused properties in the North End.

The southern area encompasses the Winchester Industrial Park.

Deskins said 30 to 40 acres of undeveloped land there (on multiple parcels) could be marketable with the incentives, and existing businesses in the zone could expand or upgrade equipment.

City officials can designate more land for zone incentives and alter existing boundaries, and that process might begin next month.

The Winchester Economic Development Authority (EDA) will hold a retreat in April, and Deskins said the prospect of having the Federal-Mogul Corp. plant site and Ward Plaza fall within a zone is expected to be discussed.

High interest

The zone designation began three months ago, and final approval of the local incentive package by the City Council did not take place until Feb. 25.

But some investors and business owners are asking how the zone could affect them.

Economic development staff member Tyler Schenck said he has received around 30 calls about the zone. Most have asked if they are in the zone and sought information about the incentives, and he expects the first application for an incentive to arrive soon.

“A lot of it is people seeing if they’re eligible for residential rehabilitation,” he said. “Some people are thinking about commercial ideas, expanding their business.”

The EDA itself is expected to take advantage of the zone. Deskins said the authority should benefit from its portion of incentives for being involved in the redevelopment of the former Taylor Hotel’s front section and flytower, with the money used to pay for the pavilion under construction there.

The program will be marketed directly to commercial lenders and real estate agents, he said, as well as on the EDA’s new website, which is under construction. Regular blog posts also are planned.

Schenck said the site will have an enterprise zone finder.

Yount Hyde & Barbour, the regional accounting firm headquartered downtown, has scheduled two free one-hour workshops (10 a.m. and 2 p.m.) on June 5 in the Garden Room at The George Washington Hotel to explain the incentive offerings. The firm will provide registration details at a later date.

The enterprise zone designation is the primary reason the workshop was scheduled, but Elaine Cain, a principal in the firm, said other programs will be discussed.

“There are other programs the city is offering for entrepreneurs and small businesses,” she said. “There are a lot of resources out there for people, and I don’t think they’re all aware of them.”

Will it work?

Enterprise zone incentives are the latest resource the business community can take advantage of, but will they yield results?

Fink said it will take time for the program to gain momentum, but its effects should be visible starting in a few years.

Cain agreed, saying the impacts should “compound” because investment in buildings should be followed by job creation by the tenants of those revived structures.

Commercial real estate agents Suzanne Conrad of Adams Nelson & Associates and Stan Corneal of MarketPlace Realty said they think the zone will stimulate activity.

“It could be the one thing that an investor says is going to put me over the top with my business plan,” said Conrad, who serves on the EDA. “I think the city did a great job putting together its package. There’s something there that you can hook onto for a prospective purchaser or tenant that would make it work for them.”

Corneal represents a likely early user of the incentives. Jeff Javan of Cyrus Square LLC bought the Zeropak building at auction last year and is formulating redevelopment plans for the property.

The building likely will feature a commercial component, and Corneal said the incentives should increase tenant interest. “In recruiting businesses, we can offer these incentives as well, pass them on.”

Developer Jim Vickers, chief executive officer and chairman of OakCrest Cos., said the residential sections of mixed-use projects his firm has completed in Old Town have been easy to lease, but the commercial component has proved challenging.

He thinks the zone’s incentives will make it easier to attract entrepreneurs to those spaces.

Changing the equation

The zone also could make the difference when developers are arranging financing for a project.

EDA member Bill Buettin said the numbers determine whether a bank will lend money for a project and the amount it risks.

“The incentives in the enterprise zone have the potential of changing the economics of a deal,” the president for United Bank’s Northern Shenandoah Valley operations said. “You may have something that’s marginal that could become a viable deal because of a tax rebate or potential gap financing.”

Buettin said some business owners have told him they are seeking properties in the zone to take advantage of the incentives.

Count Willingham among that group. He said he reviewed two or three properties he had looked at previously, revised his analysis of them and is reconsidering his options.

“It definitely enhanced my interest in a couple of areas I wasn’t looking at,” the developer said. “It was more commercial-related than residential. I’m looking at them through a different lens because of the incentives the enterprise zone offers for people who are adding jobs and things like that.”

As a councilor, Willingham said, he hopes someone takes advantage of zone incentives to solve a problem in the city — “food deserts.”

Residents in some parts of Winchester do not have easy access to affordable, healthy foods, such as fresh vegetables, and he thinks the zone could change that.

“That’s a business that is ripe for our enterprise zone,” he said. “I could see it being part of a mixed-use development in the North End, Zeropak or something like that.

“I think an entrepreneur is going to take that idea and run with it and be very successful.”

— Contact Vic Bradshaw atvbradshaw@winchesterstar.com