You see an old mill; he sees luxury loft apartments
Harmony Mills developer seeks to line up more projects in area
CAPITAL REGION If you’ve got an abandoned mill in your town, chances are Uri Kaufman would like to turn it into a luxury apartment building.
Kaufman first made his name in the Capital Region in 2000 when he acquired the historic Harmony Mills textile complex in Cohoes for $1.75 million. A self-described descendant of penniless rabbis, Kaufman said he was able to motivate investors to buy into his Harmony Mills project despite the fact he had little to no experience in real estate. Over the past nine years he organized a more than $14 million renovation of the old mill, creating 96 high-end apartment units with more planned for a second phase.
Kaufman, who lives in Lawrence, on Long Island, with his wife and four children, said he has developed a complex business model that relies heavily on backing from the federal, state and local governments to restore dilapidated industrial architecture into residential real estate. He plans to use that model in Montgomery County, Fulton County and Saratoga County.
“We knew right away this was a winning formula. There are all these old magnificent buildings in this region and they would make fantastic candidates for conversion into luxury loft apartments. So, we’ve been trolling around looking for other ones,” he said.
Last year Kaufman acquired a one-year option to buy the old Chalmers Knitting Mill in the city of Amsterdam for $10 and paid $50,000 to Saratoga County for the Victory Specialty Packaging mill in the town of Saratoga. He said he has an option to buy the Mohawk Furniture Co. building in the village of Broadalbin and he’s exploring projects in Rochester and Buffalo.
Is his plate too full for the soon-to-be-vacated Beech-Nut plant in the village of Canajoharie or even the former Alco building in Schenectady?
“I’m interested in both; I have not been successful so far in landing either one, but I’m very interested in those and any other mill building that might be available,” he said.
using the system
Landing development rights for an old mill building is only the first of many stars that need to align for Kaufman to pull off his restoration plans. He said the unconventional nature of his projects requires loan guarantees from the U.S. Department of Housing and Urban Development. When HUD backs a loan, banks know it will be paid back even if the project fails and the taxpayers get the final bill. He also needs the building to be listed on the state and national registers of historic places to create a federal tax credit to attract a deep-pocketed investor to help front cash.
“The way it works is you get a tax credit equivalent to 20 percent of your capitalized costs. The tax credit isn’t a write-off of your profits, it’s a dollar-for-dollar reduction in your tax liability,” Kaufman said. “The catch is you need a lot of income to soak up that kind of tax credit. I certainly don’t have that kind of income, but what you can do is you can sell the tax credit to somebody else who has profits they need to get a loss against. There are a couple of big players in the industry, and one is Chevron the oil company and another one is Bank of America.”
Kaufman said he sold 99 percent of the interest in the Harmony Mills project to Bank of America in exchange for start-up cash and granting the company access to the tax credit for five years. He said he will buy them out of the project in late 2010 or early 2011.
The final piece of the puzzle is he needs a payment in lieu of taxes, or PILOT, agreement with the city or village that hosts the project to lower the tax liability while he rebuilds and brings in tenants. It can also help if the building is located in an Empire Zone, as is the case with Harmony, Chalmers and Beech-Nut, because it reduces hundreds of thousands of dollars in sales tax. He said the final stage is eventually selling the apartment units as condominiums.
“That’s where we make our profits.”
In Cohoes he got everything he wanted. Cohoes Mayor John McDonald said it was difficult during the first few years after Kaufman acquired Harmony Mills when he struggled to finance his plans. Critical help came when Gov. George Pataki’s administration changed state regulations to allow a waiver of costly variance requirements for upgrading industrial property to residential use.
Then, HUD became willing to back a $12.1 million loan from GMAC Commercial Mortgage Bank. But after that, he said, his city has never been the same.
“The project has truly been a positive, once it was completed, but leading up to it was truly a challenging project,” McDonald said. “I think this project has shed a very positive light on the community of Cohoes because it’s shown we are a community that’s willing to work and get new development in.”
Cohoes lobbied to get Harmony Mills on the historic registry, included in the Albany County Empire Zone and offered an inverse 20-year $2 million PILOT program, with Harmony Mills paying lower property taxes early and more over time.
“I’ll be very honest with you, we were very aggressive with this project … because we had to work that balancing act to help Uri secure funding or risk not securing funding. We’re actually looking to restructure [the PILOT agreement] now to bring most of the money up front,” McDonald said.
Backing Kaufman’s plan also meant ultimately losing Soft-Tex, a bedding manufacturer that employed about 80 people. The company had to relocated from its space in the Harmony Mills complex to accommodate the renovation project.
Cohoes tried to secure grant money to tear down an old mill and help Soft-Tex construct its own building, but it didn’t happen and they moved to Halfmoon. Soft-Tex did put a retail store in the city’s downtown area.
“It was kind of a half-hearted win. We would have loved to have kept the manufacturing jobs in Cohoes, but the reality is Cohoes is no longer a manufacturing community. We’re not. We are now focused on becoming a bedroom community,” McDonald said.
Deciding what kind of community you want to live in is a key choice for municipalities that might do business with Kaufman.
on the horizon
In Canajoharie, village officials said they fear if Hero/Beech-Nut is unable to find a buyer for its baby food manufacturing plant it will eventually fall into the village’s possession. Village Trustee Garth MacFarland said having Kaufman buy the plant is preferable to having nothing done with it, but the village really needs a commercial user capable of consuming a lot of water from the village’s expensive treatment facility.
“Our real problem is that Beech-Nut uses 1.5 to 1.7 million gallons of water per day. That provides income for the village, about 75 percent of our budget,” MacFarland said. “I don’t know what the guy is thinking, where he thinks all the people are going to come from for these condominiums. We’ve got 880 residents now.”
In Amsterdam, Kaufman’s plans hit a snag last week when the city council voted against applying for historic registry status for the Chalmers building, citing concerns that it would be too hard to take the building down if Kaufman can’t make the project work. Kaufman said that without the historic registry tax credits his business model probably won’t work.
Fifth Ward Councilman Richard Leggiero said he thinks Amsterdam should focus on becoming a bedroom community, but doesn’t agree with Kaufman’s high-end apartment strategy.
He said most of his constituents favor taking down the building and creating space for new development. He said he’s tired of looking at the Chalmers building, which he called nothing more than a monument to suffering.
“That place was nothing better than a sweat shop,” Leggiero said.
Kaufman sees the building as a trophy, as are the other mills.
“You couldn’t fund a project to build buildings like them today, and even if you could I don’t think you could [find] the artisans capable of making them,” he said.
Victory Specialty Packaging mill might turn out to be the most viable of his ventures besides Harmony Mills. The project got off to a rocky start, with Kaufman filing a federal lawsuit against Saratoga County to force them to honor his $50,000 bid over a later buyer who ultimately bowed out.
But the project received a huge boost when it became official that GlobalFoundries and Advanced Micro Devices Inc. would be spending billions of dollars to build a microchip manufacturing plant in Malta, a short drive from the old mill.
“It’s a slam dunk. I’m very excited about that project,” Kaufman said.