Savannah, GA Tax Advantaged Zones, Part Two: Local Zones
In the last post we learned all about Federal Opportunity Zones, in this one we're going to learn about some great tax incentivized zones created by the state of Georgia and the city of Savannah itself.
Local O-Zone Overview
The city of Savannah established four incentive zones in order to spur development in certain underdeveloped areas of town. Like the federal zones, these local zones use tax incentives as a way to encourage development. In this case, the city typically gives developers discounts on property taxes, but there are also income and payroll tax incentives. Side note - the city's literature on how these programs work is confusing, to say the least. I'm not an attorney, I'm not a tax professional, and I've had a few beers today, so please take this as general information that could help you in your Savannah real estate investing endeavors. If you're thinking about pulling the trigger on a real estate purchase based on some information I've included here, make sure to talk to a tax pro at least before moving forward!
The map of all four zones is below. The West Downtown Opportunity Zone (in green) and the MLK-Montgomery Street Enterprize Zone (blue) have seen the most development since these zones were implimented. Neither Pennsylvania Avenue or the Waters Avenue Enterprise Zones have seen much development at all, but it is my belief that that will soon change - and I'll explain why by the end of this blog!
West Downtown Opportunity Zone
Established in 2016
$3500 per new job created credit toward state income tax or payroll tax withholding. This includes currently existing businesses, not just new development.
This area includes the Plant Riverside District and the new apartments being built near Service Brewing.
This zone was established through a state program, all other zones are local programs.
Pennsylvania Avenue Enterprise Zone
Established in 2009
$3500 per new job created credit toward state income tax or payroll tax withholding, 5 jobs minimum. This includes currently existing businesses, not just new development.
100% property tax exemption for years 1-5 past development
20% per year step up for years 6-10, so that year 11 the developer is responsible for 100% of the tax burden.
Development or rehabilition must increase tax assessment by 5 times (meaning, if an improved parcel was worth $100k before development it must be assessed at $500k after development).
There have not been very many major developments in this zone, though there has been some house flipping and property values have been on the rise.
MLK-Montgomery Street Enterprise Zone
Established in 2010
This zone has the same incentives and requirements as the Pennsylvania Ave Zone.
This area has seen a lot of new development, but not really until the last three years or so. These developments include gas stations, new apartment complexes, and some apartment complex/mixed use rehab projects (like West Broad).
Waters Avenue Enterprise Zone
Established in 2015
This zone has the same incentives and requirements as the Pennsylvania Ave Zone and the MLK-Montgomery Zone.
This zone has seen next to no qualifying development in the zone itself, but there has been a lot of smaller scale residential flipping/redevelopment.
Final Thoughts and Analysis
So we've had two successful incentive zones, and two not so much. Why have some been successful and others haven't? In my mind, two reasons, and they're different for each zone.
The West Savannah zone has been successful because that Kessler dude rolled up with a dump truck full of cash and just MADE it work. He was helped by the fact that his development is a stones throw away from areas that were already pretty touristy. I think that Plant Riverside is a field of dreams type thing - if you build it, they will come.
The MLK zone has been successful because the population of Savannah is growing faster than we can build new housing units, and many folks want to live close to all the action downtown. The MLK zone is a place where they can still be close to the action, but do it at a bit of a discount vs having a condo on Broughton and Bull. So it's proximity, and the tax incentives I'm sure convinced some developers to shoot for that area vs some alternatives, like Starland. Though, development is happening there as well, as we all know.
So why haven't the other two zones been successful? I think it all comes down to proximity to downtown, as we touched on earlier. Pennsylvania Ave is so far from downtown you practically have to drive - and if you already have to get in the car, and you have enough money, why not live in Ardsley or Kensington Park? There's just too much bad inertia there. But Waters Ave -- Waters is different, in my opinion.
From Waters and Park, you're about a mile from Forsyth and Daffin. Anything you could want to do is a quick bike ride away, or a $6 uber. This part of town still has a lot of mature trees and streets featuring spanish moss. Also, rents are a lot cheaper here. A 2 Bedroom that would rent for $1200 here would rent for $1700 in Starland, or probably $2200 downtown, or more. As rents continue to rise, more and more middle class move out to the Eastside chasing those cheaper rents and cheaper houses - and small-scale flippers and rehabers are fixing up properties to accommodate that movement.
In my opinion as a resident of the Eastiside and a real estate investor/professional is that the Eastside has almost hit a critical mass of middle class residents that it could support a cafe or bodega. And that new development will draw in new residents, which will draw in more business, and so on. Really...
...If you build it, they will come.