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Allentown real estate development: tax revenue to cut rent

3/6/2014 | Real Estate Blog

When a business is looking for a location for its business, it is often looking for a place to lease. Unlike individuals looking for a house, many businesses don’t want to purchase land and build a building, as it restricts mobility if the location turns out to be unprofitable. So, when business are looking for locations, they are often restricted by how much they can afford to lease.

Businesses that are interested in Allentown may be able to get cheaper rents than if they were to look for places in similar locations because of a program called the Neighborhood Improvement Zone. The program was passed by the Pennsylvania Legislature in 2009, allowing real estate developers to use revenue from their tenants’ taxes to pay off the costs of construction.

The program was passed specifically for Allentown and relies on developers to find tenants. If they cannot, they cannot take advantage of the tax revenues, so developers need to create both attractive commercial spaces, but also lease them at highly competitive rates.

So far, the program has been working well. One developer has already attracted National Penn Bancshares to locate their headquarters in its new office building. Moreover, the bank’s lease is 20 to 25 percent lower than the normal market rate.

Although this program was passed specifically to aid Allentown, there are similar programs starting in Lancaster and Bethlehem. If it turns out to be successful, it will be interesting to see just which Pennsylvania cities will be able to benefit from these kinds of programs in the future.

Source: The New York Times, “Tax Program Aims to Reverse Decades-Long Decline in Allentown,” Jon Hurdle, March 4, 2014