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The Kalamazoo City Commission has unanimously approved a new tax-exempt zone aimed at spurring housing development in the city. The zone, called a Neighborhood Enterprise Zone (NEZ), will provide developers with significant tax benefits and incentivize revitalization efforts, especially for historic buildings. The first project to benefit from this initiative will be the development of four new apartments in downtown Kalamazoo.
What is a Neighborhood Enterprise Zone (NEZ)?
An NEZ is a tax exemption area created by the state of Michigan to encourage the development of housing and the rehabilitation of older buildings. Once designated, the NEZ can offer tax exemptions for new residential units, lasting anywhere from nine to 15 years. This tax relief is designed to make projects more financially feasible for developers. The Harris family, spearheading the current development project, sought the NEZ to help mitigate high construction costs associated with rehabilitating a historic building.
A Look at the Project: Transforming a Historic Space
The project is centered around the second floor of the historic Hiemstra Optical building, located on East Michigan Avenue in downtown Kalamazoo. Developers Brian and Carmen Harris are aiming to turn the vacant, run-down space into four one-bedroom apartments. Despite the building’s charm, with its high ceilings and large windows, the couple quickly realized that the rehabilitation costs were far higher than anticipated.
“We thought it was going to be a lot cheaper. Once we started getting construction bids, we realized there’s no way we’re going to be able to afford this,” Brian Harris explained. To make the project financially viable, they applied for an NEZ status, which will help “freeze” property taxes and make the development more affordable.
The NEZ’s Role in Downtown Revitalization
Kalamazoo city officials have extended the NEZ to cover several historic buildings on East Michigan Avenue, including those around Bates Ally. This extension, spanning between East Michigan Avenue and East South Street, includes properties such as Okun Brothers Shoes and Green Top Tavern. By offering tax exemptions for residential development, the NEZ aims to foster growth in an area that is ripe for revitalization but faces challenges due to the high costs of updating historic structures.
Assistant City Planner Bobby Durkee emphasized that the NEZ helps provide developers, both large and small, with the financial incentive needed to tackle these challenges. “This block was selected because it’s in the center of town, and there’s potential for more development,” Durkee said. While only four apartments are planned for the immediate future, the initiative is expected to encourage further investment in the area.
Looking Toward Future Growth
Though the initial project is small, there is optimism about the future of the neighborhood. According to Harris, there have been informal discussions with other property owners in the area, hinting that more developers may follow suit if the project proves successful.
“Some of our neighbors and developers are asking us, ‘Let me know how that works out for you,’” Harris noted. The NEZ is expected to generate more interest and potentially lead to additional developments in the area.
The Harris family’s project is awaiting final city approvals before they begin the rehabilitation process. Once completed, these new apartments could be a catalyst for further development, transforming downtown Kalamazoo into a vibrant, mixed-use space.
How This Tax Break Can Benefit Developers
For small developers in Kalamazoo and across Michigan, the Neighborhood Enterprise Zone presents a significant opportunity. By reducing property tax liabilities, these zones make redevelopment projects more financially feasible, even in older, historic buildings that would otherwise be cost-prohibitive to renovate. The NEZ incentivizes developers to bring much-needed housing to urban centers, helping revitalize local economies while preserving historic structures.
Key Takeaways:
- Neighborhood Enterprise Zones (NEZ) provide tax breaks to incentivize housing development in urban areas.
- The Harris family project will include four new apartments in a historic downtown building.
- Developers can benefit from tax exemptions lasting up to 15 years.
- The NEZ extends to multiple buildings in downtown Kalamazoo, with potential for further development.
If you’re considering starting a housing or redevelopment project, understanding the NEZ and its benefits could make all the difference in making your vision a reality.
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