January 26, 2013

Old MaineGeneral hospital tax break request reflects risk, all around

Without a big tax break, Augusta East Development's $23 million bid to rebuild East Chestnut Street hospital can't go forward, the developer says, but some city residents balk at giving back so much tax revenue

By Keith Edwards kedwards@centralmaine.com
Staff Writer

AUGUSTA -- The new owner of the soon-to-be-former MaineGeneral Medical Center hospital on East Chestnut Street plans to spend $23 million on renovations to lure in new tenants to the building.

click image to enlarge

This Oct. 24 photo, taken from Memorial Bridge, shows the MaineGeneral hospital on East Chestnut Street in Augusta. Without a huge tax break, the building's new owner says he can't make a go of redeveloping the property, but councilors say some constituents are grumbling about giving such a big break to Augusta East Development Corp.

Staff file photo by Joe Phelan

But only if the city provides a generous, 20-year tax break to help make it happen.

Mayor William Stokes said he believes if Augusta East Redevelopment Corp. hadn't stepped forward to buy the building, no one would have. And without a tax break, known as tax increment financing, the prominent seven-story, 317,000-square-foot building on the city's east side would likely stay vacant and deteriorate, he said.

With the nonprofit MaineGeneral Health previously owning the building, the city wasn't getting any property tax revenues from the property anyway, Stokes noted.

"In my mind, without this TIF, there's no way anyone's buying this building," Stokes told city councilors when they discussed granting a tax break for the project during a meeting last week. "This building would be a white elephant in Augusta."

Augusta East Redevelopment Corp., a subsidiary of local firm Mattson Development, recently purchased the East Chestnut Street building for $2.5 million from MaineGeneral, which is consolidating its core operations into a new, regional hospital under construction in north Augusta. The company is owned by Hallowell resident Kevin Mattson and his partners.

Mattson's development firm is seeking to initially get back 100 percent of the property taxes it would pay to help defray the cost of converting the large building into something that could draw new tenants to fill the space.

As tenants are found to occupy space, the developer would get correspondingly less tax revenues returned to it by the city over the life of the proposed 20-year agreement, shrinking to 50 percent of taxes returned, once 95 percent of the developable space in the building is occupied.

The tax break proposal is scheduled to be discussed at a public hearing set for Feb. 21.

The $23 million the firm would spend on the project would be private investment, not a bank loan, according to William Dowling, a representative of Augusta East Redevelopment Corp. and a former Augusta city councilor and mayor.

That's because, according to City Councilor Michael Byron, a former commercial lender, no bank would touch a deal as risky as redeveloping the old hospital.

"This deal is not bankable, that's why they have to go after private money to fund this," Byron said when the council discussed the tax break on Thursday.

Development potential

MaineGeneral Medical Center will pay rent to Mattson to remain in the building until the opening of its new $312 million, 192-bed hospital near Interstate 95, off Old Belgrade Road. The regional hospital is designed to combine inpatient functions of its Augusta site as well as its hospital at the Thayer campus in Waterville.

The new hospital, to be called the Alfond Center for Health, is scheduled to open in November.

Dowling said that nationally, when hospitals are vacated, the buildings are almost never redeveloped for new uses because of their layout. They have individual bathrooms in each room, and specialized infrastructure systems, making redeveloping them especially expensive, he said.

Without a tax break, no developer would be able to afford to take the project on, Dowling said.

"You'd have to tear it down, or you'd have a vacant building, attractive to vandals," he said. "If not for us, that building would go undeveloped."

Councilor Jeffrey Bilodeau said he wanted proof that, without the tax break, the building wouldn't be redeveloped, beyond taking the word of the developer.

Stokes pointed out that before striking a deal with the developer, MaineGeneral had tried to auction off the building but received no interest whatsoever.

(Continued on page 2)

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