The village of Niles Board of Trustees approved Class 7(b) tax classification for the site of the proposed Niles Holiday Inn Express.
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The hotel will be built on two lots occupied by the recently shuttered Travelers Inn motel and the long-vacant Ozzie’s Bar and Grill restaurant building. Lakhani Hospitality, a family-owned company that owns both properties, said that they won’t build the new hotel without the tax incentives. According to the documents submitted to the board, that is because the taxes that they would otherwise have to pay would undercut the returns on the investment the company would put into the property.
Now that the Village Board approved the classification, it will be up to the Cook County Board of Commissioners to give the final approval. The Village Board would also need to approve Lakhani Hospitality’s application for a zoning variance and a special use permit, both of which cleared the Niles Plan Commission on April 6.
Class 7(b) classification is a tax incentive similar to Class 6(b) tax incentive for industrial properties. It is designed to encourage commercial business – including hotels – to build new commercial buildings or rehab existing ones. The property owner gets its property taxes lowered to 10 percent of the property’s market for 10 years, 15 percent for the eleventh year and 20 percent for the 12 year. After that, the tax rates return to normal unless the incentive is renewed.
In order to qualify, the applicant must show that it would need to spend over $2 million on the development, and that their plans wouldn’t be feasible without the incentive. The property must be located in the area that has been designated conservation, blighted or a renewal area. The taxes on the property had to have either declined or remained flat. The applicant must also show that its development would increase tax revenue and employment opportunities, and that they would be able to complete the project on time.
According to the documents submitted to the board, getting the funding to build the hotel isn’t an issue for Lakhani Hospitality. Rather, the company argued that having to pay property taxes at regular rates would undercut the return on money they would spend building the hotel. The study prepared by HVS Global Hospitality Services company on Lakhani Hospitality’s behalf indicates that an investor in a hotel property of similar size and capacity would expect he return of at least 18 percent. With the regular tax rates in place, that figure would drop to 15 percent.
During the Village Board’s Informal Consideration session, which took place right before the April 14 meeting, Niles Economic Development Coordinator Ross Klicker gave a presentation explaining what Class 7(b) incentives are and why the board should approve Lakhani Hospitality’s application. He said that the new hotel will have 10 full-time and 18 part-time employees. Before closing, Travelers Inn only had six. It is expected to bring in about $443,000 more in property taxes than the two lots currently do.
The new hotel would also generate $74,000 in sales taxes and $133,000 in hotel occupancy taxes during the first year of operations. Travelers Inn didn’t bring any sales tax revenue, and it brought in a little over $23,0000 in 2014.
Klicker also addressed the fact that the property is located inside Milwaukee/Touhy TIF district, and that Lakhani Hospitality would be able to qualify for TIF funds to cover some redevelopment costs. He said that, because this TIF expires in 2019, the village wouldn’t be able to offer funds for as long as it would tax incentives – and that the company would save less money in the process. Klicker also responded to Trustee Chris Hanusiak’s previously voiced criticism that tax incentives increase tax burden on the owners of nearby properties, saying that it won’t be true in this case.
“When a TIF district expires, [the property tax rate] will be based on much higher EAV, which will actually lessen the burden for taxpayers,” he said.
After the presentation, trustees were able to ask Karim Lakhani, the company’s Assistant Director of Operations, questions about the project. Hanusiak said that, while he had nothing against the project, he would prefer to see Lakhani Hospitality take advantage of the funding that was already there.
“I’m 100 percent on board with you to redevelop the property,” he said. “I prefer to see you get $4 million [in TIF funding] up front.”
Lakhani responded that applying for the tax incentive made more sense financially.
“When we ran the number on what a TIF can provide, it seems rather limited in scope compared to what we need,” he said.
Trustee Rosemary Palicki said that, while she supported the projects, she felt that the company was pressuring the village into getting tax incentives.
“Its comes across to me as if the village is being held hostage, and I’m troubled by that,” she said.
The board would up approving the application by a vote of 4-0, with Hanusiak abstaining. Trustee Joe LoVerde was absent during the meeting.
Lakhani previously told Niles Herald-Spectator that he hoped to begin construction in April. However, at the time, it was expected that the Village Board would consider the tax incentive application during its March 24 meeting. When questioned after the meeting, Lakhani said he wasn’t sure when conservation would start.
“We’ll know shortly,” he said.
Igor Studenkov is a freelance reporter for Pioneer Press.
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