Tax Credits Spur Redevelopment of Rhode Island Mills

But some question if they are worth the investment.

In 1993, the town of West Warwick inherited the Royal Mill. By then, it was a mortared stone mausoleum, where the town’s industrial history was interred with discarded looms, broken glass and pigeon guano. The fourteen-acre complex of seven buildings had last been purchased in 1936 at auction for one dollar.

It had been a spectacular fall.

Perched on the south branch of the Pawtuxet River, the mill was once the public face of the B.B. and R. Knight Company empire. One of the largest textile companies in the world, the Knight Company employed 600 workers at the Royal Mill, turning bales of cotton into cloth on 48,000 spindles at the turn of the twentieth century.

But labor unrest, competition from the South and a market downturn unraveled the Royal Mill. By 1935, the company was bankrupt. For another ten years, the factory produced woolens for the Saybrooke Company. And then, its life as a working textile mill was over.

But the derelict five-story, 450-foot main mill building, flanked by twin Romanesque towers, continued to impose itself on Providence Street, even as vandals took aim at the windows, and the homeless set up residence. The site faced a number of challenges — size, underground oil tanks, lead paint, asbestos and PCBs — so its would-be rescuers were few. Plans for its redevelopment included a casino or an assisted living complex. In 2004, the town sold the Royal Mill, again, for a dollar.

Today, the Royal Mills at Riverpoint is a 250-unit apartment complex with a 98-plus percent occupancy rate. (“I don’t advertise,” says property manager Michael Faiella). Residents are attracted to the fifteen-foot-high ceilings, exposed brick walls and the musical rush of the mill’s old waterfall.

“That project not only resulted in saving a great historic structure, it’s a symbol for us,” declares West Warwick Town Manager Fred Presley. “We use it in our marketing to attract businesses and residents. It changed everything.”

The developers, Struever Bros., Eccles and Rouse, lost no opportunity to capitalize on the building’s past in their design. Brightly colored bobbins were turned into staircase balusters and metal salvaged from the trashcan holders on the grounds. But what really gave the Royal Mill a future was the use of state and federal historic tax credits.

The National Park Service established the federal program in 1976, and it’s credited today with leveraging $109 billion in private investment and creating 2.41 million jobs. States began to enact their own versions in the late 1980s. Approximately thirty-five states have programs that encourage the rehabilitation of historic buildings by offering significant income and other tax breaks to the developer under different structures and rules.

Seven years ago, with Rhode Island in the throes of the recession, the real estate market in tatters and the state budget in a $360-million hole, then-Governor Donald Carcieri shuttered the state historic tax credit program.

This fall, the state is again investing new money under the Rebuild Rhode Island program, one of several economic development initiatives Governor Gina Raimondo successfully lobbied for in the last legislative session.

While the tax incentives are not specifically set aside for the renovation of historic buildings, developers of old mills with a project of at least $5 million can compete with other projects for tax credits up to 30 percent of the total cost, capped at $15 million for any one project. Unlike the original historic tax credit program, Rebuild Rhode Island credits will be awarded to fill a particular project financing gap.

Commerce Secretary Stefan Pryor calls the new incentive program “an improvement” over the original.

“That program did not size the investment to the demonstrated need — that’s an important point,” he says. “Nor did it factor in the possible impacts.”

In 2001, an Office of Statewide Planning survey identified more than twelve million feet of un- or under-utilized historical mill space as a potential replacement for more than 1,000 acres of industrial land needed to support the state economy in the future. In 2002, the state launched its first commercial historic tax credit program, offering qualified projects a credit of up to 30 percent of the project cost.

Rehabbing historic buildings is “a labor of love,” says New York developer Kristopher Shaw, who recently purchased the Lippitt Mill in West Warwick and plans to turn it into market-rate apartments. Or, “not for the weak of heart,” says Harry F. Angevine of Providence’s Built Inc., which helped to restore the Arcade. “The single largest hurdle is integrating a modern approach to HVAC, electrical and energy conservation, with as little alteration to the historic structure as possible. The financing part is easy if you deal with a lender that understands the structure of state and federal historic tax credits.”

The finance gap is usually between 40 and 50 percent of the project, so nearly all developers combine the 20 percent federal credit with the state credit. “Without credits, we would not have looked at the Lippitt Mill,” says Shaw. “The tax credits help us offset the risk, so the project makes sense.”

Studies commissioned by Grow Smart Rhode Island demonstrate that the program makes sense for the state, too. In 2007, it counted 277 completed and active projects (mostly rental units and some commercial and mixed-use) with a $1.53 billion portfolio. Each dollar of the $460 million the state invested in the tax credits generated $5.35 in economic output.

“Our large and diverse selection of historic buildings and neighborhoods is a significant economic development asset and a competitive advantage,” says Scott Wolf, executive director of Grow Smart Rhode Island. “We can’t win the battle by being the lowest-cost state — we’re too old and too cold. We have to look at other ways, like quality of life, distinctiveness of neighborhoods, user friendliness — and a lot of that is promoted by historic rehabilitation.”

But budget analysts scored the historic tax credit on the state books as a liability. In 2005, the state started shrinking the program, trimming the size of the credits and substantially raising the application fee to recoup some costs up front. In 2008, Carcieri singled out the historic tax credit in his budget message as “overly successful” and it was shut down for new applicants. In 2013, Governor Lincoln Chafee revived the program briefly to release credits assigned but expired unused. It was quickly oversubscribed. Advocates are hoping that the Rebuild Rhode Island program will keep the momentum going.

“These are complex projects and to put the deal together, developers need to have predictability,” says Edward F. Sanderson, executive director of the state Historical Preservation and Heritage Commission. “The program started as a national model, and at various points, the rules changed and that money is gone. Rebuild Rhode Island can be used for historic rehabilitation. In the meantime, developers who want to get construction going are sitting on their hands. They don’t know what the rules are and they need a planning horizon of several years.”

As had happened so many times in the Royal Mill’s history, the economy got the better of its owner’s ambition. In 2009, the recession coupled with the sudden disappearance of state historic tax credits and high fees derailed Baltimore-based Struever Bros.’ eight Providence projects.

“It couldn’t have come at a worse time for the state to do that,” he says. (Struever says that most of their Rhode Island projects have been completed and sold.)

But the Royal Mills has been a much-desired address for two years.

West Warwick, which still struggles financially, has leveraged Royal Mills into grants that renovated the Horgan Elementary School across the street, and built new tennis and basketball courts. Royal Mills attracted the Thundermist Health Center to take a chance on the Cotton Shed, a part of the complex. This year, Royal Mills will return $477,000 in tax revenue, and that number will rise in two years when the historic tax credits expire.

“It’s really a success story for us,” says Presley.

In March, Royal Mills — neither a wreck nor a pipe dream — was sold again, for nearly $32 million

Ellen Liberman is an award-winning journalist who has commented on politics and reported on government affairs for more than two decades.