PAWTUCKET, R.I. — About a decade ago — at the pleading of a longtime friend — Scott A. Davis gave in and purchased the former Fuller Mill for nearly $260,000 — a fixture along the banks of the Blackstone River for more than 120 years.
“Morris came to me and said ‘I’m too old. I’m never going to get it done,’” said Davis during a recent interview with the Globe, recalling a conversation he had in 2013 with Morris Nathanson, the Pawtucket mill’s former owner. “It’s sad to think that he was so right.” Nathanson died in September 2022, at age 95, and the mill project was still in progress.
Amid the state’s housing shortage, Davis, who also owns the Rhode Island Antiques Mall, has been planning to redevelop the mill originally built in 1880 into mixed-income apartments for “young professionals,” with potential commercial or office space on the ground floor. Davis applied for historic tax credits through the state’s Division of Taxation. The credits typically are used to help developers fill financing gaps to redevelop historic buildings into housing and commercial spaces. Davis received approximately $1 million in state historic tax credits and $450,000 in Rebuild Rhode Island credits, which are subsidies earmarked for smaller historic rehabilitation projects and those that support new affordable or workforce housing.
The caveat: the project would need to be complete by September 2022.
Yet, due to the pandemic’s impact on the construction trades — including the labor shortage, the high cost of materials, and ongoing inflation — Davis couldn’t meet the state’s deadline. He asked for an extension, and was denied. Without the $450,000 from the state, Davis said, it will be difficult to make this project work.
“I’ve been throwing tens of thousands of dollars per year on this project,” said Davis, who is willing to make the units a mix of affordable and market rate rents. “This is dwindling away my retirement savings. But I’m so far into this project.
“The worst thing is to just walk away with nothing,” added Davis, who said the project’s estimated cost is now between $8 million to $9 million. That’s money, he said, he does not have in his bank account.
Davis isn’t the only developer in the state willing to build much needed housing who is hitting roadblocks in starting construction due to financial hurdles.
Joseph F. Garlick, executive director of NeighborWorks Blackstone River Valley, told the Globe that more than 160 housing units are being held up in the northern portion of the state alone (including those at Fuller Mill), due to the state’s unwillingness to work with developers who have been awarded historic state tax credits but have missed (or expect to miss) construction completion — or “placed in service” — deadlines during the pandemic.
“Bureaucratic blinders and lack of alignment with state housing goals are derailing the construction of 166 affordable apartments in Pawtucket and Woonsocket,” said Garlick, who acknowledged that most state officials agree the long-term solution to the housing crisis is to build more housing. To do so, said Garlick, developers must put together the financing — which he said is a “more complicated and difficult task necessary to get affordable housing built.”
“It’s mind-boggling that the state can talk out of both sides of its mouth. The say we need more affordable housing production,” said Garlick, but at times, it feels like the state is “working against” developers, he said. ”Three projects were, at one point, at the closing table in December, when the rug just got pulled out from us because of these interpretations and the lack of cooperation from taxation.”
Garlick, who focuses entirely on affordable housing, said 70 units for his affordable housing project proposed at the Millrace District on South Main Street in Woonsocket are being held up by the state’s unwillingness to extend his completion date. If the project is completed, 55 of the 70 units will be affordable for tenants and 15 will be available at market rate. On March 1, after his deadline extension was denied, Garlick requested a hearing from the Division of Taxation, which oversees the state’s historic tax credits.
In a March 8 letter to Garlick, Assistant Tax Administrator Bethany M. Whitmarsh wrote in response to his hearing request that the state’s position “remains unchanged.” Garlick called it “more bureaucratic dodgeball.”
According to some developers, Rhode Island is an outlier among the region’s states in its approach to whether the impact of the COVID-19 pandemic warrants extending contract deadlines.
“I am a New York City developer and I have historic projects in [Maine, Massachusetts, and New York],” said Hammad Graham, a principal at Brisa Development LLC in Brooklyn, New York. Outside of Rhode Island, “I personally have not worked in a state that won’t look at unforeseen circumstances [like the pandemic and its impact on construction and development] and don’t say it’s worth modifying whatever agreement we had in place because of this ‘100 year flood’ that delayed the project.”
When asked about Rhode Island denying extensions to housing developers while other states in the region have extended such deadlines, Paul Grimaldi, a spokesman with the state’s Department of Revenue, which oversees the Division of Taxation, said only that he could not comment on “specific projects.”
As for federal tax credits, the IRS announced in October 2022 that housing developments that received a placed in service deadline can receive an extension of at least 12 to 24 months.
“We are articulating that housing is at a crisis level and a priority,” said Melina Lodge, the executive director of the Housing Network of Rhode Island. “We have an opportunity to be flexible and responsive, but we just aren’t.”
Housing Secretary Stefan I. Pryor previously served as the state’s commerce secretary, and in that role repeatedly emphasized how important it is for Rhode Island to remain competitive. In an interview shortly after he started as housing secretary in February, Pryor told the Globe that he had been informed of the issues that developers face. This week, a housing department spokesman would not comment on the record to the Globe on the issue.
“It’s a bit staggering that the IRS has been flexible, but we can’t mirror that,” said Lodge.
In 2022, lawmakers allocated $28 million to fund the state’s historic tax credits this year, an increase over the $20 million allocated in the 2022 budget. The credits program has come under fire over the years, with some state leaders questioning its viability as budget shortfalls begged the question of whether the state could afford the tax incentives.
Graham said Brisa acquired Bernon Mills in Woonsocket in May 2021 from a previous owner who started applying for historic tax credits in 2017. When he acquired the mill complex, which is more than 200 years old, Graham planned on turning it into 60 apartments with a small commercial space spread across three buildings. The project is expected to cost $24.8 million, according to estimates by Rhode Island Housing, with more than $1.93 million in historic tax credits annually, which would generate about $1.8 million of tax credit equity.
Graham thought he would be able to complete construction by August 31, 2023.
“But then the interest rates kept getting higher and higher. No one thought labor costs would get so high. These all start to play into the economics of this property,” said Graham, who said this is his first development project in Rhode Island. “Who would have thought that in May 2021, we should have asked for a [completion date] of May 2030? That’s the kind of cushion I feel like we need.”
“It’s so counter-intuitive and short-sighted, and that’s a generous way of putting it,” said Graham. “It’s kind of self-destructive to the whole idea that [Rhode Island] wants to add affordable housing units.”