Rock Hill incentives for downtown businesses raise questions

adouglas@heraldonline.comOctober 14, 2012 

— A pizza restaurant will open in downtown Rock Hill with a pledge from city government to pay $39,000 of its rent over five years.

Millstone Pizza – owned by Brendan Kuhlkin – is set to occupy the back portion of real estate agent John Rinehart’s building on Caldwell Street. The front part of the building at 121-123 Caldwell St. will be the Old Town Market Hall, a place for the Old Town Farmer’s Market and other public events.

The city has agreed to pay the $39,000 from an account intended to support economic development in Rock Hill through rent assistance and other incentives. The account includes proceeds from the sale and lease of city property.

Some other Rock Hill businesses question using city money to help pay the rent for new downtown businesses. But Rock Hill leaders say the incentive is needed to help the city reach its goal of developing downtown.

Because of downtown’s history and the age of its buildings, the city faces different challenges in developing that area, according to city leaders.

Andrew Rose, owner of Ledo Pizza on Herlong Avenue—located about 3 miles from Kuhlkin’s new restaurant--said it’s unfair to other businesses for the city to give direct rent assistance to downtown businesses.

“Every city needs a downtown area,” Rose said. “But this is like putting our backs against the wall. We spend a lot out of pocket to stimulate the economy too.”

Ledo Pizza, a Maryland-based pizza and pasta restaurant chain, opened in Rock Hill in February.

“It’s disappointing to know that we’re not getting any help like the new businesses are,” Rose said.

Rock Hill, with its proximity to Charlotte, is “about to explode” as the economy rebounds, Rose said. The demographics of Rock Hill are ideal for pizza restaurants with many families and three colleges in town.

Return on rent rebates

Rock Hill’s ultimate goal is not to subsidize individual businesses’ rent, said Stephen Turner, executive director of Rock Hill’s economic and urban development department head.

Rather, the city wants to foster development downtown, where older buildings make the district a different market than the business environment on Cherry Road, Herlong Avenue and Dave Lyle Boulevard.

Having new businesses is a step toward breaking a “downward spiral” in downtown that the city’s recognized since taking the roof off Town Center Mall about 20 years ago, Turner said.

“We’re not favoring downtown,” he said. “The tools we use downtown and the challenges we face are different.”

The city predicts Kuhlkin’s Millstone Pizza shop in downtown will return about $20,000 a year in local hospitality tax revenues. That means the $39,000 incentive will have a return on investment within two years, city officials say.

Kuhlkin will also pay property taxes and business license fees, and he’ll buy city utility services, Turner said.

Rinehart also will be paying increased property taxes, business license fees and city utilities, Turner said.

To generate $20,000 in hospitality tax revenue, Kuhlkin would need to generate $1 million in sales every year at the downtown pizza shop. Rock Hill’s local hospitality tax on food and beverages is 2 percent of all sales at restaurants and bars.

Rose said he’d be surprised if Millstone Pizza makes $1 million in sales every year. “It’s going to be tough to capture $1 million in sales without having a corporate backing,” he said.

Kuhlkin’s rent reimbursement amounts to 50 percent, or $15,000, of what he’ll pay in rent in his first year, according to an agreement approved by City Council granting the rent rebate. During the restaurant’s second year, the city will reimburse Kuhlkin $13,500, or 45 percent of the annual rent.

He’ll receive a final rent rebate of $10,500 after his fifth year of business.

Kuhlkin, who also owns McHale’s in Fort Mill and Rock Hill, did not return several calls from The Herald.

While rent incentives have been offered to businesses downtown, large investments have been made in other areas that benefit all businesses, Turner said.

In recent years, the city set aside $11 million to bury power lines and add street-scaping as part of a plan to re-develop North Cherry Road.

Other parts of Cherry Road are also being improved under the College Town Action Plan to make the area more business-friendly, Turner said.

Rock Hill spent $5 million from federal HUD grant money to assist property owners along Saluda Street in cleaning up lots, building fences around some businesses and adding street-scaping to the area.

Saluda Street investments are paying off, evidenced by the opening of Gaulden Monuments’ new headquarters, said City Manager David Vehaun.

Cherry Road improvements have yielded results, too, he said, with the demolition of the former mall site and developing Riverwalk.

Downtown trends

Vehaun said the city’s commitment to downtown is important because “a strong urban core leads to increased community pride.”

Rock Hill values the historic significance of downtown, he said, and a healthy city center reflects on the city’s overall economic health.

Business incentives such as rent rebates have to be offered in downtown for Rock Hill to remain competitive and keep attracting new business, he said.

Through a program called Downtown Now, Rock Hill has provided $39,584 to six businesses during the last three years. The funds have paid rent rebates, improvements to downtown buildings and business license fee reimbursements.

City officials point out that other cities in North and South Carolina offer direct rent assistance to their downtown businesses either through loans or rent rebates.

Eleven cities in North Carolina offer rent reimbursements, although the amounts and qualifying criteria vary.

For example, Benson, N.C., will pay up to 25 percent of a qualified downtown business’ rent for one year, while Goldsboro, N.C., offers up to $4,800 in one-year grants for businesses outside downtown to move to the Main Street District.

Cities have to offer incentives because revitalizing a downtown “doesn’t just happen,” said Nancy Whitworth, director of economic development in Greenville, S.C.

Transforming Greenville’s downtown from being “dead as a doornail” in the 1970’s to a place people want to live, eat and shop required committment of public money and private investment, she said.

The city sponsored low-interest loans for businesses, sold buildings in downtown at cut-rate price and helped renovate historic properties to turn the downtown market around, Whitworth said.

Rent rebates were never offered by the city, she said, but loans were essential to “level the playing field” for downtown to compete with strip malls and other developing areas.

“You have to balance how much is enough,” she said. “You don’t want to do too much.”

Cherry Road restaurants

Another local business owner, Josh Mauldin, said he thinks giving cash incentives to some businesses and not others is unfair.

Mauldin, owner of The Patio on Cherry Road, near I-77, said he initially considered opening in downtown Rock Hill, but found the rent in available spaces too expensive.

For his location in a former Denny’s restaurant, Mauldin pays $2,500 a month on rent--the same amount Rinehart is charging Kuhlkin. But the city is paying $1,250 of Kuhlkin’s rent each month for a year.

The Patio’s restaurant is larger than the Millstone Pizza location, although the exact amount was not available.

Mauldin said he realizes it will take “years and years” to make downtown Rock Hill what many people in the city envision the area to be.

But, he said, “tons and tons” of money has been “dumped” there and buildings are still not full of restaurants or retail shops. Cash rental assistance may attract businesses to downtown, he said, but it’s not a fair city practice.

“There’s lots of things they do for one, but not the other,” Mauldin said. “I’m a conservative guy--I’m not looking for more than I need. If they were giving me some kind of incentive, I could do something too.”

The Patio opened in Rock Hill in the summer of 2012. In one year’s time, Mauldin estimates he’ll contribute about $6,000 in hospitality tax to the city.

“And what is the city going to do for me,” he said. “It’s like, ‘you don’t want to help me, but you want my money.’”

The York County Regional Chamber of Commerce has not heard concerns about the city’s rent incentive program, said Toy Rhea, the Chamber’s board of directors chair.

Out of the Chamber’s 800 members, he said, 85 percent are small businesses and 2 percent of those are in downtown.

In a sluggish economy and in the middle of a revitalization in Rock Hill’s downtown area, Rhea said, he’d tell business owners “more power to you” for setting up shop in and around Main Street.

“I’m a big fan of what they’re doing downtown,” he said.

The Downtown Now incentives started in 2007. During the last three years, Turner’s department has committed a total of $16,610 in rent assistance for two businesses in addition to Millstone Pizza.

Augello’s Coffeehouse, once located on East Main Street, received $9,167 over eleven months, according to financial documents provided by the city. The help from the city made up less than 30 percent of Augello’s rent during those 11 months.

Augello’s has since closed.

A downtown fitness company, Get Fit With Troy, will receive $7,443 in rent rebates over one year, amounting to about one-third of the fitness facility’s annual rent.

Troy Harris, owner of Get Fit With Troy, said the rent assistance and support from the city has been “amazing.”

“It makes it so much easier for me to pay my light bill and grow,” he said. “Without it, I’d be in bad shape.”

The lease he signed with Edward Boulware, who owns the space on Caldwell Street, was contingent, Harris said, on the city committing to help pay the rent for his personal training business.

Harris said even without the help, he would have opened Get Fit With Troy in downtown Rock Hill.

“I felt like downtown would be good because it’s in the center of town,” he said.

The fitness center is moving to another location in downtown in January, Harris said, and the city will not be giving him rent rebates then. But, he said the rent will be significantly cheaper in the new location.

For his new location on the corner of Black Street and Oakland Avenue, Harris said he’s applied to receive financial help from the city through Rock Hill’s Jumpstart program which helps businesses cover marketing costs.

Any business owner can choose to set up shop in downtown Rock Hill, Harris said, so the incentives given in that area aren’t unfair to anyone else in the city.

“It’s not unfair,” he said. “Everyplace in America, the downtown is supposed to be the hot spot.”

Anna Douglas 803-329-4068

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