Scott Kraus’s story about app-developer Trifecta moving into the NIZ is exactly why I supported the idea. Trifecta is moving 60 jobs from Lower Macungie to downtown Allentown, and using the NIZ to bargain down rents.
Trifecta is the latest in a series of companies relocating to the NIZ to take advantage of its tax benefits and location in a suddenly booming downtown.
Developers who build or redevelop within the boundaries of the 127-acre zone can use new tenants’ state and city taxes, excluding property taxes, to repay their construction loans, allowing them to offer below-market rents.
While the incentive is remaking downtown Allentown, it’s causing heartburn for commercial property owners like Michael Ervin, Trifecta’s current landlord on Medical Center Drive in Lower Macungie.
Ervin, who must now find a replacement tenant for the 15,000 square-foot space, said it’s difficult for a commercial landlord with holdings outside the NIZ to compete with the incentives it offers.
“I guess I have my issues with the NIZ down there too, with the tax situation,” Ervin said Thursday. “I think they are taking away from the surrounding area, by making it so attractive to relocate. It is only because they are getting a break to do it. I think what it is doing is impacting the owners in the surrounding areas that have commercial space available.”
Pelletier said Trifecta approached Ervin about buying its Lower Macungie offices in order to expand them, but couldn’t reach a deal. Ervin said Trifecta’s offer was below the building’s appraised value.
Every part of this story is great. A tech business is moving from the periphery to the core, adding 60 workers to the downtown, enlarging the market for service business like restaurants and retail businesses. 60′s not a huge number, but replay this a dozen more times and it starts adding up to a good-sized customer base for the service sector.
The rent bargaining part of the story is also good, although incumbent commercial property owners might not think so. What’s good for the region is for businesses, and especially small new companies, to have the edge in bargaining power over land and commercial property owners. Michael Ervin won’t like it, but the wave of commercial property owners forced to cut their asking rents to compete for new business tenants businesses is going to make all the Lehigh Valley a more attractive destination for businesses. Everybody’s going to need to level down their expectations for asking rents, which is good for companies, and good for wage-earners, since the competition will limit how much of their output landowners can capture via rent.