Title
Public Hearing - Certificate of Economic Hardship (HP-229-23-ECH and HP-231-23-ECH) - Appeal of Historic Preservation Commission’s Decision - 333-337 N. 7th Ave. (332-334 N. 6th Ave.)
Description
Request to hold a public hearing on Certificate of Economic Hardship Decisions (HP-229-23-ECH and HP-231-23-ECH) by the Historic Preservation (HP) Commission on Demolition Applications HP-217-23-DEM and HP-218-23-DEM for the property at 333-337 N. 7th Ave. (a.k.a. 332-334 N. 6th Ave.), Phoenix Laundry & Dry Cleaning (a.k.a. Milum Textile Services), for total demolition at the subject property. The property is zoned DTC-Van Buren (Downtown Code - Van Buren Character Area), although an application for HP overlay zoning (Z-117-23-8), initiated by the HP Commission, is pending and scheduled to come before City Council on May 1, 2024. Requested City Council action is to uphold the Historic Preservation Commission's denial of the Certificate of Economic Hardship as the standards set forth in the Ordinance have not been met.
Report
Summary
Applications to demolish the subject property were filed in October 2023, with a 30-day demolition hold commencing on Oct. 13, 2023. During the 30-day period, HP staff researched the property and recommended it eligible for HP zoning, concurring with a previous recommendation of eligibility from the 1984 Historic Phoenix Commercial Properties Survey. The Phoenix Dry Cleaning & Laundry property qualifies for historic designation. It is historically significant for its association with commercial development in early Phoenix and is architecturally significant for its Streamlined Moderne-style design and use of multiple lamella roofs. Despite some changes, the property retains a high degree of historic integrity, still resembling its 1935 appearance (Appendix A).
On Nov. 20, 2023, the HP Commission initiated HP zoning for the northern portion of the property, prior to the end of the 30-day hold (Appendix B). Once the HP zoning was initiated (Z-117-23-8), the HP Officer revisited the demolition requests under Section 806 of the Zoning Ordinance and denied them, since the property was deemed to have historic value. A hearing was then scheduled, per Section 806.E.3 of the Zoning Ordinance, to allow the applicant to dispute the historic eligibility of the property or to establish that an economic hardship exists. The HP Hearing Officer heard the case on Dec. 8, 2023, and denied the demolition requests, finding that the applicant had failed to establish that the property was ineligible or that an economic hardship existed. The owners appealed the decision of the HP Hearing Officer to the HP Commission. The HP Commission upheld the denial decision of the hearing officer at its Jan 1, 2024, meeting. The owner appealed the decision of the HP Commission on Jan. 9, 2024.
Standards for Granting Demolition Approval
Section 806.E.5 states that for properties under consideration for HP designation, a demolition permit shall only be granted if the applicant demonstrates one of the following:
A. That the building is of minimal historic significance because of its location, condition, modifications, or other factors, and its demolition shall be inconsequential to historic preservation needs of the area; or
B. If the building is determined to have historic or architectural significance, that the denial of the demolition permit will result in an economic hardship to the property owner. Such hardship shall be determined in accordance with Section 814.
Section 814 states that the basis to establish economic hardship for an income producing property shall be that a reasonable rate of return cannot be obtained from the property in either its present condition or if its historic features or structures are rehabilitated. Demonstration of an economic hardship shall not be based on or include any of the following circumstances:
1. Willful or negligent acts by the owner;
2. Purchase of the property for substantially more than market value;
3. Failure to perform normal maintenance and repairs;
4. Failure to diligently solicit and retain tenants; or
5. Failure to provide normal tenant improvements.
In this case, the applicant has not disputed the historic significance of the property, so the question at hand is whether an economic hardship exists. To establish whether a hardship exists, the applicant must submit required items on the Checklist for Requests for Certification of Economic Hardship (Appendix C). While some items on the checklist pertain only to specific cases, others are essential to establishing whether an economic hardship exists. In this case, #27 is essential; it reads, “For vacant, semi-vacant and under-utilized buildings, or buildings in need of rehabilitation, owner is required to submit a statement of potential return on investment based on existing or new uses, including costs of rehabilitation, and supplementary new construction, and using fair market value for the property, a reasonable rate of return on investment, and prevailing rehabilitation and rental rates in the area”.
To date, staff has received the following information (Appendix D):
1. Emails from the property owner stating they have calculated in excess of $100,000 spent to save the property, received a bill in June 2023 for $18,975.38 to insure the property but are now having difficulty obtaining insurance, and paid approximately $40,000 in property taxes.
2. Emails from the property owner with references to articles about lamella roof collapses/lack of structural integrity.
3. An email and letter from commercial real estate agents Justin Horwitz and Paul Borgesen documenting the challenges they’ve had selling the property with historic designation pending and the potential loss of value that may occur. They estimate that based on comparable sales, the property could be worth as much as $21 million, but is currently being marketed at $9.2 million, with no qualified parties pursuing at that price. They also note that they had a licensed general contractor walk the property who provided a rough estimate of $10 million to bring the building up to code. This figure is only to bring the building to code in a “vanilla shell” condition and does not include the cost to customize the interior layout for an end user.
4. Photos from property owner of existing conditions.
While the information provided by the applicant and the real estate agents is helpful, it does not meet the standard required for economic hardship applications. The $10 million verbal cost estimate for rehabilitation may be valid, but cost estimates should be itemized and provided directly by a licensed contractor (or other qualified professional), as required by the checklist. Furthermore, the applicant has not provided any information regarding what the investment return on any new uses would be. This potential return would be based on fair market value for the property and prevailing rental rates in the area. It should also consider the availability of grant funds and other preservation incentives from the City and other sources. Because no information regarding a return on investment has been provided, the test for economic hardship has not been met.
Staff recommends the City Council uphold the Historic Preservation Commission's decision to uphold the Historic Preservation Hearing Officer's denial of the Certificate of Economic Hardship, as the standards for granting demolition approval set forth in Section 806.E.5 have not been met.
Financial Impact
There is no financial impact to the city.
Concurrence/Previous Action
- The HP Hearing Officer denied the Certificate of Economic Hardship on Dec. 8, 2023;
- The Hearing Officer's decision was appealed on Dec. 8, 2023, by property owners Craig and Marilyn Milum;
- The HP Commission voted 8-0 to uphold the hearing officer's decision on Jan. 8, 2024; and
- The HP Commission's decision was appealed on Jan. 9, 2024, by property owners Craig and Marilyn Milum.
Location
333-337 N. 7th Ave. (a.k.a. 332-334 N. 6th Ave.)
Council District: 7
Department
Responsible Department
This item is submitted by Deputy City Manager Alan Stephenson and the Planning and Development Department.