LEBANON — City Councilors said last week they would consider a multi-year tax abatement to support the development of a 196-unit apartment complex at the site of the former Woolen Mill building on Foundry Street.

On Wednesday, the City Council had an informal discussion with developer Jon Livadas, who is working with partners to build a multi-phased residential complex at the former Kleen laundromat facility, which ceased operations in 2019.

The project, which received Planning Board approval in October, will be composed of four apartment buildings, three of which would be new construction, a two-story parking garage, a landscaped pedestrian plaza and a riverwalk along the Mascoma River — which would be accessible to the public, according to Livadas.

Livadas met with the Council to discuss options for receiving a multi-year tax abatement for the project through state statute 79-E, a tax incentive law aimed to encourage revitalization and investment in local communities.

RSA 79-E authorizes municipalities to tax a developed property based on its assessed value prior to the improvements being made, rather than at its new value once the project is completed.

Projects eligible for tax relief consideration must enhance the economic vitality of a community’s downtown, typically by redeveloping an underutilized property, rehabilitating a building or significantly restoring a historic site.

Livadas, in a phone interview, said these types of municipal partnerships are even more important to developers in the current economic climate, where high interest rates and construction costs pose barriers to funding projects or attracting investors.

“Interest rates have more than doubled (in recent years), which doubles the debt that a project carries,” Livadas said.

Since January 2021, the federal interest rate has increased from a low of 2.65% to 5.45% as of Sept. 21, according to the Federal Reserve Board.

Construction costs — which escalated in recent years due to shortages of labor and construction materials — have stabilized but are not returning to their pre-pandemic levels, and the workforce shortage remains a major problem, Livadas said.

The current economic climate also makes it more difficult to find financial partners because investors are more hesitant at the present to invest in real estate projects, Livadas added.

City Councilors on Wednesday agreed that, under Lebanon’s 79-E program, the Woolen Mill project would easily qualify for at least 11 years of tax assessment relief — during which the complex would be assessed at today’s property value rather than its value when the project is complete.

In addition to the standard five years of tax assessment relief granted to projects that meet the city’s program 79-E criteria, the City Council has discretion to grant additional years to projects that either create new housing, rehabilitate a building eligible for the national or state register of historic places or designate a number of housing units to people of median to low income.

Scott Newman, a historic preservation consultant to the developer., told the City Council that the Woolen Mill building is significant architecturally as well as culturally.

Built in the 1880s, the Woolen Mill is representative of New England’s late 19th-century mill buildings and was a significant contributor to Lebanon’s economic vitality before its closure in 1960.

Though Livadas has not filed to have the mill added to the national historic register — largely due to the lengthy process — he intends to follow federal guidelines to preserve the mill’s historic character. The building’s exterior will be retained, as will the interior post-and-beam structure — which will be visible inside the building.

The building only needs to be eligible for placement on the state historical register to qualify for additional years of abatement, city councilors noted.

Members of the City Council said they may also consider being flexible with their definition of “affordable housing” to grant the project additional years of abatement — even though all the units at the Woolen Mill complex will be market-rate.

Livadas — who is also developing a 70-unit workforce housing project in Newport — told the Lebanon City Council that an affordable housing component would not be feasible for the Woolen Mill project.

“It’s more costly to build affordable housing than market-rate housing,” Livadas explained. “There’s different requirements and different standards that you are required to build to and different time (commitments),” Livadas. “For example, you get a building under an option agreement and for a year; you spend a significant amount of money and you don’t know you’ll be awarded the funding to build the affordable housing.”

The risk of being denied the funding for an affordable housing project is even greater in Lebanon due to the high land prices, Livadas said.

But Livadas also noted that the high costs of housing in Lebanon are largely attributable to the lack of new housing to meet the demand.

“Part of this is that there just needs to be housing,” Livadas told the council, explaining that adding housing units to the market will help to stabilize rental prices.

Importantly, Livadas has not yet submitted an application to the city requesting assessed tax relief, nor have city councilors indicated how many years they would grant. But several councilors acknowledged that helping this project come to fruition will benefit the city on multiple levels — both with its housing shortage and its downtown revitalization.

“Our city is replete with examples of old buildings that have been repurposed for the greater good — AVA (gallery), the junior high school, the old Listen center — there’s a bunch,” said Councilor George Sykes. “There is a value to the community to take an old asset and to turn it into a new and improved asset moving forward.”

City Manager Shaun Mulholland told the council that the city’s tax relief incentive policy gives the councilors broad flexibility in regard to how it defines affordable housing or whether the project is contributing to the city’s affordable housing goal.

Livadas said in a phone interview that he hopes to begin the first phase of construction in summer of 2024, though that could depend on the stability of the financial market. But the support he has received from the city gives him cause for optimism.

“We feel we are working really well with the city, and we don’t foresee us having issues to help get this project underway,” Livadas said.

Patrick Adrian may be reached at padrian@vnews.com or at 603-727-3216.