SYRACUSE, N.Y. - Three vending machines at a Syracuse apartment building dispense candy, chips and soda. And they serve another purpose. They have helped the building owner avoid more than $3 million in property taxes.

The vending machines are the only visible sign of commercial activity at Copper Beech Commons, a sprawling apartment complex for college students.

Here's why that matters: The property owner gets a lavish tax break that is available only to renovated buildings that have both commercial and residential space.

State law created the tax break to help turn old and underused buildings into the kinds of places that filled downtowns in the old days. The idea was to restore the buildings with upper-floor apartments and street-level businesses -- restaurants, offices and stores - to bring back the bustle of urban life.

For Copper Beech Commons, vending machines did the trick. Without the tax break, the owner would pay $560,000 a year in property taxes. With the vending machine incentive, the annual tax bill comes to less than $33,000.

Other projects use token businesses to qualify for the tax breaks:

In rural Oswego County, a former school that was converted to apartments avoids $21,000 a year in taxes by including a small office for a guy who mows lawns.

Destiny Arms, a four-story luxury apartment building near the Syracuse Inner Harbor, leases two rooms in the basement to a massage therapist. The break? $1.3 million over 12 years.

St. Patrick's Lofts, a Syracuse apartment building in a converted school, rents out the gymnasium for birthday parties or other special events. The tax break saves $55,000 a year.

The same property tax break, known as a 485-a exemption, has been claimed by 40 buildings in Syracuse so far. City taxpayers give up more than $5 million a year to subsidize the properties, which pay sharply reduced taxes for 12 years.

Copper Beech Commons has apartments for roughly 300 students.

Syracuse officials say it's well worth the cost. In many cases, the tax exemption works as planned. It has filled vacant or underused buildings with residents and businesses, bringing life back to once gloomy downtown corridors like Warren Street.

But the 485-a exemption is vaguely worded and easy to exploit. Some projects stretch the rules in ways that make a mockery of what state lawmakers intended.

Syracuse.com's investigation of the program shows other problems:

Taxpayers gave incentives worth more than $4 million to help a group of investors, including Syracuse University basketball coach Jim Boeheim, build a new student apartment complex. Just two months after the building opened, the group sold it for several million dollars more than it cost to build.

Some of the biggest tax exemptions in Syracuse have gone to out-of-state companies that demolish old buildings to make way for new construction. City officials have allowed that to qualify, although one of the authors of the legislation says it defeats the purpose.

Vague rules for the program promote confusion and abuse.

Syracuse Commissioner of Assessment David Clifford said local assessors struggle to administer the 485-a tax break, which is open to different interpretations.

"They ought to tighten up some of the language,'' he said.

After syracuse.com started questioning some of the projects, Clifford sent out two city assessors to investigate whether developers really deserve the tax breaks. Their review is ongoing.

Tax break a factor in city revival

The 485-a exemption was inspired by a similar tax break aimed at lower Manhattan in the 1990s. State lawmakers launched an Upstate version in 2002 to spur "creative reuse'' of urban buildings for "residential and commercial mixed uses,'' according to the legislative record.

Before the 485-a exemption can be used, the local municipality must authorize it. Syracuse and Onondaga County adopted the 485-a exemption in late 2010 and early 2011, respectively.

It rewards developers for investing in buildings, allowing them to avoid property taxes on the cost of the improvements they make for eight years. For the next four years, the tax break is reduced 20 percent per year.

The tax break has helped revive Syracuse's downtown. Significant landmarks including the Pike Block, the Syracuse Savings Bank building and the State Tower Building have benefited, bringing new residents and businesses to the city center. Merchants Commons, where syracuse.com is a tenant, gets the exemption.

Theory Syracuse, a student apartment complex under construction on East Genesee Street, claimed one of the biggest 485-a tax exemptions in the state, worth at least $9.2 million over 12 years.

The city's chief economic development official says the development spurred by 485-a exemptions is worth more than the lost tax revenues. Properties avoid taxes in the short term, but they bring new vitality to important commercial corridors, said Honora Spillane, deputy commissioner for neighborhood and business development.

"I think it's important to keep in mind that these are investments folks are making in the city for the long term,'' Spillane said.

Developers using 485-a tax breaks have built $137 million of new property value in Syracuse. That will boost the city's tax base after the exemptions phase out in 12 years. Owners will avoid roughly $53 million in property taxes until then.

Throughout Upstate, the tax break has been claimed by more than 220 properties, state records show. Eighteen municipalities have projects, but Syracuse and Buffalo dominate. As of 2017, the top 10 projects by dollar value -- and 37 of the top 40 -- were in Syracuse or Buffalo.

Luxury digs for college kids

The biggest beneficiaries of 485-a in Syracuse are developers building luxury apartments for college students on University Hill. Most are out-of-state companies.

They don't need subsidies, according to one of the developers.

Jared Hutter, CEO of Aptitude Development, stands at the site where a six-story, 54-unit student apartment building was built at 404 University Ave. in Syracuse. Hutter said student housing development in Syracuse would occur "with or without tax incentives.''

New apartment complexes target well-heeled families of college kids willing to pay premium rents - up to $1,350 a month for a small studio, or $4,200 for a four-bedroom. Many apartments feature granite countertops, stainless steel appliances and on-site fitness centers.

By including a modest amount of commercial space, the developers can save millions.

New Jersey-based Aptitude Development, whose investors include Boeheim, built a six-story student apartment building at 404 University Ave. Two months after the complex opened in 2016, they sold it for $23.1 million to a Texas company that owns a national fleet of student housing facilities.

Jared Hutter, CEO of Aptitude Development, said the cost of the building was nearly $20 million, but declined to provide the exact amount. Aptitude reported a final cost of $18.5 million in 2016 to the Syracuse Industrial Development Agency, which provided $580,000 in subsidies for the project apart from the 485-a exemption.

In any case, the developers made at least $3 million on the sale.

The building owners will save an estimated $4.1 million on property taxes over 12 years, thanks to the 485-a tax exemption. To qualify, the developers set aside about 650 square feet for a ground-floor Express Mart convenience store.

The Express Mart has since closed. The space is vacant.

City assessors pegged the market value of the completed building at $13.9 million. The cheaper taxes helped Aptitude get $23.1 million for it.

Hutter's company is now building The Marshall, a block-long, eight-story complex with room for 287 students. The apartments were sold out by late April.

Hutter said tax incentives can help, but are not necessary to build new student housing in Syracuse, where there is strong demand.

"I don't think tax incentives have anything to do with what's been going on in Syracuse,'' he said. "Incentives sometimes can help enhance a project. You can make a project better sometimes, when you have that ability. But I would tell you I think a lot of this would go on with or without tax incentives.''

Onus on the assessor, not the property owner

The 485-a is more generous than most traditional economic development incentives, and easier to apply for. All developers must do is file a two-page application with the local assessor once, at the beginning of the 12-year exemption.

They don't have to submit names of their commercial tenants or copies of leases unless the assessor asks. They don't have to submit annual updates.

Clifford, the Syracuse assessment commissioner, said the only way to verify that property owners meet the requirements is to inspect each building every year. After getting questions from syracuse.com about 485-a properties, Clifford assigned assessors to begin a review of each property. He said he hopes to make it an annual check.

City assessors went out only once before this year to inspect 485-a properties, in 2013 or 2014. At that time, they discovered that Copper Beech Commons was claiming its tax break based solely on having vending machines, Clifford said.

Clifford said he told owner Norm Swanson that wasn't enough. Clifford said he threatened to rescind the tax break for the property, which is near the corner of East Genesee Street and University Avenue.

Swanson then recruited a commercial tenant to rent a utility room. That satisfied Clifford. But the tenant, a bike shop, moved out a year or so later.

Sara and Steve Morris, owners of Mello Velo bicycle shop, said they agreed in April 2014 to lease a converted utility room at Copper Beech Commons for $200 a month. Their regular store at the time - on the second floor of a Westcott Street building - was severely overcrowded.

Mello Velo opened a small "commuter hub'' in the basement utility room, which opened onto University Avenue through a garage door. They staffed the site three days a week, mostly to assemble bikes and perform minor repairs, the Morrises said.

Mello Velo put up a sign over the garage door, which was left open when the site was staffed.

"It certainly was not purpose-built commercial space,'' Steve Morris said. "It was a utility room.''

A utility room with a garage door, left, was converted into the Mello Velo "commuter hub'' in 2014, right, at Copper Beech Commons. The commuter hub closed after about a year.

Mello Velo vacated the space after roughly a year, he said, when the Morrises started renovating a new location for their store. The new store on Canal Street opened this month.

Asked what commercial use Copper Beech Commons hosts currently, Swanson in an interview described it as "a combination of vending and food and beverage operation.''

He added: "We also have offices, things of that nature, that are commercial, that are not related to Copper Beech.''

Swanson did not say to whom he rents office space. He did not return several subsequent phone messages seeking more detail. Floor plans posted on the property's website do not show any offices.

Clifford said he has no new information about Copper Beech since assessors checked the property four or five years ago.

If city assessors determine during their review this year that any 485-a properties are no longer eligible, they will give owners until the end of the year to come into compliance or risk losing the exemption in future years.

Clifford said the law provides no clear language on when to rescind a property's exemption. He said he prefers to work with building owners to keep them in compliance.

"I'm not on real firm ground if I'm going to take peoples' exemptions away,'' Clifford said. "I'm sure they're going to take us to court.''

'Converting' buildings by tearing them down

Syracuse may have the biggest 485-a exemption in the state.

Peak Campus, a Georgia company that oversees $3.5 billion worth of student housing around the nation, is constructing a block-long student apartment complex on East Genesee Street, called Theory Syracuse.

Some $23.5 million of the project's assessed value, or 95 percent, is exempt from taxes this year. That's a bigger exemption than any in the state as of 2017, records show.

At that rate, Peak Campus will save at least $9.2 million over 12 years. But the benefit will likely grow. The building is still under construction. Its assessment - and the value of the tax exemption -- will increase next year after the building is finished.

To make way for its new complex, Peak Campus demolished three smaller commercial buildings on the site.

Demolition is not what state lawmakers had in mind when they created the tax break, said U.S. Rep. Brian Higgins, D-Buffalo. Higgins sponsored the 485-a legislation in 2002 when he was a state Assembly member.

"It defeats the purpose,'' Higgins said. "The idea is to redevelop these older buildings, not demolish them.''

The 505 on Walnut is among three large student apartment complexes going up on the sites of buildings that were demolished.

Several other large student apartment complexes - including 404 University Ave., The Marshall, and The 505 on Walnut - are new high rises that replaced demolished buildings.

Clifford, the Syracuse assessor, said the 485-a rules are ambiguous. He said he decided that demolishing a commercial structure to build a new mixed-use building could qualify as a "conversion.''

"It keeps getting stretched,'' he said. "Originally, you had to have a commercial building, and that building had to be converted. But there's no language in there that says it has to be that building. It just has to be a conversion.''

On the other hand, Clifford denied a 485-a exemption to a developer who wanted to build a new structure atop a commercial parking lot. He said he tries to apply common sense, because the law is vague.

"Honestly, I don't know where to draw the line,'' Clifford said.

The law says the exemption is for "non-residential real property, upon conversion to mixed-use property.'' Mixed use property is defined as "a building or structure used for both residential and commercial purposes.''

That's it. Local assessors are on their own to figure out the details.

Officials at the state tax department declined to answer questions about how the law should be interpreted.

"These questions are best directed to local assessors,'' spokesman James Gazzale said.

The city of Albany last year hired a law firm to review its 485-a exemptions, after the city assessor conceded that he misunderstood the rules. The lawyers determined that "commercial use'' is so loosely defined that a condominium building could get the exemption by renting some parking spaces and storage units to non-residents.

From Manhattan to Schroeppel

Although 485-a initially targeted cities with populations of 50,000 or more, the law was amended to allow any municipality to adopt it. Even the rural Oswego County town of Schroeppel, population 8,400, is onboard.

Schroeppel and the Phoenix school district approved the 485-a exemption to facilitate the district's sale of a vacant school for conversion into apartments, town assessor Hal Henty said.

The building, surrounded by cow pastures, initially saved $21,000 a year by including a small coffee-and-food operation aimed mainly at tenants. The coffee shop soon failed.

Greenview Apartments, a converted school building in rural Schroeppel, qualifies for a mixed-use tax exemption by renting a small office to JC's Lawn Care.

Henty said he threatened to withdraw the tax exemption last year. But the day before assessments were finalized, the building owner sent Henty a copy of a new lease for a commercial tenant, this time a lawn-care company.

The entrance to JC's Lawn Care was locked on a recent weekday afternoon. Through the window, it appeared to consist of a small room, with a desk, a chair and little else.

Henty said a tax incentive for mixed-use buildings -- inspired by the real estate market of lower Manhattan -- can seem absurd when adopted in a town like Schroeppel. But developers will find a way to use a lucrative tax break.

"A lot of people question the way it's being done,'' he said. "I just have to go by the (law).''

Staff writer Michelle Breidenbach contributed to this report.

Contact reporter Tim Knauss | email | Twitter | 315-470-3023

Editor's note: This story was updated June 4 to reflect new information from the City of Syracuse on the cost of an apartment building at 404 University Ave.

