$3.2M tax break from IDA for Riverhead downtown apartment developers, to chagrin of school and fire districts

The developers behind a 165-unit apartment complex planned for downtown Riverhead won more than $3.2 million in tax breaks from the town’s Industrial Development Agency.

Commack developer Heatherwood Luxury Rentals wants to build 52 studios, 80 one-bedroom and 33 two-bedroom apartments on the site of a former Sears store on East Main Street. Rents would range from $2,400 for studio apartments to $3,600 for two-bedroom units and there would be shops on the first floor, executives said.

The Riverhead IDA voted 4-0 on April 8 to approve the benefits for the $82 million project, saying it aligns with ongoing revitalization efforts downtown. But school and fire district officials oppose the abatements, which they said disrupts their funding.

The incentives consist of nearly $2.9 million in sales tax on the purchase of construction materials and furnishings, a $357,656 mortgage recording tax exemption on their $47 million mortgage and 16-year property tax abatement.

Taxes on the 1.4-acre lot will remain at $22,558 for two years during construction and then gradually rise from $23,009 to $270,000 until 2040, according to a schedule of payments in lieu of taxes, or PILOT.

For developers, PILOT arrangements are less expensive than paying the full tax bill.

Riverhead IDA chairman Jim Farley said the project was “crucial” and praised developers for complying with design guidelines in the town’s pattern book and including retail and dining. “That was very important as part of our plan in town to activate Main Street,” Farley said.

Under the PILOT agreement, taxes will be reduced for the town, county, school district and fire district, which generated criticism at a February public hearing.

Riverhead Board of Education president Colin Palmer asked the IDA to consider exempting the school district from tax abatements that put “significant pressure” on school budgets.

“It strains our ability to maintain and even consider increases in student opportunities without putting an added burden on our taxpayers to make up those lost revenue dollars,” Palmer said.

Riverhead attorney Jonathan Brown, who represents the Riverhead Fire District, shared similar concerns, noting that more apartment complexes downtown would have a “severe impact” on both equipment and crew.

The hearing also drew support from housing and construction advocates who cited an “exponential” need for more apartments.

“If these developments were burdened with the full tax value, there would not be enough return on investment,” said Mike Florio, chief executive of the Long Island Builders Institute. “These projects would not get built.”

One resident criticized the developers for seeking tax breaks on market-rate apartments that would be profitable.

“They really don't need a handout from the taxpayers of this town,” Mike Foley said.

The project is expected to create three new jobs that pay $69,000, according to documents submitted to the IDA.

Developers said the tax aid would help offset construction costs that had soared since the project was first pitched in 2016. An environmental review was required before the project got approval from the Town Board in October 2023. The town Planning Board must also weigh in before construction can begin.

“After seven long years, this was a meaningful step in the entitlement process,” said Sean Sallie, director of planning and development for Heatherwood. “Obviously, we have some more work to do to get a shovel in the ground, and we are hopeful that we can get there.”