Could a new tax incentive get the Village at Harbor Hill across the finish line?

Yahoo

11-06-2025

Could an affordable housing initiative help get the Village at Harbor Hill across the finish line?
The city of Gig Harbor is considering a potential tax exemption program aimed at encouraging rent-restricted housing. The Village at Harbor Hill, a proposed retail site in the Gig Harbor North area that has been stalled for years, could be its first test case.
Talks to develop the 18.5-acre property go back at least a decade, according to The News Tribune's reporting. Last year, the property owner began considering adding multifamily housing to make the development more feasible financially. The development has struggled to land a grocer to anchor the project.
A multifamily property tax exemption program, or MFTE, could make developing those housing units — and the project as a whole —more attractive, though representatives for the city and the property owner haven't shared any concrete timelines for moving forward.
MFTE programs have been popular among developers in other area cities and are a tool for cities and counties to encourage housing development, including more affordable units.
Tacoma, for example, offers three options. Those include an 8-year all-market rate version and 12- and 20-year versions, which require a percentage of units to be rent-restricted, or what the programs call 'affordable.'
As defined by the state and as part of its Growth Management Act (GMA), the MFTE program offers a property tax exemption in exchange for the development of market-rate multifamily units or multifamily affordable housing of at least four units in designated 'residential targeted areas,' via the 8, 12- and 20-year versions.
The property owner does not pay property taxes on the residential improvements for the designated number of years, but still pays tax on the land and any nonresidential improvements, such as a commercial portion of a mixed-use building.
Cities and counties can tailor programs to meet policies, such as what percentage of area median income the 'affordable' units are based on, generally tied to figures from the U.S. Department of Housing and Urban Development (HUD).
All cities, many towns, and Clark, King, Kitsap, Pierce and Snohomish counties are eligible to offer an MFTE program, according to the state Department of Commerce.
The city of Gig Harbor hasn't been shy about mentioning the potential benefits of an MFTE program for the long-anticipated retail site.
At one time, Village at Harbor Hill was planned as a business park at Borgen Boulevard and Harbor Hill Drive, anchored by a Town & Country Market grocery store and surrounded by banking, restaurants, shops and medical services.
Plans for the site stalled as a legal battle over transportation impact fees and eventual settlement between the developer and the city took time to reach.
Town & Country was out of the project by the summer of 2020 and two years later also abandoned plans to set up shop at the Peninsula Shopping Center on Judson Street.
After a community meeting about the project last summer, property owner representative Jon Rose confirmed to The News Tribune in December that residential was now in the mix, along with the audience's receptivity to a discount grocer. Rose is vice president of real estate with Florida-based Raydient/Rayonier, which owns the Village at Harbor Hill property.
In a city newsletter March 19, the city announced that 'Discussion of (an MFTE) mechanism, beginning with the Village at Harbor Hill, will focus on the opportunity to promote multi-family workforce/affordable housing in the community near transit and other key services.'
The city council heard an overview of the program at its study session on March 13 and a formal proposal introducing a 12-year MFTE version with at least 20 percent of units designated as rent-restricted housing for low- and moderate-income households at the council meeting on April 28.
Households are considered low-income if they earn 80% or less of the area median income, and moderate-income if they earn between 80 to 100%, as defined by the U.S. Department of Housing and Urban Development, per the city's draft ordinance presented April 28.
As of April 1, the median family income in Pierce County is $120,800. A household of five is considered low-income if they make $104,400 or less in a year, according to the Tacoma Housing Authority. A one-person household qualifies as low income if they make $67,700 or less.
The Gig Harbor City Council heard a first reading on April 28 but did not vote on an ordinance that would establish an MFTE program in the city. A second reading of the ordinance, scheduled for May, was removed from the agenda. Instead, city staff are planning a town hall to discuss the program with the community, according to City Clerk Josh Stecker. The council may consider the program again afterward under a new ordinance, he wrote in an email.
That town hall is still being scheduled, but city staff are looking at the first three weeks of July, City Administrator Katrina Knutson said. Attendees will be able to learn more about a potential MFTE program as well as the spate of state housing bills passed in recent years that affect the city.
Speaking about the Village at Harbor Hill project, Jon Rose, the property owner representative, told the city council at the April 28 meeting that 'multifamily developers that we have talked to are supportive of this version of the MFTE.'
Gig Harbor Community Development Director Eric Baker explained to The News Tribune that an MFTE program could make a mixed-use project with housing more feasible because it could help the developer save on the housing portion. The property tax exemption wouldn't apply to the land and any commercial components of the project. He added that he doesn't have insight into the Village at Harbor Hill project specifically but understands how multi-use projects tend to proceed.
Baker also explained that the tax exemption would result in a 'tax shift' onto the rest of the city's property owners. To make up for the lost revenue, residents and businesses would be subject to a slight levy rate increase, which he said city staff expects to be 'a relatively small number' but haven't quantified yet.
City Administrator Knutson said that she has directed city staff to do a full comprehensive look at the proposed MFTE program and 'what the property tax offset would be' if used at the Village at Harbor Hill site, so that they can present that to the public and the city council for informational purposes.
Knutson said Wednesday that the city is aware of at least two grocers 'in regular contact' with the Village at Harbor Hill property owner. She declined to comment on whether a budget grocer like Winco or a Trader Joe's is still a possibility for the site, but said 'that's a great question.'
Since the Village at Harbor Hill is a private development project, the city's role is primarily regulatory, Knutson said. But the city is also aware that the project is of strong interest to many residents in the Gig Harbor North area, and has been in 'proactive and regular communication with the property owner and their agents in order to be responsive to what they may need to accomplish the project,' she said.
In an interview on May 29, Rose noted that without a residential component or viable grocer as a possibility, the Village at Harbor Hill site likely would go back on the market.
Since the community meeting with Gig Harbor residents in 2024, he said, 'probably six or seven grocers have brought their boats into the dock for a look, and most of them have taken a look and moved on.'
As Rose explained, 'It's one thing to take over a space, like if the QFC emptied, you're buying a used space where it was built with dollars and expenses that were from 30 years ago. It's like buying a used car, you don't pay the same as new for a used car.'
'And some of the grocers, some of them that are particularly well liked and desired, have never done a ground-up retail,' he added. 'They don't have to. There's some in particular that just go to 15,000-square-foot spaces that are already there.'
But he also noted there is some good news about the site, with several grocery entities that 'have stuck around.'
'And with the apartment idea, we have checked it with other apartment developers, just to make sure we're not chasing a dream. And there's interest from both sides.'
While Baker, the Gig Harbor community development director, said the site has been rezoned to allow for multifamily development, Rose remained neutral on any MFTE benefits to the project.
'We'd love if our project was helpful, but the city needs to meet certain growth targets ... mandated by the GMA, and the affordable housing is also mandated,' he said. 'So it's up to the city. If it's offered as a program, people who develop multifamily and our project will consider using it.'
'If they don't offer it, there will still be apartments, and they just won't meet any affordable housing criteria,' he added. 'So we're not going to weigh in and start lobbying people. This is an internal issue for the city more than it's an issue for us.'
'But I can tell you, there's legitimate and strong interest from grocers — more than one. And same with the multifamily.'
Previous reporting from The News Tribune contributed to this report.