The historic Wharton Building, at 411 W. First in downtown Spokane, is undergoing major renovations, and its ownership group is taking advantage of city, state, and federal tax incentive programs to make it happen. 

Renovations of the building include converting the main floor into two separate commercial spaces—one for a Korean restaurant and the other for a bookstore and café.

The second and third floors will be converted into 17 one-bedroom and studio loft-style living units.

“What we need downtown is more residents, more people living here,” says Chris Batten, principal of Spokane-based RenCorpRealty LLC, who co-owns the building through Wharton Lofts LLC. “It’s going to add to the health and safety and security of downtown.”

Other Wharton Lofts co-owners are Batten's construction partner Tim Short and his architect partner Chris Olson, who owns Spokane-based Olsonprojects PLLC. 

To help with the costs of transforming the commercial building into residential units on two floors, Batten’s ownership group is taking advantage of a new sales and use tax deferral program, which was created through Senate Bill 6175 and passed in the state’s 2024 Legislative session.

“It’s for converting existing commercial buildings into residential living units,” Batten says. “On the main floor, we’ll still pay sales tax on the commercial component, but on the residential component, we won’t pay that sales tax.”

With the deferral program, Batten and his partners will save 9% on the applicable taxed goods and services for the renovation of the residential portion of the project.

Batten applied for the tax deferral program through the city of Spokane, which adopted a code enabling the use of the commercial conversion program. His application then had to be approved by the Washington state Department of Revenue, which oversees the program.

Batten contends the Wharton project is the first in the state to receive approval for the tax deferral program.

The tax incentive “assists property owners in converting existing commercial buildings into affordable housing, particularly addressing post-COVID work and real estate trends to give such buildings new use,” according to the city of Spokane website.

To meet the requirements of the program, the residential spaces will be a mix of affordable and upscale units, Batten explains.

“They’re affordable by definition because they’re going to be in that 80% to 115% area median income level,” says Batten. “We’ll have a certain number of them at 80% to meet the requirements of the sales tax conversion rebate program.”

The one-bedroom and studio units will range in size from 550 to 600 square feet, he says.

“From a design perspective, a layout perspective, they’ll have a look and feel of a market-rate apartment,” says Batten.

The residential portion of the project is in the final design phase. Batten says he expects construction of the residential portion will begin around Jan. 1 and be completed in late 2025.

The residential component of the project is expected to cost about $3.5 million, says Batten, who adds that the tax deferral has been factored in to that estimation.

On the main floor, permits have been issued for the bookstore and café, named Jupiter’s Eye Book Café. The permit application and plans for the Korean Restaurant, named Gangnam Style, are currently under review.

Batten expects both businesses will be operational by year-end.

Olsonprojects is the architect for Jupiter’s Eye and the residential floors, and Fusion Architecture PLLC is the architect for Gangnam Style.

RenCorpRealty Building Services LLC, another Batten-owned company, is the contractor for the entire Wharton Building project.

Another cost-saving measure Batten and his partners are taking advantage of is the city of Spokane’s Multifamily Property Tax Exemption Program. Through that program, Batten and his partners will be exempt from paying property taxes on the residential components of the building for 12 years.

To save on taxes for the commercial spaces in the building, Batten had the building, which was constructed in 1901, placed on the Spokane and national historic building registers.

“We won’t pay property taxes on the commercial component for being on the historical register,” Batten says. “Putting it on the national register, we’ll get the federal investment tax credits. So that’ll be a 20% tax credit on the cost of renovating the building.”

The Wharton Building project is a relatively small project, which means the cost per square foot is a little higher than in larger residential developments, Batten says, but the various tax-saving incentives allow for him to take on the project.

Batten expects more qualifying downtown property owners will take advantage of the new commercial conversion program, which he says will benefit the downtown area, particularly following the pandemic, when much of the workforce shifted to remote work.

“We have a higher vacancy rate downtown now than we’ve ever had,” says Batten. “We’re not putting (in) new office tenants, so what are we doing with these buildings?”

Batten says he has three other downtown projects that may be able to utilize the commercial conversion program, but he declines to disclose which properties those are.

“To have an active, vibrant, safe, and secure downtown, you need people here 24/7,” he says.