Cancer center developer wins $19.5M in tax credits

Townsend Capital secures the federal credits to build research parks in Hawaii and several other states

A Maryland firm hired to develop the University of Hawaii's Cancer Research Center of Hawaii in Kakaako has secured $19.5 million in federal tax credits to use to develop research parks in Hawaii and several other states.

It is not clear whether Townsend Capital LLC plans to use any of the money for the Kakaako cancer center, which UH selected Townsend to design, build and finance.

Richard Cundiff III, a vice president and director of investment banking for Townsend, could not be reached for comment. Dennis Townsend, the company's chairman, did not return calls.

What is clear is that the money could give a big infusion of capital to the cancer center, which is a critical component of Kakaako's redevelopment.

According to the terminology used to describe the U.S. Treasury Department's New Markets Tax Credit program, Townsend earlier this month was awarded an "allocation" of $50 million to invest in the development of research parks in distressed communities near universities, medical schools and other "Centers of Knowledge" in Hawaii and six other states.

That means if Townsend invests $50 million in privately raised money, it can receive federal tax credits worth 39 percent of that investment, or $19.5 million, paid out over seven years. The allocation is being administered by a Townsend-related entity called Urban Research Park CDE LLC.

The federal money is separate from the state tobacco tax money that is being earmarked for the Cancer Research Center. The tax, which was increased by the state Legislature during the most recent session, is expected to generate about $11 million a year. The full amount will be directed to the center during the first year the tax increase takes effect. In subsequent years, the center will receive only part of the money.

Carl-Wilhelm Vogel, director of the Cancer Research Center of Hawaii, said he was not aware of Townsend's $50 million federal allocation, and did not know whether the company planned to use it to help finance the Kakaako cancer center.

"I'd be interested to find out, too," Vogel said.

Administered by the Treasury Department, the New Markets Tax Credit Program is designed to encourage investment in economically distressed areas. Kakaako qualifies as such an area under the program.

Last year, Biotech Research Center LLC, a partnership seeking to develop a private biotech research facility on land owned by Kamehameha Schools, received an allocation of $28 million, including about $11 million in tax credits, to help finance its planned 300,000-square-foot facility in Kakaako.

According to the Treasury Department, Townsend affiliate Urban Research Park will use its allocation to develop research centers that "focus on the development of cutting-edge technologies, new business accelerators and company incubators in the fields of biotechnology, nanotechnology, molecular research and information technology."

In addition to Hawaii, Urban Research Park serves Illinois, Kentucky, Maryland, New York, Pennsylvania and Virginia.

For Hawaii, the cancer center is a key to Kakaako's metamorphosis from a partially blighted area of rusting, light-industrial facilities into a biomedical hub that could attract armies of scientists carrying portfolios of lucrative research grants and venture capital investments, plus staffs of researchers.

To anchor Kakaako as a biomedical hub, the state has located the University of Hawaii's John A. Burns School of Medicine there. But the cancer center and Kamehameha Schools projects still appear to be in the early development stages.

In contrast to an ill-fated mixed-use development proposed for state land in Kakaako, which would have included high-rise residential towers, the biomedical projects have not drawn criticism from community groups opposing development.

Daniel Dinell, director of the Hawaii Community Development Authority, a state agency managing the redevelopment of Kakaako, said the cancer center "will not only benefit the health of the people of Hawaii, but will contribute toward the vision of Kakaako as a 'live, work, play, learn and visit' destination by bringing workers and visitors to the nearby parks and pedestrian-oriented waterfront already developed by HCDA."

For both Urban Research Park and Biotech Research Center LLC, the federal tax credits provide what amounts to equity that can be leveraged to attract private loans and equity investors. According to a Treasury Department profile of Urban Research Park, the tax credits will enable the firm "to provide debt and equity products with flexible, below market terms that benefit the research park's tenants, the project itself, and the surrounding community."