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A Des Moines-based company hoping to move forward on a $5 million renovation project may benefit from an Iowa law that allows a city council to authorize tax breaks on industrial projects.

CFI Sales Inc., which was founded in 1995 to serve the commercial, agricultural and industrial segments of the retail tire market, has been working with the city of Des Moines Office of Economic Development since January 2009 to find a suitable facility in which the company can consolidate its operations and provide room for future growth.

After financing issues derailed that company’s plan to construct an approximately 166,000-square-foot building at Cold Stream Business Park, a new 50-acre light industrial park at 4500 Hubbell Ave., CFI Sales began searching for an alternative site.

“They ran into some cost concerns out there,” said Matt Anderson, Des Moines’ economic development director, referring to the company’s previous plan, which would have cost an estimated $11.5 million.

Now the tire distributor is considering the purchase and remodel of a 62-year-old industrial property located at 1701 E. Euclid Ave.

On Jan. 25, the Des Moines City Council passed an ordinance granting preliminary approval for a partial exemption from property taxation on the proposed project, which, according to city documents, would allow CFI Sales to consolidate its three locations, retain 30 jobs and create 16 new positions by 2012.

The tax break, allowed under chapter 427B of the Iowa Code, would provide a five-year property-tax exemption on the actual value added to the building on a downward sliding scale: 75 percent for the first year, 60 percent for the second year, 45 percent for the third year, 35 percent for the fourth year and 15 percent for the fifth year.

“They do have it under contract to purchase,” confirmed Steve Niebuhr, senior vice president of construction and management services for Hubbell Realty Co., which has owned the 12.8-acre property since March 2003.

According to Rita Conner, Des Moines’ economic development coordinator, the improvements are expected to cost between $5 million and $6 million, including the purchase price of the building.

In order to be eligible for prior approval of the tax exemption, which city records show was recommended by the Iowa Department of Economic Development (IDED), a determination must be made that the reconstruction of the building is required due to economic obsolescence.

“It’s not a competitive building in the market without acknowledging that condition exists,” Conner said. “It’s really evident going in there that the building is not usable in its current state.”

Conner said there are findings to support that assessment and that the city is taking “procedural steps” to move the project ahead.

The 230,000-square-foot warehouse, which was constructed in 1948 as a manufacturing plant and had been used primarily for cold storage for the past 10 years, has been vacant for about nine months, Niebuhr said.

The property, which Hubbell is listing for $2.35 million, is currently assessed at $2,048,000. Hubbell, however, has appealed a July 2, 2009, Polk County Board of Review decision denying the property owner’s request to lower the building’s assessed value.

Rod Hervey, a Polk County deputy assessor, said the Property Assessment Appeal Board (PAAB) is considering the matter and is expected to hand down its decision this summer.

“Once we’re notified of the sale price, we’ll propose to settle it and PAAB will (likely) agree,” said Polk County Assessor Jim Maloney, adding that the added value stemming from the proposed retrofit is expected to be $5 million to $6 million minus the base value.

Because the tax exemption would apply only to the added value, Hervey said, a lower base value would be most beneficial to CFI Sales, the prospective owner and developer.

“When you have that (tax) abatement, you start out with a base value,” Hervey said. “So you want that base as low as possible to start, because the added value is what is abated.”

On Jan. 25, the council also approved the submittal of an application for financial assistance to the IDED, which is considering a request from CFI Sales for $25,000 in direct assistance. According to an IDED spokeswoman, the specific terms of what that assistance would entail will not be available to the public until Feb. 12. If approved, however, Conner said the Office of Economic Development would match 25 percent of that amount with a $5,000 forgivable loan.

City records also indicate that a state of Iowa Investment Tax Credit in the amount of $89,000 and a $75,000 Iowa Sales Tax Refund are also being requested.

Tim Berardi, president of CFI Tire Service, a subsidiary of CFI Sales Inc., declined to comment on the proposed project.

“This application kind of structures everything he wants to do,” Conner said, adding that the timing is crucial, as final approval must come before Berardi closes on the purchase.

“Ideally, when he’s coming to the state or the city to ask for any type of assistance, (it is important) that he hasn’t taken action on construction yet or purchased the building yet,” she said. “So we can fully evaluate where his constraints are and he can know if there are opportunities for him before he makes that final decision.”

The City Council is doing what it can to expedite the process, Conner said, which included waiving a second and third reading of the ordinance, which is generally required for approval.

In addition to allowing CFI Sales to consolidate its operations, Conner said, the proposed remodel and relocation would give the company more visibility, improve its distribution component and allow the business to run more effectively and efficiently.

To that end, Conner said, the city of Des Moines has been collaborating with the state of Iowa to help Berardi pull off the deal.

“Whenever this makes sense as an economic development tool,” Conner said, “this (application process) ends up being the mechanism they use to take action.” The IDED will determine on Feb. 18 whether or not to approve CFI Sales’ request for assistance, including the tax exemption.

Over the next three years, CFI Sales’ annual sales are projected to grow to $28 million from $16.8 million.

At least two Greater Des Moines communities, including Ankeny and West Des Moines, have established specific policies in recent months pursuant to chapter 427B, which is geared toward the establishment of financial incentive policies to help industrial building projects get off the ground.