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Richard Sidebottom

Richard Sidebottom
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Abandoned Building Credits Raise Historic Properties From The Dead

Posted by Richard Sidebottom on Friday, October 30, 2015


Chatham Mill | Winston-Salem, NC (July 2015, work in progress)

To some people, abandoned mills and other abandoned buildings can be a bit spooky. But to some real estate developers they can mean opportunity, particularly in states with tax incentive programs.

South Carolina leads the way with several programs to incentivize revitalization of abandoned buildings: the South Carolina Textiles Communities Revitalization Act and the Abandoned Buildings Revitalization Act. A third tax credit, the Retail Facilities Revitalization Act, is rarely used on buildings that would be eligible for the historic tax credit.

SC Textiles Communities Revitalization Act

Eligible Properties: Any textile mill, including land, that was used directly for textile manufacturing or ancillary uses.

Qualifications: At least 80% of textile mill has been closed continuously to business or otherwise nonoperational as a textile mill for at least one year preceding the “Notice of Intent to Rehabilitate”. 

Incentive: 25% credit against real property taxes OR 25% state income tax or corporate license fee credit

SC Abandoned Buildings Revitalization Act

Eligible Properties: Buildings that have been abandoned for five years or longer.

Qualifications: Must have been at least 66% vacant and nonoperational for income-producing purposes for the past five years. An investment threshold of $75,000-$250,000 (dependent on the size of the community) must be met.

Incentive: 25% of actual expenses, with a cap of $500,000

 

These incentives are both monetized using pass through partnership and LLC structures as well as through transferring earned credit to lessees and purchasers, with the exception that carryforwards may not be transferred.

Neighboring state North Carolina previously had a stand-alone mill credit, but after it was allowed to sunset in 2014 it has recently been incorporated as an add-on to the newly passed state historic tax credit. While the final version of this legislation that will take effect in 2016 is still outstanding, we do know that qualifying historic mills will receive a 5% increase to the base historic tax credit amount. As it stands now, the base is 15% for projects with QREs less than $10 million and 10% for those between $10 million and $20 million. This North Carolina program now ties the mill credit specifically to those income-producing historic structures that qualify for the federal historic tax credit, in contrast to the South Carolina programs that serve as economic stimulus credits with or without the historic tax credit. 

Hickman Memorial Hall | Graniteville, SC (September 2014, pre-rehabilitation)

Clients in the Carolinas have found much success in monetizing these credits in their capital stack and producing quality rehabilitations. Chatham Mill Ventures is rehabilitating the Chatham Manufacturing Company property in Winston-Salem, North Carolina into 166 apartments that will open at the end of this year. In South Carolina, the National Historic Landmark mills in Graniteville are being rehabilitated by Peachtree Investments who are utilizing the Textile Communities Revitalization Act to restore buildings and jobs in this important community that was devastated by a tragic train disaster that shuttered the mills in 2005.

Few other states have these types of programs, but could potentially benefit from introducing them. As industrial buildings across the country close from shifts in demand or economic forces, their continued vacancy can haunt the locality for decades. For communities that reimagine them as productive work places and provide incentives to do so, they can resurrect these properties from the dead.

North Carolina Rehabilitates Historic Tax Credit

Posted by Richard Sidebottom on Friday, October 2, 2015

NODA Mills | Charlotte, NC
NODA Mills | Charlotte, NC

For many years, North Carolina was the poster child for healthy historic tax credit programs (HTCs). It was a shining example of how a state program can spur private real estate and economic development. Numerous historic rehabilitations testify to the success of the former HTC and North Carolina Mill Tax Credit programs. Some impressive examples are Wake Forest Biotech Place in Winston-Salem, a master-planned development that transformed the former R. J. Reynolds Tobacco Company complex into offices and research laboratories, and the many abandoned mills around Charlotte brought back to life as affordable housing, breweries and mixed use developments. With a user-friendly state tax credit program and the outspoken support of a strong statewide preservation organization, Preservation North Carolina, the state was a hotbed for historic rehabilitations, with the sixth highest number of projects in the country just prior to. In 2014, 44 rehabilitation projects received Part 3 approvals with a total of more than $56 million spent by the private sector on qualified rehabilitation expenditures (QREs).

That is why it was so disappointing that the state HTC and the state Mill Tax Credit programs were allowed to sunset at the end of 2014. Even before the HTC was gone, a campaign driven by Governor Pat McCrory and Secretary Susan Kluttz of the Department of Natural and Cultural Resources was underway to reinstate some form of these instrumental revitalization programs for the Tar Heel State. According to the 2014 report, Decades of Success: The Economic Impact of Main Street in North Carolina, sponsored by the North Carolina Department of Commerce and North Carolina Main Street Communities, nearly 300 projects in Main Street districts alone used the historic tax incentive between its inception in 1998 and 2013, with private investment totaling over $190 million in rehabilitation costs.

Good news came in the last few weeks from the North Carolina legislature! A revised tax credit program combining the HTC and Mill Tax Credit programs was included in the budget bill recently passed by the legislature and signed by Governor McCrory. While final details of the program are subject to change, the program should begin on January 1, 2016 and will include the following:

RATES 

  • Income-Producing (combines Commercial & Mill)
    • Reduces base credit rate to 15%
    • +5% for mill ($3M spending requirement has been eliminated)
    • +5% for economically distressed counties
  • Home-owner Residential
    • Reduces to 15% credit
    • Applies a cap per project QRE @ flat project ceiling ($150K)
    • $10,000 minimum over 24 months

CAPS

  • Income-Producing (combines Commercial & Mill)
    • $0 to $10M base rate
    • $10M to $20M base rate reduced by 5%
    • Hard cap at $20M
  • Home-owner Residential
    • $150,000 cap

INSTALLMENTS
Can now be claimed all in one year. All credits claimable once building is placed into service with a 10-year carry forward.

TAXES CLAIMABLE AGAINST
Combined credits claimable against income taxes, grow premium taxes and corporate franchise taxes. 

The combination of the above results in a maximum per project cap of $4.5 million. This may not be as generous as the combination of the previous programs, but it will have a positive impact on a majority of the potential projects in the state and spur continued economic development. 

The North Carolina SHPO will be promulgating new regulations in the coming months and we will make sure to provide updates.

Contact us if you would like to know how these or other state HTCs can bring equity to your historic rehabilitation project. 

Topics: policy, North Carolina, HTC, MHA Southeast