Winter 2011 UPDATE: MACROSTIE HISTORIC ADVISORS

State Historic Rehabilitation Tax Credits: Outlook for 2011

State historic rehabilitation tax credits-especially in combination with the federal historic credit-have been proven to be an effective tool for revitalizing older communities. In addition to bringing historic buildings back into useful service, these local preservation incentives also spur private investment in economically-challenged areas, create jobs, and return tax revenues to local and state treasuries.  Developers report that, in some cases, the combined credits can bring as much as 40% of total financing requirements to their project.  Thirty-one states now offer state historic rehabilitation tax credits.

In 2010, proponents of state historic tax credits scored victories in several states, including New Jersey, Minnesota, Delaware, and Massachusetts. However, the current crisis in state budgets brought about by the nationwide recession has threatened the viability of some state historic credit programs, even though these incentives have proven to be among the most successful  economic revitalization tools at their disposal. 

New State Tax Credits

In 2010, Minnesota became the 31st state to enact a state rehabilitation tax credit. The program, which began on May 1, offers a state tax credit equal to 100% of the federal rehabilitation credit allowed for commercial properties or a grant equal to 90% of the federal credit allowed. There is no program cap and no per-project cap. For more information, visit the Minnesota State Historic Preservation Office web site.

With strong bi-partisan support, a state historic tax credit program was passed by the New Jersey legislature just this month. The Historic Property Revitalization Act provides a state tax credit equal to 25% of the total rehabilitation costs for historic commercial and residential properties. Although a $25,000 cap has been set for owner-occupied residential properties, there is no cap for income-producing properties. The bill awaits Governor Chris Christie's signature.  For more information and to register your support for the bill, visit Preservation New Jersey at  http://www.preservationnj.org/site/ExpEng/index.php?/PNJSite/hpi_act .

Efforts to establish a state historic tax credit in Illinois will be renewed in 2011 led by a coalition that includes Landmarks Illinois, AIA Illinois, and the National Trust for Historic Preservation.  While the Illinois House passed a state tax credit bill in early 2010, budget shortfalls prevented the Senate from supporting the bill.  For updates on the Illinois Historic Rehabilitation Tax Credit Incentive visit Landmarks Illinois. 

Extended and Expanded State Tax Credits

Several state tax credit programs were extended or augmented in 2010. Delaware's Historic Preservation Tax Credit program, scheduled to expire in June of 2010, was extended for ten years. The Massachusetts Historic Rehabilitation Tax Credit program, set to sunset at the end of 2011, was extended through 2017. In New York, the existing Rehabilitation Tax Credit program was expanded to allow banks and insurance companies to utilize the state credit against their state tax liabilities. However, the program was also revised to defer tax credits in excess of $2 million earned between January 1, 2010 and December 31, 2012 over a period of three years beginning in 2013 and ending in 2015. In addition, the state and federal credits cannot be bifurcated and therefore require an investor with both New York state and federal tax liability. For more information about the deferral schedule and the program, visit the New York State Office of Parks, Recreation & Historic Preservation.

The Threat to Missouri's State Tax Credit Program

At the end of 2010, Missouri's Historic Tax Credit program, widely considered one of the most successful in the country and a model in stimulating small development projects, was again under fire as the state looked for ways to overcome significant revenue shortfalls. As of November 2010, the Governor's Tax Credit Review Commission had approved a recommendation to reduce the current $140 million program cap to $75 million, which would significantly restrict the number of projects funded by the program and could threaten many historic rehabilitation projects now underway throughout the state. For more information, visit the Missouri Coalition for Historic Preservation and Economic Development.

Gulf Opportunity (GO) Zone Historic Tax Credit Increase Extended

In addition to the state tax credits, the deadline for the Gulf Opportunity Zone Act of 2005--which allows bonus depreciation and a federal tax credit boost from 20% to 26% for rehabilitation projects in the portions of Mississippi  and Louisiana most damaged by Hurricane Katrina--has  been extended to cover properties placed in service through the end of 2011. Among several others in New Orleans, our client Wisznia Associates has two projects under construction which will benefit from the extended benefits of the GO Zone legislation.

With provisions similar to the GO Zone incentives, the enhanced credit for buildings in the Midwestern Disaster Areas  are available for qualified buildings until December 31, 2011. The increase in credit amounts was authorized in the Tax Extenders and Alternative Minimum Tax Relief Act of 2008. 

The Market

In general, many states have a strong market for their state tax credit programs.  Pricing for state credits is based on market demand and whether the credit is certificated or allocated. For states with strong market demand and a certificated credit, pricing is in the low to mid 80-cent range per dollar of credit. In states with healthy demand and an allocated credit, pricing tends to be 10 to 15 cents less.   

The fact that several states have chosen to implement state historic tax credit programs in this fiscal environment is a testimony to the positive economic impact historic preservation has at both the state and federal levels. 

MHA Projects In The News

The conversion of the Universal Furniture Company Building in New Orleans into "The Healing Center," a multi-purpose facility providing yoga studios, massage therapy, art galleries and performance space, was highlighted by the National Trust for Historic Preservation in an article on preservation success stories in New Orleans. MHA served as the preservation consultant for the project.  Click here for the full article.

What We're Working On

From our Washington, DC office, we are servicing:

• Redevelopment of the 1886 Sohmer & Co. Piano Factory in Queens, New York for market-rate housing using state and federal rehabilitation tax credits. MHA is providing advisory preservation services to The Witkoff Group LLC; and

• Adaptive reuse of City Recreation Pier in Baltimore's Fells Point for hotel use as part of a $35 million redevelopment by H&S Properties Development Corporation utilizing state and federal rehabilitation tax credits. Constructed in 1914, the pier served as a venue for recreation activities and was known as the "Ellis Island of Baltimore."  Vacant for over a decade, the Recreation Pier was listed on Maryland's Most Endangered Places in 2010.  

Our Boston office is providing historic consulting services for:

• Rehabilitation of the Number 3 North Mill Building within the Harmony Mill National Historic Landmark District in Cohoes, New York. Harmony Mill Fallsview LLC utilized state and federal historic rehabilitation tax credits as part of a $23 million project to convert the former industrial building into 141 apartments. MHA has recently submitted the Part 3 application for final tax credit certification to the New York State Historic Preservation Office;

Conversion of the Chasan Building, a three-story Greek Revival commercial building in downtown Troy, New York for new use as the Renssalaer Institute of Technology by Columbia Development Corporation. MHA is preparing the federal rehabilitation tax credit application for the project; and 

National Register nomination for the Hadley Furniture Store in Worcester, Massachusetts. MHA prepared the nomination, which has been approved by the Massachusetts National Register Review Board and forwarded to the Keeper of the National Register of Historic Places for formal listing.   

In Chicago we are consulting on:

• Conversion of the Wholesale Florist Exchange on Chicago's Near West Side by Martin Capital Group for new use as market-rate apartments with ground floor retail. Designed by the architectural firm Fox & Fox and constructed in 1927, the three-story building is one of the finest cast-concrete buildings in the city, and features Art Deco facades decorated with elaborate floral motifs.  MHA is preparing the National Register nomination and federal historic rehabilitation tax credit application for the building;

• Adaptive reuse of the 1889 Newcomb Hotel in Quincy, Illinois as a 98-unit supportive living facility for seniors.  Once one of the largest and most prominent nineteenth-century hotels in Quincy, the Newcomb Hotel has been vacant for over twenty years. MHA is working with 3 Diamond Development to secure federal historic tax credits for the project; and 

• Rehabilitation of the massive Rosenwald Apartments complex in Chicago's Bronzeville neighborhood for approximately 332 apartments and additional commercial, retail, office and medical space. Constructed in 1929 to provide low-cost housing options for working-class African Americans, the five-story brick complex was undertaken with financed by philanthropist and Sears, Roebuck & Company president Julius Rosenwald as a model for privately-financed affordable housing developments. The complex was deemed one of America's 11 Most Endangered Places in 2003 by the National Trust for Historic Preservation. MHA is preparing the federal historic rehabilitation tax credit application for the project. 

Upcoming Speaking Engagements

• Elizabeth Breiseth, Associate in the Midwest office, was interviewed by National Public Radio regarding the nomination of the Hamilton Hotel in St. Louis, Missouri, for listing on the National Register of Historic Places. Click here to listen to the segment.

• Albert Rex will be speaking at the Crittenden Multifamily Conference on March 21 and 22 in Dallas, Texas. Click here for more information on the conference.

• In May, Albert will be speaking at the 25th Anniversary Summit of the Council of Development Finance Agencies (CDFA) being held in Boston from the 9th to the 12th. Visit CDFA for more information. 

• Albert will also be speaking at the Housing Tax Credits and Historic Tax Credits conference, sponsored by the Institute for Professional and Economic Development and scheduled for April 6-7, 2011 in Boston. Visit IPED for more information. 

MacRostie Historic Advisors LLC, 1400 16th Street, NW, Suite 420,
Washington, DC 20036, (202) 483-2020 tel / (202) 483-2080 fax
Historic Tax Credit Consultants