By Albert Rex
The National Park Service Technical Preservation Service division (NPS – TPS) recently released their Federal Tax Incentives for Rehabilitating Historic Building Annual Report for Fiscal Year 2018. The report provides an analysis of federal historic tax credit applications submitted to the NPS over the prior government fiscal year. The report provides a good sense of the state of the program for the year and how it compares to previous years.
Fiscal 2018 on its own is interesting, but comparing it to Fiscal 2017, when tax reform loomed over the industry and the future of the federal HTC program was in jeopardy, provides a better context relative to the health of the program. Let’s take a quick look at the total Part 1, Part 2 and Part 3 applications for each of these years:
As you can see, the number of applications filed were pretty close with a slight up-tick of Part 1’s in 2018, which may be due to a hangover from tax reform and developers hedging their bets. We can also look at the estimated dollar amounts of qualified rehabilitation expenditures for Part 2s and 3s to see if there were any changes in the level of investment:
2017 saw over $1.5 billion in additional investment compared to 2018. Combined with 22 more Part 2 applications in that year, this certainly seems to indicate that the threat of tax reform generated more filings and that there were likely some larger projects moving forward generating more QRE dollars.
The 2018 report shows that year-over-year the number of housing units rehabilitated went down slightly and low-income housing units created through the credit also declined, while the number of new housing units increased from 12,102 to 12,527. This increase in units may continue to represent hot multifamily markets looking for market rate housing or the creation of work force housing which may not always appear as affordable.
The states with the highest number of Part 2 applications continue to be Louisiana, Missouri, Ohio, Pennsylvania, Virginia and New York, which saw the most with 187. (Missouri had the most in 2017 with 168.) This may not be a surprise as New York’s state HTC program has been tweaked over the last few years to make it more user friendly and in general the state is putting in place a lot of different economic development tools that work well with the HTC program.
The trend continues that almost half of all 2018 Part 3s have QRE’s under $1 million, which is about the same as the previous year with close to 20% having QRE’s under $250,000. This would certainly go up if the most recently filed federal HTC bill were to pass, which is aimed at making smaller project more efficient and generating more tax credit equity for them.
National Register Nominations
The number of projects not yet listed on the National Register (NR) went up from 18% the previous year to 20% in 2018. This number should continue to grow as buildings from the late 60s and early 70s turn 50 years old and start being eligible for listing on the Register. This trend may also be a result of the declining dollars for survey and planning grants to SHPOs and local municipalities that were available in the 80s and 90s. The loss of these grants means more of the buildings and districts being listed on the NR are associated with HTC projects as developers are willing to pay for the listing process.
Tax Reform Impacts
Looking back a little further to the Fiscal 2016 report, all the numbers are fairly consistent showing that despite the challenges of tax reform, the program continues to be in demand. The 2019 report will likely show the effects, if any, of the change from a one-year credit to a five-year credit under tax reform. This change did depress the investor market a bit, but we have yet to see if it has an impact on overall use of the program as projects that were grandfathered under the transition rules are completed and new projects fall under the five-years.
Cover Photo: Hotel Bella Grace in Charleston, SC an MHA project completed in 2018.