Two weeks ago, the National Trust for Historic Preservation (NTHP) held a tax credit summit. The main topic? 50(d). Representatives from the IRS attended the summit and the good news was that there was no bad news; the bad news was that there was no good news.
So like planes over National in a thunderstorm, we remain in a holding pattern relative to this issue.
The 50(d) issue has now been the focus of every major historic tax credit conference since the revenue procedure was released at the end of 2013, and the major focus of the Historic Tax Credit Coalition (HTCC), as they work to try to get some guidance from the IRS on this issue.
Clearly, who foots the bill for 50(d) within a historic tax credit transaction, the developer or the investor, is a significant issue since the answer inherently impacts return on investment. Both parties should be willing to take some risk, but understanding this part of the playing field allows for a more predictable transaction.
Given all of the above, and the seemingly endless discussion on the topic, an outsider may think that the industry is at a standstill, like that plane over National.
Fortunately, from our vantage point, that does not appear to be the case. It is probable that 50(d) may have slowed some investor’s reentry into the market place and made it a little more difficult to find new investors, but it has not impacted the use of the tax credit across the country. Part of this is the return of a broader range of real estate sectors.
MHA worked on many affordable housing projects through the downturn – and we continue to add these types of projects to our portfolio – but a look at our Midwest clients makes it clear the hotel market is back, and we are consulting on a number of office and retail projects taking place around the country. Some of this is based on the market economics (Chicago, for instance) while a large part of it is driven by the availability of the state tax credits. Wisconsin, Alabama, and Texas markets are experiencing a rush on the purchase and rehab of historic buildings after HTC programs were expanded in these states. And like all things Texas, the projects there are big.
The uncertainty over 50(d) may have made the recovery a little slower in the HTC industry, but it is in full swing now. This may be because of simple economics, or because developers just need to develop, but all of it has a positive economic impact in the communities where the projects are undertaken. What sometimes gets lost in all of this, and making the “deal” work, is that a lot of historic buildings are getting saved and repurposed into some of the most vibrant places to live, work and stay.