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.
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.