As I flew back to Boston from the Novogradac HTC Conference in San Antonio last week, I thought about the professional variety of attendees. It was reflective of the diverse group of skill sets needed to complete an HTC transaction: lawyers, accountants, syndicators, state and federal investors, banks, development consultants and developers. But other key team members in HTC transactions were less represented at the conference: architects, engineers, contractors and other consultants that design, permit and build the project.
A successful project takes a lot of skilled people working together to make it happen. And there is that one-person – syndicator, developer, lawyer – that has to push the project to closing. Each team member is an expert in their field; whether they are issuing a tax opinion or deciding that the building meets local codes, they need to understand the specifics of that aspect of the project.
In some cases, a broad understanding of all aspects of the project is required.
The Important Role of Historic Consultants
You might not think that a historic consultant is one of those people. You may think that all they have to focus on is the National Park Service (NPS) or the State Historic Preservation Office (SHPO) and meeting the Secretary of the Interiors Standards for Rehabilitation. That may in fact be the case in some situations. But a good historic consultant can often save the project money, especially from a timing perspective.
Yes, the historic consultant is focused on the application process – getting Part 1, Part 2 and finally Part 3 approval – but the timeline for those approvals can have an enormous impact on project timing.
A successful Part 1 gives a developer confidence that the project can actually receive historic tax credits and may be an important part of the due diligence on seeing if the project is a “go” or “no go.” The Part 2 is the meat and potatoes of the application; here the design is approved and a developer can get a sense of whether they can actually get the yield they are looking for, like square footage or the number of units.
Good historic consultants are the experts of these necessary processes, often anticipating issues before they arise and drawing from their experience to offer solutions for these potential stumbling blocks.
A good historic consultant is also keenly aware of the current forces at play in HTC policy and economics that will have a direct impact on their client’s project and financial structure.
The Effect of Historic Boardwalk on HTCs
One of the prevalent topics of the conference was about the impact of the Historic Boardwalk case and the subsequent revenue procedure issued by the IRS. Prior to Boardwalk, a federal investor had greater protections against risk and the transaction could focus less on the real estate underwriting and more on the sponsor. Since this case, and subsequent revenue procedure, there is a much greater emphasis on underwriting the project and the entire transaction.
Repercussions of the Boardwalk case have led to a greater level of due diligence and a greater emphasis on overall project compliance during construction relative to NPS approvals and leading up to the Part 3 Final Certification. This level of due diligence and construction oversight is even more important to new investors entering the market (especially those who have been involved with Low-Income Housing Tax Credit (LIHTC) investments in the past).
The Current Market for HTCs
Another takeaway from the conference relates to the relative strength of the HTC market. Despite the continued concerns over 50(D) and having a revenue procedure compliant transaction, there continues to be a growing interest in utilizing the federal HTC as a source of equity. Some of this is the need to fill the gap as banks continue to focus on the loan-to-value ratio. Some of it is likely due to the increase in opportunities with state HTC programs. Once a developer commits to one, why not get both?
The Wednesday sessions prior to the conference, focusing on the fundamentals of HTCs and state programs, were well attended, reinforcing the importance of strong state tax credits in the health of the HTC market. Fortunately, we have seen legislators from many states - such as Texas, Georgia, and most recently, North Carolina - agree that HTCs are an important economic growth tool.
At MHA, it is our goal to help our clients to benefit from these state (and federal) programs, knowing that they can be an integral part of their capital stack. And we are happy to be that team member for HTC projects across the country.
Contact us today to recruit us for your team.