Historic Preservation Opportunities: Building the Capital Stack
Historic Preservation Tax Incentives have leveraged over $102.64 billion in private investment to preserve 45,383 historic properties since 1976. This process addresses quality of life issues through support for arts, theaters, and government buildings critical to attracting young workers. It serves as a workforce development tool for mixed-use projects in urban and rural centers.
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HISTORIC PRESERVATION OPPORTUNITIES: BUILDING THE CAPITAL STACK Dave Robinson Nate Green Jamie Beier Grant Tim Biggam 10/7/2024 1
MONTROSE GROUP COVID 19 Economic Recovery Thought Leaders Multi-Disciplinary, Senior Team Montrose Group Corporate Site Location, Economic Development Planning & Lobbying Track Record in Positioning Ohio Communities 10/7/2024 2
HISTORIC PRESERVATION OPPORTUNITIES: BUILDING THE CAPITAL STACK Historic Preservation Tax Incentives leveraged over $102.64 B in private investment to preserve 45,383 historic properties since 1976 Addresses quality of life issues through support for arts, theaters and government buildings critical to attracting young workers Critical workforce development tool to develop mixed use projects in urban and rural centers 10/7/2024 3
HISTORIC PRESERVATION OPPORTUNITIES: BUILDING THE CAPITAL STACK Historic Preservation Redevelopment Process Historic Preservation Redevelopment Process Historic Preservation Redevelopment Financial Model Corporate Entity Formation Defining Historic Site or Structure Capital Stack and Tax Incentives Federal Historic Preservation Tax Credit State Historic Preservation Tax Credits Land Use Entitlements Site Control 10/7/2024 4
HISTORIC PRESERVATION OPPORTUNITIES: BUILDING THE CAPITAL STACK Site Control Purchase Option Due Diligence Process Final Purchase 10/7/2024 5 This Photo by Unknown Author is licensed under CC BY-SA
HISTORIC PRESERVATION OPPORTUNITIES: BUILDING THE CAPITAL STACK Corporate Entity Formation Limited Liability Corporation or Limited Partnership Limits Liability Taxed as Pass Thru Entity Entity Serves Only Site in Question 10/7/2024 6
HISTORIC PRESERVATION OPPORTUNITIES: BUILDING THE CAPITAL STACK Defining Historic Associated with events that have made a significant contribution to the broad patterns of our history Associated with the lives of persons significant in our past Embody the distinctive characteristics of a type, period, or method of construction, or that represent the work of a master, or that possess high artistic values, or that represent a significant and distinguishable entity whose components may lack individual distinction Yielded, or may be likely to yield, information important in prehistory or history 10/7/2024 7
HISTORIC PRESERVATION OPPORTUNITIES: BUILDING THE CAPITAL STACK Historic Further Defined Listed individually in the National Register of Historic Places or preliminarily determined as meeting the requirements for individual listing on the National Register Certified or preliminarily determined as contributing to the historical significance of a registered historic district Individually listed on a state inventory of historic places Individually listed on a local inventory of historic places 10/7/2024 8
HISTORIC PRESERVATION OPPORTUNITIES: BUILDING THE CAPITAL STACK Value of the Historic Structure Report Value of the Historic Structure Report A primary planning document for decision-making about preservation, rehabilitation, restoration, or reconstruction treatments Documentation to help establish significant dates or periods of construction A guide for budget and schedule planning for work on the historic structure A basis for design of recommended work A compilation of key information on the history, significance, and existing condition of the historic structure A summary of information known and conditions observed at the time of the survey A readily accessible reference document for owners, managers, staff, committees, and professionals working on or using the historic structure A tool for use in interpretation of the structure based on historical and physical evidence A bibliography of archival documentation relevant to the structure A resource for further research and investigation A record of completed work 10/7/2024 9
HISTORIC PRESERVATION OPPORTUNITIES: BUILDING THE CAPITAL STACK Key Questions for Historic Structure Report Is the building's history well understood? Has the period of significance been established? Does the building represent a variety of periods of construction, additions, and modifications, not all of which may be significant? What archival documentation is available? Does the building have physical problems that require repair? What construction materials and systems are known to exhibit distress or deterioration? Does the building have code or functional problems that interfere with its use? Is the building in use? Is a new or more intensive use planned? Is funding available to commission the report needed to address these requirements? If not, can the scope of the report be reduced to answer critical questions in a limited report? Has the time frame for the overall project been established? 10/7/2024 10
Defining the Costs of Historic Preservation Significance Planned treatment Availability of information Location Size Architectural character Physical condition HISTORIC PRESERVATION OPPORTUNITIES: BUILDING THE CAPITAL STACK 10/7/2024 11
Sources HISTORIC PRESERVATION OPPORTUNITIES: BUILDING THE CAPITAL STACK Uses 10/7/2024 12
Building a Capital Stack is like baking a cake Building a Capital Stack is like baking a cake New Market Tax Credits Historic Preservation Tax Credit Tax Abatements Sources of Historic Preservation Redevelopment Financing Downtown Redevelopment Districts PACE Tax Increment Financing Opportunity Zone Fund 10/7/2024 13
HISTORIC PRESERVATION OPPORTUNITIES: BUILDING THE CAPITAL STACK Land Use Entitlement Process Pre-zoning amendment application briefings County/City Planning Commission approval Traffic and infrastructure analysis Zoning amendment application Zoning Commission approval Trustee/City Council Approval Project ROI analysis County Final Approval Zoning Certificate 10/7/2024 14
LOCAL GOVERNMENT TAX INCENTIVE PROGRAMS Community Reinvestment Area (CRA) Community Reinvestment Area (CRA) Municipal Job Creation Tax Credit Program Municipal Job Creation Tax Credit Program Provides real property tax exemptions for renovation of existing or construction of new buildings and is the prime economic development tool driving downtown growth used for housing and job creation projects. Pre-1994 CRAs permit 100% property tax abatements without school board approval. Post-1994 CRAs can provide up to 100% tax abatement for up to 15 years only with school board approval. A non-refundable tax credit calculated as a percentage of the city income withholdings for eligible new employees and applied toward the company's municipal tax liability. Municipalities can determine JCTC program eligibility. Incentivizes job creation activities within the municipal corporation limits and often supports smaller job creation and payroll than the state of Ohio s JCTC program (minimum $660,000 in new payroll). 10/7/2024 15
BUILDING FINANCING Property Assessed Clean Energy (PACE) Property Assessed Clean Energy (PACE) Financing mechanism for low-cost, long-term funding of energy efficiency, renewable energy and water conservation projects. Repaid as an assessment on the property s regular tax bill. Can be used for commercial, nonprofit, government, and residential properties. Can cover up to 100% of a project s hard and soft costs over a maximum 20-year term. Eligible energy projects must be permanently affixed to a property roof, lighting, HVAC, exterior envelope, etc. Can be combined with utility, local and federal incentive programs. Assessment is filed with local municipality as a lien on the property. Annual savings typically exceed annual assessment payment = immediate positive cash flow. PACE assessment liens are transferable 10/7/2024 16
DOWNTOWN REDEVELOPMENT DISTRICTS Six Steps for Ohio Downtown Development Districts DRD and Innovation District Economic Development Plan Historic Preservation Certification or Identification DRD Build a DRD Innovation District DRD District Ordinance & Public Hearing Agreements & Annual Reporting Adopt a DRD Financial Model 10/7/2024 17
FEDERAL HISTORIC TAX CREDIT Federal Historic Rehabilitation Tax Credit Program Federal Historic Rehabilitation Tax Credit Program 20 % of the taxpayer s qualifying costs for rehabilitating a building Doesn t apply to the money spent on buying the structure Requires taxpayers to take the 20 % credit over five years beginning in the year they placed the building into service Eliminates the 10 percent rehabilitation credit for non-historic pre-1936 buildings A transition rule provides relief to owners of either a certified historic structure or a pre-1936 building by allowing owners to use the prior law if the project meets these conditions: Taxpayer owned or leased the building on January 1, 2018 Taxpayer continues to own or lease the building after that date 24- or 60-month period selected by the taxpayer for the substantial rehabilitation testbegins by June 20, 2018 10/7/2024 18
TIMING OF FEDERAL HISTORIC TAX CREDIT Substantial Rehabilitation Test 24 months $5,000 minimum investment 60-month phased-in approach Written architectural plan before the physical work on the rehab begins Reasonably expected that all phases of the rehabilitation will be completed Must be placed in service within 24 months Qualified rehabilitated building Substantially rehabilitated and was placed in service as a "building" before the beginning of the rehabilitation 10/7/2024 19
FEDERAL HISTORIC TAX CREDIT PROCESS Evaluation of Significance of the Evaluation of Significance of the Property Property Define historic structure of building or district National Park Service issues a decision that the building is a certified historic structure Description of Rehabilitation Work Description of Rehabilitation Work 20% tax credit applicants Outline of the proposed rehabilitation work National Park Service certifies the description of the proposed rehabilitation plan is consistent with historic rehab standards Request for Certification of Completed Request for Certification of Completed Work Work After the rehab work is completed, the owner submits an application requesting final approval of the completed work National Park Service reviews and certifies the completed project based upon a comparison of the proposed scope of work to determine if it meets the standards 10/7/2024 20
FEDERAL HISTORIC TAX CREDIT 10 Federal Historic Preservation Standards Used for historic purpose or be placed in a new use that requires minimal change to the defining Used for historic purpose or be placed in a new use that requires minimal change to the defining characteristics of the building and its site and environment characteristics of the building and its site and environment Historic character is retained and preserved and limits removal of historic materials or feature alteration Historic character is retained and preserved and limits removal of historic materials or feature alteration Property recognized as a physical record of its time, place, and use with no changes that create a false sense Property recognized as a physical record of its time, place, and use with no changes that create a false sense of historical development of historical development Limits changes that have acquired historic significance Limits changes that have acquired historic significance Preserves features, finishes, construction techniques or craftsmanship that characterize a historic property Preserves features, finishes, construction techniques or craftsmanship that characterize a historic property Repairs deteriorated historic features matching the old features in design, color, and texture Repairs deteriorated historic features matching the old features in design, color, and texture Prohibits chemical or physical treatments such as sandblasting but permits surface cleaning Prohibits chemical or physical treatments such as sandblasting but permits surface cleaning Protects significant archeological resources affected by a project Protects significant archeological resources affected by a project Prohibits new additions, exterior alterations from destroying historic materials that characterize the property. Prohibits new additions, exterior alterations from destroying historic materials that characterize the property. New additions and construction so the essential form and integrity of the historic property and its environment New additions and construction so the essential form and integrity of the historic property and its environment is unimpaired is unimpaired 10/7/2024 21
FEDERAL HISTORIC TAX CREDIT Permitted Federal Historic Preservation Rehabilitation Tax Credit Expenses Hard Costs such as structural component of a building to include walls, partitions, floors, ceilings, permanent coverings such as paneling or tiling, windows and doors, components of central air conditioning or heating systems, plumbing and plumbing fixtures, electrical wiring and lighting fixtures, chimneys, stairs, escalators, elevators, sprinkling systems, fire escapes, and other components related to the operation or maintenance of the building Soft Costs to include construction period interest and taxes, architect fees, engineering fees, construction management costs, reasonable developer fees, and any other fees paid that would normally be charged to a capital account 10/7/2024 22
EXPENSES THAT DONT QUALIFY FOR FEDERAL HISTORIC REHABILITATION TAX CREDIT Demolition costs (removal of a building on property site) Carpeting (if tacked in place and not glued) Decks (not part of original building) Enlargement costs (increase in total volume) Acquisition costs Appliances Cabinets Moving (building) costs (if part of acquisition) Feasibility studies Leasing Expenses Fencing Financing fees Furniture Landscaping Porches and Porticos (not part of original buildings) Outdoor lighting remote from building Parking lot Paving Planters Retaining Walls Sidewalks Storm Sewer Construction Cost Signage 10/7/2024 23
FEDERAL HISTORIC TAX CREDIT Transfer of Federal Historic Tax Credit Federal Historic Tax Rehabilitation Credit is only available to the person or entity who holds title to the property Syndication through limited partnerships is allowed and is a common tool to bring investors into rehabilitation projects 10/7/2024 24
STATE HISTORIC TAX CREDITS 39 states offer a state historic preservation tax credit 10/7/2024 25
STATE HISTORIC PRESERVATION TAX CREDITS Direct Transfer Refundable Alabama Arkansas Colorado Connecticut Delaware Georgia Iowa Kansas Kentucky Louisiana Massachusetts Minnesota Missouri Oklahoma Pennsylvania Rhode Island South Carolina Texas Vermont West Virginia Wisconsin Alabama Iowa Kentucky Maine Maryland Minnesota New York Ohio Rhode Island 10/7/2024 26
STATE HISTORIC PRESERVATION TAX CREDITS Percentage Credit for Income Producing Projects 60% 50% 40% 30% 20% 10% 0% 10/7/2024 27
STATE HISTORIC PRESERVATION TAX CREDITS Minimum Investments $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 10/7/2024 28
STATE HISTORIC PRESERVATION TAX CREDITS Annual Aggregate Cap $100,000,000 $90,000,000 $80,000,000 $70,000,000 $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 10/7/2024 29
STATE HISTORIC PRESERVATION TAX CREDITS Annual Per-Project Cap $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 10/7/2024 30
OHIO HISTORIC PRESERVATION TAX CREDIT Ohio Historic Preservation Tax Credits Ohio Historic Preservation Tax Credit 2021 Application Dates 25% state tax credit $5M Ohio cap. Financial institutions, foreign and domestic insurance premiums or individual income taxes up to $3 million in one year Two step process Historic certification Tax credit competitive award 1/29/21- Pre-App Meeting Round 26 2/15/21- Intent to Apply and SHPO Pre-Application Meeting Deadline 3/1/21- Historic Documentation (Part 1 and 2) Deadline 3/31/21- Application/Fee Submission Deadline 4/1/21-6/1/21 Application Review Period 6/30/21 Approved Applications Announced 8/2/21 Fall 2020 SHPO Pre-App Meeting Request Round 27 8/16/21 Intent to Apply and SHPO Pre-Application Meeting Deadline 8/31/21 Historic Documentation (Part 1 and 2) Deadline 9/30/21 Application/Fee Submission Deadline 10/1/21-12/1/21 Application Review Period 10/7/2024 31
OPPORTUNITY ZONE PROGRAM Opportunity Fund Business Taxpayer Opportunity Fund Opportunity Fund Taxpayer Opportunity Zone Site Certified by US Treasury as an Opportunity Zone Site Development Organized as a corporation or partnership for an eligible Opportunity Person recognizes gains from individuals, C or S corporations, mutual funds, real Immediately invests in Opportunity Zone Business/Property Rex Tile, Inc. Designates Retains investment for 10 years Defers capital gains from original investment Permanent exclusion of capital gains from Opportunity Zone investment for land acquisition, construction of a building & expenses necessary for the Zone Plan estate Certified by US Treasury as a Qualified Opportunity Fund Invests 90% of its investments in Opportunity Fund Property/Business Site Prospectus investments, partnerships, trusts & estates from an unrelated Person Realizes $1 M capital gain and immediately invests capital gain project 50% of gross income from OZ project in Apollo Opportunity Fund 10/7/2024 32
NEW MARKET TAX CREDITS New Market Tax Credits Federally designated low-income sites 39% Federal New Market Tax Credit over seven years $1 million Ohio New Market Tax Credits awarded to CDEs Eligible for retail, office and manufacturing projects. Community Development Entity is awarded New Market Tax Credits by US Treasury Projects negotiate with CDEs for allocation to New Market Tax Credits Demand for projects far exceeds availability 10/7/2024 33
PUBLIC INFRASTRUCTURE TIFs TIFs Capture future property tax growth in defined district to fund public infrastructure improvements Parcel TIF versus Incentive District TIF School district compensation agreements TIF Agreement 10/7/2024 34
HISTORIC PRESERVATION OPPORTUNITIES: BUILDING THE CAPITAL STACK Ohio TMUD Tax Credits Available Up-to $100 million in credits are available annually through state fiscal year 2023 $80 million in each fiscal year for projects located within 10 miles of a city with a population greater than 100,000 $20 million in each fiscal year for projects not located within ten miles of a city with a population greater than 100,000 10/7/2024 35
HISTORIC PRESERVATION OPPORTUNITIES: CAPITAL STACK MODEL Ohio Downtown Redevelopment District Grant $500,000 Historic Preservation Financial Model Historic Preservation Financial Model 4-story, 35,000sf mixed use building Total Capital Investment - $25 M Total CapEx: $25 million New Market Tax Credit $1 M ($390,000 in tax credits) Estimated Economic Impact: $3.75 million -Property Tax Increase - $250,000 -New Payroll - $3.5 million -New Income Tax - $52,500 State and Federal Historic Tax Credits $2 M ($1,700,000) Equity $2 M Ohio Downtown Development District Grant $500,000 New Market Tax Credit- $390,000 State and Federal Historic Tax Credits- $1,700,000 Private Lender Financing $21.520 M 10/7/2024 36
HISTORIC PRESERVATION OPPORTUNITIES: BUILDING THE CAPITAL STACK Finalize Purchase Contract Promote and Lease Project Build Project Capture Rents or Sell Project 10/7/2024 37
HISTORIC PRESERVATION OPPORTUNITIES: BUILDING THE CAPITAL STACK Conclusions Thoughts Contact Questions drobinson@montrosegroupllc.com drobinson@montrosegroupllc.com ngreen@montrosegroupllc.com tbiggam@montrosegroupllc.com jbgrant@montrosegroupllc.com ngreen@montrosegroupllc.com tbiggam@montrosegroupllc.com jbgrant@montrosegroupllc.com 10/7/2024 38
