am
<br />HISTORIC REHABILITATION TAX CREDITS
<br />continued from page I
<br />to Gary Stenson, president of
<br />MetroPlains Development,
<br />LLC, based in St. Paul, Min -
<br />nesota: "It can be costly to reha-
<br />bilitate historic, often vacant,
<br />buildings. But the federal
<br />historic tax credits help greatly.
<br />In fact, there is a lot of develop-
<br />ment that wouldn't have gotten
<br />done without them, Also they
<br />can be used to leverage other
<br />funds. And so in the end,
<br />historic rehabilitation can be
<br />just as cost - effective as new
<br />construction."
<br />The National Trust and
<br />the National Housing
<br />and Rehabilitation
<br />Association have formed
<br />a new Historic Preserva-
<br />tion Development
<br />Council... to push for a
<br />set ofamendments
<br />to... make the tax credit a
<br />more effective tool,
<br />During the past 23 years,
<br />MetroPlains has completed
<br />more than 70 real estate devel-
<br />opment projects in 10 Midwest-
<br />ern states, about half involving
<br />substantial rehabilitations of
<br />historic buildings. MetroPlains
<br />has tackled the adaptive use
<br />of old schools, hotels, hospitals,
<br />office buildings, post offices,
<br />apartment buildings, and fire
<br />stations, inmost cases rehabili-
<br />tating these buildings into
<br />multifamily rental apartments.
<br />Federal historic rehabilitation
<br />tax credits were utilized in 32 of
<br />these developments, involving
<br />the preservation of more than
<br />40 historic buildings which
<br />are now listed in the National
<br />Register of Historic Places.
<br />Typically, the federal historic
<br />rehabilitation tax credit has
<br />fit into a financing package that
<br />might also include state and
<br />local preservation incentives
<br />as well as financing programs
<br />for affordable housing and com-
<br />munity development.
<br />Based on his experience
<br />using the credits, Stenson has
<br />some suggestions for improve-
<br />ments to the existing tax credit
<br />program. "We should do what
<br />we can to make the historic tax
<br />credit more compatible with
<br />the low- income housing tax
<br />credit. We usually use the tools
<br />together, but there are some
<br />inconsistencies between the
<br />two, which should be resolved.
<br />"It would also be good for
<br />smaller projects to have an
<br />even larger credit because there
<br />is a lot of work involved in any
<br />rehabilitation project, regardless
<br />of its size. So if you have a small
<br />project, say a million dollar proj-
<br />ect, a lot of the transaction costs
<br />are going to be similar to a $10
<br />million project, but your return
<br />is not as great, so it's a little
<br />tougher to make the deal work."
<br />Proposed Changes to the
<br />Tax Code
<br />Other organizations and individ-
<br />uals who have worked with the
<br />credits over the past 25 years also
<br />see the need for improvements
<br />to the existing program. As a
<br />result, the National Trust and
<br />the National Housing and
<br />Rehabilitation Association have
<br />formed a new Historic Preserva-
<br />tion Development Council.
<br />One of the goals of the council is
<br />to push for a set of amendments
<br />to the Internal Revenue Code.
<br />These would make the tax cred-
<br />it a more effective tool for
<br />attracting equity investment
<br />into historic rehabilitation
<br />projects, particularly smaller
<br />projects in community develop-
<br />ment areas. During a series of
<br />meetings held last year, a group
<br />of preservationists, developers,
<br />lawyers, and accountants dis-
<br />cussed the following amend-
<br />ments to the tax code:
<br />Eliminate the need to demonstrate
<br />a profitmotive "forundertaking
<br />historic rehabilitation projects,
<br />The IRS generally disallows any
<br />deductions associated with
<br />activities that have not been
<br />entered into for profit. But
<br />given that investors in housing
<br />credit transactions could not
<br />possibly demonstrate the requi-
<br />site profit motive because they
<br />invest solely for the tax benefits,
<br />the low - income housing credit
<br />program has a blanket exemp-
<br />tion. A similar exemption
<br />would be helpful for historic
<br />credit developments, where the
<br />tax credits are often the primary
<br />motive for making the invest-
<br />ment. This would go a long way
<br />toward raising investor confi-
<br />dence that the Internal Rev-
<br />enue Service will respect his-
<br />toric tax credit investments.
<br />Increase the tax credit for small
<br />projects andprojeets in
<br />`Difficult - -to- Develop Areas. "
<br />By any conventional standard,
<br />the historic tax credit is a shal-
<br />low subsidy, less than one-
<br />quarter of the credit allowed
<br />for the low - income housing tax
<br />credit. The shallow subsidy issue
<br />is particularly acute for smaller
<br />developments because the
<br />potential tax credit from such
<br />projects is simply too small to
<br />attract equity capital from insti-
<br />tutional investors. An increase
<br />in the credit to 40 percent is
<br />being sought for small historic
<br />projects (under $2.5 million
<br />in total development costs)
<br />to assure that there can be
<br />enough equity raised to cover
<br />the related transactions costs.
<br />continued onpage 6
<br />jortim news
<br />Peter H. Brink
<br />Senior Vice President Programs
<br />Katherine Adams
<br />Director, Preservation Services
<br />Elizabeth Byrd Wood
<br />Program Manager, National Trust Forum
<br />Kerd Rubman
<br />Editor
<br />Bruce Yarnall
<br />Business Manager
<br />The mission of the National Tout ((it Historic Presenmtion
<br />is to provide leadership, cducatim, and advocacy to save
<br />America's diverse places and revitalim our communities.
<br />Fannie Neux ANews(etterof ate NationalTrast for Historic
<br />Preservation (ISSN 1079 -1-i i l; USPS Publi.timt No. 013-
<br />083) is published bimonthly by the National Trust for
<br />Historic Pmervatian, 1785 Massachuseas Avenue, N.W.,
<br />Washingmn D.C.20036 asa benelkofNationalTnut Forum
<br />membership. Pomm members also receive four issues of
<br />Forme Jorind and six issues pf PRESERVATION.
<br />Annual dues are $115. Periodicals postage paid at
<br />Washington D.C. and at additional mailing o6ice. Postmas-
<br />sent Send address changes to FonweNetur. ANewslenerof the
<br />National Trust for Historic Preservation, NationatTnut for
<br />Historic Preservation, 1785 Nforachusetu Avenue, N W.,
<br />Washington, D.C., 20036. Copytight2002NationalTrust
<br />for Historic Preservation in the United States. Printed in the
<br />Unitedstates. of the total amountof base annual dues, $6 is
<br />far a subscription to PRESERVATION for one year.
<br />Support for the National Trost is provided by membership
<br />dues; endowment funds; individual, mrponre, and
<br />foundation contributions; and grants from state and federal
<br />agencies. Forum Minor is a forum in which to express
<br />opinions, encourage debate, and convey information of
<br />importance andofgenerai interest to Forum numbers of ate
<br />National Trust. Indusion of material or product references
<br />doeenorcomtimtean endormmembv die National Trust for
<br />His[o[ie fteserwdon.To obtain petmiuimt to reprin[anypart
<br />of dtis publication pleasecall (202) 588 -6053.
<br />F O R U M
<br />NATIONAL TRUST
<br />for$ISTORIC PRESERVATION--
<br />. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .E. O. .R. .U. .M N E. W .S.
<br />
|