Orange County NC Website
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. 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