Using Federal Tax Credits to Help Finance Rehabilitation in Downtown Miami

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1 Using Federal Tax Credits to Help Finance Rehabilitation in Downtown Miami

2 NTCIC: A brief history Organized as a for profit, wholly-owned subsidiary of the National Trust for Historic Preservation in August NTCIC s primary objectives: making equity investments in real estate projects that qualify for federal and state historic, new markets and lowincome housing tax credits and provide financial support through profit sharing with the National Trust. West Village, Durham, NC. (Before) West Village (After)

NTCIC s primary objectives: making equity investments in real estate projects that qualify for federal and

3 NTCIC: A brief history Partnership with Bank of America led to organization of the Banc of America Historic Tax Credit Fund in NTCIC financed its first project, Dalton Building, in May NTCIC received its first New Markets Tax Credit allocation in October $480 million in gross equity/debt invested to date in 77 projects. Dalton Building Rock Hill, SC First NTCIC Investment of $1million $1.84 billion in total development costs to date.

NTCIC received its first New Markets Tax Credit allocation in October 2003.

4 Performing Arts Charter School St. Louis, MO Property Type: Community Facility Credits Used: HTC, NMTC Total Development Cost: $21,554,285 Net Investment: $5,010,000

5 Wake Forest Bio-Tech Place Winston-Salem, NC Property Type: Bio-technology lab space Credits Used: HTC, NMTC Total Development Cost: $103,177,201 Net Investment: $5,250,000

6 Bell Telephone Building Detroit, MI Property Type: 155 Units of supportive housing for the homeless Credits Used: HTC (federal and state), LIHTC Total Development Cost: $37,118,214 Net Investment: $23,988,497

Credits Used: HTC (federal and state), LIHTC Total

7 What federal resources come with a National Register District in a Low-Income Census Tract 20% federal historic tax credit for certified historic rehabilitation 10% federal tax credit for rehabilitation of nonhistoric properties built before 1936 New Markets Tax Credits recommended for large commercial transactions over $6 million in total development costs or a substantial rehabilitation on a 50,000 sq. ft. building. You can combine the 20% and 10% rehab credits with the New Markets Tax Credit on the same building.

Markets Tax Credits recommended for large commercial transactions over $6 million in total development costs or a substantial

8 Federal HTC Basics 20% Credit 20% federal tax credit on Qualified Rehab Expenditures (QREs) For income producing properties on or eligible for National Register (NR) of Historic Places and contributing buildings in a NR District. Rehab must meet the Secretary of the Interior s Standards. 5-year holding, compliance and recapture period. Recapture is triggered by a change in ownership or failure to maintain the building s historic character. Minimum rehab expenditure is $5,000 or your adjusted tax basis, whichever is greater. Design approval required from state historic preservation office and National Park Service. Credit 100% earned at placement in service.

5-year holding, compliance and recapture period. Recapture is triggered by a change in ownership or failure to maintain the building s historic character.

9 Federal Credit Basics 10% Credit 10% federal income tax credit on Qualified Rehab Expenditures on buildings built before Property must be commercial and income producing There are no rehabilitation standards and no review. The building must be non-historic (not individually listed in the National Register and may not be contributing to a district). 5-year holding, compliance and recapture period. D Minimum rehab expenditure $5,000 or adjusted tax basis whichever is greater. Credit 100% earned at placement in service.

The building must be non-historic (not individually listed in the National Register and may not be contributing to a district).

10 Monetizing Your Credits What are your choices? The scale of your project and your personal tax position make all the difference. If your total development costs are $6 million and up, consider a corporate investor who can be identified by a tax credit syndicator such as NTCIC. If your project is smaller, consider taking the credits through a corporation you own that has sufficient federal tax liability. If your project is smaller, consider bringing in a real estate professional as your investor. If your project smaller, consider taking the credits yourself. The 10 and 20% credits are an offset against Alternative Minimum Tax (AMT).

If your project is smaller, consider taking the credits through a corporation you own that has sufficient federal tax liability.

11 How do I decide whether the credits make sense for my project? Do the numbers work without the credits? But it s ok to hit a home run. Are your rehabilitation costs substantially more if you the use the 20% HTC? Does the value of the credit exceed your additional transaction costs? If you will generate less than $1 million in credits, do you have a small deal source of investment (yourself, a real estate professional or a corporation that you control?)

Does the value of the credit exceed your additional transaction costs?

12 How do I decide whether the credits make sense for my project? Are there additional local benefits such as the 10- year property tax freeze on historic improvements that you would forgo if you don t use the 20% HTC? Do the interior or exterior NPS design standards interfere with the marketability or the economic efficiency of the building? NTCIC can help you make the decision whether to use the credits.

that you would forgo if you don t use the 20% HTC?

13 Who do I need on my development team? A tax attorney that has experience closing a federal rehabilitation tax credit transaction. An accountant that has done the projections, financial statements and tax returns for a federal rehabilitation tax credit transaction. An architect that has done the design work for a historic tax credit transaction (20% credit). An architect or a preservation consultant who has experience with the National Park Service approval process (20% credit). Don t pay someone to learn on the job. It will probably cost you more.

An architect that has done the design work for a historic tax credit transaction (20% credit).

14 Accessing the Tax Credit Market Place the Legal Structure Managing Member (.01%) (Developer) Transferable Tax Credits $ Cash Investor Member (99.99%) (NTCIC Investment Fund I) credits equity NTCIC Investment Fund I.01% NTCIC 99.99% Investor NTCIC fee

15 Case Study: Woolworth Building, St. Louis, MO

16 Case Study: Woolworth Building, St. Louis, MO Use Amount $/SF Acquisition $400,000 $12.24 Hard Costs $3,590,132 $ Construction costs Soft Costs $754,000 $23.08 Architect, legal fees, survey, etc. Financing Costs $168,000 $5.14 Interest, closing costs Deferred Developer Fee $837,000 $25.62 Paid from cash flow Reserves $118,190 $4.15 Lease-up and operating expenses TDC $5,867,322 $180.14

08 Architect, legal fees, survey, etc. Financing Costs $168,000 $5.

17 Case Study: Woolworth Building, St. Louis, MO Financing Sources 1 st and 2 nd Mortgages Amount $1,697,863 Developer $400,000 Equity Deferred $837,000 Developer Fee GAP $2,932,459 Total $5,867,322

18 Case Study: Woolworth Building St. Louis, MO Financing Sources Amount 1 st and 2 nd Mortgages $1,697,863 Developer Equity $400,000 Deferred Developer Fee $837,000 Combined federal, state HTC and NMTC equity $2,932,459 Total $5,867,322

$1,697,863 Developer Equity $400,000 Deferred Developer

19 John Leith-Tetrault President, NTCIC

The Economics of Historic Preservation Tax Credits. Opportunities

The Economics of Historic Preservation Tax Credits Opportunities 1 HISTORIC TAX CREDIT WORKSHOP Oneonta, NY May, 29 2014 NYS and Federal Historic Tax Credits Duncan Barrett Omni Housing Development LLC