Thursday, February 28, 2008

Historic Tax Credits

There are several reasons this project is in progress, but it would not make any financial sense (and consequently likely not be in progress) if the development entity was not receiving Federal and State tax credits for their effort. How does this process work?

First….on the amount. All capitalized costs are subject to credit…so, all costs of construction/design/reasonable development fees/legal fees/construction interest are all subject to a state credit of 10 percent and this building received a 20 percent federal credit. Do the math…..this is worth the effort!

The first step is to prepare and submit a Part 1-Evaluation of Significance. Because this building is located within a national register district (Charleston Downtown Historic District), this first application is pretty easy and likely to be determined by the State and Federal Historian as a contributing structure. The application describes in words and pictures the history of the building, the neighborhood and relevant building details. This application was prepared by John Harris.

The next step, the Part 2 application, describes much more specifically your intention with this building. Here is how we managed that process. John Harris had specific experience in this process as he and I had worked together on two other projects both of which had received a historic designation and the applicable credits. So, I had good confidence in his abilities. John began the process by meeting with Chris Knorr with the State Historic Preservation Office. John described our anticipated alterations/improvements to the building and together they reached what they felt would be a design that likely would be approved. Next, GBBN put pencil to paper and began the process of describing the alterations in plans. In schematic and development stage, these drawings bounced back and forth between John, me, Bailey and Glasser and Chris Knorr. We submitted to Chris and he reviewed and sent this along to the Department of the Interior (National Park Service). It was reviewed and returned with comments….sort of a conditional approval.

A conditional approval was not what I felt we needed so GBBN incorporated these comments into a revised submission and we sent this through the process again…State and Federal….and it was returned approved..period. Exactly what we wanted/needed.

These tax credits are a bit more complicated than other forms of tax credits. The development entity can only use the credit against passive income. Now..the most common type of passive income is rental income and you’d need a pretty good annual tax liability to be able to use the credit. (This can not be applied against portfolio income….income from stocks or earned income.). So, there is market for these credits that you can “sell” and receive about 90 cents on the dollar. This is a specialized piece of legal work because the investment tax credit investors actually need to own the subject property.

Anyway…we are in that stage right now.

More on this process later….but it is been a very positive experience and is the primary reason this building is being restored.

1 comment:

Rick Lee said...

I've been meaning to drop in here and leave a comment about how excited I am that this project is happening. I've been interested in historic preservation ever since I went to work at the Cultural Center in the late 70s and started shooting properties for the Historic Preservation unit with Rod Collins and the gang. Bailey & Glasser did an amazing job with the Scott Brothers Building which I refer to as "The Queen of Capitol Street". I'm sure that Bailey & Glasser with be good stewards of 209.