Strategies for renovation: Notes from Novogradac Historic Tax Credit Conference
Hundreds of developers, tax attorneys, accountants and other community revitalization professionals converged on Detroit last week for the Novogradac Historic Tax Credit Conference. The two-day event, hosted by Novogradac & Company LLP, highlighted dozens of recent and ongoing rehabilitation projects in the city and discussed strategies for maximizing use of a variety of tax incentives amidst a climate of changing federal and local regulations.
"Tax credits are an important part of the puzzle in terms of financing projects that need an extra push," says David Carleton, who welcomed guests Wednesday evening with a tour of the Grand Army of the Republic Building
. The long-vacant structure is presently being developed into a headquarters for Carleton's Detroit-based media firm, Mindfield.
The Federal Historic Preservation Tax Incentives
program, the primary focus of the Novogradac event, enables property owners to claim a federal tax credit of 20 percent of rehabilitation costs of qualifying historic buildings. The credits have leveraged over $62 billion in private investment since their inception in 1976, including over $200 million in Michigan in 2012, according to data from the National Park Service.
"People will tell you that buildings are beyond repair, but that's not true," says David Schon of Washington, D.C.-based Nixon Peabody LLP, one of the conference's hosts. "The economics of Detroit are continuing to favor more rehabilitation as rents are rising and markets are getting stronger," he says.
Both Schon and Carleton emphasize, however, that tax credits have been an essential part of the picture for dozens of projects throughout the city. They were instrumental in leveraging financing for projects such as the Westin Book Cadillac Detroit and the A. Alfred Taubman Center for Design Education at the College for Creative Studies -- critical developments which would not have been feasible without the credits, according to Schon: "The message of this conference should be that there are tools and subsidies available to make these projects possible -- and people here are using them."
A Thursday evening tour by Bedrock Real Estate Services provided an inside look at many completed and in-progress projects downtown, including the First National Building
, Chrysler House
(formerly the Dime Building), the Federal Reserve Bank Annex
, and the Madison Building
. According to Bruce Schwartz, Bedrock's Detroit Relocation Ambassador, these developments have brought thousands of jobs to the city, drastically increasing residential demand downtown. "If you want to live here, good luck," he declared. "You're pretty much on a waiting list."
Sessions at the Novogradac conference highlighted ongoing rehabilitations of Broderick Tower
and the David Whitney Building
, two long-vacant residential skyscrapers at Grand Circus Park. The federal New Markets Tax Credit, a program created in 2000 to revitalize low-income communities, also contributed to financing at these sites. Strategies for combining the new markets and historic credits were addressed Friday in a panel discussion moderated by Leigh Ann Smith of Bank of America.
In over 30 states, the federal historic credit is sweetened with an additional state credit, although Michigan's program was eliminated in 2011. Both the Broderick Tower and the David Whitney Building were partly financed by the state credit, which added an extra five percent (or more, in certain cases) incentive to qualifying developments.
Like many of the guests at last week's conference, Schon laments the demise of the state credit, calling its loss a "significant disadvantage." According to Schon, "those states that have made the greatest use of the federal credit are those that have a strong state credit." Citing the ability of state credits to leverage private investment, Schon adds that Rhode Island recently reinstated a historic credit after eliminating it several years ago: "they put it back once they realized what a huge impact it had." Alabama, in May, became the latest state to enact a statewide historic tax credit.
According to the Michigan Historic Preservation Network's Nancy Finegood, who attended a session on state credits on Thursday: "Michigan's credit was one of the best in the nation" in terms of leveraging development. Speaking of the state credit's impact on projects such as Broderick Tower and the David Whitney Building, Finegood says "it was great to show off to preservation professionals from around the country."
Nonprofits, too -- even though they are exempt from most taxes -- have nonetheless managed to utilize tax credits in many cases. Many Detroit organizations, for example, have been able to benefit by partnering with for-profit entities. Projects such as 5716 Wellness
, a redevelopment of the former San Telmo Cigar Company building by Southwest Solutions, and Neighborhood Service Organization's Bell Building
were identified at the conference as recent success stories. "The rules are complicated, and it should not be done without good counsel," Schon cautioned. "But with good advice, early, to plan properly," Schon continued, nonprofits around the country have used a variety of innovative financing schemes to take advantage of the credits.
Along with Novogradac & Company and Nixon Peabody, the conference was co-hosted by Baker & Hostetler LLP, Dentons, Dykema Gossett PLLC and Squire Sanders.
"Over 100 people, whose jobs focus on historic rehabilitation, were very impressed with Detroit," says Rachael Loper, also of Nixon Peabody, as she wraps up her first visit to the city. "There is some gorgeous work being done here."
"While the bankruptcy headline is glaring," says Carleton, "people who want to take the time to look beyond that are realizing that there is some pretty exciting stuff happening at street level."
Timothy Boscarino is a Detroit-based freelance writer.
Photos courtesy of Nixon Peabody LLP