Greg Paxton - Private Capital for Public Good

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Greg Paxton - Private Capital for Public Good

  1. 1. Private Capital for Public Good GrowSmart Maine Summit October 23, 2012 Greg Paxton, Maine Preservation
  2. 2. Economic Benefits of Historic Preservation• Neighborhood Rehabilitation• Downtown Revitalization• Real Estate Market Enhancement• Catalytic Tax Base Growth• Reuse of Infrastructure• Heritage Tourism/Retiree Attraction• Historic Tax Credits
  3. 3. Historic Preservation Tax Credit• Maine State Hist Pres Tax Credit passed in 2008• Since then, 37 privately developed projects• $200 Million completed or under construction• 417 affordable housing units created, 38 preserved; 583 total housing units• 1.2 million square feet of rehab & new construction• $168 million in rehab, $31 million in new (no tc)• $200 million total construction costs• Tax assessment: $6.2 million to 36.4 million-600%
  4. 4. Historic Preservation Tax Credit•Dollar-for-dollar reduction in tax liability•Applies to income producing buildings •Commercial, industrial, rental housing•Must be listed in National Register of Historic Places (within 24 mos. of completion)•Federal credit (1977): 20% plus the•Maine State credit (2008): 25%, or 30% foraffordable housing = total of 45-50% credit•Fed/State run in parallel•Credit taken against Qualified Rehab Expenses
  5. 5. Approval of Three PartsApply to Maine Historic Preservation Commission (MHPC) – both Fed & State creditsMHPC passes through to National Park Service (NPS)• Part 1 – If building not individually listed in NR, must be Indiv. eligible or Contributing to NR district• Part 2 – MHPC review, NPS approval of plans – Meet Secretary of Interior’s Standards for Rehab• Part 3 – NPS approves completed work
  6. 6. Substantial Rehabilitation Test• Cost of rehab must exceed Adjusted Basis within either 24 or 60 months• Adjusted Basis is original value of the property – land value + improvements – depreciation• Once met, the test disappears allowing for full amount of costs for federal credit• Limit of $5 million/ building for State credit• No test for small State credit projects: $50,000 – $250,000 (no federal credit)
  7. 7. Allowable Costs• Architectural/Engineering fees• Permits, Builder, Contractor, Developer fees• Property taxes & insurance during construction• Construction loan interest, fees• Appraisal, environmental reports, Market study• Accounting, Attorney fees
  8. 8. Disallowed Costs• Acquisition costs• New Construction (outside the envelope)• Site work (landscaping, parking, etc.)• Permanent loan fees or interest• Tax credit fees• Organizational expense• Syndication legal fees• Marketing• Project reserves (operating, vacancy, maintenance)• Furniture , fixtures, equipment
  9. 9. Who Can Use Credit?Federal Credit (paid out in 1 year)• Real estate professionals (750 hrs/yr)• Taxpayers with substantial passive income – Real estate & S corps you don’t manage – Taxpayers selling investment real estate with gain• Taxpayers with income below $200,000 - $25,000/year• C – corporationsState Credit (paid out in 4 years)• Taxpayer who files Maine tax return• Fully refundable
  10. 10. SyndicationMeans of allocating benefits to group of owners• Tax benefits to corporate investors – Usually in return for up-front equity• Usually most cash flow & appreciation to developer – much of it in fees• Results: – Maximize tax benefits – Raise equity – Provide cash to developer – Minimize subsidy – MAKE PROJECTS FEASIBLE• Costly legal fees - $2.5 million
  11. 11. Generating Equity• Historically investors looking for an Internal Rate of Return (IRR) of 10-12%; Now: 6-8% (Present value [PV] of after tax benefits)PV of federal credit: $.82 – .92PV of Maine state credit: $.75 – .85Low Income Housing Tax Credit(LIHTC): $.85 – .90New Markets Tax Credit: ask Charlie (.79?)
  12. 12. Filling the Gap• Leveraged debt – historically 75-85%; Now 60%• Tax credit equity: Historic, Low Income, New Markets• Community Development Block Grants – Float financing (30-months max)• Tax Increment Financing• EDA Title IX (job creation)• 6320 Bonds - Nonprofit issues for public facilities• Ground leases (public owner – no acquisition)• Nonprofit partner
  13. 13. Hewett Block 449 Main Street ROCKLAND• Built in downtown Rockland c. 1873 – d
  14. 14. Hewett Block 449 Main Street ROCKLAND
  15. 15. Hewett Block 449 Main Street ROCKLAND
  16. 16. Hewett Block449 Main StreetROCKLAND
  17. 17. HEALY ASYLUMLewiston
  18. 18. HEALY ASYLUMLewiston
  19. 19. KNOX HOTEL – historic image(s) KNOX HOTEL Thomaston
  20. 20. KNOX HOTEL - process KNOX HOTEL Thomaston
  21. 21. KNOX HOTELThomaston
  22. 22. KNOX HOTEL – main image KNOX HOTEL Thomaston
  23. 23. MERRILL’S WHARF Portland
  24. 24. MERRILL’S WHARF Portland
  25. 25. Baxter Library
  26. 26. Baxter LibraryBefore
  27. 27. Baxter LibraryBefore
  28. 28. Baxter LibraryAfter
  29. 29. Baxter Library After
  30. 30. Bath Freight Shed Farmer’s Market

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