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Historic Preservation Funding Economics
- 1. Building New vs. Preserving & Adapting MYTH: Building New is Always Cheaper than Preserving & Adapting Option 1: Adaptive Reuse – Mixed-Use Option 2: New-Build Mixed-use Financially Feasible for private developer Subsidy Required
- 2. Building New vs. Preserving & Adapting Building Type New Build Historic Adaptive Reuse Higher Ed. Classroom $425 - $550 SF $325 - $475 High School Classroom $300 - $500 SF $275 - $375 Commercial Office $250 - $300 SF $225 - $300 SF Museum $700 - $1,300 SF $600 - $900 SF >50,000 SF building in U.S. Mid-Atlantic Region Assuming “significant” updates Source: MGAC
- 3. Building New vs. Preserving & Adapting Building Preservation & Adaptation results in higher values and revenues Harmony Mills Cohoes, NY
- 4. Funding & Incentives Federal Historic Tax Credits • 20% Income Tax Credit • Must be certified Federal Sources Federal New Markets Tax Credits (NMTC) Federal Low Income Housing Tax Credits (LIHTC) Opportunity Zones Connecticut Sources Connecticut 7/7 Brownfields Program Connecticut Targeted Brownfield Development Loan Program Connecticut Department of Housing: Home Program Connecticut Housing Finance Authority: Low Interest Financing Capital Region Development Authority (Hartford) Tax Increment Financing (TIF) CT Historic Rehabilitation Tax Credit • 25% Income Tax Credit • 30% if in Opportunity Zone or includes affordable housing Historic Preservation Incentives Traditional Development Resources (select)
- 5. Funding & Incentives Collinsville Axe Factory Canton, CT Tax Increment Financing (TIF) for Preservation and Reuse Projects Developer TIF Funding Potential (20 years) 25% Share = $4.1 million (12% Redevelopment Cost) 50% Share = $8.1 million (24% Redevelopment Cost)
- 6. Funding & Incentives Building Preservation & Adaptation results in higher values and revenues Financial Feasibility Pro-Forma Analysis Restaurant Re-Use Cost: $5.7 million Feasibility Funding Gap: $4.1 million Historic Tax Credit Potential: $1.1 million Remaining Funding Gap: $3 million Middlesex Jail Haddam, CT
- 7. Funding & Incentives Cheney Mill Dye House Manchester, CT Capitol Lofts Hartford, CT $9.6 M | American Recovery and Reinvestment Act Exchange Funding $3.4 M | DECD HOME Funds $3.0 M | Federal Historic Tax Credits $2.2 M | Connecticut Historic Tax Credits $1.5 M | CT Housing Finance Authority Low Interest Mortgage $570K | Developer Equity $5.3 M | Permanent Loan $5.3 M | CRDA Loan $5.0 M | CHAMP $3.3 M | City of Hartford $5.3 M | Brownfield Grant $2.1 M | Federal LIHTC $6.0 M | Federal Historic Tax Credit $5.7 M | State Historic Tax Credit $6 M | DOH Funds $4 M | OPM $10 M | Federal Historic Tax Credit $12 M | State Historic Tax Credit $4 M | DECD Brownfield Loan $1.5 M | Deferred Developer Fee $7.8 M | Permanent Loan Montgomery Mill Windsor Locks, CT
Editor's Notes
- Cost Advantages of Preserving and Adapting: Little or no demolition Land acquisition is often less expensive Utilities and services already connected (just need modernization) Savings because existing structure is in place – typically have “good bones” Rome, NY Example: Former industrial building/brownfield site Ran a proforma for several options Financial feasibility analysis said adaptive reuse made more financial sense, even with fewer apartments than a new build option. Sources: https://www.buildings.com/article-details/articleid/5837/title/adapting-an-older-building-for-a-new-use https://www.mgac.com/blog/cost-drivers-of-historic-adaptive-reuse-projects/ https://www.commercialarchitecturemagazine.com/old-new-worth/ https://rdgusa.com/sites/discovery/2019/07/19/common-myths-about-historic-preservation-and-adaptive-reuse/ https://mcdmag.com/2018/10/resuscitating-buildings-for-healthcare-with-adaptive-reuse/#.XV1mP-hKiUk
- - Example of how the costs can differ. Generally, historic adaptive reuse is lower (and this assumes significant updates are needed) Costs Highly variable depending on the market and building, but experts and studies have indicated: Building rehab is 16% less in construction costs and 18% less construction time (Trade and Industry Development, 2017) Medical office construction: 20-30 percent cost savings on construction (MCDMag) - Trend is expected to continue as land availability will continue to be a constraint, land prices rise, raising land acquisition costs for new build. Sources: https://www.buildings.com/article-details/articleid/5837/title/adapting-an-older-building-for-a-new-use https://www.mgac.com/blog/cost-drivers-of-historic-adaptive-reuse-projects/ https://www.commercialarchitecturemagazine.com/old-new-worth/ https://rdgusa.com/sites/discovery/2019/07/19/common-myths-about-historic-preservation-and-adaptive-reuse/ https://mcdmag.com/2018/10/resuscitating-buildings-for-healthcare-with-adaptive-reuse/#.XV1mP-hKiUk
- -Higher Values, -Desirable spaces (unique, authentic), premier locations (town centers, main streets, waterfronts – mills) -More Resilient Value over long-term, - Rehabilitated historic building can have a lifespan of 100 years or more compared to 30 or 40 for new building. -Premiums for Rents/Leases Harmony Mills Example, cohoes NY Not a very great housing market Developer was able to get significantly higher rents than “market-rate” – much higher than new build apartments would have commanded
- The CT Historic Rehabilitation Tax Credit Program (C.G.S., Sec. 10-416c) establishes a 25% tax credit on the Qualified Rehabilitation Expenditures associated with the rehabilitation of a Certified Historic Structure. (Qualified rehabilitation expenditures are hard costs associated with the rehabilitation; site improvements and non-construction costs are excluded.) The structure must be rehabilitated in a manner consistent with the historic character of such property and have a post-rehabilitation use of one of the following: residential use of five units or more; mixed residential and nonresidential use; or nonresidential. The credit increases to 30% if the project is located within a federally designated opportunity zone or the project includes an affordable housing component, provided at least 20% of the rental units or 10% of for-sale units qualify under C.G.S., Section 8-39a. The program makes $31.7 million in tax credit reservations available each fiscal year. The per-project cap is up to $4.5 million in tax credits. You may combine state tax credits with the 20% Federal Historic Preservation Tax Credits provided the project qualifies under federal law as a substantial rehabilitation of depreciable property as defined by the Internal Revenue Service.
- TIF analysis on behalf of Town of Canton Looking to facilitate private investment/redevelopment of property Wanted to understand TIF Potential/various scenarios of property tax relief. 50% “rebate” of new property taxes from redeveloped project would cover 24% of project cost while still giving town more property tax revenue than if left in current state.
- Middlesex Jail financial feasibility assessment Market analysis had said restaurant was the way to go Had to look at numbers to see if made sense financially In this case, high rehab cost plus limited floorspace/revenue potential = significant funding gap Historic Tax credits could cut the funding gap down by 25% - helps a lot but takes a lot to make these types of projects happen.. Segue into next
- Financing plans for three historic preservation/reuse projects in CT Illustrates how much you have to throw at these projects to make them feasible. Note that the historic tax credits are among the most significant funding sources. 25%, 30%, 49% : tax credits as % of development cost These are projects that probably couldn’t have happened without those tax credits – gap is just too large