Part 1 – New Services for Architects: Helping Clients Discover Ways to Pay for Historic Rehabilitation Projects

Originally Published 2010

By Gary L. Cole AIA, Esq.

This article will be posted in two parts and a version of both parts will appear in the September 2010 issue of “Licensed Architect,” published in print and online by the Association of Licensed Architects. The following is for informational purposes only and should never be construed as legal or business advice – architects should seek advice only from own their legal counsel and business advisors in advance when considering whether to undertake any of the services discussed in this article.

PART 1 – Historic Rehab Financial Incentives and Working with Governmental Entities

Ask a roomful of architects what each thinks is the most important element of a successful project and you’ll likely receive as many different answers as there are architects answering. But nearly everyone will agree that the single most indispensable element of any project is financing – no money, no project. Real estate developers are always searching for two things: quality projects and ways to pay for them. For purposes of this article, the latter is where architects come in.

Though helping developers find ways to finance projects isn’t typically defined in their scope of services, architects involved in historic rehab may be able to expand their services and enhance their marketability by helping clients obtain Historic Rehabilitation Financial Incentives (Historic Rehab Incentives). In these challenging economic times of reduced demand for traditional architectural services, architects who . . . retool their skill sets and embrace new practice opportunities may gain a competitive edge in the market by providing services with unique economic value which, unlike their traditional design and construction services, can be easily quantified and are always in demand.

1. Historic Rehabilitation Financial Incentives – Benefits and Availability

What are Historic Rehabilitation Financial Incentives?

Historic Rehab Incentives are financial incentives offered by local, state or Federal governmental entities for rehabilitating properties that are either locally landmarked and/or listed on the National Register of Historic Places, and are intended to encourage reinvestment in historic properties.

While in some ways these incentives represent found money to developers, found money isn’t exactly the same as free money – as in a pot of gold – and in this case the gold is often guarded by one or more local, state or Federal governmental entities. But for all the administrative hoops and hurdles government sometimes imposes, the potential bump to a qualifying project’s proforma can make the difference between a successful historic rehab project, or – no project at all.

Historic Rehab Incentives Benefits and Availability

Historic Rehab Incentives take a wide variety of forms and can sometimes be used in conjunction with non-historic development incentives. Depending on the project, developers may simultaneously qualify for incentives that offer income tax credits or deductions, property tax abatements or Federal or state grants or property tax-derived grants from tax-increment financing districts (TIFs). Though less common, incentives could simply be favorable lending terms for construction or long-term financing, or even something as simple as accelerated local permit review which may shorten a project’s loan carry time. Even public financing, such as municipal bonds, should be investigated for availability.

The most common Historic Rehab Incentive programs are the Federal Historic Tax Credit Program, the Property Tax Assessment Freeze Program (Illinois), Class ‘L’ Tax Benefits (Cook County, Illinois), Ad Valorem Tax Exemption for Historic Properties (Florida), and the somewhat misnamed “façade easement,” with many states offering their own unique incentives.

Non-historic incentives that can sometimes be used in combination with historic rehab projects include, but are not limited to, Low-Income Housing Tax Credits, New Markets Tax Credits, and environmental and energy efficiency-based incentives. Both historic and non-historic tax credits can sometimes be sold to investors to generate much-needed project equity. Determining the possible combinations of available historic and non-historic incentives and how best to maximize their benefits is as much art as science and part of the creative financial challenge involved in financing historic rehab projects.

Architects should be knowledgeable about the potential value of the various Historic Rehab Incentives, but since applying for and receiving incentive approvals can be a lengthy and uncertain process, representations or warranties of their actual value should always be avoided – best left to the client’s accountants and legal team. Architects are most valuable in providing services that complement their traditional services by using their in-depth project knowledge to act as facilitators and liaisons between their clients and governmental entities and shepherding applications through the administrative process.

The availability of incentives will depend in part on a project’s geographic location, historic status and planned rehabilitation. Much research will be required to determine the available incentives. The Internet has made this easier, but phone calls and personal meetings with governmental entities are important for building relationships and exploring opportunities not listed online. Once potential incentives are identified, the next step in the analysis should be sorting out the viable from the non-viable programs to create a short list of possibilities for further investigation.

2. Administrative Requirements and Working with Governmental Entities

Though most Historic Rehab Financial Incentive programs are administered by one or more local, state or Federal governmental entities, some, such as the “façade easement,” usually involve working with preservation-related not-for-profit organizations. At the local level, many cities with historic districts, especially if they’re Certified Local Governments, have historic preservation commissions. The City of Chicago has the Commission on Chicago Landmarks. Each state has a preservation regulatory agency that serves a number of roles such as administering Historic Rehab Incentive programs, preservation advocacy, technical assistance, National Register of Historic Places assistance and state and Federal regulatory enforcement. In Illinois, that agency is the Illinois Historic Preservation Agency.

At the Federal level, the National Park Service provides many of the same services that the state historic preservation offices provide and the two often collaborate on project review. Even preservation-related not-for-profit organizations such as the National Trust for Historic Preservation should be investigated for possible Historic Rehab Financial Incentives opportunities.

When working with preservation-related governmental entities, a few considerations are offered:

Who and How. Research should be conducted to determine which governmental entities administer which incentives, whether any coordination between local, state and Federal entities is required, the documents required for each incentive application, the correct contact people within each entity, and the administrative procedures that applicants and governmental entities are required to follow under the law.

Attitude and Approach. As an Historical Architect with the Illinois Historic Preservation Agency prior to law school and embracing the Dark Side (according to my architect and preservation friends), I observed that almost without exception preservation-related governmental entities are both passionate and professional in the services they provide.

As such, architects should always approach these entities with an attitude about historic preservation that encourages mutual respect and cooperation. But architects should also remember that they’re being paid to advocate on their clients’ behalf, which sometimes means taking positions contrary to that of government’s. And while a tactful and professional approach, accompanied by supporting facts and good reasoning is usually most productive, architects should also be familiar with a governmental entity’s chain of command in the event higher-level members are needed to weigh-in on the ultimate approval or denial of incentive applications.

Architects who provide Historic Rehab Incentive services should learn not only the legal and technical aspects of historic preservation, but should become fluent in the vernacular of Historic Preservation. For example, the Secretary of the Interior’s Standards for Rehabilitation is just “the Standards.” The National Register of Historic Places is just “the Register,” the National Trust for Historic Preservation is just “the Trust,” and there exists a whole alphabet of acronyms to be learned as well. But to my knowledge, preservationists don’t have secret handshakes to identify each other – it’s simply a matter of noticing the set jaws and flinty gleams in the eyes of those who recall the fate of Penn Station or the old Chicago Stock Exchange building – or any local landmark for that matter.

Meetings, Documents and Records. If a picture is worth a thousand words, then a project site visit by a government representative – preferably during a project’s planning phase – is worth a thousand pictures. Savvy developers often request site visits prior to taking ownership of a property. Site visits allow government representatives to see projects firsthand and assess the existing conditions and the impact of planned rehabs on their historic character and features.

Problems and solutions should be identified as early as possible and detailed records of meetings and phone calls should be kept, and emails and other correspondence saved. Sharing summary memos is an effective way of tracking important meetings and decisions – and for jogging faulty memories.

[END PART 1 – NEXT PART: The Secretary of the Interior’s Standards for Rehabilitation and practice considerations for architects.]

About the author:

Gary L. Cole AIA, ALA, Esq. is Chicago-based Illinois and Florida-licensed architect and attorney and an expert in historic rehabilitation, preservation law and development financial incentives. He was a Historical Architect for the Illinois Historic Preservation Agency, a Visiting Associate Professor of Architecture at the University of Illinois Graduate School of Architecture and, as an attorney, has represented clients in preservation-related matters in Chicago, South Florida and Washington, D.C. He has worked for two of Chicago’s largest law firms and was in-house counsel for one of the Southeast’s largest retail developers. He practices design & construction, real estate, preservation and accessibility law and is a Certified Mediator and a member of the Roster of Neutrals for the American Arbitration Association. He can be contacted by email at garycole@lawarkbuilding.com.

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