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Username: Detroitman

Post Number: 983
Registered: 06-2004
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Posted on Monday, May 22, 2006 - 7:12 am:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

http://www.crainsdetroit.com/a pps/pbcs.dll/article?AID=/2006 0522/SUB/60519043/-1/toc
New incentives for old buildings
Untangling web of tax credits can pay off for redevelopers

By Jennette Smith

6:00 am, May 22, 2006
When work is finished on the renovation of the former Odd Fellows hall in southwest Detroit next month, it will finish off a $15 million mixed-use project made possible by a collaboration of nonprofits.

It also will mark another Detroit project that was made possible by a combination of financing mechanisms: small-business tax credits, brownfield tax credits, historic tax credits and a newer incentive called new markets tax credits which grants a 39 percent tax credit over seven years.

Using multiple incentives isn’t easy.

That’s one reason national law firm Nixon Peabody L.L.P., Preservation Wayne, the National Trust for Historic Preservation, the Michigan Historic Preservation Network and other sponsors are organizing a June 8 seminar at the Detroit Club called Incentives for Historic Preservation in Detroit (See "Preserving History" below).

Wendler and a host of other local and national speakers are scheduled to provide case studies and answer questions from bankers and developers on how to use tools such as historic and new markets credits.

The southwest Detroit project includes a new library, 88 housing units, and 14,000 square feet of commercial space to be used as business incubator space, nonprofit office space and possibly space for medical services such as eye care or physical therapy offices. In addition, the hall’s ballroom is to be used by nonprofit Casa de Unidad, which does cultural and arts education.

“The historic and new markets credits really make it possible to take on a project that the market can’t do … the ones in critical locations,” said Kathy Wendler, president of the Southwest Detroit Business Association, which formed a partnership with the Southwest Solutions’ Southwest Nonprofit Housing Corp. for the effort, also known as Lawndale Station. “With the housing and the library and this beautiful building, it has a huge impact.”

David Schon, partner with Nixon Peabody in Washington, and a native Detroiter, said the goal of the seminar is to raise awareness about how to make more historic preservation deals work. Schon, an attorney specializing in tax credits, represents tax credit investors or project sponsors. He has worked on about a dozen Detroit historic projects, ranging from the Inn on Ferry Street to TechTown.

“In remaking the city we have to build on its strengths, which include the character of its buildings,” he said. “We can’t just remake the city to look like the suburbs. Nothing says city more than old buildings.”

For example, because the Odd Fellows’ site includes the reuse of a historic hall — complete with green Pewabic tiles on the arches — special care had to be taken to ensure the design would meet the approval of the National Park Service, which administers the federal historic tax credit program along with the IRS.

In a vastly more complex deal in which Schon represents an investor, the planned renovation of the Book Cadillac has 17 different sources of funding, ranging from new markets credits, historic credits, brownfield credits and a variety of forms of grants and debt.

National City Bank and its community development corporation is a lender and equity investor in historic projects such as Book Cadillac and TechTown which have a combination of incentives.

Dick Buss, a National City Bank senior vice president, said tools that will be put to use on the Book Cadillac include “facade easements” and “lost development rights” which enable the developer to record a real estate loss in exchange for commitments not to tear the building down or change the exterior. Another party, like National City, can then make a deal with the developer.

“We pay the 35 percent corporate tax rate. Every dollar of loss means 35 cents we don’t have to send to Washington ... for that 35 cents of loss we might pay 28 cents to the developer,” Buss said.

Buss manages National City’s community development financing for Southeast Michigan and National City is a sponsor of the June 8 seminar.

Buss said he believes real estate professionals have a good working understanding of historic credits but need more knowledge on new markets credits. Experts in the business are awaiting news from the U.S. Treasury Department about Michigan groups’ share of new markets credits, allocated annually. An announcement is expected by early June.

Susan Mosey, president of the University Cultural Center Assoc¬iation, said the timing of the incentives seminar is very good. New markets credits are new enough and complex enough that more education is needed, she said.

The redevelopment of a two-block area of Garfield Street at Forest, Woodward and John R is among the Midtown projects with new markets credits as part of the financing puzzle.

The $60 million Garfield efforts led by Jonna Cos., the Arts League of Michigan and George N’Namdi includes 202 housing units, commercial development, parking and a new center for the Arts League. The city of Detroit, state and the U.S. Department of Housing and Urban Development are major finance or incentive sources as well. N’Namdi’s G.R. N’Namdi Art Gallery and new commercial development next door is part the project area.

“This is exactly what these credits were put in place to do,” Mosey said.

Detroit ranks fairly high in national rankings on the use of federal historic tax credits. Detroit was among the top 15 cities cited for the financial impact of federal historic credits, according to a report by the National Trust and Rutgers University, with $143.6 million in development from fiscal year 2005 to the present.

Francis Grunow, executive director of Preservation Wayne, said he’d like to see more small and mid-size developers learn about opportunities for historic preservation.

“I think we’re getting to a critical mass but it’s not mainstream yet,” he said.

Buildings such as the David Whitney Building or the Michigan Central Depot would be candidates for additional redevelopment, Grunow said.

“We have so many opportunities in Detroit with our historic structures to take these tax credit tools and make projects work,” he said.

Preserving History
The program: Incentives for Historic Preservation in Detroit.

When: 8:30 a.m.-5:30 p.m. June 8 at the Detroit Club.

Cost: $200.

The agenda: Programs on available federal and state tax credits, syndication and specific Detroit-oriented case studies.

Target audience: Developers, investors, nonprofits, lenders and others interested in learning about the various incentives available for historic preservation.

For more information: Visit www.ipedinc.net.

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Tax Credits

Here are two financing mechanisms that can be used to pay for urban redevelopment:

New markets tax credits offer a 39 percent federal tax credit over seven years. Investors channel investments through a community-development entity, which makes loans to or investments in businesses in low-income areas. The credit is 5 percent a year for three years and then 6 percent for the final four years.

Historic tax credits. A 20 percent federal tax credit is available for the rehabilitation of buildings that are certified as historic, meaning a listing on the National Register of Historic Places or contributing to a Register historic district. A 10 percent credit is available for noncertified buildings built before 1936. The state of Michigan offers a credit that is 25 percent of rehabilitation expenses if the credit is taken on its own, reduced to 5 percent if taken with the federal historic tax credit.
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Username: Bvos

Post Number: 1450
Registered: 10-2003
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Posted on Monday, May 22, 2006 - 9:04 am:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

Well, they're not really new, just newer for Detroit. As usual, we're a little behind the times from the rest of the nation.
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Username: Mackinaw

Post Number: 1564
Registered: 02-2005
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Posted on Monday, May 22, 2006 - 10:45 am:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

“In remaking the city we have to build on its strengths, which include the character of its buildings,” he said. “We can’t just remake the city to look like the suburbs. Nothing says city more than old buildings.”


That's a good article.
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Username: Detourdetroit

Post Number: 208
Registered: 10-2003
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Posted on Monday, May 22, 2006 - 8:26 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

If you are involved with a non-profit or governmental agency that is doing development and would benefit from this conference, please sign up to get a scholarship. Several banks have underwritten a certain number of spaces...www.iped.net

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