Historic Tax Credits for Developer’s Conference Miami Beach, February 5, 2009

1. Historic Tax Credits for Developer’s ConferenceMiami Beach, February 5, 2009 “The Basics of Historic Rehabilitation Tax Credits and Syndication” John M. Tess Heritage Consulting Group Portland, OR Philadelphia, PA 503-228-0272 jmtess@heritage-consulting.com www.heritage-consulting.com

2. Pretty Pictures

3. General Observations Rehabilitation projects: Are generally more complex than non-historic deals Can be time consuming Receive much more scrutiny than non-historic deals from a design standpoint Without early coordination of team players can lead to additional costs and frustrations

4. Who are some of the development team players Developer Contractor Attorney(s) Accountants Architects and engineers Other Consultants Preservation Consultant

5. Review Bodies Neighborhood Groups Local Government SHPO NPS Advisory Council, Section 106

6. What Types of Properties Qualify? Must be a “building” which is defined as a structure enclosing a space within its walls and usually covered by a roof, the purpose of which is to provide shelter or housing, or to provide working, office, parking, display or sales space (bridges, ships, railroad cars are not eligible). Building must be depreciable (generally those used commercial or residential rental purposes including hotels).

7. Buildings you Might Not Think of as Historic • Convention Centers • Housing Projects • Office Buildings • Parking Garages • Shopping Centers • Sports Arenas • Stadiums • Warehouses

8. Types of Federal Rehabilitation Tax Credits 10% Credit available for older (pre-1936) non-historic, non-residential buildings (currently 13% in the Go Zone/Midwest disaster areas through 12/31/09). 20% Credit for historic buildings (currently 26% in the Go Zone/Midwest disaster areas through 12/31/09).

9. How Does the 10% Credit Differ from the 20% Credit? The 10% credit can only be used for non-historic buildings built before 1936. For 10% projects, there is generally no SHPO or NPS review required (unless the building is located in an historic district in which case the building must be decertified). The 10% credit applies only to buildings rehabilitated for non-residential uses. Rental housing does not qualify but hotels do qualify.

10. 20% CreditBasic Eligibility Requirements Must be listed in, or eligible for listing, in the National Register of Historic Places. After rehabilitation, the building must be used for income-producing purposes for five years. The project must meet the "substantial rehabilitation test." In brief, this means that the cost of rehabilitation must exceed the adjusted basis of the building at the beginning of the project. The rehabilitation work must be done according to the Secretary of the Interior's Standards for Rehabilitation that ensure the historic character of the building has been preserved.

11. QualifiedRehabilitationExpendituresQRE’s QRE’s are any amounts chargeable to a capital account in connection with the rehabilitation. The amount of the credit is based on the QRE’s.

12. Certified HistoricStructure Building must be either individually listed in the National Register or listed as a contributing building in a National Register historic district or certified local historic district and certified by the Secretary of the Interior as contributing to the district.

13. National Register Process and when to Nominate • Listing in the National Register can occur up to 30 months after the owner claims the credit. • Want to determine if the building is eligible • Want to determine if you want to leave the 10% option open

14. 20% Historic Tax Credit Application Part One Determines whether the building is historic or might be considered historic. Part Two Sets forth the proposed work to determine whether the project meets the Secretary of the Interior’s Standards. Part Three Certification of completed work.

15. Historic Review Bodies National Park Service (NPS) State Historic Preservation Office (SHPO) Local Design Review

16. Roles of ReviewingBodies Local Design Review (Historic Commissions, Historic and Architectural Review Boards, Certified Local Governments) – serve as an advisor to the SHPO. SHPO – makes a recommendation to the National Park Service. National Park Service – Final decision maker.

17. All historic review bodies (local design review, SHPO, NPS) evaluate the proposed construction to determine whether the work will meet the Secretary of the Interior’s Standards for Rehabilitation. Reviewers interpret the standards to evaluate the full scope of work proposed (site work, new construction, demolition, exterior work, interior work). Review Standards

18. Understanding how the Standards are interpreted The interpretation of the Standards is a subjective process. Local, State and Federal authorities may differ on the interpretation. Interpretation is generally done on a case by case basis depending on many factors. Interpretation can vary from one reviewer to the next.

19. Review Timetable All submissions (Part 1, 2, 3, Amendments) are made to SHPO. SHPO has a 30-day recommended review period. Once SHPO completes their review, they forward the submission to NPS. NPS has a 30-day recommended review period.

20. Pitfalls

21. Part OnePitfalls Timing of filing – Prior to being placed in service and prior to review of Part Two. Listing in the National Register Assuming that the Building will become historic.

22. Part Two Pitfalls Proper documentation Timing of submittal Being clear on the scope of Tax Act review Assumption that local or state approval in turn means National Park Service approval Early review by National Park Service Failing to submit additional information following preliminary approval

23. Certification of Completed Work Pitfalls • Forgetting to file • Filing too soon – May limit you ability to use the credit • Problems with complexes – future work on other phases may affect the credits already claimed

24. Current NPS Hot Issues Listing buildings with compromised integrity has become a challenge New construction Sitework Replacement windows Truncating of corridors Furring out of perimeter walls Exposed ductwork in historically finishes spaces “Brutalist” treatment of interiors Ceiling relation to window head

25. The following are questions every developer should answer prior to beginning the Tax Certification process; • Does the Building Qualify? • Should I use the 10% or 20 % Credit? • Can I even use the credit? • What constitutes a Qualified Rehabilitation Expenditure? • When do the credits become available? • Who can use the credit? • To sell or not to sell the credits? • What other incentives might be available?

26. Investor Peace of Mind Early identification of the issues. Frequent communication with all parties. Experienced project team.

28. John M. Tess Heritage Consulting Group 1120 NW Northrup St. Portland, OR 97209 15 W. Highland Avenue Philadelphia, PA 19118 jmtess@heritage-consulting.com www.heritage-consulting.com