Tax Credits and Incentives for Developers Repurposing Existing Buildings
With the real estate market in Richmond suffering from a severe housing inventory shortage, investors and developers are left with few purchasing options in the traditional market. This environment provides a great opportunity for developers to stretch their creative building muscles! Over the past few years, we have seen numerous conversions of industrial and commercial-specific sites into multi-family residential living spaces. We’ve also seen existing historic infrastructure revamped for both commercial and residential purposes. A shift in developer mindset from building new, to repurposing existing structures, can not only expand opportunities (and our ideas of ‘housing inventory’) of an already-saturated Richmond market, but it can also provide tax incentive opportunities to the projects’ underlying individual investors.
How Different Incentives and Tax Credits Can Help Developers
The Historic Rehabilitation Program is one way that a developer can repurpose existing housing inventory, while also receiving financial impetus for doing so through tax incentives (Historic Tax Credit). Keiter has described in previous articles the basics of the Historic Tax Credit (HTC). Many investors and developers are already aware of both the federal and state-level tax incentives for historic rehabilitation, with guidelines set forth by the National Park Service and Virginia Department of Historic Resources. Virginia has also employed the Enterprise Zone grant program to reward investors that rehabilitate existing structures located within struggling development areas.
Structuring Rehabilitation Projects for Additional Tax Incentives
What investors may not be aware of is that in addition to receiving a historic tax credit for their rehabilitation project, they may also structure their project in a way that allows them to incorporate additional tax incentives into an HTC deal. These incentives include Opportunity Zone Incentives (OZ), Renewable Energy Tax Credits (ITC and PTC) and the Low-Income Housing Tax Credits (LIHTC).
While each of these credits warrant further discussion and deeper analysis than what is provided here, the key takeaway is that with proper planning and some creative foresight, developers have an opportunity to combine multiple tax incentives for their next rehab project. Doing so would not only provide additional sources of equity, but it could also close challenging financing gaps that can arise, due to the additional construction and rehab preservation requirements, as well as the additional state review process that the HTC process typically entails.
Combining additional tax incentives to an HTC deal may also generate marketing advantages to help a project stand out, thus fueling further exposure to a more diverse range of investors and participants. It is equally important to note that many of these tax incentives encourage much-needed capital injections into our lower income communities and difficult development areas. What better way for developers to stretch outside of the traditional housing market than to ‘repurpose’ opportunities that not only generate advantageous tax credits for its investors, but also help provide the community with affordable living spaces in which it is severely lacking.
For over a decade, Keiter has provided the necessary cost certifications for completion of Historic Rehabilitation Tax Credits as well as Virginia’s Enterprise Zone Grant Program. If you are in the process of planning a historic rehabilitation development and would like assistance navigating your project or have additional questions regarding tax incentive opportunities discussed above. Contact your Opportunity Advisor if you have any questions or Email | Call: 804.747.0000.
About the Author
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.