Small firms can receive preservation tax credit

Real Estate Weekly, August 25, 2004

The National Trust for Historic Preservation's for-profit subsidiary, the National Trust Community Investment Corporation, has partnered with Tax Credit Capital, LLC of New Orleans to expand the former Small Deal Fund, founded in 2002, into the National Trust Small Deal Fund.

SDF provides a unique service within the historic tax credit industry by investing in very small historic tax credit projects-approximating $1.2-$3.5 million in total development costs--that normally generate between $200,000--$650,000 in tax credit equity.

Owners of small historic tax credit projects are typically unable to utilize the 20% federal rehabilitation tax credit, which equals 20% of the amount spent on a certified rehabilitation of a certified historic structure. Structures eligible for the credit include properties rehabilitated for commercial, industrial, agricultural, or rental residential purposes and are certified by the National Park Service with consideration from State Historic Preservation Offices. The tax credit is a dollar-for-dollar reduction in the amount of taxes owed and many small property owners simply do not have enough tax liability to redeem the credit.

For those who do, IRS rules can restrict the owner's ability to fully access the value of the credit.

Owners of larger projects in this position can turn to so-called syndicators who essentially purchase the credits, typically at 80% of their face value, and funnel them to corporations who can utilize the tax benefit. However, this is not an option for small project owners as the syndication transaction costs are generally too high to make the investment cost-effective for either the owner or the investor.

The National Trust Small Deal Fund is able to overcome this financial barrier for smaller projects. Acting as a syndicator, SDF has standardized its investment terms and documents, thereby, minimizing investor risks, reducing due diligence requirements and keeping closing costs very low.

SDF makes an initial good faith $100 contribution to the project and 80% of the tax credit equity investment is paid upon receipt of final project approval by the National Park Service as determined by the historic certification application. The remainder is paid at negotiated performance benchmarks.

The investor behind the National Trust Small Deal Fund is Chevron Texaco. NTCIC's role is to locate and refer deals through its national network of historic preservation partners including its Main Street and Community Partners Networks, Historic Hotels of America, National Trust Regional Offices and its State and Local Partners Program.

In 2003, the Small Deal Fund facilitated 11 projects that generated $5,411,379 in federal historic tax credits. Through June 30, 2004, the fund closed on 30 properties, totaling approximately $11 million in tax credit equity.

SDF is expected to expand even more now that it has entered into the new partnership with the Trust.

SDF operates in all 50 states and is also able to purchase state historic credits in Louisiana, Maryland, Michigan, Rhode Island and Virginia.

Various properties, including hotels, offices, restaurants, entertainment, cultural and non-profit facilities, retail and mixed-use projects are eligible.