If you are considering a large-scale rehabilitation project on your historic commercial building, you may want to look for financial assistance from the National Trust Community Investment Corporation (NTCIC). This for-profit subsidiary of the National Trust for Historic Preservation brings together private equity investment firms and developers, nonprofit organizations and local governments for real estate projects nationwide. Through the NTCIC, an investor provides equity to a historic commercial rehabilitation project that is eligible for both New Market Tax Credits (NMTCs) and state and federal historic tax credits (HTCs).

Although the NTCIC program is not extensively used in Wisconsin, you could consider this type of financial assistance if your project qualifies for the program and your rehabilitation project involves a substantial commercial property, such as an industrial building or mill.

NTCIC Investments

Since 2000, the NTCIC has placed more than $600 million in gross equity and debt toward more than 85 projects with total development costs over $2 billion. The NTCIC combines the historic preservation expertise of its parent, the National Trust for Historic Preservation, with the financial strength of its many tax credit investor partners. The NTCIC ’s chief investment partners include Morgan Stanley, Chevron, Nationwide Insurance and Bank of America.

The NTCIC also has a Small Deal Fund for smaller commercial projects. This fund is typically overlooked by corporate investors. If your project is under $1 million, the Small Deal Fund may be suitable for your needs.

New Markets Tax Credit Program

The NMTC program originated in 2000 under the Community Renewal Tax Relief Act. This incentive program was established as a means to revitalize low-income communities. A low-income community is defined as a U.S. census tract with at least a 20% poverty rate or household median income at or below 80% of the area or statewide median, whichever is greater. Forty percent of all U.S. census tracts—and most central business district census tracts—qualify for NMTCs.

The NMTC program gives tax credits to equity investors for projects that will help to strengthen a city’s economy through building construction and new jobs. The investor receives a 39% credit of the investment. The investing firm can claim this credit incrementally over a seven-year period. To be eligible for an NMTC investment, a project must be located in a qualified low-income census tract. You can visit the Novogradac New Markets Tax Credit Resource Center to determine whether your property is located in a qualified census tract.

Combination of Two Types of Tax Credits

Historic and New Market tax credits can often be combined in a single project for two reasons:

• Many older buildings are found in disinvested parts of cities and towns.
• Many HTC projects are located in central business districts.

According to the National Park Service, more than 75% of all approved HTC-related projects between FY 2002 and FY 2012 were located in NMTC-eligible low-income census tracts.

For your rehabilitation project to be eligible for both NMTCs and HTCs, your building must be located in a qualified low-income census tract and listed on the National Register of Historic Places. The project’s HTCs and NMTCs are transferred to the NTCIC, and ultimately a bank. This so-called “twinning” or combining of HTCs and NMTCs on the same real estate transaction helps to offset the more difficult economics of developing historic properties in low-income communities.

NTCIC Funding Success Stories

The use of NTCIC to develop historic commercial properties in Wisconsin has been limited, but the following examples illustrate the kinds of projects and benefits to property owners that are possible under this program.

Old Post Office, St. Louis, Missouri

The Old Post Office in St. Louis is one of only two remaining French Second Empire-style government buildings in the United States. Construction of the 242,000 gross square foot Old Post Office was completed in 1884 at a cost of approximately $6 million. The Old Post Office building, a National Historic Landmark, first fell vacant in 1975. By the 1990s, the building was designated as surplus property by the General Services Administration (GSA).

In 1998, the nonprofit organization Downtown NOW put forth a detailed plan to revive the area now known as Post Office Square by proposing the idea of an urban university campus. Webster University expressed interest in the idea. In 2000, Downtown NOW partnered with The DESCO Group and the DFC Group to rehabilitate the building through a collaborative public and private effort. The result was a $44 million rehabilitation project to develop a wide variety of governmental and educational offices and uses.

The funding structure of this project involved a zero-dollar transfer of the building by the GSA to the Missouri Development Finance Board (MDFB). The MDFB then long-term leased the building to an entity consisting of The DESCO Group and DFC Group, as the developers, and with U.S. Bank and NTCIC as investors. This capital investment utilized both federal and state HTCs and NMTCs.

NTCIC utilized $22.5 million of its first-round $127 million NMTC allocation to enhance an equity investment for the rehabilitation of the Old Post Office building. The project was eligible for approximately $7.5 million in federal HTCs and nearly $8 million in state HTCs. The enhancement with NMTC provided an additional $7.5 million, or 33% more of critical equity. Without this additional equity, the project would not have been feasible and the Old Post Office would have been threatened.

Adler Theatre, Davenport, Iowa

The Adler Theatre, originally named the RKO Orpheum, was built at a cost of $2 million in 1930. The Art Deco-style building was constructed in conjunction with the adjacent ten-story Mississippi Hotel in downtown Davenport. Designed with an opulent interior, the building was Davenport’s finest vaudeville stage and, later, first-run movie theater. The theater ceased showing movies in 1973, and it became the River Center for the Performing Arts, Inc. in 1981.

Although the building was stabilized in the 1980s, it was not fully restored until NTCIC got involved. The 2006 Adler Theatre rehabilitation project cost $16 million. In addition to NTCIC’s $3.7 million HTC/NMTC equity investment, additional financing was provided by the River Center for the Performing Arts and local corporations. The rehabilitation required installing state-of-the-art rigging, acoustics, dressing rooms and loading elevators to optimize operational efficiency and attract promoters and show companies seeking a distinctive and first-class venue. The renovated theatre was projected to draw an additional 60,000 visitors, resulting in approximately $5.7 million in increased annual revenue to Davenport.

The Fitzpatrick Hotel, Washington, Georgia

The Fitzpatrick Hotel project in Washington, Georgia, demonstrates the value of the NTCIC’s Small Deal Fund to smaller historic properties. The landmark hotel, vacant for over 50 years, was rehabilitated by a group of investors into a 17-room boutique hotel with conference and commercial space. When the Fitzpatrick LLC purchased the property in March of 2002, the investors’ attention to the property’s architectural integrity enabled the project to qualify for the 20% HTC, valued at approximately $363,000. An associate introduced the partners to the Small Deal Fund, whose investment parameters fit the profile of the Fitzpatrick Hotel. The partners were able to close on a $315,000 equity investment before the property was placed in service.