2016 Governor's Infrastructure Financing Conference. Eastham House A Center for Community Philanthropy

Transcription

1 Eastham House A Center for Community Philanthropy

2 Eastham House Project Summary A 6,000+ square foot home located in the heart of downtown Harrisonburg adjacent to City Hall and the downtown market area. A contributing structure in the Downtown Harrisonburg Historic District, the house was built in the 1890s by a local lawyer and has served as auxiliary office space for the City of Harrisonburg for the past 65 years. In October 2016, the City gave the home to The Community Foundation of Harrisonburg & Rockingham County to create a Center for Community Philanthropy.

3

4 Location of the Project County Court House Proposed Park City Hall Downtown Harrisonburg Eastham House James Madison University

5 Eastham House

6 Timeline Pre-Oct 2015 Oct 2015 Jan 2016 April 2016 June 2016 July 2016 Fall 2016 Dec 2016 Q Projected 2016 Governor's Infrastructure The City puts rental of the house out for RFP for local nonprofits. TCFHR expresses interest in renting the Property Blue Ridge Architects prepares a feasibility study and estimates renovation costs for main and 2 nd floor at $500 - $745,000 Harrisonburg City Council agrees to donate Eastham House Meet with Virginia Department of Historic Resources to discuss the project and identified a tax attorney (Rowland Law LLC) to work with us. Blue Ridge Architects prepares and submits the Part I application. TCFHR creates Eastham, LLC to own the building. TCFHR takes title to the property. Farmers & Merchants Bank agrees to be investor in the project with Virginia Community Development Corporation acting as consultant/syndicator for the project. Blue Ridge Architects prepares and submits the Part II application, finalizes construction documents, and starts the bidding process. Close with Investor, award bid to a contractor, and start construction. Q Projected Oct Projected Renovations complete The Community Foundation will occupy the main floor and rent both the bottom and 2 nd floors to other local nonprofits

7 Estimated Total Development Costs: $900,000 Estimated 2017 Federal Historic Tax Credits: [Not Utilized.] Estimated 2017 State (Virginia) Historic Tax Credits: $206,000 Projected Closing Date: 2017 Q1 Projected Construction Completion: 2017 Q3

8 With help from an experienced team of architects, legal and accounting professionals, equity syndicator/consultant, and a local investor, the new Center will not only contribute to the economic revitalization of the downtown area but also create a local space dedicated to philanthropy and strengthening nonprofits for Harrisonburg and Rockingham County.

9 Financing Conference Legal Issues: Tax credits are not purchased. Tax credits flow through the owner of the property to its constituent members. Turning Tax Credits into Dollars requires an investment in the ownership entity. For charitable (non-stock) organizations, this means holding the property in a special purpose limited liability company or limited partnership.

10 Simple structure for state credit only transaction with non-profit organization as the sponsor: Owner, LLC (single purpose, for profit) Non-Profit Sponsor, 99% State Tax Credit Investor, 1%

11 For a non-profit organization, doing a state credit only transaction simplifies the transaction. Avoids the question of tax-exempt use in the rehabilitated space, which is one of the complicating factors introduced when trying to use the federal historic tax credit. Provides some buffer for the federal tax treatment of the state credit investment as a disguised sale for federal income tax purposes.

12 Jefferson School City Center, Charlottesville, VA

13 The Jefferson School and Carver Recreation Center located on the edge of downtown Charlottesville, VA four-acre property in the Starr Hill neighborhood listed on the National Register of Historic Places African-American school site since Project began in 2008 building had not been maintained and the classrooms were abandoned.

14 Historic Tax Credits: What do you need? You own historic building You plan a major renovation You are, or can form, a taxable entity You can meet the Secretary s Standards You are willing to go thru the 3-part application process

15 Part 1: Is this a Certified Historic Building? What is the historic property Who says the property is historic Who is the project contact Who is the owner rep and the owner entity Jefferson School, 1926 entryhmond, VA

16 Part 2: What are you doing to the building Detailed description of the building s major features and their condition Keyed to photos & dwgs Each feature is dated Description of proposed rehabilitation and its impact

17 Part 3: What did you do to the building? Show that rehab has been completed in accordance with Part 2 app Give details of timing and qualified expenses CPA must audit your qualified costs Jefferson School Auditorium You may submit separate Part 3 applications for individual project phases

18 The Secretary of the Interior s Standards for Rehabilitation (36 CFR 67) 1. Give the building an appropriate use. 2. Preserve the property s historic character. 3. No false historicism. Don t invent historic character. 4. Preserve changes that have acquired significance over time. 5. Preserve distinctive features and finishes. 6. Repair rather than replace. 7. Clean using the gentlest means possible. 8. Preserve significant archaeological resources. 9. New additions should be differentiated from the existing building. 10. New additions shall be removable without damage to the historic building.

19 The Secretary s Standards for Rehabilitation Standard 1: Appropriate Use Jefferson School becomes the Jefferson School City Center African American Heritage Center Carver Recreation Center Miller Manufacturing, Manchester Community College and 6 other tenants offering community services Maury Place B&B, Monument Ave

20 The Secretary s Standards for Rehabilitation Std 4: Changes over time. Original wing Classroom and gymnasium wings 1958 and 1959

21 Standards 2 & 5: Preserve major features and spaces. What are they? What work is proposed? Original entry must be preserved Auditorium must be preserved

22 Standards 2 & 5: Preserve major features and spaces. Stairs and hallways must be preserved 1930s Stair 1930s corridor

23 Standards 6 & 7. Repair, don t replace. Clean gently. Treatment of windows and masonry. Steel pivot sash at Maggie Walker H.S. Wood double-hung sash, Alms House, Richmond French doors and transom. 3 Chopt Rd.

24 Historic Preservation Tax Credits Guidance Do: Hire professionals who are familiar with tax credits Comply with the Standards for Rehabilitation Avoid: Inappropriate masonry repairs or cleaning Inappropriate window replacement Radical alteration of interior spaces Incompatible new additions

25 The Jefferson School project has provided: African American heritage center Classrooms Community auditorium Café Yoga studio Daycare center Gymnasium and multipurpose room

26 In 2007, eleven volunteers from the business, government and non-profit sectors formed a partnership. In January 2013, a newly restored Jefferson School, renamed the Jefferson School City Center, opened with nine resident partners whose linked intergenerational and interdisciplinary programs represents a new model for the community center of the 21st century.

27 Jefferson School City Center: Total Qualified Development Costs: $16,963,436 Estimated 2017 Federal Historic Tax Credits: $3,392,687 Estimated 2017 State (Virginia) Historic Tax Credits: $4,240,859 Project Start Date: 2008 Q2 Project Completion: 2012 Q4

28 Special Legal Considerations: When using federal HTC, additional rules come into play for tax-exempt entities. Tax-exempt use property is not eligible for federal HTC, so this requires some special deal structuring. IRC Section 168(h) contains special rules for leasing property to tax-exempt entities. Leasing property renovated by using HTC to tax-exempt entities can render the property tax-exempt use property (and thus not eligible for federal HTC) if the lease is a disqualified lease.

29 A disqualified lease is defined in IRC Section 168(h)(1)(B)(ii) as a lease to a tax-exempt entity where: (1) Part or all of the property was financed by taxexempt financing; (2) The lease contains an option to buy for a fixed (or easily determined) price; (3) The lease term is in excess of 20 years (including all renewals); or (4) The lease occurs after a sale or lease of the property and the lessee used the property before the sale or lease.

30 There is an exception under IRC Section 168(h)(1)(B)(iii) that states that the property is treated as tax-exempt use only if the portion of the property leased to the tax-exempt entity is more than 35% of the net rentable floor space of the property. Keeping the area leased to tax-exempt use entities to under 35% is a useful rule of thumb for combining federal HTC with tax-exempt entities who will use the renovated space.

31 For the Jefferson School and Carver Recreation Center, this has meant: The creation of a for-profit foundation, the Jefferson School Foundation. The Foundation Board was comprised of people with critical expertise. The creation of an Owner LLC, as a subsidiary of the Jefferson School Foundation, to take title to the land and admit the equity investors. The City-operated Carver Recreation Center existed before and after the rehabilitation (occupying the gym and rec space). This could have resulted in a disqualified lease. As a result, the City s Rec Center was limited to occupying only 35% of the building in order to meet the exception under IRC Section 168(h)(1)(B)(iii).

32 The Resulting Structure: Owner, LLC Private Foundation to manage, 1% Federal HTC Investor, 98% State HTC Investor, 1%

33 Other special considerations: The project received a loan from the City s economic development office. This was done as an arm s length loan. Community benefactors included a local philanthropist who subsidizes the rents. Abundant parking on site is a critical asset and may generate additional funds for the project.

34 Partial List of Resources: Literature Novogradac and Company Various Books, Magazines, Weekly Podcasts, Etc. US Department of the Interior National Park Service ( NPS ) - Annual Report on the Economic Impact of the Federal HTC for FY The Enterprise Foundation - Substantial Rehabilitation and New Construction (Out of Print)

35 Partial List of Resources: Novogradac and Company Conferences IPED D.aspx

36 Partial List of Resources: NPS Technical Preservation Services Websites Virginia Department of Historic Resources ( DHR ) Novogradac and Company - Historic Tax Credit Resource Center

37