Developers Speak: Tax Credits Make Deals Possible

Miller's Court in Baltimore City was never home to wealthy robber barons, never catered to Hollywood stars, and doesn't command waterfront views. It doesn't sport gold leaf, ornate trim, or a majestic entryway. The rents are not astronomical, a doorman doesn't buzz you in, and luxury department stores are not in the same block.

Instead, this century-old brick industrial building provides much-needed housing for Baltimore City school teachers and office space for education-focused nonprofits. It is within walking distance of several elementary schools, a major university, and numerous city bus routes. A cheery café on the first floor welcomes neighbors and tenants. And that is exactly what the developer, Thibault Manekin of Seawall Development, envisioned for this former can factory when he first saw it in 2006.

But he soon found out that it would be difficult to reconcile his dream of providing affordable, safe, convenient housing for Baltimore's school teachers when faced with the expense of rehabilitating a historic building. Then he heard about the historic tax credits. Manekin explains: "We kind of fell into the credits. We wanted to do affordable apartments for teachers and nonprofit organizations and someone told us about the tax credits. We figured that we could buy a historic building and renovate it using tax credits and keep rents low for teachers. Had it not been for the historic credit there is no way we could do the project and still keep the rents low."

Today, this building, former home of the H.F. Miller and Sons Tin Box and Can, now offers 40, one, two, and three bedroom apartment units surrounding a courtyard. These units are offered to Baltimore public school teachers at a discounted rate. Residents have access to common areas that provide amenities, such as copiers, to help them with their professional needs. It also provides more than 30,000 square feet for nonprofit organizations that serve Baltimore's education, human service, and health needs. These nonprofit organizations can take advantage of reduced rents, free shared conference and training rooms, and free event space.

The renovation of the Lafayette Hotel in Buffalo, N.Y., has had a catalytic effect on the surrounding neighborhood. Pictured here is the restored lobby.
PHOTO COURTESY OF SIGNATURE DEVELOPMENT

Developers working on historic rehab projects rely on multiple sources of funds and creative partnerships to finance these projects. But getting the expense and income sides of a project's financial spreadsheet to balance is difficult. This is where the historic rehabilitation tax credit comes in. It fills the financing "gap" and makes these projects possible.

Rocco Termini, a developer with Signature Development in upstate New York, stresses that the credits are vital to making rehabilitation projects feasible. He notes that "in upstate New York, the median income is quite low and you can't charge high rents like you might in larger cities. Yet rehabilitation costs are high. So the tax credits are critical to filling in that financing gap."

Termini used both the state and federal historic credits to rehabilitate Buffalo's Lafayette Hotel, a $45 million renovation of a 107-year-old building into a mixed-use property anchored by 115 apartments, a 34-room boutique hotel, various retailers, and banquet operations. He reports that the building had been underused for about 40 years. Once the project was completed, however, it had catalytic effect on the surrounding area. "People now come to this part of town at night when before people were afraid to walk in the area. Buffalo police have told me it was once the most frequently visited building by police. All that has now changed."

Much of the ornate detailing of the Hotel Lafayette was retained during its renovation. Both federal and state tax credits were used to finance the project.
PHOTO COURTESY OF SIGNATURE DEVELOPMENT

Grace Pleasants, a developer with Heritage Collection in Washington State, has been in the rehab game for a number of years. She was first introduced to...