Historic Building Projects Face Delays Over Tax Credits

by Categorized: Uncategorized Date:

The conversion of the old Sonesta Hotel in downtown Hartford into nearly 200 much-needed apartments could have been underway by now, if it wasn’t for one piece of financing that doesn’t normally draw a lot of attention: federal historic rehabilitation tax credits.

Investors – ranging from corporations to wealthy individuals — are usually lining up for the chance to help finance rehabilitation of historic structures in exchange for the credits used to reduce their federal taxes. But since last fall, after a federal appeals court ruling in a New Jersey case denied an investor the right to use the credit, investors have been scurrying to the sidelines until the implications are sorted out.

The tightening of the spigot is causing headaches for developers of projects like the Sonesta across the country, who depend on the historic tax credits to pull together often complex financing packages. In Connecticut alone, it is estimated that dozens of projects could be affected, according to Daniel Forrest, the state’s deputy state historic preservation officer.

The hotel on Constitution Plaza in Hartford as it appeared in the early 1990s. Photo by Stephen Dunn/The Hartford Courant.

The hotel on Constitution Plaza in Hartford as it appeared in the early 1990s. Photo by Stephen Dunn/The Hartford Courant.

Historic rehabilitation is especially critical in Connecticut – and throughout the Northeast – where a vast inventory of old buildings, especially outdated industrial properties, could be converted for new uses, Forrest told me.

The court ruling does not impact the state’s historic rehabilitation tax credit program.

“This is not just in Connecticut, but on a national level,” Forrest said. “It’s a very difficult circumstance. If no one knows what this means, they are not going to go down the road and invest.”

In August, the U.S. Court of Appeals for the Third Circuit ruled in favor of the Internal Revenue Service in a case involving the redevelopment of the Historic Boardwalk Hall in Altantic City, N.J. into a new conference center. The court ruled that a tax credit investor — Pitney Bowes — wasn’t entitled to the credit even though it had invested $16.4 million into the project.

The court ruled that Stamford-based Pitney Bowes was not really a true partner in the project because its tax credit agreement insulated it from any risk, even if the development went awry.

The ruling is being appealed to the U.S. Supreme Court, but it is not yet known if the court will accept the case. Meanwhile, the federal appeals court ruling did not shed any light on how tax credit investments should be put together and, as of yet, the IRS had not provided guidance.

“Many investors are sitting on the sidelines while the attorneys and the IRS try to figure this out,” Thom Amdur, executive director of the National Housing & Rehabilitation Association in Washington, D.C., told me.

Amdur estimated that as many as half of the investors in rehabilitation projects nationwide have put closings on hold.

Major corporations such as Chevron, Bank of America and Capital One have been active in the federal historic tax credit program.

In an email to The Courant, a spokeswoman for the U.S. Treasury Department, said the IRS “is working on this guidance and hope to release it soon.” The IRS offered no specific timetable, but one expert said with the myriad of tax issues the IRS is dealing with “soon” could mean anywhere from a “few weeks to a few years.”

The $24 million financing package for the Sonesta project factored in $4 million from federal historic tax credits.

“If you drop one piece of the puzzle, then the whole puzzle falls apart,” said Jeffrey D. Ravetz, president of New York-based Girona Ventures, a partner in the conversion of the hotel on Consitution Plaza.

The Capital Region Development Authority is so concerned about the potential for delays that it is considering adding to its role in the Sonesta conversion. The authority may approve a temporary “bridge” loan of $2 million to cover the portion of the tax credit financing that is needed for construction.

“To move Sonesta, we may have to step in as bridge role,” Freimuth said. “It has been eight months since the ruling, and we’ve got to get Sonesta going.”

Forrest said a quick resolution is needed and he hopes a push by historic preservationists in the nation’s capital will speed up the IRS’ work.

“This has been a remarkably successful program,” Forrest said. “These types of projects need to go forward.”

The Courant is using Facebook comments on stories. To comment on courant.com articles, sign into Facebook and enter your comment in the field below. Comments will appear in your Facebook News Feed unless you choose otherwise. To report spam or abuse, click the X next to the comment. For guidelines on commenting, click here.

23 thoughts on “Historic Building Projects Face Delays Over Tax Credits

  1. Forrest Doyle

    I don’t understand what makes the Sonest ‘historic’. It seems a gross stretch of the word – just another way for bankers and developers to raid the taxpayers. In fact, all the paperwork, bureauracy, and legal work are slowing down the ultimate redevelopment of the property. It will ultimately find redevelopment or demolition at some price if left to simple economic forces.

    1. mike

      It is a historic building because experts say the building is a strong example of the Modernist style in commercial architecture.

      While historic may make you think purely about age, it does not necessarily have anything to do with age. it can mean that in time this will be a rare example of a style and therefore contributed to society or something like that.

      that being said, its a mit of a stretch because I hate modernist buildings. but they have their fans and who am i to judge them. They may think the Richardson building not worth saving where to me that is the best thing still standing in this city.

      read this about what makes it historic
      http://articles.courant.com/2012-03-20/news/hc-constitution-plaza-hotel-historic-20120320_1_12-story-hotel-hotel-guests-hotel-sonesta

      so all of that being said, I am all for it.

      as a state we are a net tax exporter as a state, so any time we can have federal tax credits or anything like that come back to CT I say take the damn monty and be thankful.

      the bellyaching is crazy!

      put it this way… you want to build a house… because you own land in Simsbury there is a 50,000 tax credit if you build it there, do you reject the tax credit and just build the house, or do you wait on the 50K and bget your full worth out of the property.

  2. Dave

    Forrest, what a bizarre post, you must be a liberal.

    Explain how the Sonesta sitting there losing money -for decades- is a good use of tax payer money?

    Tax credits are not a give away, they just result in the government stealing less of the business’s money. And if that spurs development, everyone wins and lots of taxes get paid.

    1. Another Dave

      Wow, Dave, what a bizarre rant/reply. If anything, Mr. Doyle sounds like a conservative because he seems skeptical about using public funding/support for a private, for-profit venture. Conservatives tend to support unfettered capitalism, which would dictate that this building should find its “best and highest” use without public subsidies.

      Tax credits aren’t a giveaway? Huh? And I can’t make any sense of your comment about a privately owned building sitting vacant and taxpayer dollars. Huh?

      The logic in your rant/post is quite flawed, IMHO.

    1. work at historic properties

      I am a member of a Preservation Society and have worked at many historic properties, both in Hartford and other states. I agree with Roger. Put the money in the real historic and important properties. For instance, is the Colt Campus finished?

      1. Coltsville Resident

        After being stalled for years, lots of work is being done at the old Colt factory buildings. Fifty or so loft apartments are pretty much fully rented and a mix of CREC schools and private companies have taken most of the space in the most modern buildings. A small cafe/deli opened and seems to be doing OK breakfast and lunch business. Even one or two food trucks serving lunches. The oldest armory buildings (one with blue dome) finally has a new roof and is getting interior renovations and another building is undergoing a gut rehab. Congressional delegation is seeking national park designation and museum similar to the one at Edison’s “invention factory” in West Orange, NJ. Colt Park, sadly, still is a rather decrepit wreck.

  3. Tom

    Are the apartments really “much needed”? If there were anything approaching true demand, wouldn’t private investors take the lead without government incentives?

  4. h-town is my home-town

    Hartford’s vacancy rate is at about 3%. There are apartment conversions going on all over the city that can’t keep up and rents are soaring in the city – so yeah, inventory is needed.

  5. Pope Obama I

    That building is not historic. It is simply an older building that is ugly, out of date, and in need of replacement. If a private investor wants to do that, I am good with that.

    But, I fail to see why taxpayers should help foot the bill.

  6. ????? ????

    Just desire to say your article is as amazing. The clarity for your put up is simply spectacular and i could think you’re knowledgeable in this subject. Fine together with your permission let me to snatch your RSS feed to stay up to date with impending post. Thank you a million and please continue the enjoyable work.
    ????? ????

  7. Dave

    If you believe all the money belongs to the government, the tax credits are a give away. It’s also a give away that you are a liberal.

    1. Coltsville Resident

      Dave:

      If one person/business is relieved of paying property taxes their peers must pay, how is that act of favoritism not a give-away? One entity obviously is being favored over others, therefore something is being “given away.”

      It’s not a matter of liberal or conservative, but a matter of understanding the English language and what words mean. Your inability to do so is a give-away that you are a Rush-loving dittohead. ;)

  8. Anita

    Economic studies by a Rutgers group of the 32-year-old federal historic tax credit show that the return to the federal treasury is actually MORE money than the tax credit costs. This stimulus measure is actually a money maker for the federal government. And meanwhile, it adds to the municipal tax rolls, employs workers (construction and later others who work in the building), removes blight, improves neighborhood real estate values, and reinvigorates cities. Just smart business–doesn’t have to be liberal or conservative.

    1. Phil

      This especially helpful for states like CT, NJ, MA, NY, etc who have a lot of older urban properties that would be too expensive to renovate into anything except into high end condos. This tax credit is even more of a positive step forward for middle class workers, so I’m not sure why anyone would be against it.

      Especially for a state like CT who pays WAY more in federal taxes than we get back in federal spending.

  9. Robert

    I think we all can agree that there are so many examples at the federal, state, and municipal level, of corporate giveaways that come from the taxpayers pockets. There is NO worse example of excessive Corporate Welfare with NO strategy than under Governor Malloy. That being said, lets just look at this specific project and city for a minute.

    1) I also am not a fan of modernist architecture and would prefer truly historic properties to receive priority, but there is a rationale about recognizing unique and groundbreaking (for the specific period) architecture and important architects of their time.

    2) The Sonesta project is critically important for this city and the plaza location and there is GREAT demand for these apartments. The fact that they need taxpayer support doesn’t mean they don’t provide a good return for the both the community and the private developer, but the reality just is that they can’t be independently financed.

    3) Downtown in general, and that location, need more residents and feet on the street. Imagine the transformation of that area with the Sonesta hotel, the former broadcast house location, and 777 Main Street all complete.

    4) I say it so often, and I hope people agree, that we are a community. The city is the heart and it must be healthy for the region to be healthy. We as taxpayers already pay a huge portion of Hartford’s operating expenses. We need to support projects that improve the health and vitality of Hartford.

    1. mike

      Well put (most of it anywyas as I have differing views politically) but essentially everything else is right on.

      This is CT it is the North East, we have historic buildings that are both lovable and not so much.
      we need federal help making some of them viable… I am fine with that.

      we also need federal help with brownfields to make them viable for development. I am fine with that.

      Many of our buildings have asbestos because if the timing of development, and we need help with that.

      since we(new england) have financed the “low tax” south and West for DECADES even CENTURIES with our high taxes, I am 100% supportive of any federal dollar any town village city or even private developer can claw away from the government that benefits the North East.

      1. Robert

        Agree with you on grabbing federal dollars that are going to be spent anyway, although we all know that in general we need to spend less as a society.

        My problem at the state level is that any business of any size in any industry can go to DECD and get money. Look at the restaurant debacle in West Hartford Center.

        1. mike

          there are issues there no doubt, but I caution against blaming a political party or individual politician as it takes away from some otherwise good thoughts and ideas.

          the problems CT faces wsere caused by both the red and blue leaders, and they were all elected by the people we live with.

          the real issues are societal shifts that failed to value efficient urban living and cultural exchange and instead saught to create sterile work environments and utopian suburbs. Sadly the world does not work this way and its incredibly inefficient.

          its taken some time but luckily its cool to live in cities and take mass transit again. its also cool to grow your own food, brew your own beer and at the very least eat at farm to table and slow food eateries.

          I hope that politically we come to a sane level now too. there is too much derision and there are too many pet projects on both sides of the fence. While I like the first five program some deals seem like they are give aways for past loyalty to the state… and if we are going to continually battle with other states, we will ultimately lose. CT is tiny, and we cannot afford to pay every publicly traded company to stay here when Mass is much larger than CT with a larger tax base, and NY is right next door too dwarfing MA and us.

          the Southern states are all playing hardball as well and those states are all holding larger tax bases as well. so we can only compete with quality of life

          1. Robert

            I couldnt agree with you more. I only name Malloy because he is the current resident. It is not a party issue, rather I do feel that he specifically (not his party) has done a very poor job with developing a strategy. Very random. To your point I now worry that every company is going to expect a handout to stay.

          2. mike

            rob, every company already expects a handout to stay, but not just in CT, everywhere. this goes back to the societal shift.

            companies expect tax breaks and forgivable low interest loans in order to move office, expand office, stay put or switch states. that fact that North Carolina paid hugely for those met life hobs is indicitive of the way of the world. What the first five does is just put CT in a position to compete, although poorly, with bigger states.

            now to bring this full circle…

            the reason these downtown housing projects and the tax credits associated are so incredibly critical is that a vibrant downtown will lower our need to offer handouts to lure jobs.

            the total ammount of state funds being used to support the revitalization of Hartford by way of residential projects is 70 million this 70 million is supposed to encourage 3000 apartments. Alexion Pharmaceuticals is getting 51 million alone. Mind you they are in New haven and building a new 100 Million building there, but if there were another 5000 or more residents in Downtown Hartford, or New Haven, then companies would be moving there without the states involvement. Also, they certainly would not be moving to North Carolina when their work force is happy, and living a much higher quality of life. As millenials continue to infiltrate the work force there will be a greater interest in locating offices in walkable communities. Hartford is poised to benefit from this new demographic shift towards walkability.

  10. Former Hartford Resident

    Whats historic in Hartford is the Goodwin Hotel building everyone seems to forget the most beautiful building in Hartford because some idiot developer bought it and closed and also has nurmerous buildings in BK or FC. These apartments will do nothing for a city that is full of welfare queens and drug dealers when the corporations decide to leave Hartford is done may be the Mayor can go spend Tax Money on dinner at Max Downtown as more section 8 move in Good Luck.

Comments are closed.