Developers tackling makeovers of historic buildings got a welcome send-up into the new year: the Internal Revenue Service this week issued long-awaited guidelines for a federal tax credit program that was holding up some projects.
The IRS issued the guidelines late on Monday that sort out how a 2012 court ruling affects investors in the federal historic rehabilitation tax credit program, a cause for celebration for developers such as Bruce Becker, of Becker + Becker of Fairfield.
Becker’s planned $78 million conversion of a former bank tower in downtown Hartford depends on $15 million in funds from the tax credit program and was stalled until the guidance was issued by the IRS.
“We now have a clear path to closing [the project's financing],” Becker told me today. “The prospects for 2014 are looking great.”
Construction on the 26-story tower at 777 Main St. into 286 apartments could begin in earnest in 60 days, with the first apartments possibly ready for occupancy by Labor Day, Becker said.
“It’s still going to take a lot of effort to do that,” Becker said, “but it is possible.”
Early in 2013, Becker had hoped those apartments would be ready in late winter.
While the IRS guidelines are still being digested, the IRS makes clear requirements for investors in redevelopment projects. Investors must invest 20 percent of their expected contribution during construction — earlier than in the past — qualifying the investor as a partner that shoulders more of the risk in making the redevelopment project a success.
The lack of any clear IRS guidance had sent many investors — typically wealthy individuals and corporations — to the sidelines. Typically, they are lining up for the chance to help finance rehabilitation of historic structures in exchange for credits used to reduce their federal taxes.
It isn’t clear how many projects in Connecticut were held up by the uncertainty over the tax credits, according to Daniel T. Forrest, the state’s historic preservation officer. But Forrest told me that 53 redevelopment projects in the state currently are in the program.
In August, 2012, the U.S. Court of Appeals for the Third Circuit ruled in favor of the IRS in a case involving the redevelopment of the Historic Boardwalk Hall in Atlantic 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 the Stamford-based company had invested $16.4 million into the project.
The court ruled that 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.
“There was a general anxiety about what was going to happen with the credits,” said Michael W. Freimuth, the executive director of the Capital Region Development Authority. “This removes that anxiety from the industry. There is somewhat of a new standard, and the industry will have to sort it out.”