Introduction to Adaptive Reuse Historic Tax Credits

1. Introduction to Adaptive Reuse & Historic Tax Credits Al Shehadi National Trust Community Investment Corp. February 12, 2009

2. Harmony Mills Original Use: Harmony Mills Mill No.3, 190,000 sf 1870�s knitting mill

15. Original Use: 1955 International Style office building

16. Rehabilitation: 156,000 sf office and retail space

17. Development Cost: $20.8 million Tax Credit Equity: $2.3 million

20.

22. Federal Historic Tax Credit Established in 1976 34,800 properties rehabilitated 1977-2007 $45 billion total investment

23. Federal Historic Tax Credit Fiscal Year 2007 1,045 approved rehabilitation projects $4.34 billion in private investment 40,755 jobs created 18,006 housing units created or renovated 6,553 low- and moderate-income housing units created

24. State Historic Tax Credits Roughly half of states have state historic credits Credits range from 5% to 30%; many are capped State credits can be in addition to federal credit Buildings on state historic registers are eligible in addition to buildings on the National Register

25. Federal Historic Rehabilitation Tax Credit

26. Basic Eligibility: NPS (and SHPO) Building Must Be �Historic�

28. $5,000, or Adjusted basis of the building (e.g. excluding land)

29. Qualified Rehabilitation Expenditures Rehabilitation costs within the existing building envelope, including interior demolition & environmental remediation Construction period expenses (utilities, taxes, interest) Construction related soft costs and professional costs related to the building rehab

30. Acquisition costs (purchase, financing, legal & recording) Land costs (site improvements, landscaping) Enlargements and exterior demolition (with limited exceptions) Furniture, fixtures, equipment, appliances Qualified Rehabilitation Expenditures

31. Calculation of Federal Credit Credit is equal to 20% of QREs Credit taken in the year the building is placed in service (e.g. C of O) Credit accrues to owner(s) of building at placement in service Credit can be carried forward 20 years and back 1 year

32. Compliance & Recapture Compliance period: 5-years from date last QRE is placed-in-service Recapture: 100% in first 12 months Declines 20% every 12 months thereafter

33. Compliance & Recapture

34. Outside Investors: When & Why Tax Credit is a key part of adaptive reuse of historic buildings �Free� tax benefits in exchange for rehabilitating a building in a historically appropriate way Credit only worth something if you can use it (passive loss limits, AMT, NOL carry forwards)

35. Syndicating the Credit Syndication is a way to monetize tax credits Exchange of ownership & tax benefits of ownership for an equity investment Outside investor must enter ownership before placement in service

37. Investor Marketplace <$750,000 - little investor interest; best option may be to keep the credits yourself $750k to $3m - modest investor interest; may have several investors to choose from >$3m - competitive market place with multiple investors

38. Finding an Investor Small deals: ask locally � local accountants, lawyers, business colleagues, banks, historic preservation groups Medium-sized deals: regional accounting firms, law firms with tax and real estate practice, mortgage brokers, regional banks, state preservation groups, SHPO, internet Large deals: national accounting firms, law firms with tax and real estate practice, larger regional and national banks, internet

39. Check out Potential Investors What areas and types of projects do they invest in? Have they done a project like yours? What are standard pricing and terms? What is the process and how long does it take? Who will be your contact person and what is their experience? What information do you need to submit to get a term sheet

40. The Term Sheet: Standard Terms Price: per $1 of tax credits Timing and benchmarks for equity installments Priority return: needed to meet IRS profit motive requirements Option price: pre-arranged �divorce� terms

41. Investor Due Diligence Financial Projections Development Team Real Estate National Park Service Approvals (Parts 1 & 2) Tax Compliance Legal & Closing

42. Summary Financial benefits include: Adaptive re-use is a widely-used option for historic buildings Buildings on the National Register are eligible for both State and Federal Historic Tax Credits Tax credits are a powerful financing tool for rehabilitating historic buildings and can generate significant equity funding for rehabilitation projects Credit is earned on the money invested in the overall building, not just on the historic features

43. Al Shehadi Acquisitions Manager National Trust Community Investment Corp. 27 Byram Shore Road Greenwich, CT 06830 (203) 531-5999 Al_shehadi@ntcicfunds.com