FITCHBURG, MASS.—An old five-story office building has been renovated into 31 apartments, including eight affordable units, with the help of historic and New Markets Tax Credits (NMTCs).
The project is a key step in the revitalization of downtown Fitchburg, a community that was dealt a blow when a General Electric facility closed in 1999, eliminating 600 jobs.
It's also an example of the kind of projects that the NMTC is meant to support. Established in 2000, the federal program encourages investments in lowincome communities that have had little access to capital.
“A lot of people can walk to work now,” says Mark Dohan, executive director of the Twin Cities Community Development Corp., the project sponsor. “It's brought new vitality to downtown.”
The building was a popular office tower when it was built in 1895. Over time, the tenants moved out, leaving the upper floors abandoned in recent years.
The renovation of 470 Main St. has brought a mostly vacant building back to full use. All of the housing units are occupied. The ground floor features a TD Bank branch that was there prior to the recent work and new offices for Twin Cities, which has been able to expand space for its small-business and homeownership programs.
“This is a linchpin in the downtown Fitchburg redevelopment,” says Peter Sargent, director of capital development at the Massachusetts Housing Investment Corp. (MHIC), which provided the NMTCs for the deal. MHIC has closed more than 45 New Markets transactions, including several that have combined NMTCs and historic credits.
Federal historic and New Markets credits contributed about $5 million of the project's $13 million total development cost.
Fitchburg provides several lessons about the NMTC program, including how the credits can be combined or used with historic credits, a move known as “twinning.”
The two credit programs have worked together in a number of cases. Many old buildings are in low-income neighborhoods, making them a fit for both credits. The structures of the programs, including similar credit periods, also make them allies.
The twinning of the credits allows a deal to generate NMTCs on the historic tax credit equity, allowing the deal to leverage the historic credit, explains Deborah Favreau, senior investment offi cer at MHIC.
Combining the two credits often allows a project to raise roughly 40 percent of its needed funding, estimates Sargent. Such a combination can provide an attractive return to the investors and maximize the equity capital delivered to the project. However, one must be mindful of the various programmatic requirements of both the NMTC and historic credit programs and be sure they fit together, he says.
The 470 Main St. deal also shows that NMTCs can be used in conjunction with programs to create housing. NMTCs allow for mixed-use projects as long as no more than 80 percent of the development's income comes from residential use. In the case of 470 Main St., NMTCs meshed well with the various capital sources used to support the mixed- income housing portion of the building.
The project required a number of other funding sources, including a $1.5 million senior loan from a bank group led by TD Bank. The bank, which owned the building, has sold it to Twin Cities.
The Massachusetts Department of Housing and Community Development provided about $1.2 million in subordinate debt to the project through its HOME Housing Stabilization Fund and transitoriented development programs.
The city of Fitchburg also contributed about $615,000 from its HOME funds, while the sponsor raised more than $1 million from multiple sources, including the Department of Housing and Urban Development, NeighborWorks, MassDevelopment, and private foundations.