Historic tax credit (HTC) equity plays a critical financing role in more adaptive-reuse and renovation projects than ever before. In fiscal year 2022, the HTC supported $6.56 billion in private investment in historic preservation and community revitalization. That funding represents more than 21,000 new or updated housing units nationwide.
The program’s appeal is understandable. The 20% tax credit reduces capital costs significantly compared to traditional debt or equity. It can also help fill the gap in shrinking affordable housing subsidies.
Yet questions persist about HTC project qualifications. Timothy Karp, managing director of historic tax credit at JPMorgan Chase, offers his insights on advancing redevelopment with HTC support.
What do you tell developers that may be new to HTC funding?
The HTC is one of the country’s oldest community development tax credits, going back to the mid-1970s. Despite the longevity, it remains an underutilized financing tool. For example, developers often ask, ‘Does that mean we can’t make any changes to the building?’ The answer in most cases is no. Receiving HTC certification does not necessarily mean that you can’t make any modern alterations. There’s a lot developers can do within the HTC program, as long as important, character-defining features are being preserved.
How far can a developer go in repurposing or renovating an HTC-qualified structure?
It’s varies case-by-case. For example, we have a 1960s-era building in our portfolio where most of the preservation involved the façade and some elevator lobbies. The interior buildout was fairly simple because there wasn’t much there. Historic or cultural significance can be judged many ways.
It’s important to engage HTC experts in the project as early as possible. Our office can suggest the names of historic preservation consultants, accountants, and lawyers that can help.
Can you describe a recent adaptive-reuse project?
We recently closed a $9.1 million HTC equity investment in the historic rehabilitation of Mercy Hospital in Portland, Maine. Work on the 82-year-old, 251,000-square-footstructure is expected to be completed later this year and will include 148 market-rate apartments and 17 affordable units for residents making up to 100% of the area median income (AMI).
We worked closely with the project developers, NewHeight Redfern. They were deep in pre-development when we were introduced. They were familiar with low-income housing tax credit (LIHTC) deals, which is analogous to the HTC. We walked them through HTC qualification and how a master lease pass-through structure works.
How instrumental was the HTC to the Mercy Hospital project?
Here’s what Erin Cooperrider, managing member of NewHeight Redfern says:
“The historic rehabilitation tax credits were absolutely essential to getting this project done. It’s a ‘but, for’ proposition—we could not have done it without them. They are also an excellent discipline when approaching the adaptive reuse of an historic building. You have to pay attention to the historic features, historic uses, circulation. You are paying attention to how the building was first constructed and used, and that created a unique project and, in the end, a much better project.”
What other cool projects are you working on?
Quite a few. We’re working on several mill-to-multifamily conversions now underway in Augusta, Georgia and Danville, Virginia. We also helped convert a number of manufacturing facilities in upstate New York into workforce housing.
One project that gained lots of attention is our investment of federal and state HTC equity in renovations for one of the nation’s first public housing projects in New York City. The project relied solely on HTC equity, developer equity, and debt. It’s an innovative application of HTC financing to preserve affordable housing without using LIHTC equity.
What advice do you have for developers?
The historic tax credit is another tool to raise capital. Rates are up. Construction costs are up. There are fewer soft sources to fill funding gaps. HTC certification is more flexible to work with than people might think. Add state historic tax credit equity (at least 38 states now have programs) and you have a good way to make deals that might not happen otherwise.
To learn more, get in touch with the JPMorgan Chase Community Development Banking Historic Tax Credit team.