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Adaptive Reuse & Redevelopment Site Visits
October 28, 2012Posted by on
Within the Adaptive Reuse and Redevelopment Program, we explored various sites throughout the Dallas Fort Worth Metroplex.
We visited with Ray Boothe, architect who was involved with the genesis of the revitalization of Magnolia Street in Fort Worth Texas. There are several excellent adaptations of redevelopment of historical buildings to serve today’s purpose on Magnolia. The Southside Bank building located on 701 W. Magnolia, is not only a bank, but also is comprised of apartment lofts. The building has been restored to its original historic charm.
The Brewed Restaurant and Pub located on 801 W. Magnolia is another fine example of a charming and classy redeveloped establishment.
We also met with The Live Oak Music Hall & Lounge founder, Bill Smith, who took a 5000 square foot located at 1311 Lipscomb, historic building that once housed the Lion’s Club and transformed it into a relaxing, intimate acoustic lounge and auditorium-style music hall.
We toured the Texas and Pacific Railway Terminal, more commonly known as the T&P Building located on Lancaster and Throckmorton in Fort Worth, Texas. Wyatt C. Hedrick, with Herman P. Koeppe as designer planned this monumental railroad complex on the south end of Downtown. The entire complex was designed in the Zigzag Modern Style of Art Deco. The building was converted into lofts for sale and low-rise apartment building to the east of the tower. The main lobby is used as a spectacular reception hall.
We met with Eddie Vanston, Architect/Developer who is instrumental in the redevelopment of South Main Street in Fort Worth. We surveyed an old storage warehouse currently being retrofitted into loft apartments. Also, newly established bakery, Stir Crazy has recently opened and has surpassed their financial goals. Stir Crazy Bakery and Goods, located at 106 E. Daggett Ave., Fort Wort Texas has renovated a portion of an old historic building into a thriving bakery.
Ultimately, adaptive reuse and redevelopment is vital in establishing a sustainable community. There are a number of credits, incentives and financing avenues to assist with the progression in development. Following, I explore various methods to assist with the implementation in investing and revitalizing land and building use.
Historic Preservation Tax Credits
The Federal Historic Preservation Tax Incentives program encourages private sector investment in the rehabilitation and re-use of historic buildings. It creates jobs and is one of the nation’s most successful and cost-effective community revitalization programs. It has leveraged over $62 billion in private investment to preserve 38,000 historic properties since 1976.
A 20% income tax credit is available for the rehabilitation of historic, income-producing buildings that are determined by the Secretary of the Interior, through the National Park Service, to be “certified historic structures.” The State Historic Preservation Offices and the National Park Service review the rehabilitation work to ensure that it complies with the Secretary’s Standards for Rehabilitation. The Internal Revenue Service defines qualified rehabilitation expenses on which the credit may be taken. Owner-occupied residential properties do not qualify for the federal rehabilitation tax credit.
An example of adaptive reuse is the former 80 year old U.S. Post Office and Courthouse at the corner of Ervay and Bryan Streets, downtown Dallas Texas. A brief tour of the building provided a sense of history and beautiful architectural detail and design which was maintained in the common areas of the historic site. It is now a luxury residence of 78 units, with underground parking to accommodate residents. http://www.unvisiteddallas.com/archives/2032
New Market Tax Credits
The New Markets Tax Credit Program (NMTC Program) was established by Congress in 2000 to spur new or increased investments into operating businesses and real estate projects located in low-income communities. The NMTC Program attracts investment capital to low-income communities by permitting individual and corporate investors to receive a tax credit against their Federal income tax return in exchange for making equity investments in specialized financial institutions called Community Development Entities (CDEs). The credit totals 39 percent of the original investment amount and is claimed over a period of seven years (five percent for each of the first three years, and six percent for each of the remaining four years). The investment in the CDE cannot be redeemed before the end of the seven-year period.
Since the NMTC Program’s inception, the CDFI Fund has made 664 awards allocating a total of $33 billion in tax credit authority to CDEs through a competitive application process. This $33 billion includes $3 billion in Recovery Act Awards and $1 billion of special allocation authority to be used for the recovery and redevelopment of the Gulf Opportunity Zone.
Community Development Entities
In order to deliver capital to “new markets” the NMTC authorizing statute created a new category of investment intermediary, Community Development Entities (CDEs). Community Development Entities are the investment vehicle for the NMTC. An organization must be certified as a CDE by the CDFI Fund within the Treasury Department before it can apply for an allocation of Credits. In order to qualify as a CDE, an organization must:
- be a domestic corporation or partnership at the time of the certification application;
- demonstrate a primary mission of serving or providing investment capital for
- low-income communities or low-income persons; and
- maintain accountability to residents of low-income communities through representation on a governing board of or advisory board to the entity.
Rehabilitation Tax Credits
Prior to 1976, there existed no tax incentive to rehabilitate or preserve historic buildings. The Tax Reform Act of 1976 added IRC section 191 which permitted taxpayers to amortize over a 60-month period certain expenditures to rehabilitate property listed in the National Register of Historic Places or property located in Registered Historic Districts and certified as significant to the district.
The New Markets Tax Credit, Historic Tax Credit and Rehabilitation Tax Credit can be powerful tools and significant sources of financing for real estate projects. However, the amount of available NMTC credit allocation is limited. Consequently, developers that might have qualifying projects should explore CDE investments as early as possible during the project planning. In other words, it is important for the client to engage its bank early (even before development financing is required) before the lender’s credit allocation is used up; whether the bank has a credit allocation may influence the selection of the lender doing the acquisition and development loan.
Low Income Housing Tax Credits
The LIHTC Program, which is based on Section 42 of the Internal Revenue Code, was enacted by Congress in 1986 to provide the private market with an incentive to invest in affordable rental housing. Federal housing tax credits are awarded to developers of qualified projects. Developers then sell these credits to investors to raise capital (or equity) for their projects, which reduces the debt that the developer would otherwise have to borrow. Because the debt is lower, a tax credit property can in turn offer lower, more affordable rents.
Provided the property maintains compliance with the program requirements, investors receive a dollar-for-dollar credit against their Federal tax liability each year over a period of 10 years. The amount of the annual credit is based on the amount invested in the affordable housing. Before we go on, let’s take a look at the difference between tax credits and tax deductions
Community Development Block Grant
The Community Development Block Grant (CDBG) program is a flexible program that provides communities with resources to address a wide range of unique community development needs. Beginning in 1974, the CDBG program is one of the longest continuously run programs at HUD. The CDBG program provides annual grants on a formula basis to 1209 general units of local government and States.
The CDBG program works to ensure decent affordable housing, to provide services to the most vulnerable in our communities, and to create jobs through the expansion and retention of businesses. CDBG is an important tool for helping local governments tackle serious challenges facing their communities. The CDBG program has made a difference in the lives of millions of people and their communities across the Nation.
The annual CDBG appropriation is allocated between States and local jurisdictions called “non-entitlement” and “entitlement” communities respectively. Entitlement communities are comprised of central cities of Metropolitan Statistical Areas (MSAs); metropolitan cities with populations of at least 50,000; and qualified urban counties with a population of 200,000 or more (excluding the populations of entitlement cities). States distribute CDBG funds to non-entitlement localities not qualified as entitlement communities.
HUD determines the amount of each grant by using a formula comprised of several measures of community need, including the extent of poverty, population, housing overcrowding, age of housing, and population growth lag in relationship to other metropolitan areas.
Mortgage Guarantee Programs (through HUD)
Through mortgage insurance, the Federal Housing Administration (FHA) helps lenders reduce their exposure to risk of default. This assistance allows lenders to make lower-cost financing available to more borrowers for home and home improvement loans, and apartment, hospital, and nursing home loans. FHA provides a vital link in addressing America’s home ownership and affordable rental housing needs.
Mortgage insurance has made financing available in neighborhoods and geographic areas facing economic uncertainty, and to individuals and families not adequately served by the conventional mortgage market. FHA has been a product innovator, and has seen the private sector follow with similar products and terms once they learn from FHA’s experience. FHA spreads and manages risk through geographically dispersed loan insurance activity and a portfolio that is diverse in borrowers and products.
Offer Section 184 Native American Mortgages guaranteed by HUD and better serve the needs of Native American, Alaskan Native, and New Mexican Pueblo home buyers. Freddie Mac purchases these mortgages from lenders that have obtained Freddie Mac approval.
Section 184 Native American Mortgages may be secured by 1- to 4-unit primary residences that may be either owner-occupied or leasehold estates located on both fee simple and restricted lands. These mortgages must be sold to Freddie Mac with recourse through the Fixed-rate Guarantor, Fixed-rate Cash or Multi-Lender Swap sale options available in the selling system.
Tax Increment Financing
Tax Increment Financing, or TIF, is a public financing method that is used for subsidizing, redevelopment infrastructure, and other community-improvement projects. TIF is a method to use future gains in taxes to subsidize current improvements, which are projected to create the conditions for said gains. The completion of a public project often results in an increase in the value of surrounding real estate, which generates additional tax revenue. Sales-tax revenue may also increase, and jobs may be added
TIF districts are not without criticism. Although tax increment financing is one mechanism for local governments that does not directly rely on federal funds, some question whether TIF districts actually serve their resident populations. As investment in an area increases, it is not uncommon for real estate values to rise and for gentrification to occur.
Building Code in relationship to Adaptive Reuse
With the advent of adaptive reuse of older buildings, our challenge is to incorporate and update the existing building components to modern day code. Various aspects of older construction and incorporating new updates is sometimes more costly than demolishing and rebuilding. However due to our strive to use existing historical structures to maintain and keep in with the sustainable development approach, developers and city planners are keen on the economics of such undertakings.
Superfund and Brownfield Grants (EPA)
Brownfields are real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant. Cleaning up and reinvesting in these properties protects the environment, reduces blight, and takes development pressures off green spaces and working lands.
Superfund is the federal government’s program to clean up the nation’s uncontrolled hazardous waste sites. We’re committed to ensuring that remaining National Priorities List hazardous waste sites are cleaned up to protect the environment and the health of all Americans.
The EPA Superfund cleanup process begins with site discovery or notification to the EPA of possible releases of hazardous substances. Sites are discovered by various parties, including citizens, State agencies and by Region 6 staff. Once discovered, we enter the site into our computerized inventory of potential hazardous substance release sites. This system is named the Comprehensive Environmental Response, Compensation and Liability Information System, or CERCLIS for short. We then evaluate the potential risk for a release of hazardous substances from the site through several steps in the Superfund cleanup process. The Targeted Brownfield Assessment (TBA) Program has funded over 60 environmental site assessments this past year. Services also include brownfield inventories, area-wide planning and site cleanup planning.
Brownfield Success Story-City of the Village, Oklahoma – The City of the Village, a community located to the north of Oklahoma City, proved that sometimes it is just best to face an economic development challenge head on. At the heart of their 2.6 square mile foot print, was an abandoned apartment complex, whose environmental contamination was keeping a sale and subsequent redevelopment from occurring. With land such a precious commodity in this landlocked suburb, the city leaders used proactive thinking and problem solving to turn this blighted property into a clean-up lesson from which many can benefit. Cities used EPA Revolving Loan Funds and an EPA Cleanup Grant to remove blight, encourage redevelopment and spur growth.
Pedestrian Oriented Development
Pedestrian-oriented developments are those that include a mixture of land uses, shorter distances between likely origins and destinations, and design improvements to the pedestrian environment. Though several such developments have been constructed within California in the last twenty years and planners commonly promote them, there has been little post-occupancy evaluation of their performance in actually increasing pedestrian activity in order to reduce energy use and greenhouse gas emissions.
The Bishop Arts District is home to over 60 Independent boutiques, restaurants, bars, coffee shops, theatres and art galleries. It is located in the heart of North Oak Cliff, one of Dallas’ most unique neighborhoods. The area is prime example of pedestrian oriented development. While strolling through the various shops with ease, there was not much vehicular traffic to inconvenience patrons.
Transit Oriented Development
Transit Oriented Development (TOD) refers to residential and commercial centers designed to maximize access by transit and non-motorized transportation, and with other features to encourage transit ridership. A typical TOD has a rail or bus station at its center, surrounded by relatively high-density development, with progressively lower-density spreading outwards one-quarter to one-half mile, which represents pedestrian scale distances. Transit Oriented Development as an approach to combat traffic congestion and protect the environment has caught on all across the country. The trick for real estate developers has always been identifying the hot transportation system. Today, highways are out; urban transit systems are in.” –The Urban Land Institute (ULI)