Finding Funding

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Welcome to Tangible Remnants. I'm Nakita Reid, and this is my show, where I explore the interconnectedness of architecture, preservation, sustainability, Race, and gender. I'm excited that you're here. So let's get into it.  Welcome back. This week is a solo episode and will be a little different than most because instead of focusing on one historic building or highlighting a professional, who's currently practicing this episode is going to focus on the various financial tools available to finance the renovation of a historic building. 

So if you're working on your own tangible remnant or know anyone else working on a historic building that is looking for additional ways to finance it, please send them this episode.  I'll cover the various financing products at a very high level, and we'll provide some great resources in the show notes.

If you're interested in learning more, you can also head over to our Instagram page at tangible remnants for some graphics and charts on the various financing options.  And one final thing before we get into the financials, if you're enjoying this podcast, I would love for you to leave a review. It helps with the rankings and also would help me reach more folks. 

If you're not loving the podcast, don't worry about leaving review.  All right. So outside of traditional loads, when it comes to funding renovations, the main categories you'd want to look into include grants or bond bills,  tax credits.  Or rebates and incentives.  Also, I need to mention that I am not a CPA, nor do I play one on this podcast.

So please make sure to do your due diligence, talk to your attorney and your CPA to find out what is viable for your individual project jurisdiction and situation.  All right, so grants and bond bills,  so various organizations offer grants. Sometimes the grants are just for facade improvements. Sometimes they're for energy upgrades.

It just depends on the particular language of the grant. A lot of times grants for building renovation and those types of projects are called capital projects. So when you're looking for grants, be sure to look for grants that are going towards capital projects as opposed to non-capital projects or planning projects or something like that. 

Additionally, most states issue different types of debt and the most common is a general obligation bond that is paid from the general fund and then backed by the taxing authority of the state. And so, for this type of funding, there would need to be political will behind your project basically. In Maryland, these are referred to as bond bills.

And they are filed by a member of the General Assembly to support specific local or non-state-owned capital projects. And so, in general, whenever you're doing any type of redevelopment of a building or historic building, it's typically a good idea to meet with your local and state representatives to make them aware of the project you're working on and also to let them know how your renovation or your development will help their constituents. 

Another thing to be mindful of when thinking about accepting or taking or pursuing a grant or bond bill is that whenever you're taking one of these, you may be required to give the organization an easement on your building, depending upon the conditions of the grant or bond bill.  And an easement would mean that the granting organization would have purview over any changes that you want to make to the building for a certain period of time. 

So I'm not saying easements are a bad thing. I know that they can be very beneficial in certain situations, but I just want to make sure that you understand the constraints before saying yes to accepting anything that seems like free money.  The next category is tax credits. And this is a big one. And a lot of people have a lot of misconceptions about these.

So I wanted to start off by saying that a tax credit reduces the specific amount of tax that an individual owes. So, for instance, if you have a 500 tax credit and a 3, 500 tax bill, the tax credit would reduce your bill to 3, 000.  It is not cash upfront.  It is a credit that you can claim on your taxes.

And I will say the caveat with it not being cash upfront is that there are some exemptions or there are some exceptions in certain states for certain nonprofits. But that's a different conversation.  The three main tax credits that are used for capital projects are historic tax credits,  new market tax credits, and low-income housing tax credits. 

Two of the three of the tax credits can be combined, and it's typically either the historic tax credit with the new market tax  Or the historic credit with the low-income housing tax credit. Typically, the low-income housing tax credit and the new markets tax credits don't mix.  So, starting with the historic tax credits, there are federal state, and sometimes local historic tax credits available.

The federal historic tax credits can still be used. Typically apply to 20 percent of the qualified rehabilitation expenditures, often shorthanded as Q. R. E. S. and these can cover things like the architecture of engineering fees, construction costs for everything that's inside the footprint of the existing building, including new elevator, new all of those types of things.

The historic tax credit would not apply to anything outside of the footprint of the building, nor would it apply to things like landscaping acquisition cost and a number of other things. In the show notes, I'll put a link to a tax credit guide that will give you more detailed information about this one. 

So in addition to the federal historic tax credit, many states also have their own state historic tax credit. And in most instances, you can get another 20 percent from the state. So if you're going after state and federal historic tax credits, you could potentially get up to 40 percent of your project costs supported with historic tax credits. 

Tax credits are typically utilized by private developers and nonprofits through syndication, and to be eligible to receive the historic tax credit, the building must be listed on the National Register, must be income producing, and spend more than the basis. When submitting the historic tax credit, there are three parts to the application.

Parts 1 and 2 are typically submitted around the end of the design development process, and then Part 3 is submitted after the construction of the building is complete.  Throughout the process, you want to be talking to your ship. Oh, your state historic preservation office. And make sure that the design is in line with the secretary of the interior standard.

And all of that good stuff. And so as a reminder, though, historic tax credits are just that a credit on your taxes, not cash upfront.  So the historic tax credit is claimed over a five-year period. So you do 20 percent every year after the building is placed in service. So you would begin claiming the credit when you go to do the taxes of the year that the building was placed in service.

So for instance, if you finished construction in 2024  and placed the building in service or started occupying the building, then you would claim the historic tax credit in 2025 when you did your taxes for the year of 2024.  One thing to be mindful of with the Historic Tax Credit is that there is a period of five years after the building is placed in service where any changes or alterations have to be approved by the State Historic Preservation Office or the SHPO.

Otherwise, you risk losing portions of the tax credit through recapture. I'm doing my best not to get steep into the woods on this episode, but Historic Tax Credits are one of my favorite things to talk about.  So I'll make sure to put a link in the show notes to the historic tax credit guide that Quinn Evans just produced.

I was excited to be one of the people to help put that together for the refresh of it. So it has much more information that will be helpful for you.  I know I mentioned a little bit that nonprofits can potentially use the historic tax credit, and you may be thinking, well, how can a nonprofit use a tax credit?

If they don't have a tax liability. Well, tax credits, certain tax credits can be syndicated and it's a somewhat convoluted process that requires additional LLCs to be set up. But the gist is that if you're looking to redevelop a building, but you don't have enough tax liability to claim the credit, then you can partner with someone who does have the tax liability to claim the credit. 

And what they would essentially do is provide equity cash upfront into the project in exchange for being able to have the rights to claim the historic tax credit once the project was complete.  So typically equity is often provided at 75 cents to 80 cents on the dollar of the historic tax credit, and it would provide the additional needed capital to complete the work.

A lot of times investors are interested in pursuing historic tax credits because it's often better returns and better terms than what they would get through a traditional loan.  And so 1 of the nice things about historic tax credits, particularly in Maryland, is that if you are doing a sustainable renovation and your project is pursuing lead gold certification or something comparable, then you can get an extra 5 percent in your state tax credit.

So instead of getting 20 percent of your QREs, be able to get 25 percent if you actually pursued Legal certification or higher.  And for those of you who may be wondering, well, how many people are actually using historic tax credits? Is this even something that's viable or well-known? Well, and the fiscal year of 2022, just that year alone, the federal historic tax credit program received over a thousand proposed project applications,  more than 850 projects were completed, which amounted to a certified amount of about 6.

5 billion dollars in rehabilitation work. And yes, that was a billion with a B.  The program also helped make possible an additional 9, 000 housing units and buildings that were converted to a residential use. So yeah, the historic tax credits are definitely a viable product that many developers are pursuing. 

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So in addition to the historic tax credits, there are new market tax credits and low-income housing tax credits.  The new market program attracts private capital into low-income communities by permitting individuals and corporate investors to receive a tax credit against their federal income tax to receive a tax credit against their federal income in exchange for making equity investments and specialized financial intermediaries called community development entities or CDs.

And so the new market tax credit totals 39 percent of the original investment amount, and it's claimed over a period of 7 years. And so the new market tax credit totals 39 percent of the original investment amount, and it's claimed over a period of 7 years.  And so the 3rd and final tax credit that I'll talk about is the low-income housing tax credit, which is often abbreviated to and it's often pronounced for shorthand. 

And this program is the most important resource for creating affordable housing in the United States.  It was created by the Tax Reform Act of 1986, just like the other programs, and it gives state and local allocating agencies. The equivalent of approximately 9, 000, 000, 000 dollars in annual budget authority to issue tax credits for the acquisition rehabilitation or new construction of rental housing targeted to lower income households.

So, the light tech program is designed to subsidize either 30 percent or 70 percent of the low-income unit cost in a project. The 30 percent subsidy is often known as the 4 percent LIHTC tax credit, and that covers new construction and uses additional subsidies to, for the acquisition of existing buildings.

And then the 70 percent tax credit is often known as the 9 percent credit.  Regardless of which tax credit you're interested in pursuing. It's super important to work with the CPA. That's familiar with how these programs work. And one of the other things which I found super interesting when I was getting into this work is to find out that there are actually tax credit brokers and matchmakers who will help qualified projects that need money, connect with investors, looking for ways to invest in tax credit projects,  and regardless of which tax credit you want to pursue, just be sure to double-check the, uh, The eligibility requirements for the programs, the percentage of the tax credit available, and then any sort of deadlines and things like that, that you have to be mindful of. 

All right, moving on to category number three, and this is the last one we'll talk about today. And this one is rebates and incentives.  And so after tax credits, my next go-to recommendation for clients who are looking for funding is the desire website, but you got to be careful how you search for it because it's not spelled like the emotion.

It's actually spelled D. S. I. R. E. and stands for the database of state incentives for renewables and efficiency.  And this website allows you to search by state and includes a number of different sources and the types of incentives vary from a rebate program to an access policy or grant program. This website has been around for many years and is updated sporadically.

So you may have to verify if the programs are still active, but it's often a good resource to be able to see what could be available from different state agencies and other organizations around the country.  A more recent piece of legislation that is having  big impact and is a game changer for many projects is the Inflation Reduction Act, and it's estimated that this incentive payout is going to pass the trillion dollar mark with a trillion with a T. 

I put a link in the show notes to a great webinar by Casey Ross at the Lorax Partnership that walks through the various rebates available for buildings through the Inflation Reduction Act. And then. Yes, there are a couple other blog posts and some calculators and incentives. That I'll put in the show notes as well.

So you can really check out what's available because at first blush, when you hear Inflation Reduction Act, you may think, Oh, that has nothing to do with renovating buildings, but it absolutely does, particularly for all of the energy incentives and rebates that are included in the legislation.  So there are also nonprofits like New Ecology who can provide additional insight into various grants that are available. 

All right. Well, that's all the financial goodness I have for you this week. I hope it helps out anyone who's working on their own tangible remnant.  Are there other programs that you typically use or that you're interested in learning more about?  If so, you can email me at tangible remnants at gmail. com or comment under this episode on it.

Instagram or LinkedIn.  Thank you so much for listening. Links to amazing resources can be found in the episode's show notes. Special thanks to Sarah Gilberg for allowing me to use snippets of her song Fireflies from her debut album, Other People's Secrets, which by the way is available wherever music is sold. 

If you haven't already, be sure to subscribe to the show.  And now that Tangible Remnants is part of the Gable Media Network, you can listen and subscribe to all network partner content at gablemedia. com. That's G A B L media. com.  Until next time. Remember that historic preservation is a present conversation with our past about our future.

We don't inherit the earth from our parents, but we borrow it from our children. So let's make sure we're telling our inclusive history.  I saw the first fireflies  Summer right then  I thought of you.  Oh, I could see us catching them and setting them free,  honey. That's what you do.  That's what you do to me. 

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